|
|
|
Distribution network configuration Supply chain integration and strategic alliances Product and supply chain design
Distribution network configuration The following steps can be taken for an effective distribution network configuration: 1- Data aggregation: customer locations are clustered. Product groups are aggregated by distribution pattern or product type. 2- Transportation rates: internal or external fleet. If Internal: costs per truck, mileage per truck, amount delivered and truck's capacity. If external: Truck load (TL) VS Less than Truckload (LTL) 3- Mileage estimation Mileage can be estimated using either street network or straight line distances. Applications in which exact distances are more appropriate can be obtained from advanced Geographic Information Systems (GIS) 4- Warehouse costs Warehousing and distribution costs include three elements: - Handling costs: Includes labor and utility costs that are proportional to annual flow through the warehouse. - Fixed costs: These costs are not proportional to warehouse capacity. - Storage costs: These represent inventory holding costs which are proportional to average inventory levels. 5- Warehouse capacities: This reflects the actual space required. The storage space is about twice the average inventory level. 6- Potential warehouse locations: The following factors are looked into for potential warehouse locations : geographic and infrastructure conditions; natural resources and labor availability; local industry and tax regulations as well as public interest. 7- Service level requirements: This is a subjective issue and includes the maximum distance between each customer and the warehouse serving it. It basically means that a warehouse will be able to serve its customers within a reasonable time. 8- Future Demand: Changes in demand over the next few years should be taken into account when designing the network. Possible scenarios representing a variety of possible future demand patterns over a planning horizon can be identified.
Inventory in the supply chain appears in three forms: - Raw material inventory - Work in process inventory - Finished product inventory An important concept in inventory management is Risk Pooling which means that demand variability is reduced if one aggregates demand across locations. If demand is aggregated across different locations, it becomes more likely that high demand from one customer will be offset by low demand from another. Centralized VS. Decentralized systems Following are the trade offs that we need to consider in comparing a centralized distribution systems with a decentralized distribution system: - Safety stock: safety stock decreases as a firm moves from a decentralized to a centralized system. - Service level: service level provided by the centralized system is higher, when the centralized and decentralized systems have the same total safety stock. - Overhead costs: These costs are much greater in a decentralized system because there are fewer economies of scale. - Customer lead time: When the warehouses are much closer to the customers in a decentralized system, response time is much lower. - Transportation costs: Outbound transportation costs in a decentralized distribution system (costs for delivering the items from the warehouses to the customers) decrease because warehouses are much closer to the market area. Where as inbound transportation costs (costs of shipping the products from the supply and manufacturing facilities to the warehouse) increase.
1- Direct shipment: When items are shipped directly from the supplier to the retail stores without going through distribution centers. 2- Warehousing: This strategy is adopted when warehouses keep stock and provide customers with items as required. 3- Cross docking: This strategy is adopted when items are distributed continuously from suppliers through warehouses to customer. The warehouses normally rarely keep the items for more than 10 to 15 hours.
The Push Versus Pull systems: Push based supply chain: Under this system, production costs are based on long term forecasts. Also, the manufacturer uses orders received from the retailer's warehouses to react to the changing marketplace.
Pull based supply chain: Under this system production is demand driven so that it is coordinated with actual customer demand rather than a forecast. The supply chain uses fast information flow mechanisms to transfer information about customer demand to the manufacturing facilities.
Supply chain integration and strategic alliances 1- Third Party Logistics (3PL) It is the use of an outside company to perform all or apart of the firm's materials management and product distribution The traditional 3PLs have provided companies with particular services, such as trucking and warehousing. For many years, these relationships were either transaction based or single function specific. Modern 3PLs involve long term commitments and often multiple function or process management. 3PLs minimize the time and costs involved in transportation, warehousing and related processes such as order entry and shipment tracking. To achieve this, 3PLs help redesign the supply chain. They reduce time by taking links out of the chain to make it shorter and they also make more efficient use of capital. There are three reasons why companies choose 3PLs: 1- To reduce the true cost of logistics and optimize logistics capabilities. 2- To become more flexible and responsive to customer needs in turn improving customer satisfaction. 3- To achieve strategic and competitive advantage through more effective use of logistics budgets and improved customer satisfaction.
