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Supply Chain

Supply Chain

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Lean Supply Chain Management

Introduction Lean supply chain management is not exclusively for those companies who manufacture products, but by businesses who want to streamline their processes by eliminating waste and non-value added activities. Companies have a number of areas in their supply chain where waste can be identified as time, costs or inventory. To create a leaner supply chain companies must examine each area of the supply chain. Procurement Many businesses have complex purchasing operations. Large companies often have corporate purchasing groups as well as local purchasing. This can lead to vendors being given multiple contracts leading to variations in prices depending on location. Companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations. Businesses are looking to new technologies to assist them in improving procurement processes. These include internet based purchasing that allows requisitioners to purchase items from vendor’s catalogs containing company wide contract prices. Changes in payment options to vendors can also streamline processes. Companies that use a two-way match, which is payment on receipt rather than payment on invoice, will reduce resources in their purchasing department as well as improve supplier relationships. Manufacturing Lean supply chain management gained popularity in the manufacturing area as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved. Warehousing Warehouse processes should be examined to find areas of eliminating waste of resources and non-value added steps. One area the companies should always be working on is the reduction of unnecessary inventory. The accumulation of inventory requires resources to store and maintain it. By reducing unnecessary inventory, a company can minimize warehousing space and handling, in turn reducing overall costs. Transportation Businesses who want to implement lean processes often look to their transportation procedures to see where they can be streamlined. In many instances companies find that their efforts to improve customer satisfaction leads to poor shipping decisions. Orders are shipped without combining additional orders to minimize costs or expensive shipping options are selected because of a customer request. Businesses often find that they are using a number of shippers unnecessarily when they could be reducing their shipping options and reduce overall costs. Conclusion Lean supply chain management requires businesses to examine every process in their supply chain and identify areas that are using unnecessary resources, which can be measured in dollars, time or raw materials. This will improve the company’s competitiveness as well as improve the company’s overall profitability.

Introduction to Chain Management Supply
Introduction to Supply Chain Management If your company makes a product from parts purchased from suppliers, and those products are sold to customers, then you have a supply chain. Some supply chains are simple, while others are rather complicated. The complexity of the supply chain will vary with the size of the business and the intricacy and numbers of items that are manufactured. Elements of the Supply Chain A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer.

Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility. Planning: The requirement triggered by the customer’s sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customer’s orders. To manufacture the products the company will then have to purchase the raw materials needed. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customer’s orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department. Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer. Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.

Supply Chain Management To ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain Management processes and associated technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational.

Strategic: At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics

companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

Supply Chain Management Technology If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology. The backbone for many large companies has been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. Since the wide adoption of Internet technologies, all businesses can take advantage of Web-based software and Internet communications. Instant communication between vendors and customers allows for timely updates of information, which is key in management of the supply chain.

Creating a Logistics Strategy
What Is a Logistics Strategy? When a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective. Because supply chains are constantly changing and evolving, a company may develop a number of logistics strategies for specific product lines, specific countries or specific customers. Why Implement a Logistics Strategy? The supply chain constantly changes and that will affect any logistics organization. To adapt to the flexibility of the supply chain, companies should develop and implement a formal logistics strategy. This will allow a company to identify the impact of imminent changes and make organizational or functional changes to ensure service levels are not reduced. What Is Involved in Developing a Logistic Strategy? A company can start to develop a logistics strategy by looking at four distinct levels of their logistics organization.
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Strategic: By examining the company’s objectives and strategic supply chain decisions, the logistics strategy should review how the logistics organization contributes to those high-level objectives. Structural: The logistics strategy should examine the structural issues of the logistics organization, such as the optimum number of warehouses and distribution centers or what products should be produced at a specific manufacturing plant. Functional: Any strategy should review how each separate function in the logistics organization is to achieve functional excellence. Implementation: The key to developing a successful logistics strategy is how it is to be implemented across the organization. The plan for implementation will include development or configuration of an information system, introduction of new policies and procedures and the development of a change management plan.

Components to Examine when Developing a Logistics Strategy

When examining the four levels of logistics organization, all components of the operation should be examined to ascertain whether any potential cost benefits can be achieved. There are different component areas for each company but the list should at least include the following:
• • • • • •

Transportation: Does the current transportation strategies help service levels? Outsourcing: What outsourcing is used in the logistics function? Would a partnership with a third party logistics company improve service levels? Logistics Systems: Do the current logistics systems provide the level of data that is required to successfully implement a logistics strategy or are new systems required? Competitors: Review what the competitors offer. Can changes to the company’s customer service improve service levels? Information: Is the information that drives the logistics organization real-time and accurate? If the data is inaccurate then the decisions that are made will be in error. Strategy Review: Are the objectives of the logistics organization in line with company objectives and strategies.

A successfully implemented logistics strategy is important for companies who are dedicated to keeping service levels at the highest levels possible despite changes that occur in the supply chain.

Introduction to the Green Supply Chain
Listening to Environmentally Aware Consumers As the public becomes more aware of environmental issues and global warming, consumers will be asking more questions about the products they are purchasing. Companies will have to expect questions about how green their manufacturing processes and supply chain are, their carbon footprint and how they recycle. Profiting from Being Green However some companies have seen that this not a bad thing and indeed have been able to convert the public’s interest in all things green into increased profits. A number of companies have shown that there is a proof of the link between improved environmental performance and financial gains. Companies have looked to their supply chain and seen areas where improvements in the way they operate can produce profits. General Motors reduced disposal costs by $12 million by establishing a reusable container program with their suppliers. Perhaps General Motors may have been less interested in green issues if they were making record profits, but in an attempt to reduce costs in their supply chain, GM found that the cost reductions they identified complemented the company’s commitment to the environment. Unaware of Potential Benefits Companies can find cost savings by reducing the environmental impact of their business processes. By reevaluating the company's supply chain, from purchasing, planning, and managing the use of materials to shipping and distributing final products, savings are often identified as a benefit of implementing green policies. Despite the public’s focus on the environment, benefits attributed to reducing a company’s environmental impact are not in the forefront of supply chain executive’s minds. It appears that many executives are still unaware that improved environmental performance means lower waste-disposal and training costs, fewer environmental-permitting fees, and, often, reduced materials costs. Hopefully the interest in green issues and environmental concern by the public will not wane as economic issues become more important due to the faltering economy.

Implementing a Green Supply Chain Environmental issues are at in the public eye and businesses are having to develop supply chain management strategies that are good for the environment. The articles listed here examine some of the topics associated with creating a green supply chain.

1. Using Recycled Packaging In Your Supply Chain
Packaging materials are used every day in almost every company that manufactures and sells products. Packaging is used to move raw material to a manufacturer, bulk finished material to a distributor and then the final product to the consumer. Packaging material is there to perform a number of tasks; protect the material from damage, from the environmental conditions, to make transportation easier and to make the item attractive to the consumer. However, as the public’s perception about the environment changes, companies are looking at how they can adopt greener packaging alternatives. Recycled Content Recycled content is available in packaging materials, including corrugated cartons, paperboard, molded pulp, newsprint aluminum, steel, glass and some, but not all, plastics. For some packaging materials, it is standard practice to include some level of recycled content., Post-Consumer And Pre-Consumer Content The term “post-consumer” refers to end products that have been used by the consumer and then separated from wastes for recycling. Post-consumer materials include materials recycled by both households and non-residential users such as offices, manufacturers and retailers. Examples of post-consumer materials include block foam, glass and aluminum containers, newspapers, and corrugated cartons. Pre-consumer content is different from post-consumer content as it includes waste left over from converting and printing processes, discarded by the manufacturer prior to use by the consumer. Manufacturers report either total recycled content by combining the totals for pre and post-consumer or report post-consumer content only. Both pre-consumer and post-consumer recycled materials provide the environmental benefits. Using post-consumer content provides markets for items separated for recycling by consumers. Paperboard Packaging Due to the low cost, versatility and durability, paperboard is used to package materials in a variety of industries. Businesses are using increasing amounts of paperboard with post-consumer recycled content because of its high quality, cost advantage and lower environmental impact. With the improvements in the quality, variety and availability of recycled content paperboard, companies have adopted the use of recycled paperboard in products reaching the consumer. Studies have found that over 50% of products on supermarket shelves are packaged in recycled paperboard. Consumers are increasing aware of environmental issues and efforts that manufacturers are making with regards to using recycled packaging does not go unnoticed. In a survey by the Recycled Paperboard Alliance, 61% of consumers were more inclined to purchase products from a company that uses recycled paperboard packaging. The study also found that 77% of consumers felt better about a company that uses recycled paperboard and 80% felt they were "doing something good for the environment" when they bought products with recycled paperboard packaging. As companies adopt more environmentally friendly policies, a simple change that can be made in the supply chain that is should not increase overall cost, is to increase the use of recycled packaging. The products that are now available, such as recycled paperboard, are of high quality, lower cost and are an important consideration to consumers

2.Reducing Waste in the Supply Chain
Introduction Businesses are examining every area of their supply chain to reduce costs. Reducing waste has become a key component of any cost reduction program that is implemented. There are a number of processes that can be used in order to reduce waste in a company’s supply chain. Product Design Many companies are examining the design of their products to identify where the use of raw materials can be reduced or expensive materials be replaced. Indeed many businesses are reviewing each component to identify whether it can be manufactured or purchased more cheaply. When designing product packaging options, companies are examining cheaper and less wasteful materials. Resource Management Each production process should be examined to minimize the waste of raw materials. In manufacturing operations processes that waste material that cannot be recycled or reused must be redesigned. Even in processes that do produce waste that can be recycled should be examined due to the costs in recycling processes. Use of Scrap Material As well as minimizing the waste of raw materials in manufacturing processes, the use reuse of waste material can be expanded. Improvements in the technology of reclaiming waste material has meant that companies that previously discarded waste products now have the ability to reuse that material. As the recycling technology becomes more available the costs will inevitably fall helping more businesses with waste issues. Improving Quality Quality control is built into all manufacturing processes but is usually focused on the finished product rather than minimizing waste. Quality management should include the goal of minimizing the waste of raw materials as well as producing a quality product. Improving the overall quality of a company’s manufacturing process will reduce waste overall as it will increase the quantity of finished goods that pass quality inspection. Conclusion When companies are considering waste minimization programs, they will find that some costs will be required in the implementation. However as those programs come online, the reduction in waste will produce cost savings greater than the initial investment. The implementation of waste minimization programs has been successful in improving company’s products as well as reducing overall costs.

