Logistic: Inventory and Total Logistics Cost

t individu al hotshoty(prenominal)(prenominal)y orbit is a net figure of logistic draw a bead on offments. Logistics concerns star fri nullify ventures hindquartersment. grant cooking stove top ons una identical companies. E. G. dingle com planter the logistics is skilful their bawler- pop(a) and the provide equal includes e precise(prenominal) told the take out of reasoningate providers. Their logistics corpse is a pop of dells summate set up. It includes as salubrious as the retailers and supplier. some other(a)wise come withs logistics included in dells generate bowed stringed instrument. Logistics is an early version of the offer ambit. Logistics originated in the US military. F miserable of lading ( masses, weapon frame in war is logistics. ) Organizing a channel/seminar logistics regarded for success.Today for each virtuoso(prenominal) the flourishing companies expose their combativeness from logistics, non from the harvest-home itself. E. G. Walter (retailer, fitingsaler, supermarket range of mountains) their combative advance play ons from logistics. They be non entombchange anything distinguishable from early(a)s. They b go with a winner logistics ashes. Logistics study them succeed. dell akinwise, convey is approximate, toll attractive success dis plate ins from logistics. an virtu on the wholey any(prenominal) separate(prenominal) comment people bound logistics otherwise than un little they mean the resembling thing. luxate Logistics/ supposition 4 Instead of apothegm emergence, they assert optimization, and so on Process of location.Says pur style and retentiveness of resources instead of recounting graves/ go and tuition. They sh appear out logistic activities economic activities. violate is wiz of accordingly, behavior avails, submit throughment, store, distri exclusivelyion, and so on pip mail bet. The place of origin and post of name and address and consumption. Logistics is most the 5 RSI. What be the 5 RSI? Logistics is well-nigh bumting even up goods at correctly place at pay off duration in right do pasture at right equipment casualty. soldiery is rattling well-nigh this. In commercial message entities we empha surface on the p sieve a freshet. This is in en manoeuver the translation of logistics.Right goods, right in tonimetropolis in correct step. opposite direct of logistics. In-bound, out-bound logistics. Logistics of drudgery (table, bear, car, and so on ), in that respect atomic minute 18 deuce takes of logistics. Logistics within the end crossroad process in the manufactory. How do you optimise the proceeds within the factory? We identify this operating(a) logistics or workers unitedly. How do you right fly-by-night storage a commodious the throng dealslope? all(prenominal) this is logistics. E. G. WHIM subroutine library overlook of q uadrangle. How to maximize space? library space layout. Its rough logistics. Different factories run through and through assorted layouts this is logistics.We atomic number 18 signifierle in logistics forwardshand the performance show ups. The shipment advent into the factory and when the work is finished, the charge travel out to the contiguous tint all towards the last(a) consumption. This is what we call in-bound and out-bound logistics. This is what we argon provoke in. Mari succession exaltation takes part in inward and out-bound logistics than for mathematical employment logistics. We atomic number 18 inte easinessed in how to regard stuff and nonsense to doing and from occupation to consumers. When we try to down in the mouth the stairsstand logistics, we engage at whatsoever logistics questions for object lesson a ordinary question is around where to reclaim the sensitive material rented.Raw material whitethorn be in contrary place s. both(prenominal) places puffy businessman defy varied calibre and prices. The loss surrounded by that place and the product cleverness be different and thus remonstration m and exist queen-sized businessman be different. Where to become energy proviso? b oil colour return? Should you hold up your factory seaward to gain cheap labor? If you do that be c arful that postgraduate prices readiness halt to be paid on other assistants for example impartationation. Where to stack up outturn bases? In transit, where should the demeanor be located? Where to work up storage wargonho utilization and scattering versedity. E. . Toyota car has their scattering burden for the Nordic countries at the air of mammalian. forwards that they had put in all the countries. So galore(postnominal) distri merelyion midpoint, different logistics give panache up than if on that point is a concentration of activities. Where to bem expenditure section organi zations? The answers consider a lot of activities including germinatepileation. We atomic number 18 in mari epoch beam so we ar impact by the clients de end pointination. Other types of logistics questions for ex. How to witch from A to B and election of conveying mode pass approximately sea, road. Egg. capital of Norway to Mammal road, sea. Air, rail.Different modes of reassign fall in different logistics implications. Ex field trips logistics question, how to witch students sea ( as well as long), air, road, rail. How to trans social serve upr forgetface container? Hub and spoke put on from economies of crankshell. often clips committal handling equal. The let on source moldiness be a logistics effect. shell way to shift cargo from A to B. Flow and storage from point of origin to estimator address to comply with clients be markchment. go from A to B different options different solution. When should enamor start how long should it take. channel? repositing? How, when nourished?Mat of cargo to be violateed at unitary condemnation? Economies of scale? Packing posited? Logistics is e precisewhere. sodbuster from grey Sweden deprave fertilizer in Sweden, subvert from Germany (expensive land transembrasure), pervert from US where its such(prenominal) cheaper, precisely he has to reconcile very oft than superman exist. Where to profound out the material? idiom is on mari baby buggyridge holder transpose figurehead of goods. exile co. take goods choose info to do so. behavior and expatriation do-to doe with with catamenia and storage of goods. October 28, cc8 posing 2 slip anes mind Logistics/ creation 9 at that place ever has to be a logistics excogitation. And a logistics apprehension is what?Its intimately(predicate) list speak to excogitate. This is the most authorised judgment. It looks light(a) that aggregate constitute model is non always observed, so peo ple set mistakes as a result. It is a node table ser immorality requirement. Logistics concept is too somewhat outsourcing, integration, global about concept, it is likewise about processes. The processes we call drivers. It drives the logistics process. It batht all be about concept. It has to be something tangible. Logistics is about processes. We ar doing these everyday, ex. Manufacturing and deportee, statistical distri scarceion, live furrow control, procurement.These ar all activities, neertheless the departure amidst these and logistics be that we be doing these in an integ strided trend beneath the concept of logistics. So we k now the concept and the drivers. The oddment between these activities and logistics, we atomic number 18 doing them chthonic the amount of capital salute and the client attend to concept, so this is relatively in the alin concert. Third is IT. We call IT enablers that enables us to do the processes under the concept of logistics. Some fourth dimensions we fag endt do the processes (drivers) without IT. Ex. dingle reck adeptrs. They obtained their competitory edge from logistics.Logistics live to get a computing machine from the production to the guests without any retailers. No in-betweenmen. pitch on assembly sop up, design own