MGT 295 Chapter 14 - TF POST PDF

Location, Logistics and Distribution Chapter 14  Chapter 14 Explain what logistics is Contrast logistics and warehouse design alternatives Analyze logistics-driven location decisions  What is Logistics? Logistics - the art and science of obtaining, produc...

Location, Logistics and Distribution Chapter 14  Chapter 14 Explain what logistics is Contrast logistics and warehouse design alternatives Analyze logistics-driven location decisions  What is Logistics? Logistics - the art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities How you control the movement of goods through the supply chain  Decisions Related to Logistics What transportation mode is best? Where do I locate facilities? How to design the system? What Transportation Mode?  Modes of Transportation Key Tradeoff: Speed vs. Cost Highway - great flexibility Water - high capacity and low cost, but slow Air - fast but expensive Rail - low cost but slow and variable Intermodal – Semi trailer/container on rail car or container ship Pipeline - highly specialized and limited to liquids, gases, and solids in slurry form Hand delivery - last step in many supply chains Transportation Modes  Truck Truck - Highway  Dominant mode of transportation in US  Relatively inexpensive and fairly quick  Three segments  Truck Load segment (TL) – Shipper charged for the full truck regardless of quantity shipped  Less than Truck Load (LTL) – Shipper charged for quantity shipped  Parcel (FedEx/UPS) – Shipper charged for each package  Intermodal  Grown considerably with increased use of containers  Increased global trade has also increased use of intermodal transportation  More convenient for shippers (one entity provides the complete service)  Key issue involves the exchange of information to facilitate transfer between different transport modes Containerizati on Video Logistics Outsourcing and 3 Party Logistics (3PL) rd  Logistics Outsourcing Outsourcing management functions that support the complete cycle of material flow from purchasing to distribution  3PL Logistics providers have shifted from simply moving products from one point to another  Tracking of shipments  Customer notification  Risk and variability reduction  Third Party Logistics (3PL) Approximately 80% of international transportation outsourced to 3PL:  As cost factors such as component price and transportation narrows among production locations, total landed cost become critical information for decision making  In addition to agility, speed and increased capability Third Party Logistics (3PL)  Insource or Outsource Logistics ?  Outsource  Understanding local markets / emerging markets  Worldwide presence  Better coordination of multimodal capabilities  “Core Competency”  Insource  Proprietary or security issues  Stable supply chain  Able to effectively negotiate and control the related logistics  Industry alliances  Specific cost issues that are favorable to insourcing  Dedicated team of highly skilled freight management experts Your team IT Customer  To manage cost savings care initiatives and drive program usage Supplier  Continual monitoring Implement 3RD relations  Multi-level customer ation Party support Logisti  Dedicated account Billing/ cs Account audit manageme support nt Significant dedication to Analytics smarter, better, more cost- Logistics management effective freight management solution Warehousing and Distribution  Location of Supply Chain SC&OM seeks cooperation among businesses to provide greater value to customers Co-location: putting personnel in or very near, a customer’s facility  Assembly  Design  Quality  Logistics  Inventory planning & control Co-located supplier’s personnel can make decisions that will help meet customer needs 17 without the customer having to ask  Obtaining Data Sources of data:  Syndicated data = commercially available, at a cost  Primary research  Point-of-Sale (POS) data (such as Epsilon) 80% of business data has some context that can assist the decision-maker