Logistics management 5 lu2

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Logistics Lecture 4

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  • http://en.wikipedia.org/wiki/File:Diagonalley.jpg
  • http://en.wikipedia.org/wiki/Places_in_Harry_Potter#Diagon_Alley
  • Logistics management 5 lu2

    1. 1. Logistics PPS5 Topic 2
    2. 2. Topic 2Logistics management Logistics management
    3. 3. LEARNING UNIT OBJECTIVES•• Explain how logistics management encompasses physical distribution; Explain how logistics management encompasses physical distribution;•• Define “logistics management”; Define “logistics management”;•• Explain the objectives of logistics; Explain the objectives of logistics;•• Indicate where total logistics cost can be reduced; Indicate where total logistics cost can be reduced;•• Illustrate the various aspects that determine customer service; Illustrate the various aspects that determine customer service;•• Reason about the trade-offs between reduced costs and increased customer Reason about the trade-offs between reduced costs and increased customer service; service;•• Explain order processing and information systems as activities of logistics Explain order processing and information systems as activities of logistics management; management;•• Discuss the modes of transport and the factors that influence the selection of Discuss the modes of transport and the factors that influence the selection of transport modes; transport modes;•• Explain “inventory management”; Explain “inventory management”;•• Discuss warehousing as aalogistics activity; Discuss warehousing as logistics activity;•• Discuss material handling as aalogistics activity; Discuss material handling as logistics activity;•• Explain the concept of “integrated logistics”; Explain the concept of “integrated logistics”;•• Assess how logistics contribute to healthy brand practice Assess how logistics contribute to healthy brand practice
    4. 4. Distribution vs LogisticsLogistics management – inbound and outboundLogistics management – inbound and outboundPhysical distribution – what happens with outboundPhysical distribution – what happens with outboundgoods onlygoods only
    5. 5. Logistics and physical distribution Logistics LogisticsMaterialsMaterials Materials Materials Physical Physical supply management distribution CUSTOMER CUSTOMER supply management distribution Manufacturing ManufacturingSuppliers Suppliers Scheduling, order Scheduling, order Field inventory Field inventoryInbound Inbound processing, processing, Outbound Outboundlogistics logistics materials materials logistics logistics handling etc. handling etc.
    6. 6. Physical distributionWhat happens with outboundgoods as they move from theorganisation (M) to its Cs. All activities re flow of these materials, components, finished goods
    7. 7. Logistics and physical distribution Logistics Logistics Materials Materials Physical PhysicalMaterials supplyMaterials supply CC management management distribution distribution Manufacturing Manufacturing Suppliers Suppliers Scheduling, order Scheduling, order Field inventory Field inventory Inbound Inbound processing, processing, Outbound Outbound logistics logistics materials materials logistics logistics handling etc. handling etc.
    8. 8. Logistics and physical distribution Logistics Logistics Materials Materials Physical PhysicalMaterials supplyMaterials supply CC management management distribution distribution Manufacturing Manufacturing Suppliers Suppliers Scheduling, order Scheduling, order Field inventory Field inventory Inbound Inbound processing, processing, Outbound Outbound logistics logistics materials materials logistics logistics handling etc. handling etc.PLUS STRATEGIC ISSUES I.E. TOMWITransportation; Order processing (including information systems);Materials handling; Warehousing; Inventory management.
