measuring logistics’ performance
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Measuring Logistics’ Performance . June 20, 2014. Logistics Lead Time (LLT). … is the delay (aka latency) between the initiation of an order and the completion of its fulfillment. . Procurement. Production. Distribution. - PowerPoint PPT PresentationTRANSCRIPT
Measuring Logistics’ Performance
June 20, 2014
Logistics Lead Time (LLT)… is the delay (aka latency) between the initiation of an order and the completion of its fulfillment.
Procurement
Holding mandatory inventory mandatory to start production (e.g., raw materials, parts, components, recipe ingredients)
Production
Includes specifications, conception, design, transformation, manufacture, assembly, and quality management.
Distribution
Includes planning, allocation, assignment, and tracking of shipment and delivery resources.
Example: Production of Blouses
Logistics department has to procure the following for the production line:• Fabrics, which will be cut out in the first
production line
• Yarn, which will be sewed together with the cut-out fabrics
• Buttons, which will be sewed on the blouses.
Procurement Logistics
Example Contd – Determine Economic Order Quantity (EOQ)
(Carrying) Costs of- Transport - Storage- Cost of tied
capital
Total Costs
Purchasing Price
Costs
Quantity
Economic Order Quantity
Example (Contd…): Optimal Order Quantity for the Fabrics
Parameters Part Order (In Rs.’0000s) Total Order (In Rs.’0000s)
Purchase Price 2.50 2.40
Transport Costs 0.25 0.20
Storage Costs 0.10 0.25
Cost Of Tied Capital 0.05 0.15
Handling Costs 0.02 0.02
Total Costs 2.92 3.02
Example (Contd…): Detailed Procurement Plan
Material Feb Mar Apr May June Total
Fabric A 100 100 100 100 100 500 bales
Fabric B 50 50 50 50 0 200 Bales
Yarn 1 1,000 1,000 1,000 1,000 1,000 5,000 reels
Yarn 2 800 800 800 800 800 4,000 reels
Button Z 6000 6,000 6,000 6,000 6,000 30,000 pieces
Button X 5000 5,000 5,000 5,000 5,000 20,000 pieces
Example (Contd…): Lead Time Calculation
Factors to be confirmed• Whether material will be available
immediately or if a delivery time is involved• The transportation period• Time required for customs clearance (if any) or
any other clearances
Example (Contd…): Lead Time Calculation Contd…
Factors Confirmed• Delivery time after receipt of order = 10 days• Transportation by trucks including delivery time to
warehouse = 21 days• Transportation by airfreight including delivery time
to warehouse = 3 days• Customs and/or other clearances = 3 days• Acceptance and inspection of goods at our
warehouse = 2 days
Example (Contd…): Lead Time Calculation Contd…
Determine Order Point: The quantity (of inputs) on-hand that will (theoretically) cover your average usage over the supplier’s lead time. It is to leave you with your “safety stock” inventory on-hand when replenishment arrives. Also, known as ‘Order Point Inventory System’
For e.g. We use 10 pieces per week and we need 3 weeks to replenish stock, we would order when the on-hand inventory reaches 30 pieces. If 10 pieces per week is a comfortable safety stock (given, firm capacity, demand/market factors, etc.), then our order time will be 10 pieces (our safety stock) + 30 pieces(replenished stock). The in-house inventory control systems would automatically trigger a replenishment signal when on-hand inventory hits a level of 40 or less. (Reference: KANBAN)
Lead Time Calculation Contd…Order Point(Blouses Example)Maximum Stock: 1,000 PiecesOrder Point Stock: 600 PiecesMinimum Stock: 300 PiecesOrder Quantity: 700 Pieces = ConsumptionStock Quantity After Acceptance Of Goods: 1,000 Pieces = Maximum Stock
Inventory Level over Time
Order Quantity
Maximum Stock
Order Point Stock
Minimum Stock
Stock movement
Order Point
Example (Contd…): Lead Time Calculation Contd…
Make Order Placement: The order schedule is provided to the supplier, the producer can plan production and ensure immediate delivery
Depending on time availability, supplies’ delivery can be scheduled by truck and/or airfreight
Lead Time Calculation Contd…Order Placement
Order Point Plan With Quantities And The Need Date
Fabric A01. Feb 01. Mar 01. Apr 01. May 01. Jun
Inventory 0 1,000 1,000 1,000 1,000
Demand 1,000 1,000 1,000 1,000 1,000
Emergency Stock 1,000 1,000 1,000 1,000 0
Order Quantity 2,000 1,000 1,000 1,000 0
Purchasing Lead Time - Vessel 36 Days 36 Days 36 Days 36 Days 36 Days
Latest Order Point (Vessel) 23. Feb. 26. March 25. April 26. May 25. June
Purchase. Lead Time - Airfreight
18 Days 18 Days 18 Days 18 Days 18 Days
Latest Order Point (Airfreight) 13. March 12. April 13. May 12. June 13. July
Example (Contd…): Lead Time Calculation Contd…
Transport and Acceptance Goods: Arrange for transport from supplier to warehouse, followed by:• Counting the material• Checking quality• Accepting goods and signing delivery note• Registering incoming goods in the inventory
records
Quiz
• Main task of procurement logistics?– Price and market analyses– Flow of materials and information
