Transcript Slide 1

Distribution Management
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Logistics management
Chapter 5
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
What is Logistics management?
Has to do with the flow of goods from its origin to where
its consumed
Definition – That part of the Supply chain process that
plans, implements and controls the efficient, effective
flow and storage of goods, services and related info from
the point of origin to the point of consumption in order
the meet customer expectations
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
What is Logistics management?
Supply chain
The physical, financial and information networks that
involve the movement of materials, funds and related
information through the full logistics process, from the
acquisition of raw materials to the delivery of finished
products to the end-user
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
What is Logistics management?
Physical distribution – Concerned with what happens to
outbound goods as they move from the organization to
its customers
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Distribution Management
Supply Chain = Network/s
Logistics = the How it happens
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Objectives of Logistics
Decreasing total logistics costs
vs.
Improving customer service
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Decreasing total logistics costs
Logistical costs = Information, Transportation, Storage
Inventory levels down = Possible stock outs
Cheaper forms of Transport = Risk to delivery times and
delays.
Cheaper storage = Risk higher for fire, theft, damage..
Number of orders = Costs up or down.
Number of outlets that are services = Costs up or down
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Improving Customer service
Customer service is the single most important reason for
the existence of a supply chain and logistics
management
Hugo van Zyl
083-629 2069
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Marketing 2B
Distribution Management
Customer service categories
Order lead time
Faster deliveries = increased customer satisfaction and shorter order to
cash cycles
Dependability
Consistency and accuracy shown by supplier.
Reducing variability leads to better planning capabilities
More accurate billing leads to higher levels of Customer satisfaction
Convenience
How favorable the customer experience the delivery service
E.g. – Delivery times, payment terms.
Inventory levels and info regarding it.
After sales service e.g.. Warranties, exchanges etc.
Inventory availability
Inventory levels
Range and selection
Hugo van Zyl
083-629 2069
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Marketing 2B
Distribution Management
Factors influencing Cust. Service
levels
Cust. expectations and reactions to stock
outs
Trade off between cost and profit
What the competitors are doing
Current service levels and levels of
satisfaction
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Activities of Logistics
1. Order processing
2. Transportation
3. Inventory management
4. Warehousing
5. Materials handling
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
1. Order processing
From placement of order till the customer receives the
product
3 tasks that happen in a logical sequence
Order entry – by various means
Order handling – Physical goods, finance department
Order delivery – Mode of transport depending on service level
and product nature
Electronic Data interchange – EDI
Electronic data exchange of various business forms such as
order forms, financial reports, delivery notes.
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
1. Order processing
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
2. Transportation - Modes
1.
Rail – mainly bulky items and large volumes over large distances.
Relatively low cost depending on infrastructure
2.
Road – Short distances and all categories but smaller weight / volumes.
Flexible format and the delivery to the doorstep concept is popular.
3.
Air – Expensive but gives fastest form over distance. Ideal for valuable
lightweight small bulk goods and perishable goods
4.
Pipelines – Effective and efficient after initial startup cost. Draw back is
limited goods are suitable.
5.
Water – Restricted to international trade in SAF. Lower cost bit relatively
high risk. Suitable for big bulk goods were lead times are longer
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
2. Transportation - Modes
Hugo van Zyl
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Marketing 2B
Distribution Management
2. Transportation - Factors
1. Cost – Total cost of moving products from one location to another.
Includes transport, levies, insurance.
2. Time – Time from when courier is notified to delivery at destination
3. Accessibility – Number of different location that can be reached by
specific mode of Transport. Road is most accessible while pipe is
least.
4. Capability – Ability to handle different types of goods.
5. Frequency – How often the mode of transport can be used.
6. Reliability – Ability to deliver goods safely and on time
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
Objective - is to minimize inventory cost
2 major issues – When to order inventory (Re-order point)
How much to order (Economic order quantity)
Re-order point – Reached when an organization's inventory levels
reach a certain minimum level. Important concepts to remember.
Order lead time – time from placing order till receipt of order
Usage rate – rate at which inventory is being used / sold during a
specific time period.
Safety stock – the amount of stock that is kept to ensure no stock outs.
Re-order point = (Order lead time X Usage rate) + Safety Stock
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
Other factors that influence Re-order point
Variance in order lead time
Fluctuations in customer demand
Customer service standard.
Important to remember
Order lead time and Usage rate must be in same units (Days,
months, years)
If products are seasonal ( Summer, winter, Xmas, holidays) then
an average can be used if lead times are not accommodative.
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Re-order point - Exercise
A company needs to determine their Re-order point for a
portfolio of products.
Product one – Thermal gloves. Lead time = 3 months.
Average usage rate = 10 pairs/week. Safety stock = 20
pairs
Product two – Sun hat. Lead time 6 weeks. Last summer
usage rate = 50 / day. Safety stock = 100
Determine what the combined Re-order point is?
