Summary - LSCM

LOGISTICS & SUPPLY CHAIN
MANAGEMENT:
SUMMARY
Tessa M.
Full Credits: Artevelde Hogeschool Tessa Maertens
CHAPTER 1: INTRODUCTION ............................................................................................................................ 6
LINK TO OTHER DISCIPLINES ...................................................................................................................................... 6
LOGISTICS ≠ SUPPLY CHAIN MANAGEMENT ................................................................................................................ 6
1. THE EVOLUTION OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT ............................................................................... 6
1.1 Reduced Transport Intensity of Freight .................................................................................................... 7
1.2 Falling Product Prices ............................................................................................................................... 7
1.3 Deregulation of Transport ........................................................................................................................ 7
1.4 Productivity Improvements ...................................................................................................................... 8
1.4.1 Containerization ................................................................................................................................................. 8
1.4.2 Barcoding............................................................................................................................................................ 8
1.4.3 Online tracking and tracing ................................................................................................................................ 8
1.4.4 Radio frequency identification (RFID)................................................................................................................. 8
1.5 Emphasis on Inventory Reduction ............................................................................................................ 8
1.6 Changes in Company Structure ................................................................................................................ 8
2. WHAT IS LOGISTICS? ............................................................................................................................................ 9
2.1 Logistics involves getting? ........................................................................................................................ 9
2.2 Logistics is? .............................................................................................................................................. 9
2.3 What is Logistics Management? .............................................................................................................. 9
3. WHAT IS SUPPLY CHAIN MANAGEMENT?................................................................................................................. 9
3.1 What is a Supply Chain? ........................................................................................................................... 9
3.2 What is a Management? ....................................................................................................................... 10
3.3 Supply Chain Management .................................................................................................................... 10
3.3.1 Definition 1 ....................................................................................................................................................... 10
3.3.2 Definition 2 ....................................................................................................................................................... 10
3.3.3 Definition 3 ....................................................................................................................................................... 11
4. DISTINGUISHING LOGISTICS AND SUPPLY CHAIN MANAGEMENT ................................................................................. 11
4.1 Supply Chain is a Wider Concept than Logistics ..................................................................................... 11
4.1.1 Supply Chain ..................................................................................................................................................... 11
4.1.2 Demand Chain .................................................................................................................................................. 12
4.2 The Integrated Supply chain: End-to-End ............................................................................................... 12
LEFT TO RIGHT ........................................................................................................................................................... 13
RIGHT TO LEFT ........................................................................................................................................................... 13
5. APPLICATIONS TO MANUFACTURING AND SERVICES ................................................................................................. 13
CHAPTER 2: INTERNATIONAL TRADE & GLOBALIZATION (P.20 – 33) .............................................................. 14
1. GROWTH IN INTERNATIONAL TRADE ...................................................................................................................... 14
1.1 World Trade ........................................................................................................................................... 15
1.1.1 Top Exporting Countries ................................................................................................................................... 15
1.1.2 $bn and % ......................................................................................................................................................... 15
1.1.3 Important Conclusions ..................................................................................................................................... 15
1.1.4 World Trade Flows ........................................................................................................................................... 16
2. CONTAINERS: THE HUMBLE HERO ........................................................................................................................ 16
2.1 Changed Capacity .................................................................................................................................. 18
2.2 Changed Landscape ............................................................................................................................... 19
2.3 Competitors ............................................................................................................................................ 19
2.4 Top US Container Importers and Exporters (By TEU in 2018) ................................................................ 20
2.5 EU Main Trading Partners, Export/Import ............................................................................................. 21
3. MEASURING LOGISTICS PERFORMANCE.................................................................................................................. 21
3.1 World Bank Global Logistics Performance Index (LPI) ........................................................................... 21
3.1.1 Customs ............................................................................................................................................................ 21
3.1.2 Infrastructure ................................................................................................................................................... 21
3.1.3 International shipping ...................................................................................................................................... 21
3.1.4 Logistic competence ......................................................................................................................................... 21
3.1.5 Tracking & tracing............................................................................................................................................. 22
Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 1 of 112

3.1.6 Timeliness ......................................................................................................................................................... 22
3.2 Unctad Liner Shipping Connectivity Index (LSCI) .................................................................................... 22
4. GLOBALIZATION ................................................................................................................................................ 23
5. DIRECTIONAL IMBALANCES .................................................................................................................................. 23
CHAPTER 3: SUPPLY CHAIN RELATIONSHIPS (P.34-56) ................................................................................... 26
1. GLOBALIZATION OF SUPPLY CHAINS ...................................................................................................................... 26
2. OUTSOURCING .................................................................................................................................................. 26
2.1 EOM ....................................................................................................................................................... 27
2.2 Reasons for Manufacturing Outsourcing ............................................................................................... 27
3. OFFSHORING .................................................................................................................................................... 28
4. FAILURES IN OUTSOURCING ................................................................................................................................. 28
5. EVALUATING AND SELECTING OUTSOURCES ............................................................................................................ 29
5.1 Criteria ................................................................................................................................................... 29
5.2 Order qualifiers ...................................................................................................................................... 30
5.3 Order winners......................................................................................................................................... 30
6. OUTSOURCER AND OUTSOURCEE RELATIONSHIP DEVELOPMENT ................................................................................. 31
6.1 Four stages ............................................................................................................................................. 31
6.1.1 Master – Servant stage ..................................................................................................................................... 31
6.1.2 Consultative stage ............................................................................................................................................ 31
6.1.3 Peer-to-Peer relationship stage........................................................................................................................ 31
6.1.4 Competitive stage............................................................................................................................................. 31
7. SUPPLY CHAIN INTEGRATION ............................................................................................................................... 31
7.1 Four primary modes of integration: ....................................................................................................... 31
7.1.1 Internal integration .......................................................................................................................................... 31
7.1.2 Backward integration ....................................................................................................................................... 32
7.1.2.1 The Keiretsu Supply Chain Structure ........................................................................................................ 32
8. SUPPLY CHAIN COLLABORATION PRINCIPLES ........................................................................................................... 33
8.1 Prisoner’s Dilemma ................................................................................................................................ 33
9. SUPPLY CHAIN COLLABORATION METHODS ............................................................................................................ 35
CHAPTER 4: SUPPLY CHAIN STRATEGIES (P.57-76) ......................................................................................... 36
1. STRATEGY ........................................................................................................................................................ 36
2. THE EVOLUTION OF MANUFACTURING .................................................................................................................. 36
3. LEAN PRODUCTION ............................................................................................................................................ 37
3.1 Key Areas of Waste ................................................................................................................................ 38
4. AGILE SUPPLY CHAIN AND MASS CUSTOMIZATION ................................................................................................... 38
4.1 Mass Customization ............................................................................................................................... 38
4.1 The Principle of Postponement .............................................................................................................. 39
4.3 Customer Order Decoupling Point (CODP) ............................................................................................. 39
4.4 Importance of CODP? ............................................................................................................................. 43
5. COMBINED LOGISTIC STRATEGIES ......................................................................................................................... 44
5.1 What is a Bullwhip-Effect? (SEE VIDEO IN PP) ....................................................................................... 45
5.1.1 Example Bullwhip-Effect Beer .......................................................................................................................... 46
CHAPTER 7: LOGISTICS SERVICE PROVIDERS (P.131-141) ............................................................................... 47

1. DEVELOPMENTS ................................................................................................................................................ 47
2. CONSIDERATIONS .............................................................................................................................................. 47
3. LOGISTICS SERVICE PROVIDERS (3PL-4PL) ............................................................................................................. 48
3.1 Outsourcing to WHO? ............................................................................................................................ 49
4. VALUE-ADDING IN LOGISTICS ............................................................................................................................... 49
4.1 The Order Decoupling Point (or Order Penetration Point → See Chapter 4) .......................................... 50
5. LOGISTICAL ACTIVITIES........................................................................................................................................ 51
5.1 Activities Relating to Physical Goods Flows ........................................................................................... 51

5.1.1 Example: Vehicle Processing – ICO Terminals .................................................................................................. 52
5.2 Activities Relating to Information Flows ................................................................................................ 52
6. STAGES OF OUTSOURCING................................................................................................................................... 53
6.1.1 Single Transport................................................................................................................................................ 54
6.1.2 Regular Transport ............................................................................................................................................. 54
6.1.3 Transport Center .............................................................................................................................................. 54
6.1.4 Transshipment Center ...................................................................................................................................... 54
6.1.5 Buffering Storage Center .................................................................................................................................. 54
6.1.6 Transport Center .............................................................................................................................................. 54
6.1.7 Network Structure ............................................................................................................................................ 54
6.1.8 Warehouse Storage Center .............................................................................................................................. 55
6.1.9 Stock Center ..................................................................................................................................................... 55
6.1.10 Distribution Center ......................................................................................................................................... 55
6.1.11 Logistics Service Center .................................................................................................................................. 55
7. DECISION CRITERIA ............................................................................................................................................ 55
7.1 Strategic Factors .................................................................................................................................... 56
7.2 Operational Factors ............................................................................................................................... 56
7.3 Financial Factors .................................................................................................................................... 56
8. ADVANTAGES – DISADVANTAGES.......................................................................................................................... 56
8.1 Advantages ............................................................................................................................................ 56
8.1.1 SP Advantages .................................................................................................................................................. 56
8.1.2 Manufacturer Advantages ................................................................................................................................ 56
8.2 Disadvantages ........................................................................................................................................ 56
9. HOW TO OUTSOURCE......................................................................................................................................... 57
10. CRITERIA FOR SELECTING A SP............................................................................................................................ 57
CHAPTER 8: PROCUREMENT (P.142 – P.166) .................................................................................................. 59
0. PROCUREMENT ................................................................................................................................................. 59
1. PURCHASING VS. PROCUREMENT .......................................................................................................................... 59
1.1 Difference Between Purchasing and Procurement................................................................................. 59
1.2 Stages of a Procurement/Purchasing Function ...................................................................................... 59
1.3 Procurement and Relationship Strategies Have Evolved ....................................................................... 60
2. PROCUREMENT AS A STRATEGIC ACTIVITY............................................................................................................... 60
3. THE DIFFERENCE BETWEEN PUBLIC AND PRIVATE SECTOR PROCUREMENT .................................................................... 61
4. PROCUREMENT AND MARKETS ............................................................................................................................. 61
5. MANAGING VALUE AND RISK ............................................................................................................................... 61
5.1 Kralijk Matrix .......................................................................................................................................... 61
5.2 Pareto Principle ...................................................................................................................................... 63
6. THE ROLE OF THE BUYER .................................................................................................................................... 63
7. THE PROCUREMENT PROCESS .............................................................................................................................. 64
7.1 What is a Procurement Process? ............................................................................................................ 64
7.2 Procurement Organisation ..................................................................................................................... 65
7.3 Category Managers................................................................................................................................ 66
7.4 The Role of Technology .......................................................................................................................... 66
7.4.1 E-Auctions ........................................................................................................................................................ 66
7.5 Price, Cost and Value.............................................................................................................................. 66
7.6 Low Cost Country Sourcing ..................................................................................................................... 67
8.ETHNICAL SOURCING & SUSTAINABILITY ................................................................................................................. 67
9. PROCUREMENT AND SUPPLY CHAIN MANAGEMENT (READ ONLY) .............................................................................. 68
CHAPTER 9: INVENTORY MANAGEMENT (P.167-188) .................................................................................... 69
1. THE IMPORTANCE OF INVENTORY MANAGEMENT .................................................................................................... 69
1.1 Different Types of Inventory ................................................................................................................... 69
1.2 Inventory Locations Throughout the Supply Chain ................................................................................ 70

