Increased competition may promote better quality & reduced cost
Low likelihood organization will be left without production inputs
Suppliers will experience decreased demand, driving sales down and costs up.
Logistics and operations become complex and difficult to manage.
Utilizing many suppliers can undermine trusting relationship and display a lack of commitment to long term business.
Suppliers gain considerable amount of bargaining power. Less resource to potentially exploit.
High risk of suppliers defaulting on delivery
Increased demand makes it easier for
suppliers to experience economies of scale.
Streamlined logistics and operations are easy to manage.
Shows commitment to long term relationships which can promote trust.
Many Suppliers Few Suppliers
Draft a list of supplier requirements that contribute to the fulfillment of customers needs.
Formulate evaluation criteria for suppliers.
Determine the importance (weight) of the criteria.
Rank your suppliers, and make appropriate selection that will accommodate customer needs.
QFD & Choosing Suppliers
The Number of Warehouses
Factors Affecting the Number of Warehouses
Cost of lost sales
Maintenance of customer service levels
Service small quantity buyers
Table 8-3: Factors Affecting the Number of Warehouses Factor Centralized Decentralized Substitutability Low High Product Value High Low Purchase Size Large Small Special Warehousing Yes No Product Line Diverse Limited Customer Service Low High
Density Of Demand
Size of Deliveries
Customer Service Requirement
Factors Effecting Number of Distribution Centers
Appropriate size and location
Land Building Cost
Access to highways, airports, sea-coast, railways
Labor availability cost
Local Govt. restrictions
General Factors Influencing Number of Facilities
· Ease of future expansion or change
· Flow of movement
· Materials handling
· Output needs
· Space utilization
· Shipping and receiving
· Ease of communication and support
· Impact on employee morale and job satisfaction
· Promotional value
Number of facilities Required Number of Facilities Desired Response Time
Number of facilities Inventory Costs Number of Facilities
Number of facilities Transportation Costs Number of Facilities
Number of facilities Facility Costs Number of Facilities
Number of facilities Number of Facilities Total Logistics Costs Response time
2. Determining Location of each Facility
Important Issues in Facility Location:
Proximity to customers.
Quality of labor.
Facility Location Methodology
Factor Rating Method:
Major Factors Point Range Site A Site B Raw Materials 0-400 250 350 Power Supply 0-200 75 125 Transportation 0-50 25 40 Labor Skills 0-100 75 50 Climatic Conditions 0-50 25 25 TOTAL: 400 590
Centroid Method :
Using this method, one can get the coordinates of the point which defines an optimum location of a facility.
Application of method in the DETROIT case:
To find an optimum location for storage/warehouse facility that would be assigned to 3 of DETROITs’ showrooms, given the location of showrooms and the volume of goods to be moved to & from.
Cost – Profit – Volume analysis
The cost angle is looked at in this method.
Here, the fact that the fixed and variable costs for each site differ.
Total Production cost = Fixed cost+(Variable cost*Annual Production Volume)
Cost – Profit – Volume analysis
Used to compare the total transportation cost associated with each Alternative Site.
The site which involves the least cost shall be chosen ultimately.
3. Determining Size of each Facility
Average Inventory Level =
Annual Sales/Inventory turnover ratio .
Space Requirement for item = 2*Average Inventory level
We need to multiply the above with a factor value which typically = 3.
This factor is to account for
Access & Handling.
Picking, Sorting and processing facilities.
4. Determining Transportation Modes
Logistics the process of planning, implementing, and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption so as to meet customer requirements.
Right material reaches the right place at the right time.
Potential market of $4 Trillions.
Challenges for Detroit Company:
Inefficiency in the logistics.
Fragmented Nature of the industry.
Reason for Inefficiencies:
Lower truck Speeds, larger turn around time and administrative delays.
Poor Roads, Ports, and telecom lead to create a limited value to the customer.
Evolving business environment
15 trillion investments in developing the infrastructure for next five years
Regulations are being liberalized.
The changes help leverage economies of scale, complemented with better infrastructure, to provide integrated logistics solutions which are cost effective
Major companies are expanding into to marine Logistics.
Eg: Varun shipping, GE shipping, NYK line tied up with TATA Steel for the cargo
Maruthi and TATA are developing their own logistics.
Choice Of Freights:
India is worth about INR 1 .42 trillion and is growing at about 6-8 percent year on year.
almost 75 percent of the trucking 'companies' are single truck operators and almost 90 percent of trucking companies have a turnover of less than INR 10 million
Revenues stood at around INR 350 billion, grown at around 8 percent in the recent past, last couple of years being around 10 percent
Rail network of 87000 and 7000 stations
Largest merchant shipping fleet among the developing countries.
Ranks 17thin the world in shipping tonnage.
Growth of 15 per cent over the last five years
Air cargo industry is expected to double in size by the year 2010.
Future Logistic Scenario In India:
Suggested Types & Sources Of Data Description Source Demand planning
Sales figures of existing players in the market
Expected Demand . Master planning Material, capacity, transportation and other constraints, simultaneously. Procurement Constraints such as vendor capacities, costs and lead times can be modeled as part of supply chain resulting in superior plans. Transportation Consider dynamic transportation requirement and generate optimizing transportation plan. Manufacturing Plan considering material, capacity and other constraints which impact on manufacturing.