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Posted on Oct 3, 2023 in Other subjects

Outbound slide notes

SA Economic Growth and Logistics

Business Logistics

·Business logs= materials management + physical distribution

oBalanced system

oHeavy inbound

oHeavy outbound

oReverse logistics

§Handling of returned goods

§Waste disposal

·Distinguish: physical flow and information flow

oOrderàconfirmationàannouncementàreply (EDI)

·

Peculiarities: transport system elements

·Fixed and mobile capital (infrastructure and transport means)

oCapital intensive

oLimited alternative use

oEconomies of scale

oMonopoly/competition

oDedication/own transport

Peculiarities: Transport

·Complex structure of transport services

·Derived demand

·Unevenly spread over time

·Non-storable

Cost contributions of logs components in 2013

·Transport 59.8%, invent carrying costs13.5%, warehousing 14.3%, management/admin 12.5%

Choice: Transport modes

·Decide on the best choice of modes or a combination, structuring the transport system in such a way that good logs coordination takes place

·Criteria:

oSpeed

oFlexibility

oReliability

oReachability and connectedness

oEase of use

oInformation

o Image

·Modes of transport:

oDeep sea fishing

oShort sea fishing

oRail

oInland shipping

oRoad

oAir

oPipeline

Distribution decisions

·Look at consolidation (place a warehouse close by and send smaller units from different plants to the final place)

·Break bulk (break up a large volume of goods into smaller volumes and send them out individually)

·Mixing is using consolidation and break bulk in a combination

SA Economic growth

·SA’s economic activity is highly skewed

·Some economic centres found inland are bigger than those located near ports

·Contradicts theory

·

oSA problem – density – markets far away and gauteng far for ports

oTONKM = transport of 1 ton goods over 1km

oTo keep SA’s economy going the distribution of 348 billion tonkm needed

oCorridor transport – long distance movement between industrial centers

oPrimary transport – export of mining commodities (far from ports)

oRural transport – low density movement in rural areas

oMetropolitan transport – urban movement in big industrial areas

oSA’s long distance corridors Cape – Gauteng and Durban to Gauteng makes it difficult

oLow value mining commodities and agricultural products transported over long distances.  Due to high transport costs the price /costs of these commodities increase

o1% reduction in log costs can save SA R3.39 billion per annum

·SA’s geographical position places it at a disadvantage in terms of distance from its four largest partners

oUK, Europe, USA and Japan

·Many of the regions against who SA competes are on average closer to these markets

oSouth East Asia, Eastern Europe, South America and Australia

·Majority of SA’s manufactured goods are produced in Gauteng

·Lack of well thought-out freight logs strategy

AN overview of SA’s Trade

·Bulk exports represent the main cargo carried by SA maritime SC in terms of volume

o75.4 million tons of coal through the Port of Richards Bay in2015

o59 million tons of iron ore through the Port Saldanha exported in 2015

·Most of the bulk commodities exported from SA are made up of raw materials

oCoal, iron ore, manganese ore and other ores and minerals

·Rail is used for the inland transport leg

·SA’s marine links are currently provided by foreigners

·Bulk products from SA are usually sold F.O.B

·Liner trades – world trend is for shipping companies to integrate port and overland links into their services – in order for SA to compete internationally, their container SC will need to follow the trend

·SA container market moved 4.83 millions TEUs in 2014à accounts for less than 1% of global container trade

·SA’s container trade

o42% imports, 41%exports, 17% transhipments

·At present, most of the containers are being transported inland in SA by road transport

·Up until road transport was deregulated, rail transport was protected from competition and Transnet was the main domestic carrier of containers

·Since deregulation, the modal split has changed in favour of road transport

·Up until 1998, Transnet controlled all the containers from the ports and no other haulers were allowed to transport containers within a defined radius

·Since 1998 there has been an open gates policy

·Africa accounts for just 2.4% of world GDP, but hosts 15% of its population

·GDP is one of the most developed and economically stable countries on the African continent

·Trade plays an important role in reversing poverty

Strengthen Relationships with Neighbours

·Southern African Railway network was built under different conditions than those that exist today

oHistorical and political incidents

·Africa contains 15 landlocked countries

·Distance to the sea ranges from

o220km (Swaziland) and 1735km (Chad)

·Efficient corridors required for international trade

·Infrastructure

·High permissible axle loads for road transport

·The transport network outside SA operates below its original design capacity

·Being landlockedà geographical disadvantage

·Low density and poor quality of infrastructure

oLandlocked countries

oCoastal countries

Benefits of cross border movements

·SA’s economy can benefit from cross border movements

·Brings foreign revenue into the country

oProvides – increase profit

oWorkers – increased salary

oCustomers – goods they would otherwise not be able to get or goods at lower prices

oGov – benefit indirectly from increased tax revenue that is generated from higher levels of economic activity or directly by using some of the revenue earned to pay for other national objectives or invest in other essential infrastructure

·Striving to reduce transport and logs costs for both economic and political reasons

·A reduction in transport and logistics costs will allow SADC countries to compete globally

Strategies developed with regards to transport and logistics

·The demand for land transport in the SA economy is increasing

·The majority of growth is being captured by the road sector

·Change in the long-haul road/rail relationship in order to avoid road gridlock

·The lack of consideration for the infrastructure component of road costs vs rail costs is highlighted by the exponential rise is SA’s truck fleet

Establish SA as a regional hub

·The efficient transportation of goods in international trade is vital for the economic welfare of a country

·Efficient ports are directly proportional to national economic activity

·African ports have some of the highest logs costs per TEU in the world

·The situation is made worse by insufficient infrastructure

·With the exception of Mauritius, SA has the lowest costs in Africa and is the most accessible via most trade routes

·Shipping trends indicate that shipping lines are striving to hub ports

·Several countries and terminal operators in Sub-Saharan Africa are developing hub capacity

oDeveloping south-south trades

oChanging trade route dynamics

oGrowing regional volumes

·SA is relatively isolated from the major East/West trades

·It is an end port that serves the North/South trade route and acts as a gateway for South Africa and Sub-Saharan Africa

·SA can play a major role in the container trade

·This coud generate additona economic activity and employment opportunities, stimulate growth and increase national trade competitiveness through economies of scale, scope and density

·ThePort of Coega (Ngqura)

oAccommodate ships up to 12 500 TEUs

·Expansions and upgrades at the Ports of Durban and CT will also help establish SA as a regional hub

Road and Rail Problems

·Since the deregulation of road transport, rail transport in SA has experienced a serious decline in the market share