in location determination Location information systems/ tools:  Data warehouse  Account for geographic boundaries  Artificial Intelligence 18  Warehouse Activities Hub-and-spoke Cross-docking - systems - the large shipments sole purpose of are broken down the warehouse into small (the hub) is shipments for sorting goods to local delivery in consolidation an area areas, where Minimizes each area is inventory in the designed for warehouse shipment to a specific location Cross-Docking  Cus Cu t st Hub-and-Spoke Spoke Warehou se Cu st Cus t Hub Warehou se Cust Cus t Spoke Cus Wareho t Spoke use Warehou se Cu Cus Cu Cust st t st Distribution Center Location Tools  Where to Locate Facilities? Where should I hold the inventory?  Distribution Objectives Greatest ease of entry against the competition Lowest costs of entry compared to the competition Least financial risk and commitment to the trade Sufficient volume potential to reach short-term company goals Pricing levels to provide acceptable company revenues and profit margins  Facility Location Decision Attributes  Long-term strategic decisions  Usually expensive & difficult to reverse  Affect fixed & variable costs  Objective: Maximize benefit of location to firm  Plant Location Methods Transportation Factor-rating method of Centroid system linear method programming  Factor Rating System Potential Proximity to customers - makes rapid delivery easier Business climate - can include presence of similar-sized Factors businesses, in the same industry, and other foreign companies Total costs - object is to minimize overall cost Infrastructure - adequate road, rail, air, and sea transportation along with energy and telecommunications Quality of labor - educational and skill levels must match needs Suppliers - proximity of important suppliers supports lean production Other facilities - location of other facilities can influence a location decision  Factor Rating System Potential Free trade zones - a closed facility into which foreign goods can delivered without the normal customs Factors requirements (continued) Political risk - risks in both the country of location and the host country influence the decision Government barriers - barriers in many countries are being removed Trading blocs - firms locate within a block to take advantage of new markets or lower total cost - USMCA Environmental regulation - these impact a certain industry in a given location and must be included in the decision Competitive advantage - the location should provide the company with a competitive advantage  Facility Location: Factor-Rating System  Most widely used Example – Refinery Location  List of factors is developed Factors  Range of possible points assigned to each factor  Each site is rated against each factor  The sums of assigned points for each site are computed  The site with the most points is selected  Plant Location Methodology: Factor Rating Method Example Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location. Sites Major factors for site location Pt. Range A B Fuels in region 0 to 330 123 156 Power availability and reliability 0 to 200 150 100 Labor climate 0 to 100 54 63 Living conditions 0 to 100 24 96 Transportation 0 to 50 45 50 Water supply 0 to 10 4 5 Climate 0 to 50 8 4 Supplies 0 to 60 5 50 Tax policies and laws 0 to 20 Best Site 5 20 isBest B Site is B Total pts. 418 544  Linear Programming – Transportation Method Transportation method is a special linear programming method  Seeks to minimize costs of shipping n units to m destinations or its seeks to maximize profit of shipping n units to m destinations 1 5 A 7 9 8 2 B 4 6 3  Example 14.1 𝑀𝑖𝑛25 𝑋𝐼𝑛𝑑,𝐶𝑜𝑙+35𝑋𝐼𝑛𝑑,𝑆𝑡𝐿+36 𝑋𝐼𝑛𝑑,𝐷𝑒𝑛+60 𝑋𝐼𝑛𝑑,𝐿𝐴+5 𝑋𝑃h𝑜,𝐶𝑜𝑙+30 𝑋𝑃h𝑜,𝑆𝑡𝐿+25 𝑋𝑃h𝑜,𝐷𝑒𝑛+25 𝑋𝑃h𝑜,𝐿𝐴+40 𝑋𝑁𝑌,𝐶𝑜𝑙+50 𝑋𝑁𝑌,𝑆𝑡𝐿+80 𝑋𝑁𝑌,𝐷𝑒𝑛+90 𝑋𝑁𝑌,𝐿𝐴+30 𝑋𝐴𝑡𝑙,𝐶𝑜𝑙+40 𝑋𝐴𝑡𝑙,𝑆𝑡𝐿+6 𝑋𝐴𝑡𝑙,𝐷𝑒𝑛+75 𝑋𝐴𝑡𝑙,𝐿𝐴 : Example 14.1  Centroid Method Used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them  Assumes inbound and outbound transportation costs are equal  Does not include