    9. 9. The logistics processRaw materials Raw materials Manufacturer Manufacturer Wholesaler Wholesaler Retailer Retailer Customer Customer supplier supplier Transport Transport Transport Transport Transport Transport Transport Transport
    10. 10. Objectives of logisticsImprove profitabilityImprove competitive performanceTwo key objectives: Happy customers Happy customers Costs decrease Costs decrease Inversely related to one another – cannot accomplish both optimally – trade off between the 2 categories
    11. 11. Decreasing total logistics costs1. Order processing and admin costs – writing, receiving acknowledgement and processing2. Inventory related costs –in transit, in storage or WIP3. Transportation costs – vary depending on mode of transport used, product and size Trade off between the various cost factors
    12. 12. Improving customer service C expectations and reaction1. Order lead time to stock out …2. Dependability Cost-income trade-off3. Convenience Competitors’ level of4. Inventory availability C-service5. Factors that influence customer service levels
    13. 13. Tradeoffs between cost and C-service 100%Servicelevel Investment in inventory
    14. 14. Objectives of logisticsDecreasing total logistics Decreasing total logistics Increasing customer service Increasing customer service costs costs-Order processing costs -Order processing costs Factors that influence Factors that influence-Inventory-related costs -Inventory-related costs Customer service Customer service customer service levels: customer service levels: -Transportation costs -Transportation costs performance levels: performance levels: -Customer’s -Customer’s -Order lead time -Order lead time expectations and expectations and -Dependability -Dependability reactions reactions -Convenience -Convenience -Trade-offs -Trade-offs -Inventory availability -Inventory availability -Competitors -Competitors
    15. 15. Trade-off decisions when determining logistics objectives Reducing total logistics costs Reducing total logistics costs Increasing customer service Increasing customer service vs vs Reduce inventory levels Reduce inventory levels vs vs Increase inventory levels Increase inventory levelsUse cheaper (but slower) forms ofUse cheaper (but slower) forms of Ensure quicker delivery (but by Ensure quicker delivery (but by transport vs vs using more expensive transport) transport using more expensive transport)Reduce unnecessary duplication of Reduce unnecessary duplication of Provide enough information to Provide enough information to information vs vs satisfy customers in the process information satisfy customers in the process
    16. 16. GROUP ACTIVITYENTERPRISE RENT A CAR CASE STUDYTNT CASE STUDY
    17. 17. ACTIVITIES OF LOGISTICS1. ORDER PROCESSINGINFORMATION SYSTEMS2. TRANSPORT3. INVENTORY MANAGEMENT4. WAREHOUSING5. MATERIAL HANDLING
    18. 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. 19. Activities of logistics Order Order Inventory Inventory Materials Materials Transportation Transportation Warehousing Warehousing processing processing management management handling handling Modes of Modes of Functions: Functions: Task of order transport: transport: -Receiving -Receiving Task of order -Rail -Rail processing: processing: goods goods Objectives: Objectives: - -Road Road -Order entry -Order entry - -Air --Sorting goods Sorting goods -Lowest cost -Lowest cost Air --Order Order - -Pipeline Pipeline --Storage of Storage of --Max capacity Max capacity Objectives: Objectives: handling handling - -Water Water goods goods --Minimum Minimum -Reorder point -Reorder point--Order delivery Order delivery - -Intermodal Intermodal --Filling the Filling the handling costs handling costs --EOQ EOQ order order --Safety Safety Selection factors: --JIT JIT Information Information Selection factors: --Dispatching Dispatching --Quality Quality -Cost -Cost --ABC analysis ABC analysis systems: systems: service service - -Time TimeEDI (electronic EDI (electronic - -Access Decisions: Decisions: Access data data - -Capability -How many -How many Equipment Equipment Capability interchange) interchange) - -Frequency Frequency --Types Types - -Reliability Reliability --Location Location
    20. 20. 1. ORDER PROCESSING Customer CustomerChecks, Place order Confirmation, BillingCredit,Terms etc. Order entry Order entry Order Credit Credit delivery Order handling Order handling department department Warehouses Warehouses Suppliers Suppliers Manufacturing Manufacturing
    21. 21. EDI Electronic data interchange- Transport planning- Order processing- Production planning- Inventory levels- Account management
    22. 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. 23. 2. TRANSPORTATION
    24. 24. MODES OF TRANSPORT RAIL ROAD AIR PIPELINES WATER INTERMODAL
    25. 25. Factors in selecting modes of transport You want to get to the Congo with your family …. Cost Cost Time Time Accessibility Accessibility Capability Capability Frequency Frequency Reliability Reliability
    26. 26. 3. Inventory management
    27. 27. 3. Inventory management
    28. 28. 3. Inventory managementIssues:1.When to order (reorder point)2.How much to order (economic orderquantity)
    29. 29. Reorder pointLook at: Other factors influencing Other factors influencing reorder point: reorder point:1.Order lead time 1.Variance of order lead 1.Variance of order lead time time2.Usage rate 2.Fluctuations in C-demand 2.Fluctuations in C-demand 3.C-service standard 3.C-service standard3.Safety stock Reorder point ==(Order lead time xxusage rate) ++safety stock Reorder point (Order lead time usage rate) safety stock
    30. 30. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be?
