The Main Aspects of Business Logistics - Essay Example

Name: Number: Institution: Instructor: Date: 1.0 Introduction The report focuses on the transportation of finished vehicles from the General Motors assembly plant in Detroit U.S.A to Mega Auto Dealers in Melbourne, Australia. The report provides insight into the delivery process, the objectives of the stakeholders and the performance of the current system. All these three factors play a crucial part in handling the task at hand i.e. the evaluation and selection of appropriate delivery methods to enhance the supply chain of Mega Auto Dealers, Australia. The primary purpose of this report is to help the senior management to comprehend the implications of carrier, mode, route selection and evaluation. At the end the supply chain strategy should attend to the needs of the organization, exporters and the consumers. The scope of the report covers the entire import process (when a vehicle comes off the production belt in Detroit U.S.A to when it is in the showroom in Australia). However, due to reasons of complexity, the scope of the report is limited to a single supplier, General Motors Corporation. The geographical distance between this company in Eastern Australia and supplier in U.S.A, provides a raft of viable options to utilize, and it is in our interest to find the optimum of the available options. 1.1 Company overview Mega Auto Dealers, is a dealer of high-tech, high-quality, reasonably priced small popular cars of primarily large Japanese origin. It wants to be an efficient company, one that provides dependable quality and responds quickly to the needs of the marketplace. It would desire to exemplify this through leading-edge operations in transport. It has 800 stores across Australia. It success is dependent upon meeting and exceeding customer expectations on an ongoing basis given the intense competition from rival dealers in the auto industry. The headquarter is located Willon, Treasureville, Melbourne County. The facility is 20 Km south of Melbourne city and along the Interstate Corridor. Rail service to and from the facility is provided by Melbourne County. The proximity to large numbers of potential customers as well transportation options substantially determined the location. 1.2 Business Situation The company’s logistics system is viewed as critical component in the overall success of the company. Its supply chain capabilities are central to its ability to operate an effective inbound auto-flow and vehicle transportation to the various branches across the country. These entire components are under the responsibility of the logistic manager. 1.3 Present Logistics Practices From its conceptualization, the outbound logistics process has been touted as innovative and bold. Mega Auto Dealers has developed a strategic alliance with a single dedicated logistics service provider. This relationship with Australia Logistics provides the retail branches with a continuous replenishment of vehicles. The outbound logistic process uses a combination of truck and rail transportation to deliver the vehicles to the various retail branches across Eastern Australia. Retail branches within a radius of 300 Km from the headquarter facility, typically get vehicles via rail-network whereas, those within the 300 Km radius get their vehicles via truck delivery. These innovative practices have had positive impacts for head office and dealer branches. 1.4 Problem definition The surge in demand of General Motors’ Ford Ranger model in Eastern Australia has driven the need for these cars. In fact, the marketing team has projected a yearly demand of 60,000 units for the next three years. These cars will be sold evenly throughout the year. However, since this the first time, to import vehicles from U.S.A, there are a variety of logistical issues to be addressed. The most pressing and challenging decision, however, is the evaluation and selection of a carrier and the decision to transport vehicles by truck or rail once they dock at the port of Melbourne. Once this decision is made all other outbound transportation issues can be easily tackled due to our robust outbound logistics. The choice of a carrier has significant implications the bearing in mind our company’s concerns i.e. to be a profitable dealer of GM automobiles apart from other important performance issues including cost control, damage rates, and inventory turnover. The implication of these shall be highlighted and a solution in terms of the company concerns will be reached. 