CHAPTER 7 Managing Materials Flow
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

CHAPTER 7 Managing Materials Flow

on

  • 24,613 views

 

Statistics

Views

Total Views
24,613
Views on SlideShare
24,609
Embed Views
4

Actions

Likes
1
Downloads
173
Comments
0

2 Embeds 4

http://www.slideshare.net 3
http://www.search-results.com 1

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

CHAPTER 7 Managing Materials Flow Presentation Transcript

  • 1. CHAPTER 7 Managing Materials Flow
  • 2. Materials Management Activities • Anticipating materials requirements • Sourcing and obtaining materials • Introducing materials into the organization • Monitoring the status of materials as a current asset
  • 3. Objectives of Integrated Materials Management • Low costs • High level of service • Quality assurance • Low level of tied-up capital • Support of other functions
  • 4. Differences Between Inbound and Outbound Transportation • Market demand that generates the need for outbound movement is more uncertain and fluctuating • Inbound transportation tends to involve bulk raw materials, supplies, or parts • Firms exercise less control over inbound transportation due to total delivered pricing programs
  • 5. Types of Forecasts • Demand forecast • Long-term • Supply forecast • Midrange • Price forecast • Short-term
  • 6. Forecasting Supply Chain Requirements I hope you'll keep in mind that economic forecasting is far from a perfect science. If recent history's any guide, the experts have some explaining to do about what they told us had to happen but never did. Ronald Reagan, 1984
  • 7. What’s Forecasted in the Supply Chain? •Demand, sales or requirements •Purchase prices •Replenishment and delivery times
  • 8. Some Forecasting Method Choices •Historical projection Moving average Exponential smoothing •Causal or associative Regression analysis •Qualitative Surveys Expert systems or rule-based •Collaborative
  • 9. Typical Time Series Patterns: Random 250 200 S ales 150 A c tu a l s a le s 100 A v e ra g e s a le s 50 0 0 5 10 15 20 25 T im e
  • 10. Example 3-Month Moving Average Forecasting Total demand 3-month Demand for during past 3 moving Month, i month, i months average . . . . . . . . . . . . 20 120 . . 21 130 360/3 120 22 110 380/3 126.67 23 140 360/3 120 24 110 380/3 126.67 25 130 26 ? CR (2004) Prentice Hall, Inc.
  • 11. MA w 1A1 w 2 A2 ... w n An Weighted Moving Average n where wi 1 i 1 If weights (w ) are exponential in form, then MA At (1 )1 At 1 (1 ) 2 At 2 (1 ) 3 At 3 ... (1 ) n At n which reduces to the basic, level only, exponential smoothing formula MA Ft 1 At (1 )Ft where smoothing constant usually 0.01 to 0.30 Ft 1 forecast for next period At actual demand in current period Ft forecast in current period
  • 12. Actions When Forecasting is Not Appropriate Seek information directly from customers Collaborate with other channel members Apply forecasting methods with caution (may work where forecast accuracy is not critical) Delay supply response until demand becomes clear Shift demand to other periods for better supply response Develop quick response and flexible supply systems CR (2004) Prentice Hall, Inc.
  • 13. Collaborative Forecasting • Demand is lumpy or highly uncertain • Involves multiple participants each with a unique perspective—―two heads are better than one‖ • Goal is to reduce forecast error • The forecasting process is inherently unstable
  • 14. Collaborative Forecasting: Key Steps • Establish a process champion • Identify the needed Information and collection processes • Establish methods for processing information from multiple sources and the weights assigned to multiple forecasts • Create methods for translating forecast into form needed by each party • Establish process for revising and updating forecast in real time • Create methods for appraising the forecast • Show that the benefits of collaborative forecasting are obvious and real
  • 15. Managing Highly Uncertain Demand Delay forecasting as long as possible Prioritize supply by product’s degree of uncertainty (supply to the more certain products first) Apply the principle of postponement to the most uncertain products (delay committing to a final product form until an order is received) Create flexible supply to changing demand (alter capacity and output rates through subcontracting, computer technology, multi-purpose processes, etc.) Be able to respond quickly to uncertain demand levels
