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  • 1. SUPPLY CHAIN SECTION –B JANUARY 2012 1. WHY HAS LOGISTICS RECENTLY BEEN RECEIVING MORE ATTENTION AS A STRATEGIC FUNCTION OF THE ORGANIZATION? Logistics has been receiving more attention as a strategic function of an organisation because more and more, it is being viewed as an avenue for gaining competitive advantage over a firm¡¦s competitors and less as simply a necessary passive tool that simply exists to support marketing Old company organizational setup usually has 3 divisions, namely - Finance & Administration, Marketing and Operations. Competing companies rivaled through marketing. Finance & Administration and Operations still did what they normally did, but always for the better. As the industry grew, companies learned that sales does not only come in through marketing. Even the best quality products and can be out-sold by lower quality products even though the better quality producer marketed better. Sales will start materializing not from operations, but rather when the product reaches the client. Advancing the competition, promptness of delivery became another factor for sales. So came ordering lead-time vying also for the major factor. In total, these things can be called service levels. Companies now are rated based on their service level. So to give more focus on the service levels, Logistics is now emerging as another major division in the company. Also taking the limelight currently………. No matter the size of a business, the concern for logistics can help any effort utilize the supply chain more efficiently by cutting costs when appropriate and by avoiding waste of time and materials. The two main functions of logistics can be described as designing supply chains and then organising the flow of materials through them. 2. EXPLAIN THE FIVE PRINCIPLES OF EFFECTIVE VALUE CHAIN MANAGEMENT?
  • 2. 3. COMPARE THE ADVANTAGES AND BENEFITS OF AUTOMATED MATERIAL HANDLING SYSTEM WITH MANUAL SYSTEM? Automation is rather more than a simple reduction of labor costs. Indeed, the most important aspect is to completely eliminate manual handling and its inherent problems, thereby achieving high product quality. The benefits of an Automated Handling System (AHS) are: Complete "from production line to shipping" automation process Total elimination of manual handling, leading to dramatic and immediate improvement of product quality Safe and efficient product flow in a compact and fluid system configuration Sharp reduction of labor costs guaranteeing prompt return on investment (3-4 years payback) Considerable factory floor space gain Clean, orderly, efficient production environment Fully computerized operation affording real-time system control, comprehensive data processing facilities, and just-in-time flexibility Product traceability resulting in better customer service Full compatibility with trend towards larger and heavier product units High efficiency packing process Last but not least: safe and physically effortless operation 4. WHAT IS MEANT BY INCOTERMS? LIST A FEW TERMS Trade terms published by the International Chamber of Commerce (ICC) that are commonly used in both international and domestic trade contracts. Incoterms, short for "International Commercial Terms," are used to make international trade easier by helping traders in different countries understand one another Incoterms are internationally recognized and thus help to prevent confusion in terms of foreign trade contracts, by helping sellers and buyers understand their obligations in any transaction. To avoid conflicts and difficulties, importers and exporters – or buyers and sellers – must have a common understanding of the terms and conditions under which they trade. The latest issue was released in 2000, and the mention of “Incoterms 2000” in a contract determines the obligations of the buyer and the seller and greatly contributes towards eliminating causes of disagreement. Incoterms not only describe seller’s and the buyer’s obligations and specify the point when the responsibilities for the transportation costs shift from the seller to the
  • 3. buyer; it also determines the point when the risks associated with transportation transfer from the seller to the buyer. ` FEW Incoterms include “FOB” (Free on Board) "FCA" (free carrier) “CFR" (cost and freight), "CIF" (Cost, Insurance and Freight).  Free on Board (FOB) “Free on Board” means that the seller delivers when the goods pass the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. Seller must: Prepare and pack the goods as required; Deliver the goods on board the vessel designated by the contract; Bear all costs and all risks of the goods until they have effectively passed ship’s rail; Bear costs of counting, measuring, weighing; Provide the buyer at the seller’s expense with the usual document of proof of delivery. Buyer must: At own expense, reserve space on board a vessel and give all the required instructions to the seller enabling it to deliver in time for shipment Bear all expenses and risks of the goods from the time they have effectively passed ship’srail; Bear the cost of obtaining documents required for the export of the goods; Pay demurrage incurred at the port of shipment unless the detention is attributable to the seller;  Free Carrier (FCA) This term has been designed to meet the requirements of modern transport, particularly such “multimodal” transport as container or “roll on-roll off” (RO/RO) traffic by trailers and ferries. It is based on the same main principles as FOB except that the seller fulfills his obligations when the goods are delivered into the custody of the carrier at the named point (and not loaded onto any means of transport used for the main voyage).
