LEVEL 5 Storage and Distribution

1. LEVEL 5Storage and Distribution

2. Costs of holding stock • Cost of capital tied up in inventories • Costs of obsolescence, deterioration, insurance, etc • Administration costs such as staffing, stock control systems, etc • Warehousing costs

3. Elements of distribution • Freight transport • Warehousing • Materials handling • Packaging • Inventory control • Plant and warehouse site selection • Order processing • Marketing • Forecasting • Customer service

4. Exercise Consider your own organisation. Who takes responsibility for the distribution and logistic functions? What is their job title? Where are they positioned in the company organisational chart? Has their title or position changed in recent years?

5. Exercise Can you ascertain any changes in your company’s organisational structure in recent years? Is it less rigid? Is there an increase in departments working more closely together or positive action towards developing cross-functional teams?

6. Objectives of the distribution function • Meeting predetermined cost targets • Providing a level of service that seeks to grow the business and raise the organisation profile and reputation in the market • Contributing toward providing a reasonable profit margin

7. Definitions of logistics • ‘The process of planning, implementing and controlling the efficient and cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to the point of consumption, for the purpose of conforming to customer requirements.’ (Management of Business Logistics, Coyle, Bardi and Langley) • ‘The process of ensuring that the right products reach the right place in the right quantities at the right time to satisfy customer demand.’ (Institute of Logistics and Transport) • ‘The process of strategically managing the movement and storage of materials, parts and finished inventory from suppliers, through the firm and onto customers cost-effectively.’ (Martin Christopher) • ‘The time-related positioning of resource.’

8. Objectives of logistics • To support and simplify the supply chain • To control total cost • To improve total quality • To maximise customer service • To help increase profit

9. Stage 1 Stage 2 Stage 3 =materialsmanagement Stage 4 = physicaldistribution management The widening spectrum of purchasing activities

10. Elements of distribution (Rushton, Oxley and Croucher) • Storage, warehousing and materials handling • Transport • Inventory • Information and control • Packaging and unitisation

11. Distribution operations

12. Recent changes in distribution • The competitive market place has led to rationalisation of providers while still allowing specialist provider opportunities. • Technology has transformed many areas: computer modelling has aided the positioning, design and layout of warehouses; in-cab telematics have aided route scheduling; satellite tracking has enabled the location of vehicles to be plotted accurately.

13. Arguments for an integrated supply chain • The need for each link to rise to the forecast demand of other links and consequently the holding of stock by each link as a means of anticipating demand. • The policies and objectives of organisations together with the individual objectives of departments or functions can be uncoordinated, leading to additional cost.

14. Improving supply chain management • Forecasting needs to be more accurate and information cascaded along the supply chain in an accurate and timely manner. • Policies and objectives are extended outside the organisation to a linked approach with business partners. • Forecast demand, logistics information and costs can be made available to supply chain partners through IT systems.

15. Advantages of an integrated supply chain • Improvement in customer service. • Being better able to improve market share, to respond in existing markets and to attack new markets. • Suppliers becoming an integral part of the organisation, delivering on time, delivering quality and reducing inventory and associated costs.

16. Recent developments • Recognising the importance of customer service (shown in more clearly defined customer care policies) together with realising that logistics can provide a competitive edge through the quality of service to customers. • Concentrating manufacturing units, maximising productivity in production and ignoring political frontiers. • Centralising distribution depots. • Developing sophisticated computer programmes, using the latest techniques in simulation modelling and tracking. • Improving product control in the use of product dating, barcoding and radio frequency identification discs (RFID), so shorter-life products can be handled more effectively.

17. Exercise Consider your own organisation. Can you see an increased emphasis in recent years on supply chain and logistics thinking?

18. Total distribution costs • A decision to increase customer service by holding additional stock will affect inventory cost, with an increase in capital tied up, and will also require additional transport and storage costs. • Decisions regarding service levels affect the amount of inventory that must be held. • Design of packaging to enable maximisation of container load capacity will incur initial costs which will be recouped later. • Order processing and invoicing costs contribute heavily to the storage and distribution activity and can be viewed as part of an overall total distribution cost.

19. Total distribution costs The total distribution cost concept in the form of an equation. TDC = TC + FC + CC + IC + MHC + PC + MC TDC = Total distribution costTC = Transport costsFC = Facilities costs (depots, warehouses)CC = Communication costs (order processing, invoicing, etc)IC = Inventory costMHC = Materials handling costsPC = Packing costsMC = Management costs

20. Two ways of assessing trade-offs • By examining their impact on total system costs (ie looking for how the trade-off will reduce overall costs in the system) • By examining how they will impact on sales revenue (ie overall costs may increase but this may be more than compensated by measurable improvements in cost-effectiveness and customer service)

21. Functional organisation structure

22. Matrix organisation (in an advertising agency)

23. Improving the customer interface • Developing and maintaining improved performance, reliability and value throughout the organisation. • Enhancing the professionalism of staff, their knowledge, their understanding of customers’ needs and their commitment to quality and quality improvement. • Maintaining a well-managed and consistent company profile development programme to ensure those working within the company understand their role and the contribution they can make to customers’ perception of the overall company offer.

24. Tools for improving the customer interface • Direct marketing • Product updates • Customer team briefings • Customer satisfaction surveys • Customer performance review meetings • Returns policy.