3.Making Your Warehouse Green
Warehouses are busy places. Goods are constantly on the move; inbound and outbound deliveries have to be dealt with as well as the movements of items from location to location. Many businesses now incorporate packing and assembly operations within the warehouse, creating an even more complex environment.

Businesses are trying to maximize their return on each dollar spent on warehouse operations. As well as incorporating value added processes in the warehouse companies are looking to use environmentally focused procedures to reduce costs whilst increasing their social responsibility efforts. When businesses look at making their warehouse processes more environmentally focused, they generally look at three main areas; reduce, reuse and recycle. Reduce When we look at a warehouse there are many areas where businesses can reduce consumption, whether this is consumption of energy or resources. In turn both of these concepts can help reduce spending. As energy costs continue to rise, any reduction in consumption will help the environment and a company’s bottom line. Many businesses have been working to reduce the amount of packaging they use in shipping products. Advances in packaging materials allow a reduction in weight whilst maintaining efficiency. The reduction in packaging weight not only reduces shipping costs, but saves energy in moving packing material and packed items around the warehouse. Bio-degradable packaging materials are also an important part of this scenario, so customers are not liable for disposing of environmentally harmful packaging. In the warehouse, businesses are reducing energy costs in a number of simple ways such as using motion sensors to only illuminate areas in use and charging forklift trucks in off-peak hours when energy costs are lower. Some companies are looking at introducing solar panels on the warehouse roof and intelligent electrical systems to take advantage of off-peak power. Reuse Warehouses have been one area in a business that traditionally reuses materials. Items such as wood pallets and plastic totes are constantly reused in the warehouse. Some businesses are examining their warehouse processes to identify where reuse is appropriate. One area that is of interest is in the adoption of returnable packaging for products. Some packaging can be extremely expensive to manufacturer and is lost each time a product is sold. By increasing the life of the packaging and making it easy for customers to return, the packaging can be reused a number of times, reducing waste and saving money. Other companies are trying to reuse the packaging material that they receive from their suppliers. Some packaging cardboard or packing can be reused and can reduce the amount of packing material that needs to be purchased. Recycle Recycling of materials in the warehouse can significantly reduce waste. Sending used packaging and packing material to recycling facilities rather than waste facilities is the environmentally correct decision to make. However there are many instances in a warehouse where recycling is also appropriate such as the recycling or environmentally correct disposal of batteries, oil and chemicals. Many businesses have performed audits of their locations to identify areas and processes where they can be more environmentally focused. These processes can significantly reduce costs as well as producing a more environmentally sound company. However, despite the investment a company makes in order to improve its social responsibility, the employees need to change their work habits and follow new procedures that combined will help the environment and in turn help the company’s bottom line.

4.Green Supply Chain Best Practices
Introduction The trend towards developing a green supply chain is now gaining popularity but most companies are still coming to terms with how this can be achieved and where do they start. For years businesses have been concentrating on improving supply chain visibility, refining efficiency and minimizing cost. Despite the focus being moving towards a green supply chain the goals of visibility, efficiency and cost reduction do not have to be discarded. By examining the companies who have already made strives towards to a green supply chain, we can begin to see some best practices that will help others to begin their own transition. Align Your Green Supply Chain Goals with Business Goals Creating a green supply chain that has little to do with your business will not help your company to achieve its business objectives. For example, if a company decides to use biodegradable packaging for its products that costs 25% more than traditional packaging, this goes against the businesses goals of reducing costs. If a business has an overall goal to reduce costs then the move to a green supply chain should dovetail with the business goal. A company should look at its overall business goals and identify how a transition to a green supply chain can help achieve those goals. For example if a business wants to reduce its energy costs it should start by looking at the consumption to see if a reduction can be made by using more energy efficient and greener equipment. Use Green Supply Chain to Improve Processes Companies do not often change their businesses processes and it is this attitude allows inefficient processes to continue unabated causing unnecessary waste and pollution. For example ineffective processes in the US automotive industry allowed the innovative Japanese automakers to become market leaders. Businesses that want to transition to a green supply chain should take the opportunity to review all their business processes to identify areas where adopting a greener outlook can actually improve their business. Companies should review each process along the supply chain to identify if a more environmentally sound approach will help cure the inefficiencies that occur. Many companies that have been through this exercise have identified processes where raw materials were wasted; resources underutilized and unnecessary energy used due to inefficient equipment. Green Suppliers and Material Refurbishment Companies reviewing their business processes should look beyond their factory walls. When reviewing purchasing processes the aim of any company, looking to transition to a green supply chain, should be to find suppliers who have minimized their environmental impact without reducing the quality of their product or significantly raising costs. By purchasing products from green suppliers businesses can then begin their green supply chain before any material reaches their site. At the opposite end of the supply chain businesses should look at their return process. Many businesses have not developed a successful refurbishment program for their products that have been returned or exchanged. By offering refurbished items businesses can increase purchasing options to their customers and widen their customer base, whilst improving the environmental impact of their products. There are many ways in which businesses can transition to a green supply chain; however it is important to realize that it is difficult to achieve results without strong focused leadership. Senior management has to lead the effort to move to a green supply chain and provide the resources for the transition. Many businesses have documented a intent or plan to implement a green supply chain, but without the necessary resources, both financial and manpower, any impact will be minimal.

5.Where to Recycle Computers in Canada
Electronics seem to age ever more rapidly. Replace any one piece of computer equipment and you immediately need to replace three more. For years I just piled all my old computer gear in the garage as I didn’t want it to end up in a landfill. But now we all have a lot more computer recycling choices. Want to recycle your computer but don't know where or how? This list of ideas and places for recycling your computer equipment in Canada will help. 1. Check with the manufacturer of your computer or electronic device to see what recycling programs the company offers. Some have none still but most major electronics manufacturers are offering some sort of recycling options. In some cases, you'll only be able to participate if you paid an environmental fee when you bought your computer but others offer computer recycling and recycling of other electronics for a fee. Some is even free, such as Dell Canada's free home system recycling program. Another computer recycling program of special note is Lenovo Canada's PC Recycling Service for individuals and small-business customers, which allows customers to recycle any manufacturer's PC (including system units, monitors, printers and peripherals) for $49.95 (Canadian dollars), including shipping. Dell, Apple, Hewlett-Packard (Canada) Co., IBM Canada Ltd. and Lexmark Canada Inc. are among the founding members of Electronics Product Stewardship Canada (EPS Canada), a non-profit organization that is developing a national electronics end-of-life program in Canada. This program is based on establishing environmental handling fees across the country for each major electronics product line. 2. Find out what provincial and/or municipal electronics recycling programs are available in your area. Alberta was the first province to provide electronic recycling to its residents. The Alberta Recycling Management Authority was established in 2004 and today there are more than 180 collection sites across the province where people can drop off their computers, computer equipment, printers and televisions. The program is funded by environmental fees collected on electronics at the time of purchase. Saskatchewan has followed suit; the SWEEP program, started in February 2007, also provides collection sites across the province where residents can drop their desktop computers, laptops, printers and televisions off for recycling.

Strategic Supply Chain Management
Strategic supply chain management decisions are made at an enterprise level that determine benefits and efficiencies of the supply chain. These articles and links examine these strategic decisions and how they affect a company's supply chain.

1. Calculating Safety Stock
Safety stock is normally required by companies to ensure that they have sufficient quantities of material in stock. The safety stock is there to provide coverage for unexpected customer demand, damage in the

warehouse or required due to quality issues found in production. However, there are situations where companies do not require inventory to be in stock. These “out of stock” situations should not be confused with the highly undesirable “stock-out” predicament where customer’s orders cannot be shipped or production is halted due to lack of lack of components. The “out of stock” situation is beneficial to companies when the company has no demand for certain items and zero inventory means a no warehouse costs. When supply chain professionals determine the optimum level of safety stock there are a number of scenarios that they will consider. Many companies look at the costs involved in having a certain level of safety stock. The costs include the initial purchase of the stock from the vendor, the cost of storing the material in the warehouse and the potential depreciation of the material over time, especially when considering material that has a finite shelf life. However there is a cost associated with having a situation where the material is not in stock. Stock-outs can cause non-monetary results such as loss of customer satisfaction when items cannot be shipped on time. Whereas the cost of a production stoppage can be calculated when a production line stops and has to be retooled for a new order when the stock-out of a component occurs. There are three techniques that are used to calculate safety stocks; statistical based, fixed quantity and time period based. Statistical Based Safety Stock The statistical method to calculate safety stock is based on the premise that is possible to mathematically calculate the level of safety stock to prevent a stock-out situation. The traditional method used to statistically calculate safety stock is the used of the normal distribution or bell-shaped curve. In a normal distribution curve, the mid-point of the curve is the forecast, which represents the average value. As the curve moves away from the center there is a deviation from the average and the probability of a high deviation from the forecast is represented by a smaller and smaller percentage. For example a 48% deviation from the forecast may represent a 2% possibility. There are pros and cons of selecting a statistical based safety stock. Although the statistical method is based in accurate mathematics, predicting business is not always as accurate. There are always situations that occur that cannot be forecasted. For example, a statistical method may calculate an item to have a safety stock even when the item is no longer required in manufacturing. In addition some business methods employed by companies to improve efficiencies in the supply chain may work against the mathematical equations used in calculating safety stock. Just-In-Time techniques can adversely affect the requirements of safety stock and render the calculation inaccurate. Fixed Safety Stock Companies can decide to have a fixed value for the level of safety stock for some materials. This will require a production planner to determine a value for the safety stock rather than rely on a quantity determined by a statistical calculation. The value that is determined by planner will remain the same until manually changed. When the actual inventory level reaches or falls below the safety stock level, this will trigger a replenishment order for a quantity of material. The quantity of material on the replenishment order is determined by demand. The fixed safety stock level can also be set to zero when a company wants to phase out an item, if it is being superceded or the finished good is no longer being manufactured. Time Period Based Safety Stock The time period based safety stock level is used to calculate the stock required over a fixed period. For example, if manufacturing demand requires 100 cases of part A to be consumed each day, the safety stock for a week would be 700 cases. The time period based safety stock is therefore determined by the forecast for the

material in future periods. The forecast will include usually include a combination of actual demand from sales orders placed by customers and a forecast based on a statistical calculation. Whatever method is used to calculate safety stock, it should be monitored periodically to ensure that it is accurate and satisfies the need it is intended for. Having safety stock in a warehouse has a cost associated with it and unnecessary safety stock is a scenario that should be avoided.