1.3 Inventory Turnover ................................................................................................................................. 70
1.4 Reasons for Holding Inventory + Trade-Offs .......................................................................................... 70
1.5 Theoretical Inventory ............................................................................................................................. 71
1.5.1 Theoretical Inventory – Exercise ...................................................................................................................... 71
1.6 Costs of Stock-Outs ................................................................................................................................ 71
2. THE ECONOMIC ORDER QUANTITY (EOQ) MODEL .................................................................................................. 71
2.1 Inventory Build-Up and Depletion .......................................................................................................... 71
2.2 Level of Safety Stock............................................................................................................................... 72
2.3 Small vs. Large ....................................................................................................................................... 73
2.4 Economic Order Quantity ....................................................................................................................... 73
2.5 Economic Order Quantity ....................................................................................................................... 74
3. INVENTORY CONTROL SYSTEMS ............................................................................................................................ 74
3.1 Periodic Inventory Control System ......................................................................................................... 75
4. SUPPLY CHAIN INVENTORY MANAGEMENT ............................................................................................................. 75
4.1 Inventory Reduction Strategies .............................................................................................................. 75
4.1.1 Inventory Centralization ................................................................................................................................... 75
4.1.2 Delayed Product Differentiation....................................................................................................................... 76
4.1.3 Part Commonality............................................................................................................................................. 77
4.1.4 Transit Inventory .............................................................................................................................................. 77
5. MATCHING INVENTORY POLICY WITH INVENTORY TYPE ............................................................................................. 77
5.1 ABC Analyses .......................................................................................................................................... 77
5.2 Inventory Flow Types ............................................................................................................................. 78
6. INVENTORY REDUCTION PRINCIPLES ...................................................................................................................... 78
6.1 Pool Inventory ........................................................................................................................................ 79
6.2 Reduce Variation .................................................................................................................................... 79
6.3 Reduce Lead Time .................................................................................................................................. 79
6.4 Just-in-time inventory system (JIT) ......................................................................................................... 79
CHAPTER 10 + 11: WAREHOUSING MATERIALS HANDLING TECHNOLOGY (P.208 – 219) ................................ 80
1. WAREHOUSING IN GLOBAL SUPPLY CHAINS ............................................................................................................ 80
1.1 Value-Adding Activities .......................................................................................................................... 81
2. WAREHOUSE DESIGN AND LAYOUT ....................................................................................................................... 81
2.1 Automation in Warehousing .................................................................................................................. 82
2.1.1 Manual Warehouse .......................................................................................................................................... 82
2.1.2 Semi-Automated Warehouse ........................................................................................................................... 82
2.1.3 Fully Automated Warehouse ............................................................................................................................ 84
2.1.4 Cross-Docking ................................................................................................................................................... 85
3. WAREHOUSE MANAGEMENT SYSTEMS .................................................................................................................. 86
4. MATERIALS HANDLING AND STORAGE ................................................................................................................... 87
4.1 Order Picking .......................................................................................................................................... 88
4.1.1 Techniques ....................................................................................................................................................... 90
4.2 Order Packing ......................................................................................................................................... 91
5. EDI ................................................................................................................................................................ 92
5.1 Forms of Data Transfer Via EDI: ............................................................................................................. 92
5.2 Benefits of EDI ........................................................................................................................................ 93
6. RFID .............................................................................................................................................................. 93
6.1 Applications of RFID ............................................................................................................................... 93
CHAPTER 15: REVERSE LOGISTICS (P.298-306) ............................................................................................... 95
0. INTRO ............................................................................................................................................................. 95
1. DEFINITION OF REVERSE LOGISTICS ....................................................................................................................... 95
1.1 A Generic Reverse Logistics System with Recovery Options ................................................................... 95
2. MOTIVATIONS FOR RESERVE LOGISTICS.................................................................................................................. 96
3. RECOVERY OPTIONS IN REVERSE LOGISTICS ............................................................................................................ 97

3.1 Reuse ...................................................................................................................................................... 97
3.2 Remanufacturing ................................................................................................................................... 97
3.3 Recycling ................................................................................................................................................ 97
3.4 A Recovery Options Hierarchy ................................................................................................................ 98
4. A REVERSE LOGISTICS NETWORK .......................................................................................................................... 98
5. CHARACTERISTICS OF REVERSE LOGISTICS ............................................................................................................... 99
6. FACTORS FOR SUCCESSFUL REVERSE LOGISTICS IMPLEMENTATION ............................................................................ 100
6.1 External Factors ................................................................................................................................... 100
6.2 Internal Factors .................................................................................................................................... 100
7. PERFORMANCE MEASURES IN REVERSE LOGISTICS ................................................................................................. 100
CRASH COURSE: INCOTERMS ....................................................................................................................... 102
1. INTERNATIONAL TRADE ..................................................................................................................................... 102
2. INTERNATIONAL TRANSPORT .............................................................................................................................. 102
3. WHAT ARE INCOTERMS? .................................................................................................................................. 102
3.1 Distribution of Costs ............................................................................................................................. 103
3.2 Distribution of Risks ............................................................................................................................. 104
3.3 Division of Tasks ................................................................................................................................... 104
3.4 What are Incoterms NOT ..................................................................................................................... 104
4. CASE ............................................................................................................................................................. 111
5. USAGE OF INCORRECT INCOTERMS ...................................................................................................................... 111
6. EXERCISE ....................................................................................................................................................... 111

Chapter 1: Introduction
Link to Other Disciplines
Engineering
Transport
Finance
Economics
Logistics
& SCM
Quality
IT
Manager
Operations
Marketing
Management
Logistics ≠ Supply Chain Management

➢ An introduction to Supply Chain Management, Arizona State University -
https://www.youtube.com/watch?v=Mi1QBxVjZAw
➢ What is Logistics Management? Role of Logistics in Supply Chain. Definition &

Importance in Supply Chain | AIMS Lecture - https://www.youtube.com/watch?v=4-
QU7WiVxh8
1. The Evolution of Logistics and Supply Chain Management

Six key developments:

1. Reduced transport intensity of freight

2. Falling product prices
3. Deregulation of transport
4. Productivity improvements
5. Emphasis on inventory reduction
6. Changes in company structure
1.1 Reduced Transport Intensity of Freight

Before:
➢ Raw materials
➢ High volume / low value freight
Now:
➢ More in-process and finished products
➢ More complex, longer distances
➢ Increased value to volume ratio > lower transport cost sensitivity
1.2 Falling Product Prices

Increase of competition + falling marketplace prices
➢ Continuous cost reduction
➢ Reduction of storage costs, inventory costs, transport costs, … are key for companies
in the competitive business.
1.3 Deregulation of Transport
5 principal modes of transport:
1. Road
2. Water
3. Rail
4. Pipeline

5. Air
➢ By removing unnecessary barriers to competition, markets have become more

competitive and tariffs have come down.
➢ Deregulation has had a positive impact leading to cheaper services.
➢ Easier and more efficient movement of freight around the world.
➢ FedEx: fast expansion after deregulation of the US air freight market.
1.4 Productivity Improvements

1.4.1 Containerization
➢ Standardization
➢ More efficient use of space
➢ More efficient handling and moving of goods
➢ Lower labor: volume and cost
➢ Use of different transport modes, move across from origin to destination > multimodal
transport
➢ Reduced transport cost
1.4.2 Barcoding
1.4.3 Online tracking and tracing
1.4.4 Radio frequency identification (RFID)
1.5 Emphasis on Inventory Reduction

➢ Often significant capital is tied up in unnecessary inventory.
➢ Importance of inventory management
➢ An essential competitive weapon
➢ Introduction of JIT deliveries
➢ Ability to respond to changing demand conditions
1.6 Changes in Company Structure

➢ Structure of companies has changed drastically
➢ More specialization, less vertically integrated
➢ Trend towards outsourcing
➢ Remove functional or silo-based thinking: hindering of the overall performance of a
company
➢ Key Success Factors (KSF) for companies:
o Time: ‘order to delivery time’
o Costs

➢ All 6 trends have led to a supply chain revolution
2. What is Logistics?
2.1 Logistics involves getting?
➢ the right product,
➢ in the right way,
➢ in the right quantity and right quality,
➢ in the right place at the right time,
➢ for the right customer at the right cost.
2.2 Logistics is?

➢ The process of planning, implementing and controlling procedures for the efficient and
effective flow and storage of goods, including services and related information from
the point of origin to the point of consumption for the purpose of conforming to
customer requirements.
➢ It includes inbound, outbound, internal and external movements.
2.3 What is Logistics Management?

➢ Logistics management focusses on the right product, at the right place, in the right
amount at the right time (4 R’s).
➢ Logistics management is primarily concerned with optimizing flows within the
organisation.
➢ The mission of logistics management is to serve the customer in the most cost-
effective way.
3. What is Supply Chain Management?

