1.1 Logistics and Supply Chain 1.

2 Logistics in SCM
• Value chain • Logistics
• Supply Chain Management • Logistics Management
• Integrated Supply Chain • Value Added Roles of Logistics
• Customer Orientation • Logistics Activities
• SCM Conceptual model • Logistics in the Firm
• SC Development Trends • Logistics interfaces with Marketing

Supply Chain Management

• Value Chain - a set of activities that a firm operating in a specific industry performs in order to
deliver a valuable product or service for the market. The concept comes from business management
and was first described and popularized by Michael Porter in his 1985

• The idea of the value chain is based on the process view of organizations, the idea of seeing a
manufacturing (or service) organization as a system, made up of subsystems each with inputs,
transformation processes and outputs

• Inputs, transformation processes, and outputs involve the acquisition and consumption of resources -
money, labour, materials, equipment, buildings, land, administration and management.

Value Chain
Primary activities

• Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished inventory
from suppliers to manufacturing or assembly plants, warehouses, or retail stores.

• Operations: concerned with managing the process that converts inputs (in the forms of raw
materials, labor, and energy) into outputs (in the form of goods and/or services).

• Outbound Logistics: is the process related to the storage and movement of the final product and
the related information flows from the end of the production line to the end user.

• Marketing and Sales: selling a product /service and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, etc.

• Service: includes all the activities required to keep the product/service working effectively for the
buyer after it is sold and delivered.

Support activities

• Procurement: the acquisition of goods, services or works from an outside external source

• Human Resources Management: consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.

• Technological Development: pertains to the equipment, hardware, software, procedures and

technical knowledge brought to bear in the firm's transformation of inputs into outputs.

• Infrastructure: consists of activities such as accounting, legal, finance, control, public relations,
quality assurance and general management.
Evolution of Supply Chain Management

Supply Chain Management

• Supply Chain Management (SCM) - a group of inter-connected participating companies that add
value to a stream of transformed in outs from their source of origin to the end products or services
that are demanded by the designed end-consumers.

• Chain – links the participating companies that are inter-connected in the value added process.

• A Supply chain is the product and/or service that are created by the supply chain for the end
consumer in the market place.

• It is not a chain and rather more of a network – usually multiple suppliers and multiple customers
for each participating companies in the chain.
• Material Flow – raw materials flows at the beginning of the supply chain to the finish goods at the
end of the supply chain.

• Commercial Flow – materials flow that run through the SC changes its ownership from one to
another (from supplier to buyer). The transaction commercial flows will only take place in a SC
where more than one companies. If it is with a firm, there will be materials flow but no ownership
change.

• Information Flow – multitude of information flowing towards downstream (forecast, production

scheduling) or towards upstream (feedback/demand from customers)

• Finance Flow – money flow (blood stream). The sharing of “single entity” for supply chain
integration and collaboration. The distribution and sharing of this single financial resource fairly
across a SC (better alignment between companies).

Integrated Supply Chain

SCM is the art and science of integrating the flow of products, information, and financials through
the entire supply pipeline from the supplier’s to the end customer.
Customer Orientation
• Supply chain (SC) extend from raw materials, suppliers to retailers before the end- consumer.

– Every member of SC only supply but consumer demands

– SC existence is based on the demand from consumer.

– SC adds value to the products (transformed input), consumer DON’T. Consumer only
consumes the products and depletes its market value.

– SC is always specialized however, consumer is always general.

• It is more appropriate to separate the consumer away from the concept of SC.

• Everything a SC does is driven by the needs and wants of the end-consumer.

SCM Concept
• Supply chain management (SCM) is simply and ultimately the business management, whatever it
may be in its specific context, which is perceived and enacted from the relevant supply chain
perspective.

SCM Conceptual model

• Supply Chain Configuration (SC architecture) – how a SC is constructed from all its
participating firms. It includes the supply base for OEM, the extend of the vertical integration , how
the downstream distribution channel is designed.

• Supply Chain Relationship – the inter-firm relationships across the SC focusing on the level of
relationships. Close partnership – firms exchanges their vision, investment plan, processes and
financial information.

• Supply Chain Coordination – Coordination of continuous material flow throughout the SC which
is operational.

• SCM concept involves managerial decision making across strategic tactic and operational level.
SC Development Trends
• From functional to process perspectives – Function is what seen to be the delivery part of the
business. Today SCM sees problems from the process perspectives.

• From operational to strategic viewpoint – Managers sees that by improving and optimizing their
functions, it can help reduce cost however today, managers realize that effective changes can only
be achieve if operational issues are addressed from the SC wide strategic viewpoint or strategic fit.

• From single enterprise to extended enterprise.

– Long established enterprise centered management thinking on competition between organization

has become obsolete and now changed to supply chain.

• From transactional to relationship base engagement. – Business engagement has moved from
transactional measure (price, volume, delivery terms) now more into working with external firm -
relationship engagement.

• From local to regional, and from regional to global.- Business model change due to demand and
cost has been an issue for a product resulting the connection of SC network to grow from local to
regional to global due to market forces. Lower cost has drives business model to extend to other
part of the world.

Logistics
• Logistics is the management of the flow of things between the point of origin and the point of
consumption in order to meet requirements of customers or corporations.

• The resources managed in logistics can include physical items, such as food, materials, animals,
equipment and liquids, as well as abstract items, such as time, information, particles, and energy.

• The logistics of physical items usually involves the integration of information flow, which is
material handling, production, packaging, inventory, trans portation, warehousing, and often
security.

Logistics Management
Perspective Definition
Inventory Management of materials in motion and at rest
Customer Getting the right product, to the right customer, in the right quantity, in the
right condition, at the right place, at the right time, and at the right cost
(called the "seven Rs of logistics")
Dictionary The branch of military science having to do with procuring,
maintaining and transporting materials, personnel, and facilities.
International The art and science of management, engineering, and technical activities
Science of Logistics concerned with the requirements, design, and supplying and maintaining
resources to support objectives, plans, and operations.
 Utility/Value Providing time and place utility/value of materials and products in
support of organization objectives.
Council of Supply Chain That part of the supply chain process that plans, implements, and controls
Management Professionals the efficient, effective flow and storage of goods, service, and related
information from point of origin to point of consumption in order to
meet customer requirements.
Component support Supply management for the plant (inbound logistics) and distribution
management for the firm's customers (outbound logistics)
Functional management Materials requirements determination, purchasing, transportation,
inventory management, warehousing, materials handling, industrial
packaging, facility location, analysis, distribution, return goods handling,
information management, customer service, and other activities
concerned with supporting the internal customer (manufacturing) with
materials and the external customer (retail stores) with product.
Common culture Handling the details of an activity.

Logistics management subdivisions.

• Business logistics
– Part of supply chain that plans, implements and control goods/services/information

• Military logistics
– Design and integration of support for operational capability of military forces and equipment

• Event logistics
– Network of activities, facilities and personnel required to organize, schedule and deploy
resources for an event

• Service logistics
– Acquisition, scheduling and management of the facilities/assets, personnel and materials to
support/sustain a service operation/business

Logistics

Logistics is the process of anticipating customer needs and wants; acquiring the capital, materials,
people, technologies, and information necessary to meet those needs and wants; optimizing the goods or
service- producing network to fulfil customer requests; and utilizing the network to fulfil customer
requests in a timely manner.
 Value-Added Roles of Logistics

• Form Utility:
– Value added to goods through a manufacturing or assembly process.

• Place Utility:
– Moving goods from production surplus points to points, where demand exist by adding value
to goods through transportation

• Time Utility:
– Availability of goods/services at that point when customer demands them. Value added to
good/services by having at a demand point at a specific time. – Just In time

• Quantity utility:
– Delivering the proper quantities of items to where it is demanded

• Possession utility:
– Create basic market activities related to promotion of product/services.

Logistics Activities
Logistics Activities

Transportation Procurement
Warehousing and storage Customer service
Industrial packaging Facility location
Inventory Return goods handling
Order fulfillment Part and service support
Demand forecasting Salvage and scrap disposal
Production planning/scheduling

• Transportation

– Very important and largest activity in the logistics system.

– Major role for the movement of goods/products.

– Logistics management to select the most suitable mode/s of transportation and carrier

• Packaging

– Industrial packaging protect the products during transportation

– Type of transportation mode may require different packaging requirement.

– Tradeoff between cost and damage to be considered.

• Storage

– Involve two separate activities; inventory management and warehousing

– Management should pay attention when making decision relating to storage activities

• Materials Handling

– Important to warehouse design and efficient operations to handle the goods/materials

– Placement of goods in a warehouse between storage, order-picking and docks.

