GTL: Logistics Control PDF

GTL : Logistics Control “Have you ever wondered how an iPhone, with components from 43 countries, gets assembled and delivered to your hand?” “From your morning coffee to the shoes you’re wearing, logistics plays a role in almost everything we use in our daily lives. But ho...

GTL : Logistics Control “Have you ever wondered how an iPhone, with components from 43 countries, gets assembled and delivered to your hand?” “From your morning coffee to the shoes you’re wearing, logistics plays a role in almost everything we use in our daily lives. But how does it all happen so seamlessly?” Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  GTL : Logistics Control “Imagine ordering a product online, expecting it in 24 hours, but it gets stuck in the airport due to a paperwork issue. It’s a small delay for you, but for companies, these small disruptions can mean millions of dollars lost.” Logistics is the backbone that keeps the global economy moving smoothly, and today we’ll explore why. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  GTL : Logistics Control “Did you know that global logistics costs accounted for over $9 trillion in 2023? That’s nearly 10% of the world’s GDP. Today, we’re going to dive into what makes this crucial sector tick Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Global shipping routes Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  GTL : Logistics Control Logistic process Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Example “Picture this: You need to ship 10,000 units of a product across five countries, and the deadline is tight. How do you ensure the delivery is cost- effective, on time, and reliable? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  What is logistic? Logistics is the art and Logistics is the process of science of managing the managing the movement of movement of goods. goods from one place to It encompasses everything another. It involves the from transportation to coordination of resources warehousing, inventory such as people, equipment, management, and order fulfillment. A well-managed and materials to ensure logistics operation can that products are delivered help businesses reduce on time and in good costs, improve customer condition. satisfaction, and increase efficiency. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Types of Logistics Inbound Logistics: This involves the transportation and management of raw materials and other supplies from suppliers to manufacturers or retailers. Outbound Logistics: This involves the transportation and management of finished products from manufacturers or retailers to customers. Reverse Logistics: This involves the management of the return of products from customers to manufacturers or retailers for repair, recycling, or disposal. International Logistics: This involves the transportation and management of goods across international borders, including customs clearance, documentation, and compliance with international regulations. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Plan Sequence 1: Supply Chain Management Sequence 2: International & Aviation Logistics Sequence 3: Logistics Audit Sequence 4: Maritime, Road, and Rail Logistics Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Logistics The Chartered Institute of Logistics & Transport UK (2019) defines them as: Getting the Right product, in the Right quantity, in the Right condition, at the Right place, at the Right time, to the Right customer, at the Right price. Logistics is the process of planning and executing the efficient transportation and storage of goods from the point of origin to the point of consumption. The Efficient Management of Physical, Informational, and Financial flows Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Why SCM In the current industrial context where the supply is greater than the demand, where the competition is more active with the appearance of new industrial countries and, where the customer is more and more demanding on the deadlines, the cost and the quality purchased products or services. The need of an active management of supply activities to maximize customer value and achieve a sustainable competitive advantage. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SCM Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SCM Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Setting Goals for SC Careers What do you enjoy Ask other about it What are you qualified to do? Do you have a certification? What can you get paid to do “If you don’t know where you’re going, you might not be able to get there!” Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SC is new term Any Job which include the following skills is a SC Job: Logistics Planning Cost Distribution Operations Deadlines Transportation Fulfilments Material Handling Forecasting Procurement Marketing Inventory Quality Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SC careers are hot Job opportunities Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SCM Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. Supply chain management has emerged with the aim of controlling information flows as well as physical flows and addressing several issues related to supply, production, distribution, etc. Supply Chain Management is an integrated management approach that involves managing the flow of materials and information from suppliers to end users as well as return flows using planning and decision support tools. Its purpose is to reduce the company's working capital requirements as well as to satisfy customers by making available, at the best cost, a quantity of products, where and when demand exists. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  INTRODUCTION Quality Product Deadlines Cost Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Financial Informational Suppliers Manufacturing Inventory Retailers Customers Physical SCM Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  What is a Business? Businesses need money to run their daily operations like buying raw materials, paying employees, or renting office space. Just like people need money for day-to-day expenses, businesses need money to keep running smoothly. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  What is the working capital? Working capital is like a company’s wallet for everyday expenses. It’s the money or assets that the business can use immediately to pay its bills and keep things going. Current assets Current liabilities Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Working capital requirement The Working Capital Requirement (WCR) is the minimum amount of money or assets a business needs to keep things running smoothly every day. It’s about making sure that businesses have enough cash or liquid assets to cover short-term expenses like bills, salaries, and buying more goods to sell. WCR is different for every business based on factors like: – How long it takes for them to sell products (inventory). – How quickly they get paid by customers (accounts receivable). – How soon they need to pay suppliers or other bills (accounts payable). Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Example : A bakery Let’s say you’re running a small bakery. Every day, you need ingredients like flour, sugar, and eggs to make cakes. You also need to pay your employees and rent for the bakery space. You’ll get money from selling cakes, but it may take a few days for customers to pay you. Current assets Current liabilities The money in your cash register, The bills you have to pay, unsold cakes (inventory), like your rent, ingredients, and the money customers owe you. and wages. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR Suppose a business buys goods for cash at a cost of 100, holds no inventory, and immediately sells the goods for 250, making the business a profit of 150. Assuming all transactions take place at the same time, the business starts off with zero cash in the bank, receives 250 from the customer, pays 100 to the supplier, and ends with 150 cash in the bank. The business did not need any additional finance to do this, its working capital requirements are ? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR Now consider what happens to the same business if it buys for cash from the supplier, holds 500 as inventory for 30 days, and sells to the customer on 60 day credit terms. This time the business must immediately pay 500 to the supplier for the inventory which is held for 30 days. During this time, the business which started with zero in the bank account, has had to find the finance (e.g. overdraft or loan) to fund the inventory, its working capital requirement is ? 500 Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR After 30 days it sells goods costing 100 to a customer from 250, its inventory falls to 400, but now it must wait 60 days to receive the 250 from the customer, during this period of time, its working capital requirement is the inventory, and the amount due from the customer (accounts receivable), a total of ? 400+250=650 WCR = Inventory + Accounts receivable Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR In the above example we assumed that the business had to pay cash to its suppliers. However, if the supplier gave 45 days credit terms, for the first 45 days the business would not have to pay for the goods held in its inventory and its working capital requirements would fall by the amount due to the supplier (accounts payable) Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR Formula Net WCR = Inventory + Accounts receivable – Accounts payable Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Case Study: Tex-style Manufacturing Tex-style Manufacturing is a mid-sized company that produces clothes. The company’s financial team wants to calculate the working capital requirement (WCR) to ensure they have enough liquidity to fund their daily operations. Here is the financial data for the most recent fiscal year: Raw Materials Inventory: 100 000 DH Work-in-Progress Inventory: 50 000 DH Finished Goods Inventory: 150 000 DH Accounts Receivable: 250 000 DH Accounts Payable: 120 000 DH Other Current Liabilities: 80 000 DH Question : - Calculate the Working Capital Requirement (WCR) using the given financial information. - Interpret the result: Does the company have a surplus or a deficit of working capital? What does this mean for the company's operations? