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Logistics PPS5

Logistics PPS5. Topic 2. Topic 2. Logistics management.

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Logistics PPS5

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  1. LogisticsPPS5 Topic 2

  2. Topic 2 Logistics management http://www.google.co.za/imgres?imgurl=http://www.packandtrackltd.co.uk/images/Logistics/logistics.jpg&imgrefurl=http://www.packandtrackltd.co.uk/Logistics.html&usg=__XQNmi6sMWgzhvDOKLoPVmN0xSYQ=&h=310&w=330&sz=65&hl=en&start=0&tbnid=a-HZeZS6V41wrM:&tbnh=167&tbnw=208&prev=/images%3Fq%3Dlogistics%26um%3D1%26hl%3Den%26sa%3DN%26rlz%3D1T4RNSN_enZA388ZA388%26biw%3D1003%26bih%3D500%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=528&vpy=226&dur=797&hovh=218&hovw=232&tx=98&ty=139&ei=P-JWTPKeBNOSjAeW4OTDBA&page=1&ndsp=8&ved=1t:429,r:6,s:0

  3. LEARNING UNIT OBJECTIVES • Explain how logistics management encompasses physical distribution; • Define “logistics management”; • Explain the objectives of logistics; • Indicate where total logistics cost can be reduced; • Illustrate the various aspects that determine customer service; • Reason about the trade-offs between reduced costs and increased customer service; • Explain order processing and information systems as activities of logistics management; • Discuss the modes of transport and the factors that influence the selection of transport modes; • Explain “inventory management”; • Discuss warehousing as a logistics activity; • Discuss material handling as a logistics activity; • Explain the concept of “integrated logistics”; • Assess how logistics contribute to healthy brand practice http://www.google.co.za/imgres?imgurl=http://www.packandtrackltd.co.uk/images/Logistics/logistics.jpg&imgrefurl=http://www.packandtrackltd.co.uk/Logistics.html&usg=__XQNmi6sMWgzhvDOKLoPVmN0xSYQ=&h=310&w=330&sz=65&hl=en&start=0&tbnid=a-HZeZS6V41wrM:&tbnh=167&tbnw=208&prev=/images%3Fq%3Dlogistics%26um%3D1%26hl%3Den%26sa%3DN%26rlz%3D1T4RNSN_enZA388ZA388%26biw%3D1003%26bih%3D500%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=528&vpy=226&dur=797&hovh=218&hovw=232&tx=98&ty=139&ei=P-JWTPKeBNOSjAeW4OTDBA&page=1&ndsp=8&ved=1t:429,r:6,s:0

  4. Distribution vs Logistics Logistics management – inbound and outbound Physical distribution – what happens with outbound goods only http://www.google.co.za/imgres?imgurl=http://www.packandtrackltd.co.uk/images/Logistics/logistics.jpg&imgrefurl=http://www.packandtrackltd.co.uk/Logistics.html&usg=__XQNmi6sMWgzhvDOKLoPVmN0xSYQ=&h=310&w=330&sz=65&hl=en&start=0&tbnid=a-HZeZS6V41wrM:&tbnh=167&tbnw=208&prev=/images%3Fq%3Dlogistics%26um%3D1%26hl%3Den%26sa%3DN%26rlz%3D1T4RNSN_enZA388ZA388%26biw%3D1003%26bih%3D500%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=528&vpy=226&dur=797&hovh=218&hovw=232&tx=98&ty=139&ei=P-JWTPKeBNOSjAeW4OTDBA&page=1&ndsp=8&ved=1t:429,r:6,s:0

  5. Logistics and physical distribution Logistics CUSTOMER Materials supply Materials management Physical distribution Suppliers Inbound logistics Manufacturing Scheduling, order processing, materials handling etc. Field inventory Outbound logistics

  6. Physical distribution What happens with outbound goods as they move from the organisation (M) to its Cs. All activities re flow of these materials, components, finished goods

  7. Logistics and physical distribution Logistics C Materials supply Materials management Physical distribution Suppliers Inbound logistics Manufacturing Scheduling, order processing, materials handling etc. Field inventory Outbound logistics

  8. Logistics and physical distribution Logistics C Materials supply Materials management Physical distribution Suppliers Inbound logistics Manufacturing Scheduling, order processing, materials handling etc. Field inventory Outbound logistics PLUS STRATEGIC ISSUES I.E. TOMWI Transportation; Order processing (including information systems); Materials handling; Warehousing; Inventory management.

  9. The logistics process Raw materials supplier Manufacturer Wholesaler Retailer Customer Transport Transport Transport Transport

  10. Objectives of logistics Improve profitability Improve competitive performance Two key objectives: Happy customers Costs decrease Inversely related to one another – cannot accomplish both optimally – trade off between the 2 categories

  11. Decreasing total logistics costs • Order processing and admin costs – writing, receiving acknowledgement and processing • Inventory related costs –in transit, in storage or WIP • Transportation costs – vary depending on mode of transport used, product and size Trade off between the various cost factors

  12. Improving customer service C expectations and reaction to stock out … • Order lead time • Dependability • Convenience • Inventory availability • Factors that influence customer service levels Cost-income trade-off Competitors’ level of C-service

  13. Tradeoffs between cost and C-service 100% Service level Investment in inventory

  14. Objectives of logistics • Order processing costs • Inventory-related costs • Transportation costs Decreasing total logistics costs Increasing customer service • Customer service performance levels: • Order lead time • Dependability • Convenience • Inventory availability • Factors that influence customer service levels: • Customer’s expectations and reactions • Trade-offs • Competitors