3.1 What is a Supply Chain?
A supply chain is a system of
organizations, people, activities,
information and resources involved
in moving a product or service from
supplier to customer. Supply chain
activities transform natural
resources, raw materials and
components into a finished product
that is delivered to the end
customer.

A supply chain is a network of connected and

interdependent organizations mutually and co-
operatively working together to control, manage and
improve the flow of materials and information from
suppliers to end users.
➢ More and more connected

➢ Many people are involved
3.2 What is a Management?

Simply defined, management is the process of planning, organizing, directing and controlling
the activities of an organisation for achieving the desired goals within the stipulated time. It
is the process of coordinating the different resources for a certain objective.
3.3 Supply Chain Management

3.3.1 Definition 1
SCM is the process of managing the supply chain. It includes the process of planning,
organizing and controlling the movement and storage of raw materials, work-in-process
inventory and finished goods from point of origin to point of consumption.
3.3.2 Definition 2
“SCM encompasses the planning and management of all activities involved in sourcing and
procurement, conversion and all logistics management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers, intermediaries,
third party service providers, and customers. In essence, supply chain management integrates
supply and demand management within and across companies.”
Definition by the The Council of SCM Professionals (CSCMP)
➢ Not alone in the world, you depend on your network.

3.3.3 Definition 3
Supply chain management can be defined as a
systematic flow of materials, goods, related
information and money among suppliers,
companies, retailers, and consumers.
➢ Most important one!

➢ It’s a whole range.
4. Distinguishing Logistics and Supply Chain Management

4.1 Supply Chain is a Wider Concept than Logistics
The concept of supply chain management is in fact an extension of the logic of logistics.
It is the management of upstream and downstream relationships with suppliers and customers
in order to deliver superior customer value at less cost to the supply chain as a whole.
SCM is a suitable tool for coordinating and integrating marketing, distribution & logistics,
purchasing and ICT.
➢ Get the right information and link the right information to get cost reduction and the
right products
➢ Each department has the opportunity to add value to your product/service
o EXAMPLE: Integrated supply chain process (VOLVO)
When trucks came in, they knew what parts were needed for maintenance of
trucks.
4.1.1 Supply Chain

The classical approach

4.1.2 Demand Chain

The firm as a value chain!
➢ Nike won’t produce shoes if there aren’t any orders → Demand!

➢ You have to have an integrated company → If sales does promotion, you’ll have more
sale, manufacturing has to be aware of that, supplier needs to have enough materials
ready, …
4.2 The Integrated Supply chain: End-to-End

Downstream
Materials flow
suppliers procurement operations distribution customers
Requirements information flow
Upstream
In SCM we speak about “End to end”
LEFT TO RIGHT
➢ Suppliers: You need basic materials; you supply this by buying it.
➢ Procurement: You want the best quality at the lowest cost, decide on delivery.
➢ Operations: Packaging, labelling, …
➢ Distribution: Prepare & deliver packages
➢ Customers: Final step → Either being delivered at their home or warehouses where
customers can buy products/services.
RIGHT TO LEFT
➢ Information, finances go back to company
➢ The fact that you paid goes back into the company → Also part of supply chain
management!!!
➢ See “3.3 Supply Chain Management: Definition 3” for image
5. Applications to Manufacturing and Services

Logistics and SCM can be used to generate:
➢ Cost savings
➢ Service improvements

Chapter 2: International Trade & Globalization (p.20 –

33)
1. Growth in International Trade
There has been considerable growth in recent decades in world trade.
World exports grew from $59 billion in 1948 up to $19,450 billion by 2019.
➢ Facilitated by decline in trade barriers and the increase in regional trade agreements.
➢ By consequence more freight is moving around the world than ever.
➢ Transport and logistics play a major role in the global economy.
Source: https://data.wto.org/
➢ Global trade has fueled the evolution of logistics and SCM.

1.1 World Trade
1.1.1 Top Exporting Countries

1. China
2. US
3. Germany
1.1.2 $bn and %

➢ Secretariat estimates.
➢ Imports are valued f.o.b.
➢ Includes significant re-exports or imports for re-export.
Source: WTO and Unctad

1.1.3 Important Conclusions
➢ Global trade heavily concentrated in a few countries
➢ Leaders are often Western industrialized countries
➢ Belgium has recently decreased, but has still high position

➢ Growing importance of China (although China recently lowered imports)

➢ Far East, especially China, Japan, South Korea and Hong Kong
➢ South America: Only Mexico and Brazil in top 30
➢ Africa not in top 30
➢ Leading exporters = leading importers
➢ US import value is very large in comparison with other countries – trade deficit
1.1.4 World Trade Flows
https://www.shipmap.org/
https://www.marinetraffic.com/en
/ais/home/centerx:3.3/centery:19.1/zoom:2
From Shanghai to Antwerp = app. 4-5 weeks, cost is

+/- 1200 – 1400 dollars, can hold 20-25 tons
Wasn’t always this cheap, price has a lot of fluctuations
Dry & Liquid Bulk = Raw materials
Source: UNCTAD – Review of Maritime Transport

2019
2. Containers: The Humble Hero

Containerization 1956 → Driver of globalization
https://www.youtube.com/watch?v=0MUkgDIQdcM

➢ TUE = Twenty-foot containers (how capacity of containers is expressed)

➢ CHECK EXPLANATION ONLINE!!

2.1 Changed Capacity
https://worldmaritimenews.com/archives/283088/evergreen-to-order-ten-23000-teu-
containerships/
https://www.flows.be/nl/shipping/wereldpremiere-voor-cma-cgm-eerste-containerreus-op-
lng-uitgedokt
Megacarrier Jacques Saadé - LNG

https://www.youtube.com/watch?v=uQx_EPScmCI

2.2 Changed Landscape
2.3 Competitors
➢ Expressed in number of containers (TUE) they carry.

https://alphaliner.axsmarine.com/PublicTop100/
2.4 Top US Container Importers and Exporters (By TEU in 2018)
Source: https://www.joc.com/maritime-news/top-100-us-importer-and-exporter-rankings-
2018_20190530.html

2.5 EU Main Trading Partners, Export/Import
3. Measuring Logistics Performance

3.1 World Bank Global Logistics Performance Index (LPI)
The World bank global logistics performance index (LPI) ranks 160 countries’ logistics
performance against six key dimensions:
3.1.1 Customs
How we perform our customs, how fast can you get your goods cleared? Nowadays via E-
Customs (much faster, blockchain).
3.1.2 Infrastructure
How well are you connected to seaports, roads, railways, airports, ...? How dence is your
network? (Belgium is very dense, many highways, railways, ...)
3.1.3 International shipping

How efficient can you organize your transport? Freight forwarder is someone who will help
you with your transport plan (they have a network, transport companies, will ask if you have
containers yourself, will arrange containers for you if necessary, will come to your
company/warehouse, you can fill the container with goods and they will transport the
container to place of choice).
3.1.4 Logistic competence

How competent is Belgium to other countries?

3.1.5 Tracking & tracing

Mainly technology, when will container leave, is container on top of vessel, is it in the terminal
in Singapore yet, ...?
3.1.6 Timeliness
Did you know?

… that according to the ‘Logistics
Performance Index 2018’, Belgium is
the third best country in the world
when it comes to logistics.
3.2 Unctad Liner Shipping Connectivity Index (LSCI)

Generated from five components:
1. Maximum vessel size in a country’s ports
2. The number of companies providing services to a country’s ports
3. The number of services offered by the liner companies
4. The number of ships deployed on services to a country’s ports
5. TEU capacity on the deployed ships

4. Globalization
Read p.26-29
5. Directional Imbalances
= When there are mismatches in the volumes or types of freight moving in opposite directions
in a freight market.
Example: China-EU route

➢ Contrary to persons, freight does not necessarily make a return trip.

o Not same volumes in both directions!!
➢ Challenge is to match inbound freight with outbound freight


Chapter 3: Supply Chain Relationships (p.34-56)

1. Globalization of Supply Chains
➢ Growth in international trade and global competition has led to new :
o Sourcing patterns
o International networks of production
➢ Thereby supplier management and effective relationships play critical roles in
contemporary global supply chains, especially for multinational enterprises.
➢ Supply networks and effective relationships between suppliers and customers have
become differentiators of high-performing supply chains.
Globalization of the manufacturing sector has resulted in the following trends:

➢ Global competition
➢ Competitors, partners and customers from around the world
➢ Global sourcing
➢ Global presence
➢ Global value chains resulting in increasing complexity and competition
➢ Global access to knowledge and new technologies
➢ High levels of customer awareness and expectation
➢ Rapid pace of technological change
➢ Fast rate of product commoditization
➢ SCM expertise and innovation as preconditions for business success
Asia, India and China have become global centers for a large number of sectors.
Increased trend of:
➢ OUTSOURCING and/or OFFSHORING
➢ Several reasons for outsourcing / offshoring
➢ Price is not the only criterion !
➢ Total cost of outsourcing / offshoring
2. Outsourcing
The transfer to a third party of the management and delivery of a process previously
performed by the company itself
➢ Requiring:
o Service Level Agreements (SLAs)
o Supplier relationship management and development:

▪ Collaborative partnership
▪ Shared information
▪ Avoid squeezing suppliers
➢ Scale of outsourcing
➢ Creating:
o Virtual organizations (ex. Airbnb, Veepee , …)
2.1 EOM
An original equipment manufacturer (OEM) makes equipment or components that are then
marketed by its client, another manufacturer or a reseller, usually under that reseller's own
name.
OEM’s work closely with carmakers to build parts used in the manufacture and repair of new
vehicles. Some also produce branded replacement parts for car dealers and independent
repair shops.
A mechanic may give you a choice of using OEM or typically less expensive aftermarket parts
when your car needs a repair.
An OEM may make complete devices or just certain components, either of which can then be
configured by the reseller.
2.2 Reasons for Manufacturing Outsourcing

➢ Focus on core business
➢ Reduce direct and indirect costs
➢ Reduce capital costs
➢ Reduce taxes
➢ Reduce logistics costs
➢ Overcome tariff barriers