  • 4. “Free Carrier” means that the seller fulfills the obligation to deliver at the point when the goods are handed over and cleared for export into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into their charge. When, ac- cording to commercial practice, the seller’s assistance is required in making the contract with the carrier (such as in rail or air transport) the seller may act at the buyer’s risk and expense. This term may be used for any mode of transport, including multimodal transport. “Carrier” means any company who, in a contract of carriage, undertakes to perform or to procure the performance of carriage by rail, road, sea, air, inland waterway or by a combination of such modes. If the buyer instructs the seller to deliver the cargo to a person, e.g. a freight forwarder who is not a “carrier”, the seller is deemed to have fulfilled his obligation to deliver the goods when they are in the custody of that company. “Transport terminal” means a railway terminal, a freight station, a container terminal or yard, a multi-purpose cargo terminal or any similar receiving point.  Cost and Freight (CFR) Port of Destination Seller must: Contract and pay for the carriage of the goods to the port of destination on a sea-going vessel, by the usual route unless otherwise stipulated in the contract of sale; Obtain and pay for a clean B/L (a through B/L) for the goods; Prepare and pack the goods as required; Bear the cost of checking, counting, weighing, measuring; Bear the cost of obtaining documents required for the export of the goods, and the cost of demurrage if any at the port of shipment; Bear all risks of the goods until they have passed ship’s rail at the port of shipment; Provide, at buyer’s expense, consular/certified invoices and/or certificates of origin and assist in obtaining other documents upon request of the seller to procure; Notify the buyer without delay of the shipment; and Unless otherwise agreed, at seller’s own expense provide the buyer without delay with theusual transport document for the agreed port of destination. Buyer must: Bear all risks of the goods from the time they have passed the ship’s rail at the port of shipment; Bear costs incurred in obtaining documents such as consular/certified invoices, etc. (not the cost of B/L);
  • 5. Accept, as proof of payment of freight, B/L stamped “freight paid” or “freight prepaid”, and arrange payment on receipt of documents in accordance with terms of contract, even before actual arrival of goods at destinations; Bear the cost of unloading, lighterage, dock charges at destination, as well as all further expenses such as customs clearance, duties and taxes, etc.; Except freight and bear extra expenses that may be incurred during the course of the carriage by sea (by reason of emergencies, back freight, etc.); and Bear cost of inspection when inspection is required  Cost, Insurance and Freight (CIF) The respective duties of seller and buyer are the same as for CFR contracts, with the addition of the insurance coverage. The additional obligations are the following: Seller must: Contract at own expense with an insurance company, a transferable insurance coverage for the risks, duration and journey specified in the contract of sale or accepted purchase order (NOTE: it is advisable that buyer includes in the solicitation document and in the contract, a provision for additional coverage at seller’s expense, i.e. Institute Cargo Clauses A); and Provide the insurance policy or certificate together with B/L and other documents, for the buyer to receive them in time for collection of the goods upon arrival. NOTE: the seller buys insurance on behalf of the buyer. Buyer must: Bear supplementary expenses of insurance against risks requested that the seller cover, and which were not included in the contract of sale; and Do their work in connection with an insurance claim
  • 6. 5. WHAT IS IATA? WHERE ARE THE ROLES OF IT IN THE AIR CARGO MANAGEMENT? The International Air Transport Association (IATA) is an international industry trade group of airlines headquartered in Montreal, Quebec, Canada ROLE OF IATA:- To promote safe, regular and economic air transport for the benefit of peoples of the world. To achieve recognition of the importance of a healthy Air transport Industry to worldwide, social and economic development. To develop cost effective, environmentally friendly standards and procedured to facilitate the operation of international air transport. To provide high quality value for money, industry required products and services that meet the needs of the customers.