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Solution Steps The Working Capital Requirement (WCR) is a measure of a company's liquidity and operational efficiency. It represents the amount of capital required to fund day-to-day operations. The formula for WCR is: WCR=Current Assets related to operations−Current Liabilities related to operations Current Assets related to operations include inventories (raw materials, work-in-progress, finished goods) and accounts receivable. Current Liabilities related to operations include accounts payable and other current liabilities. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Step 1 – Calculation Current Assets related to operations: – Raw Materials Inventory: 100 000 DH – Work-in-Progress Inventory: 50 000 DH – Finished Goods Inventory: 150 000 DH – Accounts Receivable: 250 000 DH Total Current Assets = 100 000 + 50 000 + 150 000 + 250 000 = 550 000 DH Current Liabilities related to operations: – Accounts Payable: 120 000 DH – Other Current Liabilities: 80 000 DH Total Current Liabilities = 120 000 + 80 000 = 200 000 DH Working Capital Requirement: WCR = 550 000 DH − 200 000 DH = 350 000 DH Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Step 2 - Interpretation The WCR for Tex-style Manufacturing is 350 000 DH. A positive WCR (in this case, 350 000 DH) means that the company needs to finance 350 000 DH to cover the gap between its operational current assets and current liabilities. This is the amount of working capital required to ensure smooth day-to-day operations without liquidity issues. Interpretation: the company needs to ensure that it has at least 350 000 DH in available funds (cash, short-term loans, etc.) to meet its short-term operational needs, such as paying suppliers, managing inventory, and collecting receivables. If the company does not have sufficient liquidity or credit lines to cover this WCR, it could face difficulties in maintaining production or meeting customer demands on time. On the other hand, if they have more than 350 000 DH in available cash or liquid assets, they would be in a better position to handle day- to-day fluctuations in working capital. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Conclusion The company must ensure access to at least 350000 DH in liquidity to maintain its operations smoothly. A positive WCR indicates the need for external financing or efficient cash management to avoid cash flow problems. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  As the business grows rapidly, its sales increase, which in turn increases the accounts receivables due from customers and the amount of inventory it needs to hold. This rapid increase in working capital requirement can cause a business to run out of cash unless it has adequate finance in place to deal with the issue. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Forecasting WCR Suppose revenue is estimated to Accounts receivable = days credit * be 182,500 for the year and the Daily revenue business offers 45 day credit terms to its customers. The =45*182500/365 working capital requirement to =22500 fund accounts receivable is given In % =22500/182500 as follows: =12.3% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Account receivable On average, at any one time, the working capital requirement resulting from offering credit to customers will be 22,500 or 12.3% of revenue. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Inventory A similar calculation can be carried out to find the working capital requirement for inventory. Suppose the business holds 30 days inventory. As inventory is carried at cost we need to base the calculation of inventory levels on the cost of sales. Costs = Revenue - Margin Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Inventory The cost of sales can be found using the following formula: Cost of sales = Revenue x (1 – Gross margin%) Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Inventory If for example, the gross margin percentage of the business is 40% then our inventory calculation looks like this. Inventory = Days inventory x Daily cost of sales Inventory = Days inventory x Daily revenue x (1 - Gross margin %) Inventory = 30 x (182,500 / 365) x (1 - 40%) Inventory = 9,000 Inventory % = 9,000 / 182,500 = 4.9% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Accounts payable the need for working capital to fund inventory and accounts receivable, can be reduced by increasing the credit terms with suppliers (accounts payable). As the payments to suppliers are at cost, we can use a similar procedure and calculation to that used for inventory. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Accounts payable Suppose we are given 20 days credit by the supplier, and again the gross margin percentage is 40%, the working capital requirement reduction as a result of supplier credit terms is calculated as follows: Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Accounts payable Accounts payable = Days credit x Daily cost of sales Accounts payable = Days credit x Daily revenue x (1 - Gross margin %) Accounts payable = 20 x (182,500 / 365) x (1 - 40%) Accounts payable = 6,000 Accounts payable % = 6,000 / 182,500 = 3.3% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Accounts payable The accounts payable working capital reduction is 6,000 or 3.3% of revenue. It is better where possible to negotiate better terms with suppliers rather than increase supplier credit terms by delaying payment, as sooner or later the overdue accounts will lead to supply problems. