BUENOS DIAS
AGENDA
Overview
 Supply Chain Management

Definition
 Network
 Cycles

AGENDA

Logistics
Definition
 Components
 Costs
 Measures

AGENDA

Inventory
Introduction
 Rationale
 Costs
 Types
 Models

AGENDA

Ex/Im
Basic Transaction
 Costing


Summary and Conclusions
OVERVIEW: INSTRUCTOR
Kevin Boberg
 Positions

Associate Dean
 Professor


Background
OVERVIEW: ALL YOU NEED
kboberg@nmsu.edu
 http://cbae.nmsu.edu/~kboberg
 http://cbae.nmsu.edu/~kboberg/ctw

OVERVIEW: AUDIENCE
Name
 Background
 Interests

General
 Topic


Goal: What do you want to learn?
AGENDA

Supply Chain Management
Definition
 Network
 Cycles

DEFINITION

Supply Chain Management
Integration
 Business Processes
 End User
 Original Suppliers
 Products, Services, Information
 Add Value

SUPPLY CHAIN NETWORK
Tier 2 Tier 1
Tier 1
1
1
1
1
2
n
n
1
1
2
n
Tier 3
2
2
2
n
End Customers
2
Tier 2
Tier 3 to n Customers
Tier 3 to n Suppliers
Initial Suppliers
Tier 3
SUPPLY CHAIN CYCLES
Customer Order Cycle
 Replenishment Cycle
 Manufacturing Cycle
 Procurement Cycle

SUPPLY CHAIN CYCLES
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
SUPPLY CHAIN CYCLES

Customer Order Cycle
Customer
 Customer
 Customer
 Customer

Arrival
Order Entry
Order Fulfillment
Order Receiving
SUPPLY CHAIN CYCLES

Customer Order Cycle
Customer Arrival
Customer
Order Receiving
Customer
Order Entry
Customer
Order Fulfillment
SUPPLY CHAIN CYCLES

Replenishment Cycle
Retail
 Retail
 Retail
 Retail

Order
Order
Order
Order
Trigger
Entry
Fulfillment
Receiving
SUPPLY CHAIN CYCLES

Replenishment Cycle
Retail Order Trigger
Retail Order
Receiving
Retail Order Entry
Retail Order
Fulfillment
SUPPLY CHAIN CYCLES

Manufacturing Cycle
Order Arrival From Customer
 Production Scheduling
 Manufacturing and Shipping
 Receiving by Customer

SUPPLY CHAIN CYCLES

Manufacturing Cycle
Order Arrival
Receiving
Production
Scheduling
Manufacturing and
Shipping
SUPPLY CHAIN CYCLES

Procurement Cycle
Order Arrival From Manufacturer
 Supplier Production Scheduling
 Component Manufacturing & Shipping
 Receiving at Manufacturer

SUPPLY CHAIN CYCLES

Procurement Cycle
Order Arrival
Receiving at
Manufacturer
Supplier Production
Scheduling
Component Mfr. and
Shipping
SUPPLY CHAIN CYCLES
Customer Order Cycle  Push/Pull View
 Push
Anticipate
 Customer

Replenishment Cycle

Pull
React
 Customer

Manufacturing Cycle
Procurement Cycle
SUPPLY CHAIN CYCLES
Customer
Order
Cycle
Order Arrives
Customer Order Cycle
Pull
Processes
Replenishment Cycle
Replenishment,
Mfr.,
Procurement
Cycle
Manufacturing Cycle
Procurement Cycle
Push
Processes
SUPPLY CHAIN CYCLES
Customer Order Cycle
Customer
Order,
Replenishment,
Mfr. Cycle
Replenishment Cycle
Pull
Processes
Manufacturing Cycle
Order Arrives
Procurement
Cycle
Procurement Cycle
Push
Processes
AGENDA

Logistics
Definition
 Components
 Costs
 Measures

DEFINITION

Logistics
Part of the Supply Chain
 Plans, Implements, Controls
 Flow and Storage
 Goods, Services, Information
 Origin, Consumption, Disposal
 Adding Value