  • 16. Total Quality Management (TQM) the application of quantitative and human resources to improve the material services supplied to an organization, all the processes within the organization, and the degree to which the needs of customers are met - now and in the future.
  • 17. Administration and Control of Materials Flow • Kanban/Just-in-time » Kanban (Toyota Production System) » JIT • MRP » Materials requirements planning (MRP I) » Manufacturing resource planning (MRP II) • DRP » Distribution requirements planning (DRP I) » Distribution resource planning (DRP II)
  • 18. Benefits Resulting from Implementing Just-in-Time • Improved inventory • Reduced transportation turns. costs. • Improved customer • Improved quality of service. vendor products. • Decreased warehouse • Reduced number of space. vendors. • Improved response time. • Reduced number of • Reduced logistics costs. transportation carriers.
  • 19. Elements of an MRP I System Customers’ Inventory Forecasts Engineering orders transactions changes Inventory status Master production file (finished items, schedule (which Bill-of-materials file work in progress, products to produce, in (product structure planned orders) what quantity, and when) and routing) MRP I system Planned schedules and various other reports Source: MCB University Press Ltd., Amrik Sohal, and Keith Howard, "Trends in Materials Management," International Journal of Physical Distribution and Materials Management 17, no. 5 (1987), p.11.
  • 20. MRP Scheduling Example The master schedule for a particular part over the next 8 weeks shows requirements of: 1 2 3 4 5 6 7 8 150 500 350 300 1000 800 700 500 The average lead-time to receive these parts from a vendor is 2 weeks. A previous order for 800 units has been placed with the vendor and will arrive by week 2. An inventory of 200 units is currently on hand. Lot-for-lot scheduling Purchase orders are matched on a one-for-one basis with requirements. CR (2004) Prentice Hall, Inc.
  • 21. MRP Example (Cont’d) Lot-for-lot scheduling (Cont’d) Week 1 2 3 4 5 6 7 8 Require- ments 150 500 350 300 1000 800 700 500 Scheduled receipts 800 300 1000 800 700 500 Quantity on hand 200 50 350 0 0 0 0 0 0 Purchase releases 300 1000 800 700 500 CR (2004) Prentice Hall, Inc. 10-11
  • 22. MRP Example (Cont’d) Order minimums Suppose the vendor has an order minimum of 500 units. Week 1 2 3 4 5 6 7 8 Require- ments 150 500 350 300 1000 800 700 500 Scheduled receipts 800 300 800 800 700 500 Quantity on hand 200 50 350 0 200 0 0 0 0 Purchase releases 500 800 800 700 500 Order min. qty. 10-13 CR (2004) Prentice Hall, Inc.
  • 23. Vendor Managed Inventory •The supplier usually owns the inventory at the customer’s location •The supplier manages the inventory by any means appropriate and plans shipment sizes and delivery frequency •The buyer provides point of sale information to the supplier •The buyer pays for the merchandise at the time of sale •The buyer dictates the level of stock availability required
  • 24. Elements of an MRP II System Order Order Inventory (production plan) (production plan) records Materials requirements planning (MRP) Capacity requirements planning (CRP) No Realistic ? Yes Execute capacity plans Execute material plans Source:Karl A. Hatt, ‗What‘s the Big Deal about MRP II?‖ Winning Manufacturing 5, no. 2 (1994), p. 2.
  • 25. Elements of a DRP II System Customers Distribution Distribution Distribution Distribution center center center center Distribution Distribution center center Regional Regional warehouse warehouse Distribution resource Plant planning warehouse Source: ―How DRP Helps Warehouses Smooth Distribution,‖ Mondern Materials Handling 39, no. 6 (April 9, 1984), p. 53. Modern Materials Handling, copyright 1984 by Cahners Publishing Company, Division of Reed Holdings.
  • 26. Elements of a DRP II System (cont.) Plant warehouse Material Final assembly requirements (manufacturing) planning Subassembly B Part C Subassembly C Subassembly A Part C Part D Part E Part A Part B Raw materials Source: ―How DRP Helps Warehouses Smooth Distribution,‖ Mondern Materials Handling 39, no. 6 (April 9, 1984), p. 53. Modern Materials Handling, copyright 1984 by Cahners Publishing Company, Division of Reed Holdings.
  • 27. CHAPTER 8 Transportation
  • 28. Factors Influencing Transportation Costs • Product-related • Market-related factors factors – Degree of competition – density – Location of markets – stowability – Government regulation – ease or difficulty of – Balance or imbalance handling of freight traffic – liability – Seasonality – Domestic versus international movement
