Logistics

Operations Management

Definition

Planning, scheduling, control of activities that transform inputs into finished goods+ services

Supply chain management

Goal oriented network of processes+ process nodes to deliver goods+ services to customers satisfy
customer demand

Terminology

Upstream: activities positioned earlier in the supply chain

Downstream: activities positioned later in the supply chain

First- tier supplier: supplier that provides products/ services directly to a firm

Second- tier supplier: supplier that provides products/ services to first- tier supplier

Supply chain operations reference- Model (SCOR)

Plan: balance demand requirements against resources  communicate these plans to all participants

Source: sourcing activities identifying, developing, contracting with suppliers+ scheduling the
delivery of incoming goods+ services

Make: actual production of good/ service

Deliver: entering customer orders+ determining delivery dates to storing. Moving goods to final
destination

Return: activities necessary to return+ process defective/ excess products/ material

Logistics vs. Supply chain management

Logistics: allocate right quantity, objects, place, time, quality, costs

SCM: integrate organizational units, coordinate follow of goods+ information+ money, increase
competitiveness (optimize processes, minimize costs)  satisfy customer demands
Core competency

Organizational strength/ ability developed over long period that customers find valuable and
competitors find difficult/ impossible to copy

4 performance dimensions

Quality: performance, conformance, reliability quality

Time: delivery speed+ reliability

Flexibility: mix, changeover, volume flexibility

Cost: labor, material, engineering, quality- related

Trade offs among performance dimensions

In competitive marketplace no firm can sustain advantage on all performance dimensions

Conflicts: low cost vs high quality, low cost vs flexibility

Order winners

Performance dimension that differentiates a company´s products+ services from its competitors

Order qualifies

Performance dimension on which customers expect a minimum level of performance to be

considered
Process types

Continuous flow

Large production volumes, high level of automation, basic material, usually very high fixed costs (oil
refinery, fiber formation)

Production line

Highly efficient, not too flexible, produce narrow range of standard items with identical/ similar
design

Batch (high volume)

Items moved through manufacturing steps in groups, moderate volume, multiple products,
production occurs in “batches” (var manufacturing, cartoons etc.)

Job shop

Make wide variety of highly customized products in quantities as small as one, low volume, one of a
kind product, broadly skilled workers, general purpose equipment

Project. Product= one of a kind/ too large to be moved, equipment, people etc. highly flexible
(construction etc.)

Hybrid process: Mixing process types, assembly line: putting final product together

Life Cycle

Customization: Customer´s unique requirements directly affect timing+ nature of operations+ supply
chain activities

Law of variability: The earlier customization introduced in supply chain greater random variability
of the process, lower productivity

Customization in the supply chain

Early: greater flexibility, longer lead times, more expensive products

Late: limited flexibility, shorter lead times, less expensive product

Takt time: Takt time is the rate at which a product needs to be completed to meet customer demand
Formula

Business processes

Productivity

Measure of process performance, productivity= outputs/ inputs

Efficiency

Measure of process performance, ratio of actual outputs to standard outputs

Cycle time

Total time needed to complete a business process: waiting time, rework, unneeded steps, outmoded
technology increase cycle time

Benchmarking

Process of identifying, understanding, adapting outstanding practices from same organization/ other
businesses improve performance

Competitive: comparing companies processes with competitors processes

Strategic: identify best way to compete in the market+ winning strategies

Process: identify weak competing points, then identify best practices from companies in similar
activities that can be applied to own processes
Managing capacity

Capacity

Capability of worker, machine, work center etc. to produce output in a time period

Measures:

Theoretical capacity: max. output capability, allowing for no preventive maintenance, unplanned
downtime

Rated capacity: long-term expected output capability of resource/system

Consider

(units/ shifts/ line)* (% good) *( #of lines) *(#of shifts)

controllable factors (shifts, lines)

uncontrollable factors (supplier problem, good, late)

Capacity vs. time

Common strategies

Lead capacity strategy: capacity is added in anticipation of demand

lag capacity strategy: capacity is added only after demand has materialized

 match capacity strategy: strikes a balance between the lead+ lag capacity strategies by avoiding
period of higher under/ overutilization