special shipping costs for less than a full load This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated above Centroid Method Formulas 𝐶 𝑥= ∑ 𝑑𝑖𝑥 𝑉 𝑖 ∑ 𝑉𝑖 𝐶𝑦= ∑ 𝑑 𝑖𝑦 𝑉 𝑖 ∑ 𝑉𝑖 Cx = X coordinate of centroid Cy = Y coordinate of centroid dix = X coordinate of the ith location diy – Y coordinate of the ith location Vi – volume of goods moved to or from the ith location  Plant Location Methodology- Centroid Method Centroid method example  Several retail sites are located according to the following grid which represents coordinate locations for each showroom Y S ho wro o m No o f Z-Mo b ile s Q s o ld p e r mo nth (790,900) D A 1250 (250,580) D 1900 A (100,200) Q 2300 (0,0) X Question: Question:What Whatisisthe thebest bestlocation locationfor foraanew newwarehouse warehouseor or temporary temporarystorage storagefacility facilityconsidering consideringonly onlydistances distancesand and quantities quantitiessold soldper permonth? month?  Centroid Method You Youthen thencompute computethe thenew newcoordinates coordinatesusing usingthe theformulas: formulas: 100(1250) + 250(1900) + 790(2300) 2,417,000 Cx = = = 443.49 1250 + 1900 + 2300 5,450 200(1250) + 580(1900) + 900(2300) 3,422,000 Cy = = = 627.89 1250 + 1900 + 2300 5,450 You Youthen thentake takethe thecoordinates coordinatesand andplace placethem themon onthe themap: map: Y S ho wro o m No o f Z-Mo b ile s Q New New s o ld p e r mo nth (790,900) location location ZZ D (250,580) of offacility facility A 1250 ZZabout about A D 1900 (100,200) (443,627) (443,627) (0,0) X Q 2300  y Centroid Method Suppose Buy.com serves 4 cities with the following volumes & coordinates x Volume X-coord Y-coord Location Vi dix diy Chicago 200 30 120 Pittsburgh 100 90 110 New York 100 130 130 Atlanta 200 60 40 Where should the company position a new warehouse to minimize the cost of distributing to these 4 markets?  y Centroid X Method Center of gravity = (66.7, 93.3) Suppose Buy.com serves 4 cities with the following volumes & coordinates x Volume X-coord Y-coord Location Vi dix diy Vi*dix Vi*diy Chicago 200 30 120 200*30 = 6,000 200*120 = 24,000 Pittsburgh 100 90 110 100*90 = 9,000 100*110 = 11,000 New York 100 130 130 100*130 = 13,000 100*130 = 13,000 Atlanta 200 60 40 200*60 = 12,000 200*40 = 8,000 SVi = 600 SVi*dix = 40,000 SVi*diy = 56,000 V d i ix 40,000 V d i iy 56,000 = 93.33 Xc  i = = 66.67 Yc  i = 600 V i V i 600 Internal Warehouse Operations Pick Pack / Amazon WH Service Facility Location  Service Facility Location New service facilities are far Multiple sites close to more common than new customers factories and warehouses Much less expensive Service Facilities Location decision closely tied Decision more about to the market selection maximizing profits than decision minimizing costs  Service Location Approaches Competitive clustering  Competitors in the same service industry locating close together  Synergistic effect attracts more customers  Facilitates comparison shopping Saturation marketing  Multiple facilities of the same company locating close together  Segments a high-density area into small, focused markets  Potential cannibalization offset by closer proximity to more customers  Examples Competitive clustering  Urgent Care / Doctor Offices / Pharmacies  Gas Stations  “Fast-Food Row”  Home improvement Stores Saturation marketing  Large Integrated Delivery Networks (IDNs)  Hospitals, Surgery Centers, Physician Offices, Diagnostics  Retail  The Limited Brands:  Victoria Secret, Pink, Mast Global, LaSenza, Bath and Body Works 44 Freight Terms  Freight Terms of Sale Two different categories:  Domestic and International Terms When two entities conduct business, and the goods must be transported from seller to buyer, freight terms deal with:  When does legal title to the goods pass from seller to buyer (who owns in transit)?  Who pays for the transportation?  Who routes the freight?  Who pays insurance?  Who bears the risk while the goods are in transit?  Domestic Freight Terms FOB: Free on Board