  • 29. Transportation Impacts on Customer Service • Dependability • coverage • flexibility • loss and damage - FEDEX • Time Definite Delivery
  • 30. Terms of Sale and Corresponding Buyer and Seller Responsibilities 1.Terms of Sale FOB Shipping Point, FREIGHT COLLECT 3.Terms of Sale FOB Shipping Point, FREIGHT PREPAID AND CHARGED BACK Title passes to buyer Buyer pays freight charges. Title passes to buyer Seller pays freight charges. Buyer bears freight charges. Buyer bears freight charges. Freight charges paid Seller Buyer owns goods in transit. by buyer Buyer owns goods in transit. Buyer Buyer files claims (if any). Buyer files claims (if any). Seller Buyer Freight charges paid by seller, then collected from buyer by adding amount to invoice. 2.Terms of Sale FOB Shipping Point, FREIGHT ALLOWED Title passes to buyer Seller pays freight charges. Seller bears freight charges. Freight charges paid by seller Buyer owns goods in transit. Buyer files claims (if any). Seller Buyer Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National Association of Purchasing Management, 1993, McGraw-Hill.
  • 31. Terms of Sale and Corresponding Buyer and Seller Responsibilities (cont.) 4.Terms of Sale FOB Destination, FREIGHT COLLECT 6.Terms of Sale FOB Destination, FREIGHT COLLECT AND ALLOWED Title passes to buyer Buyer pays freight charges. Title passes to buyer Buyer pays freight charges. Seller bears freight charges. Buyer bears freight charges. Seller Buyer Seller owns goods in transit. Seller Buyer Seller owns goods in transit. Seller files claims (if any). Seller files claims (if any). Freight charges paid by buyer, then charged to Freight charges paid by buyer seller by deducting amount from invoice. 5.Terms of Sale FOB Destination, FREIGHT PREPAID Freight charges paid by seller Seller pays freight charges. Seller bears freight charges. Title passes to buyer Seller owns goods in transit. Seller files claims (if any). Seller Buyer Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National Association of Purchasing Management, 1993, McGraw-Hill.
  • 32. Five Basic Transportation Modes • Motor • Rail • Air • Water • Pipeline
  • 33. Comparison of US Domestic Transportation Modes M otor R ail A ir W ater P ip elin e Economic Characteristics C ost M oderate L ow H igh L ow L ow M ark et P oint-to- T erm inal-to- T erm inal-to- T erm inal-to- T erm inal- coverage point term inal term inal term inal to-term inal N u m b er of M any M oderate M oderate Few Few com p etitors P red om in an t A ll types L ow -m oderate H igh value, L ow value, L ow value, traffic value, low high density high density m oderate- m oderate high - density density A verage len gth S hort to long M edium to M edium to M edium to M edium to of h au l long long long long E q u ip m en t 10-25 50-12,000 5-125 1,000 -60,000 30,000 - cap acity (ton s) 2,500,000
  • 34. Comparison of US Domestic Transportation Modes (cont.) M otor R ail A ir W ater P ip elin e Service Characteristics S p eed M oderate S low F ast S low S low A v ailab ility H igh M oderate M oderate L ow L ow C on sisten cy H igh M oderate H igh L ow - H igh (d eliv ery tim e m oderate v ariab ility ) L oss an d d am age L ow M oderate - L ow L ow - L ow high m oderate F lexib ility H igh M oderate L ow - L ow L ow (ad ju stm en t to m oderate sh ip p er’s n eed s)
  • 35. Rail in South Africa • Excess capacity • Good rail network • Lousy service reputation • Companies are considering buying own systems
  • 36. Nonoperating Third Parties • Freight forwarders • Shippers‘ associations or cooperatives • Transportation brokers • Intermodal marketing companies or shippers‘ agents • Third-party logistics service providers
  • 37. Major U.S. Agencies Regulating Transportation • Surface Transportation Board • Department of Transportation • Federal Maritime Commission • Federal Energy Regulatory Commission
  • 38. The Domestic Transportation System • Transportation is the movement of goods and people between two points – Nodes – Links – Air, water, motor carriage, rail, pipeline – Intermodal transportation – Routing guides
  • 39. Switching Milk Cans from a Farmer‘s Buggy to a Truck on a Rural Road in North Carolina, 1929 Early form of intermodal transport and cross docking