·Rail transport – over longer distances economies of scale can be realised

·Rail transport at a disadvantage to the door-to-door service pf road transport

·In international settings, long-haul rail costs are generally 70% of those of road transport, whereas in SA rail and road freight have similar costs

·Transnet must overcome the perception that companies have of rail transport in SA

·Service levels still not meeting necessary levels of efficiency

·Rail transport > 500km

·Freight is still moving long distances to ports by road transport

·Lack of modal collaboration

·Transport productivity is another problem facing SA’s freight transport system

oCongestion of SA’s roads

oLack of sufficient transport and infrastructure

oLack of vehicle scheduling and route planning

oLack of drivers’ skills and poor management and administration

·Overuse of the national and urban road network

·Overloading on SA roads

Cross Border Agreements

·SA has 52 noteworthy border posts

·60% of traffic is handed through the 5 biggest border posts

oLebombo, Beitbridge, Oshoek, Nakop and Maseru Bridge

·Obstacles to the smooth movement of freight at border posts include:

oInexperienced staff

oA lack of necessary equipment

§Manual clearing takes twice as long, but the systems required in order to assist the electronic clearing not fully operation yet

Specific constraints addressed through public investments are reorganisation

·Lack of conformity between countries

·High degrees of complexity

·Extraordinary levels of delays

·The amount of paperwork required for moving goods between SADC countries causes delays

·As does the requirement pf 2 stops at most border posts and non-standard gross vehicle mass requirements

·Lack of sharing of info between firms

Public initiatives: cross-border movements

·Southern African states are fragmented in terms of transit procedures and standards

oCustomers procedures, transit charges, society checks, training, road design standards and documentation

·Lack of political commitment towards the effective integration of transport issues in the strategies of poverty reduction

·Long and inappropriate documentation procedures

·Corruption

·High transit costs including insurance

Challenges remaining and current efforts

·The reliability, speed, flexibility and responsiveness of the freight transport system in SSA is an obstacle to being internationally competitive

·Divide the national freight system into different stages

·Core structural issues in the freight transport system have been ignored up till now

·Not feasible to provide the infrastructure that will be required by the economy over the next 20 years in the same rail/road configuration that is currently available

·Important to implement intermodal corridors

Transport Fundamentals

Importance of an effective transportation system

·Greater competition (eg. Perishable products)

oLanded cost of products

oDirect competition

oIndirect competition

·Greater economies of scale (eg. Motor vehicle industry)

oLower production costs

oSpecialisation of labour

oDecoupling of markets and production sites

·Reduced prices (eg. Fuel prices)

oReduced product prices

oHigher standard of living

Service choice and their characteristics

·Transportation service may be viewed in terms of characteristics that are basic to all services:

oPrice

oAverage transit time

oTransit time variability

oLoss and damage

·Price

oLine-haul rate for transporting goods and any accessorial or terminal charges for additional services provided

oFor-hire service

oPrivate transport service

oVaries greatly between modes of transport

·Average transit time

oImportant transportation performance characteristics

oAverage time that it takes for a shipment to move from its point of origin to destination

oDoor-to-door or terminal-to-terminal service

·Transit time variability

oImportant transportation performance characteristics

oUsual differences that occur between shipments by various modes

oWeather, traffic congestion, number of stops, differences in time to consolidate shipments

·Loss and damage

oPrimary customer service condition

oCommon carriers have an obligation to move freight with reasonable dispatch

oResponsibility relieved if loss and damage result from:

§Act of God

§Default by the shipper

§Other causes not within control of the carrier

oImportant to consider when selecting a carrier

oCustomer service

oProtective packaging

Single Service choices

·Rail

·Truck

·Air

·Water

·Pipeline

Intermodal transport

·Logistically linked movement using two or more modes of transport on the line-haul part of the route

oReason intermodal transport is to benefit from the advantages of the different modes of transport

oCan overcome disadvantages of one mode of transport by supplementing it with another mode

·Trailer-on-flatcar

·Container-on-flatcar

Agents and small shipment services

·Agents – offer transport services to shippers but own little or no line-haul equipment

oHandle numerous small shipments and consolidate them into vehicle load quantities

oCompetitive rates

oPickup and delivery services

·Freight forwarders

oFor-hire carriers of freight

oOwn mainly equipment for pickup and delivery

oPurchasing long distance services

·Shippers association

oCooperative orgs operating on a non-profit basis

oLower shipping costs

oPerform services similar to freight forwarders

oSingle shipper – volume rates

·Transport brokers

oBring shippers and carriers together by providing timely information about rates, routes and capabilities

oMay arrange for transport, but assume no responsibilities

Small-shipment services

·Parcel post

·Rates are based on the distance from the point of origin to the point of destination

·Premium small air services are also available that offer over night and same day delivery

·Flat charge when goods are below a certain weight

Company controlled transportation

·Company ownership of equipment or contracting for transport services

·Better operating performance, greater availability and capacity of transport services and a lower cost

·Financial flexibility is sacrificed

·Shipping volume

·Special requirements for service

oFast delivery with very high dependability

oSpecial equipment not generally available

oSpecial handling of freight

oA service that is available on demand

International transportation

·Developing a fast, reliable and efficient transport system

·Inexpensive transportation

oLabour rates

oRaw materials

·Water carriers dominate international transportation

·Geography of a country and proximity of major trading partners

·Japan and Australia vs EU

·Route choices

·Documentation

·Protective packaging

·Increased insurance

·Containerisation

·Physical plant

oSize of transport equipment

oDifferent geographic territories

oForeign trade zone

oCustomers’ expenses, tariffs, duties and taxes

oForeign trade zones or free ports – duty free areas established at one or more entry points within a country, such as seaports and airports, where foreign goods may enter, be held or processed in some way and be reshipped without incurring duties

·Foreign (Free) Trade Zone

o

·Advantages of foreign (free) trade zones

oImported goods may be left at trade zones for storage, manipulation to change custom classification, assembly, exhibition, grading, cleaning, selling, mixing with foreign and domestic merchandise, repacking, destruction, sorting and other services and then shipped out of the zone to another country without customs formalities or control

oForeign govs pay duties on goods in the trade zone only when they enter the customer’s territory of the importing country

oImported goods that are improperly marked for entry into the domestic market can be remarked at the trade zones, thus avoiding fines on the goods

oGoods may be repacked into smaller or larger quantities

oGoods that undergo shrinkage to spoilage, evaporation or damage do not incur duties on the lost amount

oSavings can sometimes be realised through shipping goods unassembled to the zone and then assembling them

oThe capital tied up in duties and bonds can be released for more profitable uses when products using duty-subject foreign materials are shipped to the trade zones to remain until foreign buyers are found or are ready for delivery

oImporters may obtain privilege foreign trade statuses whereby duties are frozen against future increases

oManufacturing conducted in trade zones incurs duties only on the imported materials and component parts in the finished product entering into the domestic market

oTangible personal property is generally exempt from state and local taxes

oCustomers security requirements provide protection against theft

oMerchandise my remain in a zone indefinitely

·Bonded warehouse can serve as foreign trade zones

·Agencies and services

oThe number and variety of the middlemen or agents

§Customhouse brokers, international freight forwarders, export merchants, export agents, export commission houses, import commission houses, wholesalers, brokers, international departments of banks

oProvide more services than just transportation

oGetting shipments across borders

§Preparing paperwork for customs, coordinating customs inspections, shipment warehousing and consolidation, freight optimisation and shipment tracking

