Supply Chain Management: Chapter 14

Chapter 14

• Fuel can represent up to 35% of a transport company's total operating budget.
• With Vendor Managed Inventory (VMI), the supplier manages the inventory at the client's location.
• In VMI, the client takes ownership of the inventory once it's used.
• VMI implementation can lead to reduced inventory levels in the client's warehouse.
• Substandard goods need to be stored until the supplier arranges collection.
• When substandard goods are identified, contact the supplier to get a Return Material Authorization (RMA) number.
• The RMA number should be attached to all paperwork and the packaging for effective processing of the return.

Hierarchy of Importance for Purchases

• Routine purchases: Use online catalogs.

• Commodities: Obtain quotes frequently from multiple suppliers for the best price.

• Critical items: Work with approved suppliers to ensure a continuous supply flow. An example of a critical item could be a specialized screw that only one supplier makes, which can halt shipment of a $20,000 piece of equipment.

• Strategic items: Develop strategic partnerships with suppliers.

• The speed of processing goods received can be improved if suppliers provide correctly labeled and barcoded goods in the right quantities at the allotted time.

Chapter 16

• Independent demand must be forecasted or gained from information outside of the supply chain, and is addressed in MRP II by Sales and Operations Planning and Master Scheduling.
• Finished goods, service parts, and MRO parts have independent demand.
• The lead time for independent demand items is the manufacturing lead time if manufactured.
• Dependent demand can be calculated using bills of material.
• Components and raw materials are examples of items with dependent demand.
• Safety stock is not usually carried for dependent demand items unless lead times are long.
• Push systems use inventory requirement to anticipate future demand (build to stock).
• Pull systems use actual product demand to pull the product through the system (build to order).
• Pull systems can react quickly to sudden demand changes.

Decoupling Point

• Finished Goods: Make-to-stock, where customers are served from finished goods inventory.
• Semi-finished: Assemble-to-order, using pre-assembled modules combined to fulfill customer orders.
• Components: Make-to-order, where products are made specifically for the customer from raw materials.
• Raw Materials: Engineer-to-order, where the product is designed by the customer before raw material orders are placed.
• Logistics lead time: The total time to order raw materials, make the product, and deliver it to the customer.

Inventory and Time

• High inventory levels can hide underlying problems like:
  • Unreliable suppliers
  • Inaccurate forecasts
  • Production problems
  • Quality issues
  • Unpredictable high demand
• Supply chain professionals understand that profitability increases when inventory at all levels keeps moving.
• Demand is less predictable than it once was.
• Lead times are no longer constant.
• Order cost relationships have changed due to EDI and internet applications.
• Production capacity can be at a premium.
• Individual products are closely linked and need to be supplied together.

Chapter 17

• VMI gives the manufacturer responsibility for monitoring, controlling, and planning inventory levels at the retailer.
• VMI allows manufacturers to develop closer relationships with retailers and gain greater supply chain visibility.
• Retailers using VMI benefit from reduced operating costs and delayed payment for products until used or a significant time has passed.
• Continuous Replenishment Programs use real-time Point of Sales (POS) information to identify real-time demand and pull product directly from the supplier.
• The goal of CRP is to reduce pipeline inventory.
• CRP allows synchronization of product flow through distribution systems.
• Quick Response aims to link the manufacturer more closely to actual demand.
• The emphasis is on time compression and redesigning production operations for a "little and often" approach.
• Short production changeovers and small batch sizes enable manufacturers to respond quickly to demand changes.

Chapter 18

• Inventory is essential for smoothing variations between supply and demand.
• Inventory enables manufacturing economies of scale.
• Inventory allows for obtaining purchase discounts for large quantity orders.
• It allows building seasonal stock in advance.
• Inventory provides cover for production shutdowns.
• The primary objective of warehouses is to facilitate the movement of goods through the supply chain to end consumers.
• Two conditions to hold inventories:
  • Consistent product demand
  • Supply lead time exceeding demand lead time.

Chapter 19

• Block stacking is the simplest storage form where pallets are placed on top of each other.
• Block stacking is inexpensive as it doesn't require racking.
• The height of the stack is limited by the load's crushability and stability.
• Block stacking is a Last-In-First-Out (LIFO) system.
• To avoid double handling, rows or stacks should contain only one Stock Keeping Unit (SKU).
• Honeycombing occurs when many rows are only partially full at any given time.
• Typically, only 70% of pallet positions are utilized due to honeycombing.
• If a block stack needs to store 1000 pallets, approximately 1430 locations would be needed (1000/0.7).
• Block stacking is suitable for few product lines with high inventory levels where strict FIFO movement is not required.
• Adjustable Pallet Racking (APR) is the most common racking form, using reach truck operation.
• APR is widely used in warehouses, factories, and workshops.
• Pallets are placed single-deep onto horizontal beams running parallel to aisles, fixed to vertical frames.
• Frame uprights are bolted to the floor, while beams can be moved to different heights.
• The main advantage of single deep adjustable pallet racking is that each individual pallet can be directly accessed.

