Vendor Managed Inventory and Supply Chain Quality

Vendor Managed Inventory

• Fuel can represent 35% of a transport company's operating budget.
• The supplier takes inventory responsibility at the client's end.
• Inventory ownership transfers to the client upon use.
• Overall client warehouse inventory can be reduced.

Quality of Supplies

• Substandard goods are stored for supplier collection.
• The supplier is contacted when goods are substandard.
• An RMA (return material authorization) number is obtained from the supplier.
• This number is attached to paperwork and packaging for effective returns.

Hierarchy of Importance (Four Categories)

• Routine purchases can be made using online catalogs.
• Commodities require frequent quoting to get the best price from multiple suppliers.
• Critical items ensure continuous supply flow through approved suppliers.
• A specially designed screw costing $1.49 made by only one supplier can halt a $20,000 equipment shipment.
• Strategic items involve partnerships, like Pillsbury and Sonoco, to produce product cans.

Warehouse Efficiency

• Processing speeds improve with correct quantities, timing, labeling, and barcoding from suppliers.

Dependent vs. Independent Demand

• Independent demand is forecasted via supply chain knowledge.
• Addressed in MRP II by Sales and Operations Planning and Master Scheduling.
• Finished goods, service parts, and MRO parts have independent demand.
• Lead time for independent items is the manufacturing lead time if manufactured.
• Dependent demand is calculated from bills of material.
• Components and raw materials are dependent demand.
• Safety stock isn't usually held at these levels, unless lead times are long.

Push vs. Pull Systems

• Push is a traditional approach where inventory anticipates future demand (build to stock).
• Pull uses actual product demand to pull it through the system (build to order).
• The pull system quickly reacts to demand changes.

The Decoupling Point

• Finished Goods are make-to-stock, serving customers from finished goods inventory.
• Semi-finished goods are assembled-to-order using pre-assembled modules to meet customer needs.
• Components are make-to-order, specifically made from raw material for the customer.
• Raw Materials are engineer-to-order with raw material orders placed after customer design.
• Some engineer-to-order parts may be at the supplier's supplier.
• Logistics lead time – the total time it takes to order raw materials, make product, and deliver the product to the customer.

Inventory and Time

• High Inventory hides problems
• Unreliable suppliers cause inventory problems.
• Inaccurate forecasts cause inventory problems.
• Production problems cause inventory problems.
• Quality issues cause inventory problems.
• Unpredictable high demand cause inventory problems.

Supply Chain Movement

• Money is made when inventory moves at all levels.
• Demand is less predictable than it was once.
• Lead times are variable.
• Order costs have changed with EDI and internet use.
• Production capacity can be a premium.
• Products are linked and need to be supplied together.

Vendor Managed Inventory in Retailing

• The manufacturer monitors, controls, and plans inventory levels.
• Manufacturers get closer retailer relations and supply chain visibility.
• Retailers get operating cost reductions and delayed product payment.

Continuous Replenishment Program

• It uses real-time POS data to pull the product from the supplier.
• Goal is to reduce pipeline inventory.
• This synchronizes flow of product through the distribution systems.

Quick Response

• Focus is to link the manufacturer closely to actual demand.
• Emphasis on time compression.
• The manufacturer can redesign production operations for a “little and often" approach.
• Short production and small batches let manufacturers quickly address demand changes.

Inventory Importance

• Inventory smooths demand and supply variations, enabling manufacturing economies, discounts for large orders.
• Inventory builds seasonal stock, and covers production shutdowns.

Role of Warehouses

• The Primary objective is facilitating goods through the supply chain.
• Two conditions for holding inventory:
  • Demand is continual
  • Supply lead time exceeds demand lead time.

Block Stacking

• Block Stacking is a simple storage form with pallets on top of each other.
• It's cheap and needs no racking.
• Stack height is limited by load stability.
• Pallets are extracted in reverse, a last-in-first-out (LIFO) system.
• To avoid double handling, rows or stacks should contain one stock-keeping unit (SKU).
• Honeycombing is when many rows are only partially full in time.
• Only 70% of pallet positions are used because of honeycombing.
• 1430 locations are required to store 1000 pallets assuming 70% utilization

Pallet Racking

• Suitable for product lines that do not require first-in first-out access
• Adjustable Pallet Racking (APR) uses a reach truck operation.
• It's the most common pallet racking
• Used in factories, warehouses, and workshops.
• Pallets are placed single-deep onto horizontal beams running parallel to the aisles and vertical frames.
• Uprights are bolted to the floor.
• Beams can be moved to different frame heights.
• The main advantage is that each individual pallet can be directly assessed.