Transport cost characteristics

·Variable and fixed costs

oFC- do not vary with services or volume

§Roadway acquisition and maintenance, terminal facilities, transport equipment and carrier administration

oVC- vary with services or volume

§Line-haul costs (fuel and labour), equipment maintenance, handling/pickup and delivery

·Common or joint costs

oMany transport costs are indivisible

oBackhaul

Rail cost characteristics

·High FC and relatively low VC

·High terminal costs: un/loading, billing and collecting, yard switching of multiple product, multiple shipment trains

·FC: railway maintenance, depreciation and administration

·VC: wages, fuel, oil and maintenance

·Increased volumes result in economies of scale

·Longer distances result in economies of scale

Highway (Road) cost characteristics

·Contrasting with rail

·FC are lowest of any carrier

oMotor carriers do not own the roadway over which they operate

oTractor-trailer represents a small economic unit

oTerminal operations do not require expensive equipment

·VC costs are high

oHighway construction and maintenance costs are covered in forms of fuel taxes and tolls

·Terminal expenses

oPickup and delivery, platform handling/billing and collecting

·Line-haul expenses

o50-60% of total costs

·Trucking costs do decrease with shipment size and distance as terminal costs and other fixed expenses are spread over more ton-miles, but not as dramatically as rail costs

Water (Shipping) cost characteristics

·FC- transport equipment and to some extent terminal facilities in the form of terminal operations

oWaterways and ports are generally publicly owned

oCosts for un/loading cargo

oHigh stevedoring costs

·Low line-haul costs

oOperating transport equipment

·Significant economies of scale with volume and distance

·One of the cheapest forms of transport over long distances and in substantial volumes

Air cost characteristics

·Similar cost characteristics to water and highway carriers

·Airline companies do not own the airspace or air terminals

·Airlines p

·urchase airports services as needed in the form of fuel, storage, space rental and landing fees

·Ground handling and pickup and delivery make up terminal costs

·Airlines own or lease their own equipment – annual FC

·In the short run, airlines VC are influenced more by distance than shipment size

·Great inefficiency in take-off and landing, VC reduced by length of haul

·Volume indirectly influences VC

·Premium service especially over short distances

·Substantial cost reductions over long distances

Pipeline cost characteristics

·Very similar cost characteristics to rail transport

·Pipeline companies, or the oil companies that own the pipelines, own the pipe, terminals and pumping equipment

·Own or lease the right of way for the pipe

·Highest ratio of FC to total costs of any mode

·Must work on high volume to spread the high FC

·VC – power to move the product and costs associated with the operation of pumping stations

·Costs per ton-km decrease substantially if there is sufficient throughput to justify a larger pipe

Rate Profiles (NB)

·Prices that for-hire carriers charge for their services

·The most common rate structures are related to volume, distance and demand

·Volume-related rates

oCosts of services are related to shipment size

oShipments of high volumes are transported at lower rates than small shipments

oRates may be reflected in the rate structure in several ways

§Rates may be quoted on the volume shipped

·Small shipments (min charge)

·Larger shipments (charged LTL)

·Large shipments- truck loads (vehicle load rate)

§High volume can be considered justification for quoting a shipper special rates on particular commodities

·Distance-related rates

oRange from being completely invariant with distance to varying directly with distance, with most structures lying between the two extremes

·Uniform rates

oOne transport rate for all origin-to-destination distances

oPostage

·Proportional rates

oFor carriers with significant line-haul cost components

oBy knowing only two rates, one can determine all the rates for a commodity by straight line extrapolation

oFavours short haul shipper

oTerminal charges are not covered on the short haul

oTruck loads can have this characteristic, because handling costs are minimal

·Tapering rates

oBuilt on the tapering principle

oCosts will show rates increasing with distance, but at a decreasing rate

oThe taper will depend on the level of fixed costs that the carrier has and the extent of the economies of scale in line-haul operations

·Blanket rates

oSingle rates that cover a wide area at the origin, destination or both

oMost common for products being hauled over long distances and whose producers or markets are grouped in certain areas

oA form of rate discrimination, but the benefits of rate simplification for both the carriers and the shippers outweigh the disadvantages

·Demand-related rates

oValue of service

oThe rate cannot exceed an upper limit

oTwo dimensions determine the value of the service to the shipper

§The shippers own economic circumstances

§Available alternative transportation services

Line-Haul rates

·Charges incurred between origin and destination terminals, or door-to-door in the case of truckload services

·Special service charges are prices paid for additional services – terminal services, stop-off services

oBy product

oBy shipment size

oBy route

oMiscellaneous

·Line-Haul rates: By product

oIf an individual rate were quoted for each product item between all origin-destination point combinations for all transport services, an impractically large number of rates to be administered would resut

oA product classification system was devised

oA number of factors are taken into account in establishing a product rating. These include:

§Density

§Stowability

§Ease of handling

§Liability

·Line-Haul rates: Class rates

oLinked to freight classification

oOnce a product has a class rating, then the line-haul charges can be determined

oThe class rate is a function of the distance between shipment origin and destination points as well as other factors

§

§Break weight= weight above which the next higher weight break rate should be used for lower transport costs

§Rate_next= rate for next higher weight break

§Weight_next=minimum weight of next higher weight break

§Rate_current= rate for true weight of shipment

§Example

·

·

o200cwt. Times by 1 is what it is meant to be

·Line-Haul rates: Contract rates

oRates reflect a number of circumstances around an individual shipment or shipper

§Volume of the shipment

§Direction of the movement

§Overall value as a customer

oContract rates take precedence over the more general class rates

oMay be special, one-of-a-kind rates reflecting individual shipping situations

·Line-Haul rates: Freight-All-Kinds

oWhen carriers quote single rates for a shipment regardless of the classification of the commodities that make up the shipment

oOften used by freight forwarders

oFollow the costs of providing the transportation service rather than the value of the service

