Market distribution attempts to service the desires of customers and therefore must accommodate the uncertainty of consumer and industrial demand.
Manufacturing support involves movement requirements that are under the control of the manufacturing enterprise.
(4) Procurement Area
1) Main activities
Procurement is concerned with
- purchasing and
- arranging inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores.
Its main activities are related to obtaining products and materials from outside suppliers, including
- performing resource planning,
- supply sourcing,
- negotiation,
- order placement,
- inbound transportation,
- receiving and inspection,
- storage and handling, and
- quality assurance.
2) Different names
Depending on the situation, the acquisition process is commonly identified by different names.
In manufacturing, the process of acquisition is typically called purchasing.
In government circles, acquisition has traditionally been referred to as procurement.
In retailing and wholesaling, buying is the most widely used term.
3) Main responsibility
The primary procurement objective is to support manufacturing or resale organizations by providing timely purchasing at the lowest total cost.
It includes the responsibility to coordinate with suppliers in such areas as
- scheduling,
- supply continuity,
- hedging, and speculation, as well as
- research leading to new sources or programs.
3. Information Flow
(1) Main function of information flow in logistics
Information integrates the above three operating areas.
Information flow identifies
- specific locations,
- size of order,
- availability of inventory, and
- urgency of movement within a logistical system that have requirements.
The primary objective of information flow management is to reconcile these differentials to improve overall supply chain performance.
(2) Major components of logistical information
1) Planning/Coordination
The overall purpose of planning /coordination is to identify required operational information and to facilitate supply chain integration via
- strategic objectives,
- capacity constraints,
- logistical requirements,
- inventory deployment,
- manufacturing requirements,
- procurement requirements, and
- forecasting.
a) Strategic objectives
They are the primary drivers of supply chain operations, and derived from marketing and financial goals.
b) Capacity constraints
It identifies internal and external manufacturing and market distribution limitations.
Using inputs from forecasting, promotional scheduling, customer orders, and inventory status,
logistical requirements identify the specific
- work facilities,
- equipment, and
- labor forces
required to support the strategic plan.
c) Inventory deployment
It interfaces with inventory management between planning/coordination and operations ( Figure 2-3).
From an information perspective, deployment specifies the what, where, and when for the logistics processes.
d) Procurement requirements
They represent a time-sequenced schedule of material and components needed to support manufacturing requirements.
e) Forecasting
It utilizes historical data, current activity levels, and planning assumptions to predict future activity levels.
These forecasts form the basis of logistics requirement and operating plans.
2) Operations
Operational information is required in six related areas:
- order processing,
- order assignment,
- distribution operations,
- inventory management,
- transportation and shipping, and
- procurement.
It refers to the exchange of requirements information between supply chain members involved in product distribution.
The primary activity of order management is accurate entry and qualification of customer orders.
It identifies inventory and organizational responsibility to satisfy customer requirements.
.
The key to distribution operations is to store and handle specific inventory as little as possible while still meeting customer order requirements.
It is concerned with information required to implement the logistics plan.
The work of inventory management is to make sure that the overall logistical system has appropriate resources to perform as planned.
-
Transportation and shipping
Transportation and shipping information directs inventory movement.
In distribution operations, it is important to consolidate orders so as to fully utilize transportation capacity.
It is concerned with the information necessary to complete purchase order preparation, modification, and release while ensuring overall supplier compliance.
The overall purpose of operational information is to facilitate integrated management of market distribution, manufacturing support, and procurement operations. That is planning /coordination.
II. Logistical Operating Arrangements
1.Two common characteristics
All logistical arrangements have two common characteristics:
- First, they are designed to manage inventory.
- Second, the range of alternative logistics systems is based on available technology.
These two characteristics tend to create commonly observed operating arrangements with three widely utilized structures are
- echelon,
- direct, and
- flexible.
2. Three widely utilized structures
(1) Echelon
-
General model
- Typical echelon systems
(2) General model
Classification of a logistical system as having an echeloned structure means that the flow of products
- typically proceeds through a common arrangement of firms and
- facilities as it moves from origin to final destination.
Echelon systems utilize warehouses to create inventory assortments and achieve consolidation economies associated with large-volume transportation shipments.
Figure 2-4 illustrates the typical echeloned value chain.
(3) Typical echelon systems
Typical echelon systems utilize either
A) break-bulk
A break-bulk facility typically receives large-volume shipments from a variety of suppliers.
Inventory is sorted and stored in anticipation of future customer requirements.
Food distribution centers operated by major grocery chains and wholesalers are examples of break-bulk warehouses.
B) consolidation warehouses
A consolidation warehouse operates in a reverse profile.
Manufacturing firms that have plants at different geographical locations typically requires consolidation.
Products manufactured at different plants are stored in a central warehouse facility to allow the firm to ship full-line assortments to customers.
Major consumer product manufacturers are prime examples of enterprises using echeloned systems for full-line consolidation.
