Logistics Issues - Assignment Example

Running Head: Logistics Logistics Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Question One Depending on the field of business one is engaged in the word logistics may take a variety of meanings. The use of the term in the military is quite different from the application it takes in business. However, there is agreement that the term logistics generally refer to the organization and control of an operation with the goal of ensuring labor and equipment are available at the right place, in the right time and in the right quantity. Logistics is especially essential in marketing and management. Furthermore, logistical support is critical for the success of a company’s operation. Logistical activities include but are not limited to communication, transportation, inventory, material handling, warehousing and packaging. Most practical areas like production, marketing, production and logistics in an organization have a high degree of interdependence. A logistical approach that is aware of this interdependence is referred to as the systems and total cost approach. This approach identifies the relationship between these organizational areas and considers it in logistic operations. The systems approach infers that the objectives of each functional area should be aligned to the overall objective and goals of the organization. The difference in goals and objectives between one organization and the next means that; no single logistic system is a fit for all organizations. The system approach also considers the implication of one practical areas decision on other functional areas in the organization. For, example some companies thinks by increasing the number of stock keeping units they can achieve higher levels of customer satisfaction. On the contrary, an increase in the number of SKU is likely to lead to increased errors among retailers and increased confusion among customers. Thus, it is the responsibility of the logistics manager to ensure there a balance in all logistic activities to avoid causing confusion for customers as discussed above. Logistic managers use the Total cost approach to manage the physical distribution and material organization based on their total costs. While using the Total cost approach it is important to comprehend the various cost tradeoffs; a change in one logistic activity may mean an increase in cost in another activity. For example, a decrease in transportation cost predicts an increase in warehousing cost. Thus, the total cost approach or total cost concept considers the implication of each logistical item on the cost while making decisions. Logistical relationships within the firm: Finance: This department of the organization is the one which is responsible for the allocation of the organization’s limited funds to other organizational department including logistics. All financial plans made in the logistical department need the approval of the finance department. The need for approval from the finance department means activities like handling or packaging of equipment cannot take place without the approval of the Finance department. The interrelation between logistics and finance extends to inventory; here it is a potential source of conflict. While finance assess inventory based on its value, logistics evaluates it based upon the number of items. This different approach to inventory assessment is a source of potential misunderstanding between the logistics and finance department. Marketing: Having Modern marketing places is a sure way of achieving Customer Satisfaction. Making sure the prices of products are low and possible and offering customers a wide variety of products to choose from at a location convenient to the customers are other ways of ensuring customers are satisfied. These marketing objectives can be achieved through logistics. Good logistical strategies are key in achieving these customer satisfaction objectives. Logistics is relevant to the four P’s of marketing (Product, Price, Promotion and Place) by the fact that it affects each. Production: The interrelation between production and logistics has an influence on the length of production. Manufacturers like extended lengths of production as it reduces the cost of producing each unit. On the contrary, longer length production means that larger amount of inventory has to be retained is increased costs in the logistics department as it is responsible for managing inventory. Where demand is low for a product, Logistics also has to handle the problem of excess inventory created by the slow movement of manufactured goods. Furthermore, excess production lead to inventory carrying and firm handling costs in addition to the space the products occupy. Activities like assembly, production or packaging may run late because of the postponement which interferes between logistics and production causing the delayed value. The answer to the last part of question one: The American Society of Transportation and Logistics (ASTL) is the logistical professional organization I believe is most beneficial for me to join. My most important consideration in joining this organization is the fact that it operates in over fifty countries. Secondly, the organization has so many benefits for members who join as students. Furthermore, the Society’s Logistics Education Foundation to assist needy students pursues further education and run the ASTL annual scholarship program. Question Two Organizational Structure for Logistics: The two organizational structures for logistics are: the Fragmented organizations and the unified organizational structure. In the Unified structure, one department handles all the logistics activities of the company. This structure is very common in large corporations who value a co-ordinated approach to logistics. In contrast, in fragmented logistics, each department handles its logistical activities. The Fragmented structure is characterized by logistics being subservient to the objectives of the department instead of those of the organization. It also