CHAPTER - 2 - Matching Supply and Demand

Syllabus 2
MATCHING SUPPLY AND DEMAND
CHAPTER 2
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TABLE OF CONTENT
1. The strategic lead time management
1. Time based competition
2. Lead time concept
3. Lead time gap
4. Logistics pipeline management
2. Improving the visibility of demand
3. Demand management and planning
4. Collaborative planning, forecasting and replenishment
5. Logistics operations
1. Transportation
2. Warehouses
3. Packaging and material handling
6. Transportation model
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3.1 The strategic lead time
management
➢ Time represent not only cost to the logistics
manager but extended lead times also imply
a customer service penalty.
THE SUPPLY CHAIN MANAGEMENT: KEY

3
CONCEPTS & CASE STUDIES
3.1.1 Time-based competition
➢ Customers in all markets, industrial or
consumer, are increasingly time-sensitive.
➢ In other words they value time and this is
reflected in their purchasing behaviour.
Example
• In industrial markets buyers tend to source
from suppliers with the shortest lead times
who can meet their quality specification.
4
3.1.1 Time-based … (cont.)
➢ In the past it was often the case that price was
paramount as an influence on the purchase
decision.
➢ There are many pressures leading to the growth of
time-sensitive markets, but perhaps the most
significant are:
 Shortening life cycles
 Customers’ drive for reduced inventories
 Volatile markets making reliance on forecasts dangerous

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 Shortening life cycles
➢ A feature of the last few decades has been
the shortening of these life cycles.
Example: Typewriter
Mechanical typewriter Electro-mechanical Computers
• The early mechanical typewriter • Now personal
typewriter had a life • It had a life cycle of computers have
cycle of about 30 approximately ten taken over with a life
years – meaning that years. cycle of one year or
an individual model • It gave way to the less!
would be little electronic typewriter
changed during that with a four- year life
period. cycle.
6
Figure 3.1: The product life cycle
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➢ However, it is not just time-to-market that is
important.
➢ Once a product is on the market the ability to
respond quickly to demand is equally
important.
➢ Companies that can achieve reductions in the
order-to-delivery cycle will have a strong
advantage over their slower competitors.

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 Customers’ drive for reduced inventories
➢ The pressure has been to release the capital
locked up in stock and hence simultaneously to
reduce the holding cost of that stock.
➢ It is now imperative that suppliers can provide a
just-in-time delivery service.
➢ Timeliness of delivery – meaning delivery of the
complete order at the time required by the
customer – becomes the number one order-
winning criterion.
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 Volatile markets make reliance on forecasts dangerous
➢ It seems that no matter how sophisticated the forecasting
techniques employed, the volatility of markets ensures that the
forecast will be wrong!
➢ The evidence from most markets is that demand volatility is
tending to increase, often due to competitive activity, sometimes
due to unexpected responses to promotions or price changes
and as a result of intermediaries’ reordering policies.
➢ Conventional response to such a problem has been to increase
the safety stock to provide protection against such forecast
errors.
➢ However, it is surely preferable to reduce lead times in order to
reduce forecast error and hence reduce the need for inventory.
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3.1.2 Lead time concept
VIEWPOINT CYCLE DESCRIPTION
• It is a crucial competitive variable

The elapsed time as more and more markets become
Customers from order to increasingly time competitive.
delivery • Nevertheless it represents only a
partial view of lead time.
• The total time that working capital

The time it takes is committed from when materials
Suppliers to convert an are first procured through to when
order into cash the customer’s payment is
received.

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3.1.2 Lead time concept (cont.)
 The order-to-delivery cycle
➢ Time taken from receipt of a customer’s order
through to delivery (sometimes referred to as
order cycle time (OCT)).
➢ Short lead times are a major source of
competitive advantage.
➢ Equally important, however, is the reliability
or consistency of that lead time.
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Figure 3.2: The order cycle
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 The cash-to-cash cycle
“How long does it take to convert

an order into cash?”