·Line-Haul rates: By shipment size

oRates differ based on the shipment size

oRailroads, truckers and transportation brokers usually have a lower quantity limit on which to base charges, or they will have a flat minimum charge so that actual charges cannot drop below this minimum

·Line-Haul rates: Other incentive rates

oIncentives to ship in large quantities

oIn-excess rate – lower than vehicle load rates and apply to only those quantities that exceed the vehicle load minimums

§Encourages shippers to increase shipment size and allows carriers to better utilise the capacity of their equipment

oSome carriers have established time-volume rates

§Reduced rates are offered if a minimum tonnage is moved within a specified period (coal)

·Line-Haul rates: By route

oWhen shipments involve full-vehicle-load movements, carriers use a per-km charge to calculate total shipping expenses

oWhen a vehicle is loaded with cargo destined for more than one stop, a stop-off charge may be added to the bill

oThe per-km rate is determined by the location of the last point on the route

o

·Line-Haul rates: Miscellaneous rates

oCube rates

§Average of many different product characteristics

§When articles are very light and bulky, class ratings do not fully compensate the carrier for the costs incurred for transporting these items so cubed rates are used

§Based on space occupied rather than weight

oImport or export rates

§To encourage foreign trade, special rates are charged on inland shipments originating from or destined for foreign points

§Lower rates than comparable shipments with origins and destinations inland

oDeferred rates

§At times, the shipper is willing to accept the possibility of increased delay in delivery compared with regular service in exchange for lower rates

§The shipper is promised that delivery will be made no later than a given date

§Carriers use such freight to fill up available space

oReleased value rates

§The carrier’s liability is limited to some fixed figure

§Released value rates are particularly useful when the actual value of the goods is difficult to estimate

oOcean freight rates

§Rates do not closely follow the classification schemes of domestic carriers

§Quoted on either a space or a weight basis

§Ocean carriers may belong to conferences

Special service charges

·Extra charges are made

·Special line-haul charges or terminal charges

·Special line-haul services

oDiversion and reconsignment

§Diversion – changing the destination of a shipment while en route

§Reconsignment – changing the consignee of a shipment, after it has reached its original destination

oTransit privileges

§Rail carriers and (to a lesser extent) motor carriers

§Treated as if moves from an origin to a destination

§Rate includes the rate from origin to destination plus a small charge for the stop

§Grain

§Stop-off privilege

·Example

o

o

·Special service charges: Special line-haul services

oProtection

§Require additional protection

§Perishable products, fragile products

oInterlining

§Not all carriers serve all regions

§One carrier may pick up a shipment and then give it to another carrier that serves the destination region

§The first carrier pays the second, but the shipper is billed by the first

§Rate must cover the profit of both carriers

·Special service charges: Terminal services

oPickup and delivery

§Some carriers do not provide pickup and delivery as part of their line-haul rates – offered as an additional charge

§When included, it is usually limited to the immediate surrounds

oSwitching

§The movement of railroad cars from private sidings and junctions to rail terminals or stations

§Similar to pickup and delivery but rail cars are involved

oDemurrage and detention

§Penalty charges imposed on the shipper or consignee for holding the carrier’s equipment beyond an allowed free time that the carrier may hold the shipment

§48 hours

Private carrier costing

·Provide a level of customer service that is not always obtainable from for-hire carriers

oService reliability

oShort order cycle times

oEmergency response capability

oImproved customer contact

·Achieving a lower cost than for-hire carriage

·Cost of operating privately controlled transport is determined much the same way as an asset

oFC – insurance on the vehicle, interest charges on the money tied up on the vehicle, licensing fees, equipment amortisation and expenses associated with housing the vehicles

oOperator costs – driver compensation

oVehicle operating costs – fuel, tyres and maintenance

Documentation

·Bill of lading

oThe key document on which freight moves

oA legal contract between the shipper and the carrier for the movement of designated freight with reasonable dispatch to a specified destination, arriving damage free

oIt serves as a receipt for goods, subject to the classifications and tariffs that were in effect on the date that the bill of lading was issued

oIt serves as a contract of carriage

oIt serves as a documentary of evidence of title

oStraight bill of lading – is a non-negotiable legal document

§Are consigned only to the specific person noted in the document

§Cannot be traded or sold

oOrder bill of lading – the goods are consigned to the order of the person

§May be traded or sold by endorsing the order to another person

§Allows the shipment to obtain payment for goods before they reach their destination by endorsing the order bill of lading over to a bank and receiving payment

·Freight bill

oMuch the same info as bill of lading – origin and destination, quantity shipped, product and the persons involved

oThe charges

oThe freight charges may be prepaid by the shipper or billed collect from the consignee

oPayments for rail service generally made in advance, except where credit is extended to financially responsible shippers

·Freight claims

oCarrier’s legal responsibilities as a common carrier

§A common carrier has the responsibility to move freight with ‘reasonable dispatch’ and without loss or damage

§Bill of lading defines the limits of carrier responsibility

§Losses due to unreasonable delay or failure to meet guaranteed schedules are recoverable to the extent of the value reduction resulting directly from the delay

oOvercharges

§Results from some form of incorrect invoicing

·Application of incorrect classification, failure to use the correct rates, use of incorrect distances, simple arithmetic errors, duplicate collection of freight charges, errors in determining item weights, and differences in interpretations of rules and tariffs

·Normal bill auditing may detect errors before payment is made and a corrected bill of lading may be issued

·Up to 3 years for overcharge claims

International transport documentation

·Exporting

oBill of lading – receipt for the cargo and a contract for transport between the shipper and carrier

oDock receipt – used to transfer accountability for cargo between domestic and international carriers

oDelivery instructions – provides specific instructions to the inland carrier regarding delivery of goods

oLetter of credit – financial document guaranteeing payment to the shipper for the cargo being transported

oConsular invoice – used to control and ID goods shipped to particular countries

oCommercial invoice – bill for the goods from the seller to the buyer

oCertificate of origin – used to assure the buying country precisely in which country the goods were produced

oInsurance certificate – assures the consignee that insurance is provided on the goods while in transit

oTransmittal letter – a list of the particulars of the shipment and a record of the documents being transmitted, together with instructions for disposition of the documents

·Importing

oArrival notice – informs as to the estimate arrival time of the shipment along with some details of the shipment

oCustoms entries – a number of documents describing the merchandise, its origin, and duties that aid in expediting clearance of the goods through customs, with or without the immediate payment of duties

oCarrier’s certificate and release order – certificates to customs the owner or consignee of the cargo

oDelivery order – issued by the consignee to the ocean carrier as authority to release the cargo to the inland carrier

oFreight release – evidence that the freight charges for the cargo have been paid

oSpecial customs invoice – an official form usually required by US customs if the rate of the duty is based upon the value, and the value of the shipment exceeds a fixed dollar amount