– Concerns the usage of the right equipment for most efficient handling of goods in the
warehouse

• Inventory Control - has two dimensions;

– Assuring adequate level : to ensure sufficient level of inventory by monitoring the current
inventory (replenish if needed)

– Certifying inventory accuracy : As inventory deplete to fill customer order, the facility
information system can track the status. An annual physical count is done to ensure
accuracy.

• Order Fulfilment

– Activities involve with filling and shipping of customer orders.

– An important factor to consider is Lead time (time when a customer order is made till the
goods is receive by the customer)
• Forecast

– A process to anticipate the required inventory level especially to ensure efficient control of
material/components for manufacturing

– Must have a plan in conjunction with the marketing forecasts of demand to ensure proper
inventory level are kept

• Production Planning

– Planning relates to the forecasting in term of effective inventory control

– Managers can calculate the number of units to manufacture to ensure adequate market
coverage

• Procurement

– as a part of logistics as transportation cost relate to the distance when purchased of materials

– In terms of transportation and inventory cost, the quantities purchased would affect total
logistics cost

– To purchase from suitable and reliable supplier so that the supply is being replenish timely
and no operational issues encounter

• Customer Service

– The process of interacting directly with customer to influence or take orders. Including
coordinating among inventory control, manufacturing, warehousing and transportation to
guarantee promises being kept

– Level of service an organization offers/promise to its customers. Include order fill rates and
on-time delivery rates.

• Facility location

– Site location can impact an organization’s business

– A location would alter time and place relationships between facilities and markets or
between supply points and facilities. It does affects transportation cost.

• Other activities

– Other activities includes parts and service support, return goods handling, and salvage and
scrap disposal.

– Require the development of a reverse logistics system that allows used, broken or obsolete
products to be returned to supplier for disposition.
Logistics in the Firm
Logistics Interfaces with Manufacturing/Operators

• Interface between logistics relates to the length of the production run

• Manager weight the advantage or disadvantages of a long versus short production runs and their
impacts on inventories

• Organizations today tend toward shorter production run and to reduce the time and expense with
changing production – “JIT” or “LEAN” , trend moving towards “pull” system compared to “push”
system.

• Production manager keen to minimize seasonal demand for production – possible to produce well
ahead of time to meet demand.

• Packaging might be a factor in influencing sales

• Marketing manager placed great concern over the packaging of the product appearance, information
and related aspect.

• Consumer package has to fit into the package or external package; size, shape and other dimension
of the consumer package affect the use of industrial package

• The physical dimensions and the protection aspect of consumer package affect the logistics system
in the area for transportation, materials handling and warehousing

Logistics interfaces with Marketing

Price Product
 Adjust price to meet transportation weight • Physical dimensions affects the
E.g., Different weight break offers different transportation e.g., packaging requirements
pricing. • New products often refurbish old products in
 Discount schedule for the purchase of larger the market – improve/maintain sales
quantities • Consumer packaging influence sales for
e.g., Higher volume gets better rates. many products and affects the logistics
 Volume sold under different schedules system.

Promotion Place
– Marketing area that receives much – Marketing are more involve in the
attention through advertising. decision making on transactions-
– Distribution of products to wholesale or direct deal
consumer/customer – Wholesale- larger quantity
– “Push and pull” strategy of products – Small retail- less quantity
through distribution channel – Suppliers need to purchase transportation
– Predicting consumer behavior difficult to service meet delivery needs
accommodate.
1.3 Logistics in Supply Chain Management
• Logistics in the Firm
• Technology of Logistics system Analysis
• Approach to Analyzing Logistics System
• Logistics and System Analysis
1.4 Global Supply Chain Operations
• Supply Chain Management
• Global Supply Chain Operations
• Strategic Challenges
• How Global Supply Chains Responded
• Current Trends in Global SCM

Logistics in the Firm

• Micro perspective in the logistics examines the relationships between logistics and other functional
areas in an organization

• Marketing

• manufacturing/operations

• Finance

• Accounting

• Others

• The impact that logistics can have upon return on assets (ROA) or return on investment (ROI) is very
significant.

ROA is defined as follows:

ROA = Revenue - Expenses/Assets Or

ROA = Gross Profit/Assets

• Order Cycle – the time lapses from when a customer places an order until the order is received.
Includes activities e.g., order transmission, order receipt, order processing, order preparation(pick &
pack).

• Longer order cycle times usually require higher customer inventories

• Substitutability

– If a product is similar to other products, consumers may substitute to another competitive

product if a stock out occurs

– Customer service is more important for highly substitutability products

– Substitutability product varies by industry.

– Logistics managers can either spend more on inventory or spend more on transportation.

• Inventory Effect

– Organization can reduce cost of sales by increasing inventory cost.

– Organization usually willing to increase inventory cost only until total cost starts to increase.

– Marginal savings from reducing lost sales cost equal the marginal cost of carrying additional
inventory.

Cost of lost sales to Inventory cost

• Product Relationship – some factors affecting the cost and logistics;

• Dollar Value, Density, risk to damage and need for special handling

• Dollar Value

– Products dollar value affects warehousing cost, inventory costs, transportation costs, packaging
costs and material costs.

– Product dollar costs increases, the cost in each individual area also increases.

– Transportation reflects the prices of the risk associated with the movement of goods

– Warehousing and inventory with higher value means more capital investment

– Packaging cost increases when the use of protective materials to minimize damage or lost for
product of high value.
 Product dollar value to Various Logistics cost

• Density - The space ratio of the product = light weight compared to the space it occupies.

– Density affects transportation and warehouse cost. As density increases, the transportation
and warehouse cost tend to decrease.

– Warehouse and Transportation provider charge lower for higher density items due space
required is less.

Product Weight Density to Logistics Costs

 • Risk to Damage

– The greater the risk of damage to the product the higher the transportation and warehousing
cost.

– Higher degree of risk and liability associated with more fragile goods, the higher the prices
charged by both transportation and warehousing provider.

– Preventive measured are required to ensure product is handled to avoid being damaged.

Product Risk to Loss and Damage to Logistics cost

Logistics and Spatial Relations

• Spatial Relationship – the location of fix point in the logistics system with respect to demand and
supply points. They are very important to transportation costs, since these costs tend to increase with
distance.

Important to adopt total cost perspective. Lower $7.00 production cost at B is offset by higher inbound and
outbound transportation cost
Technology of Logistics system Analysis
• Logistics analysis has been viewed as an important element in the corporate strategy of many
organizations. Logistics refers to a process that is associated with flow of information, goods, and
services offered to suppliers and customers from the point of origin to the point of destination.

• An effective and efficient logistics system is created to meet the requirements of the customers for
timely responsiveness, quality and creating value for products and services.

Steps of Logistics system Analysis

Techniques of Logistics System Analysis

• Short-Run/Static Analysis

a specific point in time, or level of output/production, is chosen and costs are developed for the various
logistics cost centers.

• Long-Run/Dynamic Analysis

Examines a logistics system over a long time period (range/output)

Approach to Analyzing Logistics System
The analysis of logistics is based on many types of activities can be describe through four approaches.

• Balanced System

– Some organization has balanced inbound and outbound flow

– Raw materials are used to produce many types of finished products for consumer. E.g.,
Kraft, Unilever – Fast Moving Consumer Goods

• Heavy Inbound

– Some organization has very heavy inbound flow of materials but very low on finished
products. E.g., Boeing

– Very complex system to produce such a high tech production

• Heavy Outbound

– Companies with heavy outbound tends to be more complex on their physical distribution
network.

– Exxon/mobile is an example of a heavy outbound system whereby crude oil is being

transported though water, pipeline, trucks.

• Reverse System

– Some organization has a reverse flow of their outbound system. The product comes with
warrantee

– Customer may return the goods for repair/service

– E.g., Dell laptops, Apple Products etc

Nodes versus Links

– Nodes- fixed spatial points where goods stop for storage or processing

– Links- transportation network and connect the nodes in the logistics system. Network can be
compound of individual modes of transportation and of combination and variation.

– Small market area, one simple nodes system is used to link from supplier to a combine warehouse,
plant and to end customer

– Complex transportation network may include 3 or 4 different modes including private hire

– Allow analysis for logistics improvements

 Nodes and Links in a Logistics System

Approach to Analyzing Logistics System

Logistics Channels – network of intermediaries engaged in transfer , storage , handling , communication,
and other functions that contribute to the efficient flow of goods.
Logistics and System Analysis
• System is a set of interacting elements , variables, parts, or objects that are fully functionally related
to one another and form a coherent group.

– The overall performance is more important than the performance of one part.

• Cost Perspective

– Efficiency measured by cost for a business system.