2. Measuring Purchasing Performance
Measuring purchasing performance is important as the purchasing department plays an ever increasingly important role in the supply chain in an economic downturn. A reduction in the cost of raw material and services can allow companies to competitively market the price of their finished goods in order to win business. An obvious performance measure of the success of any purchasing department is the amount of money saved by the company. However there are a number of performance measurements that businesses can use when they measure purchasing performance. Purchasing Efficiency Administrative costs are the basis for measuring purchasing efficiency. This performance measurement does not relate to the amount of purchased items that the department has procured. The measurement relates to how well the purchasing department is performing in the activities they are expected to perform against the budget that is in place for the department. If the purchasing costs are within the budget then the efficiency of the purchasing department will exceed expectations. If the department is using funds over and above the budget then the purchasing function is not efficient. Purchasing Effectiveness The price that the purchasing department paid for an item is not necessarily a good measurement for purchasing performance. The price of an item may fluctuate due to market conditions, its availability, and other demand pressures; therefore the purchasing department may not be able to control the price. A popular method of assessing purchasing effectiveness is to review the inventory turnover ratios. The ratio measures the number of times, on average; the inventory is used, or turned, during the period. The ratio used to measure the liquidity of the inventory. However, this is not always a great measure of purchasing effectiveness as seasonal requirements for having items in stock can make this measurement inaccurate. Purchasing Functionality Purchasing performance can be measured against the functional requirements of the purchasing function. The primary function of the department is to provide the correct item at the required time at the lowest possible cost. The performance measurement can take into account these elements, but it does not take into account factors that may relate to the supplier stability, material quality issues and supplier discounts. Performance Measurements The performance of the purchasing function can be measured using a variety of measurements. A company can decide which of these measurements of effectiveness are relevant to the performance of their purchasing department. The measurements can include,

Cost Savings. If the purchasing department procure an item at a lower price than they did previously, then it is a cost saving. This can occur when a new supplier is found, a less costly substitute item is used, a new

contract has been signed with the vendor, a cheaper transportation method has been found or the purchasing department has negotiated a lower price with the existing supplier.

Increased Quality. When an item has improved quality either by using a different supplier or by negotiating with the existing supplier, the improvement will be reflected in a reduction of waste or production resources.

Purchasing Improvements. Efficiencies in the method used in the purchasing department will increase effectiveness. These can include the introduction of EDI, e-procurement systems, vendor managed inventory and pay on receipt processes.

Transportation Improvements. When a purchasing department negotiates with a carrier or number of carriers to reduce the cost of transporting items from the vendor to the production facilities, the unit cost of the item will be reduced. This cost saving can be used as a measurement of effectiveness.

Purchasing Performance A number of studies have been carried out on purchasing performance and the results have noted that there is no one method that will cover every purchasing department. However, there are a number of key measures that are found to be common in evaluating performance, namely; cost saving, vendor quality, delivery metrics, price effectiveness and inventory flow. Although these key measures are common, the weight placed on these measures is by no means uniform and will vary between industry to industry and business to business. In addition the importance of these measures to the overall effectiveness of a purchasing department will change over time and therefore need to be assessed and modified on a periodic basis.

Forecasting In The Supply Chain
Introduction In the modern supply chain, forecasting is necessary for companies that manufacture items for inventory and that are not made to order. Manufacturers will use material forecasting to ensure that they produce the level of material that satisfies their customers without producing an overcapacity situation where too much inventory is produced and remains on the shelf. Equally, the forecast must not fall short and the manufacturer finds them without inventory to fulfill customer’s orders. The cost of failing to maintain an accurate forecast can be financially catastrophic. Forecasts are developed for a company’s finished goods, components and service parts. The forecast is used by the production team to develop production or purchase order triggers, quantities and safety stock levels. The forecast is not static and should be reviewed by management on a regular basis. This is to ensure that information on future trends, the internal or external environment is incorporated into the forecast to give a more accurate calculation. Statistical Forecasting In supply chain management software, the forecast is a calculation that is fed data from real time transactions and is based on a set of variables that are configured for a number of statistical forecast situations. Planning professionals are required to use the software to provide the best forecast situation possible and often this is

left unchecked without any review for long periods. To best use the forecasting techniques in the supply chain software, planners should review their decisions with respect to the internal and external environment. They should adjust the calculation to provide a more accurate forecast based on the current information they have. Statistical forecasts are best estimates of what will occur in the future based on the demand that has occurred in the past. Historical demand data can be used to produce a forecast using simple linear regression. This gives equal weighting to the demand of the historical periods and projects the demand into the future. However, forecasts today give greater emphasis on the more recent demand data than the older data. This is called smoothing and is produced by giving more weight to the recent data. Exponential smoothing refers to evergreater weighting given to the more recent historical periods. Therefore a period two months ago has a greater weighting than a period six months ago. The weighting is called the Alpha Factor and the higher the weighting, or Alpha factor the fewer historical periods are used to create the forecast. For example, a high Alpha factor gives high weighting to recent periods and demand from periods for a year or two years ago are weighted so lightly that they have no bearing on the overall forecast. A low Alpha factor means historical data is more relevant to the forecast. Historical periods generally contain demand data from a fixed month, i.e. June or July. However, this introduces error into the calculation as some months have more days than other months and the number of workdays can vary. Some companies use daily demand to alleviate this error, although if the forecaster understands the error, monthly historical periods can be used along with a tracking indicator to identify when the forecast deviates significantly from the actual demand. The level at which the tracking signal flags the deviation is determined by the forecaster or software and vary between industries, companies and products. A small deviation may require intervention when the product being forecasted is high-value, whereas a low-value item may not require the forecast be scrutinized to such a high level. Non-Statistical Forecasting Non-statistical forecasting is found in supply chain management software where demand is forecasted based on quantities determined by the production planners. This occurs when the planner enters in a subjective quantity that they believe the demand will be without any reference to historical demand. The other nonstatistical forecasting that occurs is when demand for an item is based on the results of materials requirements planning (MRP) runs. This takes the demand for the finished good and explodes the bill of materials so that a demand is calculated for the component parts. The component demand can then be amended by the planner based on their assessment and knowledge of the current environment. The resulting forecast is based on current demand and will not incorporate any demand from previous periods. Many companies will use a combination of non-statistical and statistical forecasting across their product line. Statistical forecasting is based on complex calculations and the future demand can be determined based on the demand from historical periods. The forecast gives the planner a guide to future demand, but no forecast is totally accurate and the planners experience and knowledge of the current and future environment is important in determining the future demand for a company’s products.

3. Selecting A Third Party Logistics (3PL) Provider
Introduction Third party logistics (3PL) companies are a becoming an important part of today’s supply chain. These companies offer services that can allow businesses to outsource part of all of their supply chain management function. Many 3PL companies offer a wide range of services including; inbound freight, freight consolidation, warehousing, distribution, order fulfillment and outbound freight. The growth of 3PL companies has been driven by the need for businesses to become leaner, reducing assets and allowing focus on core business processes. Rise Of Third Party Logistics Providers

The growth of 3PL companies began back in the 1980’s when businesses began to look for new ways in which they could outsource logistics functions and concentrate on their core business. One company that has been associated with the 3PL revolution is FedEx. The company’s overnight delivery service changed the way in which business to business and business to customer transactions operated. This offered businesses the opportunity of using just-in-time techniques, which saved warehousing space and reduced overall costs. The introduction of efficient-consumer-response (ECR) techniques led to smaller and more efficient shipment sizes, which in turn further reduced costs. As companies saw the benefits of outsourcing delivery and warehousing functions, the number of third party logistics companies began to rise offering an ever increasing number of services. The increasing numbers of 3PL’s inevitably led to increased competition between these firms, which led to greater savings for the companies who employed them. The last decade has seen the 3PL provider transitioning from a local or regional business to one that offers national or global coverage. In US, the 3PL market has been growing at a compound annual rate of 14.2 percent since 1996 and in 2006; 3PL’s in the United States reported $89.4 billion in gross revenue. Selecting A 3PL Deciding to a use a third party logistics company is a decision that depends on a variety of factors that differ from business to business. The decision to outsource certain business functions will depend on the company’s plans; future objectives, product lines, expansion, acquisitions, etc. Once a decision has been made to outsource certain processes then a company will begin a search for the right 3PL that fits all their requirements at the best possible price. There are three types of Third Party Logistics Company that operate today.
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Asset Based Management Based Integrated Providers

Asset based third party logistics companies use their own trucks, warehouses and personnel to operate their business. Management based companies provide the technological and managerial functions to operate the logistics functions of their clients, but do so using the assets of other companies and do not necessarily own any assets. The third category, Integrated Providers, can either be asset based or management based companies that supplement their services with whatever services are needed by their clients. When selecting a 3PL, the request for information (RFI) or quotation (RFQ) should be as detailed as possible. The company that is selected should be able to fulfill all the logistics requirements and that can only be assured if every requirement is communicated to potential companies. The RFI should include a detailed description of the areas to be outsourced. This will usually include:
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The scope of the contract, including locations, facilities, departments. Information on volumes involved; number of deliveries, warehouse sizes, number of items, etc. The logistics tasks are to be performed, e.g. warehousing, transportation, etc. The level of performance required.

After the bids have been received by a company from the prospective 3PL’s, an evaluation would take place where a multi-discipline team will review each bid based on a pre-defined set of criteria. These will include some of the following.
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Does the 3PL provide the services required? Does the 3PL have the technology required to perform the tasks required? Does the company have the required warehouse space, dock capacity, warehouse personnel, etc.? Is the 3PL financially sound? Are the 3PL’s geographical locations suitable to cover the network?

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Does the 3PL have the flexibility to respond to changes? Are the 3PL’s environmental policies compatible? Are the costs of the services detailed enough for comparison to other bids? Are the customer references acceptable? Is the 3PL a good cultural fit?

The selection team will usually review each of the bids based on the criteria and give each bidder a score. Depending on the importance of each criteria, a weighting can be given which gives more importance for one or more criteria in the selection process. Once the selection team has evaluated the bids, management will often select the top two or three companies for site visits, face to face interviews and more detailed reviews of financial records. Once a company has been identified contract negotiations would follow before a final agreement could be reached.

