CHAPTER 9
Decision Strategies in
Transportation
Cost of Processing Freight Invoices
$1-10
$11-20
$21-40
$41-50
>$51
Areas in the Supply Chain
Affected by Transportation
Planning
Procurement
Manufacturing Distribution
Network and asset
rationalization
Landed costs
Interplant
movements
Load plans
Lead times
Inbound in-transit
inventory
management
JIT and other
specialized
services
Pick lists
Vendor sourcing
Reduced raw
material and workin-process
inventories
Economic order
quantity
Shipping
documentation
preparation
Dock scheduling
Outbound shipment
management
Mode/carrier
selection
Source: Adapted from The Emergence of Third Party Logistics, White Paper no. 4 (Atlanta, GA:
PricewaterhouseCoopers, 1998), p. 5.
Terms
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Bill of Lading
Manifest
Claims
Tracing and Expediting
Inbound
Outbound
Mode/Carrier Selection
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Problem recognition
Search process
Choice process
Post-choice evaluation
• similar to the MDMP process
Cost Factors Often Considered
in Mode Carrier Selection
• Freight costs
• Inventory carrying costs
– inventory in pipeline
– cycle stock at the receiving location
– required safety stock at the receiving location
• Investment cost required to produce the
inventory to fill the pipeline
a
Service Factors Often Considered
in Mode Carrier Selection
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Perceived quality of customer service
Shipment tracking and tracing capabilities
Billing/invoicing accuracy
Electronic data interchange (EDI) capabilities
Potential to develop mutually beneficial long-term
partnership
Cargo capacity limitations
Ability to provide service that does not damage goods in
transit
Customs clearance capabilities for international shipments
Impact on the shipper’s negotiating position/leverage on
other shipping activities
Compairdata.com
Freight Brokers
Tracking and Expediting
Transportation Security
C-T PAT
Customs-Trade Partnership Against Terrorism
• Joint government - business program
• voluntary - 7000 participants
• Security - procedural, physical personnel,
manifest
• prevent incoming dirty bomb/material in
containers
• ensure integrity of practices
• reduced inspections
• reduced losses from theft
Questions?
CHAPTER 10
Warehousing
Objectives
• Why is warehousing important - 2-5% of
sales
• Types of warehouses
• functions
• why have warehouses in a JIT economy?
• Is there a difference between a
Distribution Center and a Warehouse?
Warehousing Management
• Warehousing emphasizes storage of products.
• Distribution centers emphasize rapid movement of
products through the facility.
• Throughput is the amount of product entering and
leaving a facility in a given time period.
• Regrouping function
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Accumulating (increasing quantity)
Allocating (reducing quantity)
Assorting (building up a variety of products)
Sorting (separating products into grades and qualities)
Uses of Warehousing
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Manufacturing support
Product - mixing
Consolidation
Breakbulk
Cross Docking
shorten customer wait
times and transportation
lead times
Functions
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Receive
putaway
Store
order entry
Pick
Pack
Ship
Value added services
postponement
Factors Influencing Warehousing
in the Future
• Time - The best warehouse operations are those
designed to reduce every aspect of order cycle
time.
• Quality - Users now expect performance that
approaches perfection.
• Asset productivity - Reduce total cost, reuse,
and recycle.
• New kind of workforce - Requirements for both
management and labor will change
significantly.
Private Warehousing
• Private warehousing is owned or occupied
on a long-term lease
• Offers control to owner
• Assumes both sufficient demand volume
and stability so that warehouse remains full
• High fixed costs
Advantages of Private Warehousing
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Control
Flexibility
Less costly
Better use of human resources
Tax benefits
Intangible benefits
Advantages of Public Warehousing
• Conservation of
capital
• Use of space to
meet peak
requirements
• Reduced risk
• Economies of scale
• Flexibility
• Tax advantages
• Specific knowledge
of storage and
handling costs
Disadvantages of Public Warehousing
• Effective communication may be
difficult because of system
incompatibility
• Specialized services may not always be
available.
• Space may not be available on demand.