Cost comparison

TC= FC+ VC*X

Total fixed variable amount

Expected value analysis
I

EV j=∑Pi * Ci
i=1

EV j= expected value of capacity j

Pi= probability of demand level i

Ci= financial result (cost/ revenue/profit) at demand level I

1. identify different demand level scenarios

2. assign probability to each demand level scenarios
3. calculate

Break even analysis

Volume level for a business at which total revenues cover total costs

BEP= FC/(R-VC) > 0 profitable

Bep= break even point, fc= fixed cost, r= revenue/unit, vc= variable/unit

Learning curves

Productivity levels can improve at a predictable rate as people+ even systems “learn” to do tasks
more efficiently for every doubling of cumulative output, there is a set percentage reduction In the
amount of inputs required

Theory of constraints

Approach to visualizing+
managing capacity which
recognizes that nearly all
products+ services are
created through a series
of linked processes. In
every case there is at
least one process step
that limits throughput
(Vearbeitungsmenge) for
the entire chain
Supply management

Sourcing decisions and purchasing activities serve to link a company with its supply chain partners

Set of activities carried out by organizations to analyze sourcing opportunities, develop sourcing
strategies, select suppliers, carry out all the activities required to procure goods+ services

Sourcing

High level, strategic decisions regarding which products/ services will be provided internally+ which
will be provide by external supply chain partners

Purchasing

Identifying needs, locating+ selecting suppliers, negotiating terms, following up

Procurement

≠ purchasing (ensuring quality, expediting(beschleunigen) in addition to purchasing)

Acquisition of goods, services, works from external source, appropriate+ procured at the best
possible cost meet needs of purchaser in terms of quality, quantity, time, location

Supply management is critical

- the changing global competitive landscape

global sourcing: more opportunities to find better+ cheaper suppliers (but legal, political
challenges)
financial impact: purchasing  major opportunities to increase profitability

cogs (cost of goods sold): purchased cost of goods from outside suppliers
profit margin= 100%* (earnings/sales)

return on assets= 100%* (earnings/assets)

performance impact: cost not only consideration, other performance dimensions (quality,
delivery performance) important customer satisfaction (bc. less less sales)

strategic sourcing

3. insourcing outsourcing

High control Require high High strategic Loss of control over

 investment flexibility process
Oversee entire Reduce strategic Low investment risk Communication,
process flexibility coordination
challenges
Economies of scale Suppliers my offer Improved cash flow Possibility of bad
superior products supplier

 find core competencies

portfolio analysis

Routine: readily available products/ services

 low value, many sources of supply, everyday use, simplify acquisition process (strategy),
increase role of systems (tactics), little negotiation+ minimize administr. cost (actions)

Leverage: standardized+ readily available products

 large marketplace capacity, many alternate+ qualified sources of supply, price sensitive
maximize commercial advantage (strategy), concentrate business (tactics), exploit market
cycles+ active sourcing+ promote competitive bidding (action)

Bottleneck: unique/ complex products/ services (few suppliers)

 complex manufacturing/ service process, few alternate sources of supply

ensure supply continuity(strategy), decrease uniqueness of supplier (tactics)
increase competition+ develop new suppliers+ attempt competitive bidding (actions)

Critical: unique/ complex products/ services (few suppliers), representing large % of total

 few qualified sources of supply, large expenditures, design+ quality critical

form partnerships with suppliers (strategy), increase role of selected suppliers (tactics),
heavy negotiations+ supplier process management+ analyze market/ competitors (actions)

distribution by the number of suppliers

single sourcing: most efficient supplier= only source risk higher dependency must be compensated
through: favorable prices, logistic advantages, better payment terms etc.

dual sourcing: 2 permanently competing suppliers the one with best conditions/quality gets
higher share of orders  lower purchasing risk

multiple sourcing: more than 2 suppliers: increase their performance+ value (bc. high competition)

use for standardized goods (reduces risk of supply)

Modular sourcing

Suppliers deliver modules/ systems instead of

parts reduction of number of suppliers (trend)

Intensive partnership, supplier integrate in

develop. process from beginning

Distinction by origin of supplier

Local sourcing: lower transport costs, several sources of supply, higher prices compared to global
markets, limited resources

Global sourcing: reduction of dependency of local suppliers, lower purchasing prices, higher
availability+ selection higher transport cost, quality+ know-how risks, long delivery times

Total cost analysis

Firm identifies+ quantifies all major costs associated with various sourcing options: direct (tied
directly to level of of supply chain activities), indirect cost (not tied directly)