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Figure 3.3: Lead-time components
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➢ The control of this total pipeline is the true
scope of logistics lead-time management.
➢ Longer pipelines – find an inevitable build-up
of inventory as a buffer at each step along the
supply chain.
➢ An approximate rule of thumb suggests that
the amount of safety stock in a pipeline varies
with the square root of the pipeline length.

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3.1.3 Lead time gap
➢ Most organisations face a fundamental
problem: the time it takes to procure, make
and deliver the finished product to a
customer is longer than the time the
customer is prepared to wait for it.
➢ The customer’s order cycle refers to the
length of time that the customer is prepared
to wait, from when the order is placed
through to when the goods are received.

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Figure 3.4: The lead-time gap
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3.1.3 Lead time gap (cont.)
➢ In the conventional organisation the only way to
bridge the gap between the logistics lead time and
the customer’s order cycle is by carrying inventory.
Example: logistics lead time
• the time taken to complete the process from goods inwards
to delivered product
Example: customer’s order cycle

• the period they are prepared to wait for delivery
➢ This normally implies a forecast to build inventory

ahead of demand
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➢ Unfortunately, forecasting end up as an
inventory problem – whether too much or
too little!
➢ Problem lies not in investing ever greater
sums of money and energy in improving
forecasting techniques, but rather in reducing
the lead-time gap.

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Figure 3.5: Closing the lead-time gap
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➢ Reducing the gap can be achieved by
shortening the logistics lead time (end-to-
end pipeline time) whilst simultaneously
trying to move the customer’s order cycle
closer by gaining earlier warning of
requirements through improved visibility of
demand.

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3.1.4 Logistics pipeline
management
➢ Pipeline management is the process whereby
manufacturing and procurement lead times are
linked to the needs of the marketplace.
➢ The goals of logistics pipeline management are:
➔ Lower costs
➔ Higher quality
➔ More flexibility
➔ Faster response times

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3.1.4 Logistics pipeline … (cont.)
➢ In examining the efficiency of supply chains it is
often found that many of the activities that take
place add more cost than value.
Example
• moving a pallet into a warehouse, repositioning it, storing

it and then moving it out in all likelihood has added no
value but has added considerably to the total cost.
➢ Value-adding time is time spent doing something

that creates a benefit for which the customer is
prepared to pay.
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➢ Flowcharting supply chain processes is the first
step towards understanding the opportunities
that exist for improvements in productivity
through re-engineering those processes.
➢ The next step is to do a rough-cut graph
highlighting visually how much time is consumed
in both non-value-adding and value-adding
activities.
➢ Figure 3.6 shows a generic example of such a
graph.
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Figure 3.6: Which activities add cost and which add value?
Finished Regional Customer

Stock Order
Product
In- Cycle
Production Transit
VALUE-
ADDED Raw Material
Time, Stock
Place &
Form
Utility
COST-ADDED
Production, Storage & Transport costs & the Time Cost of Money
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➢ Figure 3.7 shows an actual analysis for a
pharmaceutical product where the total
process time was 40 weeks and yet value was
only being added for 6.2 per cent of that
time.

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Figure 3.7: Value added through time
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➢ An indicator of the efficiency of a supply
chain is given by its throughput efficiency,
which can be measured as:

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Figure 3.8: Reducing non-value-adding time improves service
and reduces cost
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➢ Pipeline management is concerned with
removing the blockages and the fractures that
occur in the pipeline and which lead to inventory
build-ups and lengthened response times.
➢ The sources of these blockages and fractures are
such things as extended set-up and change-over
times, bottlenecks, excessive inventory,
sequential order processing and inadequate
pipeline visibility.
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Reducing logistics lead time
➢ A supply chain map is essentially a time-based representation of
the processes and activities that are involved as the materials or
products move through the chain.
Supply Chain
Explanation Example
Map Time
• It is the time spent in process.
• It could be in-transit time,
• It may not necessarily be time
Horizontal manufacturing or assembly time,
when customer value is being
time time spent in production planning
created but at least something is
or processing, and so on.
going on.
• It is the time when nothing is
• When nothing happens the material
happening.
Vertical time or product is standing still as
• No value is being added during
inventory.
vertical time, only cost.
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Figure 3.9: Supply chain mapping – an example
Source: Scott, C. and Westbrook, R., ‘New strategic tools for supply chain management’,
International Journal of Physical Distribution and Logistics Management, Vol. 21, No. 1, 1991.
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Bottleneck management
➢ A bottleneck is the slowest activity in a chain and
whilst it may often be a machine, it could also be a
part of the information flow such as order processing.
➢ It is unnecessary to improve throughput at non-
bottlenecks as this will only lead to the build-up of
unwanted inventory at the bottleneck.
➢ These ideas have profound implications for the re-
engineering of logistics systems where the objective is
to improve throughput time overall, whilst
simultaneously reducing total inventory in the system.
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3.2 Improving the visibility of
demand
➢ The challenge is to find a way to receive
earlier warning of the customers’
requirements.
Firstly, the demand penetration point is too far down the
pipeline.
Secondly, real demand is hidden from view and all we tend

to see are orders.

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3.2 Improving the … (cont.)
➢ Demand penetration point is that it occurs at that point in
the logistics chain where real demand meets the plan.
➢ Demand penetration point is often referred to as the
decoupling point and is ideally the point in the supply chain
where strategic inventory is held.
➢ A key concern of logistics management should be to seek to
identify ways in which the demand penetration point can be
pushed as far as possible upstream.
➢ This might be achieved by the use of information so that
manufacturing and purchasing get to hear of what is
happening in the marketplace faster than they currently do.
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Figure 3.10: Demand penetration points and strategic inventory
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➢ In so many cases the supplying company receives no
indication of the customer’s actual usage until an order
arrives.
Example
• The customer may be using 10 items a day but because

he/she orders only intermittently the supplier sometimes
receives an order for 100, sometimes for 150 and
sometimes for 200.
➢ If the supplier could receive ‘feed-forward’ on what was

being consumed he would anticipate the customer’s
requirement and better schedule his own logistics activities.
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Figure 3.11: The information iceberg
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➢ The area below the surface of the iceberg
represents the on-going consumption,
demand or usage of the product which is
hidden from the view of the supplier.
➢ It is only when an order is issued that any
visibility of demand becomes transparent.

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3.3 Demand management and
planning
➢ Demand management is the term that has come
to be used to describe the various tools and
procedures that enable a more effective
balancing of supply and demand to be achieved
through a deeper understanding of the causes of
demand volatility.
➢ Many companies today have put in place a
formalised approach to demand management
and planning that is often referred to as sales
and operations planning (S&OP).

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Figure 3.12: The sales and operations planning process
Generate aggregate demand forecast
Modify forecast with demand

intelligence
Create a consensus forecast
Create ‘rough cut’ capacity plan
Execute at individual item (SKU)

level against demand
Measure performance
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3.3 Demand management … (cont.)
 Generate aggregate demand forecast
• Wherever possible these plans should be made on
the basis of high-level aggregate volume forecasts at
the product family level.
• As we get closer to the point of demand fulfilment
then we can start to think about product mix
requirements.
• Because it is generally easier to forecast at the
aggregate level, statistical forecasting tools should
enable a reasonable level of accuracy to be achieved.
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 Modify the forecast with demand intelligence
• This stage of the S&OP process should involve key customers or accounts.
• The benefit of a joint supplier/ customer process to create a forecast is
that a wider array of intelligence can be taken into account.
 Create a consensus forecast
• Essentially the principle is that marketing and sales people will meet at
regular intervals with operations and supply chain people.
• Figure 3.13 highlights the integrative nature of S&OP processes.
• Whereas in conventional businesses there is little integration between
the demand creation side of the business (i.e. sales and marketing) with
the demand fulfilment activity (i.e. logistics and operations), with the
S&OP philosophy there is a seamless alignment between the two.