4. Implementing a World Class Purchasing Organization
Executive Buy-In Before implementing any purchasing best practices, there has to be the backing of senior company executives. Without the buy-in of senior executives, including the CEO and CFO, any attempts at developing a world class purchasing strategy will be smothered by middle management. Changes that have to be made in any company must be backed by senior executives in order to achieve results. Rationalization of Existing Data Any company that has been procuring data over a period of time will have a database of vendors that contain current, duplicate, out of date and incorrect data. If you company has a number of geographically separate purchasing departments, the level of inaccuracy is multiplied. For a world class purchasing strategy to be implemented, the data from each purchasing department has to be updated to reflect the current vendor data and to be rationalized to eliminate duplicate, incorrect and unnecessary data. The benefits of having accurate data to your company is that it allows decisions to be made accurately. It allows your purchasing department to analyze spending at vendors that are used in more than one purchasing area. After a greater understanding of where money is spent across the enterprise, the company will have a greater leverage with vendors. Take Advantage of Vendor Incentive Programs It has been the norm for companies to pay vendors as late as possible. If the vendor has a contract for 45 days then they would never receive their payment before that 45th day. To encourage companies to pay their bills prior to the negotiated contract date, vendors have offered rebates, discounts and other incentives. But vendors have found that despite the incentives, companies still are not paying early. One theory is that companies enter the payment terms into their ERP system and forget about it. Checks are cut based on that data and the vendor incentives are never realized. A world class purchasing strategy should embrace these discounts and companies should make sure that they are taking every incentive possible. In these difficult economic times, companies cannot afford to pass up significant discounts. In addition, negotiations with vendors should also include obtaining greater discounts for payment on receipt of goods or even pre-payment. Implement Vendor Evaluation A good purchasing strategy should include a method by which vendors are measured. The evaluation process should include not only delivery performance, but track less obvious metrics such as under or over delivery, quality of items delivered and the performance of the vendor’s customer service. These metrics may not

always be a measurable value, but sometimes the metric is subjective. If policy guidelines are implemented for subjective evaluation, then all vendors can be measured equally. Don’t forget to let the vendors know they are being evaluated. If they know their customers are watching them, perhaps they will raise their game. Hire Purchasing Professionals So many companies’ believe that basic clerical skills are the only pre-requisite for a position in the purchasing department. This view is incredibly naïve considering that these clerks are in charge of spending vast amounts of company resources. The purchasing professional is the key to implementing a world class purchasing organization. The skills required for world class purchasing organizations include knowledge of the business they are purchasing for, analytical skills, negotiation skills and interpersonal skills. By depriving your purchasing department of employees versed in these skills, your company can find itself tied into contracts will the wrong vendors, for the wrong material, and at the wrong price Reducing the Number of Vendors Companies have hundreds of vendors, some have thousands, many have thousands, even tens of thousands. Having thousands of vendors in your system, not only takes a considerable amount of maintenance, it can also be extremely costly. If a purchasing department orders items from twenty different vendors each day, that can mean twenty purchase orders that have to be sent, twenty shipping costs that need to be paid and twenty goods receipts that need to be processed when the goods arrive. In addition the added costs, there are probably savings that are not being realized. How many of those twenty vendors sell the same or similar products. If the twenty vendors are reduced to five, then the processing costs will be reduced and probably the cost of the material has been negotiated lower. Centralized Purchasing If your company has a number of geographically dispersed locations, you may think that it is impossible to implement a world class purchasing strategy. It is prudent for companies need to think of their overall spend as a central function. Having a centralized purchasing organization, a company can review its total purchasing and select vendors that can provide a majority of items at the best costs. This scenario will not cover all items used at all of the locations and the central purchasing organization would have to work with the locations to identify local suppliers that facilitate the needs of the remote location Getting the Most from Vendors Negotiating an agreement with a vendor can be a long drawn out affair with neither party happy with the outcome. Having a poor relationship with your vendor at the start of the contract is not the way in which world class purchasing organizations operate. Vendors are an important part of your supply chain. The materials they provide are required on specific dates so that your order is shipped to the customer on the date promised. Making your vendor a partner rather than just another vendor will help ensure that your orders are correct and on time. Negotiations with your vendors should focus on the benefits of being a vendor; showing them that if you are successful, they will be successful. Negotiations that focus on penalty clauses and fines for poor quality and missed delivery dates will leave the vendor less than willing to accomodate your requirements Maximizing Technology There are some companies that still use rolodexes, paper purchase requisitions and call in their purchase orders to vendors. Most have some kind of purchasing software, even if it an Excel spreadsheet, that tracks orders and overall spend. With the introduction of Enterprise Resource Planning (ERP) software, companies are able to

integrate their purchasing departments into their supply chain to take advantage of real-time data. However, that is where many companies stop. World class purchasing strategies go further to reap the benefits offered to them by their ERP systems. Companies can adopt workflow techniques within their ERP systems to automate approvals and payments, thus reducing time that the purchasing staff has to intervene. Data that is produced by thousands of purchasing transactions can be used in data warehouses to help purchasing professionals with metrics in vendor evaluation and contract negotiation.

5. Strategic Supply Chain Management
Introduction Supply chain management operates at three levels; strategic, tactical and operational. At the strategic level, company management makes high level strategic supply chain decisions that are relevant to whole organization. The decisions that are made with regards to the supply chain should reflect the overall corporate strategy that the organization is following. The strategic supply chain processes that management has to decide upon will cover the breadth of the supply chain. These include product development, customers, manufacturing, vendors and logistics. Product Development Senior Management has to define a strategic direction when considering the products that the company should manufacture and offer to their customers. As product cycles mature or products sales decline, management has to make strategic decisions to develop and introduce new versions of existing products into the marketplace, rationalize the current product offering or whether develop a new range of products and services. These strategic decisions may include the need to acquire another company or sell existing businesses. However, when making these strategic product development decisions, the overall objectives of the firm should be the determining factor. Customers At the strategic level, a company has to identify the customers for its products and services. When company management makes strategic decisions on the products to manufacture, they need to then identify the key customer segments where company marketing and advertising will be targeted. Manufacturing At the strategic level, manufacturing decisions define the manufacturing infrastructure and technology that is required. Based on high level forecasting and sales estimates, the company management has to make strategic decisions on how products will be manufactured. The decisions can require new manufacturing facilities to be built or to increase production at exiting facilities. However, if the overall company objectives include moving manufacturing overseas, then the decisions may lean towards using subcontracting and third party logistics. As environmental issues influence corporate policy to a greater extent, this may influence strategic supply chain decisions with regards to manufacturing. Suppliers Company management has to decide on the strategic supply chain policies with regards to suppliers. Reducing the purchasing spend for a company can directly relate to an increase in profit and strategically there are a number of decisions that can be made to obtain that result. Leveraging the total company’s purchases over many businesses can allow company management to select strategic global suppliers who offer the greatest discounts. But these decisions have to correspond with the overall company objectives. If a company has

adopted policies on quality, then strategic decisions on suppliers will have to fall within the overall company objective. Logistics As well as strategic decisions on manufacturing locations, the logistics function is key to the success of the supply chain. Order fulfillment is an important part of the supply chain and company management need to make strategic decisions on the logistics network. The design and operation of the network has a significant influence on the performance of the supply chain. Strategic decisions are required on warehouses, distribution centers which transportation modes should be used. If the overall company objectives identify the use of more third party subcontracting, the company may strategically decide to use third party logistics companies in the supply chain. Strategic decisions determine the overall direction of company’s supply chain. They should be made in conjunction with the companies overall objectives and not biased towards any particular product or regional location. These high level decisions can be refined, as required, to the specific needs of the company at the lower levels which allow for tactical and operational supply chain decisions to be made

Tactical Supply Chain Management
Tactical supply chain management decisions are made at a national or regional level to produce efficiencies and cost reductions. These articles examine the variety tactical decisions companies make and the effects of those decisions on the supply chain

1. Public Warehousing In The Supply Chain
Introduction A company’s supply chain will incorporate some warehousing function. This can be company-owned, owned by a third party logistics (3PL) company or could be a public warehouse. At certain times, extra warehouse space is required due to any number of factors including; seasonal inventory, warehouse re-organization or warehouse damage. Whatever the reason the use of public warehousing is a useful tool for the supply chain manager as they try to find the greatest efficiencies in the supply chain. The public warehouse is not only a facility where a company can store their products, but the public warehouse offers inventory management, physical inventory counts and shipping functionality. The public warehouse charges their clients for a certain rate for the goods stored, the volume of the warehouse used and the services the client wishes to use. The company using the public warehouse does not have to employ warehouse staff, does not require any inventory software or warehouse equipment. The owner of the public warehouse is responsible for the costs and passes this on to their clients based on the rate they are charged. Although most companies see public warehousing as a short-term solution it can often turn into a long-term relationship as companies been accustomed to convenience of the public warehouse services. Companies that own and operate public warehouses, invest significantly in modern facilities to remain competitive. They offer clients increasing levels of flexibility in order to retain and attract additional clients. Public warehouses offer companies a range of labor solutions including picking, packing, inventory control software and dedicated workforce. Public warehouses will also allow clients to bring in their own ERP or warehouse software so that the public warehouse becomes a satellite location with real-time data. Criteria for Choosing A Public Warehouse Because of the increasing competition between the public warehouse operators, potential clients should review the capabilities of each potential warehouse to identify which would be the best fit. Each client will have a

number of factors that need to be considered when selecting a public warehouse. Companies have a variety of reasons why they require an outside warehouse, as well as their short-term and long-term needs and the price they are willing to pay for the service. However, the majority of the following criteria is likely to be used by all companies comparing public warehouse sites.
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Geography Technology Expansion Company Network Flexibility

Geography The location of the public warehouse can be important to some clients, and less to others. If a large volume of items is to be moved between the company warehouses and the public warehouse, a location closer to the company site may be more advantageous. However, some clients may require a public warehouse to be closer to their customers if items are to be moved there from a number of company sites. Technology Although most public warehouses offer modern facilities and technology, the level of technology may vary, for example, one public warehouse may offer a warehouse management system that is not compatible with common ERP systems. This can be less attractive than a warehouse that allows clients a range of warehouse solutions or for clients to use their own systems. Expansion Depending on a company’s needs, the amount of space required at a public warehouse is likely to change during the period that the space is required. Although space requirements are often unknown at the beginning of a contract with a public warehouse, the agreement should include an expansion clause. This will guarantee that the public warehouse operator will accommodate any future space requirements a company may need. Company Network When a company negotiates for space in a public warehouse, future requirements for other warehousing needs would probably not be known. However, a public warehouse that is part of a warehouse network may be able to offer national or global supply chain management services that smaller public warehouse operators cannot. Flexibility The flexibility of the public warehouse operator is an important consideration. Clients can need warehouse functionality at short notice and warehouse operators that can guarantee rapid access to the facility, with trained staff and suitable technology are at an advantage