– Organization to optimize their transportation effectively with the other activities to consider
using cost as a guide.

– General tenet of the system concept is the focus on variables on how it interact as a whole
and operate the system effectively and not in parts.
• Level Of Optimality – exist within an organization

• Optimality Level I (optimizing the organization)

– Logistics is a subsystem of an organization and should not optimize at the expense of other
functions

– Organization must work out some compromise after analyzing the situation

– Marketing must consider product, finance and other areas

– The goal is to identify the trade-offs that exist within the organization and optimize the
organization as a whole.

• Optimality Level II (Supply Chain)

– Organization faced with constrain outside its own operations imposed by other supply chain

– When organization makes decisions at level I, it must also consider the impact at level II

– The trade-off decision must be made after taking into consideration of the costs of the
manufacturing versus of the wholesaler

– The trade-offs decision must optimize the operation of the supply chain

• Optimality Level III (External Environment)

– Involves the various constrain imposed by society

– Decision must be made that optimize the organization and the supply chain though society
requirements

• Logistics decision are made considering multiple level of optimality and may results in the expense
of other levels.

• Critical decision is the ability to understand the constituencies affected then optimize at the level
that is appropriate.
Global Supply Chain Operations
• Global Business environment

– trend to global market convergence-the tendency that indigenous markets start converge on a
set of similar product services across the world

• Global growth through media/Internet

– internet, TVs, Radios, news papers and movies – world become small

• Emerging economic power by BRIC

– Brazil, Russia, India and China (improve living condition)

• Logic of Global - seeking growth opportunities

– Expanding to more potential profit making

– Cheaper resource to reduce costs

– Collaboration in technology

• Growth of global supply chain is stronger than a local supply chain – advantage of international
labor, able to yield higher economic value and drives for more specialized activities.

• Shift of economic and political powers worldwide become dynamic and increases participation into
global supply chain network.

• Bringing in the influence from many emerging economies worldwide to a changed competitive
landscape.

• Some key characteristic that global supply chains must recognize;

• Borderless – Countries no longer limit to their own boundaries. A strong development such
as brands, services, technological collaboration and financing from trade agreement e.g.,
WTO, WB, GATT, OECD etc.

• Cyber-connected – businesses are now inter- connected through technology allowing large
data to be transferred quickly and reliable.

• Deregulated- Trade barrier around the world has been simplified to remove the rules to
encourage trade and stimulate economic growth e.g., NAFTA, EU, ASEAN, etc.

• Environmental Consciousness- Global movement towards green and eco system drives
corporation to see that the supply chain development helps in sustaining the environment.
Lawmakers and NGO e.g., Environment Protection Agency (EPA), green peace promotes
and formalize more legislation upon firms.

• Social Responsibility- Fair trade and business ethics are increasingly measured as are key
element for firms. Ethical standard and social responsibility are more likely to influence a
firms brand in the eyes of the consumer.
Strategic Challenges
• Market dimension

– Demand fluctuate from consumer in the market in time.

– The unpredictable global market as dictates by Geo- political instability globally contributes
to the market volatility.

– Technological development and product innovation constantly often moves faster than
supply chain.

– Emerging economies globally always churning out product and services that rival the
incumbent supply chain in terms of quality, price which lead to change of market sentiment.

– The development of internet base distribution has made it easier for consumers enabling to
shop for the lowest price.

• Technology dimension

– Applying technology for competitive advantage in the supply chain at global stage

– Development of lead-time innovative ideas shortened the time from testing to manufacturing

– Consumer may not find new technology product attractive hence firm may loose money
from their investment

– Supply chain network involving contractor may have issues with implementing their own
ideas or technology to the whole supply chain network. The cost and profit structure in the
value network may limit the attractiveness of an innovation.

– The development of new technology takes over other products and those products no longer
attractive to the market e.g., smart phones takes over many other gadgets prior to its
existence.

• Resource dimension (financial, workforce, intellectual, natural materials, infrastructure, assets

etc.,)

– Global supply chain development is constantly looking for new resource and make better use
of existing resource to yield economic outputs.

– Stretching supply chain worldwide enables internal resource be used in much wider/bigger
market in term of volume, variety, quality and functions.

– Internal based advantages can evaporate anytime when global business environment subjects
fundamental changes

– Stretching resourcing globally to acquire scarce resource at a much lowered cost. MNC
source for much reduced operating cost to stay competitive.
 • Time dimension

– The difference on time could make or break a supply chain where everything else is equal

– Competitions in the electronic environment is critical for new electronic product into the
market

– Internally, cost and core competence usually measured against time. If materials does not
move quickly, supply chain responsiveness is influenced by the lead-time and throughput-
time

– Developing and implementing an agile supply chain strategy to “balance” the cost to
service.

– A supply chain strategist must have a sound understanding the intricate relationship in all
factors of the whole supply chain.

How Global Supply Chains Responded

There is no “one size fits all” solution for supply chain management to survive the challenges.

– Collaboration: define a working together to achieve a common goal.

• Sharing resources: to avoid duplicate resources e.g., equipments, maintenance facilities,

networks, knowledge etc.,

• Achieve synergy: creating additional business value that neither achieve individually

• Risk sharing: Through investment and marketing, the negative impact of supply chain risk
is shared by parties concerned.

• Innovation: sharing technology (R&D) is the most effective way to advance as competitive
advantage.

– Supply Chain Integration

• Close internal and external coordination across the supply chain operations and processes
under shared vision and value amongst participating members.

• Exhibits high visibility, low inventory, high capacity utilization, short lead-time, and high
product quality(low defects)

• There is no supply chain which is 100% integrated or otherwise. It is about how much the
supply chain is integrated from a focal company’s point of view.

• A wider arc represents a higher degree of integration which covers larger extend of the
supply chain
• Divergent product portfolio

– In the global market, supply chain has two characteristics : volatility and diversity

– Divergent demand for wider rage of product or business sector to cater for the market needs

– Mitigate the market risk that brought by nature of global market volatility.

– Supply chain can still be stabilized by other product if one of which is not doing well

– Divergent portfolio works like a shock absorber and risk mitigating tool.

• Develop the “blue ocean strategy”

– Much more effective approach is to create a new market place which makes the market place
irrelevant.

– Firm competes in “red ocean” unlikely to create profitable growth in the future.

– Study shows of 150 strategic moves globally active in supply chain the last 30 years already
proved as an effective response to the global change

– In the future, supply chains will not battle competition but by creating uncontested market
place that has potential growth.

• Pursing world class excellences

– World class excellence: The highest business performance at a global level that stand the test
of time

– Very few firm deserve the title but it is the fitness status that determine the winner over
losers

– To be a winner, firm need to excel in 4 dimensions of excellence.

• Operational excellence

• Strategic fit
 • Capability to adapt

• The unique voice (unique practice)

Current Trends in Global SCM

1. Supply Chain Digitization

2. Supply Chain Solutions Will Continue to Move to the Cloud

3. Omnichannel Supply Chains Become the Norm

4. Sustainability Is Becoming Essential

5. Growth in Circular Supply Chains

6. Agile Supply Chains - supply chains need to be flexible and agile, as well as able to respond to
changes on short notice.

7. Internet of Things - the number of businesses using IoT devices grew from 13% in 2014 to 25% in
2019. The IDC forecasts 13.6% annual growth through to 2022.

8. Big Data Analytics and Supply Chain Logistics Coming Together

9. Artificial Intelligence (AI) and Machine Learning

10. Using Prescriptive Analytics to Move Beyond the Limitations of Predictive Supply
2.1 Technology in Supply Chain
2.2 Supply Chain Information System (SCIS)
2.3 Transportation

Supply Chain Technology

• Role of information
• Information requirements
• Information Technology Capabilities
• Information Technology Challenges
• A Framework for Managing Supply Chain
Information
• Master Model of Supply Chain Excellence
• Supply Chain Management Software
• Supply Chain Technology Implementation
• Supply Chain Technology Innovations

Role of Information
Role on Information In the Supply Chain

• Knowledge is essential for supply chain success

• Information enable planning, execution and evaluation of key functions

• Information provides visibility into the supply chain activities.

• Information allow management to make critical decisions in their day to day actions.

• Timely flow of information is important to ensure proper control of the materials and funds flow in
the supply chain.
Information Requirements
1. Information quality is critical for knowledge flowing across the supply chain.

2. The seven R’s of definition applies to information just as much as productions

3. “Right information to the right partners, in the right quantity, in the right format, at the right place,
at the right time, and at the right cost”

4. To ensure that valuable information across the supply chain, it must be accessible, relevant,
accurate, timely and transferable.

• Accessible

• Information must be available to the management who needs it regardless of locations or

employee.

