RM 1 - Distribution Management (MKM331) - Prelim Period PDF

RM 1 One of the key relationships can be described as follows: Logistics = Materials Management + Distribution where ‘materials management’ represents the activities concerning materials going into and through the production process and ‘distribution’ represents the process of making a product av...

RM 1 One of the key relationships can be described as follows: Logistics = Materials Management + Distribution where ‘materials management’ represents the activities concerning materials going into and through the production process and ‘distribution’ represents the process of making a product available to the consumer or business that needs it. An extension to this idea helps to illustrate that the supply chain covers an even broader scope of the business area. This includes the supply of raw materials and components as well as the delivery of products to the final customer. Thus: Supply Chain = Suppliers + Logistics + Customers It should also be noted that logistics and the supply chain are concerned not Indeed, major emphasis is now placed on the importance of information as well as physical flows and storage. Logistics= is the management of the flow of goods between point of origin and point of destination to meet customer and corporate requirements. Logistics management= is that part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. There have been several distinct stages in the development of distribution and logistics. 1950s and early 1960s - distribution systems were unplanned and unformulated. Manufacturers manufactured, retailers retailed, and in some way or other goods reached the shops. Distribution was broadly represented by the haulage industry and manufacturers’ own-account fleets. There was little positive control and no real liaison between the various distribution-related functions. 1960s and early 1970s - the concept of physical distribution was developed with the gradual realization that the ‘dark continent’ (as distribution was described in early academic literature) was indeed a valid area for managerial involvement. his consisted of the recognition that there was a series of interrelated physical activities such as transport, storage, materials handling and packaging that could be linked together and managed more effectively. 1970s - was an important decade in the development of the distribution concept. One major change was the recognition by some companies of the need to include distribution in the functional management structure of an organization. The decade also saw a change in the structure and control of the distribution chain. of distribution contributed to a significant increase in professionalism within distribution. With this professionalism came a move towards longer-term planning and attempts to identify and pursue cost-saving measures. These measures included centralized distribution, notable reductions in stockholding and the use of the computer to provide improved information and control. Late 1980s and early 1990s - advances in information technology enabled organizations to broaden their perspectives in terms of the functions that could be integrated. In short, this covered the combining of materials management (the inbound side) with physical distribution (the outbound side). The term ‘logistics’ was used to describe this concept. Once again, this led to additional opportunities to improve customer service and reduce the associated costs. One major emphasis made during this period was that informational aspects were as important as physical aspects in securing an effective logistics strategy. 1990s- the process of integration was developed even further to encompass not only the key functions within an organization’s own boundaries but also functions outside that also contribute to the provision of a product to a final customer. This became known as ‘supply chain management’. The supply chain concept gave credence to the fact that there may be several different organizations involved in getting a product to the marketplace.*** 2000s - As the new millennium dawned, business organizations faced many challenges as they endeavoured to maintain or improve their position against their competitors, bring new products to market and increase the profitability of their operations. This led to the development of many new ideas for improvement, specifically recognized in the redefinition of business goals and the re-engineering of entire systems. 2010s and beyond - This period saw the confirmation of the importance of a number of concepts and many businesses developed and improved their systems and operations to embrace these. total logistics concept (TLC)= aims to treat the many different elements that come under the broad category of distribution and logistics as one single integrated system. EXAMPLE: The total logistics concept A company produces plastic toys that are packaged in cardboard boxes. These boxes are packed onto wooden pallets that are used as the basic unit load in the warehouse and in the transport vehicles for delivery to customers. A study indicates that the cardboard box is an unnecessary cost because it does not provide any significant additional protection to the quite robust plastic toys and it does not appear to offer any significant marketing advantage. Thus, the box is discarded, lowering the unit cost of the toy and so providing a potential advantage in the marketplace. One unforeseen result, however, is that the toys, without their boxes, cannot be stacked on to wooden pallets, because they are unstable, but must be stored and moved instead in special trays. These trays are totally different to the unit load that is currently used in the warehouse and on the vehicles (i.e. the wooden pallet). The additional cost penalty in providing special trays and catering for another type of unit load for storage and delivery is a high one – much higher than the savings made on the product packaging. *** cost trade-offs= this approach will be a benefit to the logistics system as a whole. It may entail additional cost in one function but will provide a greater cost saving in another. The overall achievement will be a net gain to the system. This type of trade-off analysis is an important part of planning for logistics. Four different levels of trade-off can be identified. 1. Within logistics components= this refers to the trade-offs that occur within single functions (e.g. warehousing). *** 2. Between logistics components= these are the trade-offs that occur between the different elements in logistics.