• To calculate EOQ, we consider?– Purchasing price and handling (carrying) costs– Only purchasing price of goods
Production Logistics
Example (Contd…): Production Schedule
Parameters Black Blouse White Blouse
Demand 60 Blouses per day 40 blouses per day
Cutting Resource 100 Blouses per day 100 Blouses per day
Sewing Resource 200 Blouses per day 200 Blouses per day
Fabric Cutting 12 blouses per bale 20 Blouses per bale
Yarn 1.2 blouses per reel 1 blouse per reel
Button 5 buttons per blouse 5 buttons per blouse
Black blouses and White Blouses to be produced in a period of 5 months
Example (Contd…): Production Management Plan
• Start with cutting fabrics– Move 5 Bales of fabric A and 2 bales of Fabric B to the cutting line– Transport cuttings to the sewing line along with yarn and buttons
• One day later, sewing line will begin sewing blouses– Sewing line will sew fabric with yarn and buttons– Sewn blouses will be transported into packing zone and packed
into shipping boxes– The finished and packed blouses will be stored in finished-goods
warehouse• Both production lines (cutting and sewing) will produce 60
black and 40 white blouses per day
Example (Contd…): Inventory Management PlanDate 01. March 02. March 03. March
Fabric A 200 bales 195 190Fabric B 160 bales 158 156Yarn 1 1,500 reels 1,500 1,450Yarn 2 1,200 reels 1,200 1,160
Button Z 9,000 pieces 9,000 8,700Button X 6,000 pieces 6,000 5,800
Cuttings black 0 60 60Cuttings white 0 40 40Blouses black 0 0 60Blouses white 0 0 40
• Stock movement must be fixed in the inventory records• End of day or shift, stock movements will be recorded in inventory card of each
article (raw material, semi-finished and finished goods)
Safety Stock of Finished Goods
• A buffer or safety stock is held to balance fluctuations:– Scrap– Quality problems– Production problems– Higher demand
• Stock falls below safety stock then work needs to be expedited to maintain a stock of finished goods in the right amount to meet the requirements of the distribution market
Quiz
• Main task of production logistics?– Materials manipulation, quality control and
maintenance– Material planning, in-house transport and packaging
• To reduce the stock of finished goods– Define for each product a safety stock and a maximum
stock– Produce the whole demand of each article at one time
Distribution Logistics
Inventory and Warehouse Management• The company works with a central warehouse and not regional
warehouses.– Advantages: Minimize stock and capital lock up; No transport between regional
warehouses to balance stock and thus has only one (set) of safety stock held– Disadvantages: Longer route of transport
• The finished goods are classified into A-parts (high-runner), B-parts (medium-runner) and C-parts 9low runner) [Reference: ABC analysis]. Each type also has safety stock
Type Weeks Demand Per Week Safety Stock
A-parts 1 2,000 2,000
B-parts 3 500 1,500
C-parts 5 10 50
Order Picking…defined as the activity by which a small number of goods are extracted from a warehousing system, to satisfy a number of independent customer orders.
Start of Picking
Packing and Dispatching Zone
A-Parts
B-Parts
C-Parts
To minimize picking time the warehouse is also sub-divided into different picking zones using the method of batch picking. What is batch picking?
Transport Management
Production Warehouse
Distribution Warehouse
Retailer
Wholesale Warehouse
Exports
Own Truck
Third-Party carrier
Own
Truc
k Air freight or Ship
Order Processing
• Identify means of communication – Telephone, written or data exchange
• Order Lead Time – Delivery time from ordering upto delivery
• Damages, claims and returns - Permission to return goods
Quiz
• Main task of distribution logistics?– Order processing, warehousing and transport– Pricing, promotion and marketing
• True or false? Will have same safety stock of each article in our warehouse– No, we define each article a different safety stock
(A-part, B-part, etc)– Yes. Every article is important
Disposal Logistics
Type of Wastes
• Packing material like plastic film and cardboard,
• Empty yarn reels and fabric coils,
• Scrap from fabric cutting,
• Lubricating oil,
• Broken machinery parts.
Waste Containers
Production Warehouse
Distribution Warehouse
Shipping
Plastic film Recycling
Cardboard Recycling
Remaining Rubbish
Reusable Cycle
Weaving mill
Full reel/coilEmpty reel/coil
Textile Plant
Waste Disposal
• Sorting of wastes • Distinguishing as harmless and hazardous
waste• Harmless waste disposed at waste disposal
site• Hazardous waste should be disposed off as per
mandatory laws
Quiz
• Main task of disposal logistics?– Waste and environment management– Delivery of goods to the customer
• Disposal Management– Reduces costs– Increases costs
Logistics Functions
• Information Management• Inventory Control• Transportation• Warehousing• Network Design
sources
• http://www.logisticsquarterly.com/issues/13-3/article2.html