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Net WCR Days Amount Revenue Accounts receivable 45 22,500 12.3% Inventory 30 9,000 4.9% Gross WCR 31,500 17.2% Accounts payable 20 6,000 3.3% Net WCR 25,500 13.9% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Exercise An Aviation manufacturing company estimates its annual turnover at 219000, to sell its finished products it offers payment facilities of about 30 days, the average duration of stocks is calculated to 15 days, although the suppliers offer the company an average of 25 days to pay the amount of raw materials. Knowing that the gross margin of the business is 42%, Calculate the Net WCR for this Business? Comment on the percentage of the Net WCR in comparison with the Annual Revenue? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Net WCR What Happens When the Terms are Extended for account receivable by 90 days and Inventory by 120 days? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Net WCR Days Amount Revenue Accounts receivable 90 45000 24.7% Inventory 120 36000 19.7% Gross WCR 81000 44.4% Accounts payable 20 6,000 3.3% Net WCR 75000 41.1% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Exercise 1 An Aviation manufacturing company estimates its annual turnover at 197100, to sell its finished products it offers payment facilities of about 30 days, the average duration of stocks is calculated to 15 days, although the suppliers offer the company an average of 25 days to pay the amount of raw materials. Knowing that the gross margin of the business is 45%, Calculate the Net WCR for this Business? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Exercise 1 Days Amount Revenue Accounts receivable 30 16200 8.22% Inventory 15 4455 2.26% Gross WCR 20655 10.48% Accounts payable 25 7425 3.77% Net WCR 13230 6.7% Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  WCR definition The required value of funds that a company is required to keep on hand in order to be able to pay its debt obligations and other business related expenses. Several factors go into the determination of this requirement. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  SCM Characteristics In the context of the production industry, SCM is cooperation between producers of raw materials, production plants, distribution centers, warehouses, which intervene at different levels of the chain (storage of the raw material , semi-finished products or finished products), and Administrative and financial services that allow the exchange of information and money with other entities. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Planning into SCM Strategic Market satisfaction Customer Satisfaction Planning Tactical Planning Product Satisfaction Operational management Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Decisions taken Supply Manufacturing Distribution Sales -Production unit Physical structure Strategic Suppliers Strategic location of distribution selection Marketing -Production system network Tactical Size of the work Initial Production Distribution Sales forecasts force Planning Planning Operational Machine’s Transportation Sales force Tasks attributions Programs planning itinerary Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  STEEPLE Analysis Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  MATTEL CASE OF STUDY Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Chapter 2: Methods and main production tools Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Lean Manufacturing Lean Manufacturing refers to a method meant to minimize waste and reduce costs and production time, inspired by the Japanese automotive manufacturer Toyota, and made popular under the term “lean” in the 90’s Goal: To deliver maximum value to customers by reducing costs, improving quality, and shortening delivery times. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  “lean” SCM From there, the initial concept has been transposed to supply chains and supply chain management. A “lean” SCM also aims at eliminating waste by applying continuous efforts to get better inventory control and streamline all the steps of a supply chain Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Waste types Overproduction : Producing more than is needed or producing it before it is needed Waiting : Useless time when employees, equipment, or materials are waiting for the next step in the process. Transport : Unnecessary movement of materials, products, or information from one place to another. Extra processing : Performing more work or adding more features to a product than the customer requires or values. Inventory : Excess products or materials that are not yet processed Motion : Unnecessary movement by employees within a workspace or factory Defects : Flawed products that need to be reworked or discarded Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Lean Manufacturing More than tools, Lean Manufacturing relies on a cultural and managerial approach, with a strategy, procedures, standardization and simplification designed and implemented by a leadership whose goal is continuous improvement Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Case Study: Toyota’s Lean Manufacturing Toyota introduced lean manufacturing in the mid-20th century to address resource limitations and to keep up with larger competitors like Ford. Lean practices allowed Toyota to produce high-quality vehicles at a lower cost by minimizing waste and maximizing productivity. Lean principles such as Just-in-Time (JIT) production, Kaizen (continuous improvement), and Jidoka (automation with a human touch) have become foundational to Toyota's success. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Key lean practices at TOYOTA Just-in-Time (JIT) Production What It Is: Toyota only produces vehicles as they are needed, minimizing excess inventory. Example: Rather than stockpiling parts, Toyota coordinates closely with suppliers to deliver components only as they are needed on the assembly line. Impact: This reduces costs associated with inventory storage and reduces the risk of parts becoming obsolete. It also allows Toyota to respond quickly to changing customer demands. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Key lean practices at TOYOTA Continuous Improvement (Kaizen) What It Is: Kaizen involves making small, regular improvements in processes, with input from all employees. Example: Toyota encourages employees at all levels to suggest improvements for their tasks, leading to numerous small adjustments that collectively result in significant efficiencies. Impact: This approach empowers employees and ensures that Toyota is constantly improving its processes, leading to higher productivity and quality. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Key lean practices at TOYOTA Built-In Quality (Jidoka) What It Is: Jidoka means “automation with a human touch.” Machines automatically stop when they detect an issue, and employees can stop the production line if they notice a quality problem. Example: If a defect is detected in a part during assembly, the process halts so that the issue can be corrected immediately, preventing defective products from advancing. Impact: This ensures quality control at each stage of production, reduces the need for rework, and builds trust with customers by maintaining high standards. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Key lean practices at TOYOTA Value Stream Mapping What It Is: Toyota maps out each step in its production process to identify activities that add value versus those that don’t. Example: Toyota’s production team analyzed the car assembly process and identified that certain steps could be streamlined, like reducing excess movement of materials and tools. Impact: This helped Toyota minimize unnecessary steps, leading to faster production and less wasted motion, labor, and material. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Results and Outcomes Toyota’s implementation of lean manufacturing principles has allowed it to become one of the world’s most efficient and profitable automotive companies. The lean approach has led to: Reduced production costs Improved product quality Shortened production cycles A strong reputation for reliability and quality among consumers Toyota’s success with lean manufacturing has inspired countless other companies worldwide to adopt similar principles, leading to improvements in industries ranging from healthcare to electronics. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  TOYOTA Lean manufacturing Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Quiz 1 1- How does JIT production benefit Toyota’s inventory management? 2- Why is it beneficial for employees at all levels to participate in Kaizen? 3- How does Jidoka help Toyota prevent defects from reaching customers? 4- What is the benefit of mapping out each step in a production process? Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Answers 1- JIT allows Toyota to keep inventory levels low, which reduces storage costs and prevents the accumulation of excess stock that could become outdated. 2- Employees are closest to the work and often have valuable insights into where inefficiencies exist, so their suggestions can lead to practical, effective improvements. 3- By detecting and addressing defects as soon as they appear, Jidoka ensures quality at every step and prevents faulty products from moving forward in the production process. 4- By mapping each step, Toyota can identify non-value-adding activities, streamline workflows, and reduce waste, ultimately leading to a more efficient process. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Quiz 2 "Why is it important for Toyota to continuously improve its processes through Kaizen?" Continuous improvement helps Toyota stay competitive, adapt to changes, and maintain high quality, which is essential for customer satisfaction and operational efficiency. "What are the main benefits of Just-in-Time production for Toyota and its suppliers?" JIT reduces inventory costs, enhances cash flow, and allows Toyota to respond flexibly to customer demand. It also encourages strong supplier relationships. Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Outsourcing Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Production types Zero stock Zero faults Zero paper Zero breakdown Zero delay Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP  Production types – According to the process: Continuous production (automobile), Production Process - without interruption (electricity) and discontinuous production (confection) – According to the quantities (unitary or in series) – According to the relationship with the customer (stock or by order) – According to the nomenclature Institut des Métiers de la Logistique et de l’Aéronautique Privé - IMLAP