*** 3.Between company functions: there are a number of areas of interface 4. Between the company and external organizations= there may be opportunities for a trade-off between two companies that are directly associated with each other. *** planning and control= essential to the running of an effective and efficient logistics operation. Planning= is about ensuring that the operation is set up to run properly – it is ‘doing the right thing’. Control= is about managing the operation in the right way – it is ‘doing the thing right’ or making sure that the operation is being run ‘efficiently’. to try to achieve on-time-in-full (OTIF) deliveries= a key objective of many logistics systems. Some key aspects of integration which considers recent developments in manufacturing techniques. 1. Direct product profitability= DPP is a technique of allocating all of the appropriate costs and allowances to a given product.*** 2. Materials requirements planning (MRP) and distribution requirements planning (DRP)= systems are computerized planning tools that aim to make the necessary materials or inventory available when needed. **** 3. Just-in-time (JIT)= is to provide a production system that eliminates all activities that neither add value to the final product nor allow for the continuous flow of material- – in simple terms, that eliminates the costly and wasteful elements within a production process. 4. Cost-to-serve= this is a process-driven accountancy tool used to calculate customer profitability using the actual business activities and overhead costs that are involved. **** 5. Distributed order management (DOM)= this systems are designed to arrange orders across the multiple systems and processes utilized by those involved in replenishing an order.**** 6. Supply chain control tower= the concept is to provide supply chain visibility across divisions, countries and modalities.**** service leader= a company is trying to gain a value advantage over its competitors by providing a number of key service elements to differentiate its product. cost leader= a company is trying to utilize its resources so that it offers the product at the lowest possible cost, thus gaining a productivity advantage. service or value advantage= this might include the provision of a specially tailored service or the use of several different channels of distribution so that the product is available in the marketplace in a number of different ways. cost or productivity advantage= this may include a number of different means of cost minimization, such as maintaining very low levels of inventory and ensuring that all manufacturing and distribution assets are kept at a high one-size-fits-all policies= rarely work when they are applied in a world where markets can differ so radically. Thus, successful companies are most likely to segment their supply chains according to the particular service and cost requirements of their customers. supply chain management= the term is commonly used to cover many if not all of the various logistics functions. The concept of the supply chain is really an extension of the ideas that have been developed concerning the integrated nature of logistics. The total logistics concept advocates the benefits of viewing the various elements of logistics as an integrated whole. Supply chain management is similar, but also includes the supplier and the end user in the process. Pareto 80/20 rule, the product surround or logistics elements can represent about 80 per cent of the impact of the product but only 20 per cent of the cost. This obviously varies dependent on the product value, but no matter how product may be, it is essential that the customer service elements are satisfactory and, as we shall see, logistics plays a crucial role in providing good customer service. Logistics= referred to ‘the positioning of resources in the right place, at the right time, in the right quantity, at the right quality, at the right price’. direct transaction-related elements= where the emphasis is on the specific physical service provided, such as on-time delivery, or they may be seen as indirect support (e.g. non-transactional, or pre- and post-transactional) attributes that are related to overall aspects of order fulfilment, such as the ease of order taking. This classification is useful to help identify the key logistics customer service elements, which can be divided into three chronological categories. These reflect the nature and timing of the particular service requirements (before, during and after delivery of the product) 1. Pre-transaction elements= are logistics customer service factors that arise prior to the actual transaction taking place.**** 2. Transaction elements= are the elements directly related to the physical transaction itself and are those that are most commonly associated with distribution and logistics.**** 3. Post-transaction elements= involve those elements that occur after the delivery has taken place, such as availability of spares, call-out time, invoicing procedures, invoicing accuracy, product tracing/warranty, returns policy, customer complaints and procedures and claims procedures. multifunctional dimensions= The intention is to assess the different components of customer service across the whole range of company functions, to try to enable a seamless service provision. the order cycle time = constitutes a single requirement that covers the entire span from order placement to the actual delivery of the order. The four main multifunctional dimensions are: 1. time= usually order fulfilment cycle time 2. dependability= such as guaranteed fixed delivery times of accurate, undamaged orders 3. communications= such as the ease of order taking or effective queries response 4 flexibility: the ability to recognize and respond to a customer’s changing needs Service quality= is a measure of the extent to which the customer is experiencing the level of service that they are expecting. Two different models of service quality are considered: 1.Basic service model= a very simple, yet effective, view of service quality, that it is the match between what the customer expects and what the customer experiences.**** Perceived quality= is always a judgement that the customer makes – whatever the customer thinks is reality, no matter what the supplier may believe to the contrary. 2. Extended service model= this is particularly useful in helping to identify and measure the critical elements of service for key customers. *** Classification of the service gaps. Gap 1: customer expectation–management perception gap= this is the difference between the service that the customer expects and the service level that the supplier thinks that the company wants. **** Gap 2: management perception–service standard gap= this is the difference between the service specification that is set and the supplier management assessment of customer service requirements. **** Gap 3: service standard–service delivery gap= this is the difference between the actual service that is provided and the planned level of service based on the service specification that has been set. **** NOTHING FOLLOWS