Current and future trends of 3PLs: 1- Non-asset owning 3PLs: Traditionally, 3PLs have been asset-based providers operating as part of an organization that also offered transportation, warehousing and freight forwarding or customs brokerage. This traditional approach did not result in a customized solution to the customer. More recently, a new trend of logistics service providers has emerged and that is the non-asset based ones. 2- VMI and hubs: Among the major trends impacting the 3PL market is Vendor-Managed Inventory (VMI) and the development of supplier hubs. The suppliers place the inventories in the hubs near the manufacturers facilities, which are run by 3PL providers , but the suppliers continue to own the inventory until the manufacturer needs it. 3PLs track inventory and vendors can access data via internet making it easier to deliver goods to the customer on a Just-in- Time basis. In a VMI arrangement, the supplier owns the inventory until it i sold at the retail level. 3- There is a trend of branding new 3Pls as 4Pls. While 3pls usually handle specific portions of a company's supply chain, the trend is for end-to-end management of the supply chain. 4PLs hire subcontractors to help with this total integration. So a firm might hire a 4PL to handle all of a company's resources including human resources while they may have other carriers but ask the 4PL to manage the entire process. The proliferation of e-commerce has in turn driven the growth of 4PLs, which rely heavily on the Internet and other IT to link the customer's entire supply chain. 2- Retailer-Supplier Partnership (RSP) The most important requirement for an effective RSP, especially one toward the Vendor managed Inventory (VMI), is advanced Information systems. Electronic Data Interchange (EDI) to relay POS information to the supplier and delivery information to the retailer, is essential to cut down on data transfer time and entry mistakes. Bar coding and scanning are also essential to maintain data accuracy. Also, inventory, production control and planning systems must be online and integrated to take advantage of additional information available. Product and supply chain designDesign for logistics addresses the following issues: 1- Economic packaging and transportation This involves the design of products that can be efficiently packed and stored. Products that can be packed compactly are cheaper to transport. Efficient storage reduces inventory costs because handling costs decrease, space per product decreases and revenue per square foot can increase. It may be valuable to redesign the product itself in order to take these issues into account. 2- Concurrent and parallel processing: This involves modifying the manufacturing process so those steps that were previously performed in a sequence can be completed at the same time. This reduces manufacturing lead-time, lower inventory costs through improved forecasting and lower safety stock. 3- Postponement/delayed differentiation: Through the postponement/delayed differentiation technique it is possible to make effective use shared information through IT. This involves the designing of the product and the manufacturing process so that decisions can be delayed until after manufacturing is under way. The manufacturing process starts by making a generic product, which is later differentiated, into a specific end product. The Push- Pull boundary In the Push system, production is based on long term forecasts while in the Pull- based supply chains, production is demand driven. The Pull based systems typically leads to reduction in supply chain lead times, inventory levels and system costs. However, it is not always practical to implement a
Pull-based systems through out the supply chain. Lead times may be too long, or it may be necessary to
take advantage of economies of scale. So both systems can be combined. The
portion of the supply chain prior to differentiation would be push based. The undifferentiated part would be built and transported based on long
term forecasts. On the other hand,
the portion of the supply chain starting from the time of differentiation would
be Pull
based supply chain. Mass customization: Mass customization is comprised of mass production and craft production. So it is the delivery of a wide variety of customized goods or services quickly and efficiently at low cost.
Example A: Ryder Logistics (A 3PL) and General Motors The partnership between Ryder Logistics and General Motors' Saturn division is a good example of 3PL partnerships. Saturn focuses on automobile manufacturing and Ryder manages most of Saturn's other considerations. Ryder deals with vendors, delivering parts to the Saturn Factory in Tennessee, and also delivers finished vehicles to the dealers. Saturn orders parts using Electronic Data Interchange (EDI) and sends the same information to Ryder. Ryder makes all the necessary pickups from 300 different suppliers in the U.S., Canada and Mexico, using special Decision Support (DSS) software to effectively plan routes to minimize transportation costs.
Example B: Western Publishing (Retailer - Supplier Partnership) Western Publishing uses VMI for its Golden Books line of children's books at several retailers, including more than 2,000 Wal-Mart locations. Under this arrangement, POS data automatically trigger reorders when inventory falls below a reorder point. The inventory is delivered either to a distribution center or often directly to a store. Example C: Benetton (delayed differentiation) Benetton is a major supplier of knitwear and at one point was the largest consumer of wool in the world. The nature of the fashion industry is characterized by high variability in which consumer preferences are constantly changing. As a result of long manufacturing lead-time, storeowners had to place orders for wool sweaters up to seven months in advance. This left little flexibility to respond to the changing tastes of consumers. So through the integration of IT, Benetton was able to revise the manufacturing process, postponing the dyeing of the garments until AFTER the sweater was completely assembled. Therefore the color of choices could be delayed until after more sales information was received. Although this made the manufacturing more expensive as a result of acquiring new equipment, Benetton was more than compensated by improved forecasts, lower surplus inventories and higher sales.
`
SCM Overview | Key Issues in SCM | Impact of IT on SCM| Specific IT Concepts in SCM | DSS for SCM | Bio of presenters| Home |
