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Course outline Transportation and Logistics Management The Channel of Distribution The Supply Chain Strategy Logistic System Design Procurement SAP
STORY
A wife on the eve of her 50th wedding anniversary, asked her husband, Dear, tomorrow we celebrate our golden wedding anniversary. For the past fifty years I have been very honest and open to you, I believe you know me so well, there is nothing that I could hide and conceal from you anymore. The husband not knowing what point the wife was trying to drive at, responded, Dear, so with me. I have always been honest and open with you. There is something that for the past 50 years I have been wanting to know about you. The husband surprised, asked, What is
it? Pointing to a drawer of an old study table belonging to the man, the woman inquired, For the past 50 years you have locked that drawer and never did reveal to me the contents. Dear, what is inside? The husband cannot at that point refuse. Hence, he nervously opened the drawer to reveal to the wife two eggs and a bundle of a thousand peso bills. Perplexed, the wife asked, What are those? The man, realizing that the woman would just have to know, explained--
Dear, I am sorry. Please do not be angry. Each of the two eggs represent the times I was unfaithful to you.
Hurt, but still glad that her husband committed infidelity only twice during their 50 years of marriage, the wife readily forgave the man. She thereafter asked about the thousand peso bills, Where did they come from? This time with a trembling voice, the husband answered--
My love, that is the money I earned when I sold the other eggs I then have collected and could no longer place inside the drawer.
FACTORY
W. HOUSE
PRODUCT FLOW
SUPPLY CHAIN
Fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers The bullwhip effect distorts demand information within the supply chain, with different stages having a very different estimate of what demand looks like
W. HOUSE
STORE
CONSUMER
PRODUCT FLOW
SUPPLY CHAIN
LOGISTICS OPERATION
Logistics Warehousing Handling & Storage Customer Inv entory M anagement Serv ice Operation
SUPPLY MANAGEMENT
Demand & Replenishment
Purchasing
PURCHASING
Logistics Operation
Supplier Selection Customer Serv ice Negotiation and Bidding Demand & Contract Administration Replenishment
SUPPLY MANAGEMENT
Purchasing
Demand Forecasting Customer Serv ice Inv entory M anagement Demand & Replenishment Replenishment
SUPPLY MANAGEMENT
Purchasing
CUSTOMER SERVICE
Logistics Operation
SUPPLY MANAGEMENT
Demand & Replenishment
Order Processing
Purchasing
SUPPLY CHAIN
CONSUMER PURCHASE INFORMATION SUPPLIER STORE CONSUMER
FACTORY
W. HOUSE
CHANNEL OF DISTRIBUTION
PRODUCT FLOW
Activities of the Channel Ordering Handling and shipping Storage Display Promotion Selling Information feedback
Cost Savings in Specialization Reduce Exchange Time Offers Variety of product Resellers Sell Smaller Quantities Create Sales Offer Financial Support Provide Information
Channel Arrangement
Independent
Under this arrangement a channel member negotiates deals with others that do not result in binding relationships. In other words, a channel member is free to make whatever arrangements they feel is in their best interest.
Channel Arrangement
Dependent
Under this arrangement a channel member feels tied to one or more members of the distribution channel. Sometimes referred to as "vertical marketing systems" this approach makes it more difficult for an individual member to make changes to how products are distributed. However, the dependent approach provides much more stability and consistency since members are united in their goals.
Corporate Under this arrangement a supplier operates its own distribution system in a manor that produces an integrated channel. This occurs most frequently in the retail industry where a supplier operates a chain of retail stores.
Promotion Issues
Besides issues related to physical handling of products, distribution decisions are affected by the type of promotional activities needed to sell the product to customers.
Pricing Issues
The desired price at which a marketer seeks to sell their product can impact how they choose to distribute.
DISTRIBUTION SYSTEM
Direct
Direct Marketing Systems With this system the customer places the order either through information gained from non-personal contact with the marketer, such as by visiting the marketers website or ordering from the marketers catalog, or through personal communication with a customer representative who is not a salesperson, such as through toll-free telephone ordering. Direct Retail Systems This type of system exists when a product marketer also operates their own retail outlets. Personal Selling Systems The key to this direct distribution system is that a person whose main responsibility involves creating and managing sales is involved in the distribution process, generally by persuading the buyer to place an order. Assisted Marketing Systems Under the assisted marketing system, the marketer relies on others to help communicate the marketers products but handles distribution directly to the customer.
DISTRIBUTION SYSTEM
Indirect Single-Party Selling System - Under this system the marketer engages another party who then sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store-based retail chains or through online retailers, in which case it is often referred to as a trade selling system. Multiple-Party Selling System This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailers.
DISTRIBUTION SYSTEM
Multi-Channel (Hybrid) In cases where a marketer utilizes more than one distribution design the marketer is following a multichannel or hybrid distribution system. The multi-channel approach expands distribution and allows the marketer to reach a wider market.
Integration Key element in logistics development Outbound transportation, field warehousing, application of a systems perspective to total cost
Storage
Warehouse
Storage
Warehouse
LOGISTICS EVOLUTION
Fragmentation Demand Forecasting Purchasing Requirement Planning Production Planning Manufacturing Inv entory Warehousing Material Handling Industrial Packaging Finished Goods Inv entory Distribution Planning Order Processing Transportation Customer Serv ice Physical Distribution Logistics Material Management Ev olv ing Integration Total Integration
Storage
Warehouse
Storage
Warehouse
TRANSPORTATION FLOW
Geographic specialization assumes that each nation, state, or city produces products and services for which its capita, labor, and raw materials are best suited. Large-scale production is complemented by geographic specialization with the use of effective and efficient transportation networks, the advantages of scale economies, production efficiencies, and cheaper manufacturing facilities. Increased competition would benefit consumers as brought by efficient transportation. Land values increased that is adjacent to or served by the transportation improvements.