• Obtaining needed information can be difficult because the data are often owned by external
organization.

• Relevant

• Management must have pertinent information to make quick decisions to current issues

• The goal is to avoid being overwhelmed by extraneous data that is not relevant.

• Accurate

• Information must be accurate to avoid errors and costly decisions e.g., government penalty,
dissatisfied customer

Information Technology Capabilities

• Timely

• Data must be up to date and available in a reasonable timeframe

• Managers able to synchronize activities, become leaner and address problems.

• Transferable

• Just as one need a translator to convert words, managers are able to transfer data for one
format to another to make it understandable

• Information also needs to be transferred quickly to facilitate accessibility and timeliness

• Connectivity

– Information technology(IT) is the primary focus of this driver

– Geographically connects facilities with seamless information through shared electronics

means e.g., Internet, Extranet etc.,

• Visibility

– Tools to generate actionable information through data collection via supply chain activities

– IT equipments allow users to “see” those information through the supply chain

• Collaboration

– The information available allows management to make collaboration decisions regarding

process standardization and strategic development

• Optimization

– Software is available to help organization to maximize its supply chain performance

– Optimizing tools to analyze and improve the supply chain issues e.g., cost efficient delivery
routes

• Execution

– Promotes efficient execution and integration of key activities to achieve operational

excellence

– Helps management to monitor its process effectively through performance measurement

software

• Speed

– Help management to respond timely to customer needs

– Improve and adapt to environment changes to solve problems and avoid disruptions.
Information Technology Challenges

 Information security (including data privacy,  Technology integration and upgradation

storage, and management)  Resource management
 Cloud computing – Amazon, Microsoft,  Infrastructure management
Alibaba  Fraud monitoring
 Social media  Business continuity/disaster recovery
 Risk management and governance
 Regulatory compliance

Technology Use Barriers

• Lack of Budget. • Disruption.

• Lack of Leadership Support. • Ability to Implement and Manage.
• Comfort Level – Legacy Systems. • User Acceptance.

Information Technology Challenges (10 golden rules for success - Favilla and Fearne)

1. Secure the commitment of senior 6. Follow a proven implementation

management
2. Remember that it is not just an information
technology project
3. Align the project with business goals
4. Understand the software capabilities
5. Select partners carefully
methodology
7. Take a step-by-step approach for incremental
value gains
8. Be prepared to change business processes
9. Keep and users informed and involved
10. Measure success with key performance
indicator (KPI)

A Framework for Managing Supply Chain Information

• Supply Chain Information System (SCIS) – information system that automate the flow of
information between a firm and its suppliers to optimize the planning, sourcing, manufacturing, and
delivery of products and services.

• SCIS have the capacity to collect and synchronize data, manage exceptions, and help streamline key
processes.

• SCIS links all functional areas of supply chain to promote visibility of actionable information and
enhance decision making.
 Master Model of Supply Chain Excellence

A Framework for Managing Supply Chain Information

• Foundation Elements- The ability to capture and manage supply chain information depends upon a
strong well-integrated foundation of people, processes, and technology

– People – users must be properly trained in the appropriate, accurate use of the tools

– Process- SOP and goals must be established for technology-enhancement to generate desired
outcome

– Technology- software applications and internet platform to be carried out in synchronized

manner to maximum performance; electronic data interchange (EDI)

• Key Requirements

– Data collection- collect relevant information timely in the supply chain

– Data synchronization- accurate updating of item within and across enterprises to ensure
consistent information in the organization and business partners

– Functional expertise- managers to leverage information to support planning and decision

making across supply chain operations

– Metrics- help organization articulate their impact on the supply chain

• Differentiating Capabilities

– Visibility- focus on providing seamless flow of timely, important information

– Exception management capabilities-detect of performance problems and signal alerts to

the affected organizations. Immediate correcting action can be taken

– Automated decision making- to recognize exception alerts, assess the problem, evaluate
alternatives and recommend solution and take corrective action without human intervention
Supply Chain Management Software
SCM Software

• Technology that address virtual function and task that occurs in the supply chain.

• These tools attempt to harness the organizations plan, execute, and control supply chain activities in
real time.

• Management are looking to establish the “sense and respond” capabilities of agile, adaptive
organization.

• The more integrated the tools are, the better the support they will provide for effective management
of the supply chain.
Planning

• Help organizations evaluate demand for materials, capacity and services so that effective fulfilment
plans and schedule can be develop.

• It encompasses a comprehensive set of software tool design to help managers gain accurate detailed
view that affects their development and planning.

• It addresses longer-term planning and important issues.

• Short-range planning tools helps to managers be able to make better decisions.

Execution

• Execution tools and suites carry out key tasks from the time an order is placed until it is fulfilled.

• Integrated supply chain capabilities shifted to a broader scope including procurement and supplier
relationship management, manufacturing execution and shop floor control, and customer relation
management.

• Consist of a group of integrated tools that link well with supply chain partners system to share
relevant data.

• Successful implementation provide users with improved inventory visibility, data accuracy, faster
throughput and higher inventory turns, better control of transportation costs and improved customer
service.
Event Management

• Tools collect data in real time from multiple sources across the supply chain.

• It is able to define business rules that triggers alerts when specified events occur or fail.

• Allows supply chain managers to focus on managing exceptions rather than monitor every
movement and compare against its plan.

• Able to monitor activities exceeds manual capabilities to help detect, evaluate and resolve issues.

• Optimization techniques is used to evaluate the severity of situation and propose alternative
solutions to decision makers or initiate action based on established guidelines.

Business Intelligence

• Builds upon traditional reports and output systems that provides historical data and the new system
can analyze and information sent to front line employees for effective planning and decision making.

• It supports self-service reporting, performance scorecards versus goals, development of dashboards

and other graphic report display in supporting event management and provide better access of data
to decision makers.

• Emerging capabilities make it easier to interpret data via simple dashboard items, such as charts,
graphs and maps that are easier to understand than pages of data.

Enterprise Resource Planning (ERP)

• Multi-module system software platforms that help organization manage the important parts of their
businesses

• Focus on integrating information and activities across the organization

• Activities includes; accounting, finance, planning, engineering, human resource, purchasing,

production, inventory management etc.

 Branch out to also include supplier relationship management, customer relation management and other
supply chain that connects between SCIS

 The system provides a mechanism for supply chain members to efficiently share information so that
visibility is improved, transaction are completed with speed and accuracy.
 ERP Integration of SC Capabilities

Supply Chain Management Software

Related Tools

• ERP tools help improve the flow of usefulness of the supply chain information, support
development and implementation of strategies including;

– Supply chain collaboration tools: help users integrate their information technology systems with
those of trading partners to streamline and automate supply chain processes. It provides
interoperability between different SCIS to support collaboration initiatives leveraging on Internet
standards

– Data synchronization applications: Provide a platform for manufacturers, distributors and retailers
to aggregate and organize item related data (number, prices, description, weight etc.,). Required
RFID technology and automated processes.

– Spreadsheet and database software (Excel): Provides managers with handy portable tools to
gather data, consolidating, and analyzing supply chain data. It is vital that the planning and analytical
work done via these tools be linked to the SCIS so that information is not lost.
Supply Chain Technology Implementation
Need Assessment

• Most important step in software selection and implementation is to understand the supply chains
that the technology is intended to support.

• Start with diagnosis of situation on own supply chain and access the capabilities and benchmark
against the needs of the supply chain partners.

• Technology also improves adequate processes but only after deficiencies have been address.

• The needs assessment sequence highlights the link between effective business processes, appropriate
technology, and supply chain performance which leads to realistic expectations, and great returns on
supply chain investment.

Software Options – managers must compare the advantages of commercial software to in-house solutions,
choose between single vendor suites and applications from multiple vendors, and consider licensing versus
on-demand purchases, among other issues.

• Development Alternatives

• software selection focuses on who will develop the solution. The choice is to develop the
tools in house for own use or to purchase software from an external vendor.

• Large firms depend upon their own information technology departments to build supply
chain application which are tailored to their specific industries.

• Most small and mid size firms are not able to build their own supply chain software, thus
they rely heavily on external vendors to develop for them.
• Solutions Packages

• Buyers have the choice of purchasing supply chain software suites that combine planning,
execution, event management, and related capabilities.

• Options are to work with a single vendor software or purchase individual applications form
leading providers in each category (best-of -breed).

• Single vendor supply chain suites should take les time to implement than variety tools from
different vendors as it requires less training time and have a lower implementation cost

• Best-of-breed tools are more complex and typically take longer to integrate into a SCIS to
streamline the process. They are more powerful and provide greater flexibility and can be
better tailored to individual firm’s issues.

