Additional Inventory Lecture

1. Inventory
Management
Fundamentals

2. Enabling Learning Objectives
(ELOs):
▶ Understand the reasons for holding inventory and the
different types of inventory
▶ Understand the concepts of total cost and total
relevant costs
▶ Identify and quantify the four major cost components
of Total Costs: Purchasing, Ordering, Holding, and
Shortage.
▶ Understand the functional classifications of inventory

3. Inventory
Management
Inventory management is at the core
of all supply chain and logistics
management. This lesson provides a
quick introduction to the major
concepts that we will explore further
over the next several lessons. There
are many reasons for holding
inventory. These include minimizing
the cost of controlling a system,
buffering against uncertainties in
demand, supply, delivery and
manufacturing, as well as covering
the time required for any process.

4. Inventory
Management
Having inventory allows for a
smoother operation in most cases
since it alleviates the need to create
product from scratch for each
individual demand. Inventory is the
result of a push system where the
forecast determines how much
inventory of each item is required.

5. Excess Inventory
There is, however, a problem with
having too much inventory. Excess
inventory can lead to spoilage,
obsolescence, and damage. Also,
spending too much on inventory
limits the resources available for
other activities and investments.
Inventory analysis is essentially the
determination of the right amount of
product in the right location in the
right form.

6. Excess Inventory
▶ Strategic decisions cover the inventory
implications of product and network
design.
▶ Tactical decisions cover deployment
and determine what items to carry, in
what form (raw materials, work-in-
process, finished goods, etc.), and where.
▶ Finally, Operational decisions
determine the replenishment policies
(when and how much) of these
inventories. This course mainly covers
the operational decisions on
replenishment.

7. Inventory
Classification
▶ We can classify inventory in
two main ways:
Financial/Accounting or
Functional. The financial
classifications include raw
materials, work in process (WIP),
components, and finished goods.
These are the forms that
recognize the added value to a
product and are needed for
accounting purposes. The
functional classifications, on the
other hand, are based on how
the items are used.

8. Functional
Classification
▶ The two main functional
classifications are Cycle Stock (the
inventory that you will need during a
replenishment cycle, that is, the time
between order deliveries) and Safety
or Buffer Stock (the inventory
needed to cover any uncertainties in
demand, supply, production, etc).
There are others, but these are the
two primary functional forms. Note
that unlike the financial categories,
you cannot identify specific items as
belonging to either safety or cycle
stock by looking just at it. The
distinction is important, though,
because we will manage cycle and
safety stock very differently.

9. Cost Equation
▶ The Total Cost equation
is typically used to make
the decisions of how much
inventory to hold and how
to replenish. It is the sum of
the Purchasing, Ordering,
Holding, and Shortage
costs.

10. Cost Equation
▶ The Purchasing costs are usually
variable or per-item costs and cover the
total landed cost for acquiring that product
– whether from internal manufacturing or
purchasing it from outside.
▶ The Ordering costs are fixed costs that
accrue when placing an order for products.
It is often also called the set-up cost and it
covers the activities required to place,
receive, and process a batch of products in
a single order.
▶ The Holding or Carrying costs are
simply those costs that are required to
keep inventory and include such things as
storage costs, insurance, loss/shrinkage,
damage, obsolescence, and capital costs.
The units are typically in terms of cost per
unit of time.

11. Cost Equation
▶ Finally, the Shortage or Stock-Out
Costs are those costs associated
with not having an item available
when demanded. This is the most
nebulous of the four costs as it really
depends on the assumptions of the
buyer’s behavior. It covers situations
such as; the cost of a backorder
where the customer is willing to wait,
lost sales where the customer goes
elsewhere for that purchase,
complete lost sales where the
customer never purchases the
products again, as well as
disruptions in manufacturing lines
that occur due to missing parts.

12. Cost Component
▶ We seek the Order
Replenishment Policy that
minimizes these total costs and
specifically the Relevant Total
Costs. A cost component is
considered relevant if it impacts
the decision at hand and we can
control it by some action. A
Replenishment Policy essentially
states two things: the quantity to
be ordered, and when it should
be ordered.