Screen suppliers+ create selection criteria

Qualitative criteria: process+ design+ management capabilities, financial condition, long- term
relationship potential

Conduct supplier selection: weighted point evaluation system

negotiate and implement agreements

Competitive bidding: request bids from suppliers with whom buyer willing to do business

Request for quotation: prepare bids based on terms+ conditions set by buyer

Negotiating: interactive approach to final supplier selection

Contracting: create
detailed purchasing
contract

The procure to pay

cycle/purchasing process
Logistics

Logistics management: plans, controls, implements: efficient, effective forward+ reverse flow+
storage of goods, services+ related information betw. point of origin+ point of consumption meet
customer requirements

Business activities: transportation, warehousing, material handling (Germany leader in logistics)

Critical: impact on delivery, speed, reliability+ globalization of markets

Operations management: flow of information+ value to supplier from customer, flow of material to
customer from supplier

Flow oriented classification of logistics

Decision areas: pricing, modes, formats (transportation), inventory, consolidation (warehousing)

Transportation modes

Multimodal solutions

Transportation solution that seeks to exploit strengths from multiple transportation modes through
physical, information, monetary flows that are as seamless as possible

Warehousing

Operations that store, repackage, stage, sort, centralize goods/ materials reduce transportation
cost, improve operational flexibility, shorten customer lead times
consolidation warehousing(shipm.diff.sources in same area: combine them to lager shipping loads)

cross docking (large incoming shipments broken down in smaller outgoing shipm.)

break-bulk (like cross- docking, refers to single source)

hub& spoke system (convenient locations= sorting/ transferring facilities)

Forms of warehousing

Postponement: combines classic warehousing with light manufacturing+ packaging (improve

operational flexibility)

Spots stock: position seasonal goods close to the marketplace, end of season moved back/ liquidated
( short customer lead times)

Assortment: wide array of goods held close to source of demand (short customer lead times)ä

Inventory management

Warehousing+ inventory mangers must work closely to achieve desired business outcomes
Managing inventory

Inventory

Stocks/ items used to support: production (raw materials), supporting activities(maintenance, repair),
customer service

Stock

Inventory management

independent demand inventory: inventory items whose demand levels are beyond a company’s
complete control

dependent demand inventory: inventory items whose demand level are tied to a company’s
planned production of another item

Control system
Periodic review system

Service level
measures the performance of a system Certain goals are defined and the service level gives
the percentage to which those goals should be achieved.

Continuous review system

Inventory levels constantly monitores,

replenishment order only issued when
reorder point

size of order based on trade off betw.

holding costs and ordering costs

Economic order quantity

Total yearly inventory costs

Critics

EOQ does not tell us when to order!!!

demand rate(d), lead time(L) constant: ROP=dL

 demand rate(d), lead time(L) vary/both: ROP=dL+SS SS= safety stock

Causes of variability

How much safety stock to hold depends on: variability of demand+ lead time, average length of lead
time, desired service level, average demand

Safety stock

Reorder point

Single period inventory systems

System used when demand

occurs only in a single point in
time Christmas trees, fish etc.

Goal: determine target service

level(SLT) that strikes best
balance betw. shortage costs+
excess costs

SLT: expected cost of a shortage

equals expected cost of having
excess units
 Target stocking point:
point at which expected
cost of shortage equals
expected cost of having
excess units

Material Requirements Planning

Translate master production schedule into planned orders for actual parts+ components needed to
produce master schedule items manages dependent demand inventory

Based on:
 - The bill of material(BOM)= listing of all subassemblies, parts, raw material going into a parent
assembly showing the quantity of each required
- Backward Scheduling
- Explosion of the bill of material

Product structure tree

MRP requirements

BOM(Stückliste), backw. Scheduling, explos. Of the bill of materials(stückliste auflösen) determine

what when and how much to order

Requested data: gross requirements, scheduled receipts, projected ending inventory, net
requirements, planned receipts, planned orders

Calculate MRP

Advantages Disadvantages

Directly tied to master prod. Organizational discipline

Scheduleindictaes exact timing+ quantity for
all components
Allows managers to trace every order for lower Accurate information
level items through all levels of BOM up to
master prod. Sched.
Tells a firm+ suppliers precisely what needs to MRP nervousness any change at top can have
be made when drastic effects in items further down the BOM