• The challenge of choosing between these options is to understand the implementation issues;
firm’s need for tailored, advanced capabilities, and changing vendor landscape.

• Purchase options

• Historically, when buyers purchased a software, they also have to obtain a license and
manage the implementation issues and ongoing upgrades, and maintenance cost.

• The Internet with application service provider (ASP) now offered a new way to buy software

• ASP owns and operates the software while user can access the software via Internet
capabilities and be bill as they uses the service

• The advantage is that ASP will cost lower for user however the disadvantage is the
inefficiency of hosting one copy of the software application for each client

• On-demand solutions provider offers software that is accessible by multiple parties via
Internet through shared application

• Technical Issues

• Prior to implementation, management must address all technical issues before selecting the
software suite or best-of-breed application

• Useful software will become “shelfware” if it is difficult to install, unable to link to other
tools in support of visibility

• Two areas to address are Data Standardization and Application Integration

• Data Standardization

• Can be a challenge when the software comes in different languages and that may be difficult
to bring data together

• An option is to translate the data through a translator however it may be too cumbersome

• The best option is to use a standard format across the business which is the English language
 • Electronic data interface (EDI) provides interorganizational, computer to computer exchange
of structured information in a standard, machine processed format

• To implement EDI can be complex as their cost through link charges can be significant for
some businesses

• Extensible markup language (XML )is a flexible way to create a common information
formats that can be shared through Internet

• Application Integration

• The greater the variety of application, the more challenging connectivity and information
sharing issues become (present data differently).

• Development of Application programming interface (API) to allow companies to link SCIS.

• Focus has shift towards Service-oriented architecture (SOA) with “plug and play” function.
It defines how two computing entities interact in such a way as to enable one entity to
perform on behalf of the other entity.

• SAP’s Netweaver and Oracle’s Fusion are examples of SOA based applications.

• Buyer must monitor the development of SOA and its impact on software applications
landscape.

Asking The Right Question – to meet the organization overall objective and improved its performance and
move forward with technology investment and implementation

– Who will lead our implementation effort?

– How will technology support our business needs and processes?

– What is the status of our existing data?

– How well does our existing system integrate with suppliers and customers?

– What external issues must our system address?

Supply Chain Technology Innovations

• Last-mile delivery - eBike • Truck platooning
• Self-service/do-it-yourself logistics - • Blockchain
Amazon’s Flex program • Tagging, sensors and geolocation
• On-demand warehousing – Airbnb concept technologies - RFID
for warehouse. • Big data and AI
• Collaborative mobile robots
 Blockchain

2.3 Transportation
• Transportation Terminology • Term of Sale – Incoterms (International
• Transportation Mode Commercial Term)
• Transportation • Transportation Rates
• Documentation • Volume weight calculation

Transportation Terminology

a person or company that transports goods or people for any person or

Carrier company and that is responsible for any possible loss of the goods during
transport.
total time that elapses from the time the consignor makes the goods available
Transit time
for dispatch until the carrier delivers same to the consignee
Through transport or shipping arrangement to ensure direct flow of goods
Door to door
from the exporter to the importer (or from the point-of-origin to the point-of-
sale) with a minimum of interruption and delay.
graph in which the vertices or edges are spatial elements associated with
Network
geometric objects, defined as one region or for a carrier; the scale of the
network can be global or domestic
Equipment an instrumentality needed for an undertaking or to perform a service
Frequency measures how often things repeat over time
Schedule a sequence of events in the chronological order in which such things are
intended to take place
Capability Carrier's ability to provide the equipment and facilities in the movement of a
particular commodity requires
Claims demand for something as rightful or due e.g. damages, loss.
Reliability the consistency of the transit time a carrier provides
Transportation cost Cost includes rates, minimum weights, loading and unloading facilities,
packaging, and blocking, damage in transit, and special services from carrier.
Line haul reconsignment and diversion, pool car (or truck) service, stopping in
transit, and transit privilege
Pooling Combine loose or containerize loads into one load
Container a basic tool, consisting of any device creating a partially or fully enclosed
space that can be used to contain, store, and transport objects or materials
LCL Less than Container Load
CL Container Load
TL Truck Load

Transportation Mode
Railroad

• Require large investment for the infrastructure of its network

• Long-distance, large volume of low value, and high density goods

• Low accessibility due to its network setup as it require a station to load/unload

• Rather long transit time but low rates

• Weather shows low % of disruption to its service

• Railroad intermodal traffic is growing with other modes

Motor Carriers

• Largest mode due to its demand for its services

• Ability to provide service to any location

• Mode suitable for transporting manufactured goods over relatively short distance

• Weather conditions and traffic may disrupt its service

• Constrain on its capacity to transport by local law

• Safety is a challenge for motorway depending on its operations

• Cost is relatively high compared to other modes

Water Carriers

• The use of long distance and of for low value (with high density) cargo

• Provides the highest transit time of all modes due to its slow movement but the rates are low as well

• Types of ships

– Bulk carriers : ores, grain, coal, scrap metal etc.

– Tankers : Liquefied Natural Gas

– Container ships : TEU (Twenty-foot equivalent unit)

 – Roll-on-roll-off (RORO) : vehicle

– Oil-bulk-ore (OBO) vessels : liquid and dry bulk

– Oceangoing barge vessel : towed by tugs

Air Carriers

• Cost very high due to the equipment and infrastructure invested

• Advantage for air mode is speed and low transit time

• Commodity of high value and urgent goods are usually transported by air

• Air transportation is limited and must rely on airports to tender or collect the goods

• Weather condition may also disrupt air transportation

• Air transport reduces transit time and trade off for its service versus cost

Pipelines

• Only use for fuel transportation

• Not suitable for general commodity

• Pipeline is limited due to its set up and its cost is one of the highest fixed cost

• The transportation mode may be slow and typically less than 10 miles per hour resulting in long
transit time

• Weather will not disrupt the transportation mode

• Low cost for transportation due to its slow service

 Intermodal – the use of two or more carriers of different modes in the through movement of a shipment

 The use of different modes are required to transport the goods to its destination.

 Transfer of goods between modes may cause delays

 Cost can be a factor to a Intermodal mode

Indirect and special Carriers
• Small-Packages Carriers : A regulated carrier to handle small parcels (couriers) to its customers
using its network jointly or wholly owned

• Consolidators : Indirect carrier that collects small shipments to tender the a carrier. They are not
liable for in- transit damage

• Freight Forwarders : Regulated consolidator that collects small shipments from shippers and
consolidate into large loads and tender to a carrier and is liable for cargo damage

• Shippers Association : Indirect form of transportation that moves small shipment for shipper
members through consolidation with low volume rates to its members

• Brokers : a person or firm that acts as an intermediary between the shipper and carrier

Legal Classifications of Carriers

• Common Carriers : a for-hire carrier that serves the general public at reasonable charges and
without discrimination

• Regulated Carrier : Found in motor and water carriage which eliminate most of the economic
regulations – do not require to file in their rates however must provide tariff upon request by
shipper

• Contract Carrier : a for-hire carrier that does not serve the general public but serve one or limited
number of shipper under specific contract

• Exempt Carrier : a for-hire carrier exempt from economic regulation regarding rates and services
(for low rates)

• Private Carrier : not for hire and not subject to federal economic regulations

 Transportation cost - represent approximately 40 % to 50 % of the total logistics cost and 4 % to 10 %

of the product selling cost price for many companies

 Federal regulation of transportation – Act regulate commercial passed in 1887. Lessening of federal
regulatory controls over transportation began in 1977.

 Deregulation occurred with the enactment on the ICT Termination Act 1995, which eliminated the
interstate Commerce Commission (ICC) and establishing the Surface Transportation Board (STB) to
administer the remaining railroad regulation.

 The current status of federation regulations of the modes as follows;

• Motor and water carrier – rates and tariff-filing regulations eliminated except for household
goods non- contagious trade. Carriers may contract with shippers

• Railroads – subject to common carrier obligations to provide service to all shipper

• Air Transportation – in 1977 air transportation regulation was eliminated and marketplace
determines the rates and service
 • Freight Forwarders and brokers – considered a carrier however there are no federal economic
control over the rates or services. Can be held liable for damages

Documentation
• Bill of Lading: a document for ocean carriers use as a legal contract with their customers

• Order bill of lading: documents to transfer title of the goods

• Clean bill of lading : issues by carrier once goods arrives aboard in good condition

• Dock receipt: issues by local operator to handover the goods to the party collecting the goods

• Airway bill: a standardize document that air carrier use as a legal contract with its customers –
tracking detail /number.