13. Cost Component
▶ The exact form of the Total
Cost Equation used depends on
the assumptions we make in
terms of the situation. There are
many different assumptions
inherent in any of the models we
will use, but the primary
assumptions are made
concerning the form of the
demand for the product (whether
it is constant or variable, random
or deterministic, continuous or
discrete, etc.).

14. Reasons to Hold Inventory
Reasons to hold inventory include:
▶ Cover process time
▶ Allow for uncoupling of
processes
▶ Anticipation/Speculation
▶ Minimize control costs
▶ Buffer against uncertainties such
as demand, supply, delivery
and manufacturing.

15. Inventory Decisions
▶ Strategic decision about the supply chain such as
potential alternatives to holding inventory and product design
▶ Tactical deployment decisions such as what items to
carry as inventory, in what form to carry items and how much
of each item to hold and where
▶ Operational replenishment decisions such as how often to
review inventory status, how often to make replenishment
decisions and how large replenishment should be

16. Inventory
Classification
▶ Financial/Accounting
Categories: Raw Materials, Work
in Progress (WIP),
Components/Semi-Finished
Goods and Finished Goods
▶ Functional: Cycle Stock,
Safety Stock, Pipeline Inventory

17. Relevant Costs
▶ Purchase: Total landed cost for acquiring product
▶ Ordering: Cost to place, receive and process a batch of
good including processing invoicing, auditing, labor, etc. In
manufacturing this is the set-up cost for a run.
▶ Holding: Costs required to hold inventory such as storage,
service casts, risk costs and capital costs
▶ Shortage: Costs of not having an item in stock including
backorder, lost sales, lost customers and disruption costs
▶ A cost is relevant if it is controllable, and it applies to the
specific decision being made.

18. Learning Block 1:
Demand Planning
Supply chain management is about
balancing supply with demand.

19. Integrated Business Mangement
Supply chains are the flow of materials, information, and
finances as they move in all directions from supplier to
manufacturer to wholesaler to retailer to consumer.
Customer demand is
the key driver of the
supply chain.

20. Balancing Supply & Demand
 Balancing supply and demand is a constant process
 Too much demand and low supply = business loss that
may not be recaptured (stockouts)
 Low demand and high supply = money tied up in
inventory and storage facilities, risk that product become
obsolete

21. Demand Shaping
 Internal Method: being able to fluctuate how much is
produced and how much inventory is stored
Equipment may allow companies to change what they are
producing
 External Method: adapts price and lead time which
shapes the demand – influencing demand to match
supply
Making 17" monitors the same price as 15" monitors to sell more
17" monitors

22. Demand Plans
 Demand planning is a comprehensive, collaborative
process that requires consensus
 Companies need a common demand plan
 Collaborative Planning, Forecasting, and
Replenishing (CPFR) is the process used to achieve an
agreed-upon plan
 Key Terms:
Materials Required Plan
Master Production Schedule
Enterprise Resource Planning

23. Demand Plan
Demand Forecast Demand Plan
Material
Requirements Plan
(MRP)
Master Production
Schedule (MPS)
Historical Data
Sales, Marketing &
Business Intelligence
Procurement
Manufacturing
Execution
Estimate of Future Demand
Plan to Match Estimated Future
Demand with Capability & Supply
Detailed Plans for “What to Buy”
& “What to Make”

24. Enterprise Resource Planning
 ERP is software that combines multiple business functions (MRP,
DRP, CRP) into one system and merges all the business planning
systems
 All parts of the companies use one system to manage the process of
balancing supply and demand

25. Demand Forecasting
 Quantitative Forecasting: when historical data exists
and is helpful in calculating future demand or forecasting
based on numbers
 Qualitative Forecasting: when there is little past data
to rely on and intuition or expert judgment is used
 Both methods include the need to understand events
and conditions that modify demand

26. Demand Patterns
 Stationary - even demand
 Trend - predictable growth or
decline
 Seasonal - patterns of increase
and decline that repeat cycle after
cycle
 Cyclical - patterns that
are influenced by external factors
(e.g. recession, recovery)
 Random - changes and variances
that are not predictable