(2) Direct
1) General meaning
Logistical systems are designed to ship products direct to customer's destination from one or a limited number of centrally located inventories.
Examples of direct shipments are
- plant-to-customer truckload shipments,
- direct store delivery, and
- various forms of direct to consumer fulfillment required to support catalog and e-commerce shopping.
Direct logistical structures are also commonly used for inbound components and materials to manufacturing plants because the average shipment size is typically large.
2) Combination of echelon and direct structure
In general, most firms have been able to modify echelon structures to include direct logistics capabilities.
Figure 2-5 illustrates direct logistics capability being added to an echeloned logistics structure.
(3) Flexible
1) General rules
The ideal logistical arrangement is a situation wherein the inherent benefits of echeloned and direct structures are combined into a flexible logistics system.
As a general rule, the slower the part turnover is, the greater the benefit is of centralized inventory.
The slowest or least demanded parts may only be stocked at one location that services customers throughout the entire world.
Fast-moving parts that have more predictable demand are stocked in forward warehouses close to dealers to facilitate fast delivery.
2) Some practices
Each enterprise faces a unique customer situation and can be expected to use a different flexible logistics strategy to achieve competitive superiority.
Beyond the basic channel structure, flexible capabilities can be designed into a logistical system by developing a program to service customers using alternative facilities.
Flexible logistics capabilities can be designed to operate on an emergency or routine basis.
3) Combination of three structures
A prerequisite to effective flexible operations is the use of information technology
- to monitor inventory status throughout the network and
- provide the capability to rapidly switch methods for handling customer orders.
So with information technology, the combination of these three structures cab be realized.
Figure 2-6 introduces flexibility to the logistical operating structures previously discussed .
- Logistical Synchronization
1. Meaning of logistical synchronization
Multifirm operational integration across a supply chain is referred to as logistical synchronization.
Logistical synchronization seeks to
- coordinate the flow of materials, products, and information between supply chain partners to reduce duplication and unwanted redundancy to an absolute minimum.
- reengineer internal operations of individual firms to create leveraged overall supply chain capability.
2. Logistical Performance Cycle
(1) Basic Structure of Performance Cycle
The performance cycle represents the elements of work necessary to complete the logistics related to market distribution, manufacturing, or support procurement (see Figure 2-7).
It consists of specific work ranging from identification of requirements to product delivery.
Because it integrates various aspects of work, the performance cycle is the primary unit of analysis for logistical synchronization.
(2) Essence of logistical performances cycle
The logistics performance cycle is the basic unit of supply chain design and operational control.
In essence, the performance cycle structure is the frame work for implementation of integrated logistics across the supply chain.
Figure 2-8 illustrates a network of flexible performance cycles integrated in a multi- echeloned structure.
(3) Three components of logistical performance cycle
Performance cycle is composed of
1) Market Distribution Performance Cycles
Market distribution operations are concerned with processing and delivering customer orders.
The overall process of gaining and maintaining customers can be broadly divided into:
A) The transaction-creating activities
They include:
B) The physical-fulfillment activities
They include
- order transmission,
- order processing,
- order selection,
- order transportation, and
- customer delivery.
2) Manufacturing Support Performance Cycles
To a significant degree, manufacturing efficiency depends on logistical support to establish and maintain an orderly and economic flow of materials and work-in-process inventory as required by production schedules.
Manufacturing support operations are significantly different than either market distribution or procurement.
Manufacturing support logistics is typically captive within individual firms;
The other two performance areas must deal with the behavioral uncertainty across the supply chain.
Once a firm's manufacturing operation is initiated, subsequent requirements for interplant movement of materials or semi-finished products become the responsibility of manufacturing support.
Manufacturing logistical support involves
- dock-to-dock movement and
- any intermediate storage required
- but typically does not include materials handling that is integral to in-plant assembly or production.
When manufacturing process is completed,
- finished inventory is allocated and deployed either directly to customers or to distribution warehouses for subsequent shipment to customers or customization;
- market distribution operations are initiated.
3) Procurement Performance Cycles
In order to facilitate an orderly flow of materials, parts or finished inventory along a supply chain, following activities or tasks are required:
- sourcing,
- order placement and expediting,
- transportation, and
- receiving.
These activities, as illustrated in Figure 2-10, are required to complete the procurement process.
3. Performance Uncertainty
A major objective of logistics in all operating areas is to reduce performance cycle uncertainty.
The dilemma is that the structure of the performance cycle itself, operating conditions, and the quality of logistical operations all combine randomly to introduce operational variance.
The goal of performance cycle synchronization is to achieve the planned time performance.
Delayed performance at any point along the supply chain results in potential disruption of operations.
When performance occurs faster than expected, unplanned work will be required to handle and store inventory that arrives early.
Given the inconvenience and expense of either early or late delivery, it is no wonder that logistics managers place a premium on operational consistency.