25. Delivery processes • Ordering should be simple and straightforward. • Internal processes should ensure the availability of goods within an agreed timeframe. • Systems should help the order to progress without undue delay. • Goods should be available when required in the correct location in direct correlation to the meeting of agreed customer service levels. • Customers should be kept informed of progress. • Delivery time and place should be agreed. • Delivery should be made as agreed. • In case of undue delay customers should be kept informed. • Records should be kept in relevant areas such as on-time deliveries, customer complaints and claims, to monitor the effectiveness of the service. • Drivers should be polite, smart and well trained in customer service skills.

26. Developing a customer service policy • Identify the main elements of service, being those that are most highly rated by the customer. • Determine the relative significance of each service element. • Establish company competitiveness at current service levels offered. • Identify distinct service requirements for different market segments. • Develop and cost specific service packages. • Determine monitoring and control procedures. • Regularly update customer service packages to ensure they are continuing to meet the changing needs of customers.

27. Benefits of retaining customers • The cost of acquiring new customers can be substantial. A higher retention rate means that fewer customers need to be acquired and that these can be acquired more cheaply. • Established customers tend to buy more. • Regular customers place frequent, consistent orders and usually cost less to serve. • Satisfied customers are often willing to pay premium prices to a supplier they know and trust. • Retaining customers makes it difficult for competitors to enter the market or to gain market share. • Satisfied customers often refer new customers to the supplier at virtually no cost.

28. ‘Transaction focus’ v ‘relationship focus’

29. Definitions of customer service • ‘Timeliness and reliability of delivery of products and services to customers in accordance with their expectations.’ • ‘A complex of activities involving all areas of the business which combine to deliver the company’s products and services in a fashion that is perceived as satisfactory by the customer and which advances the company’s objectives.’ • ‘All the activities required to accept, process, deliver and fulfil customer orders and to follow up on any activity that has gone wrong.’

30. Influences on customer services

31. Exercise Consider three companies that you believe are good at customer service. What makes them so?

32. Developing a customer service strategy • Identify a service mission • Set customer service objectives • Recognise that not all customers require the same level of service • Develop an effective service package that meets the identified needs

33. Reasons for poor delivery of customer service • Lack of clear and consistent thinking at strategic level. • Narrow vision and thinking from those involved. • Lack of clearly defined roles and responsibilities. • Lack of agreed procedures and process compliance. • Failure to understand the complexities of customer service. • The difficulty of assessing costs and benefits.

34. Needs of customers • Basic needs are the needs the customer regards as essential. They do not need mentioning. If they are not met the customer will be dissatisfied. • Spoken needs might be requested features that the customer would like as part of the total value package. They are offered to help satisfy the customer. • Unspoken needs are unexpected delights. The customer had not expected this product attribute or service as part of the value package.

35. The circular supply problem

36. The likely consequences of a decision to meet an unplanned order

37. Exercise You are failing to meet targets in the following areas: • Order fill • On-time deliveries • Vehicle utilisation How would you go about resolving these situations?

38. Measuring order fulfilment • The number of orders completely satisfied, say 18 out of 20 (ie 90 per cent), over a given period. • The number of lines delivered from a single order, say 75 out of the 80 line items requested (94 per cent). • The number of line items or cases delivered from a single order, say 75 out of the 80 line items requested, but only 1,400 of the 1,800 total line items (78 per cent). • The value of the order completed, say £750 of the £900 order (83 per cent).

39. Aspects of customer service: Pre-transaction elements • Written customer service policy • Accessibility of order personnel • Single order contact point • Organisational structure • Method of ordering • Order size constraints • System flexibility

40. Aspects of customer service: Transaction elements • Order cycle time • Order preparation • Inventory availability • Delivery alternatives • Delivery time • Delivery reliability • Delivery of complete order • Condition of goods • Order status information

41. Aspects of customer service: Post-transaction elements • Availability of spares • Call-out time • Invoicing procedures • Invoicing accuracy • Warranty • Returns policy • Customer complaints and procedures • Claims procedures

42. Key questions for competitive advantage • How does a company gain a sustainable cost advantage? • How can it differentiate itself from competitors? • How can it choose a market segment so that competitive advantage grows out of a focus-based strategy? • When and how can it gain competitive advantage from competing with a co-ordinated strategy in related industries? • How is uncertainty introduced into the pursuit of competitive advantage?

43. Supportactivities Primary activities Logistics in the value chain

44. Exercise What would be appropriate measures to evidence the following? • On-time deliveries • Late customisation (such as adding customer’s own brand labels) • Time goods are held in the warehouse • Items collected and returned to stock

45. Exercise How does your organisation view customer service? Can you see any potential areas for improvement?

46. Primary activities in the value chain • Inbound logistics. Activities associated with receiving, storing and disseminating inputs to the product. • Operations. Activities associated with transforming inputs into the final product form. • Outbound logistics. Activities associated with collecting, storing and physically distributing the product to buyers. • Marketing and sales. Activities associated with providing a means by which buyers can purchase the product and inducing them to do so. • Service. Activities associated with providing service to enhance or maintain the value of the product.

47. Storage and distribution: adding value • Reducing the time for getting a product from the production line to the customer • Packaging the product to suit customer requirements • Adding the customer’s own brand labels • Picking and packing into smaller or mixed order quantities • Aiding the development of new products and product lines

48. Meeting customer needs • The right quantity must be delivered • Special instructions must be complied with • The driver should be courteous and knowledgeable • The vehicle must be well presented

49. Influences on customer service • Production • Trading • Marketing • Capacity requirements planning • Finance • Demand management • Purchasing • Logistics

50. Cultural issues in customer service • People must be encouraged to function as a team. • People must be properly trained and updated. • Staff must be motivated to ‘go the extra mile’ for the customer.