Rail Transport

Rail fulfils a critical role in the growth and development of the economy

·Enabling trade and production

·Catalyst for economic growth

·Driving exports and ensuring rural access to markets

·Creation of strategic transport infrastructure

·Regional and global connectivity and integration

·Job creation and skills development

·Developing world class rail technology

Integrated rail system requires effective interfaces and connectivity to offer logs solutions

Vertically integrated railway steel wheels on steel rails

·Technology

oLess resistance

oFuel efficient

oIntegrated maintenance

oFewer carbon emissions

oCost effective

oSafe

·Suitable for:

oHeavy commodities

§Long trains, heavy loads

oLarge parcel sizes

oLong distances between two points

oMinimal shunting

Railway network infrastructure

Locomotive fleet – different types for the network and the workload

Modernising wagon fleet technology

Specialised wagon types required for different commodities

Wagon types designed for commodity loading and offloading equipment

Rail yards – shunting activities to build trains

Operations models for different flows

World class heavy haul export coal line from inland mines to Port of Richards Bay

Freight rail value chain model

Managing the railway: a function of both capital investment and operational efficiency to deliver customer demand and service

Rail and ports form logs networks – connectivity for competitiveness

·Rail and ports provide basic infrastructure of country’s international trade

·Ports are natural resources – gateway for regional trade and transhipment, oil storage, refineries and pipeline origin

·Key rail corridors connect economic hubs and mining deposits to ports

·The relationship between ports and rail contribute to global competitiveness

Developing new markets through road-rail integration

·Road-railer concept – car racks for auto industry

oCar rack on standard SMLJ container wagons

oOn return legs wagon can be used to load containers

o3X vehicles per rack

·Bulk mining commodities in containers

oInterim solution for emerging miners who do not have own rail sidings

oCommodity loaded in containers and conveyed by road or rail from source to power station or loading point

·Intermodal solutions and development of terminals

oUsing own real estate as well as developments in co-operation with the private sector

oCommon loading terminals development

oNavis terminal operating system shared with ports

Connectivity – developing future terminals

·Repositioning terminals

oRail operating models and terminal management and investment models

oPrivate sector ‘market driven’ terminals competing for rail service

oDC terminals development for connectivity and sustainable volumes on rail

oPort terminal and inland terminal – rail-port operational interfaces, integrated intermodal SC

oTerminal integral to SEZ development

oUsing own real estate and developments in co-operation with the private sector

oNavis terminal operating system shared with ports

oDevelop value added services offered at terminals

oCommon loading terminals/facilities development

The Storage and Handling System

Product storage and handling occur primarily at the SC nodal points. Storage is often referred to as ‘transportation at zero miles per hour.’

If you can try and get the figure on the first page of CH11 in here

Need for a storage system

·In a perfect world where demand and supply were known at all times, storage wouldn’t be needed

·Storage improves supply and demand coordination, which helps to lower overall costs

Reasons for storage

1.Reduce transportation-production costs

2.Coordinate supply and demand

3.Assist in the production process (Production needs)

4.Assist in the marketing process (Marketing considerations)

Reduce transportation-production costs

·Transport is one of the biggest costs in a SC

·Warehousing and associated inventory are seen as added expenses

oHowever, traded off with lower costs realised from improved efficiency in transport and production

Coordination of supply and demand

·Highly seasonal production (availability of raw materials), along with reasonably constant demand results in problems in coordinating supply and demand

·Stockpiles needed to be created when the raw materials are available

oEnabling the firm to create the product even when they are scarce

·Firms with uncertain demand, produce at a constant level throughout the year to minimise production costs and build inventories to meet the demand

·Costs of raw materials also influence the amount that is purchased

oWhen the prices are low, firms may purchase quantities in advance

Production needs

·Warehousing is part of the production process

·Manufacturing of certain goods requires time for them to age (cheese, wines)

oWarehouses hold them in this time

oProducts are taxed

oBonded warehouses allow for the tax to be deferred

§Only pay the tax when the good is sold

·In some cases, the warehouse may perform some value-added services in addition to holding the inventory

oPacking, private labelling, custom product preparation

Marketing considerations

·Concerned with how readily the product is available to the marketplace

·Warehousing is used to put value into a product

oWarehousing a product close to customers:

§Reduces delivery time

§Supply made readily available

§Improved customer service through faster deliveryàincreased sales

·People want instant gratification

Storage system functions

1.Inventory holdings (storage)

a.Accumulation of inventory overtime

2.Materials handling

a.Loading and unloading

b.Moving products to and from

c.Order picking

Storage functions

1.Holding

a.Provide protection and orderly holding of inventories

b.Length of time for holding goods and requirements of storage, determine facility layout

i.LT specialised storage (wines), general purpose merchandise, temporary holding

c.Can be finished goods, semi-manufactured goods or raw materials

2.Consolidation

a.Transportation rate structures, rate breaks, influence use of storage facilities

b.Goods originate from a number of sources, could be economical to have a collection point

i.Consolidates small shipments into one large shipmentàreduce transport costs

c.Cross docks: goods are transferred directly from inbound to outbound docks with little to no storage

3.Break-bulk

a.One large shipment is broken up into smaller shipments

b.Common in distribution or terminal warehouses

4.Mixing

a.Orders are consolidated but at the same time break-bulk is applied

b.Three trucks come into the warehouse carrying one type of good each

i.Two trucks leave the warehouse carrying three types of goods each

Materials handling functions

1.Loading and unloading

a.First and last activity in the material handling events chain

b.Unloading and movement to storage are often one operation

c.Sometimes they are to operations as the goods are first sorted, inspected and classified before moving to storage

d.Loading- final check of order content and order sequence

i.Additional effort to prevent damage (bracing and packing the load)

2.Movement to and from storage

a.Between loading and unloading, goods may be moved several times

b.Movement equipment can vary from manual push trucks/carts to fully automated and computerised stacking and retrieval systems

3.Order filling or picking

a.Selection of stock from storage areas according to sales orders

b.Often most critical materials handling activity

i.Labour intensive and relatively more expensive than other materials handling acts