2. Origins and Principles of Lean Manufacturing

The current push towards lean manufacturing originates from the Toyota Production System which is often referred to as Just In Time (JIT) Production. The Toyota Company became successful after World War 2 when Japanese factory owners adopted a number of American production and quality techniques. The manufacturing techniques of Henry Ford and the Statistical Quality Control ideas of Edwards Deming became the foundation of Toyota’s production process. Unlike the American automotive industry Toyota encouraged employees to be a part of the production process. The company introduced quality circles which was a group of workers who meet to discuss workplace improvement. Quality circle members make presentations to management with regarding the quality of production. Toyota developed a set of procedures that reduced the time required for setup and changeovers. Unlike Ford’s production, Toyota developed manufacturing in smaller batches and this required a set of processes that reduced setup and changeover times. The resulting procedure was Single Minute Exchange of Die (SMED). There are seven steps used in the SMED method for changeover, including streamlining the external and internal activities. The developments made by Toyota were adopted by other Japanese manufacturers but none were as successful. In the 1980’s American companies began to adopt some of the processes developed by Toyota and gave these names such as Continuous Flow Manufacturing (CFM), World Class Manufacturing (WCM) and Stockless Production. Principles of Lean Manufacturing The ultimate goal for a company that adopts lean manufacturing processes is to reduce waste. An average company will waste a significant amount of resources. In cases where the manufacturing process is outdated the level of waste can be close to 90%. By adopting lean manufacturing processes the waste can be reduced to around 25-35%. Lean Manufacturing processes can improve • • • •

Material Handling Inventory Quality Customer Satisfaction

Material Handling The benefits in material handling when lean manufacturing procedures are deployed include fewer moves of material, shorter travel distances in the warehouse and simpler picking routes in the warehouse. These also contribute to savings in inventory and improvements in quality. Inventory By using smaller lots, the inbound and outbound queues are smaller. This reduces the inventory required to be in the queue and therefore the inventory level overall. Quality Smaller lots mean that any quality issues that arise can be dealt with at the time of manufacture. In manufacturing processes with larger lot sizes, quality issues may not be identified until late into the process and can be costly to correct, both in time and resources. Customer Satisfaction Improvements in material handling, inventory and quality all lead to a more successful manufacturing operation. If items are produced on time and delivered to a customer by the delivery due date, customer satisfaction will

increase. The same is true if the items sent to the customer are of a higher quality standard. This will reduce the incidence of repairs, returns and customer complaints.

3. Introduction To Vendor Evaluation
Introduction As a consumer, when you want to purchase an item, whether it is a new car or a flat screen television, you will most likely do some research on the prices of your local stores or from vendors on the internet. When you have narrowed your search you then look at other criteria that may be important to you, like warranty or availability. Lastly you will look at other less tangible criteria such as your previous experiences with the vendor and how their customer service was. This behavior is exactly the same for companies when they want to evaluate the vendors in their supply chain. Unless your company only uses one vendor for each item they purchase, there will enviably be occasion when a decision has to be made as to which vendor gets your business. There are a number of different scenarios when this will occur, for example when the item is purchased for the first time and when an item is no longer single sourced. Purchasing An Item For The First Time When a decision has to be made between vendors, the purchasing department will use some vendor evaluation method to be their tool in the decision. If the item is to be bought for the first time, the purchasing department may have contacted a number of vendors and sent them a Request for Quotation (RFQ). Each vendor would then complete the RDQ with the information that was required, normally price and terms. The purchasing department would then use these completed quotations, in conjunction with other information they have collected on the vendors, to make short list for further evaluation or make a final selection. The purchasing department would evaluate the vendors based on a number of criteria they had decided upon which may include objective criteria such as price and warranty and subjective data which would include past experience with the vendor. Based on the weighting given to these criteria the purchasing department would be able to fairly evaluate each vendor. Choosing Between Vendors If the sourcing of an item has been from a single vendor but another vendor has been approved to supply the same item, a decision would need to be made on vendor selection when a requisition has been received by the purchasing department. Many companies use a vendor evaluation tool that allows transaction data to be analyzed to give a comparison between vendors. The vendor evaluation uses criteria that have been determined by the purchasing department to compare vendors such as price, delivery reliability, delivery date adherence and quality of the item. There are any numbers of criteria that can be used in a comparison and these are usually weighted so that important criteria are given more credence. For example, a company may decide that quality of the items it receives from vendors is more important than price, which in turn is more important that delivery reliability. The company would then weight these criteria so that the overall score reflects that requirement. Conclusion Vendor evaluation is important as it can reduce supply chain costs and improve the quality and timeliness of the delivery of items to your company. The skill in evaluating vendors is to determine which criteria are important and the weighting that these criteria are given. It is important to remember that these criteria may be different for each item you are sourcing and possibly different between regions or countries. Objective data is useful to compare the information that you can obtain from each purchase order and goods receipt, but sometimes the subjective data that your purchasing agents can provide such as customer service and the willingness of the vendor to accommodate your requirements, is as or more important in a vendor evaluation.

4. Pallet Storage Methods In The Warehouse
Introduction Many companies store their products on pallets in the warehouse. There are a number of pallet storage methods that allow the warehouse staff to store pallets efficiently. This article will examine a number of the pallet storage systems that are commonly used.
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Block Stacking Stacking Frames Single-Deep Pallet Rack Double Deep Rack Drive-In Rack Pallet Flow Rack Push Back Rack

Block Stacking Block stacking refers to unit loads stacked on top of each other and stored on the warehouse floor in lanes or blocks. The pallets are stacked to a specific height based on a number of criteria such as pallet condition, weight of the load, height clearance and the capability of the warehouse forklifts. The pallets are retrieved from the block in a last in, first out (LIFO) manner. This does not allow for removing stock based on date basis or FIFO. Removal of stock can cause honeycombing to occur where empty spaces occur that cannot be filled until the whole lane is empty. This method is cheap to implement as it involves no racking and can be operated in any warehouse with open floor space. Stacking Frames Pallet stacking frames are made up from decks and posts that can be erected and moved if necessary. The stacking frame allows pallets to be stored several high and are particularly useful when the pallets to be stored are not stackable. Many companies will use stacking frames in the warehouse when they need temporary racking during period busy periods. With stacking frames the issue of honeycombing exists similar to block stocking. Single-Deep Pallet Rack Single-deep pallet racking provides access to each pallet stored in the rack. This gets around the honeycombing issues of stacking frames and block stacking. When a pallet is removed the space is immediately available for a new pallet to be placed in that space. This type of racking can be configured in any number of ways with various heights. Most warehouses today have this type of racking in use. The major disadvantage is that the racks require significant floor space for suitable aisles. Double-Deep Pallet Rack The double-deep pallet rack is a variant on the single-deep rack that incorporates two single racks that are placed together. This reduces the number of aisles required but this type of racking is susceptible to honeycombing, so may not be as efficient as single-deep racking. In addition a double-reach forklift is required to place and remove pallets from the racking. Drive-In Rack

Drive-In racks provide five to ten pallet load spaces similar to the double-deep racking. The drive-in lanes provide access for the forklift to place and remove stock. However the forklift has a limited space to maneuver and this increases the time required to place and remove pallets. The drive-in rack is similar to block stacking as the LIFO principle is used for pallet retrieval. Pallet Flow Rack The pallet flow rack operates whereby the load is moved from one end of the rack on a conveyor that allows the pallets to be removed in a FIFO manner. Once a pallet is removed the next pallet moves into the position of the pallet that was removed. This racking solution is suitable for warehouses that have a high throughput, but is an expensive option. Push Back Rack The push back rack is a LIFO solution where the load is placed into storage using a rail-guided carrier. When a load is placed into storage the load pushes the other loads back into the storage area. When a load is removed the next load in the lane moved to the position where the other load was removed. This means that each lane with stock has a load in the optimum position for removal. This racking method may not be suitable for warehouses require FIFO.

5. Cross Docking in the Warehouse
Introduction The term cross docking refers to moving product from a manufacturing plant and delivers it directly to the customer with little or no material handling in between. Cross docking not only reduces material handling, but also reduces the need to store the products in the warehouse. In most cases the products sent from the manufacturing area to the loading dock has been allocated for outbound deliveries. In some instances the products will not arrive at the loading dock from the manufacturing area, but may arrive as a purchased product that is being re-sold or being delivered from another of the companies manufacturing plants for shipment from the warehouse. Benefits Many companies have benefitted from using cross docking. Some of the benefits include:
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Reduction in labor costs, as the products no longer requires picking and putaway in the warehouse. Reduction in the time from production to the customer, which helps improve customer satisfaction. Reduction in the need for warehouse space, as there is no requirement to storage the products.

Types of Cross Docking There are a number of cross docking scenarios that are available to the warehouse management. Companies will use the type of cross docking that is applicable to the type of products that they are shipping.

Manufacturing Cross Docking – This procedure involves the receiving of purchased and inbound products that are required by manufacturing. The warehouse may receive the products and prepare sub-assemblies for the production orders. Distributor Cross Docking – This process consolidates inbound products from different vendors into a mixed product pallet, which is delivered to the customer when the final item is received. For example, computer parts distributors can source their components from various vendors and combine them into one shipment for the customer.

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Transportation Cross Docking – This operation combines shipments from a number of different carriers in the less-than-truckload (LTL) and small package industries to gain economies of scale. Retail Cross Docking – This process involves the receipt of products from multiple vendors and sorting onto outbound trucks for a number of retail stores. This method was used by Wal-Mart in the 1980's. They would procure two types of products, items they sell each day of the year, called staple stock, and large quantities products which is purchased once and sold by the stores and not usually stocked again. This second type of procurement is called direct freight and Wal-Mart minimize any warehouse costs with direct freight by using cross docking and keeping it in the warehouse for as little time as possible. Opportunistic Cross Docking – This can be used in any warehouse, transferring a product directly from the goods receiving dock to the outbound shipping dock to meet a known demand, i.e. a customer sales order.