    31. 31. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.
    32. 32. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 200 200 200 = 800 units Safety stock = 300 units that must lie there.
    33. 33. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 200 200 = 600 units Safety stock = 300 units that must lie there.
    34. 34. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 200 = 400 units Safety stock = 300 units that must lie there.
    35. 35. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 = 200 units Safety stock = 300 units that must lie there.
    36. 36. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? = 0 units Safety stock = 300 units that must lie there.
    37. 37. Order lead time = 5 daysDays Usage rate = 200 units per day1000 Safety stock = 300 units What would the reorder point of certain stock item be? 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.
    38. 38. Order lead time = 5 daysDays Usage rate = 200 units per day Safety stock = 300 units1000 What would the reorder point of certain stock item be? 200 200 200 200 = 800 units Safety stock = 300 units that must lie there.
    39. 39. Order lead time = 5 daysDays Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be?1000 200 200 200 = 600 units Safety stock = 300 units that must lie there.
    40. 40. Order lead time = 5 daysDays Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be?1000 200 200 = 400 units Safety stock = 300 units that must lie there.
    41. 41. Order lead time = 5 daysDays Usage rate = 200 units per day Safety stock = 300 units What would the reorder point of certain stock item be? 200 = 200 units1000 Safety stock = 300 units that must lie there.
    42. 42. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be? 200 200 200 200 200 = 1000 units Safety stock = 300 units that must lie there.
    43. 43. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be?Reorder point = (order lead time x usagerate) + safety stock = (5 x 200) + 300 = 1 300 units
    44. 44. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be?Reorder point = (order lead time x usagerate) + safety stock = (5 x 200) + 300 = 1 300 unitsWhat would the inventory stock level be if the supplier delivers one day late?
    45. 45. Order lead time = 5 daysUsage rate = 200 units per daySafety stock = 300 unitsWhat would the reorder point of certain stock item be?Reorder point = (order lead time x usagerate) + safety stock = (5 x 200) + 300 = 1 300 unitsWhat would the inventory stock level be if the supplier delivers one day late? 100 units
    46. 46. Order lead time = 5 days Be able to sketch Be able to sketch graph on page graph on pageUsage rate = 200 units per day 187 187Safety stock = 300 unitsWhat would the reorder point of certain stock item be?Reorder point = (order lead time x usagerate) + safety stock = (5 x 200) + 300 = 1 300 unitsWhat would the inventory stock level be if the supplier delivers one day late? 100 units
    47. 47. Economic ordering quantity
    48. 48. Total costs Carrying costsCost Order processing costs EOQ Quantity
    49. 49. ==quantity whether the sum of the quantity whether the sum of theinventory carrying costs and the order inventory carrying costs and the order processing costs are at aaminimum processing costs are at minimum EOQ = 2DO/ICD = annual demand in unitsO = cost of placing orderI = inventory carrying cost as percentage ofannual inventory investmentC = cost of one unit of the product
    50. 50. EOQ = 2DO/ICDemand = 200 000 units = annual demand = DCost of placing one ORDER = R200 per order = OUnit cost of the product = R25 = CInventory carrying cost is 20% of the annual inventoryinvestment = I
    51. 51. 2 x 200 000 x 200 EOQ == EOQ 25 x 0.2 EOQ = 2DO/ICDemand = 200 000 units = annual demand = DCost of placing one ORDER = R200 per order = OUnit cost of the product = R25 = CInventory carrying cost is 20% of the annual inventoryinvestment = I
    52. 52. 2 x 200 000 x 200 EOQ == EOQ 25 x 0.2 = 4 000 units per order placed EOQ = 2DO/ICDemand = 200 000 units = annual demand = DCost of placing one ORDER = R200 per order = OUnit cost of the product = R25 = CInventory carrying cost is 20% of the annual inventoryinvestment = I