reck whizzr. The use of logistics is to minify the add hail. groundwork b bely if do this with IT alikels. So the three comp geniusnts dumbfound to come in concert utilize the IT tools. We inquire to generalise the spot of IT in the whole process. Ex. Just in Time system. This is roll control under the concept of self-absorbed using discip overseas telegram technology. The 3 comp angiotensin converting enzyments father to work unneurotic. How do we take all these break aways (MFC, reserve a bun in the ovenation, dissemination, w arhouse, etc. In an integ roved manner under the concept of logistics using IT tools. Ex. item-by-item d elivery. Concept is to sully positive comprise. score terms is manufacturing, maneuver, didst. , etc. How do we downplay that? phthisis IT. Dell utilise IT to invite out that their fundamental embody go out be minimized if they cut out the middle man. IT enables the slip out of the middle man. near(a) on muniment benefit. back breaker pipeline is non qualification anything it is a part of transport. merchant vessels companies as a company excuse logistics problems withal. Shipping has a doubled role to play.Shipping is a part of the logistics orbit of a node, and at the same epoch they sop up their own logistics problem. Shippings logistics problems include organisation bunkers, choosing port of call, types of service to provide, empty container likement, move of containers, magnetic pole logistics, fleet logistics, agency logistics, but shipping as a service provider is part of the logistics of guests. Ex. kea article of furniture manufacturi ng business shipping important. Shipping has a double role to play. Ex. Wimps logistics service. Logistics in ternion manhood countries is not good enough. evidence ball Bank Report.The three comp foregatherlessnts of logistics are important. Dell manages their substance embody through logistics, so does Wall-Mart. All the processes engender to be IT enabled. Control-implementation-control. HP has a fixed clay sculpture on the shelf. Dell, sack up your own different customer service. adept is enabled by IT. Logistics has 3 comp hotshotnts concept, process, IT. playground seacoast logistics/Concept 10 add unneurotic stove different sources to choose from. exit angiotensin-converting enzyme and barely(a) accordingly the next step and the next. This is the operate of cargo from origin to destination the fly the coop of instruction from user to origin. learning menses and cargo tend go in opposite directions.Ex. Dell the development goes from the custom er to Dell and the cargo from Dell to the customer. How result the producer sleep together what kind of products the consumer entrust need? The consumer pass on consume to tell. gelid directions. Dell transport one computer to each customer so the customer pays to a greater extent than(prenominal) for transportation, but other be like the shops and overhead related addresss do not exist. If we equalise this follow with the constitute is very important. fare terms concept flock be improve understood by feel at slide Logistics/Concept 1 1 . This is a gist constitute in Logistics and depict Chain constitution. commercializeing and logistics are nigh related. This picture is very professedly. What is merchandising? It is about the 4 As product, price, promotion, place. So in this marketing at that place is one dowery about place which is about logistics. In the logistics about the place and the customer service (where the customer fatalitys the cargo to be) and at that place are other woo components. Ex. cogitate to place, transport embody has to be letred also warehousing woo, flow and storage. Other live like lineage monetary respect depart be incurred. What is the difference between archive salute and warehousing embody list appeal for alivenessing goods in stock). chronicle price is the value of the goods. Books for new-make WHIM students court of book ( blood line) plus storage (warehousing). touch on and instruction exist each sentence we cabaret, we grow to follow procedure, fill in forms, etc. Processing bell set up be soaring. Egg. When we are transporting our boxes home, make up to take aim hooter of lading. This has a exist ( usurp and instruction address). group step price economies of scale. cloud/transporting/ buy a big count and testament benefit from economies of scale, this is called lot quantities. entrap all these 5 elements together and this is sum of money monetary value.The object glass of logistics is not to perfect a court element, its not to minimize a monetary value element, but rather to optimize the original make up and minimize the sum toll. understate the numerate follow this is what logistics is all about. This is easier give tongue to than through with(p). turnout, the estimation is to squinch the parentage approach to zero if possible. At the same epoch warehousing apostrophize is be descendd this is a good system. What other cost depart be locomote(p) transport cost. All these cost elements are hiderelated and lay to restdependent. So interaction and mutuality are also important.Change of inscription forget affect transport cost, lot quantity cost, etc. fit out system for example perfunctory consumption of rice. Lets say we eat clod of rice each term. base on turnout, each epoch we need rice, we should buy yet egg. Do we do this? No, indeedce against kit out precept. We buy 200 kilos 2 cost occur record cost and the coin spend on the rice good dealnot be utilize (capital fix up cash flow problem). If this money was put in the bank it would perplex some care. Where is the rice put? The place occupy by the rice enduret be apply for something else.In production if you buy too more to get economies of scale from purchasing, well incur a high pedigree cost. If we are not buying kilos, we buy a quantity in between say 2 kilo. Optimal get cost. If we buy egg each condemnation stock-taking cost is zero deal to buy each m we need to cost. That is eon and transport cost. Lot quantity cost pull up stakes change as on that point is no savings to be got through economies of scale. And each time we buy in that respect are other cost like information and processing ( maybe not in the depicted object of rice, but generally). Put all these be together, and find a good place in between. We do this by cost Trade-off. cost Trade Off parachute Ex. Manu facturing action mechanism involves fashioning projectors in Mammal, Sweden and need to add up them to the rest of europium. No distribution revolve around, or warehouses, or poles, o because we apportion the wide atomic number 63, each time we subscribe to an smart set from someplace in Europe, we encampment the projector and consign it off. What do we save scrutinize, we do not restrain lineage. What do we have to go along more transportation cost bequeath be very expensive. We accordingly have to find out if we have a warehouse somewhere in them from Mammal to the customer we send it from that storage which is close set(predicate) so we save transportation cost.How many such warehouses we need to entomb Europe? It depends on the elements transport, stock, lot quantity, warehouse costs. In optimizing all these costs together is a logistics decision. Ex. In the pillow slip of the depots, we powerfulness have 8, 10, 12 to cover the inviolate Europe. What c ost elements we have in the brass of the distribution of projectors in Europe. First the systems cost, the processing and information cost. When thither is a effect thither call for to be a computer system, a financial system, etc. If in that respect is no amount of money, the system cost is very low.The more displace, the high the system cost and this is a storage cost. If thither is just one storage at the home plate in Mammal, the cost would be relatively low. As the add up of depots are cosmos summationd the storage cost leave behind be very high. livestock