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Phase 3 – Task 2
Task Type: Individual Project
Deliverable Length:Word or Excel spreadsheet: Columns A–C and rows 1–8 + references
Points Possible:100
Due Date:3/10/2014 11:59:59 PM

Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.

The CEO expects you to be providing a number of various logistics reports and recommendations to her. She has asked you to prepare a chart on 1–2 pages of frequently used logistics techniques. To demonstrate your understanding of the breadth and depth of the logistics function, research the following terms, and for each of the 8 terms, complete the following:

  • Provide a definition, in your own terms, of frequently used logistics techniques.
  • Give an example of a real company or industry that uses this logistics technique.
  • What would the pros and cons be of using each technique listed below?
    1. Distribution center
    2. Public warehouse
    3. Third-party logistics
    4. Common carrier
    5. Dedicated private fleet
    6. Backhauls
    7. Deadheading
    8. Freight equalization

Provide citations and references to support your information.

Please submit your assignment.

Click on Student Expectations to view the expectations for this assignment.

Assignment Grading Rubric

For assistance with your assignment, please use your text, Web resources, and all course materials.

Course Materials

Course Materials

 

Presentation
Presentation: Metrics for Logistics Success

Introduction

As in all other function areas in an organization, logistics needs and has its own types of metrics. Metrics are what tell the manager and his or her employees whether or not they met their expected results. Just as the marketing function of a firm typically looks at market share and dollars of sales from products that were launched in the last 3 years, the logistics function must similarly consider a range of metrics that reflects what is important to both the customer and the company.

Variation by Industry

Given the wide variation in types of customers that are served by the logistics function, their varying needs, and the challenges of different industries, it is no surprise that the metrics that are used for the logistics function in one industry may differ greatly from those in other industries. On the other hand, it is likely that the key logistic metrics are pretty similar within an industry.

The following is an example of how metrics may differ by industry. The logistics function for an airline might include the following:

  • Percentage of downtime of airplanes and average repair time
  • Number of planes arriving and taking off on time
  • Percentage of planes for which the catering or the cabin cleaning did not occur prior to take-off
  • Percentage of planes that had to wait longer than planned for refueling or de-icing
  • Percentage of lost luggage

When considering the steel mill industry, which deals with large amounts of raw materials and finished goods traveling all around the country, the metrics would be completely different. They may include the following:

  • Inbound freight costs for raw materials
  • Percentage of on-time shipments for inbound freight
  • Outbound shipping cost and sales spending
  • Percentage of on-time shipments to customers
  • Percentage of added costs to the company for premium freight shipments caused by the firm’s shipping errors, if the firm has its own fleet
  • Percentage of truck miles with no backhauls (called deadhead miles)
  • Percentage of damaged or lost shipments

Criteria to Use

As in any endeavor, whether it is an elementary school or a prestigious corporation, the choice of metrics is important. If a wrong or unimportant metric is chosen, and the organization focused resources and effort on excelling at that metric, time and money could be wasted. The logistic function has two main stakeholder groups to consider when establishing important metrics and striving toward improved performance. The internal stakeholder group includes the firm’s owners, stockholders, and senior managers. They are typically concerned with costs, profits, and market share. The external stakeholders are any and all customer groups.

How Criteria Affect Decision Making

In the case of an airline company, a metric addressing both stakeholder groups would be on-time airline departure. This obviously keeps passengers happy but simultaneously keeps added costs to the airline from piling up, such as the cost of providing hotel rooms for passengers who are not able to take their scheduled plane because of maintenance problems. On the other hand, the passenger railroads logistics function may focus on having to pay premium charges to get food delivered to the dining car for customer satisfaction, yet the railroad owners and managers may see this as an unnecessary added cost.

Navigating these necessary compromises is analogous to modern management thinking in recent years about the silo mentality. Senior management has recognized the harmful impact of functional silo thinking, whereby one organization’s department may strive to achieve its goal, but it sacrifices another department or overall company’s goal achievement. Therefore, the best set of metrics is one that recognizes both internal and external stakeholder agendas simultaneously.

