SOM758 Supply Chain Management 2: Logistics

Hasbro; Essential concepts of logistics, which is integral to SCM. Illustration: Anheuser-Busch Read: Simchi-Levi: continued pp 15-37; Read: Taylor, Nike pp 61-71 Homework: 2 Questions.

Homework

[1] Case Nike: What is the impact of centralization on

(a) inventory levels and on (b) close-outs

[2] Anheuser-Busch: What data are relevant in making decisions about which plants should produce which products. What is the drawback of aggregating data for the purpose of decision making.

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Supply Chain Management 2

Hasbro Europe (Taylor 48-60)

Non-electronic

toys and games industry

Owns Milton Bradley and Playskool. Mattel would be considered a competitor 1991worldwide sales $2 billion; $0.7billion in Western Europe Preschool toys; Girls and boys toys; Jigsaw puzzles; Games. Customers
l l l

Toys R Us: Centralizing their own distribution Wholesalers Merchandising the goods in store

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Supply Chain Management 2

Hasbro
Product:

Seasonal demand (peaks around Christmas); High set-up; Short product life cycle; Marketing and sales promotion matching stock 1400 SKUs (with language variants, 8000) 50% of items are single language (could be sold in multiple countries); 30% language variants (Trivial pursuit); 20% Multilingual packs.
Waterford, UK - 25% Ter Apel, The Netherlands - 15% Valencia, Spain - 10% China and other Far East - 50%

Production:

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Supply Chain Management 2

Hasbro
Waterford: Games and crafts Wholesaler
France

Store

n
Store

Distribution:
Italy - single site warehouse UK - two owned and on rented warehouse Germany - One large and 8 regional sites

n n

Ter Apel: Jigsaw, games

Germany

Major Customer

Valencia: Games, toys

n
Spain

Store Far East: Toys; low cost

Rotating tooling for some toys

n
....

Language specific product; 8000 SKUs Transportation

Transportation

Storage capacity under pressure.

HASBRO: Toys and Games

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Supply Chain Management 2

Hasbro
Issues

Centralization. Complete or partial?

l

Single site? Where? l Impacts? Multiple sites? Where?

Hold stock in Far East? How would product warehousing be impacted? What are the requirements for warehouse design? Transport impacts?

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Supply Chain Management 2

Logistics
Progress in Logistics and Transportation 100 50 0 1940 1960 1980 2000 2020 Time Level of Progress Level of progress

Logistics potential.
Council of logistics management: 10000 members. 15-25% of cost can be attributed to transportation, inventory, warehousing, packaging, handling.

How are these accounted for? Direct materials, labor are typically included in cost accounting.
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Business Logistics

Physical distribution in the 60s and 70s focused on outbound logistics. This involved managing interrelated activities systematically.
Transportation Distribution Warehousing Finished goods and inventory levels Packaging Materials handling

Mfg/Plant
Store Whse

Store

Store Distributor
Store

Mfg/Plant

Whse

Distributor
Store Whse

Mfg/Plant

Store

Store

Whse

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Supply Chain Management 2

Logistics: Need for efficiency

In the past two decades the need for efficient handling of physical distribution was underscored.

Product line expansion; Increase in products, packaging type, etc.. (The personal computer industry did not exist; There was one type of yogurt). Rate increases: carriers passed on increases in wages and operating costs (oil embargo occurred in 1974). Higher-valued products: inventory, distribution, packaging, transportation costs are higher for highervalued products. (Electronic goods: audio, video, .).
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Macro Perspective

Implementation of JIT, MRP, DRP, etc., reflects a desire to contain all cost contributors.

Total logistics: 10.5 % of gross domestic product ($670 billion in 1993). This percentage has been decreasing: 17.9 in 1981 to 10.5 in 1993. Inventory and transportation percentages have also been decreasing. 1994 (billions of $).

Motor: Inventory: Other:

public, 96, private, 109; Local 128. interest, 53; Taxes, etc. 161; Whse, 63. rail, 33; Water, 22; Pipeline 10; Air 17.

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Supply Chain Management 2

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Logistics
Transportation 1993
4000000 Thousands of $ 3000000 2000000 1000000 0 General Motors IBM Dow Chemical BASF AT&T Phillips

Company

Logistics:

Planning, implementing, and controlling the efficient and effective flow and storage of raw materials, in-process inventory, finished goods, services, and related information from point of origin to point of consumption. origins

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Logistics
Retailer
Raw materials
Warehouse

Assembly/Mfg
Raw Materials
Warehouse

Retailer Retailer

Ensuring the availability of the right product, in the right quantity and the right condition, at the right place, at the right time, for the right customer ant the right cost. Spatial and temporal dimension of logistics. Cost and service: Attain efficiency; Contain costs. Quality.
l

Of end product; Of parts and components. Differs through echelons of chain. Suppliers, . . . .