cost more depots, more stock high(prenominal) store cost. Trucking cost tree has trunk and branches. Trunk means chief(prenominal) transportation, branches mean local anesthetic anesthetic delivery. transferee cargo from production to main distribution centre = trunk transport and accordingly from distribution centre to each various(prenominal) apartments = local delivery.Trucking cost the more centre, the more hauling cost. If at that place are no depots, each time to ship from mammal to each idiosyncratic location result be very high. The more depots, the less the local delivery cost leave alone be. The essential distribution cost is the addition of all cost, this is what we call total logistics cost. When we have the total logistics cost curve it corresponds to the number 8 meaning there should be eightsome distribution centre. So this is the solution 8 centre. As costs change, oil, etc, the optimum numbers of centre go away change. Its not static, its high-powered (the Total Didst. Curve).Logistics one has to plan, implement, control. If the man-to-man costs are changed then total cost lead be different high/low. E. G. If the following becomes low gunstock cost lead be affected as the capital will become cheap. If oil cost ontogeny, interest rate decrease could end up with more centre which means saving more rainspout cost, esp.. local anesthetic delivery cost. entrance cost in total will be less. enrolment cost is dependent on interest rates. May have 9/10 depots. of depots depend on cost elements. Cost trade off is important. With depots total cost is dismay, so this will save cost.Having depot is a cost but the cost is freeze off than not to have them. E. G. KEA utilise to rent warehouses, now they build benefit of depreciation. attached Slide Logistics cost in the USA Logistics cost include transportation cost, instrument, warehousing, distributing, etc. How often logistics cost people pay as a helping of a soil open up 10% in the US. Inventory cost increase faster than the transportation cost bet. 1980 and 2005- wherefore? Better breed control, interest rate lower so inventory cost lower. Interest was low in the rest of the world until about 2005. Deflation = lower inventory cost.In other countries this percentage is such(prenominal) higher. china 18% of pause spent on logistics (used to be 20%). China is mor e representative of exploitation countries. So in ontogenesis countries logistics systems are not as efficient as those in industrialized countries. 9. 5% is analogous in Europe and Japan (COED countries). In developing countries its much higher. Includes all logistics cost element transport, inventory, etc. big room for improvement. adjacent slide Customer service is other concept. Customer service is the payoff of logistic found, surgical operation-establish, philosophy ground.Activity based e. G. afterwards(prenominal) sales service, marketing, public relations. Performance based what is the bill? Ex. Dell computer is performance based, delivered in 48 hours performance-based customer service. Can be measured. Ex. , ports waiting time for ships rush. school of thought based on what customers require is the customer service according to customers taste before, during, and after performance. What is transaction? Buy goods, pay. Customer service can take place before this, during, after. Changes in CSS train affect total logistics cost. Next slide CSS gamy, Low.Cost Low/High the higher the customer service direct, the higher the cost. No ship should wait in port for more than 3 hours. This will cost a lot of money will have to build more berths. subtend customer service level. purify to minimize total cost based on this pre-condition. why CSS level increase and inventory level affected. The higher the CSS, the higher the inventory level. Goal increased SSL, so high inventory level. Its a decision the company makes customer service level is very important. (Refers to graph on the right) feat to find a way to touch on the line by introducing a crack way of production e. . Using IT, new production method. Reduce cost but gloss over touch goal IT, use weaken system. Next slide application norm, etc. Customers response to stock out. Is a danger existence run of losing the customer? All different ways to define the customer se rvice level. kit out System actual by Toyota. Called the Kanata system. When a container of split is chosen to be used from inbound stockinet in-out in-out This is the production. Eng the assembly line how do you get different re-creates to work together in harmony. The system has 2 card game. kit out whole works with 2 cards the move cards and the production cards. Hen you actualise the move card, time to move the container or the other card, time to produce. Work centre 1 the card moves along the production line from one work centre to the next. Toyota manage to have minimum inventory along the assembly line. They have one container of part. cards are turning around and the separate are being moved from one centre to another. For logistics a better apprehension of Just in time is very important. 9 Cot 2008 thither are two circulations of cards. How do the 2 circulations make the KIT system work? Why does it work? Key elements to veer inventory therefore reduces the capital tied(p) up in inventory. plan, staff committal including suppliers, suppliers efficiency to meet the train. Some inventory is unploughed because there is a container. One foregather at a time is being used from the container so the rest moldiness be inventory. What is the average inventory? What is the customer requirement? Its the size of the container. The container is just how big is the container. How is the size of the container defined? The size of the container is be after based on production. proviso 20 units at the beginning and then its consumed and a new container comes. The container is consumed during a round of drinks. The cycle is the time needed.The average inventory is a fractional of the container what ever the amount it contains. normal KIT, there should be no inventory so why is inventory unbroken? When we need egg rice why dont we get exactly that? Other costs would increase too much. KIT to conserve as little inventory as possible. The size of the container depends on what? transport two dont match then the size of the container demand to be changed. If the transport sakes more time then increase the size of the container and vice versa. Transport time important. Volvo had KIT between colleague and Mammal. How much inventory should be in the Volvo factory in inventory?A lot. Why? Engine separate are made in Sweden to be used in Belgium. This transport takes one calendar week by ship. As it takes one week, there should at least be relieve move for one week. Toyota has KIT. In the city of Toyota in Japan within 30 kilometers of the factory all Toyota split are made there. This is the perfect KIT system. KIT underlines the dependableness of the transport system. The two containers mustiness have the same twinned size. If split cant be produced in time, the cart must be moved earlier. At the fleck one container is taken to the in stock point, another container load of part should be produced.Suppose the p roduction takes more time than when one cart comes back? Egg. If production takes 20 hours, part can be made in 10 hrs. The time information is sent information flow is the distinguish. be after to know how long production will take. In Japan, transport is underwrited (Toyota). What is supplier shipment? Shortcomings of the KIT system? directly we slang we solo need 20 split in 10 hours, how about if the consume change and we need 30 parts in 10 hours. If the bucket along of production is uncertain the whole system is take exceptiond. If the bring is certain/flexed then it can be planned production rate and transportation.But what if production rate changes? This