Attributes of World Class Warehouses and
Distribution Centers
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100% Inventory Accuracy
Perfect Order Fulfillment
Value added services
Cleanliness
Time Definite Delivery
On-time deliveries
Logical warehouse flow
World Class
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Employee Education Programs
Safety
Layout
Obsolete Stocks
Turns
Processing Times
Cross Docking
Ideal Facility for
Pure Supplier
Consolidation
(Full Pallet
Movement)
Poor Warehouse Warning Signs
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Excessive handling
poor utilization/cube
obsolete equipment
obsolete merchandise
old docks
manual procedures
lack of barcodes
Cycle Counting
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Reduce losses
identify problems earlier
security
costs
• “Significant cuts in inventory come only
from finding and fixing the causes of
excess.”
Measures
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Picks per worker per hour
inventory accuracy
loss/shrinkage
stockouts
percent of utilization
facing fill rates
CHAPTER 12
Procurement
Goals of Procurement
• Uninterrupted flow of materials, supplies,
and services
• keeping investment at a minimum
• maintain and improve quality
• find and/or develop competent suppliers
• standardize items and procedures
Purchasing
What is purchasing?
•Primarily a buying activity
•A decision area to be integrated with overall
materials management and logistics
•At times, an area to be used to the firm’s strategic
advantage
Mission Securing the products, raw materials, and
services needed by production, distribution, and
service organizations at the right time, the right price,
the right place, the right quality, and in the right
quantity.
CR (2004) Prentice Hall, Inc.
Purchasing (Cont’d)
What is purchased?
•Price
-Cost of goods
-Terms of sale
-Discounts
•Quality
-Meeting specifications
-Conformance to quality standards
•Service
-On-time and damage-free delivery, order-filling
accuracy, product availability
-Product support
CR (2004) Prentice Hall, Inc.
Purchasing (Cont’d)
Importance of purchasing management
•Decisions impact on 40 to 60% of sales dollar
•Decisions are highly leveraged
Activities of purchasing
•Sets terms of sale
•Evaluates the value
received
•Selects and qualifies
•Measures inbound quality if
suppliers
not a responsibility of
•Rates supplier performance quality control
•Negotiates contracts
•Predicts price, service, and
•Compares price, quality, and sometimes demand
service
changes
•Sources goods
•Specifies form in which
•Times purchases
goods are to be received
CR (2004) Prentice Hall, Inc.
10-32
12 Steps in buying process
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Establish need
establish specs
search for alternatives
establish contract
set purchase and usage
criteria
• evaluate alternative
buying actions
• determine budget
availability
• Evaluate specific
alternatives
• negotiate with
suppliers
• buy
• use
• post purchase
evaluation
Purchasing Variables
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Lead Time
Lead Time variability
% on time delivery
% in stock availability
capacity to expedite
downtime
• Reliability
• quality rejects - number
and reasons
• price
Supplier Selection
Criteria for selecting suppliers
•Past or anticipated relations
-Honesty
-Financial viability
-Reciprocity
•Measured performance
-Price
-Responsiveness to change or requests
-On-time delivery
-Product or service backup
-Meeting quality goals
CR (2004) Prentice Hall, Inc.
Supplier Selection (Cont’d)
Single vendors
•Allows for economies of scale
•Consistent with the just-in-time philosophy
•Builds loyalty and trust
•May be only source for unique product or service
Multiple vendors
•Encourages price competition
•Diffuses risk
•May disturb supplier relations, reduce loyalty, reduce
responsiveness, and cause variations in product
quality and service
CR (2004) Prentice Hall, Inc.
Supplier Selection (Cont’d)
Criteria for selecting suppliers (Cont’d)
•Operational compatibility
-Informational compatibility
-Physical compatibility
•Ethical and moral issues
-Minority vendors
-Lowest price bidding
-Patriotic purchasing
-Open bidding but a pre-selected vendor
CR (2004) Prentice Hall, Inc.
Objectives of Systems Contracts
and Stockless Purchasing
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Lower inventory levels.
Reduce the number of suppliers.
Reduce administrative cost and paperwork.
Reduce the number of purchases of small dollar value
and requisitions that purchasers have to handle.
• Provide the opportunity for larger dollar volumes of
business to suppliers.
• Provide for timely delivery of material directly to user.
• Standardize purchase items when possible.
Government Influences on Foreign Trade
• Government controls on the flow of
international trade
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Customs or duties
Import quotas
Health inspections
Safety standards
Currency outflow
Political or military reasons
Port choice
Non-trade reasons
Country of Origin
Upcoming
• Chapter 13, 15, Reverse Logistics
• Final Exam