Activity
Determining Logistics Costs for Public Warehousing

Scenario: As the logistics manager for a retailer of children’s toys, you have been asked to make some logistics decisions. You are trying to determine if your company should complete the following business activities or use a public warehouse instead. To make a decision, you must determine what your monthly costs would be, given your situation.

Activity 1: Select the following link to review Exhibit A from a sample business contract to find out more information: http://contracts.onecle.com/build-a-bear/js.svc.2002.02.01.shtml

Use the rates found in the sample business contract. In a typical month, you will receive 100 pallets stacked with cases or cartons and 5,000 separate cartons.

Question 1: What are your inbound costs for the pallets?

Pause to consider a response.

Response: The cost of your inbound pallets is 100 x $4.30 = $430.

Question 2: What are your inbound costs for the separate cartons?

Pause to consider a response.

Response: The cost of your inbound separate cases is $0.46 x 5,000 = $2,300.

Activity 2: Use the rates found in the sample business contract. In a typical month, you will ship out 200 orders, each requiring a bill of lading (BOL) to be prepared. Each order will typically be only 5 cases each. The price before markup of outbound freight is $200 per order.

Question 3: What is the cost of your BOL?

Pause to consider a response.

Response: The cost of your outbound BOL is 200 x $5.75 each = $1,150.

Question 4: What is the cost of your outbound case handling?

Pause to consider a response.

Response: The cost of your outbound case handling is 200 orders x 5 cases x $.46 / case = $460.

Question 5: What is the cost of your outbound freight with markup?

Pause to consider a response.

Response: The cost of your outbound freight with markup is 200 orders x $200 / order x 1.15 for markup = $46,000.

Activity 3: The following chart contains a summary of the calculations that you have done throughout this exercise.

Question 6: Use the rates found in the sample business contract to determine the storage cost, and then calculate the total cost per month.

Cost Description

$ Amount

Total Storage Cost

$ 65,888.00

Inbound pallets

$ 430.00

Inbound separate cases

$ 2,300.00

Total Inbound Cost

$

Outbound BOL

$ 1,150.00

Outbound case handling

$ 460.00

Outbound freight with mark-up

$ 46,000.00

Total Outbound Cost

$

Total Cost

$

Pause to consider a response.

Model Answer:

Cost Description

$ Amount

Total Storage Cost

$ 65,888.00

Inbound pallets

$ 430.00

Inbound separate cases

$ 2,300.00

Total Inbound Cost

$ 2,730.00

Outbound BOL

$ 1,150.00

Outbound case handling

$ 460.00

Outbound freight with mark-up

$ 46,000.00

Total Outbound Cost

$ 47,610.00

TOTAL COST

$ 116,228.00

Activity 4: As the logistics manager for a major shipping company, use the following data to determine the total revenue, cost, and net profit for the round trip by the common carrier for trip A, assuming no backhaul is found:

  • Common carrier’s normal shipping revenue = $1.85/mile
  • Common carrier’s backhaul shipping revenue = $1/mile
  • Common carrier’s empty deadhead cost = $0.90/mile
  • Trip A from New York to California = 3,000 miles

Question 7: What is the total revenue earned, cost, and net profit?

Pause to consider a response.

Response: Trip A earns the carrier 3,000 miles x $1.85/mile = $5,550 revenue, but costs 3,000 x $0.9 = $2,700. Therefore, the total net profit is $5,550 – $2,700 = $2,850.

Activity 5: As the logistics manager for a major shipping company, use the following data to determine the total revenue, cost, and net profit for the round trip by the common carrier for trip A and trip B with a backhaul from California to Chicago:

  • Common carriers normal shipping revenue = $1.85/mile
  • Common carriers backhaul shipping revenue = $1/mile
  • Common carrier empty deadhead cost = $0.90/mile
  • Trip A from New York to California = 3,000 miles
  • Trip B backhaul from California to Chicago = 2,000 miles
  • Trip B deadhead from Chicago to New York = 1,000 miles

Question 8: What is the total revenue earned, cost, and net profit?