• House airway bill: a document that a written contract between Freight forwarders and their
customers

• Delivery Order: issues by operator during the release of goods to the customer

• Export declaration: a formal customs declaration at origin for goods during exports

• Export License: License required for goods exporting to another country as the goods are
controlled items e.g., microprocessors, supercomputer etc.

• General License: License allows the export of the goods without any special requirements

• Commercial invoice: seller use to determine the commodity and value less freight and other
charges for the commodity sold

• Carnet: sealed shipment at origin and will not be opened until reaches its final destination and may
passed through transit customs which minimal inspection

• Certificate of origin: documents to certify that the goods originates from the exporting country to
prevent shipper from applying duty to other goods

Term of Sale – Incoterms

• Incoterms (International Commercial Terms) are a series of pre-defined commercial terms
published by the International Chamber of Commerce (ICC).

• Incoterm define responsibilities of both the buyer and the seller in any international contract of sale
for;

• Export packing cost • Main transportation cost

• Inland transportation (origin / destination) • Cargo Insurance
• Export Clearance • Customs duties
• Vessel or Plane loading/unloading • Risk of loss or damage in transit
• Rules for any mode of transport

• EXW – Ex Works (named place of loading)

• FCA – Free Carrier (named place of delivery)

• CPT – Carriage Paid To (named place of destination)

• CIP – Carriage and Insurance Paid to (named place of destination)

• DAT – Delivered at Terminal (named terminal at port or place of destination)

• DAP – Delivered at Place (named place of destination)

• DDP – Delivered Duty Paid (named place of destination)

• Rules for sea and inland waterway transport

• FAS – Free Alongside Ship (named port of shipment)

• FOB – Free on Board (named port of shipment)

• CFR – Cost and Freight (named port of destination)

• CIF – Cost, Insurance & Freight (named port of destination)

Transportation Rates

• Rates/tariffs - a price at which a certain cargo is delivered from one point to another. The price
depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the weight of
the cargo, and the distance to the delivery destination

• Bases for rates

– Cost of Service

– Value of service

– Distance (flat rate)

– Weight of shipment

Weight break – shipment size that equates the transportation charges for different rates and
weight groups

Carrier Pricing

• Class Rates - common standardized freight pricing for your shipment when working with different
carriers, warehouses and brokers.

• Freight classes are defined by the National Motor Freight Traffic Association (NMFTA) and made
available through the NMFC or National Motor Freight Classification.

• Freight classes (there are 18 of them) are based on weight, length and height, density, ease of
handling, value and liability from things like theft, damage, break-ability and spoilage. For the most
part, the lower the NMFC class number, the lower the freight charge.

• Exception Rates

• Carriers published exception ratings when the transportation characteristics of an item in a

particular area differ from those of the same article in another areas.

• Exception ratings may save cost for the shipper if it can be applied.

• Commodity Rates

• Specific commodity are constructed for specific routes

• A published commodity rates takes precedence over the class rates or exception rates in
specific points

• Other Rates

– All-Commodity Rates (FAK) : rate per shipment per hundred weight or shipment with minimum
weight

– Value Rates : rates released by carrier in the assumption of a certain fixed liability e.g., for
household goods, jewelry

– Deferred Rates : allow carrier (FDX) to defer arrival time (2DA)

 – Multiple Vehicle Rates : special incentives for customer shipping multiple vehicle loads of a
particular commodity at one time to a single destination

– Incentive Rates : to encourage heavier loading of individual vehicle for maximum utilization for
carrier

– Innovation Rates : discount from the prevailing rate to ship small shipment under class rate or a
contract rate for very large freight volume

Services

• Terminal services : services rendered to handle shipment/s

– Consolidation : at origin, combining of many less-than- volume shipments into one large
shipment for economic fare

– Breakbulk : at destination, carrier break down consolidated shipment into smaller shipment
for the release to its customer

– Loading/Unloading : handling shipment process to/from vessel/aircraft to/from warehouse

– Shipment monitoring : tracing/tracking of shipment movement to determine its location

through its transportation pipeline

Rates negotiation between shipper and carriers;

– Density-based rating : heavier loads for carrier thus spreading cost over weight (pricing)

– Specific description : defect goods return (lower value), receive a lower rating

– Loading/unloading allowance : LTL shipment gets discount as it is done by shipper at own

premises

– Aggregate tender rate : lower rates given to shipper for tendering multiple goods at one time

– Mileage rate : FTL type gets better rates

– Contract rates : Shipper agreed to move specific commodity in large volume in a year and carrier
would give a special rates

Ocean Freight Rates

• Rates set to cover all expenses including operating cost, fixed cost (crews), maintenance, repair, and
insurance and variable cost such as fuel, port fees, dockage, and cargo handling

• Carrier and shipper balance these factors against the cargo type and duration of the voyage length
and special requirements, to arrive at an agreed price

• Typically quoted on a weight-ton or measurement-ton (cubic meters) basis

• Container rates are common for shipper and is quoted from port to port and land transportation cost
are added to the container rate to get the through rate

• Carriers add numerous surcharge to the basic rates e.g., fuel, currency, port congestion, trans-
shipment, and terminal handling

Volume weight calculation

3.1 Warehousing

• Warehousing • Material Handling

• Basic Warehouse Decisions • Packaging
• Warehouse Operations • Materials Handling- Equipment
• Warehouse Layout and Design • Order-Picking and Storage Equipment

Warehouse – a facility to store goods

• Warehousing creates time utilities for raw materials, industrial goods, and finished products

• Increases the utility of goods by broadening their time availability to prospective customers e.g.,
companies can make goods available when and where customers demand them

• Firms use customer service as a dynamic, value- adding competitive tools

A Basic Conceptual Rationale

Warehouse serves as a value-added role in a logistic system;

• Consolidation : allow smaller shipment into a large shipment with significant transportation savings

• By product mixing : firm turn out a product line that contains thousands of “different” products, if
consider color, size, shape and other variations so a product mixing warehouse for a multiple
product line leads to efficient order filling.

• Firm can make up and deliveries in smaller vehicles and schedule there activities at more optimum
times to avoid congestion.
By developing mix warehousing near dense area, firm can make pick-up and deliveries in smaller vehicles
and schedule these activities at more optimum times to avoid congestion

• This strategy not only reduce transportation cost from consolidation but also allows the firm to avoid
using the plant as a warehouse.

• Firm increase the use of sophisticated strategy e.g., Materials requirement planning (MRP) or just-
in-time (JIT) system

• Cross-docking : an operation that facilitates the product-mixing function where products from
different suppliers arrives in truckload lots, but instead of being placed into storage, they are moved
across the warehouse area to waiting trucks for movement to a particular customer.

• To provide service : the importance of customer service which usually leads to customer
satisfaction and enhance future sales and may also for physical supply warehouses.

• Protection against contingencies: avoid transportation delays, vendor stock out, strikes e.g., buyer
to stock larger inventories where may cause production delays when raw materials is delayed.

• Smooth operations or decouple successive stage in the manufacturing process : seasonal demand
leads to extra production run long enough to ensure reasonable cost and quality where by
preventing operations under overtime conditions at low production levels, allows firm to reduce its
manufacturing capacity investment.
Basic Warehouse Decisions
• Warehouse management involve a number of important decisions, including ownership, number,
size, stocking, and location, that is what type, organization, how many, what size, what product and
where.

• Warehousing decisions are important and require close attention. Improving efficiency and
productivity is a major management focus in warehousing operations.

• Proper utilization space through carefully planned inventory management and distribution
operations will be more important in the future than building additional facilities.

Types of Warehouse
1. Public Warehouses

• Public warehouses are owned by governmental bodies and made available to private sector
companies.

• Public warehouses can be lent for both business and personal use. For short period of time, a public
warehouse can be a great option -> most affordable and accessible option.

2. Private Warehouses

• privately owned by wholesalers, distributors or manufacturers.

• more expensive than public warehouses, private warehouses can still be a great option for long-term
strategic presence in an important region.

3. Bonded Warehouses -> Bonded Trucks

• store imported goods before customs duties are required to be paid on them.

• don't have to pay any duties until the items are released. Can also store restricted items for extended
periods of time.

• perfect for importers to keep their items duty-free items.

4. Smart Warehouses

• Storage and fulfillment process and management is automated with AI.

• Amazon and Alibaba use huge smart warehouses that make the order fulfillment quick and less
prone to human error.

5. Consolidated Warehouses

• takes small shipments from different suppliers and groups them together into larger shipments
intended for the same geographical location.
6. Cooperative Warehouses

• owned and run by cooperative organizations like a farmer or winery co-op. Both co-op members and
those outside the co-op can store goods at these facilities, though co-op members benefit from
reduced rates.