➢ Provide better customer service

➢ Share risk
➢ Pre-empt potential competitors
➢ Learn from local suppliers, foreign customers or competitors
➢ Gain access to world class capabilities or attract talent globally
3. Offshoring
The transfer of specific processes to lower cost locations in other countries.
➢ Not the same as outsourcing
➢ Outsourcing involves handing process ownership over to a third party
➢ In offshoring, the company may still own and control the process itself in the lower
cost location.
→ Main reason for offshoring is to reduce costs!
4. Failures in Outsourcing

5. Evaluating and Selecting Outsources

5.1 Criteria
→ Order qualifiers
➢ Reliability of delivery
➢ Quality certifications
➢ Conformance to agreed specifications
➢ Delivery lead time
➢ Financial capability
➢ Performance track record
➢ Price or cost reduction
➢ Senior management attitude
➢ Responsiveness to demand uncertainty
➢ Record of corporate social responsibility (CSR)

5.2 Order qualifiers

Must be met in order to be considered as a possible supplier
5.3 Order winners

Realizing a positive cost-benefit trade-off for the outsourcer

6. Outsourcer and Outsourcee Relationship Development

6.1 Four stages
6.1.1 Master – Servant stage
Outsourcer sets the expectations, the outsourcee delivers. Driver is low cost.
6.1.2 Consultative stage

Outsourcer consults with the outsourcee. Additional drivers: quality, reliability and
responsiveness.
6.1.3 Peer-to-Peer relationship stage

Ideal stage, intensive collaboration, long-term relationship creating win-win.
6.1.4 Competitive stage

Outsourcee takes the lead and competes with the outsourcing company.
7. Supply Chain Integration

➢ Integration is the alignment and interlinking of business processes and information
flows.
➢ Suppliers and customers are increasingly becoming interlinked along the supply chain
➢ Integration is an enabler of collaboration.
7.1 Four primary

modes of integration:
1. Internal integration
2. Backward integration
3. Forward integration
4. Forward and backward
integration
7.1.1 Internal
integration
= Inter-enterprise, within
the boundaries of the company
Via:

➢ Structuring the organisation

➢ Implementation of information systems for improved communication and information
sharing
Resulting in:
➢ Minimization of non-value adding activities
➢ Reduction of costs
➢ Reduction of lead times
➢ Improvement of service quality
➢ Reduction of functional silos
7.1.2 Backward integration

= Process-oriented, with partnerships and alliances to streamline the pipeline
Forward, backward, forward backward.
Strategy is driven by supply chain optimization.
Achieved via streamlining of information sharing and processing between supply chain
partners.
➢ EDI, an automated transfer of data, is a key enabler of supply chain integration.
Design and match work structures, organizational structures and processes with suppliers.
7.1.2.1 The Keiretsu Supply Chain Structure

Manufacturers working closely with their first-tier suppliers to integrate manufacturing,
logistics and information processes. In turn the first-tier suppliers work closely with the
second-tier suppliers, and so on.
The general structure of contemporary production networks among carmakers and their
suppliers in the automobile industry.
The multi-relationships include horizontal linkages between suppliers in the same tier.
Optimal and uniform organizational structures are fundamental to integrating actors in a

supply chain.

8. Supply Chain Collaboration Principles

➢ Supply chain integration is enabler of collaboration
➢ Integration is product and process oriented.
➢ Collaboration is focused on relationships.
➢ Collaboration is dependent on the provision of mutual benefit.
➢ In supply chains, mutual benefit between suppliers is difficult to achieve. (Ex.
supermarkets, automotive).
➢ The dynamics of trust and collaboration (prisoner’s dilemma)
➢ Hence trust becomes an issue.
8.1 Prisoner’s Dilemma

You and a partner are suspected of committing a crime and arrested. The police interview
each of you separately. The police detective offers you a deal: your sentence will be reduced
if you confess! Here are your options:
If you confess but your partner doesn’t: your partner gets the full 10-year sentence for
committing the crime, whilst you get a 2-year sentence for collaborating.
If you don’t confess but you partner does: the tables are turned! You get the full 10-year
sentence, whilst your partner gets the 2-year sentence.
If both of you confess: you each get a reduced sentence of 5 years.

If neither of you confess: you are both free people.
> The dilemma you face is ‘do you trust your partner to make the same decision as you?’
The best strategy is based on trust and results in win-win.

If neither partner trusts each other, it is most likely that both will confess and spend time in
prison.
➢ Trust needs to be built up step by step!

Collaboration has two dimensions:

1. Vertical collaboration: between suppliers and customers
2. Horizontal collaboration: between competitors and other supply chain actors
9. Supply Chain Collaboration Methods

Read: Not mandatory

Chapter 4: Supply Chain Strategies (p.57-76)

1. Strategy
2. The Evolution of Manufacturing
→ See the arrow from craft production, via mass production, lean
production and now mass customization.

3. Lean Production
Lean production and logistics is focused
on eliminating waste using a set of proven
standardized tools and methodologies
that target organizational efficiencies
while integrating a performance
improvement system utilized by everyone.
The origins of lean production and

logistics can be traced back to the car company Toyota and its Toyota Production System
(TPS).
➢ Push: Make to stock

➢ Pull: Make to order

3.1 Key Areas of Waste
Eliminate waste (in 7 key areas)
4. Agile Supply Chain and Mass Customization

Current trends:
➢ Expanding product variety
➢ Short product life cycles
➢ Increased outsourcing
➢ Globalization of businesses
➢ Continuous advances in information technology
➢ Hyper competition
➢ Increasing demands from customers
 This leads to a high volatility in demand for products
➢ The agile supply chain is a demand-pull chain designed to cope with volatile demand
→ Structured, to allow maximum flexibility
➢ Enabled by mass customization

→ Often incorporating postponed production
➢ Agility is concerned primarly with responsiveness.

4.1 Mass Customization
Different product configurations contain a majority of shared components and features to
accommodate volume and variety.

Enabled by postponement
➢ The reconfiguration of product and process design to allow postponement of final
product customization as far downstream as possible.
➢ Not only applied to manufacturing.
➢ e.g. packaging postponement is merely delaying final packaging of products until
customer orders are received.
Packaging postponement: Product can be quickly packaged as required once specific orders
are received.
4.1 The Principle of Postponement
4.3 Customer Order Decoupling Point (CODP)

➢ The CODP indicates how far upstream (in a supply chain) a customer order penetrates
the production or distribution process of the supplier of a product or service.
o Where are the inventories held?
o Where the customer order is placed and known to parties in production process
➢ Downstream = Inventory is held close to the customer side
➢ Upstream = Inventory is held closer to the supplier side

➢ 5 CODP’s
From supplier to customer → Downstream

From customer to supplier → Upstream


→ Assemble to Order
→ Expensive Products

→ Design, Purchase and Make to Order
4.4 Importance of CODP?

Great influence on organizing logistics
Determines degree of business risk
➢ Before CODP:
o Production based on demand forecasts - manufacturer carries all the inventory
risk for the products made before the CODP
o Risk of overstock and unsaleable products
➢ After CODP:
o Production based on customer orders: manufacturer has no inventory risk for
products completed after CODP
o Risk of delay in supply, longer delivery leadtime
➢ Push vs pull

5. Combined Logistic Strategies

➢ Focus on processes and flows
➢ Focus on high level objectives
➢ The importance of people
➢ Its supply chains that compete

o Increasingly it is supply chains that compete more so than individual firms and
products.
5.1 What is a Bullwhip-Effect? (SEE VIDEO IN PP)

➢ Inventory levels fluctuate along the supply chain
➢ Distortion of orders along the supply chain, where small fluctuations in end customer
demand result in amplification of demand upstream
➢ Serious problem for supply chains:

o Demand amplification creates excess inventory, which in turn consumes

warehouse capacity, has serious cost implications and may never be used!!
➢ Details on causes not to be known !! P.74
5.1.1 Example Bullwhip-Effect Beer

Chapter 7: Logistics Service Providers (p.131-141)
VIDEO
Contract Logistics – services offered by a Logistics Service Provider
https://www.youtube.com/watch?v=6qkmFDmaWF0
→ DB Schenker Consumer solutions
1. Developments
➢ Globally, logistical costs are growing.
➢ Logistical costs become a more important part of the added value of products.
➢ Logistical management is increasingly becoming a differentiating element in
international competition.
➢ Fueled by several factors:

o Change in customer demands
o Assortment expansion
o Faster development of new products
o Smaller orders
o More frequently placed delivery orders
o Shorter lead-times
o …
➢ Manufacturers have to react faster to meet the changing demand (agile).

➢ Flexibility in order to gain market advantage.
➢ New concepts of collaboration between manufacturers and suppliers (JIT, TQC).
➢ More streamlining and controlling of the entire logistical chain.
2. Considerations
➢ Manufactures must ask themselves whether their in-house logistical functions are
capable of performing their tasks at a competitive price-quality ratio.

➢ Companies have to consider or reconsider the question whether to carry out their own
logistical management or to contract it out (make or buy?).
➢ Focus on manufacturing and marketing rather than on running a distribution system?
➢ Focus on core activities.
➢ Is ‘logistics’ a candidate for outsourcing?
This collaboration can also provide the added benefit of being able to control your supply
chain without the huge investment associated with warehousing and
transportation assets.
3. Logistics Service Providers (3PL-4PL)

➢ When a service provider takes care of a shipper’s entire logistical function, including
the data flows involved, it is called a ‘Third Party Logistics Service Provider’ (3PL).
➢ 3PL are companies who provide a range of logistics activities for their clients. They
might operate distribution centers, manage the delivery of the product and/or
undertake value adding services.
➢ A ‘Fourth Party Logistics Service Provider’ (4PL) is an independent specialist that

manages and integrates the complete end-to-end supply chain.
➢ A 4PL takes the lead on advising or making supply chain decisions on behalf of the
customer.