International Road Freight

• Provides quick service.
• It's cost competitive.
• It reduces the need for double handling.
• Packaging costs are minimized, cargo withstands transit "shocks."
• Regular service schedules provided through flexible road scheduling.
• Less Than Truckload, LTL, shipments may require more handling, impacting cost benefit.

Conventional Sea Travel

• This may cause delay problems like bad weather
• Delays can occur before shipment or at the discharge port, and from bad weather or missed tides.
• Containerization enables intermodal freight transport.
• Many small packages are consolidated into single units.
• Handling and Packaging is reduced.
• There are fewer damaged goods.
• Insurance costs are lower.
• Handling costs at docks and modal change points are reduced.
• Delivery is faster and documentation is simpler.

International Trade

• 90 percent of the world's international trade is transported by sea.
• Shipping lines own and operate various types of ships in their fleet.
• Metric ton equals one cubic meter, price applies to the higher number.
• A Letter of Credit guarantees the seller payment in full and on time.
• Funds are secured until the buyer receives goods.
• A Certificate of origin establishes where the being transported originated from.
• The Plimsoil line, or international load line, on the hull shows the safe load level.
• Commercial Invoice details items, weight, price, for customs tariff calculation.
• Deadweight tonnage (DWT) measures a ship's safe and legal weight, not ship itself.
• Twenty-foot equivalent unit (TEU) is one 20ft ISO container.
• Forty-foot equivalent unit (FEU) is one 40 foot ISO shipping container

Air Waybill

• Air waybills are contracts between the carrier airline to transport goods by air.
• It is a non-negotiable document used for both domestic and international carriage of goods
• Airfreight quotes include transport from one airport to another.
• Cargo is transported safely over long distances in a short time.
• Air transport reduces inventory carrying for global businesses.
• Air transport provides perishable goods year round.
• Air transport provides rapid emergency plant support.
• Air transport swiftly delivers essential humanitarian aid.

IATA

• International Air Transport Association sets standards for safety, unit load devices, security, training.
• Licensed freight forwarders and Cargo agents are IATA members

Intermodal Transport

• Intermodal transport uses different modes of transport without handling the goods themselves.
• 90% of all international shipments are carried in containers.
• Piggyback - Road trailers are loaded on rail cars for transport.
• Railways rely on fixed infrastructures with parallel metal tracks.
• Railways need a solid base and have shallow gradients and wide radius curves.
• European railways initially carried passengers, United States railways carried freight, coal and cattle from the west.

Strengths of Rail Transport

• Rail has potential for high speeds for journeys of 50 to 300 miles
• Rail is usually center to center.
• Railways conserve land space.
• The general public views railways as environmentally friendly.
• Rails are cost effective at handing bulky material
• Railways are energy efficient and flexible.
• They have a good safety record.
• Rail is least affected by bad weather.

Transport Costs

• Fuel is the largest variable cost.
• Transport costs can be calculated knowing straight line deprecation (slide 5)
• Transport costs include Standing, Running, & Overhead costs.
• Vehicle Running Cost: Fuel, Oil, Tires, Repairs, Overtime.
• Vehicle Standing Cost: Depreciation, Tax, Insurance, Wages, Interest.

Vehicle Utilization

• High vehicle and fleet utilization is fundamental to road freight.
• Improve utilization through choice of vehicle for the right job.
• Improve utilization through return loads.
• Improved space efficiency.
• Use of vehicle and fleet planning software.
• Optimize Order cycles: Do not bunch orders to take credit advantage, nominate delivery day for consolidation.

Primary and Secondary Operations

• Primary operations are commonly single-delivery or single-drop journeys with cost reduction focus
• Secondary operations involve multiple customer-facing deliveries where service is important.