COMPONENTS OF LOGISTICS
Inputs
Plan
Mgmt. Actions
Implement
Control
Outputs
MKTG
Natural
Human
Logistics Management
Financial Suppliers
RM
WIP
FG
Utility
Cust.
Physical
Info.
Efficient
Proprietary
Asset.
CS
Logistics Activities
Inventory
Location
O/P
Forecasting
WH
Pkg.
MH
Traffic
IS
MM
Support
COMPONENTS OF LOGISTICS
The Marketing Concept
Customer Satisfaction
•Suppliers
•Intermediate Customers
•Final Customers
Integrated Effort
•Product
•Price
•Promotion
•Place
Company Profit
•Max. Profits
•Lower Total Cost
•Proprietary Asset
PROD
PRICE
PROMO
Logistics
PLACE
ICC
TC
OC
WH
OP/IS
Marketing
LOGISTICS COSTS
LOGISTICS COSTS
Customer Service Level
•Customer Service
•Parts and Service Support
Inventory Carrying Cost
•Inventory Mgmt.
•Pkg.
•Reverse Logistics
Lot Quantity Costs
•MH
•Procurement
Transportation Cost
•Traffic and transport
OP and IS
•OP
•Forecast
•Communication
Warehousing
•Store and handle
•Location
LOGISTICS COSTS
Inventory Carrying
$332
Transportation
$548
Shipper Related
$
Administration
$ 35
Total
$920
5
LOGISTICS COSTS
Inventory Carrying
36.09%
Transportation
59.57%
Shipper Related
0.54%
Administration
3.80%
Total
100.00%
MEASURES: PROFIT MODEL
NP
NPM
/
Sales
ROI
=
Leverage
X
ROA
X
Sales
Asset T/O
/
Assets
MEASURES: ROA
ROA  EARNINGS MARGIN X TURNOVER
MEASURES: ROA
NET INCOME
SALES
ROA 
X
SALES
AVE. ASSETS
MEASURES: ROA
NET INCOME
SALES
ROA 
X
SALES
CA  PPE
WHERE
CA  CASH  AR  INVEN  OTHER
PPE  PROPERTY, PLANT & EQPMT
OTHER FINANCIAL MEASURES

Cash Flow Conversion Cycle
Cash In
RM
Conversion
Conversion
Sales
Conversion
WIP
FG
Conversion
OTHER FINANCIAL MEASURES

Working Capital
WC  CA  CL
Where
WC  Working Capital
CA  Current Assets
CL  Current Liabilitie s
OTHER FINANCIAL MEASURES

Current Ratio
CA
CR 
CL
Where
CR  Current Ratio
CA  Current Assets
CL  Current Liabilitie s
OTHER FINANCIAL MEASURES

Quick Ratio
CA  INV
QR 
CL
Where
CR  Current Ratio
CA  Current Assets
INV  Inventory
CL  Current Liabilitie s
OTHER FINANCIAL MEASURES

Average Age of Receivables
Days in Year
AAR 
RTO
Where
AAR  Average Age of Receivable s
RTO  Receivable Turnover
Net Credit Sales

Ave. Trade Receivable s
OTHER FINANCIAL MEASURES

Average Age of Payables
ACCTPAY  DIY
AAP 
AP
Where
AAR  Average Age of Payables
ACCTPAY  Acounts Payable
DIY  Days in Year
AP  Accounts Payable
OTHER FINANCIAL MEASURES

Average Days Supply in Inventory
Days in Year
ADSI 
ITO
Where
ADSI  Average Days Supply Inventory
ITO  Inventory Turnover
Cost of Goods Sold

Average Inventory
AGENDA

Inventory
Introduction
 Rationale
 Costs
 Types
 Models

INTRODUCTION
 Investment
 20%
of Total Assets for Mfr.
 50% Of Total Assets for
 Wholesalers
 Retailers
INTRODUCTION
 Manage
to Improve
 ROA
 Cash
Flow
 Productivity
 Customer Service
INTRODUCTION: TRENDS
 Product
Proliferation
 Market Dispersion
 Service Expectations
 Shrinking Plc
 Time-based Competition
INTRODUCTION: SERVICE
 Customers
 Internal
 External
 Measures
 Fill
rate
 Timeliness
RATIONALE
 Economies of Scale:
 Unit Cost
 Holding Cost
Balance
RATIONALE
 Seasonality
 Demand
 Supply
 Both
RATIONALE
 Specialization
 Plant
Level
 Dc Level
 Focused Factory
 Assignment
RATIONALE
 Uncertainty
 Variability
 Within
Logistics
 Within Firm
 Within Supply Chain
RATIONALE
 Uncertainty
COSTS: TLC
 Tradeoffs
 Within
Logistics
 Within Firm
 Within Supply Chain
COSTS: TLC
PROD
PRICE
PROMO
PLACE
ICC
TC
OC
WH
OP/IS
COSTS: TYPES
Ordering Cost
ORDER COST

