Presentation on theme: "LOG 408: Global Logistics Management"— Presentation transcript:
1 LOG 408: Global Logistics Management Lecture 9: Inventory and warehouse management
2 Key Points of Last WeekExplain the application of a technique known as the transportation modelExplain various terms on logistics firms, LSPs, 3PLs, 2PLs, 4PLs, 1PLs3PLs as a type of strategic partnership are becoming more prevalentBoth advantages and disadvantages to outsourcing the logistics functionMany important issues to consider once the decision has been made and a 3PL agreement is being implementedExamine the range of issues in, and the process employed for, in selecting logistics service providers
3 The importance of inventory management Inventory is another name for materials and is any material that a firm holds in order to satisfy customer demand (and these customers may be internal and/ or external to the firm)Inventory costs money! It ties up working capital and affects cash flowInventory takes up spaceFirms need to hire people to take care of inventoryThe goal in inventory management is to minimize inventory holding while maintaining a desired customer service level.
5 Inventory turnoverA concept used to measure a firm’s performance in inventory managementCompares annual sales with the amount of average inventory held throughout the yearThe higher the turnover, the lower the firm’s inventory costsEx. Company Y builds racing cars. In 2006, total value of car sold was $3m and the average inventory holding is $250k. At the end of 2006, it implemented a JIT program to improve the inventory management. In 2007, the total sales is $4,5m and average inventory holding is $300k. Has the performance improved?
6 Reasons for holding inventory Unexpected changes in customer demandShorter product lifecyclesMore competing productsUncertainty in the quantity and quality of the supply and supplier costsDelivery Lead timeEconomies of scale by carriers – cost/weight of transport goes down the larger the loadAn implication of EOQ model
7 Inventory reduction strategies Inventory centralization: variation of total demand is reducedDelayed product differentiation: reducing variation by combining demand at different points is the case of a manufacturer making multiple productsPart commonality: attempts simply to reduce the number of different parts in a product range wherever possibleTransit inventory reductionReduce lead times: cheaper transport modes may be slowerAn example: choose the better transportation mode for lower total cost (transportation plus inventory cost)
10 Inventory flow typesSource: Gattorna and Walters (1996)
11 Stockholding policies for alternative inventory flow types
12 Inventory reduction principles Pool inventory: Wherever demand for inventory can be combined, the safety stock can be lowered, still providing the same service levelReduce variation: Wherever variation can be reduced, safety stock can be reduced tooReduce lead time: When the lead time is long, we need to forecast more into the future, thus the accuracy of the forecast suffers, increasing the variability of demand and consequently requiring higher safety stock
13 Inventory reduction principles (cont.) Just-in-time inventory system (JIT): making do with the minimum possible level of inventory holdingInventory hides problems!By purposely removing inventory holdings, the problems the inventory was covering are surfaced, and the problems are then proactively fixedSmall lot productionOrdering in small quantities keeps the average inventory level smallHence reduce order processing costs so that the ideal of small quantity ordering can be accomplishedThe time and effort spent in process setups are the manufacturing equivalent of order processing costsHence, reduce the time and effort in setups
15 Value-Adding Activities Warehousing operations can achieve this by:Creating bulk consignmentsBreaking bulk consignmentsCombining freightSmoothing supply to meet demandWarehousing should aim to provide value-adding services as well as minimizing operating costs
16 Generic Warehouse Functions All activities within a warehouse are associated with one of the following core functions
18 Warehouse design issues The warehouse should suit the freight and material handlingMinimize movement & handlingUse automatic handling systems if possibleCranes, conveyors, or AGVs (automatic guided vehicles)Case of AG Barr (soft drink producer)Automatic system for large volume orders from large retailersManual system for high variety orders from small retailersManual system to handle returned freights (from “hawk” drivers to small retailers)
19 Cross DockingPopularized by Wal-Mart, bypasses the storage area in warehouses and distribution centers. Goods arriving at warehouses from the manufacturerare transferred to vehicles serving the retailersare delivered to the retailers as rapidly as possibleGoods spend very little time in storage at the warehouseOften less than 12 hoursLimits inventory costs and decreases lead timesIt may improves customer serviceTypically employed for fast moving freight with constant demand
20 Issues with Cross-Docking Require a significant start-up investment and are very difficult to manage; usually requiring lots of warehouse space in terms of the number of doors, e.g., 90, 150Supply chain partners must be linked with advanced information systems for coordinationA fast and responsive transportation system is necessaryForecasts are critical, necessitating the sharing of information.Effective only for large distribution systemsSufficient volume every day to allow shipments of fully loaded trucks from the suppliers to the warehouses.Sufficient demand at retail outlets to receive full truckload quantities
21 Warehouse Management Systems A Warehouse Management System (WMS) manages information processes and material requirements transmitted from the management information system (such as ERP) to:Trigger the right work …..….. at the right time across the operation ….…. to meet demand.
22 Material Handling and Storage Automated material handling improves and standardises warehouse performance by minimising human interventionStorage solutions vary depending on the volume, variety and throughput of freight in a warehouse of distribution system.Pallet storageNon-pallet storage
23 Order PickingPicking solutions vary depending on freight volume, variety and throughput.Pick-to-orderBatch pickingPick-to-zeroZone picking
25 Questions to thinkExplain how a reduction in lead time can help a supply chain reduce its inventory buffer without hurting customer service.Why is Amazon.com able to provide a large variety of books and music with less safety inventory than a similar bookstore chain selling through retail stores?How does part commonality or delayed product differentiation reduce inventory holding?In the context of postponement, how might downstream distribution centres be viewed as value-adding?