    53. 53. OPTIMAL AMOUNT OF ORDERS ANNUAL DEMAND= EOQ
    54. 54. OPTIMAL AMOUNT OF ORDERS ANNUAL DEMAND= EOQ 200 000= 4 000
    55. 55. OPTIMAL AMOUNT OF ORDERS ANNUAL DEMAND= EOQ 200 000= 4 000= 50 ORDERS PER YEAR
    56. 56. Question: When would you have aahigher Question: When would you have higher reorder point than usual? reorder point than usual?- Unreliable suppliers- Huge variations in order lead time- Large fluctuations in C-demand Thus, have to increase safety stocks as well … increased inventory costs …
    57. 57. GROUP ACTIVITY• Logistics management worksheet
    58. 58. Just in time - JITRight products at the right quantities just when they are required. Right products at the right quantities just when they are required. Information system
    59. 59. KANBAN Concept that implies that the organisation holds LOWinventory levels and NO SAFETY STOCK because carrying inventory tied up working capital.
    60. 60. KANBANCoordination between producers and suppliers = essential … Deliveries are synchronised closely.
    61. 61. NB RE JIT:1. Close relations between supplier and customer2. Attention given to quality3. Organisations must have adequate storing facilities4. Organisations must have adequate transport options5. Suppliers must deliver a reliable service6. Short and reliable order lead times7. Purchasing quantities are reduced
    62. 62. Advantages of having JIT:1. Lower inventory levels = reduced stock holding cost2. Low/ no safety stock levels = reduced stock holding cost3. If organisation and supplier have good relationships … leads to higher quality (cannot send back due to time issue)
    63. 63. Disadvantages of having JIT:1. Risk of running out of stock due to late deliveriesSO – SELECTING SUPPLIERS ON FOLLOWING CRITERIA:a) Quality of goods they provideb) Their reliabilityc) Their capabilityd) Sound financial positione) Good locationf) Stable labour force
    64. 64. ABC INVENTORY ANLYSISDetermine how important each item is forDetermine how important each item is for organisation. organisation. Small ##of items responsible for large % Small of items responsible for large % investment investment
    65. 65. ABC Most NB ––10% ##items; 70% of capital Most NB 10% items; 70% of capital investment in inventory investment in inventoryAA 20% ##items; 20% of capital investment in 20% items; 20% of capital investment inB inventory inventory B 70% ##items; 10% of capital investment in 70% items; 10% of capital investment inCC inventory inventory
    66. 66. ABC Most NB ––10% ##items; 70% of capital Most NB 10% items; 70% of capital investment in inventory investment in inventoryAA 20% ##items; 20% of capital investment in 20% items; 20% of capital investment inB inventory inventory B 70% ##items; 10% of capital investment in 70% items; 10% of capital investment inCC inventory inventory
    67. 67. Example The principle The principle
    68. 68. Magical MenagerieMagical MenagerieThe Magical Menagerie is aamagical creature shop that in addition to selling The Magical Menagerie is magical creature shop that in addition to sellingmagical creatures also offers advice on animal care and health. The shop is magical creatures also offers advice on animal care and health. The shop isvery cramped, noisy and smelly, due to every inch being covered with very cramped, noisy and smelly, due to every inch being covered withcages. Among the creatures in the Magical Menagerie are enormous purple cages. Among the creatures in the Magical Menagerie are enormous purpletoads, aafirecrab, poisonous orange snails, aafat white rabbit that can turn toads, firecrab, poisonous orange snails, fat white rabbit that can turninto aasilk top hat and back, cats of every colour, ravens, Puffskeins, and aa into silk top hat and back, cats of every colour, ravens, Puffskeins, andcage of sleek black rats that play skipping games with their tails. cage of sleek black rats that play skipping games with their tails.
