Operations Management 12 Distribution Challenges Logistics the movement of goods in a supply chain includes incoming shipments movement within a facility and outgoing shipments Order Fulfillment the processes involved in responding to customer orders involves order processing billing inventory management warehousing packing shipping and delivery 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 o Reverse Logistics the backward flow of goods returned to the supply chain ex Defective unsold recycled o Closed Loop Supply Chain a manufacturer controls both the forward and reverse shipment of product 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 o Radio Frequency Identification RFID the use of tags that project information via radio waves to track goods in the supply chain o The tag has an integrated circuit and an antenna that project information and other data to network connected RFID readers using radio waves Provide unique identification enabling businesses to identify tack monitor or locate practically any object in the supply chain that is within range of a tag reader Increases supply chain visibility improves inventory management improves quality control and enhances relationships with suppliers and customers Eliminates the need for manual counting and bar code scanning of goods at receiving docks which eliminates errors and speeds up the process o o Traffic Management overseeing the shipment of incoming and outgoing goods includes handling schedules and decisions on shipping method and times taking into account costs of various alternatives government regulations the needs of the organization relative to quantities and timing and external factors such as potential shipping delays or disruptions Engineer to Order ETO products are designed and built according to customer specifications o Frequently used for large scale construction projects custom homebuilding home remodeling and for products made in job 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 o Used by aircraft manufacturers Fulfillment time is generally less that with ETO fulfillment but still fairly long Make to Order MTO a standard product design is used but product of the final product is linked to the final customer s specifications o o Assemble to Order ATO products are assembled to customer specifications from a stock of standard and modular components o o Make to Stock MTS production is based on a forecast and products are sold to the customer from finished goods stock o o o Used in department stores and supermarkets Order Fulfillment is immediate E Commerce the use of electronic technology to facilitate business transactions Used by computer manufacturers such as Dell Fulfillment times are fairly short often a week or less Variation of MTS where there is a lag in fulfillment to allow for shipping 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 o o o o Water For global trade intermodal transportation is dominant with containers shipped via water rail truck combinations Air Truck Rail Transportation Distribution Strategies Direct Shipment items are shipped directly from suppliers to retail stores 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 Key Decisions o o o Choice of transportation modes Number and location of warehouses Extent to which orders are aggregated over time before shipping Can impact capacity and flexibility Are long term commitments Can impact investment requirements operating costs and revenues and operations Poor location decisions can result in excessive transportation costs a shortage of qualified labor loss of competitive advantage inadequate supplies of raw materials 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 Location Decisions Location Options Expansion Add new locations while retaining existing ones Shut down at one location and move to another Do nothing Process for Making Location Decisions Decide on the criteria Identify the important factors Develop location alternatives Identify a country o Identify a general region o Identify a small number of community alternatives o Identify site alternatives o Evaluate and make selection Supply Chain Considerations Determining the number and location of suppliers production facilities warehouses and distribution centers Centralized distribution generally yields scale economies and tighter control than decentralized distribution Decentralized distribution tends to be more responsive to local needs Factors when Selecting a Country Government Labor Resources Financial incentives Market potential Cultural differences Safety Regional Factors Location of raw materials o o o Location of markets Necessity Perish ability Transportation Costs Competitive strategy Perish ability o o 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 Community Considerations Tax abatements Low cost loans Taxes and environmental regulations