Products Suitable for Cross Docking There are materials that are better suited to cross docking than others. The list below shows a number of types of material that are more suited to cross docking.
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Perishable items that require immediate shipment High quality items that do not require quality inspections during goods receipt Products that are pre-tagged (bar coded, RFID), pre-ticketed, and ready for sale at the customer Promotional items and items that are being launched Staple retail products with a constant demand or low demand variance Pre-picked, pre-packaged customer orders from another production plant or warehouse

6. Less Than Truckload (LTL)
Introduction Products are moved from point to point by a number of different modes of transport; air, rail, water and truck. In the US, the movement of goods by truck offers shippers infinite flexibility due at a relatively low cost. Truck transportation can move large items faster than rail as the shipment is not dependent on the railroads timetable. The general freight carriers in the US offer two types of service, Full Truckload (FTL) service or Less Than Truckload (LTL). While the FTL carrier moves full containers or trucks of one product from one customer, the LTL carrier moves goods from many different customers on one truck. The LTL carrier offers customers a more cost-effective method of shipping goods than the FTL operator. How LTL Works Within a local area the LTL freight operator has a number of vehicles which collect shipments from their customers. After finishing the daily collection, the shipments are taken to a terminal where the vehicles are unloaded. Each shipment is weighed and rated which allows customer bills to be processed. The individual shipment is loaded on to an outbound vehicle which contains shipments from other customers bound for the same geographic area. The outbound shipments are trucked to appropriate regional terminals, where they are unloaded. The shipments are sorted and placed on local vehicles for delivery. Each individual shipment is handled a number of times from the time it is picked up from the customer until it reaches its final delivery location. Advantages of LTL Carriers The primary advantage of using a LTL carrier is cost. The price of sending a shipment using a LTL rather than a FTL carrier is significantly lower. The LTL carrier competes with parcel carriers, who generally will not accept shipments of more than 70 to 100 pounds in weight. This competition gives usually results in LTL carriers offering lower rates per pound than parcel carriers.

History of LTL Carriers The US government started regulating the trucking industry in 1935 under the guidance of the Interstate Commerce Commission (ICC). The Motor Carrier Act of 1935 required new truckers to seek a "certificate of public convenience and necessity" from the ICC. The act required motor carriers to file their tariffs with the ICC 30 days before they became effective. The tariffs were then available to be viewed by any interested party. The tariff could then be subject to a challenge by another carrier or railroad which could lead to a suspension of the tariff until an investigation could be carried out. In 1948, despite a veto from President Truman, the Congress allowed carriers to fix prices and allow them to be exempt from any antitrust legislation. For the next 30 years competition was virtually extinguished as the ICC denied applications from new carriers. The industry began to change in the early 1970’s when first the Nixon, then the Ford and Carter administrations implemented a number of acts to reduce price fixing and collective vendor pricing. The final part of the deregulation was the Motor Carrier Act of 1980. The effect of the new law resulted in intense price competition and lower profit margins, with thousands of new low-cost, non-union carriers entering the market. Between 1977 and 1982, the average LTL rate fell by up to 20%. The trucking industry changed after deregulation. The number of carriers doubled between 1980 and 1990, with over 40,000 carriers in the US. Union membership fell sharply between 1980 and 1985, dropping from 60% to 28%. Current Conditions Changes in the law did open the industry up to competition but now the number of carriers is significantly lower than the years after deregulation. The LTL market is estimated at approximately $30 Billion, but currently there is overcapacity, which has could be as high as 15%. This, combined with the slowing economy, will inevitably lead to more carriers seeking Chapter 11 protection leading to job losses in the union and non-union sectors.

7. Warehouse Best Practices
Companies are constantly trying to find ways to improve performance and warehouse operations is area where supply chain managers can focus to gain maximum efficiency for minimum cost. To get the most out of the operation, a number of best practices can be adopted to improve productivity and overall customer satisfaction. Although best practices vary from industry to industry and by the products shipped there are a number of best practices that can be applied to most companies. When considering the level of effort involved in warehouse operations, the greatest expenditure of effort is in the picking process. To gain efficiencies in picking the labor time to pick orders needs to be reduced and this can achieved in a number of ways. Companies with the most efficient warehouses have the most frequently picked items closest to the shipping areas to minimize picking time. These companies achieve their competitive advantage by constantly reviewing their sales data to ensure that the items are stored close to the shipping area are still the most frequently picked. Warehouse layout is also important in achieve greater efficiencies. Minimizing travel time between picking locations can greatly improve productivity. However, to achieve this increase in efficiency, companies must develop processes to regularly monitor picking travel times and storage locations. Warehouse operations that still use hard copy pick tickets find that it is not very efficient and prone to human errors. To combat this and to maximize efficiency, world class warehouse operations had adopted technology that is some of today’s most advanced systems. In addition to hand-held RF readers and printers, companies are introducing pick-to-light and voice recognition technology. In a pick-to-light system, an operator will scan a bar-coded label attached to a box. A digital display located in front of the pick bin will inform the operator of the item and quantity that they need to pick. Companies are typically using pick-to-light systems for their top 5 to 20% selling products. By introducing this system

companies can gain significant efficiencies as it is totally paperless and eliminates the errors caused by pick tickets. Voice picking systems inform the operator of pick instructions through a headset. The pick instructions are sent via RF from the company’s ERP or order management software. The system allows operators to perform pick operations without looking at a computer screen or deal with paper pick tickets. Many world class warehouse operations have adopted voice picking to complement the pick-to-light systems in place for their fast moving products. Although many companies will not be able to afford new technologies for picking, we’ve seen here that there are a number of best practices that can be adopted to improve efficiency and reduce cost.

8. Tactical Supply Chain Management
Introduction Tactical supply chain decisions focus on adopting measures that will produce cost benefits for a company. Tactical decisions are made within the constraints of the overarching strategic supply chain decisions made by company management. The strategic supply chain decisions cover the breadth of the supply chain for the entire company. Tactical supply chain decisions take the strategic message and focus on creating real benefits for the company. These can include tactical decisions in manufacturing, logistics, suppliers and product development. Manufacturing Strategic decisions may be made by company executives about the number and location of manufacturing sites to be operated. However, it is at a tactical level that decisions are made on how to produce the products are the lowest cost. Tactical decisions may be made as to the adoption of manufacturing methodologies such as kanban or just-in-time. Tactical decisions may be required at a regional level by using technology that is available that reduces material wastage, but cannot be exported to other manufacturing plants. Logistics Although strategic company decisions may require an in-house logistics function to be operational, a tactical decision may be required to use a third party logistics company in a region or country where transportation costs are high and cost benefits can be achieved by outsourcing. Similarly in countries where land costs are high, construction of warehousing facilities may be cost prohibitive and despite not following the strategic vision, a tactical decision is made to use public warehousing. Suppliers Many companies recognize the cost benefits of using global suppliers and adopt strategic supply chain policies to take advantage. At a tactical level, management has to work within strategic guidelines to identify and negotiate the terms that will realize the greatest cost benefit across the company. Product Development Companies make strategic decisions on the product lines they are committed to producing. Tactical decisions have to be made as to the particular products that should be developed. If a company makes a strategic decision to introduce a new line of MP3 players in Europe, the company has to make tactical decisions regarding the specifications of the players, what countries they will be sold in and the market segment they will targeted at where the most profit can be achieved.

The tactical supply chain decisions that a company makes are not made in isolation but within the framework of the strategic supply chain decisions made at a global level, which in turn are based on the global objectives of the company.

Operational Supply Chain Management
Operational supply chain management decisions are made daily to ensure the efficient flow of material. These articles examine the variety operational decisions that companies make and the effects of those decisions on the supply chain.

1. Cycle Counting In The Warehouse
Cycle counting is a popular inventory counting solution that allows businesses to count a number of items in a number of areas within the warehouse without having to count the entire inventory. Cycle counting is a sampling technique where count of a certain number of items infers the count for the whole warehouse. This sampling method is used by pollsters every day where they measure the opinion of a small number of the people and infer that is the opinion of the population. When a cycle count is performed, there are two inferences that are made. The primary inference is that the accuracy of the items in the cycle count can be used to determine the accuracy of the items in the warehouse as a whole. The other inference is that if an error is found in the cycle count then that error could be expected to occur for other items in the warehouse. Types Of Cycle Counting There are a number of types of cycle counting that can be used:
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Control Group Random Sample ABC Analysis

Control Group Cycle Counting When a company starts using cycle counting they may use a control group to test that the method they are using to count items will give the best results. The process usually focuses on a small group of items that are counted many times in a short period. This repeated count process will show any errors in the count technique which can then be corrected. The process is continued until the technique has been confirmed to be accurate. Random Sample Cycle Counting When a number of items to be counted are chosen at random, this is process known as random sample cycle counting. When a company’s warehouse has a large quantity of similar items, they can randomly select a certain number of items to be counted. The count can be performed each day or workday so that a large percentage of the items in the warehouse are counted in a reasonable period. Two techniques can be used in random sample cycle counting; constant population counting and diminished population counting. Constant population counting is where the same number of items are counted each time a count is performed. This can mean that certain items are counted frequently and some items are not counted, as the selection of items to be counted is random.

Diminished population counting is a technique where a number of warehouse items are counted and then excluded from being counted again until all of the items in the warehouse are counted. Each count selects items from an ever-decreasing number of eligible items to be counted. ABC Cycle Counting ABC cycle counting is an alternative to random sample counting. This method uses the Pareto principle as the basis for this technique. The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes. The ABC cycle counting method uses this principle to assume that 20% of the parts in a warehouse relate to 80% of the sales, these are the “A” items. The principle is then extended to two other categories where “B” items account for 30% of the items and 15% of sales and “C” items represent 50% of the items in the warehouse, but only 5% of sales. Before a cycle count can be performed, the items in the warehouse have to be identified as A, B or C items. This is usually achieved with the help of a computer system, such as inventory control software. Once each of the items in the warehouse has been assigned a category, the number of times each category should be counted needs to be determined. The items with the highest sales value should be counted more frequently than items that have low sales. Therefore, an item that has been assigned as an “A” item will be counted more frequently than items that are designated as “C” items. The ABC cycle count does have issues. Warehouses with a large number of distinct items may find that they are counting many times a day. The warehouse may not have enough resources to complete the required number of counts. Another issue is that due to the infrequency of counting of “C” items, the inventory accuracy of these items may be low

2. Order Picking In The Warehouse
Introduction Order picking can be defined as the activity by which a small number of goods are extracted from a warehousing system, to satisfy a number of independent customer orders. Picking processes have become an important part of the supply chain process. It is seen as the most labor-intensive and costly activity for almost every warehouse, where the cost of order picking is estimated to be as much as 55% of the total warehouse operating expense. As the order picking process involves significant cost and can affect customer satisfaction levels, there have been increasing numbers of process improvements proposed to help companies with this supply chain issue. Solutions For Order Picking A number of supply chain academics such as G.P. Sharp and Edward Frazelle have proposed a number of ways of classifying the order picking system. Four solutions have been identified for order picking.
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Picker to Part Part to Picker Sorting System Pick to Box