Operating environment.
l

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Supply Chain Management 2

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Logistical Activities

Logistical activities

Transportation Storage Packaging Materials handling Order fulfillment Forecasting Production planning Purchasing Customer service Site Location

Jurisdiction and organizational structures for management of these activities are often out-ofkilter
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Value-added Role of Logistics

Types

of utility.

Form utility: value adding operation of manufacturing or assembly. Place utility: moving goods to where demand exists. Time utility: providing goods when demand occurs. Possession utility: link to promotion activities/marketing.

Impacts

on operations/manufacturing:

Production product wheels, production run length. Seasonal demand (speak and spell; Calculators). Supply (steel: wire for coils). Other: packaging; Out-sourced operations.
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Impact on Marketing
Total Cost = Transportation+Warehousing+Order Processing and Information + Lot quantity + Inventory Product
Lot quantity
Inventory Carrying

Promotion

Place/Customer service levels

Order processing and information

Price
MARKETING

Transportation

Warehousing
LOGISTICS Logistics: Minimize total costs

Marketing: Allocate resources to the marketing mix to maximizelong-run profitability

Marketing activities must be in synchrony.

Price: for example , discount schedules, volume discounts. Product: packaging etc. Promotion: the distribution channel must be able to handle the implemented strategy. Place: transactional and physical distribution channel decisions; Go through wholesalers or not?
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Supply chain value

Identify customer needs Supply chain services Products

Market research

Market research

Development

Development

Pilot operation/tech transfer Pilot operation/tech transfer

Must have synchronized efforts Customer service is a key focal point Performance measures

Full-scale operation

Full-scale operation

Sales and marketing

Sales and marketing

Supply chain services

e.g.. lead times Hasbro: Stockouts Nike: Closeouts?

Meet customer needs

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Anheuser-Busch
C. Gregory John, Supply chain re-engineering at Anheuser-Busch, Supply Chain Management review, Fall 1998 pp 28-34.

Largest brewer in the US.

12 breweries Product distributed to 900 wholesalers nationwide In-pattern move: Shipments to wholesaler from assigned source brewery Supply chain handled products sold in large volume, low demand variation, low operating complexity.

Low-cost/high volume production runs Focus on production efficiency Minimal inventories Flow-through logistics Minimal transportation distances Focused supplier contracts
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AB: Change in Business

Growth in product introductions since late 1980s.

Brands increased from 5 in 1980 to 15 in 1990 and more than 50 today.

Product: differentiated w.R.T. Brand, alcohol percentage, packaging. 1,000 brand-package combinations; Package proliferation: 18-pack, 30-pack, 40-ounce bottle. New business segment: products that sell in smaller volume (e.G.. Competing with micro-breweries); High demand variation. All products not produced at all breweries.

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Supply Chain Management 2

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AB
New

operating environment.

Short production runs. Variable schedules. Focus on flexibility and responsiveness. Transportation vs.. Scale tradeoff. Flexible supplier contracts.
90 80 70 60 50 40 30 20 10 0 A B C Percentage %Volume %Brand/PackageC ombinations

Out-of-pattern moves. Interplant transfers. Small-volume product.

A, B, C.
Supply Chain Management 2

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AB: Supply Chain Complexity

Production and logistics team:

Multidisciplinary: logistics, operations, brewing, transportation, purchasing, engineering, and information systems.

Change in environment poses lots of questions. E.G..

Should all plants produce small and large volume brands and packages? If not, what is the impact on transportation, order-fulfillment, interplant transfers, out-of-pattern moves? Production; Inventory; Transportation; Order fulfillment.

Initiatives:

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AB: 2 Business Segments

Production. Small volume (type C) production restricted to selected breweries (not all 12); Selection of plants:
l

Issues: capital costs, transportation costs, operating benefits, supplier alignment, feasibility, support of sales and marketing programs, transition complexity. 40% increase in brand/product combinations in these breweries; 17% decrease in others.

Inventory

deployment.

Wholesale support centers: distribution points for C items; Distribution centers. (Third party).

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AB: Distribution Design

Brewery DC WSC

Deploying inventory: Where should the wholesale support centers be? Where should the distribution centers be?
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Supply Chain Management 2

AB

Transportation: ties to distribution design.

Shipping lanes: how many shipping lanes?

How many types of channels? l Brewery - wholesale support center - wholesaler. l Brewery- distribution center - wholesale support center wholesaler. l Brewery- wholesale support center - distribution center wholesaler.

Distance moved: final inventory location to market.

l

Order fulfillment.
Scheduling brewery production, planning warehouse inventories, scheduling wholesaler orders, planning transportation.

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Supply Chain Management 2

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Inbound logistics

At any tier of the chain, the inbound structures differ in various dimensions:
Structural: How many suppliers? Parts? Transport modes? Organizational: Internal management. Transportation: Modes, cost, carrier selection. Receiving & Warehousing: How is this managed?