  15. Trade-off decisions when determining logistics objectives Increasing customer service Reducing total logistics costs vs Reduce inventory levels vs Increase inventory levels Use cheaper (but slower) forms of transport vs Ensure quicker delivery (but by using more expensive transport) Reduce unnecessary duplication of information vs Provide enough information to satisfy customers in the process

  16. GROUP ACTIVITY ENTERPRISE RENT A CAR CASE STUDY TNT CASE STUDY

  17. ACTIVITIES OF LOGISTICS 1. ORDER PROCESSING INFORMATION SYSTEMS 2. TRANSPORT 3. INVENTORY MANAGEMENT 4. WAREHOUSING 5. MATERIAL HANDLING

  18. INFORMATION SYSTEMS • Most Shoprite stores linked by satellite to a central database and replenishment system • Every 15 minutes management knows of every sale made in that period

  19. Activities of logistics Order processing Transportation Inventory management Warehousing Materials handling • Task of order processing: • Order entry • Order handling • Order delivery • Information systems: • EDI (electronic data interchange) • Modes of transport: • Rail • Road • Air • Pipeline • Water • Intermodal • Selection factors: • Cost • Time • Access • Capability • Frequency • Reliability • Objectives: • Reorder point • EOQ • JIT • ABC analysis • Functions: • Receiving goods • Sorting goods • Storage of goods • Filling the order • Dispatching • Decisions: • How many • Types • Location • Objectives: • Lowest cost • Max capacity • Minimum handling costs • Safety • Quality service • Equipment

  20. Customer 1. ORDER PROCESSING Place order Confirmation, Billing Checks, Credit, Terms etc. Order entry Credit department Order handling Order delivery Warehouses Suppliers Manufacturing

  21. EDI Electronic data interchange • Transport planning • Order processing • Production planning • Inventory levels • Account management ETOPIA

  22. EDI - advantages • Increased internal and external productivity (faster feedback; shorter lead times) • Improved channel relationships • Increased market opportunities • Increased accuracy • Decreased paperwork and operating costs

  23. 2. TRANSPORTATION

  24. MODES OF TRANSPORT RAIL ROAD AIR PIPELINES WATER INTERMODAL

  25. Factors in selecting modes of transport You want to get to the Congo with your family …. Cost Time Accessibility Capability Frequency Reliability

  26. 3. Inventory management OBJECTIVE

  27. 3. Inventory management OBJECTIVE

  28. 3. Inventory management • Issues: • When to order (reorder point) • How much to order (economic order quantity) OBJECTIVE

  29. Reorder point • Other factors influencing reorder point: • Variance of order lead time • Fluctuations in C-demand • C-service standard • Look at: • Order lead time • Usage rate • Safety stock Reorder point = (Order lead time x usage rate) + safety stock

  30. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be?

  31. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Open on 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.

  32. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Day 1 end 200 200 200 200 = 800 units Safety stock = 300 units that must lie there.

  33. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Day 2 end 200 200 200 = 600 units Safety stock = 300 units that must lie there.

  34. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Day 3 end 200 200 = 400 units Safety stock = 300 units that must lie there.

  35. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Day 4 end 200 = 200 units Safety stock = 300 units that must lie there.

  36. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Day 5 end = 0 units Safety stock = 300 units that must lie there.

  37. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Days 1000 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.

  38. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Days 1000 200 200 200 200 = 800 units Safety stock = 300 units that must lie there.

  39. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Days 1000 200 200 200 = 600 units Safety stock = 300 units that must lie there.

  40. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Days 1000 200 200 = 400 units Safety stock = 300 units that must lie there.

  41. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Days 200 1000 = 200 units Safety stock = 300 units that must lie there.

  42. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Open on 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.

  43. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Reorder point = (order lead time x usage rate) + safety stock = (5 x 200) + 300 = 1 300 units

  44. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Reorder point = (order lead time x usage rate) + safety stock = (5 x 200) + 300 = 1 300 units What would the inventory stock level be if the supplier delivers one day late?

  45. Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Reorder point = (order lead time x usage rate) + safety stock = (5 x 200) + 300 = 1 300 units What would the inventory stock level be if the supplier delivers one day late? 100 units

  46. Be able to sketch graph on page 187 Order lead time = 5 days Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? Reorder point = (order lead time x usage rate) + safety stock = (5 x 200) + 300 = 1 300 units What would the inventory stock level be if the supplier delivers one day late? 100 units

  47. Economic ordering quantity Inventory carrying costs: Cost of keeping inventory in stock: the more, the higher … I.e. warehousing costs, financing costs, interest, insurance costs and depreciation costs Order processing costs: Filling out purchase orders & computer and communication costs … admin costs (placing order, follow-up costs, receipt of order, quality control and payment of the supplier invoice. Larger orders --- lesser order processing costs

  48. Economic ordering quantity Total costs Carrying costs Cost Order processing costs EOQ Quantity

  49. Economic ordering quantity = quantity whether the sum of the inventory carrying costs and the order processing costs are at a minimum = 2DO/IC EOQ D = annual demand in units O = cost of placing order I = inventory carrying cost as percentage of annual inventory investment C = cost of one unit of the product

  50. Economic ordering quantity = 2DO/IC EOQ Demand = 200 000 units = annual demand = D Cost of placing one ORDER = R200 per order = O Unit cost of the product = R25 = C Inventory carrying cost is 20% of the annual inventory investment = I

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