ASSIGNMENT
ASSIGNMENT
J COST PRICE
Price at point A
DISTANCE
LANDED COST
Cost of product X Variable Cost 25.00 per product. Fixed cost 5.00 per product. Transportation cost Old transport system 15.00 per product. New transport system 5.00 per product. How much is the unit cost of the product? Compute for the product cost using old and new transport system. How much is the effect of new transport system to the unit cost of the product? Which system will be most appropriate if the costumer are willing to pay for your product in the amount of 40.00? How much is your loss/ income?
INVENTORY
In the context of our study, INVENTORY concerns those services or materials that directly or indirectly form part of the ongoing task of delivering the services or making the products that an organization provides or sells. It comprises the inputs, services or materials used, any part-finished items (services or products) and those items that are complete and held awaiting their sale. Simply put, inventory is a stock of items kept by an organization to meet internal and external customer demands.
BUSINESS INVENTORIES
To meet customer demand Finished product at supermarkets, distributors, traders and manufacturer To meet production requirement Raw and packaging materials at manufacturing, assembly or fabrication plant. To meet needs of operating departments Operating supplies, spare parts, office supplies, maintenance supplies
DISTRIBUTION/ MARKETING
MANUFACTURING
SERVICE/SUPPORT
FUNCTION OF INVENTORIES
TRANSIT
Normal pipeline inventories maintained because of the need to transport inventories from one point to another when the transit time is not instant
BUFFER
ANTICIPATION
FUNCTION OF INVENTORIES
CYCLE
This covers the need to produce in lot sizes where inventories are accumulated at certain stages in the the production process ready for the succeeding stage.
ECONOMIES OF SCALE
These are created by ordering or producing in quantities to obtain the lowest unit cost possible
Balance the need to SATISFY CUSTOMERS on one hand and the need to MINIMIZE INVENTORY HOLDINGS on the other
Deal with uncertainties in demand and supply lead times Categorize stock items according to importance to the firm so we can focus properly
Maintain optimum inventory level to deliver the high customer service at the lowest possible cost.
METHODS OF VALUATION
FIFO
First-IN First-OUT
Last-IN First-OUT
LIFO
WAC
Value received + value on hand = cost per item divided by total number units
Standard Cost
SC
Replacement Cost
RC
INVENTORY COST
INVENTORY COST
Ordering/Setup Cost
Carrying Cost
or Average Inventory Php 100,000,000 Php 80,000,000 Php 20,000,000 X 16% Php 3,200,000
Buy 200,000 pieces: 1st Month 2nd Month 200,000 @ P 9.80 @ 1% ICC 100,000 @ P 9.80 @ 1% ICC 19,600 9,800 29,400 (9,400) 30,600
System that aims to establish the best possible control at least possible cost for each class item in inventory. Places investment control on A and B class of items where peso usage value is most important.
THE ABC INVENTORY CLASSIFICATION Class A are significant few that comprises 60 to 70 percent of total purchasing spend but is 10 to 15 percent of item in the stock. Class B falls between A and C and usually ranges from 20-30 percent for both expenditure and number of item in stock.
Class C are 10 to 15 percent of purchasing spend but is 60 to 70 percent of total inventory in terms of volume.
LOW
HIGH
LEAST FREQUENT
ABC METHOD Determine the annual quantity usage of each item. Determine their unit cost. Multiply cost per unit to annual quantity usage to get the annual peso usage value. Determine the percentage of each item to the total annual peso usage value. Determine the cumulative percentage value by adding the percentage result of each item.
ABC METHOD
ANNUAL QUANTITY USAGE % TO TOTAL ANNUAL PESO USAGE CUMMULATIVE % TO TOTAL ANNUAL PESO USAGE
ITEM DESCRIPTION
UNIT COST
ABC METHOD
ANNUAL QUANTITY USAGE % TO TOTAL ANNUAL PESO USAGE CUMMULATIVE % TO TOTAL ANNUAL PESO USAGE
ITEM DESCRIPTION
UNIT COST
ABC METHOD
ANNUAL QUANTITY USAGE % TO TOTAL ANNUAL PESO USAGE CUMMULATIVE % TO TOTAL ANNUAL PESO USAGE
ITEM DESCRIPTION
UNIT COST
ABC METHOD
ANNUAL QUANTITY USAGE % TO TOTAL ANNUAL PESO USAGE CUMMULATIVE % TO TOTAL ANNUAL PESO USAGE 26.40% 49.50% 69.31% 81.19% 91.75% 100.00%
ITEM DESCRIPTION
UNIT COST
ABC METHOD
ANNUAL QUANTITY USAGE % TO TOTAL ANNUAL PESO USAGE CUMMULATIVE % TO TOTAL ANNUAL PESO USAGE 26.40% 49.50% 69.31% 81.19% 91.75% 100.00%
ITEM DESCRIPTION
UNIT COST
WAREHOUSING CYCLE
RECEIPT VERIFICATION
ISSUANCE
INSPECTION
ISSUANCE VERIFICATION
STORAGE
Assign Lot No. if Required Inv DR P.O. Inspection and Verification Assign Storage Location
Update Records
Label Pallet
Complete
Prepare Receiving Report Production Tally Sheet/ Stock Transfer Slip Inspection and Verification Assign Storage Location
Update Records
Label Pallet
Complete
Most efficient and effective way of identifying materials, components, assemblies and other items stocked by an organization. Without proper coding, problems in identifying and locating goods in inventory are likely to arise.