    69. 69. Inventory for Magical Menagerie (Diagon Alley, London)Inventory item Annual usage in Pounds Percentage of total inventory usage in PoundsBlack cage £37,500 31%White cage £12,000 10%Copper cage £1,000 1%Purple toad £6,500 5%Firecrab £800 1%Orange snail £1,200 1%Magical rabbit £4,000 3%Blue cat £650 1%Black cat £45,000 37%Ginger cat £1,000 1%White cat £1,000 1%Raven £7,900 6%Snake £1,000 1%Puffskein £650 1%Rat £850 1%Hamster £700 1% £121,75031 + 37 = 68% Top 70% of capital investment10 + 5 + 6 Next 20% of capital investmentRest Last 10% of capital investment 2 out of 16 13% 3 out of 16 19% 11 out of 16 68%
    70. 70. How to do it nicelyHow to do it nicely
    71. 71. Inventory for Magical Menagerie (Diagon Alley, London) Cumulative % of total Cumulative % of Annual usage in annual usage in inventory usage in total inventoryInventory item Pounds Pounds Pounds usage in PoundsBlack cat £45,000 £45,000 37% 37%Black cage £37,500 £82,500 31% 68%White cage £12,000 £94,500 10% 78%Raven £7,900 £102,400 6% 84%Purple toad £6,500 £108,900 5% 89%Magical rabbit £4,000 £112,900 3% 93%Orange snail £1,200 £114,100 1% 94%Copper cage £1,000 £115,100 1% 95%Ginger cat £1,000 £116,100 1% 95%White cat £1,000 £117,100 1% 96%Snake £1,000 £118,100 1% 97%Rat £850 £118,950 1% 98%Firecrab £800 £119,750 1% 98%Blue cat £650 £120,400 1% 99%Puffskein £650 £121,050 1% 99%Hamster £700 £121,750 1% 100% £121,750
    72. 72. Understand graph on page 194
    73. 73. WAREHOUSING
    74. 74. Functions of warehouses Receiving goods Receiving goods Sorting goods Sorting goods Storage of goods Storage of goods Filling the order Filling the order Dispatching of Dispatching of order order
    75. 75. Warehousing decisions How many How many WH needed WH needed Types of Types of WH WH required required Location of Location of WHs WHs
    76. 76. Warehousing decisions: (1) Private warehouses For their own logistical ops Owned by any organisation (M, W, R) NB to have necessary resources and expertise Reasons for having: 1.Long time / term commitment 2.Special handling procedures 3.Want to control design and ops within the WH GOOD: sales are consistent & property value appreciate BAD: Fixed costs (insurance, debt, maintenance, taxes) & non-flexible (location)
    77. 77. Warehousing decisions: (1) Private warehouses For their own logistical opsTrend: own fewer private WHs --- product ss Trend: own fewer private WHs --- product Owned by any organisation (MANUFACTURER, WHOLESALER, RETAILER) must flow quicker from M to C (reducing must flow quicker from M to C (reducing inventory carrying costs) inventory carrying costs) NB to have necessary resources and expertise Reasons for having: 1.Long time / term commitment 2.Special handling procedures 3.Want to control design and ops within the WH GOOD: sales are consistent & property value appreciate BAD: Fixed costs (insurance, debt, maintenance, taxes) & non-flexible (location)
    78. 78. Warehousing decisions: (2) Public warehouses Now owned but rented Include related distribution activities: receiving, unloading, inspecting goods, completing orders & financing. USEFUL:
    79. 79. Warehousing decisions: (2) Public warehouses Now owned but rented Include related distribution activities: receiving, unloading, inspecting goods, completing orders & financing. USEFUL: (1) seasonal products (2) low-volume storage needs (3) developing new markets (4) additional storage space if already have private (5) inventory levels to be maintained in many locations (6) specialise BENEFITS related to variable costs i.e. rent space, certain services, concurrent + FLEXIBILITY