7. Government Warehouses

• owned and controlled by the government, such as seaport storage facilities.

• Typically, government warehouses charge fairly affordable rates.

8. Distribution Centers

• storage space which is usually built with specific requirements in mind.

• The storage is used for temporary needs and items are shifted quickly within the supply chain.

Basic Warehouse Operations

• The basic warehouse operations are movement and storage.

• Goods brought to cross-docking or distribution warehouses move through the warehouse rapidly ;
rapid inventory turnover.

• Reason for rapid finished goods stock turnover is the high cost of holding finished goods
inventories; the need for more sophisticated storage facilities; and the greater risk of loss, damage,
or obsolesces.

• Moving goods quietly and efficiently through a distribution or cross-docking warehouse almost
mandatory.

Warehouse Operations
• Receiving
– the inbound carrier deliver the goods at a specific time
• Put-away
– Move items from the dock to storage area
• Storage
– Identify products and stock location (popularity, Unit size, Cube) using scanning of bar-code
labels
• Order picking
– Select from storage for items ordered by customer using pick slip or some automated system
AS/R
• Shipping
– Goods moved from staging area to the loading dock
 • Warehouse operations utilize various equipment.

• Many firms invested and implemented warehouse management system (WMS) that control the
various warehouse operations.

• WMS assist in the accurate management of receiving, put away, picking, packing, shipping, storage
location, work planning, warehouse layout, and analyze activities.

• The benefit of WMS : improved warehouse productivity, efficiency and accuracy, reduce waste.

Warehouse Layout and Design

Principles of warehouse Layout Design

• Use one-story facilities

– More usable space per investment dollar (inexpensive to construct)

• Move goods in a Straight line

– Use straight line or direct flow of goods into and out of the warehouse
 A floor space used for warehouse operations

• Use efficient materials handling equipment

– Improves efficiency in operations

• Use an effective storage plan

– Place goods in such a way to avoid inefficiency

• Minimize aisle space

– Constrains imposed by handling equipment; turning

• Use maximum height of the building

– Utilize cubic capacity effectively; integration with materials handling to stack up goods for
storage

• Protection aspect from damages

– Space utilization should separate hazmat for possible harm

– Firm safeguard products from pilferage

– Accommodate special goods ; refrigeration for perishables

– Avoid stacking heavier items on fragile goods

• Efficiency aspect

– Utilization of space : facility height and minimize aisle space

– Placement of stock : minimize labour cost

 • Risk of investment in automation

– Obsolesces ; technology change and market fluctuation

– Return on investment

• By monitoring methods, firms should set goals and standard cost and order handling efficiency then
measure the actual performance to optimize warehouse productivity.

Material Handling
• Short distance movement that usually takes place within the confines of a building such as a plant
or warehouse between a building and a transportation agency.

• Materials handling has four dimensions;

– Movement ; conveyance of goods into and out of storage facilities

– Time ; readying goods for production or customer

– quantity ; the varying usage and delivery rate of raw materials and finished goods,
respectively.

– Space ; use space effectively

General objectives of Material Handling

• Increase effective usable capacity of warehouse including vertical space. Focus on cubic space.

• Minimize aisle space. Use the right equipment

• Reduce number of times product is handled e.g., avoid overcrowding.

• Reduce movements involving manual labor

• Improve logistics service ; integrate materials handling with customer as well,

• Reduce cost ; higher investment returns.

Packaging
• Role of packaging

– Provide handling information

– Weight limit

– Technique information ; product code, color code, heat transfer, symbols (orientation)

– Ease handling ; stacking, identify, storage

– Protect goods
 • Package design

– Physical dimensions

– Packing strength

– Package shape

• Two type of packaging

– Consumer packaging

– Exterior packaging (handling/transportation)

• Packing materials

– Cushioning material protect goods from shock, and surface damage; Shrink wrap, air
bubbles, cellulose wadding, corrugated paper and plastics

– These item are inexpensive and recyclable

• Firm today also find avenues to reduce cost or waste and find ways to recycle the used packaging
material when possible

Bar Coding
• Bar-code : a series of parallel black and white bars, both of varying width whose sequence
represents letters.

• This sequence is a code that scanners can translate into important information. The electrical signal
the scanner records are binary digits in 1s and 0s from the codes.

• Bar-code standard : a standard language the code uses, the print quality companies expect on the
label, type of information the code contains, and format types.

• Scanners : automatic (fixed positions) and hand held (manually operated)

• Bar code system : simple to use, and accurately can store large amount of information quickly

• Advantages : reduces errors, expedite processes, have better control over inventory, and data
collections.

Materials Handling- Equipment

• Materials handling begins at loading dock/bay when a truck containing the goods arrives and need
to be unloaded. To load and unload the goods safely and quickly, the warehouse should utilize the
necessary dock equipment.

• Dock Equipment- forklifts, dock bumper, dock levelers, dock seal, trailer restraint systems, and
pallets.
• Forklifts – a versatile piece of equipment that a firm can provide at a very reasonable cost, and able
to perform several task. It is individually powered and usually use in conjunction with pallets.

• Dock bumper – mould rubber pieces that protect the building from the impact of a docking trailer
backing into it and from a trailer shifting in weight during loading or unloading.

• Dock Levelers – equipment that can level out the angle between the dock and the trailer by
providing a ramp that enables the forklift to drive into the trailer safely. The greater the ramp angle,
the greater the chance of an accident.

• Dock Seals – A cushioned frame around the dock door opening that connects the trailer to the
dock to create a seal blocking any outside weather, smoke, and fumes from entering the warehouse.

• Trailer Restraint Systems – restraints prevent the trailer from drifting away from dock during
loading or unloading.
• Pallets – main function is to provide a base to hold individual items stacked to gather and as a whole
a forklift to move the pallet to a proper storage location. Shipper also use pallets when shipping out
their products from the warehouse to the customer/s.

• Conveyors – a very important equipment that helps increase productivity, improve processes,
decrease operating cost and provide an interface to information system.

There are two basic type of conveyor

– Roller conveyor (gravity)

– Belt conveyor (powered)

 Conveyors equipped with scanners and other automatic devices enable companies to move and
process goods faster and more efficient.

• Organization invested heavily on such equipment to reduce labour intensive and speed up the
process while reduce errors

• The disadvantage of a conveyor system is breakdown. A well manage control must be in- placed to
avoid such incident

• Automated Guided Vehicle Systems – machines that connect receiving, storing, manufacturing, and
shipping.

• Firm can track these vehicles, either roaming freely or on a fixed path, with computer that make
traffic control decisions.

• AGV travel around the facility carrying various items to a particular programmed destination

• Save labour cost as do not require a driver.

Order-Picking and Storage Equipment

• One of the main function of a physical distribution is order picking, the process of identifying,
selecting, retrieving, and accumulating the proper item for customer order.

• Two main equipment types are widely used

• Picker to part system

• Part to picker system

• Picker-to-Part System : the order picker must travel to the pick location within the aisle

• Bin shelving : oldest and most basic system available for storing small parts. The advantage
is the low cost involve and ability to divide units into various compartments however the
system under utilize cubic space by not using a full bin and restricted shelf to be within a
person’s height.
 • Modular storage drawers : cabinets that are divided into drawers and further subdivided
into compartment. Main advantage is their ability to hold a large number of SKUs (stock-
keeping unit, which is basically a number or code used to identify products for sale in a
store or business).

• Flow rack : store items in cartons having uniform size and shapes. Advantage is that it
ensure first-in/first- out inventory turn over.

• Mobile storage system: single aisle motorized system that allows order picker to slide the
rack apart to expose the racked to retrieve parts. Slower picking speed due to shifting time
to offset by high storage density.

• Order-picking vehicles : order picker ride/drives vehicle horizontally or vertically to the

pick location and some vehicles moves automatically , allowing the order picker to perform
another task while travelling.

• Part-to-Picker System : the pick location travel through an automated machine to the picker

Carousels : shelves/bins linked to gather through a mechanical device that stores and rotates items
for order picking; both horizontal or vertical.

Miniload automated storage and retrieval systems (AS/RS): most advanced and efficient system
use to store and achieve highest accuracy rates in order picking. The miniload AS/RS utilizes
vertical space and requires few aisles, but this system is very expensive.
3.2 Supply Chain Design & Planning
• Key contents of Supply Chain design and planning includes

– Configuration – Location decision

– Vertical integration – Capacity planning
– Strategic outsourcing – dealing with bullwhip effect

Supply Chain Configuration

• Supply chain configuration represents how the participating company members are connected with
each other to deliver the product or service to the end customer.