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Figure 3.13: The focus of demand management and planning
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 Create a ‘rough cut’ capacity plan
• Essentially the logic behind the rough cut capacity plan is to
look at the aggregate product family forecast for the planning
period and to translate that into the capacity and resources
needed, e.g. how much machine time, how much time in an
assembly process, how much transport capacity and so on.
 Execute at SKU levels against demand

• Ideally nothing is finally assembled, configured or packaged
until we know what the customer’s order specifies.
• To achieve this ideal state clearly requires a high level of agility.

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 Measure performance
• Demand management/planning process is working should
be how high the percentage of perfect order achievement
is compared to the number of days of inventory and the
amount of capacity needed to achieve that level.
• The aim should be to progressively reduce this gap by a
concerted focus on time compression and improved
visibility.
• Exemplars of world class demand management and
planning is Dell Inc., the computer company.

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Example: Demand management and planning at Dell
• The computer company Dell has long been seen as one of the most agile businesses in the
industry. The success of Dell is in large part due to its highly responsive supply chain,
which is capable of building and delivering customised products in a matter of days with
minimal inventory.
• Dell’s ability to operate a build-to-order strategy is based partly on the modular design of
many of their products but more particularly on a very high level of synchronisation with
their suppliers. There is a high level of visibility across the Dell supply chain with suppliers
receiving information on Dell’s order book every two hours. Ahead of this information,
suppliers are provided with capacity forecasts from Dell to enable them to produce at a
rate that is planned to match actual demand.
• Each of Dell’s factories is served from a ‘vendor hub’, operated by third-party logistics
service providers, the purpose of which is to keep a buffer of inventory from which Dell
can draw as required. Suppliers are required to keep a defined level of inventory at these
hubs and Dell only takes ownership of the inventory when it reaches their factories.
• Dell adopts a very proactive approach to demand management by using the price
mechanism to regulate demand for specific products or features. If a product is in short
supply the price will rise and/or the price of an alternative substitute product will fall. This
facility to actively manage demand enables a very close matching of supply and demand.

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3.4 Collaborative planning,
forecasting and replenishment
➢ Many of these initiatives have originated in the
retail sector but the ideas have universal
application.
➢ Sharing information and by working together to
create joint plans and forecasts, both the supply
side and the demand side of the supply chain
can benefit.
➢ The idea is a development of vendor managed
inventory (VMI).
➢ VMI is a process through which the supplier
rather than the customer manages the flow of
product into the customer’s operations.
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3.4 Collaborative planning, … (cont.)
➢ The supplier is in effect managing the customer’s
inventory on the customer’s behalf.
➢ In a VMI environment there are no customer
orders; instead the supplier makes decisions on
shipping quantities based upon the information
it receives direct from the point-of-use or the
point-of-sale, or more usually from off-take data
at the customer’s distribution centre.
➢ Under conventional replenishment systems both
sides need to carry safety stock.
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3.4 Collaborative planning, … (cont.)
➢ CPFR is the creation of an agreed framework
for how information will be shared between
partners and how decisions on replenishment
will be taken.
➢ Figure 3.14 presents a nine-step model for
the implementation of CPFR programmes
developed by the US-based organisation VICS
(Voluntary Inter-Industry Commerce
Standards).