ORDER SIZE (Q)
COSTS: TYPES
Stock Out Cost
STOCK OUT COST

ORDER SIZE (Q)
COSTS: TYPES
Transport Cost
TRANSPORT COST

ORDER SIZE (Q)
COSTS: TYPES
Carrying Cost
CARRYING COST

ORDER SIZE (Q)
COSTS: TYPES

Carrying Cost
K
STORE
ICC%
SERVE
RISK
COSTS: TYPES

Carrying Cost
K
ICC%
WACC
COSTS: TYPES

Carrying Cost
PLANT
STORE
PRIVATE
ICC%
PUBLIC
LEASED
COSTS: TYPES

Carrying Cost
INSURANCE
ICC%
SERVE
TAXES
COSTS: TYPES

Carrying Cost
OBSOLESCENCE
SHRINKAGE
ICC%
DAMAGE
RISK
RELOCATION
COST AND SALES: BALANCE
TAC
COST
ICC$
OC
ORDER SIZE (Q)
TYPES
 Cycle
 Lot
Sizing
 Many Methods
 Sold or Used in
 Production
 Marketing
TYPES
 Cycle
 Conditions
of
 Certainty
 Mean
Performance
TYPES
 Cycle
 Basic
Math
TACCYCLE
1
  Q V C 
2
WHERE
Q  CYCLE STOCK LOT SIZE
V  VALUE PER UNIT
C  CARRYING COST PERCENT
TYPES
 Safety
 Lead
Time
 Demand
 Other Factors
TYPES
 Safety
 Constant
 Function
of
 Variability
 Customer
Service Level
TYPES
 Safety
 Basic
Math
TACSAFETY  SSQ V C 
WHERE
SSQ  AVE. DAILY UNITS X MSR. OF VAR.
V  VALUE PER UNIT
C  CARRYING COST PERCENT
TYPES
 Transit
or Pipeline
 En-route
 Door-to-Door
 How
Value
TYPES
 Pipeline
 Basic
Math
TACTRANSIT
 D

t V C 

 365 
WHERE
D  ANNUAL DEMAND
t  TRANSIT TIME DOOR  TO  DOOR
V  VALUE PER UNIT
C  CARRYING COST PERCENT
BASIC Q-MODEL
 Certainty
 Balance
 Ordering
Cost
 Inventory Carrying Cost

BASIC Q-MODEL
Determining Q (Cycle)
2 PD
Q
CV
WHERE
P  ORDERING COST
D  ANNUAL DEMAND
C  CARRYING COST PERCENT
V  VALUE PER UNIT
BASIC Q-MODEL
 Determining
Q (Cycle)
TAC  OC  ICC$
WHERE
D
OC   P
Q
1 
ICC   Q CV
2 
BASIC Q-MODEL
Intensive Administrative
 Perpetual Inventory
 High Cost
 “A-items”

BASIC P-MODEL
Fixed P
Variable Q
BASIC P-MODEL
 Low
Administration
 Key is P
 “C” items
AGENDA

Ex/Im
Basic Transaction
 Costing

BASIC TRANSACTION
Commercial Contract
Customs
Source
Bill
of
Lading
Customs
Port
D-t-P
Contract
Port
P-t-P
Contract
You
P-t-D
Contract
BASIC TRANSACTION



Bill of Lading
Evidence of Contract
Evidence of Receipt
Evidence of Title (order form)
Source
Bill
of
Lading
Port
Port
D-t-P
Contract
P-t-P
Contract
You
P-t-D
Contract
BASIC TRANSACTION


Bill of Lading
Whoever issues is the carrier
Watch who issues
varies by mode
 varies by contract

Source
Bill
of
Lading
Port
Port
D-t-P
Contract
P-t-P
Contract
You
P-t-D
Contract
BASIC TRANSACTION
Commercial Contract

Source

Payment Terms
Sales Terms
You
BASIC TRANSACTION
Commercial Contract

Payment Terms
Cash
 Open Account
 Drafts and L/C
 Forfeiting

Source
You
BASIC TRANSACTION
Commercial Contract

Sales Terms: INCO Terms
E Term(s)
 C Terms
 D Terms
 F Terms

Source
You
BASIC TRANSACTION
•E Term
–Ex Works
•C Terms
–CFR: Cost and Freight
(named port of destination)
–CIF: Cost, Insurance, and
Freight, (named port of
destination)
BASIC TRANSACTION
•C Terms (continued)
–CPT: Carriage Paid To
(named place of
destination)
–CIP: Carriage and
Insurance Paid To (named
place of destination)
BASIC TRANSACTION
•D Terms
–DAF: Delivered At Frontier (named place)
–DES: Delivered Ex Ship (named port of
destination)
–DEQ: Delivered Ex Quay (named port of
destination)
–DDU: Delivered Duty Unpaid (named place
of destination)
–DDP: Delivered Duty Paid (named placed of
BASIC TRANSACTION
•F Terms
–FCA: Free Carrier (named
place)
–FAS: Free Alongside Ship
(named port of shipment)
–FOB: Free On Board (named
port of shipment)
BASIC TRANSACTION
Any Mode
• EXW
• FCA
• CPT
• CIP
• DAF
• DDU
• DDP
Marine Only (other than
RoRo)
• EXW
• FAS
• FOB
• CFR
• CIF
• DES
• DEQ
• DDU/DDP
BASIC TRANSACTION
Term
EXW
FAS
FOB
CFR
CIF
DES
DEQ
DDU
DDP
Total
Costs
Time
Variation
Party
Price
SUMMARY
AND
CONCLUSIONS