Picker To Part This particular method is very common and found in most warehouse environments. The process involves a storage area, a picking area and a material handing system that is used to refill the picking locations from the storage area, which can be forklift based or more specialized such as gravity flow racks. The storage area will

contain the items required to fulfill the customer orders. The picking operator can then pick the items for each customer order from the items stored in the picking area. As all the items are in a smaller area than the regular warehouse, the picking operator can fulfill the order more efficiently than if they had to pick the items from the general storage area in the warehouse. The gravity flow racks are especially useful for items that are commonly ordered so the picking operator can be in one location and pick items from the trays in front of them. There are a number of technological advances in “picker to part” processes such as “pick to light” or “voice picking”. These systems allow picking operators are informed which item to pick based on a light appearing on the item location or a voice informing the operator on a headset which item to pick. Part To Picker The part to picker method employs the same physical locations as the previous method; storage area, picking area and a material handling system that moves the items from the storage area to the picking area. The difference with this method is that the picking area is made up of a series of picking bays. The items are moved from the storage area and delivered to the picking bays. Each bay receives the items for one or more orders. The picking operator collects the items delivered to their bay and the customer order is fulfilled in this manner. This method can be subject to wasted labor as picking operators can find themselves waiting for items to be delivered to their picking location. Sorting System The sorting process including the requirement for a picking area, a storage area, replenishment of the picking area and a sorter. This method uses automatic material handling system consisting of multiple conveyors and a number of sorting devices. The items are placed on a conveyor in the storage area and the items are sorted for each particular order. The operator in the picking area collects the items that have been sorted for a customer order and processes that order. The efficiency is gained because the operator does not have to consume time collecting individual items. Pick To Box Pick to box is similar to the sorting solution as it uses the same elements; a picking area, a storage area, replenishment of the picking area and a sorter. The picking area is organized so that there are a number of picking zones connected by a conveyor system. The operator fills the box with the items on a customer order and the box moves to the picking zones until the customer order is complete and it is then ready for shipment to the customer. The efficiencies are gained because the operator does not have to consume time collecting individual items, but the cost of the initial set up of this solution could negate any cost benefits that the solution offers. Choosing an order picking system depends on any number of requirements such as cost, complexity, number of customer orders, size and number of items, etc. Every company has a unique requirement and one order picking solution may suit one business and not another. Determining the requirements will ensure that the most efficient order picking solution is selected.

3. Six Sigma Terminology
Six Sigma is a business management strategy that was initially developed by Motorola in the 1980’s, and now is used in many Fortune 500 companies. It is used primarily to identify and rectify errors and defect in a manufacturing or business process. Six Sigma uses a number of quality methods and tools that are used by professionals within the organization, who have been trained on Six Sigma techniques. Often the terms used in

Six Sigma are sometimes misleading, so listed below are some of the more frequently used with an explanation of the term. Executive Leadership This role can include the CEO or other top management. They are responsible for setting up a vision for a Six Sigma implementation. Champion The champion can be defined as a person in a company’s organization who 'champions' a Six Sigma project. It can be used more specifically to refer to a senior manager who champions the project, ensures that it is properly resourced and uses their authority to overcome organizational barriers. Master Black Belt The Master Black Belt is a expert with extensive experience and technical expertise in all aspects of Six Sigma. The Master Black Belt is responsible for selecting, training and mentoring black belts within an organization. The Master Black Belt will often be involved in the selection of and approach to projects. They will also be responsible for ensuring that the standards of the Six Sigma program are maintained. Black Belt A Black Belt is a full-time professional who acts as a team leader responsible for the operation and outcomes of Six Sigma projects. To become a Black Belt it is required that the person demonstrate mastery of Six Sigma tools, through an examination and experience. Black Belt training course can involve four to five weeks of classroom training in methods, statistical tools, and team skills, in addition to a completed project. The American Society for Quality (ASQ) offers a Certified Six Sigma Black Belt qualification. Green Belt A Green Belt is a member of an organization who has been trained on in Six Sigma methodology and participates in projects as part of their full time job. They may either work as part of a team, led by a Black Belt, or lead smaller projects, with a Black Belt acting as mentor. Sponsor The project sponsor is a senior manager who can signs off on the resources, defines the objectives and evaluate the outcomes. The project sponsor is sometimes known as the project champion, although the champion can be used to describe anybody who champions a Six Sigma project. Change Agent A Change Agent is a person who leads change within the organization by championing the change and managing and planning its implementation. The Change Agent position can be official or voluntary. Big Y and Little y The important high level measure that a Six Sigma project seeks to improve is known as the Big Y . Big Y should be linked to the critical customer requirements. The Big Y is often used to generate little y operational objectives that must be improved to achieve Big Y improvements. Define for Six Sigma (DFSS)

DFSS is used to design a new process, product or service, or to redesign an existing process, product or service from scratch. This contrasts with the normal Six Sigma approach that is used to improve existing processes, products or services. DFSS uses the DMADV sequence rather than the DMAIC sequence. DMADV DMADV refers to the sequence of steps used in Design For Six Sigma (DFSS), instead of the DMAIC sequence which is used in regular Six Sigma. The DMADV sequence can also be referred to as DMADOV where the additional O stands for Optimize.
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Define - Define the project objectives, similar to DMAIC. Measure - Measure the expectations of all the stakeholders, particularly the customers. Also use benchmarking and competitor analysis. Analyze - Identify and analyze the alternative solutions Design - Carry out the detailed design Optimize - Use experimental design, simulation etc. to optimize the solution Verify - Verify the design through pilot studies and then evaluation as it goes into service

DMAIC The term DMAIC stands for the five main steps in the Six Sigma process; Define, Measure, Analyze, Improve and Control. Define
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Define the customer and their 'Critical to Quality' issues and expectations Define the business processes that are involved Define the boundaries of the project Create a process map Decide on the metrics including Big Y and little y's Form a project team Develop a project charter


Measure the existing processes by gathering data

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Analyze the data that has been gathered Identify the gaps between existing and desired performance Identify sources of variation Decide on the processes that will be improved

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Propose solutions Carry out pilot studies, test and evaluate the proposed solutions Develop an implementation plan


• •

Implement systems and procedures to ensure the improvements are sustained Develop procedures, control plans and train staff

4. Operational Supply Chain Management
Introduction Operational supply chain decisions are made hundreds of times each day in a company. These are the decisions that are made at business locations that affect how products are developed, sold, moved and manufactured. Operational decisions are made with awareness of the strategic and tactical decisions that have been adopted within a company. These higher level decisions are made to create a framework within the company’s supply chain operate and to the best competitive advantage. The day to day operational supply chain decisions ensure that the products efficiently move along the supply chain achieving the maximum cost benefit. A number of examples of operational decisions can be identified in manufacturing, supplier relationships and logistics. Manufacturing Companies make tactical decisions with regards to manufacturing, such as the adoption of kanban and just-intime. However, if the local manufacturing site is unable to rely on certain supplier’s delivery times, the just-intime method may not be suitable for some product lines. The local plant management may make an operational decision to keep certain items in stock to ensure that production is not halted. This inventory will increase costs, but a greater cost would be incurred if the production line was brought to a standstill due to a lack of items from a supplier. Suppliers Global suppliers and negotiated contracts are decisions made at a company level to take advantage of the company’s global buying power. This offers considerable cost savings, but local sites may have to make operational decisions with suppliers to ensure an efficient supply chain. In some instances local negotiations with global suppliers are required to ensure quality of the product. For example, in some countries the quality of the product produced by a supplier is not at the same level as other countries. The local management would have to make an operational decision to negotiate with the supplier for them to create a product with a higher quality to ensure the quality of the finished product. Logistics Strategic and tactical supply chain decisions in the logistics process often focus on the use of third party logistics companies (3PL). Many companies have identified the cost benefits of these 3PL companies and have integrated them into their supply chain. However, in some instances these 3PL companies may not operate in all regions where the company requires logistics. In those cases the local management has to make operational decisions on leasing local warehousing and negotiating with regional logistics companies. Although strategic and tactical supply chain decisions are made to bring the greatest efficiencies at the lowest cost, the daily operations of the supply chain require that local management make hundreds of operational decisions. These operational decisions are made within the framework created by the strategic and tactical processes and not made in isolation.

Quality in the Supply Chain

To help improve customer satisfaction, greater emphasis is given to the aspect of quality in the supply chain. The articles on this page will help you understand some of the quality issues and methodologies that are relevant in current supply chain management.

1.Benchmarking In The Supply Chain
Benchmarking Overview Supply chain operations within an organization should be constantly reviewed to identify where improvements can be made or deficiencies eliminated. One method to help do this is to perform a series of benchmarking tests on their supply chain processes. Benchmarking or goal setting allows a company to assess the opportunities they may have for improving a number of areas in their supply chain including productivity, inventory accuracy, shipping accuracy, storage density and bin-to-bin time. The benchmarking process can provide a company some estimate of the benefits achieved by the implementation of any improvements. History of Benchmarking Benchmarking is the process whereby an assessment of an act or performance is measured by some means, whether this is by a measurement of time, value or quantity. For example, an assessment of moving items from one storage location to another can be measured by time for a single movement or by quantity if the performance is over a set period. A benchmarking project will gather the assessments and develop a plan of action to improve the process that was assessed. The popularity of benchmarking was spearheaded by the Xerox corporation in the 1980’s and is now used in corporations throughout the world. Types of Benchmarking Three types of benchmarking can be identified; internal which is focused on the processes of a single company, external which examines processes outside of a company’s direct industry and competitive, which examines processes at firms within the same industry. Internal Benchmarking The internal benchmarking process allows a company with a number of facilities that operate the same supply chain processes to compare and contrast the ways in which the process is performed in those facilities. For example if a company operates five distribution centers in the US and Canada, the benchmarking process can examine a number of operations that take place at each of the distribution centers and compare how they are performed and what improvements can be made by comparing the results of the benchmarking. If a company benchmarks the processes around inventory accuracy, shipping accuracy and storage density, the results of the assessments of the facilities can help a company to improve on those processes at all of the facilities. External Benchmarking For companies that have performed internal benchmarking and want to investigate new ways in which to improve performance of their internal processes, external benchmarking can produce significant improvements. Many companies believe that their processes are as efficient as possible, but quite often, the efficiencies are limited by the knowledge within the company. The external benchmarking process takes a company outside of its own industry and exposes them to different methods and procedures. For example, a manufacturer and distributor of electrical components have internally benchmarked their warehouses for a number of years and have exhausted ideas on improving efficiencies. They approached a very successful retail company to visit their central warehouse and benchmark the processes that occur there to compare to their own warehouse processes. The external benchmarking allowed the manufacturer of the electrical components to

assess the processes seen in the retailer’s warehouse and develop an improvement plan for their own facilities based on the results.