Pause to consider a response.

Response: Trip B earns the carrier 3,000 miles x $1.85/mile = $5,550. The backhaul to Chicago earns 2,000 miles x $1 = $2,000 for a total of $7,550.00. The cost is 1,000 x 0.9 = $900. Therefore, the total net profit is $7,550 – $900 = $6,650.

Reference

Sample business contracts. (2012). Retrieved from the Onecle Web site: http://contracts.onecle.com/build-a-bear/js.svc.2002.02.01.shtml

Article
Criteria Examples by Industry

The following demonstrates which logistics metrics might be important to internal stakeholders and external stakeholders, as well as some reasonable compromises to avoid focusing too much on one stakeholder’s primary agenda:

Industry

Internal Stakeholder Metrics

External Stakeholder Metrics

Cruise line

  • Actual versus planned fuel usage
  • No overbooking
  • On-time departure and arrival
  • Percentage of lost passenger luggage

Home and garden store

  • No end-of-season flowers left over to scrap
  • Timely delivery from sod farms and greenhouses
  • Fresh flowers and sod available

Electric utility company

  • Overtime costs to address unexpected outages
  • Premiums to be paid for borrowing power from another utility during periods of downtime
  • Number and length of service interruptions
  • Time to get service back after a storm

Fast-food restaurants

  • Amount of food thrown out (in terms of price)
  • Percentage of late supplier deliveries
  • Average time to be served
  • Percentage of accurate orders

Online universities

  • Percentage of time to get online tech support
  • Percentage of time server is down
  • Percentage of time during which the server is down
  • Average time to get online tech support

Choices of Techniques That Can Impact Results

To achieve the desired results in terms of both sets of metrics, the logistics manager has a variety of techniques that he or she can employ. For example, the actual warehousing function can be done at the manufacturing location, at various regional distribution centers, or by a completely separate company (referred to as public warehousing).

For the actual freight part of the logistics system, the manager can choose to have a private fleet that is dedicated to the company, employ third-party carriers, ask the public warehouse to manage that, or have a third-party logistics firm assume total responsibility for that activity. Each of these alternatives comes with financial pros and cons (fixed cost and variable costs), as well as customer service pros and cons.

Conclusion

As with any process design, the optimum process cannot be determined until there is an agreement on the goals or outputs of the process and the metrics that will be used to assess performance. The logistics function is no different. For example, the criteria of excellent customer service may be enhanced by locating multiple factories or distribution centers around the country, but that will likely not make internal stakeholders—such as business owners and stockholders —happy from a profitability perspective because of high added fixed costs. The best compromises must be established up front before any major logistics decision is made.

At the same time, the logistics manager has a menu of techniques available to him or her, each with favorable and unfavorable impacts on the different metrics that were identified as important. He or she must design the system to optimize the overall results that are being sought.

Article
FAQ: Analyzing the Supply Chain
Question 1:What is a process reference model, and why is it useful?

Answer 1: A process reference model integrates concepts of business process management, benchmarking, and metrics into a cross-functional framework. This helps organizations capture the current state of a process, the desired future state of a process, and process objectives. Organizations can quantify operational performance, establish new internal performance targets, and benchmark best-in-class results. Process reference models describe standard processes and the relationship between different processes. Standard metrics are defined for process performance management and improvement. Best-in-class management practices and software solutions are also described and discussed. A process reference model, such as Supply Chain Operations Reference (SCOR), provides standard definitions for processes, results, and metrics, so companies in the same or different industries can communicate more easily about their businesses to each other (SCOR 8.0 Reference Booklet, n.d.).