3.1 Outsourcing to WHO?

1. Third party logistics is the management of logistic services beyond transportation. This
might include storage, shipment and value-added services as well as the use of
subcontractors.
2. Fourth Party Logistics (4PL) is the integration of all companies involved along the firms’
supply chain. → within the firm
5PL: combines different SC’s of different customers → between firms!
4. Value-Adding in Logistics
➢ ‘Value-adding’ is the additional value a product can obtain in a logistical chain as a
consequence of being subjected to form, place or time-related changes.
➢ VAL involves the transmission of manufacturing activities into distribution
environments.
➢ The concept of VAL is strongly related to the principles of the order penetration point
(or order decoupling point concept) (Hoekstra, Romme; 1992).
VAL involves the transmission of manufacturing activities into distribution

environments.

In the development of value adding logistics four stages can be identified:

1. Value-adding transportation
➢ Maximum physical flow
2. Value-adding information
➢ Where is my order?
3. Value-adding production
➢ Delegation of manufacturing activities to distribution companies
4. Value-adding services
➢ Customs, ex/I’m know-how, invoicing, banking, insurance, testing, certification
→ One or more of the four VAL stages form the core business of logistics service providers
(3PL)
4.1 The Order Decoupling Point (or Order Penetration Point→ See Chapter
4)
➢ Indicates how deeply the customer order penetrates the firm’s materials planning
systems
➢ Defines from what moment on a production order becomes customer specific
➢ Is the turning-point where push becomes pull and vice versa
➢ Identifies the stage in which VAL activities are involved

5. Logistical Activities
➢ When outsourcing is under consideration, the activities that qualify for outsourcing
must be identified first.
➢ The logistical activities can be divided into activities related to:
o Physical goods flows
o Information goods flows
5.1 Activities Relating to Physical Goods Flows

➢ Physical handling-in
o Receiving and unloading of goods

o Degrouping
➢ Storage control
➢ Internal transport
➢ Physical handling-out
o Order picking
o Grouping
o Loading
➢ Reconditioning and packing
o Palletizing and depalletizing
o Packing and repacking
o Labelling and relabeling
o Preparing an order for shipment
➢ External transport (national and international)
➢ Delivery
➢ Completion return shipments
5.1.1 Example: Vehicle Processing – ICO Terminals

http://www.icoterminals.com/en/vehicle-processing
5.2 Activities Relating to Information Flows

➢ Order entry
➢ Administrative handling-in
o Goods clearance
o Quantity check
o Quality check
➢ Administrative handling-out
o Check on orders and number of order lines
o Preparing for shipments (doc)
➢ Creditworthiness check
➢ Completion customs papers
➢ Inventory control
➢ Wall to wall cycle count
➢ Invoicing (outgoing)
➢ Customer service (e.g. complaint resolution)
➢ Providing mgmt. information (PI’s)
➢ Reporting/dashboard (efficiencies, KPI’s)

 Quantity Check: Orders, volumes, weight

 Quality Check: Packing, documentation, sell-by date, …
 Inventory Control: Is exercised through inventory audits and cycle counts, more
frequently, spot check
 Wall to Wall Cycle Count: Once a year, end of financial year and closing of books
entails doing wall ...
Depending on the specific circumstances, ‘do or buy’ should be considered.
6. Stages of Outsourcing
➢ Every of the in 5) mentioned logistical activities can be outsourced
➢ The outsourcing towards logistical service centers can be divided into stages

3
4
5
1 2 8
9
7 10
11
6.1.1 Single Transport

Single transport involves transport from a to b – the only activity of the service provider (sp)
is renting out a truck and a driver.
6.1.2 Regular Transport

Regular transport is single transport on a regular basis.
6.1.3 Transport Center

In a transport center the sp takes care of the routing and optimal staffing.
6.1.4 Transshipment Center

At a transshipment center goods are unloaded, degrouped and regrouped. The sp is
responsible for optimal usage of truck capacity and routing. Goods do not stay longer than
necessary for regrouping.
6.1.5 Buffering Storage Center

At a buffering storage center goods stay long enough to balance the goods flows (cfr just in
sequence delivery).
6.1.6 Transport Center

A 3rd party able to deliver this service is called a transport center.
6.1.7 Network Structure

When transport centers are linked a network structure, serving different customers, is created.

6.1.8 Warehouse Storage Center

In a warehouse storage center goods are stored for a longer period; shipper is still responsible
for the information flow related to receipt and dispatch.
6.1.9 Stock Center

At a stock center the sp is responsible for the information flow of receipt and dispatch, the
stock levels and consequently for the service level.
6.1.10 Distribution Center

As a result the sp has responsibility for the entire goods flow and has the status of a
distribution center, transport plays a secondary role.
6.1.11 Logistics Service Center

The most advanced service form is the logistics service center, the sp takes care of optimal
goods flows and information flows securing full visibility (order entry, t&t, invoicing, reporting,
…).
 Transshipment = Cross-dock
 Transport Center → Network structure: if several transport centers are linked
o Companies have determined in what geographical area they have strong
operations
o And what kind of goods they want to transport (electronics, fmcg, adr, EP, waste
pallets, boxes, …)
o Paid per package/pallet/unit transported, per distance
o Cfr Schenker road haulage network –DHL Freight network
 Storage Center: Only storage, shipper is still responsible for the information flow
 Stock Center: Inventory mgmt. by the sp/3PL
 Distribution Center: inbound, inventory and outbound
7. Decision Criteria
➢ Why outsource logistical activities?
➢ Developing a business case helps logistics managers to determine if the decision has
strategic, financial and operational justification.
➢ Reasons for outsourcing:

7.1 Strategic Factors

➢ Focus on core competencies
➢ Improve customer service
➢ Enhance flexibility
➢ Improved capacity utilization
7.2 Operational Factors

➢ Improved process execution
➢ Improved technology
7.3 Financial Factors

➢ Reduce costs
➢ Reduce capital requirements
8. Advantages – Disadvantages
8.1 Advantages
8.1.1 SP Advantages
1. Greater efficiency
2. Economies of scale
3. Utilizing full capacity (counterbalancing peaks and drops)
4. Transport optimization (return trips)
5. Specific know-how
6. Improved technology
7. Higher flexibility
8.1.2 Manufacturer Advantages

1. No investment in buildings and materials
2. Capital invested in core activity
3. Flexibility in storage
4. Fixed costs are made variable
5. Easier budgeting and allocation of costs
6. Focus on core business
8.2 Disadvantages
1. Less frequent & less direct contact with the customer
2. Delay in customer feedback
3. Less direct control and ability to react quickly
4. Share confidential information
5. IT integration (development and costs)
6. Interdependence (long term)
7. Risk of failure or mismatch

9. How to Outsource
Following steps should be taken:
1. Perform strategic assessment
2. Decision to form relationship
3. Evaluate alternative options
4. Potential partner capabilities & company needs & priorities
5. Select partner
6. Structure operating model
7. Implementation & continuous improvement
10. Criteria for Selecting a SP

➢ Service quality (more important than price?)
➢ Integral quality control system
➢ Availability of equipment (owner or renting)
➢ Level of involvement
➢ Level of partnership
➢ Degree of flexibility
➢ IT integration/ synchronization possibilities
➢ KPI’s & reporting
➢ Documentation and information supply (T&T)
➢ Network density (own or subcontractor)
➢ Tariff structure (open or closed book)
➢ Financial strength (continuity)
➢ Culture (correspondence)

➢ Personnel attitude, motivation, training

➢ Communication procedures
➢ Nonperformance agreements
➢ Continuous improvement
➢ …
 Level of Involvement: willing to invest, keep pace with the technological

improvements
 Level of Partnership: able to think ahead, solution oriented, …
Be well prepared! As soon as the outsourcing is started, make sure you do it in the
right way. Once outsourced the reverse process is much more difficult and costly.

Chapter 8: Procurement (p.142 – p.166)

0. Procurement
Logistics Management Process
1. Purchasing vs. Procurement

1.1 Difference Between Purchasing and Procurement
The terms purchasing and procurement are often used synonymously although they differ in
scope:
➢ Purchasing generally refers to the actual buying of materials and those activities
associated with buying process.
➢ Procurement is broader in scope and includes purchasing, transport, warehousing and
all activities related to receiving inbound materials.
1.2 Stages of a Procurement/Purchasing Function

➢ Strategic sourcing (commercial)
➢ Operational Purchasing (logistics)
SMR Supplier Relationship Management

1.3 Procurement and Relationship Strategies Have Evolved
2. Procurement as a Strategic Activity

➢ Procurement is about specifying requirements, identifying sources, evaluating options
and acquiring resources that fit for purpose, cost effective and sustainable.
➢ Procurement as a strategic and tactical activity has become increasingly important:
o Global sourcing
o Complexity
o Governance: how why and with whom
o Consistent with legislation, regulations, values and objectives
o From spend management (traditional view) to profit potential, to corporate
social responsibility, governance and environmental commitment
➢ Contemporary procurement reflects a wide range of criteria that includes cost, or more
particularly value, rather than price.

3. The Difference Between Public and Private Sector Procurement
4. Procurement and Markets

➢ Defining sourcing strategies is the first step for an organisation (SME or multinational)
in considering how it will secure supply either on a local, national, regional or global
basis and interact with the market place and suppliers.
➢ As a minimum, a sourcing strategy for a clearly defined requirement should include:
o Level (amount) of spend being considered
o Risk
o One-off (project) or recurring procurement
o Market maturity
o Number of sources and potential suppliers
o Contract duration
o Potential for performance improvement and cost reduction
5. Managing Value and Risk

5.1 Kralijk Matrix
The role of procurement is to manage value and risk on behalf of the organisation.

➢ Value: to be understood as financial impact

➢ Risk: delivery risk
➢ Used in terms of identifying portfolios or categories of spend and quantifying them by

risk and value
➢ Powerful tool to understand and quantify
o Relative value
o Procurement risk
➢ Used to develop an appropriate sourcing strategy to manage risk and value
➢ Kraljic identified 4 types of purchasing products (portfolios of spend) using. Every type
requires another procurement strategy.

5.2 Pareto Principle

➢ ABC analysis
➢ 80% of spend is with 20% of the suppliers (A)
➢ 15% of spend is with 50% of the suppliers (B) and the rest of 5% is with 30% of the
suppliers (C)
➢ This highlights the importance and significance of some suppliers versus others and
the relevance of efficient supplier management.
% of spend
% of suppliers
6. The Role of The Buyer
The role of the buyer has developed from managing or dealing with transactions to procuring
assets, resources and services fundamental for the success of a business.
The role of the procurement manager is to create an appropriate level of competition to
manage the level of risk and value that the business faces when sourcing or procuring goods,
services or works. In some businesses a CPO is appointed.
Table 8.5: typical methods, used to achieve appropriate level of competition (at the suppliers
level).