    80. 80. Warehousing decisions: (3) Distribution centres Moving rather than storing … Large and automated … BENEFITS: C-service & product availability increased whilst order lead time = decreased Trends: (1) use of new technology ==speed Trends: (1) use of new technology speed and efficiency (2) less inventory --- JIT and and efficiency (2) less inventory --- JIT and MRP (Materials Requirement Planning) (3) MRP (Materials Requirement Planning) (3) quality ==NB (4) emphasis on SERVICE (5) quality NB (4) emphasis on SERVICE (5) MATERIALS HANDING MATERIALS HANDING
    81. 81. Materials handling
    82. 82. Materials handling equipment
    83. 83. Materials handling equipment Free-flowing equipment Free-flowing equipment Overhead materials Overhead materialsthat moves on the ground that moves on the ground handling equipment handling equipment
    84. 84. Integrating Logistics Order processing Order processing TOMWI Materials handling Materials handling Transportation Transportation Warehousing Warehousing Inventory management Inventory managementPic: http://www.google.co.za/imgres?imgurl=http://kotaku.com/assets/resources/2007/05/wii.jpg&imgrefurl=http://kotaku.com/260840/canada-uses-wii-in-hospitals&usg=__Uk2Ojzm9fX3WGTIvKJ0uJFjGiuk=&h=918&w=1024&sz=103&hl=en&start=0&tbnid=Xc9KY1DeBLNCwM:&tbnh=111&tbnw=140&prev=/images%3Fq%3Dwii%26um%3D1%26hl%3Den%26rlz%3D1R2RNSN_enZA388%26biw%3D1003%26bih%3D539%26tbs%3Disch:1&um=1&itbs=1&iact=hc&vpx=249&vpy=215&dur=1344&hovh=213&hovw=237&tx=115&ty=123&ei=MgNZTKW KLM6WOJrv2cgJ&page=1&ndsp=16&ved=1t:429,r:7,s:0
    85. 85. Hmmm …• Silo’s want to improve their own performance• Purchasing manager: lower inventory levels = lower carrying costs• Marketing manager: higher inventory levels = better C-service
    86. 86. Integrated logistics inside the organisation Focus in past = internal single-organisation focus: -Value analysis -Process improvements -Standardisation -Technological improvements
    87. 87. Integrated logistics outside the organisation Now: supply-chain focus: Cost management initiatives require logistics executives to adopt a series of initiatives that can have a positive impact on bottom line
    88. 88. Integrated logistics outside the organisation Now: supply-chain focus: Cost management initiatives require logistics executives to adopt a series of initiatives that can have a positive impact on bottom line Two supply chain partners working Two supply chain partners working together to identify process together to identify process improvements to reduce costs across improvements to reduce costs across entire supply chain entire supply chain
    89. 89. Integrated logistics outside the organisation Partnership forms: Partnership forms: 1. Cross-fx, cross-org teams 2. Shared projects 3. Info-sharing 4. Continuous inventory replenishment systems
    90. 90. Integrated logistics outside the organisation Partnership forms: Partnership forms: Also: - Value-engineering efforts - Supplier development - Cross-org cost-reduction efforts - Joint new product development projects - Supply-chain redesign efforts
    91. 91. Integrated logistics outside the organisation Result Result
    92. 92. Integrated logistics outside the organisation Result Result Lead times reduced Improved C-service Manage chain based on C- responses If not done: have to M on sales forecasts … storing … inventory carrying costs …
    93. 93. GROUP EXERCISE• American Swiss case study• Review questions p204• La Mercy Case Study p205
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