leads to costly uncoordinated logistical activities as they are spread throughout the organization. Centralization or decentralization of the logistics department is a critical issue in the makeup of the organizational structure. Centralized logistics is where all the logistics activities of a company are run from the home office. On the other hand, each geographic office is responsible for its logistical activities in decentralized logistic companies. The choice of centralized or decentralized logistics management influences the cost or the customer service. While Job titles in companies are an important issue, it is rare to have executive officers like CEO, COO and CFO in logistics. Organizational Design for Logistics: There are three basic types of organizational designs: network, matrix or hierarchical (functional). The functional organization follows a command and control hierarchy closely resembling military organizations. In a functional organization each employee reports to one superior leading to flexibility in command. But this organization is limited by societal changes. On the other hand, Matrix organization employees are responsible for a variety of functions. Matrix organization shows higher levels of response to customer requirements. However, this organizational design is costly as it has many manager level employees. A network Organizational Design: The Network organization focuses on process rather than function. Network organization is more relevant, responsive and flexible. Relevancy refers to a comprehension and understanding of emerging customer requirements and needs. Ability to handle unplanned customer requests is referred to as Responsiveness. Flexibility is reference to capacity to handle unexpected situations in operations. Managerial Issues in Logistics: It is equally important to manage Logistics systems as it is to effectively organize them Productivity: This refers to the ratio of the quantity of output in comparison to the amount of input. Logisticians can influence productivity by using one of the three approaches discussed below. First, the manager can decrease input while making sure there is no change in output. Secondly, input can be held constant while output is increased. Finally, input can be reduced, while making sure output increases. Logisticians can monitor productivity using Global Positioning System (GPS) and Tachograph. Theft (Stealing). Theft in some companies goes unreported. Although, theft impacts logistics, without accurate reporting of theft incidents it’s hard to evaluate the impact of this theft on logistics. It is estimated that about 2 in 100 items sold over the internet are stolen. Losses due to theft are usually compensated by insurance companies but the time lost and other associated costs are not recoverable. Pilferage (employee theft): Warehousing and Transportation are two logistics activities that are particularly vulnerable to employee theft. Monitoring the movement of things through the logistic system is one way of limiting pilferage activities. Furthermore, a zero tolerance policy is huge deterrence to employ who may entertain ideas of stealing from the company. Logistics Social Responsibility: Logisticians also have a responsibility towards the society within which they operate. Logistical activities should be sensitive towards such social issues like the environment, human rights, diversity, ethics, philanthropy, safety and human rights. Managing Reverse Logistics: In some circumstances ordered goods have to be returned to the senders. In the US, the value of returned goods every year exceeds $100 billion. Reverse logistics thus raise three critical questions to companies (1) reason for return of goods, (2) how can reverse logistics be optimized, and (3) Should a third party be hired or should the organization handle the reverse logistics itself. Reverse logistics are more costly than the initial forward of the goods and maybe up to four or five times more expensive. Lessening the Impact of Terrorism on Logistics Systems: Terrorism is referred to as, the use of unlawful force or threats to coerce or intimidate people or ruling bodies. It is practiced by individuals and organized groups for political or ideological reasons. The devastating September 11, 2001 attack on the United States negatively affected many business activities including logistics. The creation of the Department of Homeland Security (DHS) has played a great role in reducing the impact of terrorism on logistics and business. In addition, Transportation Worker Identification Credentials pioneered by the Transportation Security Administration (TSA) have also assisted in the management of the terrorism threat on logistics. Other strategies for limiting the threat of terrorism include the Customs Trade Partnership Against Terrorism (C-TPAT), Container Security Initiative (CSI), and Importer Security Filling (ISF) rule as part of the Customs Border Protection. Question Three Supply chain and supply chain management differs in that Supply Chain refers to the collection of activities concerning the process of conversion of raw material to ready products and their flow to the end user as well as any flow of information involved. On the other hand, Supply chain management refers to the organization and control of all sourcing, conversion, procurement and logistical activities. Supply chain management cuts across organizations and involves stakeholders such as suppliers, intermediaries, transporters, customers and other contractors. Demand and supply management are essential activities in supply chain management across and within companies. There are three viewpoints of supply chain management according to the Supply chain council: (1) Global Supply Chain Forum (GSCF) model, (2) Supply Chain Operations References (SCOR) model, and (3) the APQC (Process Classification Framework). Attributes Affecting SCM Implementation: Customer Power: The design and management of a supply chain cannot afford to ignore customer power. With increased access to the