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Figure 3.14: VICS-ECR nine-step CPFR model Retailer
Source: ECR
Europe/Accenture,
European CPFR Insights,
2002
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Figure 3.15: Benefits of CPFR
Optimise • Higher utilisation of

production production capacity
Reduce capital • Greater supply chain
invested visibility allows inventory
Reduce storage and storage capacity
capacity reduction
Inventory
• 20-25% reduction
inventory carrying cost
• Improved forecast accuracy
Wastage • 50% reduction in
Benefits Decrease Costs unplanned overtime
• Up to 500% ROI on
Overtime promotions
• Reduced excess and
obsolete inventory
Transportation • Reduction in lead time
cost
Better
Increase availability • Reduced out-of-stocks
revenue • Improved consumer
Improved satisfaction ratings
consumer
satisfaction
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3.5 Logistics operations
➢ There are three types of logistics operation:
✓ Transportation
✓ Warehousing
✓ Packaging and materials handling

54
3.5.1 Transportation
The Role of Transportation in Logistics
1) Transportation is the physical link connecting
the firm to its suppliers and customers.
2) In a nodes and links scenario, transportation
is the link between fixed facilities (nodes).
3) Transportation also adds value to the product
by providing time and place utility for the
firm’s goods.
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3.5.1 Transportation
4) As firms engage in global competition,
transportation costs are becoming even more
significant.
5) In 1999, U.S. firms spent an estimated $554
billion to move freight, or 9.9% of the GNP1;
this is up from 397 billion, or 6.3% of the GDP
in 1993.

56
3.5.1 Transportation (cont.)
6) In 1999, as a percentage of sales, transportation
was 3.24%, warehousing 1.84%, customer
service 0.48%, administration 0.38%, and
carrying cost 1.52%.
7) Outbound transportation was clearly the largest
component of total physical distribution costs.
8) Cost trade-offs abound in transportation and are
typified by trading lower inventory costs for
higher transportation costs.
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The Transport Selection Decision
➢ The Transportation – Supply Chain Relationship
 Firms need to recognize that the lowest cost
carrier does not necessarily guarantee that this
carrier will result in the lowest landed cost.
 Therefore, firms need to keep the big picture in
mind when attempting to select a carrier.

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➢ The Carrier Selection Decision:
 Various modes of transportation should be
considered.
 Choose a carrier or carriers within the selected
mode, if there is a choice.
 Carefully examine the service capabilities of the
carrier as services can vary widely between
carriers.
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Figure 3.16: The Carrier Selection Decision
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➢ Carrier Selection Determinants:
 Various modes of transportation should be
considered.
 Cost
 Transit time and reliability
• Can be a competitive advantage
• Lowers customers’ inventory costs
 Capability
 Accessibility
 Security
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Table 3.17: The Carrier Selection Determinants and User
Implications
Selection Determinants Upper Implication
Transport cost Landed costs

Inventory, stockout cost,
Transit time
marketing
Inventory, stockout cost,
Reliability
marketing
Accessibility Transit time, freight costs
Capability Meet physical/marketing needs
Security/Safety Inventory, stockout costs
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➢ The Pragmatics of Carrier Selection:
 Transit time reliability
 Negotiated rates
 Consolidating shipments among a few carriers
 Financial stability
 Sales rep
 Special equipment

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Table 3.18: Importance Ranking of Carrier Selection
Determinants
Determinant Rank
Transit time reliability or consistency 1
Door-to-door transportation rates or costs 2
Total door-to-door transit time 3
Willingness of carrier to negotiate rate changes 4
Financial stability of the carrier 5
Equipment availability 6
Frequency of service 7
Pickup and delivery service 8
Freight loss and damage 9
Shipment expediting 10
Quality of operating personnel 11
Shipment tracing 12
Willingness of carrier to negotiate service changes 13
Scheduling flexibility 14
Line-haul services 15
Claims processing 16
Quality of carrier salesmanship 17
Special equipment 18
Source: Edward J. Bardi, Prabir Bagchi, and T. S. Raghurathan, “Motor Carrier Selection in a D eregulated 64
Environment,” Transportation Journal 29, no. 1 (Fall 1989): 4-11.
3.5.2 Warehousing
➢ In the past, warehouse management could focus
solely on controlling the movement and storage
of materials within an warehouse operation and
processing the associated transactions of
picking, packing, shipping and receiving.
➢ However, today’s systems must integrate
warehouse operations, so that visibility extends
beyond the four walls of the warehouse and to
the rest of the value chain.