Is the Safety stock adequate?
Is it correct to combine the Re-order points?
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Re-order point - Exercise
Thermal gloves
Sun Hats
3 months = 12 weeks lead time
10 pairs / week
Safety Stock = 20 pairs
6 weeks lead time
50 per day = 250 / week
Safety stock = 100
ROP = (OL X UR)+SS
ROP = (12X10)+20
ROP = 140
ROP = (6 X 250)+100
ROP = 1600
•Combined ROP = 1740
•SS Gloves is to low
•SS Hats is to low
•In this case due to seasonal differences ROP shouldn’t be combined.
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
Economic ordering quantity –Sum of inventory carrying
cost and the ordering processing cost is at a minimum
Inventory carrying cost
Order processing cost
Pg 188
Inventory carrying cost – Costs associated with carrying
inventory such as Warehousing, Financing, Interest, and
insurance
Order processing cost – the total cost related to placing
an order with a supplier
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
“Just in time” – Right product arrives, in the right quantities just when
they are required
Philosophy that eliminates waste in the manufacturing process
A system that produces the required item at the time and in the
quantities needed.
Inventory control philosophy whose goal it is to maintain just enough
material in just the right place at just the right time to make just the right
amount of product.
A Program that seeks to eliminate non value adding activities from any
operation
The basis of JIT is the relationship between supplier and customer.
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
JIT vs.. Traditional approach
JIT
Conventional
Ideal Inventory level is one unit
Faster production than
necessary is a waste
Trade offs is bad. All they do is
replace problems
Safety stock is seen as waste
More is better
Faster production is better
Scheduling and queuing is
essential production
processes.
Inventory provides safety
Inventory smoothes production
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
Important aspects for a successful JIT system
Close relations between supplier and customer
Attention given to quality
Adequate storage facilities
Adequate transport systems
Suppliers must be reliable
Short order lead times
Order quantities are reduced
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
3. Inventory management
ABC Inventory analysis – inventory analysis to rank importance
Based on Pareto principle.
All organizations have 3 stock movement levels
A – 5% of items and 70% of sales
B – 10% of items and 20% of sales
C – 65% of items and 10% of sales
Remaining 20% of items has no sales
Management focus on cat A
Higher levels of Safety Stock in Cat A
Cat A may be stocked in regional warehouse and Cat C only
produced on demand
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
4. Warehousing
Why do we have Warehouses?
Impossible for manufacturers to produce goods exactly when required
Bulk production is more economical but bulk needs to be stored
Functions of Warehouses
Receiving goods – Inventory is money and receiving of goods needs to
be seen as a financial activity
Sorting goods – To ensure appropriate inventory control goods need to
be allocated in predetermined positions
Storage of goods
Filling of orders – Warehouses are responsible for the making up of
order parcels
Dispatching orders – Sending out of Orders to customers
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
4. Warehousing
Warehousing decisions
How many are needed?
What types of Warehouses?
Location of Warehouses
Types of Warehouses
Private Warehouses
Long Term commitment
Special handling or unique products
Need for high level of control
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
4. Warehousing
Types of Warehouses - Cont..
Public Warehouses – Appropriate for companies that:
Seasonal products
Low volume storage needs
Developing new markets
Additional storage space
Inventory in many locations
Distribution centers
When the focus or needs are more on the movement of
goods than on the storage of inventory
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Warehousing
Trends
New Technology to ensure speed and accuracy
Less inventory is kept due to cost of inventory
Quality of goods is critical due to lower inventory
levels
Service is key aspect
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
5. Materials handling
Transfer of goods into, around and out of an organization to
a transport agency.
Objectives
Lowest cost
Maximum Capacity utilization
Minimum handling of goods
Safety of employees
Provision of quality service
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Logistics
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Logistics
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Logistics
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Logistics
Hugo van Zyl
083-629 2069
[email protected]
Marketing 2B
Distribution Management
Activities of Logistics
Order
Processing
Tasks
•Order Entry
•Order
Handling
•Order
Delivery
Info systems
•EDI
Transportation
Modes
•Rail
•Road
•Air
•Pipeline
•Water
•Intermodal
•Selection
•Cost
•Time
•Access
•Capability
•Frequency
•Reliability
Inventory
Management
Materials
handling
Objectives
Functions
Objectives
•Re-order
point
•Receiving
•Lowest cost
•Sorting
•EOQ
•Storage
•Max Capacity
use
•JIT
•Filling order
•ABC
analysis
•Dispatching
Decisions
•Min Handling
cost
•Safety
•Quality service
•How many
•Types
•Location
Hugo van Zyl
083-629 2069
[email protected]
Warehousing
Marketing 2B
Distribution Management
Equipment