• There is no single best configuration for all supply chain as it all depend on the industry, market
environment, stages of product cycle etc.,

• Supply chain configuration can be observed from the network relationship perspective;

– Stable Network

– Dynamic Network

• Stable Network – Original Equipment Manufacturing (OEM) forms its supply chain network
through tiered suppliers and tiered distributors with medium and long term stability.

• Dynamic Network – OEM without many long term tiered suppliers and customer and uses dynamic
and mostly short term suppliers and distributors to achieve high level of operational flexibility and
strategic agility.
 • Tiered stable network has more control over its suppliers and distributor’s operations then dynamic
network.

• Dynamic network is much more flexible than stable network :

– It can quickly form a new network in supply market to cater for the changed demand both in
volume and variety

– Ability to upgrade technology and foster innovation processes

– Unexpected misunderstanding in the network may results in unrecoverable product defects

and may post higher risk in operational cost control and quality standards

Extend of Vertical Integration

• Vertical Integration ; The single ownership of consecutive activities along the supply chain.

• A well integrated supply chain may not have a large extend of vertical integration.

• Narrow span off vertical integration ; OEM does not have ownership of its suppliers and customers.

• Large extend of vertical integration ; owns a number of tiers of suppliers and customers.

• It could also be a forward integration and or backward integration

• As market change, people will not be satisfied with one product one color, they demand variety,
upgraded new version and customization.

• Firm choose independent suppliers options for flexibility and dynamism to suite the market
condition.

• A firm’s strategy, operation and performance will depend on the right design of the supply chain
configuration.

• Depending on the nature of business or industry, product life cycle and competitive environment,
the design may vary significantly.

• Processed based industry (e.g., oil, chemical) tends to be more vertically integrated while the
technology intensive electronics industry tends to be less vertically integrated.
Outsourcing and Off-shoring
• Outsourcing : the decision and the process to obtain the supply of a product or service external to
the organization that has strategic significance.

• Strategic Outsourcing – “make or buy” decision.

• Firm may outsource or contract out some of their in-house operations e.g., design, manufacturing
and marketing to its external suppliers to reduce it’s cost.

• Two points to clarify from the definitions

• Outsourcing is also a process that including indentifying the potential suppliers, contractual
negotiation, regular evaluation and review of the operations.

• Not all operations that carried out the external suppliers are suitable to be classified as
outsourcing only the strategically significant operations can be classified.

• Potential benefits which could form the prime motive for decision makers;

• Focus on and further developing the core competences

• Further differentiated competitive edge

• Increasing business flexibility thus supply chain flexibility

• Improve supply chain responsiveness

• Raise the entry barrier through focused investment

• Enhanced ROI and ROE through downsizing the fixed asset

• Off-shoring : moving the on-shore operations to off shore locations in order to take advantage of
local resources, and to reduce operating cost or create market presence.

• Does not necessarily means outsourcing, especially when the ownership of the off- shored
operations remains unchanged.

• The inter-connection between outsourcing and off-shoring can be illustrate.

The type of outsourcing business can be observed in three categories;

• Business process outsourcing (BPO)

– Marketing/call centre outsourcing

– Engineering process outsourcing (EPO)

– HR and recruitment process outsourcing

– Knowledge process outsourcing (KPO)

• Business function outsourcing

– Financial auditing

– IT services

– Logistics services

• Facility and man power outsourcing

– Capital outsourcing leasing

– Free length experts hiring

• To make a decision on outsourcing, management should set up and follow a process to make the
outsourcing decisions which in practice, able to be implemented and execute.

• Following are a set of common steps of outsourcing processes;

– Understand competitive environment

– Clarify the strategic objectives and processes

– Analyzing the market needs

– Identify internal resources and competencies

– Make or buy decision making

– Identify strategic suppliers

– Deciding on the relationships

– Performance evaluation and receiving

Following are some of the risk when outsource

– Negative impact on company’s personnel

– Loss control over key strategic design task, sub-system or component, resulting in negative impact
on the company’s competitiveness

– Could creating tomorrow’s competition

– Risk of severe business disruption due to failed supply from single sourced suppliers

– Tactical, short term approach to outsourcing may inhibits continuous improvement and long term
investment

– Intellectual property right risk

– Foreign currency exchange risk if involves overseas suppliers

 Outsourcing decision and its executions must be reviewed regularly to assessed against any risk
strategically.

 The review is essential because the business environment may change and it could effect the
corporation’s performance and may not be justifiable to it’s original decision plan.

Location Decisions
• Location decision is about positioning of the supply chain functions (assembly, distribution) to
better serve the customers and reduce operating cost.

• Have profound impact on labor cost, material cost, taxation, currency exposure, financial and legal
regulation that leads to changes in business outcomes, supply chain performance and environmental
consequences.
• Operation consideration for location are valid and useful and mainly measuring the operations cost
from different dimensions.

• The location design for the whole supply chain mainly consider two aspects;

• Single operation’s location decision has to be made in conjunction with the other operation’s
decisions and combined effect of all locations together that matters for the supply chain.

• The physical cost measures the supply chain operational efficiency to transform raw materials into
end products (production, logistics, materials, labor, taxation, energy etc.,).

• The market cost looks at all the loss or cost incurred by the inappropriate supply chain market
dimension, measures by the product delivery process (PDP) cost (failed to deliver product to
customer or unsold product).

• Locations decision for supply chain have impact on both components of supply chain cost raising
the importance of supply chain design and planning.

• Due to the complexity and other factors involved, making decision could be difficult and tricky.

• A common weighted scoring method is used as a guide by managers prior to making decision on
supply chain.

• Step 1 - criteria must serve the strategic intention of the decision maker, and depending on
circumstances around the location.

• Step 2 – assign weight factor to each of the criterion, where the total score must equal to 100.

• Step 3- rate the criterion between 1 to 9 or 0 to 100 (worst for 1 and 0, and best for 9 or 100).

• Step 4- each location the overall score becomes the sum where the highest scored locations is
regarded as the most appropriate one.
Capacity Planning
• Business capacity planning for supply chain differs from organizational capacity planning.

• The capacity modeling analysis reveals a capacity problem where to resolve the supply chain
capacity planning issue, the key is to identify and open up the capacity bottleneck.

• To carry out the capacity planning in supply chain, one have to deal with three levels;

– Internal capacity planning

– External capacity planning

– Supply chain responsiveness to market changes

Internal capacity planning

• Managers to managed the company’s internal capacity synchronization to achieve the capacity
planning objectives.

• Desired capacity for supply chain will be executed and implemented y participating member of the
supply chain.

• Each functional silo need to coordinate with each other to avoid bottle necks or over capacity.

External capacity planning

• The key achievement to optimize capacity for Supply Chain lies in its external synchronization to
reduce/eliminate waste;

– A truly synchronized capacity can only be achieved through strategic aligned and integrated
operation amongst its members

– Participating organization have to restructure its assets and make some capital investment

– Capacity synchronization can only be a result of matured culturally embedded and

technically compatible operating system across the supply chain

Supply chain responsiveness to market changes

• Whole supply chain’s capacity must synchronize with market demand change.

• Supply chain today developed flexible capacity and flexible structure through outsourcing, vertical
integration, virtual networks and sharing/pooling resources.

• The ways industries manages their own capacity and responsiveness varies significantly.
Bullwhip effect
Bullwhip Effects – supply chain wide phenomenon that modest change of customer demand is distorted
and amplified towards the upstream end of the supply chain resulting in large variations of orders placed
upstream.

Dealing with Bullwhip effect

1. Focus on the customer

Optimal network design centered around your customer. Segment your supply chain based on your value
proposition.

2. Define the right push-pull boundaries and strategy

Optimize your inventory allocation based on demand certainty. Stable demand = push strategy. Demand
uncertainty = pull strategy. Often you will be somewhere in the middle with a push-pull strategy.

3. Share Information

Lack of visibility = rise in costs. Encourage information sharing among your partners. Be a catalyst and
good example of information sharing. Work with suppliers on releasing lead times and improving on time
delivery.

4. Manage Your Product Portfolio 

Complexity management = thorough evaluation of the products in your portfolio. Make a joint agreement
with product development, product management, marketing, ops, and finance on the criteria and guidelines
for a New Product Introduction (NPI).

5. Break order batches

Use EDI Exchange to reduce the cost of placing orders. Place orders more frequently. Ship assortments of
products in a shipload to counter high transportation costs or use a third party logistics company to handle
shipping.

6. Stabilize prices

Manufacturers reduce the frequency and level of wholesale price discounting to keep customers from
stockpiling.

7. Eliminate gaming in shortage situations

Suppliers should allocate products based on past sales numbers. Eliminate return policies so retailers can’t
cancel orders.