65
3.5.2 Warehousing (cont.)
Uses of Warehouses:
➢ Support manufacturing.
➢ Mix products from multiple production
facilities to a single customer.
➢ Break bulk.
➢ Consolidate small shipments into large
shipments.

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Figure 3.19: Logistics Concepts
S C
u u
p Inbound Logistics Outbound Logistics
s
p t
l o
i m
e e
r r
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Figure 3.20: Manufacturing Support (inbound logistics)
Carload or truckload shipments
Supplier A
Supplier B
Warehouse
Supplier C
Supplier D
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Figure 3.21: Mixing Warehouse (outbound logistics)
1 2 3 4
Customer W
Plant A, Product 1
1 2 3 4
Plant B, Product 2
Customer X
1 2 3 4
Plant C, Product 3
Customer Y
Plant D, Product 4
1 2 3 4
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Figure 3.22: Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1 1
1 2 3 4
Plant B, Product 2 22
Customer X
Mixing Warehouse 1 2 3 4
Plant C, Product 3 3
Customer Y
Plant D, Product 4 44
1 2 3 4
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Figure 3.23: Consolidation Warehouse (outbound logistics)
Customer
Plant A
Plant B
Customer
Consolidation Warehouse
Plant C
Customer
Plant D
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Figure 3.24: Breaking Bulk
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Figure 3.25: Breakbulk Warehouse (outbound logistics)
Customer 1
Customer 2
Plant Breakbulk Warehouse
Customer 3
73
Types of Warehousing: XYZ Company Warehouse
➢ Direct store delivery.
➢ Private warehousing.
Advantages Disadvantages
• Control • Fixed costs, especially if built
• Flexibility in design and for peak seasons
operation • Investment. Return may be
• Long-term cost better if money is placed
elsewhere
• Better use of human resources
• Tax benefits: depreciation
• Intangibles: image of stability

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Types of Warehousing: ABCCompany
XYZ Public Warehouse
Warehouse
➢ Direct store delivery.
➢ Private warehousing.
➢ Public warehousing.
• Conservation of capital • Incompatible communications
• Able to increase capacity when needed systems
• Reduced risk of obsolescence • Lack of specialized services
• Economies of scale due to warehouse • May be unavailable when needed
company’s investment
• Flexibility
• Tax advantages: some states have no
inventory taxes for products in public
warehouses
• Specific knowledge of costs

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Types of Public Warehousing: ABCCompany
XYZ Public Warehouse
Warehouse
➢ General merchandise
➢ Refrigerated or cold storage
➢ Bonded warehouses
➢ Household goods, furniture
➢ Special commodity
➢ Bulk storage
➢ Cross-docking facilities (3PL concept)
➢ Contract warehousing (can be used in 3PL)

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Warehouse Characteristics
➢ Increase the number of warehouses and the
average size of warehouses decreases.
➢ Factors influencing the number of
warehouses:
✓ Cost of lost sales
✓ Inventory costs
✓ Warehousing costs
✓ Transportation costs
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Warehouse Locations
➢ Market-based – nearest the final customer.
➢ Production positioned – collection points or
mixing facilities.
➢ Intermediate positioning between producer
and final customer.
Factory Warehouse Customer

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 Cross-docking:
➢ Movement from an inbound dock directly to an
outbound dock.
➢ Movement directly from an inbound dock to a sorting
process to an outbound dock.
Outbound
Inbound
Outbound
Outbound
Inbound
Outbound
Inbound
Sorting area
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 Cross-docking in at least two of these conditions:
➢ Product destination is known upon receipt.
➢ Destination is ready for immediate delivery.
➢ You daily ship to less than 200 locations.
➢ More than 70% of products fit conveyors.
➢ You receive large quantities of individual items.
➢ Products arrive pre-labeled.
➢ Some products are time-sensitive.
➢ Distribution center is near capacity.
➢ At least some inventory is pre-priced.
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3.5.3 Packaging and materials
handling
Packaging Fundamentals
➢ Building-blocks concept
 Smallest unit is consumer package
 Each unit is stocked within the next larger one to protect
the product
➢ Packaging
 refers to materials used for the containment, protection,
handling, delivery, and presentation of goods
 Serves three general functions
• To promote
• To protect
• To identify (label) the relevant product