internet the influence of supplier power of business activities customer power is more profound than ever before, now customer awareness of products is higher. Thus companies are forced to alter and design their supply chain while considering customer and market needs Leveraging Technology: On the Technology front, supply chain management has to contend with changes in the internet and computing power. For logisticians applying technology can be highly beneficial. Complex supply chain problems can now be solved by fast and low-cost mathematical solution available through supply chain software. Technology can also be leveraged in supply chain to cut costs and improve customer service. Thus, the internet is away for the supply chain to optimize productivity to higher levels. Inventory Control: Supply chain management aims at achieving better inventory at the least expensive cost. A reduction in the number of units held in the supply chain can be achieved in a number of ways. These methods include: frequent ordering, use of demand pull rather than supply push, taking on premium transportation, replenishment, consolidating or eliminating slow moving stock. However, the emphasis on inventory reduction in logistics has been under reconsideration due to such factors like health pandemics, terrorism and natural disasters. Barriers to SCM Implementation: Regularity and Political Considerations: Changes in political circumstances are frequent and supply chain management needs to keep their impact into consideration. Wars and country instability are considerable influences in the decision to join, develop or leave supply chain in various countries. In instances, political situation prevent businesses from operating due to the threat to their operations. Lack of Top Management Commitment: All the important decision concerning the affairs of an organization is made by its top management. Thus, top management greatly influences the success of the operations of any company. In making this decision the top management must be aware of the important role of supply chain management in the success of the company. Globalization: More business are extending their operations to other countries, converting their supply chain from local to global supply chains. The reasons for globalization of business include availability of cheaper raw material and labor, companies adopting a more global perspective of their supply chain and development of global competition. The management of global supply chain is far more challenging than the management of a domestic one. This is due to the fact that global supply chains have to contend with economic, cultural, technological, spatial, political and logistical variances on the global market. Furthermore, the lead times for shipment are longer and unpredictable in global supply chains. The SCOR Model: Plan, Source, Make, Deliver, and return are the five key processes in the SCOR Model. These five processes show the important role logistics plays in supply chain management. The plan refers to the balance in actions aimed at meeting delivery, production and sourcing needs. Source refers to acquiring services and products to meet actual or predicted demand. Deliver refers to the provision of finished products to users. Finally, Return refers to the return and receipt of forwarded good if such a circumstance occurs. Question Four Order Management: This is the activity that occurs between the period of the receipt of an order and the notification of the warehouse to ship the goods ordered. On the other hand Lead-Time or Replenshiment time (Order Cycle) is a reference to the amount of time a customer has to wait to receive goods after placing an order. Since most organizations analyze customer service in terms of Lead-time performance order management is crucial to organizations. Order Transmittal: This is a reference to the amount of time a retailer takes to receive an order upon a client placing the order. Order requests can be transmitted to the retailer in three distinct ways. By mail, physically, by telephone, through fax or by electronic mail. The choice of each method depends on various factors. The method chosen is influenced by its ordering time, ordering cost, associated errors and its ordering convenience. Order Processing: Is a reference to the period between placement of the order and the authorization of an exact location to fill out the order. Through technology order processing has become shorter and shorter. Order processing compromises of a number of activities including a check for the accuracy and completeness of an order, checking customers' credit credentials, entry into the information system, salesperson check, recording transaction in the accounting department, location of convenient warehouse to the customer and communication for customer on where to pick ordered items and arrange for transportation of shipment. Order Picking and Assembly: Is reference to all the activities that occurs before the loading of goods on an outbound transport after an exact location like a warehouse has received authorization to fill out an order. It is the third step in the order management process. This is the most suitable step to improve efficiency to reduce order cycle, and it accounts for around two-third of operating time and cost of a facility. Handheld scanners, voice based order picking; radio frequency identification and pick to light are some of the technologies available for the optimization of the efficiency of order picking and assembly. Order Delivery: This the final stage of the order management process. This is the period between the loading of the shipment on the transport carrier and the receipt of the goods by the customers. Order delivery has changed significantly in the last decade. First, there is a wider variety of the choice of time the delivery can arrive at the destination. Secondly, buyers can know in advance the exact time a delivery will arrive giving them a higher level of control over their inventory. Finally, transit times have been