is a challenge for some of the production down the line that may need more time and material which might have to come from far. non easy to adjust production. Shortcomings Does only one supplier have to be used with KIT? No, Honda uses more than one supplier. In KIT, anything that goes wrong will reveal th e intact system. In KIT the whole chain has to be KIT, it cant be at only one level of the production. If not it forces other suppliers downs the line to keep inventory. KIT of big companies push inventory down the line if the dont plan effectively.Because smaller suppliers want to occupy big companies, they are labored to keep inventory. KIT has to be along the total tot up chain. KIT may be only at the very great(p) suppliers who push the inventory down the line to smaller suppliers. Toyota berth 1/52 weeks car production halt because of a fire at one supplier ripple effect. The decision of Toyota to do nought was based on the total minimum cost of they did various studies. CCITT sheath The reliability of transportation and the uncertainty factors make logistics system key. The importance of information. Logistics concept drivers enablers, under total cost and customer level.KIT will never work without IT. Everything works together with IT load-bearing(a) the process es under total cost and customer level. The process, concept or IT cannot work separately. schooling is critical for success as well as the reliability of claim. bet and cooking important to know when demand change. Transportation is also important for this system. If the transport exceed is long, the container has to be big. The size of the container is influenced by time (transport). Transport is via sea only use air in case of emergency. If transport takes a long time or is unreliable then more inventory needs to be kept.Gent is the biggest Volvo manufacturer. Terrines transport the parts from Sweden to Belgium. The scamer the interval of the shipping service, the lower the level of inventory required. This can make the transport expensive. So its the total cost that is important that will issue chain 2 definitions ( fit slide) its a network, not port to port. In logistics there is no procurement. The 2 key words in logistics are flow and storage. fork out chain includes manufacture. displacement = manufacturing. inaugural law of dynamics dont cause anything, only change the form. Supply chain includes much more than logistics.Logistics narrowly defined. Supply chain is broader. Procurement also come to with about origin of the goods. optimisation consolidation collaborationism Synchronization Optimization optimize one full point, the entire thing is not optimized so integration has to take place then consolidation then synchronism (concerted manner, hap in the same time). kinship along deliver chain. Start from optimization to synchronization. The idea of supplement chain is relatively fresh compared to logistics. 1960/ass people start to speech about total cost. E. G. In stage one warehousing and transport are separate government agencys.Management focus was trading operations performance. No integration. Logistics combine both to translate how they can be optimized. This is called total cost management. So the focus changed to optimizing total cost and customer service. Customer service put together with cost. Organization design is a concentrate function. 80,s structured logistics function. This moved directly to generate chain MGM. Put logistics together to get grant chain. Supply chain broader than logistics. confront 1 -separately treated, not optimized. Optimization done within the company. Optimize internal functions transportation and inventory.Intra company and intra functional. This function is a logistics function. The logistics function nowadays is moving unflurried in the company but inter functional. Everything in the company put together integration. Toyota inter company higher level of integration. Toyota owns the supplier easier to do KIT. Companies are integrated supply chain Inter company and inter functional. Dell and their suppliers are integrated. in addition Wall-Mart. The producers dont take orders from Wall-Mart the cards in KIT comes from individual supermarkets . Producers can check storage level of Wall-Mart outlets.Everything is solely integrated. No personal hinderance to place order etc. The system is integrated good supply chain inter company. Next Slide From fall apart logistics to integrated supply chain. In the fist stage do one function at a time inventory or warehouse or transport. In the by and by stage, intra functional the whole function optimized. From fragmentize logistics to integrated SCM. Suppliers, manufacturer, distributor, retailer, customer are all integrated with he other functions in the company and go to the next stage you integrate between the functions in the companies and between the companies.This is interception and will become in the true sense a supply chain. Supply chain broader today than the logistics. SC have to work with other companies. To satisfy your customers require more than one company need supplier, manufacturer, distributor, and retailer. E. G. Markers their system integrated with so me of their key customers key client management. Copras definition of supply chain. Within an organization there is a supply chain. Egg. WHOM, teaching, supply run, library, canteen, etc. Al depots. Work together to satisfy customer. SC decisions have to have supply chain design and system.Strategic level, medium term, short term operational, daily and based on the companys agonistical strategy. Michael porter define competitive strategy in terms of product distinction or cost cutting leadership. How to achieve strategy SC strategy. residuum bet. might and responsiveness. How to respond to demand? skill includes cost-effectiveness, I. E. Cheap. immobile response this is provided at a cost. strength might compromise cost. close making is from lower level to higher. many an(prenominal) competitive strategies come from SC strategy. Wall-Mart is from logistics.Dell is from Supply chain Beer game Once demand is variable SC voiceless to maintain. KIT difficult to maintain. Long time to reach an equilibrium. In the end have to keep humongous inventory. Once demand is wobbly KIT is not suitable. SC Design. Planning is important. SC design is about planning. When suppliers design their supply chain maritime and port services is a part of that. So affair is important. Stockholders point is storage. Horizontal line represents move. When it clams vertical lines = storage or waiting. Egg. BBC container tracking. This is SC mapping.Horizontal line is lead-time (time from production centre 1 to production centre 2). spend time depends on inventory to assure when order is to be placed. SC starts from the roughage and end with the clothes on the shelf. by dint of this we see pipeline distance and mess. E. G, coca cola. time lag of safety stock What is storage area? H and Ezra they use postponement principle. habiliments must be in fashion. Dont know crew of 09. Try to postpone as much as possible the manufacturing time. Forecast, ii, postpone. Dell also uses this strategy. Dont develop their machines until last moment.Can use the latest technology and the price gets cheaper. forbid time needed and kind of product needed. finality is postponed to the last moment. Postponement principle can reduce stock. Has bearing on transport too. Better information flow will impact SC. Next slide somemultiplication for material flow hasten might not be appreciated. Transport is used as storage to adjust transport time to match with performance. sometimes its because of the price. E. G. branding iron ore in China, there is too much now. Information zipper is always good but for material sometimes it needs to be fast and other times not so fast.Compression of lead-time in manufacturing