Materials management: Planning and control of the flow of materials that are part of the inbound logistics system.

Information flows and material flows

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Out-bound Logistics
Supply

chain management
Current state Ideal state Disparity between the two Path to get from current state to ideal state

When is there a supply chain problem? What is a problem?

l l l l

What

might the focus be for outbound logistics?

Landed cost? Inventory? Channels?
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Performance
Any

supply chain has particular cost characteristics.

Bringing visibility to all costs establishes the importance of managing certain functions more actively
l

What are some costs?

supply chain has particular measures of performance.

Bringing visibility to such measures allows better management of the activities of the chain
l

What are some measures?

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Supply Chain Management 2

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Analysis
Logistics

channels

Examine efficiency Examine costs

Retailer
Raw materials

Assembly/Mfg
Raw Materials

Warehouse

Retailer Retailer

Retailer
Warehouse

Retailer Retailer

Multi-echelon logistics channel

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Complexity
Systems

view
Data, Information, Cost.

Hierarchy Optimization: Multiple performance criteria

Multi-echelon logistics channel: Complex

Raw materials

Wholesaler
Raw materials

Retailer Retailer Retailer

Assembly/Mfg

Warehouse

Retailer Retailer Retailer

Raw Materials

Assembly/Mfg

Raw Materials
Warehouse

Retailer Retailer

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Design/Configuration

There are choices and decisions that must be made in configuring a supply chain. Defining characteristics of a company place the management mode in context . . .

Heavy inbound; Heavy outbound; Balanced flows Example: Who makes the decision? How are impacts examined?
Cost Transportation Inventory Packaging Warehousing Lost sales Rail $3.00 $5.00 $4.50 $1.50 $2.00 $16.00 Motor $4.20 $3.75 $3.20 $0.75 $1.00 $12.90
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Supply Chain Management 2

Design/Configuration
Logistics

system design:

How are overhead, fixed costs, variable costs rationalized? Are the trade-offs examined? To what extent?
Cost Transportation Inventory Packaging Lost sales 3 Warehouses 850,000 1,500,000 600,000 350,000 3,300,000 5 Warehouses 500,000 2,000,000 1,000,000 100,000 3,600,000

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Simple example

What are the cost tradeoffs Under what conditions would the new system prove to be cost effective?

Costs in 1000$/50,000# of output System 1 Plant logistics costs Packaging 500.00 Storage and handling 150.00 Inventory carrying 50.00 Administrative 75.00 Fixed cost 4,200.00 Transportation costs To market warehouse 0.00 To customer 800.00 Warehouse Packaging 0.00 Storage and handling 0.00 Inventory carrying 0.00 Administrative 0.00 Fixed cost 0.00 5,775.00
Supply Chain Management 2

System 2 0.00 50.00 25.00 25.00 2,400.00 150.00 100.00 500.00 150.00 75.00 75.00 2,400.00 5,950.00
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Simple example
Trade-off
l

between two systems does exist.

70,588 lb.

Including variable costs/volume

8000 7000 Cost 6000 5000 4000 50,000 Volume

100,000

System 1 System 2
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5775 5950

4200 4800

1575 1150

0.0315 0.023
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Supply Chain Management 2

Configuration

To determine optimal decisions, one must have data so that alternatives can be examined

A model of the system must examine alternatives Data? Demands, production levels; Overhead; transportation links, overhead, capacities;

W W

W W

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Costs:
We

need to understand where costs exist in a particular system

Examine impact of long term decisions

l

A design issue

Make good decisions with respect to short-term planning.

l

An operational issue

Identify

measures of performance

For monitoring For optimization

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Costs
Order

cycle
l

The longer the cycle the more inventory has to be held

Lost

sales
l

The more inventory you keep, the less the chance of a lost sale; But how much inventory would you keep?

Lost

sales and transportation:

l l

Improved transportation reduces cost of lost sales If costs of transportation increase, with improved service, is there a trade-off?

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Costs:
Dollar

value
l

As dollar value of product increases, inventory, transportation and packaging costs increase

Weight

density of product
l l

Weight/space ratio Transportation, warehousing, inventory costs tent to be lower for higher density.

Loss

and damage
l

As susceptibility to loss and damage increases, costs of warehousing, packaging, and transportation increase.

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Supply Chain Management 2

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Cost trade-offs
Spatial

impacts
l

Who can bring to market at lower cost

What alternatives should be examined by each?

Mathematical

models can be used to address all alternatives and their cost impacts
1 ,40 2 1 .75 2 .60 .50

A
8.5 1.15

B
7.00

3.50

Market

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Supply chain modeling

Decisions

Supply chain design

l

Want to determine the supply chain configuration. Want to address decision making at the operational level.

Supply chain operations

l

Objectives

Various objectives may apply in different scenarios.

l

Some are tangible; others are not l Minimize costs l Minimize shortfall in meeting demand
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