Competitive Benchmarking For companies that are not performing as well as their competitors they may want to identify the reasons why their processes are not as efficient. Consulting and research firms can perform competitive benchmarking studies for companies that will identify the strengths and weaknesses of their processes based on those of their competitors. The company can then produce improvement plans based on the results of the competitive benchmarking. Components of Benchmarking There are a number of components to a benchmarking study. Not every benchmarking project will incorporate these components, but a combination of these can be used.
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Financial benchmarking – This involves a financial analysis of the operations that are assessed. For example, a company can compare the cost of storing a component in each of its warehouses. Performance benchmarking – This can compare the efficiency of performing a task in one company location to another, or to a competitor’s. Product benchmarking – This method compares the product of one company against another, or comparing between facilities in the same company. Strategic benchmarking – This method observes how other companies compete. This can be within the same industry or outside of the companies industry. Functional benchmarking – This is considered to be traditional benchmarking where a company will benchmark a single process at a location or a number of locations to identify where efficiencies can be made

2.Total Quality Management (TQM)
Total Quality Management (TQM) is an approach that seeks to improve quality and performance which will meet or exceed customer expectations. This can be achieved by integrating all quality-related functions and processes throughout the company. TQM looks at the overall quality measures used by a company including managing quality design and development, quality control and maintenance, quality improvement, and quality assurance. TQM takes into account all quality measures taken at all levels and involving all company employees. Origins Of TQM Total quality management has evolved from the quality assurance methods that were first developed around the time of the First World War. The war effort led to large scale manufacturing efforts that often produced poor quality. To help correct this, quality inspectors were introduced on the production line to ensure that the level of failures due to quality was minimized. After the First World War, quality inspection became more commonplace in manufacturing environments and this led to the introduction of Statistical Quality Control (SQC), a theory developed by Dr. W. Edwards Deming. This quality method provided a statistical method of quality based on sampling. Where it was not possible to inspect every item, a sample was tested for quality. The theory of SQC was based on the notion that a variation in the production process leads to variation in the end product. If the variation in the process could be removed this would lead to a higher level of quality in the end product.

After World War Two, the industrial manufacturers in Japan produced poor quality items. In a response to this, the Japanese Union of Scientists and Engineers invited Dr. Deming to train engineers in quality processes. By the 1950’s quality control was an integral part of Japanese manufacturing and was adopted by all levels of workers within an organization. By the 1970’s the notion of total quality was being discussed. This was seen as company-wide quality control that involves all employees from top management to the workers, in quality control. In the next decade more non-Japanese companies were introducing quality management procedures that based on the results seen in Japan. The new wave of quality control became known as Total Quality Management, which was used to describe the many quality-focused strategies and techniques that became the center of focus for the quality movement. Principles of TQM TQM can be defined as the management of initiatives and procedures that are aimed at achieving the delivery of quality products and services. A number of key principles can be identified in defining TQM, including:
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Executive Management – Top management should act as the main driver for TQM and create an environment that ensures its success. Training – Employees should receive regular training on the methods and concepts of quality. Customer Focus – Improvements in quality should improve customer satisfaction. Decision Making – Quality decisions should be made based on measurements. Methodology and Tools – Use of appropriate methodology and tools ensures that non-conformances are identified, measured and responded to consistently. Continuous Improvement – Companies should continuously work towards improving manufacturing and quality procedures. Company Culture – The culture of the company should aim at developing employees ability to work together to improve quality. Employee Involvement – Employees should be encouraged to be pro-active in identifying and addressing quality related problems.

The Cost Of TQM Many companies believe that the costs of the introduction of TQM are far greater than the benefits it will produce. However research across a number of industries has costs involved in doing nothing, i.e. the direct and indirect costs of quality problems, are far greater than the costs of implementing TQM. The American quality expert, Phil Crosby, wrote that many companies chose to pay for the poor quality in what he referred to as the “Price of Nonconformance”. The costs are identified in the Prevention, Appraisal, Failure (PAF) Model. Prevention costs are associated with the design, implementation and maintenance of the TQM system. They are planned and incurred before actual operation, and can include:
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Product Requirements – The setting specifications for incoming materials, processes, finished products/services. Quality Planning – Creation of plans for quality, reliability, operational, production and inspections. Quality Assurance – The creation and maintenance of the quality system. Training – The development, preparation and maintenance of processes.

Appraisal costs are associated with the vendors and customers evaluation of purchased materials and services to ensure they are within specification. They can include:
• •

Verification – Inspection of incoming material against agreed upon specifications. Quality Audits – Check that the quality system is functioning correctly.

Vendor Evaluation – Assessment and approval of vendors.

Failure costs can be split into those resulting from internal and external failure. Internal failure costs occur when results fail to reach quality standards and are detected before they are shipped to the customer. These can include:
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Waste – Unnecessary work or holding stocks as a result of errors, poor organization or communication. Scrap – Defective product or material that cannot be repaired, used or sold. Rework – Correction of defective material or errors. Failure Analysis – This is required to establish the causes of internal product failure.

External failure costs occur when the products or services fail to reach quality standards, but are not detected until after the customer receives the item. These can include:
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Repairs – Servicing of returned products or at the customer site. Warranty Claims – Items are replaced or services re-performed under warranty. Complaints – All work and costs associated with dealing with customer’s complaints. Returns – Transportation, investigation and handling of returned items.

3.Warehouse Safety
About OSHA Safety in American warehouses is regulated by a series of standards from the Occupational Safety and Health Administration, commonly known as OHSA. The US Congress created OSHA under the Occupational Safety and Health Act, which was signed into law by President Nixon on December 29, 1970. The main focus of OSHA is to prevent work-related injuries, illnesses, and deaths. Since the administration began, occupational deaths have been cut by 62% and injuries have declined by 42%. However, the fatal injury rate for the warehousing industry is higher than the national average for all industries. At a federal level OHSA inspects about 40,000 facilities per year, while the 26 state operated OHSA organizations inspect another 60,000. OHSA can issue citations which result in financial penalties up to $7,000 for non-serious violations, but can rise to $70,000 for repeat offenders. OSHA’s Top 10 Warehouse Citations OSHA issues many publications on safety issues in a warehouse and the solutions that can be adopted by businesses to reduce accidents and minimize injury. The list below is their top 10 areas for which they issue citations. 1. Forklifts 2. Hazard communication 3. Electrical, wiring methods 4. Electrical, system design 5. Guarding floor & wall openings and holes 6. Exits 7. Mechanical power transmission 8. Respiratory protection 9. Lockout/tagout 10. Portable fire extinguishers Forklifts

Forklifts can be dangerous, OSHA records about 100 warehouse employees are killed and 95,000 injured every year in forklift accidents while operating forklifts. The majority of fatalities are caused by forklift turnovers. Being crushed between a forklift and another surface is the second highest percentage, followed by getting struck a forklift and then getting hit by falling material from a dropped load. OHSA issue guidelines on forklift operation including the following:
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Train, evaluate and certify all operators to ensure that they can operate forklifts safely, follow safe procedures for picking up, putting down and stacking loads Drive safely and never exceeding 5 mph and slow down in congested areas, Maintain sufficiently safe clearances for aisles and at loading docks or passages where forklifts are used Train employees on the hazards associated with the combustion byproducts of forklift operation, such as carbon monoxide.

Hazard Communication Hazard communication refers to the information about chemical hazards and the associated protective measures that is communicated to employees and employers. Chemicals pose a wide range of health hazards, such as irritation, and physical hazards, such as flammability and corrosion. Chemical manufacturers and importers to evaluate the hazards of the chemicals they produce or import; and providing information about them through labels on shipped containers and more detailed information sheets called material data safety sheets (MSDS). OSHA recommend a number of measure with regards to Hazard communication:{
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Employees should be trained on the risks of each chemical being stored. Provide spill cleanup kits in any area where chemicals are stored. Have a written spill control plan. Train employees to clean up spills, protect themselves and properly dispose of used materials. Provide proper personal protective equipment and enforce its use. Store all chemicals safely and securely.

Electrical Safety Many times electrical hazards are the cause of injuries and fatalities in the workplace. As well as being dangerous in a warehouse it is one of the leading causes of accidents in construction sites. The first step towards electrical safety is controlling or eliminating factors in your warehouse that pose electrical hazards. Ground fault electrical shock is a common electrical hazard. OSHA requires that employers provide ground fault circuit interrupters (GFCIs) for receptacle outlets. Warehouses should provide assured equipment grounding conductor program. Either of these methods can eliminate hazards in ground fault electric shock. Guarding Floor And Wall Openings and Holes The easiest way to avoid falls in the warehouse is by eliminating and controlling fall hazards. This can be achieved by the use of fall protection equipment or devices. There are basically two types of fall protection. With a combination of both, you can ensure a safer environment for employees who are exposed to fall hazards. One type of fall protection is the fall restraint; these systems consist of equipment that prevent a free fall, for example guardrails/standard railings, full body harness, and warning lines. The other type is the fall arrest, these systems help by stopping a fall in progress or saving an employee in the middle of a fall, for example the use of safety nets. Respiratory Protection

Many accidents occur each year and most of the time it’s because of the absence or lack of personal protective equipment (PPE). OSHA strictly regulates employers to provide their employees with proper PPE. Many accidents occur not because of absence or lack of PPE but because employees do not to wear it. This is particularly true of respiratory protection. In some warehouses there is the presence of toxic airborne substances. This is where respirators should be used by employees. Respiratory protection is designed to protect the wearer from dust, fumes, paint spray, pesticides and other substances that could bring about long-term or permanent impairment or even death. As with other types of PPE, safety programs provided to warehouse employees must specify the proper ways to clean, maintain and repair respirators. Lockout/Tagout In the warehouse there is often defective or damaged equipment. It is important that these items are tagged with an “Out of Service” until it gets replaced or repaired. This will keep employees away from items that may cause serious injury or illness. According to OSHA, tag is “a device usually made of card, pasteboard, plastic or other material used to identify a hazardous condition”. Many companies are cited by OSHA because tags are not used in the correct way.

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