7. The Procurement Process

7.1 What is a Procurement Process?
1. Decide whether production will be in house or via outsourcing (make or buy)
2. Develop a strategic purchasing package
3. Continuous optimization of all supplier data
4. Development and management of the relationship with the supplier
5. Optimizing product / process innovation and development
6. Integrating suppliers into the order process
7. Improving supplier’s performance, monitoring and increasing quality
8. Execution of a strategic cost management
Procurement must be considered as a process or lifecycle.

This process is repeated within a business as different contracts mature, expire or are
renewed on a continual basis.
Four stages to be considered in developing a sourcing strategy:

1. Specify
2. Identify
3. Select
4. Manage
7.2 Procurement Organisation

➢ Depends on the level of spend and procurement skills across the business
➢ Traditionally: procurement organisation to be a sub-set of the finance and
administration activities
➢ More recent, reflecting the strategic nature of procurement: the organisation or team
as standalone activity with specific objectives, targets and goals
➢ Procurement teams:
o Centralized or decentralized by location
o Organized by business unit or by spend category
o Organized in terms of strategic or tactical roles
➢ Tendency for centralization, creating a center of gravity with more standardized
activities and areas of common spend
➢ Central procurement organisation able to realize more aggregated and consolidated
large central contracts
➢ Strategic: high risk, high value

➢ Tactical: low risk, high value
7.3 Category Managers

➢ A category manager manages a portfolio of contracts or a category of spend with
similar characteristics that can be grouped and considered in strategic terms in
relationship to supplying across different business units.
➢ A category manager sources centrally across the business, taking into account local
and overall requirements.
➢ Central versus local
o Central: increased volume, increased value resulting in increased risks,
category manager dealing with requirements across multiple sites
o Local: to satisfy local demands, dealing with local suppliers by a local buyer
7.4 The Role of Technology

➢ Enterprise resource planning (ERP) supports complex organizations with multiple
activities in different locations.
➢ Packages (web or cloud based) enabling sharing of information with suppliers: fex
tender managing software:
➢ submit tenders online
➢ guarantee secure delivery of data, info and input
➢ utilize predetermined process parameters (fex deadlines)
➢ streamline the process and eliminate admin
➢ E-auctions: preselected suppliers bid for a contract
➢ Tools and technology provide rich data, enabling companies to review and analyze
demand patterns and service levels
7.4.1 E-Auctions
➢ Preselected suppliers
➢ A predefined number of rounds or a defined period
➢ Giving visibility of the competing bids
➢ Quite impersonal
➢ Tool to reduce prices drastically
➢ Used accompanied by a 3PL
7.5 Price, Cost and Value

➢ Traditionally procurement has focused on price
➢ However, service associated with the procurement and delivery of the product is
equally important
➢ Price is not the same as cost: procuring a low-priced product could generate higher
maintenance or repair costs
➢ Total Cost of Ownership (TCO) ~ Value for money (VfM): 4 cost components

1. Purchase price
2. Acquisition costs
3. Usage costs or operating costs
4. End-of-life costs or disposal costs
7.6 Low Cost Country Sourcing

➢ Technology and improved infrastructure have increased the options available to many
organizations to source and procure goods from low-cost countries.
➢ Due to internationalization and globalization of businesses products and services can
easily be sourced at a fraction of Western equivalent prices.
➢ Justifiable with respect to sustainability, environmental costs, social costs?
➢ Consumers are now much more aware of sources of origin so this can be an important
factor or a public relations disaster if not managed properly.
o Fex Mattel:
▪ Policy of manufacturing 2/3 of its toy range in China
▪ Paint to be found lead-based
▪ 21 million toys recalled or returned (2007)
8.Ethnical Sourcing & Sustainability

➢ Complex logistics networks make it possible to source from anywhere in the world in
short lead-times and in a cost-effective manner.
➢ Consumers are increasingly aware and critical of where and how their products are
being sourced/manufactured.
➢ Businesses have to consider their procurement practices, particularly when it comes
to sourcing in low-cost countries.
➢ Sourcing decisions increasingly reflect a wider range of social and environmental
issues, not just price and cost.
➢ Businesses are challenged to justify the real cost of a product.
➢ Ethical issues must be considered and may include:

o Health and safety
o Diversity and equality
o Fair wage policies
o Working conditions
o Human rights issues
o Sustainability
o Green products
o Environmental performance
o Carbon emissions
o Transport

o Role of the business as an employer, customer and corporate citizen
➢ Green products may be defined as products that contain recycled materials, reduce
waste, conserve energy or water, use less packaging, and reduce the number of toxics
disposed or consumed.
➢ Environmental performance - Fex: The concept of food miles, where food is
transported around the globe. This concept is an important part of the environmental
footprint of food production and consumption.
➢ Poor procurement decisions can have significant implications in terms of damage to

the company’s reputation.
➢ Companies are forced to apply a Corporate Social Responsibility policy (CSR).
➢ This adds an additional level of complexity but is of primary importance for the
reputation of companies.
➢ Especially in public procurement the principle of triple bottom line is applied:
sourcing decision must take into account their social, economic and environmental
impact.
WATCH VIDEO IN POWERPOINT SLIDE 25
9. Procurement and Supply Chain Management (Read Only)

Chapter 9: Inventory Management (p.167-188)

1. 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 flow
➢ Inventory takes up space
➢ Firms need to hire people to take care of inventory
➢ The goal in inventory management is to minimize inventory holding while maintaining
a desired customer service level.
1.1 Different Types of Inventory

1.2 Inventory Locations Throughout the Supply Chain
1.3 Inventory Turnover

➢ A concept used to measure a firm’s performance in inventory management
➢ Compares annual sales with the amount of average inventory held throughout the year
➢ The higher the turnover, the better a firm is doing in keeping its inventory costs down
1.4 Reasons for Holding Inventory + Trade-Offs
Inventory used as a buffer between processes along the supply chain. Inventory holding costs
are traded-off with other economic advantages.

1.5 Theoretical Inventory
Initial stock = 24 Batch size=25
1.5.1 Theoretical Inventory – Exercise
Initial stock = 45 items

1. Calculate the planned inventory
2. Will you run into trouble?
3. Analyze the situation/what will you do?
1.6 Costs of Stock-Outs

➢ Costs of stock-out situations
➢ Costs of stock-outs are those costs incurred by an organization when it has no
inventory in stock. These costs include:
o Production stop (lost production, labor waste, waiting time, restarting costs,
change over costs, …)
o Loss of business from customers who go elsewhere to make purchases
o Loss of the margin on sales that were not completed
o Overnight shipping costs to acquire goods that are not in stock
➢ Stock-out situation = a customer wants a product and it’s out of stock, it’s not available
o Wait
o Backorder
o Cancel
2. The Economic Order Quantity (EOQ) Model
2.1 Inventory Build-Up and Depletion

➢ Costs associated with inventory can be classified in two broad categories

➢ Costs associated with procuring the inventory
➢ Costs associated with actually holding the inventory
Questions:
1. What level of safety stock should be held?
2. What should be the re-order point?
3. What should the order quantity be?
2.2 Level of Safety Stock

Safety stock = Buffer stock

➢ Variation of demand
➢ Variation of lead time
➢ Variation of production
➢ Variation of quality
➢ …
2.3 Small vs. Large
2.4 Economic Order Quantity
D: Annual use of a particular item, in number of items per year

S: Order-processing cost, in $/order
p: Price per item, in $/unit
H: Holding cost per unit per year, in $/unit/year
Q: Number of items ordered in one purchase order, in units
T: Time periods between purchase orders in fraction of a year
SS: Safety Stock, in units
L: Lead time, in fraction of a year
I: Current inventory on hand, units
TAC: Total annual cost
To minimise the total annual cost, there is best order quantity, the Economic Order Quantity
(EOQ).

2.5 Economic Order Quantity
OF - Order Frequency
𝑂𝐹=𝐷/𝐸𝑂𝑄
𝑂𝐹=1200/35
𝑂𝐹=34,28
→ Order frequency is 35 times per year
3. Inventory Control Systems

Reorder point inventory control system: inventory levels are continuously monitored, and
orders are issued when the inventory is depleted to a predetermined level, called the reorder
point (ROP).
ROP = the unit quantity that triggers the purchase of a particular stock item
ROP = (D x L) + SS

3.1 Periodic Inventory Control System

In the periodic inventory control system, orders are reviewed periodically (not continuously as
in the reorder point system), after the passage of a fixed time period (T).
T = EOQ / D
At each review time, the current inventory level (l) is determined, and enough inventory is
ordered to bring the inventory level to a target maximum level (M).
4. Supply Chain Inventory Management

4.1 Inventory Reduction Strategies
4.1.1 Inventory Centralization
Less safety stock is required in the central location, than in the multiple locations.

4.1.2 Delayed Product Differentiation

See postponement in chapter 4
➢ Making multiple products requires (safety) stock for each product

➢ By using ‘intermediate’ products (= semi-finished), manufacturers try to differentiate
as late as possible in the delivery process
➢ The intermediate product is stored with a certain safety stock needed as demand
occurs.
➢ By postponing final assembly of the intermediate product, manufacturers can
centralize and reduce inventory, create greater flexibility, and bring simplicity to the
manufacturing.