27. Demand Planning Inaccuracies
 Forecasting is almost never perfect
 May lack customer demand data early enough
 New products also present more challenges due higher
levels of coordination and no previous data
 Plans should consider and allow for inaccuracies
 Long-range forecasts tend to have a greater degree
of error than short-term forecasts

28. Bullwhip Effect
 Bullwhip Effect: inaccurate forecasts create disruption
and expense within the organization and has a ripple
effect of customers and supplier
 Ultimately it reduces profit and inflates the end cost for
customers
 Variations of demand are amplified at each of the
following:
Inaccurate forecasting and planning
Lack of communication
Lack of visibility
Excess lead time
Late deliveries

29. Types of Demand
Independent Demand
 demand for finished products
 demand is outside the company and is created by customers
 independent demand creates a demand for finished good to be
manufactured
Dependent Demand
 demand for one good or service occurs as a result for another rather
than a customer
 as demand for bicycles go up - tires and bicycle seats would be a
dependent demand

30. Learning Block 2:
Supply Management &
Procurement
The goal of procurement in the supply chain
is to balance supply with demand while
creating value.

31. Procurement
 Procurement: the key function in the supply chain that is
responsible for buying, or procuring, good and services
 Purchasing is the act of buying
 Procurement process involves planning, negotiation, and
administration associated with the eventual placement of
purchase orders with suppliers
 The right materials need to be purchased - based upon
definition of requirements and formal specifications

32. Procurement includes…
 Receiving requirements from MRP via purchase
requisitions
 Sourcing, or finding, suitable suppliers
 Obtaining pricing and delivery data via requests for
quotes (RFQs) and requests for price (RFPs)
 Conduction negotiations with suppliers
 Creating weighted scorecards to justify awards
 Placing purchase orders (POs)
 Tracking and expediting POs
 Processing supplier invoices (payments)

33. Procurement Adds Value
 Procurement is viewed as a strategic business function
 Procurement is linked closely with other chain functions
 Awards are made based upon the best value verses
lowest price
 Best value may include
Price
Delivery
Quality
Supplier reputation
Environmental factors

34. Relationship Management &
Strategic Sourcing
 Relationships with suppliers are more important
 Relationship Management: the focus on building,
maintaining, and developing relationships for the future
of both organizations
 Buying no longer focuses only of the lowest price, but
takes in to account a variety of factors
 Strategic sourcing describes the concept of a win-win
relationship

35. Total Cost of Ownerships
 Total cost of ownership (TCO):
measures all of the costs
associated with planning the
procurement, making the award,
and other post-award process
 This includes costs that
are accrued before, during, and
after the transaction

36. Decision: Make or Buy
 Companies usually like to make products they
consider their core competencies
 Core competencies or competitive advantage are what
companies invest in, have expertise in, and strategically
fit with the overall mission and visions
 Benefits of buying include:
funds to invest elsewhere
product may be of better quality
supplier can make it cheaper due to economies of scale

37. Weighted Scorecard
 A tool that identifies attributes of a requirement and
generates a proportionate value based on a score
multiplied by the value assigned to the attribute to
achieve a total score of 100%.
 Each attribute is then rated based on a consistent scale.
 Example: a requirement may be a new supplier for
product A.
Scored attributes: price, quality, and flexibility.

38. Learning Block 3:
Warehousing Operations
 Warehouse: a place in which inventory is held for vary
periods of time
 Primary Objective: to provide excellent and efficient
customer service at the lowest cost possible

39. Warehouse Characteristics
 Used by all types of businesses to store and manage products
 Use sophisticated technology and systems
 May store equipment, raw materials, excess, obsolete
inventory, work-in-process inventory
 Products may be stored for more than one year
 A variation of a warehouse, but they only serve to distribute
products, not to store products
 Products come in quickly and go out to the customer almost as fast;
Holds product for less than a month
 Usually finished good ready to ship to end users
Distribution Centers (DCs)
Characteristics

40. Warehouse Management System
 Warehouse Management System (WMS): the central
brain of managing warehouses and DCs – sophisticated
software designed to manage the receiving, movement,
storage, and retrieval of product

41. Key Operational Activities
Focuses on staging and storage locations for products
in transit
1.
Receiving
2.
Storage
3.
Order
Fulfillment
4.
Preparation
for
Shipment