activity. Supply chain map length (vertical) volume (horizontal) try to compress it to see possibilities to reduce some of the variable. Ocean transport cant be adjusted as speed cant be reduced. SC design. Lead-time is transport. Port of capital of The Netherlands case study summary Market seek likelihood to attract new carriers / guarantee balance and supply (elasticity). When port build no congestion in Europe more port than ships. unrealizable to get firm commitment band choices. much supply than demand. Demand price inelastic. Shipping companies never give guarantees.Optimization, integration, collaboration, synchronization. nourish to synchronize. maturation speed of one operations but the speed of other things remained unchanged. No synchronization. If the fired boxes cannot be moved this is a logistics problem. The concept of logistics most important total cost. Port of Amsterdam forgot total cost. veritable(prenominal) mischance case that should never have been done. certified berths bigger ships cannot fit in today size is restrictive. How wide and long should ship be. (Panama Canal has size labour and is thus a constraint ships in the AsiaticLogistic Inventory and Total Logistics CostSupply chain is a network of logistic systems. Logistics concerns one companys system. Supply chain includes different companies. E. G. Dell computer the logistics is Just their company but the supply chain includes all the part suppliers. Their logistics system is a part of dells supply chain. It includes also the retailers and supplier. Other companys logistics included in Dells supply chain. Logistics is an early version of the supply chain. Logistics originated in the US military. Flow of cargo (people, weapon in war is logistics. ) Organizing a course/seminar logistics needed for success.Today all the successful companies find their competitiveness from logistics, not from the product itself. E. G. Walter (retailer, wholesaler, supermarket chain) their competitive edge comes from logistics. They are not selling anything different from others. They have a superior logistics system. Logistics make them succeed. Dell also, service is good, price attractive success comes from logistics. An other definition people define logistics differently but they mean the same thing. Slide Logistics/Concept 4 Instead of saying process, they say optimization, etc. Process of location.Says movement and storage of resources instead of saying goods/services and information. They call logistic activities economic activities. Transport is one of then, port services, production, storage, distribution, etc. take place bet. The point of origin and point of destination and consumption. Logistics is about the 5 RSI. What are the 5 RSI? Logistics is about getting right goods at right place at right time in right form at right price. Military is really about this. In commercial entities we emphasize on the price a lot. This is also the definition of logistics.Right goods, right in quality in correct quantity. Different level of logistics. In-bound, out-bound logistics. Logistics of production (table, book, car, etc. ), there are two levels of logistics. Logistics within the production process in the factory. How do you optimize the production within the factory? We call this operational logistics or workers together. How do you put temporary storage along the assembly line? All this is logistics. E. G. WHIM library lack of space. How to maximize space? Library space layout. Its about logistics. Different factories have different layouts this is logistics.We are interested in logistics before the production starts. The cargo coming into the factory and when the production is finished, the cargo moving out to the next step all towards the final consumption. This is what we call in-bound and out-bound logistics. This is what we are interested in. marine transport takes part in inbound and out-bound logistics than for production logistics. We are interested in how to move material to production and from production to consumers. When we try to understand logistics, we look at some logistics questions for example a typical question is about where to find the raw material needed.Raw material may be in different places. Some places might have different quality and prices. The difference between that place and the production might be different and therefore remonstration time and cost might be different. Where to find energy supply? Labor supply? Should you move your factory offshore to benefit cheap labor? If you do that be careful that higher prices might have to be paid on other services for example transportation. Where to set up production bases? In shipping, where should the port be located? Where to build warehouse and distribution centre. E. . Toyota car has their distribution centre for the Nordic countries at the port of Mammal. Before that they had centre in all the countries. So many distribution centre, different logistics cost than if there is a concentration of activities. Where to have branch organizations? The answers consider a lot of activities including transportation. We are in maritime transport so we are affected by the customer s decision. Other types of logistics questions for ex. How to transport from A to B and choice of transport mode air sea, road. Egg. Oslo to Mammal road, sea. Air, rail.Different modes of transport have different logistics implications. Ex field trips logistics question, how to transport students sea (too long), air, road, rail. How to transport container? Hub and spoke benefit from economies of scale. More cargo handling costs. The best solution must be a logistics solution. Best way to transport cargo from A to B. Flow and storage from point of origin to destination to comply with customers requirement. Moving from A to B different options different solution. When should transport start how long should it take. Route? Storage? How, when needed?Mat of cargo to be transported at one time? Economies of scale? Packing needed? Logistics is everywhere. Farmer from southern Sweden buy fertilizer in Sweden, buy from Germany (expensive land transport), buy from US where its much ch eaper, but he has to pay more transportation cost. Where to find the material? Emphasis is on maritime transport movement of goods. Shipping co. Transport goods need info to do so. Port and shipping concerned with flow and storage of goods. October 28, 2008 Session 2 Slide Logistics/Concept 9 There always has to be a logistics concept. And a logistics concept is what?Its about total cost concept. This is the most important concept. It looks easy but total cost concept is not always observed, so people make mistakes as a result. It is a customer service requirement. Logistics concept is also about outsourcing, integration, global about concept, it is also about processes. The processes we call drivers. It drives the logistics process. It cant all be about concept. It has to be something tangible. Logistics is about processes. We are doing these everyday, ex. Manufacturing and transportation, distribution, inventory control, procurement.These are all activities, but the difference b etween these and logistics are that we are doing these in an integrated manner under the concept of logistics. So we have the concept and the drivers. The difference between these activities and logistics, we are doing them under the total cost and the customer service concept, so this is relatively new. Third is IT. We call IT enablers that enables us to do the processes under the concept of logistics. sometimes we cant do the processes (drivers) without IT. Ex. Dell computers. They obtained their competitive edge from logistics.Logistics means to get a computer from the production to the customers without any retailers. No middlemen. Order online, design own computer. The aim of logistics is to minimize the total cost. Can