2.0 General approach Other than import preparation activities, transportation planning focuses on the selection of the modes, carriers, and the routes by which, the vehicles will be delivered. It is important to note that these decisions must align with our corporate strategies, control risks, and provide the required level of customer service.Transportation costs must not push the total landed cost of the vehicles beyond a competitive level in the marketplace. Some of the factors the will feature in the mode selection will be issues like accessibility, capacity, transit time, time reliability, safety and cost. Carrier selection strategy will focus by a great deal on the carrier’s quality of service and cost efficiency. Lastly, route selection will explore route options available and examine their suitability bearing in mind that the company will benefit from using efficient routes that maximize equipment capacity utilization, control expenses related to tolls, ports and other service surcharges and finally, ensuring the product safety from the origin to destination. 2.1 Analytical approach The pros and cons of the delivery options available to us suggest that there is no simple solution that will effectively consider all issues and appease the stakeholders. Thus, we should endeavour to select delivery option that provides the best possible balance of cost and service. Each route must be reviewed individually based on the cost and time levels highlighted in the tables while factoring in the potential for damage claims and the other stakeholder issues throughout the option. Thus, the challenge in hand is to analyse all the selection factors on a systematic manner before making each delivery decision. Conventionally, an analytical approach that could be convenient is the time/cost methodology. The UNESCAP Time/Cost-Distance Methodology is a practical method of mapping the duration and expenses that will be incurred in transportation process and identifying inefficiencies and isolating bottlenecks along a specific route. The methodology uses the information gathered in relation to the cost and time associated with a particular transport route. The methodology is based on the premise that unit costs may vary between modes. Delays occur at border crossings, ports and inland terminals. Freight and document handling charges and other fees are levied without any movement of goods in the transport process. However, given the information we have, we will use the grading method to find the optimal solution where we will grade our options on a 1-2-3 scale. 2.2 Problem Solutions and Implications In this case, the stipulated terms of delivery are ex works. In this condition ,we assume responsibility for the freight cost. Unlike the carriage paid to (buyer’s location) where the supplier, G.M selects the carrier, pays the freight, calculates the cost into the selling price. The ex works option is suitable for us for purposes of monitoring and actively directing shipments of the vehicles. It will not only offer us the opportunity to select an affordable carrier, but also help us to implement restrictions more easily e.g. predetermined delivery time windows. However, a disadvantage with this delivery condition is shifting of transport risk from the supplier to us at the earliest point in time. Route planning: it would be easy to assume that route planning is the role of the carrier chosen to deliver the vehicles to the port of Melbourne. However, approaching routing with a laid-back attitude has the capacity to impact the supply chain process and organizational success. Transit time and on-time performance heavily depends upon the route planning process. Of greater interest in this case is to evaluate the routing options of the carrier and assess the implications if his options on the total logistics cost. Cost control is crucial to us since we are interested to enhance the competitiveness of these vehicles because these costs will be passed along to our customers as freight charges. There are a total of five sea routes available for the carrier (See Appendix, Table 1-4). The route through the Caribbean Sea (through the Panama Canal) has several implications for the carrier and eventually us. First, product safety which is one of the chief concerns is at stake. Major trouble spots such as the Caribbean Sea are not only prone to hijacking but also piracy and product theft (See NaviTag Technologies Article for extensive details on sea cargo theft). Thus, the carrier should factor in this issue on planning the route to take. Though more time consuming and potentially more expensive from a transportation vantage point, using the indirect or circuitous route outside the Caribbean may remedy the high risks in the Caribbean Sea. Secondly, the Panama Canal is an unfriendly canal with its expensive tolls. It is estimated that a ship loaded with 2000 40-foot-long containers pays US $250,000 to transit the canal (Toll Assessment-Panama Canal). Given this significant costs the carrier ought to explore possible alternative options and this could include going around the Cape Horn at the southern tip of South America, although this implies increased transit time by approximately 50% from the optimal route (See Appendix, Table 1-4) and increased fuel costs. Similarly, the Canal is congested and may delay cargo flows and severely impact on the transit time and on-time performance. The routes also perform differently with respect to the fuel cost. Given the combined challenges of increasing fuel prices, our carrier should strive to keep their