greatly reduced by doing deliveries overnight. Customers Services: in logistics customer service is concerned with satisfaction of workers in terms dependability, time, convenience and communication. Some of these important customer satisfaction factors are discussed in the section below. Time: In supply chain management time is the period that passes between successive events. As discussed above cycle time is an important consideration among clients when dealing with orders. Nowadays, business are focusing on reducing cycle time across all services they provide to this means they will also reduce inventory levels. To make sure customers are satisfied being in time is an important consideration in supply chain management. Communication: Advances in communication technology have brought forth devices such as Smartphones, Computers and Cell phones which can be used to optimize communication. Using these communication devices makes sure both retailers and buyers remain well informed about the products they are interested in. To save time and money, all the parties involved in a transaction need to communicate effectively. While doing business it is important to meet the other parties face to face as it is a popular and agreeable way of doing business. Convenience: Customer logistics and consumer services should focus on gaining and retaining the confidence of customers, as customer satisfaction is very important in business. It is important to identify and cater for each customer’s unique requirement to ensure their confidence is gained. Customer services should not be detrimental to the business and it should be aimed at striking a balance between customer satisfaction and business profitability. However, consideration of the customer’s satisfaction should remain high as it is a determining factor in the purchasing decision. It is worth noting those corporations that consider customer satisfaction paramount are remarkably successful. Question Five Inventory Classification: Inventory is maintained with the aim of satisfying customer demand. However, Inventory is further classified into specific categories according to the circumstances and customer need. Base or Cycle Stock refers to the level of inventory needed for a company to continue operating effectively and maintain continuous order cycle. For example, a retailer needs to maintain a certain quantity of goods for his constant and daily sailing to be maintained. Safety or buffer stock refers to extra inventory which is maintained in anticipation of unexpected demand to avoid a situation where the business runs out of stock. Manufacturing companies retain extra stock to respond to spiked demand, while they focus on producing more goods to meet the excess demand. Safety or buffer stock could help companies avoid embarrassing situations where they are unable to respond to customer demand. Pipeline or In-transit refers to stock during the transportation period between one facility and another. For Instance, Oil being transported by an oil tanker is Pipeline stock before it arrives at its destination. Speculative stock is inventory refers to extra inventory stored for specific reasons such as anticipated increases in prices or demand, focused shortages or for other reasons. For example, before valentine stores keep extra stock of flowers especially Red roses. Inventory Costs: Currently, inventory costs are estimated to account for about a third of logistics costs. Knowledge of inventory management is thus essential to logisticians. Inventory cost can be classified into ordering cost, carrying cost and stick-out cost. Inventory Carrying cost or Cost of holding inventory is a most important consideration in managing inventory expenses. The value inventory carrying cost expressed in percentage is referred to as inventory expense. Inventory expense increases with increase in the cost of inventory. Due to the variation in loss of value between product inventories can be influenced by carrying cost. If perishable products such as vegetables, meat and milk exceed their expiry date in storage the decompose leading to an increase in inventory cost. On the contrary, goods such as toys or clothes do not perish and thus they inventory cost are constant. Inventory shrinkage is a term used to refer to the loss of some of the items in inventory at some point in the supply chain. Causes of inventory shrinkage include loss, theft and damage. Efforts to stop or minimize this loss of inventory are always costly to the company. For example the installation of surveillance system or a GPS to prevent theft means the company incurs extra cost in implementing this Anti-theft tactics. The space occupied by products in the warehouse is also part of the inventory cost. Labor, electricity and insurance are some of the other costs that make up inventory cost. Inventory available at certain day in a year is also taxed meaning companies have to maintain low inventory levels to avoid tax expenses on the taxation day. Ordering Cost has all to do with the expense incurred in ordering an item. It involves such expenses as production modification cost, payment processing cost and the cost of entering order information into the system. Trade- off between Carrying and Ordering Cost: An increase in the number of orders leads to an increase in order cost but lowers the carrying cost. (Ordering cost = the ordering cost per order x number of orders per annum) (Carrying cost = carrying cost x the average inventory). Stock out is a reference to a situation where there is no stock left despite the presence of customer demand. It might be as huge a problem as oversupply or even worse. Stock-out means customers do not get what they want meaning they may switch to other competitors or sales are delayed. To avoid a situation where stocks run out and its associated stock-out cost a marginal study should be carried out to accurately assess the amount of buffer stock needed to avoid a stock out situation. Where the cost of having a stock out is high, it is advisable for the company to