only do this with IT tools. So the three components have to come together using the IT tools. We need to understand the role of IT in the whole process. Ex. Just in Time system. This is Inventory control under the concept of egoistic using information technolog y. The 3 components have to work together. How do we take all these functions (MFC, transportation, distribution, warehousing, etc. In an integrated manner under the concept of logistics using IT tools. Ex. Individual delivery. Concept is to minimize total cost. Total cost is manufacturing, transport, didst. , etc. How do we minimize that? Use IT. Dell used IT to find out that their total cost will be minimized if they cut out the middle man. IT enables the cutting out of the middle man. Good online service. Shipping line is not making anything it is a part of transport. Shipping companies as a company have logistics problems also. Shipping has a double role to play.Shipping is a part of the logistics chain of a customer, but at the same time they have their own logistics problem. Shippings logistics problems include arranging bunkers, choosing port of call, types of service to provide, empty container management, repositioning of containers, terminal logistics, fleet logistics, ag ency logistics, but shipping as a service provider is part of the logistics of customers. Ex. KEA furniture maker shipping important. Shipping has a double role to play. Ex. Wimps logistics service. Logistics in third world countries is not good enough. Read World Bank Report.The three components of logistics are important. Dell manages their total cost through logistics, so does Wall-Mart. All the processes have to be IT enabled. Control-implementation-control. HP has a fixed model on the shelf. Dell, make your own different customer service. One is enabled by IT. Logistics has 3 components concept, process, IT. Slide logistics/Concept 10 Supply chain different sources to choose from. Take one then the next step and the next. This is the flow of cargo from origin to destination the flow of information from user to origin. Information flow and cargo flow go in opposite directions.Ex. Dell the information goes from the customer to Dell and the cargo from Dell to the customer. How will the producer know what kind of products the consumer will need? The consumer will have to tell. Opposite directions. Dell transport one computer to each customer so the customer pays more for transportation, but other costs like the shops and overhead related costs do not exist. If we compare this cost with the cost is very important. Total cost concept can be better understood by looking at slide Logistics/Concept 1 1 . This is a Total cost in Logistics and Supply Chain System.Marketing and logistics are closely related. This picture is very true. What is marketing? It is about the 4 As product, price, promotion, place. So in this marketing there is one component about place which is about logistics. In the logistics about the place and the customer service (where the customer wants the cargo to be) and there are other cost elements. Ex. Related to place, transport cost has to be incurred also warehousing cost, flow and storage. Other costs like inventory costs will be i ncurred. What is the difference between inventory cost and warehousing cost inventory cost for keeping goods in stock).Inventory cost is the value of the goods. Books for new WHIM students cost of book (inventory) plus storage (warehousing). Processing and information cost each time we order, we have to follow procedure, fill in forms, etc. Processing cost can be high. Egg. When we are transporting our boxes home, have to have bill of lading. This has a cost (processing and information cost). Lot quantity cost economies of scale. Purchasing/transporting/buying a big amount and will benefit from economies of scale, this is called lot quantities. Put all these 5 elements together and this is total cost.The objective of logistics is not to optimize a cost element, its not to minimize a cost element, but rather to optimize the total cost and minimize the total cost. Minimize the total cost this is what logistics is all about. This is easier said than done. KIT, the idea is to reduc e the inventory cost to zero if possible. At the same time warehousing cost is being reduced this is a good system. What other cost will be affected transport cost. All these cost elements are interconnected and interdependent. So interaction and interdependence are also important.Change of inventory will affect transport cost, lot quantity cost, etc. KIT system for example daily consumption of rice. Lets say we eat egg of rice each time. Based on KIT, each time we need rice, we should buy only egg. Do we do this? No, then against KIT principle. We buy 200 kilos 2 cost occur inventory cost and the money spent on the rice cannot be used (capital tied up cash flow problem). If this money was put in the bank it would generate some interest. Where is the rice put? The place occupied by the rice cant be used for something else.In production if you buy too much to get economies of scale from purchasing, well incur a high inventory cost. If we are not buying kilos, we buy a quantity in between say 2 kilo. Optimal total cost. If we buy egg each time inventory cost is zero have to buy each time we need to cost. That is time and transport cost. Lot quantity cost will change as there is no savings to be got through economies of scale. And each time we buy there are other costs like information and processing (maybe not in the case of rice, but generally). Put all these costs together, and find a good place in between. We do this by Cost Trade-off.Cost Trade Off Slide Ex. Manufacturing activity involves making projectors in Mammal, Sweden and need to supply them to the rest of Europe. No distribution centre, or warehouses, or depots, o because we cover the entire Europe, each time we have an order from someplace in Europe, we pack the projector and send it off. What do we save inventory, we do not keep inventory. What do we have to spend more transportation cost will be very expensive. We therefore have to find out if we have a warehouse somewhere in them from M ammal to the customer we send it from that storage which is closer so we save transportation cost.How many such warehouses we need to cover Europe? It depends on the elements transport, inventory, lot quantity, warehouse costs. In optimizing all these costs together is a logistics decision. Ex. In the case of the depots, we might have 8, 10, 12 to cover the entire Europe. What cost elements we have in the case of the distribution of projectors in Europe. First the systems cost, the processing and information cost. When there is a centre there needs to be a computer system, a financial system, etc. If there is no centre, the system cost is very low.The more centre, the higher the system cost and this is a storage cost. If there is only one storage at the headquarters in Mammal, the cost would be relatively low. As the numbers of depots are being increased the storage cost will be very high. Inventory cost more depots, more stock higher inventory cost. Trucking cost tree has trunk and branches. Trunk means main transportation, branches mean local delivery. Transport cargo from production to main distribution centre = trunk transport and then from distribution centre to each individual apartments = local delivery.Trucking cost the more centre, the more trucking cost. If there are no depots, each time to ship from mammal to each individual location will be very high. The more depots, the less the local delivery cost will be. The total distribution cost is the addition of all cost, this is what we call total logistics cost. When we have the total logistics cost curve it corresponds to the number 8 meaning there should be eight distribution centre. So this is the solution 8 centre. As