Storage Alternatives

1.Ownership

2.Rental

3.Lease

4.Store in transit

Ownership

·Most manufacturing firms and services orgs own storage space in some form

oBack room office for supplies, finished goods warehouse

·Advantages of owning the space:

oLess expensive warehousing (especially if there is high utilisation)

oHigher degree of control over warehousing operations (efficient warehousing, high service)

oProducts require specialised personnel and/or equipment, only feasible option

oBenefits accrue from real estate ownership

oSpace can be converted to other uses at a future time

oMulti-purpose (sales office, purchasing department, private truck fleet)

·Better control, lower costs, increased flexibility

Rental

·Can be public warehouses or 3PL’s or freight forwarders

·Provide the same services as in private

·Types of warehouses

oCommodity- limit services to storing and handling (lumber cotton, tobacco, grain)

oBulk storage- storage, handling, mix products and break bulk (oil, highway salts, syrups)

oTemperature controlled- control the storage environment temp and humidity (perishables)

oHousehold goods- storage and handling (moving companies are main users)

oGeneral merchandise- most common type, don’t require special services

oMini warehouses- 20-200 square feet, often grouped together, extra space, security is a problem, attraction is convenient locations

·Inherent advantages

oNo fixed investment

oLower costs when low utilisation

oLocation flexibility (ST arranges for rental) (easy and inexpensive to change warehouses)

·Services

oHandling, storage and distribution

oTraffic info, physical inventories, dunnage and bracing

oModern data facilities, fumigation, freight consolidation plan

oLoading and unloading, yard storage

oDry bulk commodity handling storage and bagging

·Bonding arrangements are made with the gov for certain goods (tobacco and liquors)

oTaxes/duties are levied

oGoods cannot be moved from bonded warehouse unless to another bonded warehouse until the required taxes are paid

oOwner of goods benefits by having more capital as tax is paid once good is sold

·Documentation and legal considerations

oWarehouse receipt

§ID what is being stored, where being stored, who owns the goods, whom being delivered to and the t’s and c’s of the storage contract

§Can be negotiable or non-negotiable

·Non-negotiable- goods cannot pass to another person without written instructions

oBill of lading

§Contract document used in the movement of goods

§Spells out the t’s and c’s under which a carrier moves goods

oOver, short and damage report

§Issued upon receipt of goods at the warehouse

oInventory status report

§Shows item, quantity and weight of goods at the end of the month

Leased space

·Represents an intermediate choice between ST space rental in public warehouse and LT commitment of a private warehouse

·Lower rate may be obtained from the space owner

·Can come from space from manufacturers who are not fully utilising private warehouse, 3PL’s

Storage in transit

·When goods remain in transportation equipment during delivery

·Special form of warehousing that requires coordination with choice of transport

oDifferent choice means different transit times

Materials handling considerations

1.Loading unitisation

2.Space layout

3.Storage equipment choice

4.Movement equipment choice

Loading unitisation

·As load size increases, fewer trips required to store a given quantity of goods= greater economy

·Number of trips is directly related labour time necessary to move goods

·Consolidate small packages into one load

·Palletisation

oPortable platform, on which goods are stacked for transport and storage

oPermit the use of standardised mechanical materials handling equipment to handle a wide variety of goods

oAids in load unitisation and increases space utilisation (more stable stacking/higher stacks)

oPallet size and configuration depend on size, shape, weight and crushability of gods as well as the materials handling equipment capacity

·Containerisation

oIdeal in load unitisation and materials handling system compatibility is the container

oLarge boxes in which goods are stored and transported

oWaterproofed and locked, storage can occur in an open yard

oStandardised materials handling equipment can be used to move them and they are interchangeable among different transportation modes

Space layout

·Location of stock in the warehouse directly affects the total materials-handling expense of all goods moving through the warehouse

·Balance between materials handling costs and space utilisation is sought

·Layout for storage

oLow turnover, primary concern is to configure the warehouse for storage

§Storage bays (wide and deep), stacking as ceiling height or as high as load stability permits

§Aisles narrow

§Assumes extra time required for moving stock in and out of storage areas is more than compensated for full space utilisation

oTurnover increases

§ Aisles are wider and stack height is decreased

§Reduce time spent placing and retrieving stock

·Layout for order picking

oSequencing

oZoning

oBatching

Storage equipment choice

·Important storage aid is the rack (shelves on which goods are placed)

·Racks promote floor to ceiling stacking, items with high turnover should be placed at the bottom

·Racks also aid in rotating stock

·Other aids are shelf boxes, horizontal and vertical dunnage, bins, and U-Frames

Movement equipment choice

1.Manual equipment

a.Hand operated equipment

b.Provide some mechanical advantage in movement of goods and requires only a modest investment

c.This equipment is often used for special use (carpet handling, furniture and pipe handling)

d.Flexibility and low cost often make it a good choice when product mix in the warehouse is dynamic, volume flowing through is not high

2.Power-assisted equipment

a.Increases output per worker per hour

b.Cranes, industrial trucks, elevators and hoists but most importantly the forklift

c.Modest investment which makes it a popular system

3.Fully mechanised equipment

a.Bar-coding, scanning tech, computer controlled handling equipment

b.Automated storage and retrieval systems

Storage system costs and rates

·A firm pays storage system costs either through rates charged by an outside firm offering such services or through internal costs generated from the particular materials handling system

·4 systems

1.Public warehousing

2.Leased warehousing, manual handling

3.Private warehousing, pallet and forklift truck handling

4.Private warehousing, automated handling

Public warehousing

·Rates are negotiated between the warehouseman and the customer

·Rate will be based upon volume, time, different items, special requirements, ave outbound size

·Costs are grouped into three categories: storage, handling, accessorial costs

Leased warehousing, manual handling

·Leasing is a LT commitment, the charges are incurred at regular intervals, unlike public, and so can be treated as a variable cost

·Handling equipment requires a modest investment if the equipment is company owned

·Labour costs are substantial

Private warehousing, pallet and forklift truck handling

·Commonly chosen alternative to public

·All costs are internal, provided equipment is not leased/rented, major fixed cost to firm

·Low variable costs, thus substantial volume needs to be used to make this an economical option

Private warehousing, automated handling

·Extremely high fixed costs and tiny VC

Virtual warehousing

·A company does not have a warehouse of items own but it has other companies which it gets its supplies from and they keep inventory for them

·Think of Dell and how they build personalised computers but don’t keep stock themselves

Modes of transport: maritime, road, air, pipeline and intermodal

Maritime transport

·Global economic recession (2009-2010 especially)

oImports and exports declined dramatically

oThis was based on the decline of all trade, 90% of all trade is maritime trade

·Transnet strikes (in 2010)

oShut down the ports completely

oNothing could be imported/exported during this time

oLost foreign revenue as other countries decided not to risk using SA as a port

·Congestion

·98% SA’s trade by sea (volume but not the value)

oEfficiency of port affects end products prices and the export of raw materials and products

oExporting goods are more competitive if they run efficiently

·Social impacts

oMajor job creation- port (landlord function), terminal operators, private terminal operators, people that work for the shipping lines

oPrices of imported products

oSkills development

oIncreased local trade

oIncreased production- expanding base of who we sell to, market expansion leads to increased production