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3.5.3 Packaging and … (cont.)
Promotional and Protective Functions of Packaging
➢ Protective functions of packaging:
– Enclose materials
– Restrain materials from undesired movement
– Separate contents to prevent undesired contact
– Cushion contents from outside vibrations and shocks
– Support the weight of identical containers stacked above
– Position the contents to provide maximum protection
– Provide for uniform weight distribution
– Provide exterior surface for labeling
– Be tamperproof
– Be safe for consumers or others
82
Package Testing and Monitoring
 A package system requires 3 types of information
to design
➢ Severity of the distribution environment
➢ Fragility of the product
➢ Performance characteristics of various cushion
materials

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Package Testing and Monitoring
 Package testing
➢ Vibrations
➢ Dropping
➢ Horizontal impacts
➢ Compression
➢ Overexposure to extreme temperatures or
moisture
➢ Rough handling

84
Figure 3.26: Kaiser Aluminum’s Moisture-Alert Label
85
Labeling
➢ Retroflective labels
➢ Batch numbers
➢ Weight
➢ Specific contents
➢ Instructions for use
➢ Information to allow passage through customs
➢ Compliance labeling
➢ One- or two-dimensional bar codes
➢ Smart labels or RFID labels
86
Figure 3.27: Examples of Shipping Labels
87
Labeling
➢ Hazardous Materials
− Governmental regulations address labeling of hazardous
materials
➢ Requirements involve
− Labeling
− Packaging and repackaging
− Placing warnings on shipping documents
− Notifying transportation carriers in advance
➢ Globally Harmonized System of Classification and
Labeling of Chemicals (GHS) is a global system to
classify and label hazardous materials
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Issues in Packaging
➢ Environmental Protection
– Reduce packing materials used
– Use packaging materials that are more
environmentally friendly with recycled content
– Use reusable containers (closed-loop system)
– Retain or support services that collect used
packaging and recycle it (closed-loop system)

89
Issues in Packaging
➢ Metric System
– U.S., Liberia, and Myanmar (formerly Burma) are
the only 3 countries in the world that do not use
the metric system of measurement
– Increasing pressure on U.S. exporters to market
their products overseas in metric units

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Identifying Packaging Inefficiencies
➢ Building-blocks concept is useful for analyzing
packaging inefficiencies.
➢ Packaging inefficiencies can have a number of
undesirable logistics consequences including:
– Increased loss
– Increase damage
– Slower materials handling
– Higher storage costs
– Higher transportation costs
91
Table 3.28: A Hypothetical Example of Packaging
Inefficiency
92
Packaging’s Influence on Transportation
Considerations
➢ Carrier’s tariffs and classifications influence the type of
packaging and packing methods that must be used.
➢ Carriers established classifications for two main reasons:
– Packaging specifications determined by product density lead to
the best use of the equipment’s weight and volume capabilities
– Carrier specifications for protective packaging reduce likelihood
of damage to products thus reducing the loss and damage
claims filed against the carrier

93
Figure 3.29: Boxmaker’s Guarantee
94
Unit Loads in Materials Handling
➢ A unit load (unitization) refers to consolidation
of several units (cartons or cases) into larger
units to improve efficiency in handling and to
reduce shipping costs.
• Source: http://cscmp.org/digital/glossary/glossary.asp
➢ Handling efficiency can be facilitated by

mechanical devices (pallet jack or forklift) as well
as by using a pallet or skid.