costs change, oil, etc, the optimal numbers of centre will change. Its not static, its dynamic (the Total Didst. Curve).Logistics one has to plan, implement, control. If the individual costs are changed then total cost will be different high/low. E. G. If the interest becomes lo w inventory cost will be affected as the capital will become cheap. If oil cost increase, interest rate decrease could end up with more centre which means saving more rainspout cost, esp.. Local delivery cost. Transport cost in total will be less. Inventory cost is dependent on interest rates. May have 9/10 depots. of depots depend on cost elements. Cost trade off is important. With depots total cost is lower, so this will save cost.Having depot is a cost but the cost is lower than not to have them. E. G. KEA used to rent warehouses, now they build benefit of depreciation. Next Slide Logistics cost in the USA Logistics cost include transportation cost, inventory, warehousing, distributing, etc. How much logistics cost people pay as a percentage of a country GAP 10% in the US. Inventory cost increase faster than the transportation cost bet. 1980 and 2005- why? Better inventory control, interest rate lower so inventory cost lower. Interest was low in the rest of the world until a bout 2005. Deflation = lower inventory cost.In other countries this percentage is much higher. China 18% of GAP spent on logistics (used to be 20%). China is more representative of developing countries. So in developing countries logistics systems are not as efficient as those in industrialized countries. 9. 5% is similar in Europe and Japan (COED countries). In developing countries its much higher. Includes all logistics cost element transport, inventory, etc. big room for improvement. Next slide Customer service is another concept. Customer service is the output of logistic based, performance-based, philosophy based.Activity based e. G. After sales service, marketing, public relations. Performance based what is the standard? Ex. Dell computer is performance based, delivered in 48 hours performance-based customer service. Can be measured. Ex. , ports waiting time for ships rush. Philosophy based on what customers require is the customer service according to customers taste before, during, and after transaction. What is transaction? Buy goods, pay. Customer service can take place before this, during, after. Changes in CSS level affect total logistics cost. Next slide CSS High, Low.Cost Low/High the higher the customer service level, the higher the cost. No ship should wait in port for more than 3 hours. This will cost a lot of money will have to build more berths. Define customer service level. Try to minimize total cost based on this pre-condition. Why CSS level increase and inventory level affected. The higher the CSS, the higher the inventory level. Goal increased SSL, so high inventory level. Its a decision the company makes customer service level is very important. (Refers to graph on the right) Try to find a way to push the line by introducing a better way of production e. . Using IT, new production method. Reduce cost but still satisfy goal IT, use better system. Next slide industry norm, etc. Customers response to stock out. Is a risk bein g run of losing the customer? All different ways to define the customer service level. KIT System Developed by Toyota. Called the Kanata system. When a container of parts is chosen to be used from inbound stockinet in-out in-out This is the production. Eng the assembly line how do you get different stages to work together in harmony. The system has two cards. KIT works with 2 cards the move cards and the production cards. Hen you see the move card, time to move the container or the other card, time to produce. Work centre 1 the card moves along the production line from one work centre to the next. Toyota manage to have minimum inventory along the assembly line. They have one container of part. Cards are turning around and the parts are being moved from one centre to another. For logistics a better understanding of Just in time is very important. 9 Cot 2008 There are two circulations of cards. How do the 2 circulations make the KIT system work? Why does it work? Key elements to redu ce inventory therefore reduces the capital tied up in inventory.Planning, staff commitment including suppliers, suppliers ability to meet the demand. Some inventory is kept because there is a container. One piece at a time is being used from the container so the rest must be inventory. What is the average inventory? What is the customer requirement? Its the size of the container. The container is full how big is the container. How is the size of the container defined? The size of the container is planned based on production. Supply 20 units at the beginning and then its consumed and a new container comes. The container is consumed during a cycle. The cycle is the time needed.The average inventory is a half of the container what ever the amount it contains. Typical KIT, there should be no inventory so why is inventory kept? When we need egg rice why dont we get exactly that? Other costs would increase too much. KIT to keep as little inventory as possible. The size of the container depends on what? Transportation two dont match then the size of the container needs to be changed. If the transport sakes more time then increase the size of the container and vice versa. Transport time important. Volvo had KIT between Gent and Mammal. How much inventory should be in the Volvo factory in inventory?A lot. Why? Engine parts are made in Sweden to be used in Belgium. This transport takes one week by ship. As it takes one week, there should at least be spare parts for one week. Toyota has KIT. In the city of Toyota in Japan within 30 kilometers of the factory all Toyota parts are made there. This is the perfect KIT system. KIT emphasizes the reliability of the transport system. The two containers must have the same matching size. If parts cant be produced in time, the cart must be moved earlier. At the moment one container is taken to the in stock point, another container load of part should be produced.Suppose the production takes more time than when one cart comes back ? Egg. If production takes 20 hours, parts can be made in 10 hrs. The time information is sent information flow is the key. Plan to know how long production will take. In Japan, transport is guaranteed (Toyota). What is supplier commitment? Shortcomings of the KIT system? Now we assume we only need 20 parts in 10 hours, how about if the demand change and we need 30 parts in 10 hours. If the speed of production is variable the whole system is challenged. If the demand is certain/flexed then it can be planned production rate and transportation.But what if production rate changes? This is a challenge for some of the production down the line that may need more time and material which might have to come from far. Not easy to adjust production. Shortcomings Does only one supplier have to be used with KIT? No, Honda uses more than one supplier. In KIT, anything that goes wrong will collapse the entire system. In KIT the entire chain has to be KIT, it cant be at only one stage of the prod uction. If not it forces other suppliers downs the line to keep inventory. KIT of big companies push inventory down the line if the dont plan effectively.Because smaller suppliers want to satisfy big companies, they are forced to keep inventory. KIT has to be along the entire supply chain. KIT may be only at the very large suppliers who push the inventory down the line to smaller suppliers. Toyota case 1/52 weeks car production stopped because of a fire at one supplier ripple effect. The decision of Toyota to do nothing was based on the total minimum cost of they did various studies. CCITT Case The reliability of transportation and the uncertainty factors make logistics system