  • 40. The Domestic Transportation System • Supply chain success requires transportation – Transportation costs are affected by node location – Inventory requirements are influenced by mode – Packaging requirements are dictated by mode – Materials handling equipment and design of the docks are dictated by mode – Maximum consolidation of loads achieved with order-management technology reduces costs – Customer service goals influence carrier choice
  • 41. Product vs. Pricing • Ease/difficulty of load • Inefficiencies drive up • equipment availability prices • capacity of equipment • zones • unexpected costs - increase in cost of diesel
  • 42. Target Markets • Cost of reaching market • network on other end • Shipping to Hawaii - Matson (small monopoly) • $6/gal for milk in Hawaii • Facility location based on trans network - Reno/Ontario/Atlanta/Memphis
  • 43. Product related factors • Density of product - • stowability • special handling equipment • special shipping containers • hazmat - liability
  • 44. Common/contract/exempt vs. private • All shippers • Private fleet • any shipper • Move only company‘s • contract - limited products number under specific • lease or own contract
  • 45. Small-Volume Shippers • Parcels are packages weighing up to 150 pounds • Parcel carriers are firms that specialize in small packages (≤ 150 pounds) – UPS – FedEx • Other carriers include – USPS – Passenger carriers—air and bus
  • 46. LTL Shippers • Less-than-truckload (LTL) – 150 to 10,000 pounds – Too big to be handled manually, too small to fill a truck – LTL trucks carry shipments from many shippers – Most large firms are LTL carriers • Yellow Freight • Roadway Express • ABF Freight System
  • 47. LTL Shippers • Less-than-truckload (LTL) (continued) – Process • Local pick-up • Origin terminal used to load aboard line haul • Line haul to terminal near destination • Destination local delivery on smaller trucks • Consignee receives
  • 48. LTL Shippers • Air Cargo – Can be given directly to airline – Can be given to freight forwarder – Most carried on passenger airlines – Types of products • High in value • Perishable • Require urgent delivery – Shipped in air containers made to fit fuselage
  • 49. LTL Shippers • Freight forwarders – buy space at TL (truckload) rate and sell at somewhat less than LTL rate – pick-up and deliver; motor carriers or railroads do line-haul – function as transportation departments of small firms – may specialize in specific cargoes
  • 50. LTL Shippers • Air forwarders – Consolidate shipments – Tender to airlines in containers ready for loading – Forwarders provide retailing function – Airline provides wholesaling function • Shipper‘s cooperatives – Similar to air and freight forwarders but are not- for-profit organizations – Membership (shippers) receive any monies earned in excess of costs
  • 51. LTL Shippers • 3PLs – May have equipment—trucks, trailers, terminals – May deal in information only – May operate Internet-based auctions • Brokers – A facilitator who brings together a buyer and seller – May consolidate LTL shipments and then give to truckers, forwarders, or shippers‘ associations
  • 52. Truckload and Carload Shippers • Shipments of 20,000 to 30,000 pounds • Fill one truck • Cost less per pound than LTL shipments – The shipper loads and consignee unloads the trailer – Load goes from shipper to consignee without passing through a terminal – Paperwork, billing, and control costs are the same
  • 53. Truckload and Carload Shippers • Rate per haul may be negotiable • Largest TL companies – Schneider National Van Carriers – J.B. Hunt Transport • Many firms are smaller, without national presence • Smaller firms may be owner-operators
  • 54. Truckload and Carload Shippers • Private transportation is when the shipper provides and operates its own equipment • Dedicated equipment is carrier owned but assigned to serve specific customers for indefinite periods • Shippers and consignees using railroad service need sidings on their property
  • 55. Large Bulk Shippers • Bulk cargo – Travels in loose rather than in packaged form – Handled by pumps, scoops, conveyor belts, or the force of gravity – Has various handling characteristics – Moves by • Truckload • Railroad • Water carrier • Pipeline
  • 56. Large Bulk Shippers • Bulk cargo (continued) – Dry Bulk-Handling Systems • Coal car unloading facility • Grain elevator – Vehicle and Vessel Equipment Choice
  • 57. Comparison of Modes • Costs per ton-mile • Speed • On-time delivery