42. 1: Receiving
 Receiving: product is moved from transportation
vehicles into warehouses and entered into inventory
A specific time and date are scheduled for carriers to unload
Shipping documentation paperwork is transferred
Products are inspected for damage
Products are unloaded - counted for accuracy, labeled, and
sent to storage

43. 2: Storage
 Storage is the act of putting products away in specific,
clean, and secure locations so they can be retrieved
easily when needed

44. Strategies for Storage
Minimal Handing
 The most efficient management practice is minimizing the number of
times a product is handled
 Ideally items are received, stored, and shipped out
Product Demand
 Important key for proper storage is determining demand for particular
items
 Sometimes high demand items are never stored but moved directly to
outbound shipping area
 Low demand items may be stored in the farthest places in a
warehouse

45. Strategies for Storage
Storage Racking
 Most commonly used storage strategy - effectively
organizes products and take advantage of vertical
space
 Each storage rack has a unique number - that allow
everyone to know exact product locations
 Great for storing full pallets of products
Bins and Containers
 Frequently used when pallets have to be broken
down into smaller units
 Assigned unique numbers and locations
 Usually have their own separate racking and storage
area

46. Labeling & Storage Location
 Location and labeling are key elements to storage
success
 License plates, storage labels are generated at
receiving bays once products have been successfully
received into the warehouse

47. 3: Order Fulfillment
 This process starts when orders are placed by
customers
 Order Picking: products are located and brought out of
storage location
 Accuracy and speed are key concerns of order fulfillment
and order picking

48. Picking Types
 Manual Picking: Order pickers physically pick one item from
orders and bring it back to the shipping staging area
 Order Picking: Items are picked individually for an entire
orde; Once finished, pickers will take orders to the shipping
staging area
 Batch Picking: Pickers focus on picking a batch of items for
several different order; Improves picking efficiency and
accuracy
 Zone Picking: Warehouses are divided into zones; Picker(s)
are assigned to one specific zone or area; They pick all items
in their zone for any order

49. Picking Types
Voice Picking
• Voice-activated picking can be
used with any of the previous
methods
• Employees listen to others on a
headset about which items in
certain quantities are needed
for others
• Results in faster picking times
and reduced picking errors
Pick-to-Light
• Beneficial if items need to be
selected quickly and accurately
• Shelves have digital displays
telling employees where and
what to pick from shelves
• Once items are selected
operators turn off the indicator
light

50. 4: Preparation for Shipment
 The last step in order fulfillment is shipping
 Assembling orders into shippable forms
 Provides the last opportunity to fix any order issues and
verify orders are correct
Key Factors to consider when preparing orders:
 The size of the order
 The mode or method of transportation
 The carrier shipping requirements
 Need for refrigeration or safeguards for hazardous materials

51. Safety & Cleanliness
 Staging Area: the zone where products come off or go
onto trucks
 Safety is of utmost importance - this often the busiest
and most dangerous area in warehouses / DCs
 One way to make warehouses is safe is by ensuring they
are clean - It is everyone's job to keep warehouses
neat and clean
 Safety and organization also extends to the loading
process

52. Shipping Documentation
Bill of Lading
 The most important document, travels with the trucks
 Contract saying that a specific set of goods have been received by
a specific carrier as cargo to be delivered to a specific location and a
specific receiver
 Considered the official documentation that can be requested by
government officials
Shipping/Packing Lists, Shipping Manifest, and Waybill
 Itemized document that itemizes the complete inventory load
 It provides more details about the products than the bill of lading

53. Tracking
 Tracking is accomplished by entering data into a
transportation system with a unique identifier
 Today, customer service is priority, so carriers and
shippers track shipments.