Question 2: The SCOR model incorporates best practices. My business is unique, so will those practices work for me?

Answer 2: The SCOR does incorporate best practices. It incorporates more best practices than most businesses will use. The choice of using any particular best practice depends upon the strategies driving the supply chain. Each company will probably have its own unique company and supply chain strategy. This uniqueness will be reflected in the choice of best practices and metrics for performance management from the SCOR model. Further, although the SCOR model describes best practices, it does not dictate the implementation of any best practice. These implementations are meant to vary by company.

Question 3: What is aggregate demand?

Answer 3: Aggregate demand is the total demand for goods and services. Economists use the term aggregate demand to refer to demand for all goods and all services in the whole economy. In supply chain management, aggregate demand is used to refer to the total demand for goods or services from your company. Aggregate demand is used as a big picture number for planning purposes. When a company or supply chain has flexible production facilities, aggregate demand can help determine the overall number of facilities required or the amount of capacity required. Aggregate demand can be affected by pricing, promotions, and new demand. Aggregate capacity can be affected by hiring and laying off workers, use of overtime, use of part-time workers, the use of inventories, and subcontracting. Companies use aggregate demand and aggregate capacity to do aggregate, or rough-cut, planning.

Question 4: Why do companies care about metrics?

Answer 4: According to Behn (2003), “what gets measured gets done” is perhaps the most famous aphorism of performance measurement. As a company develops a comprehensive set of performance metrics, it will determine what is achievable and when it can be achieved. The metrics can prove what is working and what is not working. Metrics allow a company to rally around the common goals of enriching the company and its shareholders by holding all employees accountable to performance standards. This accountability is good for businesses, shareholders, and individual careers.

It is important that not only the correct performance measurements but also the correct portfolio of metrics be instituted. Good performance measures that have staff involvement and commitment utilize the correct measurement tool and performance tied to pay.

Question 5: What are examples of metrics in the SCOR model?

Answer 5: In the SCOR model, there are perhaps 400 performance measures in total, which is too many to list here or to comprehend in a single reading. Examples of Level 2 metrics for the Make process category would include assets turns, cost per unit, indirect to direct headcount ratio, and overhead costs. There are 21 Make Level 2 metrics in the SCOR model.

Examples of SCOR metrics for Make Level 3 include capacity utilization, delivered to commit date variance, fill rates, plant finished goods inventory days of supply, packaging costs, warranty costs, yield variability, and so forth. There are at least 90 metrics for Make Level 3 (Cohen & Roussel, 2004). There is a similar number of metrics for the plan, source, deliver, and returned areas.

Question 6: How would a company know if a particular metric score is good or bad?

Answer 6: A metric score, all by itself, gives very little information. More information can be gleaned in two ways. First, a company may look at the trend of metric scores for a particular metric over time. This trend will tell the company whether it is making improvements in the metric or not. The trend will also tell the company whether the improvements are fast enough.

Second, a company may establish benchmarks for the metrics that it utilizes. These benchmarks may come from companies within the industry or outside the industry. The objective of benchmarking is to define reasonable and outstanding performance levels for the metrics that the company is using.

Question 7: What is a value chain? Why is it an important concept?

Answer 7: A value chain characterizes the value adding activities performed by an organization. The value chain for a company includes at the minimum the first upstream vendor and the first downstream customer. Companies have begun to think in terms of capturing the value generated along the chain. The value chain group has developed a value chain reference model called the value chain operations reference model (VCOR) (SCOR 8.0 Reference Booklet, n.d.). VCOR extends the supply chain processes of plan, source, make, deliver, and return to include market, research, develop, brand, sell, and support (VCOR Model, n.d.). Michael Porter made the case that the value chain was a source of continuing competitive advantage and therefore of abiding importance to companies (Porter, 1985).

Question 8: Is there a best practice in aligning the supply chain strategy with the firm’s strategy?