maintain an appropriate amount of buffer stock. Stock-out costs and inventory costs are always low in companies where the possibility of a delayed sale is high. Trade- off between carrying and stock-out cost: If a company incurs higher cost inventory carrying cost it means it is keeping more stock thus lowering the possibility of a stock-out occurring and reducing stock-out costs. Question Six The decision to own or rent a warehouse is dependent on a company’s objective, goals or strategies. In large organizations both the ownership and rental approach is used for acquisitioning warehouse. Warehouse used in logistics is classified into four groups. A public warehouse refers to a storage area where the user pays for the space they intend to use. Due to this flexibility in public warehouses they are in great demand. Public warehouse helps the management of logistical costs as they bill their services on a regular basis. Furthermore, public warehouses are found in flexible locations and may offer additional services such as packaging and product assembly. Apart from the huge cost saving companies can get from using public warehouses, their compliance with Occupational Safety and Health Administration (OSHA) is a big advantage for companies who use them. However, one drawback associated with public warehouse is the unavailability of space when it is needed. Users also have a low degree of control over where and how their inventory is stored. Due to limited opening hours, public warehouse also limits a user's access to his/ her goods. On the other hand private warehousing are those that are leased to the user for a long term or those owned by the user. Private warehouses are a major advantage where demand is stable. However, fluctuations in demand lead to insufficient space or underutilization of available space. In contrast to public warehouses the user decides where and how to store inventory. Furthermore, since the company is the owner it can access the store any time it feels like. Another major advantage is that the user can design the store to meet the storage specification of his products. Despite these advantages, Private warehouses also have a number of limitations. First, the fixed costs associated with these types of stores are significantly higher, requiring high levels of inventory to justify the fixed cost. The private warehouse may also be a limit to a company’s flexibility where they might not be able to supply regions far away from their warehouses. Third-party or Contract Warehousing refers to a situation where the warehousing and logistical services are provided on long-term contract to one client. The contractor and the inventory owner share the costs of the logistics and warehousing operations. Services such a repair, customization, renovation and reverse logistics provided by contrast warehouses are of much higher quality than those of public warehouses. Contract warehousing is the more advantageous type of warehouse and is much more desirable as it overcomes the limitation of public and private warehouse while increasing their advantage. However, the cost of using contract warehouse is quite high while compared to public warehouses, but flexibility to the external environment is high. Multiclient warehousing is neither a public nor the contract warehouse. In this century the popularity of multiclient warehouses is rising. Multiclient warehouses are used by only a few users but are not public nor owned by one organization. However, the quality of services is lower than in contract warehouse, they are on the same level as public warehouses. However space in multiclient warehouses is more widely available than in public warehouses. Question Seven Logistical information can be obtained through documentation an important way of recording such information. The transportation department has a responsibility of completing all transportation documents to enable efficient record keeping and movement of goods. In this section all the documents involved in a domestic shipment are discussed. Bill of Lading: This is the most important document in the transport industry. It is a binding contract between a carrier and a shipper that lays down the responsibility and obligation of each of the parties. Bill of ladings takes two distinct forms: the straight bill of lading and the order bill of lading. The straight bill of lading contract is printed on white paper and gives a strict legal obligation to deliver goods to a specific recipient without revealing who owns the goods. On the other hand, an order bill of lading is printed out on yellow paper. In contrast, in the order bill of lading it is not necessary to specify the receiver of the goods. The contract in an order bill of lading requires the receiver to pay for the goods before taking receipt. Bill of ladings can also be further classified into short, long or pre-printed. Freight Bill: This is furnishment of proof of purchase by a carrier while submitting a request for payment. Each freight bill requires the approval of the transport manager before it is paid. Internal and external audits of a company by a shipper may help avoid freight bills that are overcharged. Freight Claims: This is a document that calls a carrier’s attention to issues of delivery shortcomings such as delays or wrong or defective goods. Freight claims must be submitted within nine months of the delivery of goods. Claims disagreement is handled by the Transportation Arbitration Board (TAB) set up by shippers and carriers. In settling a freight claim, estimating the amount of damage in dollars is especially challenging. Concealed loss or damage is a reference to loss or damage that is not discovered during unpacking and inspection of shipped goods. Concealed loss presents a major challenge to carriers and shippers. With the deregulation in transport the number of freight claims have reduced significantly, in some instances, shippers agree to reduce the legal responsibility of carriers over damage of goods in return for lower shipment charges. Read More