54. Learning Block 4:
Inventory Management

55. What is Inventory?
 Inventory: the physical assets that are held or stored for
use, at some point, in…
Manufacturing products
Completing partially manufactured products
Direct sales to customers
Operating maintenance tasks
 Represents a monetary investment and therefore
needs to be turned to make a profit

56. Inventory Management
 Not all inventory is created equally
 Inventory management – the process of ensuring the
availability of products through inventory administration
 Inventory control will sometimes be used
interchangeable with inventory management
 Seeks to balance the risk between stockouts and leftover
inventory

57. Inventory Costs
 Acquisition Cost: The net price plus other costs needed
to purchase an item and move it to the point of use
 Carrying Cost: Costs of holding inventory, which may
include:
Warehousing costs
Labor
Risk of expiration or obsolescence that requires disposal
Damage

58. 4 Basic Inventory Types
Inventory classification plays a role in accounting,
physical control, and use
Raw Materials Work in Process
Finished Goods
Maintenance,
Repair, &
Operations
(MRO)

59. Raw Materials
 Raw Materials - raw materials include any items consumed to
make finished goods
Raw materials from nature
Sub-categories: parts, components, semi-processed goods, catalysts,
commodities, critical components, packaging
 Work in Process - inventory that has been moved out of raw
materials and is in staging for manufacturing
Can be consumed to make finished goods, returned to raw materials,
or re-categorized as scrap
Work in Process

60. Finished Goods
 Finished Goods - can be a completed product, a component
that will be consumed in future manufacturing, or a service
repair part that can be sold
Finished goods may be unsellable for multiple reasons: Obsolete,
Rework, Return, Quarantine
 Maintenance, repair, and operating (MRO) - is not directly
consumed in the manufacturing and operations - is product that is
consumed to support the operations to manufacture and manage
inventory
gears to repair a conveyor, grease to lubricate machines
Maintenance, Repair, &
Operating (MRO)

61. Lead Time
 Lead Time: the average time from placing an order with
a supplier to receiving goods
 Increased lead time contributes directly to higher
inventory levels and greater inaccuracy in forecasting
 Longer lead times reduces flexibility because
adjustments are more difficult when merchandise is
ordered

62. Inventory Turns
 Inventory Turns: the metric that tracks how often product is used
and replaced in a given time period
high inventory turns = products are moving off the shelf quickly
low inventory turn ratio = can also indicate low sales and even
overstocking of inventory
 Lean: operational and procedural practices that create efficient flow
– tasks that do not contribute value are reduced or eliminated
 Just-in Time (JIT): an inventory control system where a company
receives raw materials as they are needed for manufacturing, which
can eliminate or dramatically reduce raw material warehousing and
material costs

63. Supplier-Managed Inventory
 occurs when the supplier is responsibleSupplier-
Managed Inventory (SMI) for the monitoring and
replenishment of inventory as needed
 Inventory management can also be maintained through
Third-Party Logistics Providers (3PLs) through the
use of third-party warehouses

64. Learning Block 5:
Manufacturing & Service
Operations

65. What is a Process?
 Process: a set if individual activities that are combined
to product a product, service, or a combination or
products and services
 4 Elements of Processes
Inputs: raw or unfinished materials
Outputs: end product
Controls: rules, policies, guidelines
Resources: equipment, tools, supplies, labor

66. Product-Process Matrix
Product-Process Matrix: a way of linking marketing decisions
and a product's life cycle to an organization's operations
capabilities.

67. 5 Process Structures
1. Project Process: high variety and low volume process
Custom homes, bridges
2. Job Shop Process: medium-to-low volume and medium-to-high
variety process
Beauty shops, auto repair shops
3. Batch Process: medium volume and medium variety process
Bakeries, production of auto parts
4. Repetitive Process: medium-to-high volume and medium-to-low
variety process
Appliances, automobiles, buffet restaurants
5. Continuous Process: high volume and low variety process
Oil refineries, chemical plants, bottling factories

68. Product Life Cycles
 Product life cycles: show the typical progression of
manufactured goods for organizations
 Organizations need to change and adapt organizational
capabilities based on the product life cycle
 Each phase can vary in
length – there is no set
amount of time for each
phase

69. Product Life Cycle Phases
1. Introduction: introducing new products
market evaluation, product design, testing, packaging, and designing and
setting up the supply chain
2. Growth: product sales expand
changes to product design, manufacturing processes, supply chain is
monitored and evaluated, focus on maximizing revenue
3. Maturity: demand is relatively stable
product and production changes are minimal, focus on reducing costs and
increasing production rates and supply chain efficiencies
4. Decline: demand continues to drop
adopt product innovations, point products don't appeal to customers or
meet their expectations, cost is a critical factor

