Operations Management 12 Distribution Challenges Logistics movement of goods in supply chain includes incoming shipments movement within a facility and outgoing shipments Third Party Logistics 3PL the outsourcing of logistics management o Potential Benefits take advantage of specialists knowledge their well developed information system and their ability to obtain more favorable shipping rates and enabling the company to focus more on its core business Closed Loop Supply Chain a manufacturer controls both the forward and reverse shipment of product Reverse Logistics the backward flow of goods returned to the supply chain ex Defective unsold recycled o o Gatekeeping screening returned goods to prevent incorrect acceptance of goods with the intent of reducing the cost of returns by screening returns at the point of entry into the system and refusing to accept goods that should not be returned or goods that are returned to the wrong destination Avoidance finding ways to minimize the number of items that are returned can involve product design quality assurance monitoring forecasts during promotional programs to avoid overestimating demand to minimize returns of unsold product o Radio Frequency Identification RFID use of tags that project information via radio waves to track goods in the supply chain o Manage flow of materials and see what goes in and out o Very expensive at times Order Fulfillment the processes involved in responding to customer orders involves order processing billing inventory management warehousing packing shipping and delivery the best approach depends on the degree of customization required and the time the consumer is willing to wait Engineer to Order ETO products are designed and built according to customer specifications o Used for large scale construction projects custom homebuilding home remodeling and products made in job o shops Fulfillment time can be relatively lengthy because of the nature of the project as well as the presence of other jobs ahead of the new one Make to Order MTO standard product design is used but product of final product linked to final customer s Fulfillment time is generally less that with ETO fulfillment but still fairly long specifications o Used by aircraft manufacturers o Assemble to Order ATO products assembled to customer specifications from a stock of standard and modular components o Used by computer manufacturers such as Dell o Fulfillment times are fairly short often a week or less Make to Stock MTS production is based on a forecast and products are sold to the customer from finished goods stock o Used in department stores and supermarkets o Order Fulfillment is immediate o Order fulfillment for online sales o More complicated then for the retail channel E Commerce the use of electronic technology to facilitate business transactions Variation of MTS where there is a lag in fulfillment to allow for shipping Process and bill orders from individuals many more and less predictable than retailer orders Pick pack and ship one or two units at a time as opposed to pallets of goods o Many companies specially small mid size use 3rd party fulfillment operators like Shipworm Wegistix and Amazon to Reduce labor and IT costs Take advantage of their network of warehouses shorter delivery times Focus on core competences and building the company Amazon use KIVA system a new way to pick its robot based distribution Transportation Transportation to and from facilities can represent as much as 25 of the product cost Total transportation cost in the US is over 10 of GDP The importance of transportation has grown with increasing globalization of supply chains growth in e commerce and the associated home delivery of products and rising fuel prices Modes of Transportation Air fastest but costs the most o o o High value but for lightweight products Truck dominant mode of freight transportation because of flexibility Full truckload TL cheaper but requires higher volumes Lea than truckload LTL consolidated with other shipments and takes longer Rail and Water slow but cheap good for large heavy low value items over long distances Rail 90 of coal and 67 of autos Water dominant mode for global trade Pallets and containers facilitate international trade allow shippers to unitize goods o o Pallets can be moved by forklifts or pallet jacks way to move boxed more efficiently Containers can be mover from ship to train to truck intermodal airtight stackable and lockable Direct Shipment items are shipped directly from suppliers to retail stores Distribution Strategies decide comparing total costs and times including impact on inventory Warehousing Items are stocked in warehouses distribution centers and are shipped to stores as required Cross docking warehouses function as shipping coordination points rather than inventory storage points and items are transferred between trucks so outbound trucks to retailers have products from multiple suppliers Tradeoffs transportation costs inventory costs customer responsiveness Key Decisions Choice of transportation modes o o Number and location of warehouses o Extent to which orders are aggregated over time before shipping Operations Management 13 Location and Layout Planning Why Make Location Decisions New company Expand markets Accommodate growth in demand Reduce costs Depletion of resources Mergers and acquisitions Process for Making Location Decisions Decide on the criteria based on business strategy Identify the important factors Develop location alternatives Identify a country o Government Labor Resources Financial incentives tax reductions pollution land Market potential Identify a general region Cultural differences Safety o Location of raw materials necessity perish ability transportation costs Location of markets competitive strategy perish ability Cost and availability of labor Taxes Climate Geographic Information System GIS a computer based tool for collecting storing retrieving and displaying demographic data on maps Taxes and environmental regulations Enticements tax abatements low cost loans Attitude toward type of business Quality of life schools cost of living recreation Services fire medical police Cost and availability of utilities Identify a small number of community alternatives Microfactory small factory with a narrow product focus located near major markets Identify site alternatives Land cost conditions Room for future expansion Transportation access roads rail spurs Zoning Restrictions