·Environmental issues

oEnvironmental awareness of shipping companies- depends on company to company

oFuel consumption and emissions from vessels (reduce these, serviced every 5 years)

oWater pollution

oRefrigerant gases

·SA ports are guided by the Marine and Coastal Management Department

·Safmarine

·Social Responsibility Index (SRI) 

·ISO 14001

·Port congestion

oInsufficient infrastructure

oIncapacity of ports

oPoor management

oHigh winds

oLocation of ports

·Problems lie on the land side of the supply chain

oRail transport

oOver reliance of road transport

·High costs

oMachinery

oFuel costs

oFeeder shipping rates

oBureaucracy

·Overcome problems

oIntegration between modes

oIntermodal co-operation (BMW) (breakdown silo mentality of different modes of transport)

oGov involvement

oGov investment

oSuccessful logs strategies

oBenchmarking against countries – look at what is happening overseas and try implement certain aspects

oIncrease in port capacity

oIncentivising the use of port at less busy times

·Liberal shipping laws – little to no regulation

oNo cabotage rules – anyone can sail into SA waters

oNo multilateral, bilateral or unilateral cargo reservation rules

oNo flag preference or discrimination

oNo pressure is applied to influence the terms of shipment of imports or exports

oOcean freight Agreement – Conference Liner Shipping (container lines can form oligopolies are not allowed to be created. This is the only regulation)

·High and ever increasing import transport cost rates

oLower foreign investment in export activities

oReduction in the rate of technological transfer

oLower economic growth

§Less foreign investment

§Joblessness

§Lower buying power of the rand

§Lagging behind in global development

Road transport

·Relatively efficient compared to other modes

·87.5% of inland transport in Sais going by road transport

·Prices

oFuel costs

oRenewal of vehicles

oPlanning and labour costs

oInsurance

oTracking – ensure correct route is being taken, check fuel consumption, monitor drivers

oSA’s socio-political situation

§Pay for armed guards when transporting certain commodities

·Speed and efficiency

·Expensive long hauls

·Job creation

·Negative implications for truck drivers

·Environmental damage

oHighest levels of CO₂ and other forms of air pollution (6 times larger than rail)

oCongestion

oAccidents

oRoad damage

·Time management and careful route planning

·Problems in road transport

oRoad infrastructure

oInsufficient capacity

oInvestment shortfall

oCity congestion

oBorder posts

oLabour laws

oShortage of well-trained drivers

oHIV/Aids

oHijacking

·

·Subsistence farmers

·Joburg – economic hub

·Efficient for 20-40 years

·Improvements in road and rail capacity

·Truckers becoming ‘transport wholesalers’

·Carbon emissions tax

·Free HIV/Aids tests

·Electronic scanning technology

·Good quality drivers

·24 hour fleet monitoring

Air transport

·Sector is very small (growth over past 10 years)

·Speed and efficiency

·Affected by the recession

·Exchange rates

·Product prices

·Job creation

·Environmental damage

oLess than road and rail in terms of infrastructure requirements

·Airports Company of South Africa

·No major operational problems

oFew truck delays

·87% of air freight goes through OR Tambo

·Hub and spoke system

·Rates fixed at the beginning of the year

·Perishable cargo

·Maritime transport is far more economical

Pipeline transport

·Infant and growing stages

·Disjointed

·Growth expected in the medium term (40-50 years)

oSA’s West Coast

oBetween Joburg, Mossel Bay and Cape Town

·Ability to reduce product costs

·Positive social impacts

oEconomic advantages

oJob creation

oSkills development

oLimited environmental damage

·Expansion will benefit SA

oLess bulk road transport

oLess congestion

oLower transport prices

·Problems

oDifficulty acquiring land

oLack of skilled operation personnel

oHeavy government levies

oSevere lack of access to technology

oInsufficient handling or storage capacity at points of exchange

oLarge capital injection is required

oBenchmarking

oIntroduction of competition

Intermodal

·Mode changes create friction costs

oFriction costs are a measurement of the inefficiency of a transport operation

oThey are expressed in the form of:

§Higher prices

§Longer journeys, more delays or less reliability on time

§Lower availability of quality services

§Limitations on the type of goods

§Higher risk of damage to the cargo

§More complex administrative procedures

·Public initiatives

oProblems are mainly experienced at higher valued containerised and break-bulk facilities

oBottlenecks occur due to:

§Multiple handling of containers

§Old, deficient handling equipment

§Substandard condition of infrastructure

§Shortage of capacity at intermodal facilitiesà slower than desired transfers

§Lack of system wide data interchange

§An unwillingness to share info and coordinate processes at intermodal facilities

§Poor intermodal planning

§System unreliability

§Lack of appropriate technology to enable the seamless movement of goods along an intermodal transport network

Environmental impact of transport

Environmental impact categories

1.Local (air) pollution

2.Global pollution and global warming

3.Noise pollution

4.Accidents

5.Congestion

6.Other

a.Water and soil pollution

b.Land use

Air pollution

·Air pollution as a consequence of emission of the indicated pollutants to air is due to:

oThe link between energy consumption and production

oThe chemical composition of the fuel employed or the electricity sources mixed behind it

oThe subsequent emission to air this leads to:

§SO2

§NOx

§CO

§Nm-VOC

§PM

Global pollution or global warming

·Global warming is a consequence of the exhaust of certain chemical elements that are freed during energy production or consumption for transport purposes

oCO2

oN2O

oCH4

oN

oS

Noise pollution

·Noise comes along with any form of energy production or consumption for transport services

·Friction of rolling material, breaks and roads, rails, air and water on/through which it is propelled

·Causes of nuisance

oMobile source which produce it

oDuration

oFrequency and dis/continuity

oSite-specific characteristics

Accidents

·Function of

oExposure to traffic

oTraffic intensity

oRisk probability per traffic intensity unit

§Motorical and navigational safety of vehicles

§Separation of motor vehicles from pedestrians and cyclists

§State of roads, railways, waterways and transhipment points

§Proper use of vehicles

Congestion

·Negative influence on the use of fuel                 

oOptimal fuel efficiency is achieved at 70-80 km/hr

oFuel consumption quickly when speeds drop below 40km/hr

·Negative impact on economy in the form of lost time

·Negative impact on scheduling

Water and soil pollution

·Effects would be concealed

·Very complex calculation

·Estimates are very vague and no attempt has ever been made to monetarise environmental costs associated with water and soil pollution