70. Operations
 Operations Management is the management of the
transformation process in which inputs are made into
products and services
 Manufacturing Operations – Operations specifically
used for making products, including dish soap to
automobiles; they make tangible items that can be
inventoried and sold to consumers
 Service Operations - Involve companies that provide
intangible products or services directly to
consumers, services cannot be inventoried

71. How Products are Sold
 Engineering-to-Order (ETO)
Long lead times and highly customized products
Customer orders are required before any work begins, once orders
are received, the process and new designs begin
Custom home, individually designed yacht
 Make-to-Order (MTO)
Larger customer base and allows for some customization
Orders are required before beginning the production process, most of the
design work is complete and some parts may be in inventory
Jet airplane, haircut, purchasing a mobile home

72. How Products are Sold
 Assemble to Order (ATO)
Products are assembled from standardized parts and modules
Usually several assembly options available to customers
Restaurants with assembly lines, hardware stores that mix paint
 Make-to-Stock (MTS)
Mass produce goods to be kept in inventory, ready to ship for customer
orders
Use demand forecasting to estimate production - best for mature products
Books, cars, groceries, retail clothing

73. Service Operations
 Service Operations: usually provides intangible
services directly to consumers, end products cannot be
inventoried
 Require some amount of interaction with consumers
 Inherently variably because of the customer
interactions and unpredictable nature of humans
 Customers contribute as much to the end product as
many service providers do

74. How Services are Offered
 Service Factory
Low labor cost, low customization, and low customer interactions
Customers focus on price and look for the best deal
Operations managers focus efforts on facilities and equipment utilization by
maximizing output and keeping costs low
Hotels, trucking companies, airlines
 Service Shop
High customization and customer interaction, but low labor and costs
Need to stay current with technology updates and scheduling
Auto repair shops

75. How Services are Offered
 Mass Service
Low customization and customer interaction, but high labor costs
Operations managers concerned with improving service times and
automated technologies
Retail banks
 Professional Shop
High customization, customer interaction, and labor costs
Service providers are highly educated and the services they perform are
time consuming and customized
Accountants, consultants, doctors, lawyers

76. Total Quality Management
 Total Quality Management (TQM): a focus on
designing processes to produce consistent quality
emphasis on quality is consistent throughout the entire organization
continuous quest to achieve improvements in product, service,
equipment, people, procedures, material, etc.
 Six Sigma - identifying the root cause of errors and
fixing them
 Lean - removing activities that do not add value

77. Learning Block 6:
Transportation Operations

78. Transportation Efficiency
 Demand for transportation services is derived from
customer demand
 7 Rights of Logistics: Transporting the…
right product
to the right customer
in the right quantity
and the right condition
at the right place
and the right time
and for the right cost.

79. Transportation Challenges
 Complexity of supply chains
 Growth of offshore manufacturing
 Customer demands for more tailored services
 Capacity constraints from other types of infrastructure
 Rising transportation rates
 Government regulations

80. Road Transport (Motor Carrier)
 Most widely used domestic mode of transportation - most
freight is regional in a nature
 Mode of choice for high-value, time-sensitive goods
 Challenges: rising costs, labor issues, and competition
 Mode of choice with large volume and shipment is over 900
miles
 Primarily used for long-distance or low-value raw materials
and manufactured products
 Challenges: large investment in terminals, capacity, and
unchangeable infrastructure
Rail Transport

81. Air Transport
 Historically viewed as expensive (emergency use)
 JIT demand, lower inventory levels, and growth of e-
commerce has increased demand
 Mode of choice to ship small quantities of high value, low-
weight, semi-finished, and finished goods
 Major mode for international trade
 Dominates all modes in international freight revenue
 Ships are slow, but offer tremendous capacities for volume
freight, efficient fuel consumption, and low cost
Water Transport

82. Pipeline
 “Hidden giant" of transportation
 Equipment is fixed in place, providing a warehousing function
and protecting the product from contamination
 Most economical form of transportation with the lowest cost
per ton-mile
 For-hire and private carriers
 Challenges: ongoing issues of safety and security