Answer 8: After an extensive search, no best practices for aligning the supply chain strategy with the firm strategy were found. Supply chains tend to be unique. This uniqueness makes it very difficult to develop a generic set of best practices for the alignment strategy and supply chain strategy. In addition, any company’s practices for aligning strategy are likely to be unique and not entirely applicable to other companies. Although the best sources describe what you need to do to align strategies, they do not describe how it should be done.

Question 9: What happens if the supply chain strategy is not aligned with the firm’s strategy?

Answer 9: Examples of companies whose supply chain strategies do not align with the firm’s strategy abound. The outcomes tend to be somewhere in the continuum of minor effect to going out of business. Minor effects would include supply disruptions, increased costs, and unhappy customers. In a case where a firm has a strong competitor who has aligned its supply chain with a good company strategy, the firm may expect to lose market share.

Sometimes, changing the supply chain strategy to align with the firm’s strategy is impossible because of very high capital investment, contractual obligations, or new regulations. In these cases, the firm should align its company strategy to take advantage of current supply chain strategy and the inherent strengths and weaknesses in its supply chain.

Question 10: Are SCOR, Lean, and Six Sigma compatible?

Answer 10: The short answer is yes. The longer answer is that these core best practices and metrics are extensive enough to allow the choice of those best practices that support Lean and Six Sigma if that is the company’s direction (Smartwood, 2003). In addition, under the SCOR model, companies are allowed to implement best practices as they see fit, which would include adapting those processes for Lean or Six Sigma compliance. Further, one of the objectives of the SCOR model and best practices is to drive costs out of the supply chain, which is in line with the objectives of Lean and Six Sigma (i.e., to reduce costs and improve quality).

References

Behn, R. (2003). Why measure performance? Different purposes require different measures. Public Administration Review, 63(5), 586–606. Malden, MA: Blackwell Publishing.

Cohen, S., & Roussel, J. (2004). Strategic supply chain measurement. New York: McGraw-Hill.

Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. New York: The Free Press.

SCOR 8.0 reference booklet. (n.d.). Retrieved from the Supply Chain Council Web site: http://www.supply-chain.org/page.ww?name=”SCOR”+8.0+Download+Thank+You§ion=”SCOR”+Model

Smartwood, D. (2003). Using lean, Six Sigma, and SCOR to improve competitiveness. Retrieved from: http://www.bptrends.com/publicationfiles/10-03%20ART%20Lean%20Six%20Sigma%20SCOR%20-%20Swartwood.pdf

Article
FAQ: Efficiency in the Supply Chain
Question 1:What is a postponement strategy?

Answer 1:

A postponement or delayed differentiation strategy involves manipulating the point at which a company differentiates its product or service. These delays move the point at which a company differentiates its product closer to the customer.

Companies that execute this strategy most effectively have developed standard products that can be quickly, easily, and inexpensively differentiated or customized once the actual consumer demand is realized.

To support this type of strategy, companies must develop and implement specific inventory strategies that satisfy consumer service expectations and meet company objectives on inventory-carrying costs while mitigating the risk of holding the right inventory, at the right place, at the right time, and in the right form.

Question 2: What is the bullwhip effect?

Answer 2:

The bullwhip effect occurs when there is a lack of information along the supply chain. In the simplest terms, the bullwhip effect is when companies establish safety stock in an effort to minimize and/or eliminate stockouts at the next customer level.

This phenomenon takes place when partners through the supply chain have information that is not aligned or congruent with others in the supply chain, causing suppliers to carry additional inventory to protect against stockouts at the next customer. The further down the supply chain, the more variables are introduced, causing suppliers to carry even more inventory to satisfy the uncertain demand from the customer.

The term bullwhip describes the phenomenon as even small incremental changes by the end of the supply chain cause exponential changes in demand throughout the supply chain. As the small movements occur and the suppliers react, the end result is excess inventory, and therefore cost, to the suppliers and, ultimately, the final customer.

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