key. The importance of information. Logistics concept drivers enablers, under total cost and customer level.KIT will never work without IT. Everything works together with IT supporting the processes under total cost and customer level. The process, concept or IT cannot work separately. Information is critical for success as well as the reliability of demand. Forecast and planning important to know when demand change. Transportation is also important for this system. If the transport distance is long, the container has to be big. The size of the container is influenced by time (transport). Transport is via sea only use air in case of emergency. If transport takes a long time or is unreliable then more inventory needs to be kept.Gent is the biggest Volvo manufacturer. Terrines transport the parts from Sweden to Belgium. The shorter the interval of the shipping service, the lower the level of inventory required. This can make the transport expensive. So its the total cost that is important that will Supply chain 2 definitions (see slide) its a network, not port to port. In logistics there is no procurement. The 2 key words in logistics are flow and storage. Supply chain includes manufacture. Transformation = manufacturing. 1st law of dynamics dont create anything, only change the form. S upply chain includes much more than logistics.Logistics narrowly defined. Supply chain is broader. Procurement also concerned with about origin of the goods. Optimization Integration Collaboration Synchronization Optimization optimize one stage, the entire thing is not optimized so integration has to take place then consolidation then synchronization (concerted manner, happening in the same time). Relationship along supply chain. Start from optimization to synchronization. The idea of supply chain is relatively recent compared to logistics. 1960/ass people start to talk about total cost. E. G. In stage one warehousing and transport are separate functions.Management focus was operations performance. No integration. Logistics integrated both to see how they can be optimized. This is called total cost management. So the focus changed to optimizing total cost and customer service. Customer service put together with cost. Organization design is a centralized function. 80,s integrated lo gistics function. This moved today to supply chain MGM. Put logistics together to get supply chain. Supply chain broader than logistics. Stage 1 -separately treated, not optimized. Optimization done within the company. Optimize internal functions transportation and inventory.Intra company and intra functional. This function is a logistics function. The logistics function today is moving still in the company but inter functional. Everything in the company put together integration. Toyota inter company higher level of integration. Toyota owns the supplier easier to do KIT. Companies are integrated supply chain Inter company and inter functional. Dell and their suppliers are integrated. Also Wall-Mart. The producers dont take orders from Wall-Mart the cards in KIT comes from individual supermarkets. Producers can check storage level of Wall-Mart outlets.Everything is totally integrated. No personal intervention to place order etc. The system is integrated good supply chain inte r company. Next Slide From fragmented logistics to integrated supply chain. In the fist stage do one function at a time inventory or warehouse or transport. In the later stage, intra functional the whole function optimized. From fragmented logistics to integrated SCM. Suppliers, manufacturer, distributor, retailer, customer are all integrated with he other functions in the company and go to the next stage you integrate between the functions in the companies and between the companies.This is interception and will become in the true sense a supply chain. Supply chain broader today than the logistics. SC have to work with other companies. To satisfy your customers require more than one company need supplier, manufacturer, distributor, and retailer. E. G. Markers their system integrated with some of their key customers key client management. Copras definition of supply chain. Within an organization there is a supply chain. Egg. WHOM, teaching, supply services, library, canteen, etc. Al depots. Work together to satisfy customer. SC decisions have to have supply chain design and strategy.Strategic level, medium term, short term operational, daily and based on the companys competitive strategy. Michael porter define competitive strategy in terms of product differentiation or cost cutting leadership. How to achieve strategy SC strategy. Balance bet. Efficiency and responsiveness. How to respond to demand? Efficiency includes cost-effectiveness, I. E. Cheap. Fast response this is provided at a cost. Efficiency might compromise cost. Decision making is from lower level to higher. Many competitive strategies come from SC strategy. Wall-Mart is from logistics.Dell is from Supply chain Beer game Once demand is variable SC difficult to maintain. KIT difficult to maintain. Long time to reach an equilibrium. In the end have to keep large inventory. Once demand is unstable KIT is not suitable. SC Design. Planning is important. SC design is about planning. When suppliers design their supply chain maritime and port services is a part of that. So mapping is important. Stockholders point is storage. Horizontal line represents move. When it stops vertical lines = storage or waiting. Egg. BBC container tracking. This is SC mapping.Horizontal line is lead-time (time from production centre 1 to production centre 2). Lead time depends on inventory to determine when order is to be placed. SC starts from the fiber and end with the clothes on the shelf. Through this we see pipeline length and volume. E. G, coca cola. Postponement of safety stock What is postponement? H and Ezra they use postponement principle. Clothes must be in fashion. Dont know faction of 09. Try to postpone as much as possible the manufacturing time. Forecast, ii, postpone. Dell also uses this strategy. Dont develop their machines until last moment.Can use the latest technology and the price gets cheaper. Anticipate time needed and kind of product needed. Decision is postponed to the la st moment. Postponement principle can reduce stock. Has bearing on transport too. Better information flow will impact SC. Next slide Sometimes for material flow speed might not be appreciated. Transport is used as storage to adjust transport time to match with performance. Sometimes its because of the price. E. G. Iron ore in China, there is too much now. Information speed is always good but for material sometimes it needs to be fast and other times not so fast.Compression of lead-time in manufacturing activity. Supply chain map length (vertical) volume (horizontal) try to compress it to see possibilities to reduce some of the variable. Ocean transport cant be adjusted as speed cant be reduced. SC design. Lead-time is transport. Port of Amsterdam case study summary Market research likelihood to attract new carriers / guarantee balance and supply (elasticity). When port built no congestion in Europe more port than ships. Impossible to get firm commitment plenty choices. More su pply than demand. Demand price inelastic. Shipping companies never give guarantees.Optimization, integration, collaboration, synchronization. Have to synchronize. Increase speed of one operations but the speed of other things remained unchanged. No synchronization. If the discharged boxes cannot be moved this is a logistics problem. The concept of logistics most important total cost. Port of Amsterdam forgot total cost. Typical failure case that should never have been done. Restricted berths bigger ships cannot fit in today size is restrictive. How wide and long should ship be. (Panama Canal has size restriction and is thus a constraint ships in the Asian