  • 58. Transportation Regulation and Deregulation • Exceptions to economic deregulation – Rail service to captive shippers – Household goods movers – Many petroleum pipelines – Many natural gas pipelines – Some inland waterway traffic – Some water transport between mainland U.S. and Hawaii, Puerto Rico, and Alaska
  • 59. Transportation Rates • Rate structure deals with three factors – Relationships between different products – Relationships between shipments of different weights – Relationships between different distances • Three factors are defined numerically and then tied to a rate of cents per hundredweight (cwt)
  • 60. Transportation Rates • To find LTL rates usually need: – Origin and destination zip codes – Weight of shipment – Classification of shipment – Supplemental services needed – Discount awarded to shipper by carrier • Rates may be on carrier web sites
  • 61. Which Mode? • Motor - 75% of tonnage - average move = 400 miles • Use motor for moves > 400 < 1000 • > 1000 air and smaller package - air • > 500 and large - rail • average rail move = 850 miles
  • 62. Importance of Modes By Products Hauled Air--very high-valued, time sensitive products Truck--moderately high-valued, time sensitive products. Many finished and semifinished goods Rail--low-valued products including many raw materials Water--very low-valued products moved domestically, high-valued if moved internationally Pipe--generally limited to petroleum products and natural gas CR (2004) Prentice Hall, Inc.
  • 63. Importance of Modes (Cont’d) By Volume Moved Percent Transportation of total mode volume Railroads 36.5% Trucks 24.9 Inland waterways 16.3 Oil pipelines 22.0 Air 0.3 Total 100.0 CR (2004) Prentice Hall, Inc.
  • 64. Performance Overview Air generally fast over long distances and a fair degree of relative variability Water is very slow and moderately reliable Pipe is very slow but reliable Truck is moderately fast and reliable Rail is slower and less reliable than truck Relative Costs of Performance Price, Mode ¢/ton-mile Rail 2.28 Truck 26.19 Water 0.74 Pipeline 1.46 Air 61.20 CR (2004) Prentice Hall, Inc.
  • 65. Mode/Service Selection The problem Define the available choices Balance performance effects on inventory against the cost of transport Methods for selection Indirectly through network configuration Directly through channel simulation Directly through a spreadsheet approach as follows: Alternatives Cost types Air Truck Rail Transportation In-transit inventory Source inventory Destination inventory CR (2004) Prentice Hall, Inc.
  • 66. Rail • 1-UP; 2-BNSF; 3-Canadian National; 4-CSX • 175K miles of rail • lacks versatility and flexibility • Oct 04- UP had 140 loads waiting for power • Average times for rail up over past 3 months • Equipment shortages • BNSF – record profits last 2 years • BNSF - all switching and routing from World Wide Operations Center (WWOC) in Fort Worth
  • 67. AVERAGE NUMBER OF LEAD TIME WAREHOUSES TO BEST WAREHOUSE LOCATIONS IN THE CUSTOMERS NETWORK (DAYS) One 2.28 Bloomington, IN Two 1.48 Ashland, KY Palmdale, CA Three 1.29 Allentown, PA Palmdale, CA McKenzie, TN Lancaster, PA Palmdale, CA Chicago, IL Four 1.20 Meridian, MS Summit, NJ Palmdale, CA Chicago, IL Five 1.13 Dallas, TX Macon, GA Summit, NJ Pasadena, CA Chicago, IL Six 1.08 Dallas, TX Macon, GA Tacoma, WA Summit, NJ Pasadena, CA Chicago, IL Seven 1.07 Dallas, TX Gainesville, GA Tacoma, WA Lakeland, FL Summit, NJ Pasadena, CA Chicago, IL Eight 1.05 Dallas, TX Gainesville, GA Tacoma, WA Lakeland, FL Denver, CO Summit, NJ Alhambra, CA Chicago, IL Nine 1.04 Dallas, TX Gainesville, GA Tacoma, WA Lakeland, FL Denver, CO Oakland, CA Summit, NJ Alhambra, CA Chicago, IL Dallas, TX Gainesville, GA Tacoma, WA Ten 1.04 Lakeland, FL Denver, CO Oakland, CA Mansfield, OH ©2008 Chicago Consulting - Supply Chain Consultants
  • 68. Distribution Centers and Transportation • Trade off between inventory and transportation costs • Closer to customers allows company to claim ―Green‖ friendly
  • 69. Transportation Stuff • Rail volume up 1.9% in January – 1.556 million car loads • Intermodal traffic = 1.068 million containers/trailers • Fuel Surcharges unpredictable – one company covered 96% of fuel costs with surcharges last year • Hotel rooms in Vegas added an energy surcharge 5 years ago and still add to room charges
  • 70. Chapters 7 and 8 • Modes of Transportation • Mode Selection • MRP • DRP • Inbound vs. Outbound • Forecasting • Just in Time • LTL vs TL
  • 71. Next Week • Chapter 9 and 10