83. Intermodal Transportation
 Intermodal Transportation: two or more independent
modes used to transport and deliver the same cargo
Cargo stays in one standard container throughout the
transportation process
Has seen significant growth in the last 20 years

84. Freight Documentation
 Shipments are accompanied by documentation that details
what the shipment contains, where it is going, and to
whom it is shipping
 Common Shipment Documents
Bill of Lading
Freight Invoice / bill
Freight Claim

85. Freight Documentation
 Freight Invoice / Bill
Does not serve as a key piece of evidence in disputes
Include specific information, including transaction-related
information and charges that serve to describe the
information on the bill of lading
 Freight Claim
Legal claim by shippers against carriers for financial
compensation for loss or damage of shipment
3 types of Freight Claims: Shortage/Loss, Damage, Delay
Concealed damage: discovered after shipments have been
received and signed for; no visible damage to cartons or products

86. Safety & Security
 Governmental deregulation has provided carriers with
more feed to operate in competitive environments
 Hours of Service (HOS) Regulations
11 hours of driving time within a consecutive 14-hour period,
after which drivers must be off-duty for 10 hours
Limits maximum workweek to 70 hours
Drivers who reach 70 hours within a week, may resume
driving if they rest for 34 consecutive hours
30 minute break during the first 8-hours of a shift

87. Quality of Service
 Companies monitor and track the following to ensure quality
of service:
Customer service demands
Service level of carriers
Shipment date, arrival date, and shipment damage information
Use of standardized scorecards
 Key Performance Indicators (KPIs)
Transportation efficiency spending
Freight protection
Delivery service quality
Customer satisfaction

88. Transportation Management
Systems (TMS)
 Transportation Management Systems: include software
tools related to moving goods throughout the supply chain and
work in conjunction with other management tools (WMS, order
managements systems, supply chain planning tools)
 TMS Capabilities:
Routing and scheduling
Planning how to load containers or vessels
Tracking orders
Performance reporting and score carding
Auditing freight bills

89. Inbound, Outbound, & Reverse
Logistics
 Inbound Logistics: The transport, storage, and delivery of
goods coming into businesses. Covers anything companies
order from all suppliers.
 Outbound Logistics: The transport, storage, and delivery of
goods that are leaving businesses. Deals almost exclusively
with end products.
 Reverse Logistics: The transportation of good that need to
be returned through the supply chain because of defects or
because products have reached the end of their usage

90. Learning Block 7:
Customer Service Operations

91. Internal & External Customers
Internal Customers
 Customers within the same company or organization
 One department relies on another department for a
product/service
External Customers
 Customers outside an organization
 Usually consumers of the products/services
 Retailers may purchase products from wholesale distributors
to resell them to customers
CUSTOMERS ARE OFTEN CONFUSED WITH CONSUMERS

92. Customer Service
 Customer service is a key competitive advantage and a part
of every interaction with customers.
 Employees must act as ambassadors for their company.
 Customer service representative must be trained and be
proficient in:
Order process and customer relationship management (CRM)
Communications
Returns and reverse logistics
Challenging customers
Legal and regulatory concerns

93. The Order Cycle
The customer order cycles occurs when customers
interact with suppliers.

94. Relationship Management
 Customer Relationship Management (CRM)
The term given to developing different strategies to serve
most effectively the full range of customers that interact with
a company
CRM may also be used to refer to the computer systems that
help support the process of CRM
 Customer Life Cycle:
The term used to describe the relationship used by a
company to find, manage, retain, and develop interactions
with customers

95. Communications
 Communication involves the transfer of information
 Effective communicators need to:
Understand to whom they communicate
The message they communicate
The most appropriate form of communication
 Communication Channels
Verbal communication
Listening
Nonverbal communication
Written ciommunication

96. Challenging Customers
 Customer service representatives should have patience,
skill, and good communication skills when working with
challenging customers
 Challenging customers may be:
Angry or openly antagonistic and aggressive
Lacking good communication skills and the ability to express their
thoughts
Arrogant or supreme attitude
Prone to making unwarranted personal attacks
Overly talkative and lack the will or ability to listen

97. Inventory Optimization