4.1.3 Part Commonality
Reduce the number of different parts wherever possible
B~Y
Reengineered part D
Similar to delayed product differentiation

BUT: more advanced and aiming at reducing the number of different
parts wherever possible.
4.1.4 Transit Inventory

When inventory moves across a supply chain, it is in transit.
➢ Lead time directly affects costs
➢ Higher transit times result in higher transit inventory costs
➢ Transit inventory costs exist in each part of the supply chain where inventory is in
transit, such as from the supplier to the manufacturer and from manufacturer to the
distributor
➢ Companies use transport as a ‘mobile or rolling warehouse’
➢ By using alternative transport modes, the flow of inventory through the supply chain
can be speeded up or slowed down
➢ In-transit inventory is an important category of inventory
5. Matching Inventory Policy with Inventory Type

5.1 ABC Analyses
Too many SKUS!
ABC analysis separates out the most important items so that

more attention can be focused on those items.
Only a few items account for most of the inventory expenses.
A-class (20%)
B-class (30%)
C-class (50%)
→ ABC analysis is a focusing tool
Relevance of ABC-analysis in terms of turnover and profit

contribution
➢ Make elimination decision

oC-products contribute little to turnover, these products are eligible for removal
of the product range
➢ Be careful! Do not remove products solely based on the ABC-analysis:
o Products at beginning of life cycle
o Interdependence of products
o Turnover gives not enough information (with respect to profit contribution)
5.2 Inventory Flow Types

Inventory can be categorized
into three flow types
1. Base (core)
2. Wave (seasonal)
3. Surge (fad)
Management approach tailored

to the product and market
characteristics.
Fad = Fashionable, temporarily demanded, passing fancy.
6. Inventory Reduction Principles

Inventory reduction needs to be consistent with the strategic goals of customer service.

6.1 Pool Inventory

Wherever demand for inventory can be combined, the safety stock can be lowered, still
providing the same service level.
6.2 Reduce Variation

Wherever variation can be reduced, safety stock can be reduced too.
6.3 Reduce 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.
6.4 Just-in-time inventory system (JIT)

➢ Making do with the minimum possible level of inventory holding
➢ JIT is as much a philosophy as it is a technique
➢ Core concepts:
o Inventory hides problems!
o By purposely removing inventory holdings, the problems the inventory was
covering are surfaced, and the problems are then proactively fixed.
o Small lot production
o Ordering in small quantities keeps the average inventory level small
o Hence reduce order processing costs so that the ideal of small quantity ordering
can be accomplished.
o Simplifying the ordering process and the reconfiguring of manufacturing tools
and machines.
o Actively improve the setup process so that the time and effort in setups are
reduced drastically.

Chapter 10 + 11: Warehousing Materials Handling

Technology (p.208 – 219)
1. Warehousing in Global Supply Chains

➢ Global supply chains are part of networks, requiring multiple
operational levels, at different international locations.
➢ Inventory is stored in the various (international) locations, in
various states of manufacture or assembly.
➢ The role of warehousing and materials handling is to maintain
the flow of goods through the production/manufacturing
process, all the way to the end customer.
➢ Various states:
o Raw material
o WIP
o Semi-finished
o Finished
Costs in supply chain warehousing are mainly:

➢ Fixed asset costs (warehouses + equipment)
➢ Labour (handling)
➢ Administration
➢ Inventory (centrally – locally)
➢ The objective of supply chain management is to minimize inventory holding and

handling costs.

➢ BUT in contemporary supply chains, customization and responsiveness to market

demands more than ever require multiple inventory holding points.
o PARADOX
o therefore, material storage and handling systems have two main objectives:
1. Minimize cost
2. Add value
o Warehousing and distribution centers are essential to global supply chains, they
are complementary to other supply chain activities.
Paradox:
➢ The more standardization in finished products and SC processes, the easier to atomize.
➢ BUT in e-commerce customization is a key element, which makes it more difficult to
atomize.
1.1 Value-Adding Activities

Warehouses should aim to provide value-adding services as well as minimizing operating
costs.
➢ Warehousing operations can achieve this by:

o Creating bulk consignments
o Breaking bulk consignments
o Combining goods
o Smoothing supply to meet demand
➢ Important role of warehousing in the
postponement concept:
o Order fulfilment as close to the
customer as possible.
2. Warehouse Design and Layout

All activities within a warehouse can be associated with one of the four functions:
Warehouse layouts are designed to optimize the flow of goods through these four functions,
aiming at reduced goods movement and handling.

2.1 Automation in Warehousing

2.1.1 Manual Warehouse
➢ Forklifts
➢ Reach trucks
➢ Picking lists
➢ Hand scanning
➢ ERP
2.1.2 Semi-Automated Warehouse

➢ Automated cranes
➢ Forklifts (manned)
➢ Handsfree Picking
➢ Goods to man

➢ WMS

2.1.3 Fully Automated Warehouse

➢ Automated cranes
➢ AGV
➢ Conveyors
➢ Robots
➢ TMS / WMS

WATCH!!!!
The Warehouse of the Future – WITRON’s OPM Technology at Meijer in Wisconsin

https://www.youtube.com/watch?v=bn5jjVKhFUs
2.1.4 Cross-Docking
➢ Cross-docking bypasses the storage area in warehouses and distribution centers:
o Reduces cost
o Improves customer service
o Non-value-adding functions are eliminated
o Typically employed for fast moving freight with constant demand, less then
24h on site
= Quick response logistics

3. 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
Enterprise resource planning (ERP) is the integrated management of main business processes,
often in real-time and mediated by software and technology.
ERP provides an integrated and continuously updated view of core business processes using
common databases maintained by a database management system.
ERP facilitates information flow between all business functions and manages connections to
outside stakeholders.

A cycle count is an inventory auditing procedure, which falls under inventory management,
where a small subset of inventory, in a specific location, is counted on a specified day.
4. Materials Handling and Storage

➢ Continuing trend in automation of Material Handling Equipment – MHE.

➢ Automated material handling improves and standardizes warehouse performance by

minimizing human intervention.
➢ Storage solutions vary depending on the volume, variety, and throughput of freight in
a warehouse or distribution system.
o Pallet storage
o Non-pallet storage
4.1 Order Picking

Picking solutions vary depending on freight volume, variety, and throughput:
➢ Pick-to-order
➢ Batch picking
➢ Pick-to-zero
➢ Zone picking
➢ Wave picking

Wave Picking
Zone Picking

4.1.1 Techniques
➢ Picker-to-goods
➢ Goods-to-picker
➢ Automated picking
Technologies – fit for purpose !

o Paper Picking
o RF-Scanning
o RF-ID
o Voice Picking
o Vision Picking
o Pick to Light
o Pick to man
Efficiency o Full Automated Picking
Pick-to-Light

Goods-to-Man With AGV
4.2 Order Packing

➢ Batch sorting
➢ Detail Scanning
➢ Packing in right package (consumer + transport)
➢ Labeling
➢ Allocate to right carrier
➢ Secure right quality, last quality check

5. EDI
Link to chapter ‘supply chain relationships’
➢ Electronic Data Interchange is a

technology for the (automatic)
electronic interchange of data
between two or more companies.
➢ EDI is a key enabler of supply chain

integration. The automated
transfer of order data between
supply chain partners streamlines
information sharing and
processing.
5.1 Forms of Data Transfer Via EDI:

➢ Sending and populating purchase orders
➢ Acknowledging purchase orders
➢ Integrating PO’s into the invoice and the inventory system
➢ Sending shipping notices and logistics information
➢ Sending and populating invoices both from customers and to vendors
➢ Receiving confirmation of transmissions to other entities and applications

5.2 Benefits of EDI

➢ Eliminating errors
➢ Increasing speed of business
➢ Insights in analytics
➢ Efficiency between partners
The easier it is for your business to manage your

suppliers’ relationships, the better lead times you
can provide, the better your customer service is to
your customers, the more you can increase your
ROI.
6. RFID
➢ Radio Frequency Identification technology
automatically identifies and locates physical
freight.
➢ Via an RFID transponder or ‘tag’ a radio
frequency signal is transmitted that can be
remotely detected by an RFID ‘reader’.
➢ RFID provides real-time visibility
➢ RFID tags are often a complement, but not a
substitute, for EAN barcodes. Goods are tracked
on pallet level using RFID tags, and at package
level with the Universal Product Code (UPC) or
EAN code from unique barcodes.
o UPC: Universal Product Code
o EAN: European Article Number
WATCH VIDEO IN FOLDER CHAPTER 10 + 11!!!!!
6.1 Applications of RFID

➢ Item tracking and management
➢ Improved inventory management and availability
➢ Storage management, increased warehouse efficiency
➢ Increased productivity and accuracy
➢ Reduced errors in product data handling
➢ Increased security of freight
A supplier and a customer (manufacturer), each with its own ERP/WMS system, data exchange
between both systems via EDI (automatically)


Chapter 15: Reverse Logistics (p.298-306)

0. Intro
The concept of reusing products and material and recovering value.
➢ Focus on the reverse flow from end customer to the original supplier
➢ More and more important !
➢ Reverse logistics practices can be used to gain competitive advantage.
Examples:
➢ Waste collection and processing
➢ Reusable packaging
➢ Re-engineering and reworking obsolete products
➢ Servicing and repairing broken products
1. Definition of Reverse Logistics

Reverse logistics can be defined as:
‘The process of planning, implementing, and controlling the efficient, cost

effective flow of raw materials, in-process inventory, finished goods, and related
information from the point of consumption to the point of origin for the purpose
of recapturing or creating value or proper disposal.’
1.1 A Generic Reverse Logistics System with Recovery Options

The management of return flows has become a major part of the strategic agenda of global
companies, particularly in electronics industry ( e-waste ).

2. Motivations for Reserve Logistics
➢ Government Policy and Legislation

o Legislation on the collection, transportation, recovery and disposal of used
products
o Particularly in the EU
▪ Take back of white and brown goods
▪ Collection of sales packaging material
▪ Seek techniques and technologies that avoid waste
▪ Promote the recovery processes of unavoidable waste materials
➢ Economic Considerations
o Landfill usage costs
o Disposal costs
➢ Environmental Considerations
o Public concern about sustainable development
o Forcing companies to be responsible for their waste
o Adherence to environmental legislation
o Branding and marketing, ‘green’ company
➢ Shift Towards Buying Sets of Services
o No longer buying physical products, but sets of services
o Service contracts (i.e. maintenance contracts) facilitating the take back of end-
of-life products

3. Recovery Options in Reverse Logistics

3.1 Reuse
➢ Reuse refers to a process in which the recovered product is used again for a purpose
similar to the one for which it was originally designed.
➢ Alternative to new parts and products
➢ Recover products and packaging for direct reuse
3.2 Remanufacturing
➢ Remanufacturing involves a process of reducing a product into its constituent parts. It
requires more extensive work, often complete disassembly of the product.
➢ Reuse of these parts in the assembly of new products.
➢ Value-added recovery
➢ Economically profitable
3.3 Recycling
➢ Recycling is the process of collecting and disassembling used products, components
and materials, and separating them into categories of like materials, such as plastic,
glass, etc., and then processing them into recycled materials.
o Cartons to a paper mill
o Metal scrap to a foundry
o Stora Enso, Arcelor Mital
➢ Recycling is considered the least value-added recovery process
➢ However, increasingly restrictive environmental regulations and a potential economic
benefit have encouraged firms and municipalities to recycle. The success of recycling
depends on two criteria:
o Whether or not there is a market for the recycled materials
o The quality of the recycled materials

3.4 A Recovery Options Hierarchy
The waste hierarchy
Watch video: https://www.youtube.com/watch?v=APGkIrQc-

H0&feature=youtu.be
4. A Reverse Logistics Network
A reverse logistics network may occur in either a closed- or open-loop system.