operating costs low. Key strategies include the concept of ‘slow steaming’. ‘Slow steaming’ is a recent strategy employed by ship carriers. It is viewed by ocean carriers as a way of cutting fuel costs and at the same time having a positive impact on the environment. In this case container ships sail at half their speeds. A comprehensive study by Maersk Line in 2007 revealed that in reducing the ship engine load from the traditional 40-60% to as low as 10%, substantially reduces fuel costs according to Maersk Website. The longest route is the Detroit-Cape Horn-Melbourne (See Appendix, Table 1-4) which obviously translates to higher fuel costs while the shortest route is the Detroit-Los Angeles-Melbourne (Appendix, Table 1-4). Damage rates: reduction of damage rates should be an ongoing exercise. Damage prevention should be insisted and here the carrier ought to take responsibility. At the same time, inspections will serve to identify who caused the damage which will lead to the accurate determination of who should pay for the damages. On the other hand, increased training for the vehicle handlers at the vehicle unloading point in the headquarters at Melbourne as well as decreased vehicle handling points of loading and unloading will lessen the possibility of damages. Therefore, in carrier choice, it will considered one that stresses on employee training and whose processes minimize vehicle transfers. Additionally, the Detroit-Melbourne Route through the St. Lawrence Sea Way is the most viable route because it has fewer vehicle transfers. Transit time measurements focus on the interval from vehicle dispatch at G.M. assembly plant in Detroit to vehicle reception in Melbourne headquarters. Rail transit time will begin when the carrier pulls a block of rail cars of G.M.’s assembly plant, and the ports. The shortest transit time from the G.M. plant in Detroit to a port of dispatch in U.S.A from the options available is the Detroit-New York route with an average transit time of approximately 2 days (See Appendix, Table1-1). On-time performance for rail transit in U.S.A ranges from 75%-80% (Leach 2009). 2.3 Optimal Solution After a thorough analysis of the options, of what is at hand, looking at the implications of each alternative, finally, a decision will be made as to which of the available options is the optimum given the prevailing interests. Since, the vehicles should be in Australia quite early so as to meet customers’ demands, the Detroit-Los Angeles-Melbourne route seems to be the best with a transit time of approximately 27 days (See Appendix, Table 1-4). Finally, on the issue of cost, although it is difficult to precisely judge, still the same route offers lower transport costs, the assumption being that, the longer distances will automatically translate into higher fuel costs and vice-versa. Appendix Table 1-1: U.S.A Rail Freight Estimates Port location Distance from GM Plant Detroit (Miles) Transit time (Days) Line Haul Cost per Load (US $) Los Angeles CA. 2280 6 7,900 Boston MS 720 1.95 2,500 New York N.Y 615 1.66 2,126 Source: www.globalshippingcosts.com Table 1-2: Australia Rail Estimates Port Location Distance to Headquarters (Km) Transit Time (Minutes) Line Haul Cost per Load (AUS $) Rail Truck Rail Truck Melbourne 23 20 45 437 250 Source: www.globalshippingcosts.com Table 1-3: Ocean Carrier Route Options Route Options Distance in Nautical Miles(to the nearest hundreds) Estimated Transit Time(days) New York – Panama Canal- Melbourne 9912 30 Detroit- Cape Horn- Melbourne(Through St. Lawrence Sea Way) 13840 41 Boston-Panama Canal-Melbourne 10191 31 Los Angeles- Melbourne 7092 21 Detroit- Melbourne (Through St. Lawrence Sea Way) 11606 35 Assumption for the Transit Time (Ship travelling at 14 Knots) Source: www.searates.com Table 1-4 Optimal Solution Route Distances (Miles) Rank Average Transit Time (Days) Rank Rail Sea Total Rail Sea Total Detroit-Los Angeles-Melbourne 2280 7092 9372 1 6 21 27 1 Detroit-Boston-PC-Melbourne 720 10191 10911 3 2 31 33 3 Detroit-NY-PC-Melbourne 615 9912 10527 2 2 30 32 2 Detroit-Cape Horn-Melbourne - 13840 13840 5 - 41 41 5 Detroit-PC-Melbourne - 11606 11606 4 - 35 35 4 Assumption: These are details of transit from Detroit, U.S.A to Melbourne Port, Australia. Note: NY-New York, PC-Panama Canal. References Beresford, A. &. (2000). Handbook on Management and Operation of Dry Ports. UNCTAD/RDP/LCD/7. Global Shipping Costs. (n.d.). Freight Calculator. Retrieved August 31, 2011, from globalshippingcosts: http://www.globalshippingcosts.com/calc/#lat=38.21900&lon=-100.64331&zoom=4 Leach, T. (2009, February 23). Looking for Options. Traffic World . NaviTag Technologies . (n.d.). Cargo Theft. Retrieved August 31, 2011, from http://www.navitag.com/product/industry.htm Panama Canal. (n.d.). Toll Assessment-Panama Canal. Retrieved August 31, 2011, from www.pancanal.com/eng/maritime/tolls.html Sea Rates. (n.d.). Port Distances. Retrieved August 31, 2011, from Sea Rates: http://www.searates.com/reference/portdistance/?fcity1=14337&fcity2=20131&speed=14&ccode=1934 Read More