95
• Additional protection • Provides large quantity
• Pilferage is discouraged that sometimes is of
• More fragile items can be limited value to resellers
stacked inside the load dealing in smaller
quantities
• Mechanical devices can be
substituted for hand labor • Must use mechanical or
automated device to move

96
Figure 3.30: Automated Guided Vehicle
97
➢ Basic unit is a pallet or skid
– Can be constructed from wood, wood composites,
plastic, paper, and metal
– Each pallet material has advantages and
disadvantages
– Should be less than 50 pounds
➢ Pallet or skid alternatives
– Slip sheet
– Shrink-wrap
98
➢ Beyond the unit load
– Use of load-planning software
– Bracing
– Inflatable dunnage bags
– Load is subjected various forces including
• Vibration
• Roll
• Pitch
– Weighing out

99
Materials Handling
➢ Materials handling refers to the “short-distance
movement that usually takes place tihin the confines
of a building such as a plant or DC and between a
build and a transportation service provider.”
Source: John J. Coyle, C. John Langley, Jr., Brian J. Gibson, Robert A. Novack, and Edward J. Bardi, Supply
Chain Management: A Logistics Perspective, 8th ed. (Mason, OH: South-Western Cengage Learning,
2009), Appendix 11-A.
➢ How the products are handled depends on whether

they are packaged or in bulk
➢ Handling may change the characteristics of the
product
100
Materials Handling Principles
➢ 10 Material Handling Principles Include:
1. Planning
2. Standardization
3. Work
4. Ergonomic
5. Unit load
6. Space utilization
7. System
8. Automation
9. Environmental
10. Life cycle cost
Source: “The Ten Principles of Material Handling,” www.mhia.org.
101
Materials Handling Equipment
➢ Two categories of handling equipment
– Storage
• Shelves
• Racks
• Bins
– Handling
• Conveyor systems
• Lift trucks
• Carts
• Cranes
102
➢ The choice of handling equipment can influence
the type of storage equipment.
➢ The choice of storage equipment can influence

the type of handling equipment.

103
➢ Material handling equipment can also be
categorized as:
– Labor intensive
– Mechanized
– Automated
➢ Sufficient volume is needed to justify high cost of

automated equipment

104
➢ An organization’s order picking and assembly
system can also influence the type of handling
equipment.
– Picker-to-part systems
– Part-to-picker systems

105
3.6 Transportation model
➢.

106

CHAPTER - 2 - Matching Supply and Demand

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CHAPTER - 2 - Matching Supply and Demand

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Syllabus 2

MATCHING SUPPLY AND DEMAND

THE SUPPLY CHAIN MANAGEMENT: KEY

 Customers’ drive for reduced inventories

 Volatile markets making reliance on forecasts dangerous

THE SUPPLY CHAIN MANAGEMENT: KEY

• It is a crucial competitive variable

• The total time that working capital

THE SUPPLY CHAIN MANAGEMENT: KEY

“How long does it take to convert

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Example: customer’s order cycle

➢ This normally implies a forecast to build inventory

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

➔ Faster response times

• moving a pallet into a warehouse, repositioning it, storing

➢ Value-adding time is time spent doing something

Finished Regional Customer

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Secondly, real demand is hidden from view and all we tend

THE SUPPLY CHAIN MANAGEMENT: KEY

• The customer may be using 10 items a day but because

➢ If the supplier could receive ‘feed-forward’ on what was

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Generate aggregate demand forecast

Modify forecast with demand

Create a consensus forecast

Create ‘rough cut’ capacity plan

Execute at individual item (SKU)

THE SUPPLY CHAIN MANAGEMENT: KEY

 Execute at SKU levels against demand

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Optimise • Higher utilisation of

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Selection Determinants Upper Implication

Transport cost Landed costs

Capability Meet physical/marketing needs

Security/Safety Inventory, stockout costs

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Carload or truckload shipments

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

Factory Warehouse Customer

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY

THE SUPPLY CHAIN MANAGEMENT: KEY