Chapter 25

• International road freight provides a very quick service.
• It's very cost-competitive.
• There's a greatly reduced need for double handling.
• Packaging costs are kept to a minimum as cargo is not subject to extreme transit shocks.
• Road freight offers regular service schedules due to flexible road scheduling.
• Less-than-truckload (LTL) shipments may require double handling and impact cost advantage.
• Conventional Sea Travel faces delay problems including pre-shipment delays, delays at the discharge port, and unexpected delays due to bad weather/missed tides.
• Containerization makes possible the development of the intermodal system of freight transport.
• Containerization enables consolidation of small packages into large single units.
• It reduces handling of goods and individual packaging requirements.
• Containerization leads to reduction in damaged goods.
• Insurance costs are lower due to reduced damage potential.
• Handling costs at docks and other modal interfaces are reduced.
• Overall delivery time is faster.
• Documentation is simpler.

Chapter 26

• 90% of the world’s international trade is transported by sea.
• Shipping lines own and operate various types of ships in their fleet.
• Weight or Measure (W/M) is a common method used by shipping lines to price sea freight for break bulk shipments.
• 1 metric ton = 1 cubic meter, and the price is applied to the higher of the two numbers (example: 1,500 metric tons, 7,500 cubic meters, price of US $75, so 7,500 * $75 = $562,500).
• Letter of Credit guarantees that the seller gets paid in time and in full and that the buyer doesn't release funds until goods are received in full and in good condition.
• Certificate of Origin establishes the origin of what is being transported.
• The Plimsoll Line, or international load line, is painted on the hull of the ship around the waterline.
• It is mandatory and indicates the maximum safe load level for the ship.
• A Commercial Invoice, produced by the seller, establishes weight, number of items, description of goods, and the price.
• It is used by customs to calculate a tariff and goes with the shipment.
• Deadweight Tonnage (DWT) measures how much weight a ship may safely and legally carry (cargo, crew, passengers, and provisions, but not the ship itself).
• TEU stands for a 20-foot equivalent unit and is equal to one 20ft ISO shipping container.
• FEU stands for a 40-foot equivalent unit and is equal to one 40ft ISO shipping container.

Chapter 27

• An air waybill is a contract to transport goods by air, issued by the carrier airline.
• An air waybill is a non-negotiable document used for both domestic and international carriage of goods.
• The airfreight quote only includes transport from one airport to another.
• Air cargo is carried securely over very long distances in a short amount of time providing:
  • The possibility of reducing inventory carrying for global businesses.
  • Availability of certain perishable goods year-round.
  • Rapid emergency support to keep plants running.
  • Swift and effective delivery of essential humanitarian aid.
• IATA (International Air Transport Association) sets standards related to safety, security, training, unit load devices, etc.
• IATA also licenses freight forwarders and cargo agents.

Chapter 28

• Intermodal transport involves moving goods in the same loading unit or vehicle, using several modes of transport without handling the goods themselves when changing modes.
• 90% of all international shipments are carried inside containers.
• Piggyback involves loading road trailers on rail cars for transport.
• Railways rely on a fixed infrastructure based on two parallel metal tracks.
• Railways require a solid base and must be constructed with relatively shallow gradients as well as wide radius curves.
• Railways in Europe initially were for passengers while in the United States it was for freight (coal and cattle from the west).

Strengths of Rail Transport

• Potential high speeds for journeys in the range of 50 to 300 miles.
• Rail usually runs from city center to city center, which can cut journey times.
• Railway effectively utilizes land space.
• The general public perceives railways as being less environmentally adverse.
• Very cost-effective in handling bulky material.
• Railways are energy flexible and energy efficient.
• Safety record of railways is good.
• Of all land-based modes of transportation, the rail system is least affected by bad weather.

Chapter 30

• Fuel is the largest of all variable costs.
• Transport costs are broken down into 3 main types: Standing/fixed costs, running/variable costs, overhead costs.

Vehicle Running Costs

• Fuel (usually the largest variable cost).
• Oil and lubricants.
• Tires.
• Repairs and maintenance.
• Driver’s overtime/bonus.

Vehicle Standing Costs

• Depreciation.
• Tax and licenses.
• Insurance.
• Driver’s basic wages (payable whether the driver is on the road or not).
• Interest on Capital.

Chapter 31

• High vehicle and fleet utilization is of fundamental importance to successful road freight transport planning and operations.

How to Improve Vehicle Utilization

• Choice of vehicle (right vehicle for the right job).
• Return loads (truck goes out and on the return trip bring a load back to the depot – maybe product returns).
• Improved space efficiency.
• Use of fleet and vehicle planning and operational software.
• Order cycles that aren't bunched at the beginning of the month to take advantage of credit terms and nominating day delivery in different areas on different days so higher levels can be consolidated.
• Primary operations are commonly single-delivery (or single-drop) journeys, where the focus is usually on cost reduction.
• Secondary operations involve multiple deliveries (multi-drop) and are customer-facing, where customer service is the most important element of logistics.