➢ In a closed-loop reverse logistics system origins (sources) and destinations coincide so

that flows cycle in the system.
➢ Companies adopting this system collect their used products and either refurbish and
resell or remanufacture them or they recycle them.
➢ In an open-loop system, the flows enter at one point of the logistics system and leave
at another.
➢ Companies using this system might assume responsibility for collecting and finding
markets for their products, but do not use the recovered materials for themselves.
o Recycling (paper, carpets, plastic bottles)
5. Characteristics of Reverse Logistics

The operational characteristics of reverse logistics are more complex to manage than the
forward logistics activities:
➢ Supply–demand balance
o Difficult variable: the distribution of returns of end-of-life products

o Mismatch between demand and returns

o Complexity in planning and controlling (purchasing and inventory mgmt)
➢ Accumulation and shortage of parts
o Uncertainty in Timing and Quantity of Returns
▪ The recovery rate of core material will never be 100% of sales of the
product
o Random Routings and Processing Times
▪ Variation in quality, need for checking and testing, irregular supply
➢ Logistical network of a recoverable manufacturing system has three major
components:
o Assembly
o Remanufacturing
o Disassembly
➢ Transportation: plant location decisions are not only influenced by location cost for
assembly, but also for disassembly and remanufacturing.
6. Factors for Successful Reverse Logistics Implementation

6.1 External Factors
➢ Legislation
➢ Customer demand
➢ Incentive
6.2 Internal Factors

➢ Environmental concerns
➢ Strategic cost/benefits
➢ Volume and quality of returns
➢ Resource
➢ Integration and coordination
7. Performance Measures in Reverse Logistics

A performance measure, or a set of measures, is used to determine the efficiency or
effectiveness of logistics systems.
Traditional measures are typically concerned with:

➢ Customer satisfaction
➢ Service level
➢ Responsiveness
➢ Cost
➢ Quality
These measures are appropriate for traditional logistics systems, BUT inadequate in
capturing the reverse logistcs objectives of environmental protection.
Crash Course: Incoterms

1. International Trade
➢ Buying and selling
➢ Delivery of goods
➢ Delivery conditions → Impact on the pricing
➢ ICC: Uniform interpretation
o ICC: International Chamber of Commerce
➢ Purpose: Provide international rules clarifying the most commonly used terms (3
characters) in international trade.
2. International Transport
Transport Export Custom

Packing Loading
Country Clearance Export
Costs Arrival at
International
Destination Insurance Terminal Costs
Transport
Country
Customs Transport Import

Unloading Clearance Import Country to Final
+ Duty & Taxes Destination
3. What Are Incoterms?

➢ “Incoterms do not impose, they propose”
➢ No legal legislation, voluntary agreements
➢ Used between buyer and seller as principle, as guideline

➢ Only valid in case explicitly referred to in the sales contract and mentioned in the
transport documents (i.e. B/L)
➢ Arranging the obligations of the buyer and seller in international transport
➢ Incoterms do not impose, they propose
o Special mentioned conditions in sales agreement abolish Incoterms.
o Possible to take Incoterms as a starting point supplemented with particularities
and variations.
➢ Deal with three aspects of international sales:
1. Distribution of costs
2. Distribution of risks
3. Division of tasks
➢ Today applied: Incoterms 2010
➢ From 01 January 2020 the new Incoterms 2020 are applicable!
➢ Some small changes: removal of DAT, new DPU, increased insurance coverage
➢ 2 official versions, English and French version, but in case of different interpretation
the English version prevails.
➢ 11 Incoterms
➢ 2 groups
o Group 1: Incoterms for all transport modes
▪ EXW, FCA, CPT, CIP, DAP, DPU, DDP
o Group 2: Incoterms only for sea and inland waterway transport
▪ FAS, FOB, CFR, CIF
➢ Always indicate the PLACE-NAME
➢ This being said: https://www.youtube.com/watch?v=8rigBVWFZ4Y
➢
3.1 Distribution of Costs

➢ Delivery costs
➢ Transport (pre-carriage, main carriage, on-
carriage)
➢ Loading - unloading
➢ Insurance
➢ Documentation
➢ Customs clearance
➢ Taxes
3.2 Distribution of Risks

➢ Damage or loss
➢ Too early, too late
➢ Correct documents
➢ DG
3.3 Division of Tasks

➢ Communication and distribution of information
➢ Documentation
➢ Customs clearance (IM/EX)
➢ Loading and unloading
➢ Pre-carriage, on-carriage
➢ Labeling (DG)
3.4 What are Incoterms NOT

➢ Arrange nothing regarding the transfer of ownership (legal provisions by country).
➢ Only about relationship between buyer and seller, not with forwarder or transporter.
➢ Arrange nothing regarding payment.
➢ Do not forget! Terms of delivery impact the pricing and are part of price negotiations.
➢ They do not contain provisions for delivery times and do not regulate the issue of title.
➢ Other terms of sales contracts must be negotiated and agreed upon. However, it is
very important to include Incoterms rules in contracts between sellers and buyers.
Example Costs Seller
Costs in EUR EUR FOB CIF DPU DDP

Antwerp New York New York Albany
transport until quay Antwerp 250 250 250 250 250
insurance costs Kortrijk - Antwerp 50 50 50 50 50
loading costs Antwerp 175 175 175 175 175
export customs clearance costs Antwerp 130 130 130 130 130
freight Antwerp - New York 1 500 1 500 1 500 1 500
insurance costs maritime transport 300 300 (*) 300 300
unloading costs New York 200 200 200
import customs clearance costs New York 180 180
import duties US 1 000 1 000
transport New York - Albany 700 700
insurance costs New York - Albany 150 150
sales tax at import (**) 3 000
Total costs 605 2 405 2 605 (***)
4. Case
You’re a purchaser for the firm Zwarte Pelikaan and you want to purchase Brazilian coffee.
You don’t have a lot of experience in how to transport in Brazil, nor do you have experience
in export formalities from that country to your country. What Incoterm will you propose/try
to negotiate, EXW or FCA?
5. Usage of Incorrect Incoterms

➢ Inappropriate rules being used for the chosen mode of transport
➢ Lack of understanding of the allocation of costs and risks between the buyer and seller
➢ The usage of incorrect version of the Incoterms rules
➢ The rules not being geographically specific
➢ Not understanding what the Incoterms rules does and does not do
➢ Choosing rules that do not suit the requirement of the business
6. Exercise
A wholesaler in hotel porcelain from Ghent buys glassware from a supplier in Minsk (Belarus).
The value of the goods is 100,000 euros. The transport is executed by truck starting at the
warehouse of the seller in Minsk, via the EU border crossing in Brest (on the Belarus / Polish
border) and continuing through Germany and Belgium until the final destination in Ghent.
Below is to be found an overview of the actual transportation costs. Calculate for each
incoterm the total costs for the seller.
Port+ has, as approved ICC-publisher, published a practical two-sided poster with all
Incoterms 2020. → https://www.portplus.be/media/1296/incoterms-2020-bestelformulier-
eng.pdf

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LOGISTICS & SUPPLY CHAIN

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 1 of 112

CHAPTER 7: LOGISTICS SERVICE PROVIDERS (P.131-141) ............................................................................... 47

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Logistics ≠ Supply Chain Management

➢ What is Logistics Management? Role of Logistics in Supply Chain. Definition &

1. The Evolution of Logistics and Supply Chain Management

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 6 of 112

1. Reduced transport intensity of freight

1.1 Reduced Transport Intensity of Freight

1.2 Falling Product Prices

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➢ By removing unnecessary barriers to competition, markets have become more

1.4 Productivity Improvements

1.4.3 Online tracking and tracing

1.4.4 Radio frequency identification (RFID)

1.5 Emphasis on Inventory Reduction

1.6 Changes in Company Structure

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 8 of 112

➢ All 6 trends have led to a supply chain revolution

2.2 Logistics is?

2.3 What is Logistics Management?

3. What is Supply Chain Management?

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 9 of 112

A supply chain is a network of connected and

➢ More and more connected

3.2 What is a Management?

3.3 Supply Chain Management

➢ Not alone in the world, you depend on your network.

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 10 of 112

➢ Most important one!

4. Distinguishing Logistics and Supply Chain Management

4.1.1 Supply Chain

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4.1.2 Demand Chain

➢ Nike won’t produce shoes if there aren’t any orders → Demand!

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suppliers procurement operations distribution customers

Requirements information flow

In SCM we speak about “End to end”

5. Applications to Manufacturing and Services

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 13 of 112

Chapter 2: International Trade & Globalization (p.20 –

➢ Global trade has fueled the evolution of logistics and SCM.

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 14 of 112

1.1 World Trade

1.1.1 Top Exporting Countries

1.1.2 $bn and %

Source: WTO and Unctad

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➢ Growing importance of China (although China recently lowered imports)

1.1.4 World Trade Flows

From Shanghai to Antwerp = app. 4-5 weeks, cost is

Dry & Liquid Bulk = Raw materials

Source: UNCTAD – Review of Maritime Transport

2. Containers: The Humble Hero

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 16 of 112

➢ TUE = Twenty-foot containers (how capacity of containers is expressed)

Lecturer: Maarten Manhaeve Subject: Logistics & SCM Page 17 of 112

2.1 Changed Capacity