Method of quantifying environmental costs

·Estimation of emissions, noise, probability of accidents and congestion

·Calculation of pollutants concentration, intensity of noise, accident rate and degree of congestion

·Impact assessment

·Translation into monetary costs and benefits

Estimation of emissions, noise, probability of accidents and congestion

·Complex task à multitude of parameters involved

oFleet and propulsion technology (vehicle type, motor and fuel type, emission control technology, engine capacity and age)

oOperational circumstances (speed profile, vehicle load, driving behaviour)

§Impact on the quantity and relative share of each pollutant emitted

§Noise emitted

§Probability of accidents and congestion

Calculation of pollutants concentration, intensity of noise, accident rate and degree of congestion

·Changes in emissions and resulting concentrations is established by atmospheric dispersion models on a local and regional scale

·Noise, accidents and congestion calculations and relationships are also calculated on a local and regional scale

Impact assessment

·The impact assessment procedure is focused on the effects of:

oAir pollution

oGreenhouse gases to global warming

oNoise

oAccidents

oCongestion

§Human health

§Building materials and crops

Translation into monetary costs and benefits

·Where appropriate, damage assessment can be based on market prices

·People’s willingness to pay more or less for un/affected items

·Establish the avoidance costs to roll off these effects

·Noise – effects on market value of buildings or the costs that are made to eliminate these noise effects

·Determining the costs that EI cause non-market goods needs to be done via calculation methods with a higher value laden content à more based on theoretical and or policy values of agents and objects

oAccidents – human life

oNoise

oLoss of time due to congestion (both market price estimation and a willingness to pay estimation)

Weaknesses (Road vs other transport as an exam question)

·Rail

oNoise (regardless of diesel or electrical)

oInfrastructure requirements

·Water

oLocal air pollution

oGlobal warming

oWater pollution – ballast water, oil pollution

·Road

oLocal air pollution

oNoise

oCongestion

oAccidents

oInfrastructure requirements

·Air

oLocal air pollution

oGlobal warming

oNoise pollution

·Pipelines

oLocal air pollution

oNoise pollution

oSoil pollution

oWater pollution

Maritime zones, INCO terms, storage and handling decisions

Maritime zones

·Exclusive economic zone contains 95% of fish stock, this helps to create jobs and is vital for feeding the people

INCO terms

·Why establish International Commercial Terms

oConsistency in interpretation

oParties can assess their liability before striking a deal

oConvenience of having ‘shortcut’ agreements

oUnderstanding the value contained in a quoted price (what it includes)

·Each incoterm is a short-hand description of which costs will be paid by which party – buyer or seller

oTransportation- specifically which legs of the transport loading, sea, unloading, truck/train, delivery to final destination

oExport/import taxes

oAdministration/clearance through export/import control

oInsurance

·

·Some important things to clarify when contracting internationally

oWhich set of Incoterms apply – the definitions differ between the 2000 and 2010 version

oWhich law applies and which court will have jurisdiction – possibility of arbitration/mediation to resolve disputes

oWhich particular incoterm are selected

oDoes the contract alter the meaning/interpretation of the selected incoterm – arguably the most dangerous section of any commercial contract is the interpretation section

oEssential ‘boilerplate’ clauses: No Variation, Entire Agreement, No Representation

Storage/handling decisions in inventory strategy

·

·Storage decisions

oSite selection

§Finds specific real estate as a storage location

§Weighted checklist is a good approach

oSizing the facility

§From inventory policy, determine the amount of inventory to be stored, space needed

§Determine the facility’s seasonal use

§Balance the use of privately-owned space with rented space (mixed strategy)

oMixed strategy for warehouse space

§

oFacility configuration

§Configuration affects handling costs in a high throughput facility, but less important otherwise

§Square or rectangular shapes are best (L-shaped designs are poor unless conveyors used)

§Single story designs are popular for high throughput facilities and land costs are prohibitively high

oSpace layout

§Configuration of racks and aisles in the building

§Space and layout affects building dimensions and size

oDock design

§Determined by the number of rail cars along the side of a building or the number of truck stalls needed

When is a pool point likely to be an advantage

·When shipment sizes are small

·When demand is far from source points

·When transport rate economies are significant

·When pool point operating costs are low relative to transport costs

·When transfer times are insignificant to service

Handling decisions

·Controlling costs

oHandling is typically a labour intensive activity

oCosts are decreased by (principles):

§Reducing distance travelled

§Increasing the number of units handled at one time

§Seeking multiple order picking in a single order-picking round trip

§Increasing storage density

oCost reduction is also achieved by:

§Carefully planning the physical layout of the building

§Carefully locating the items within the order-picking area

§Using automation and mechanical assists as labour substitutes

§Using computer systems to help plan the flow of work through the building

·System selection

oDetermining factors

§Level of automation

§Pallet size

§Number of stories

§Throughput level

§Product characteristics

§Contingency plans

oFinancial analysis of handling system alternatives

·Product layout

oSelection methods

§Out and back selection

§Picker routing

§Designated picker area

oLayout of picking area

§By complementary

§By compatibility

§By popularity

§By cube

oCube-per-order index

§The ratio of a product’s average required cubic footage for storage to the average number of daily orders on which the item is requested. The products with the lowest index value are located nearest the outbound dock

Layout examples

·CPO

o

·By activity profiling

o

·Pallet layout in warehouses

o

Handling decisions

·Order handling for increased handling efficiency

oProduct sequencing on picker list

oPicker zoning and the bucket brigade

oOrder splitting

oMultiple order picking per picking pass

·Stock arrangement

oOn-the-square layout

oAngular pallet placement

·Stock locator-identification methods

oFixed locator-identification method

oRandom locator-identification method (increases cube utilisation)

oZone location

Equipment Selection

·One-time purchase of equipment of different types can be decided on basis of present value analysis, or by selecting the alternative with the lowest NPV

·

oI=initial investment, C=annual operating cost

oi= the discount rate that such investments are expected to return

oSn= salvage value in year n

on= useful life of equipment

Case Study – Fresh Logistics

Deliver

LT and ST aspects

·volatile market

oLT aspects

§Relationship with economic development

§Seasonality in supply

§Global sourcing

oST aspects

§Price level

§Weather influences

Perishable products

·Fresh

oFood products (fruit, vegetables, chilled products)

oPlants and trees

·Decay during transport

oTemperature (-0.5C and 15C)

oRipening gases

oVentilation

oRelative humidity

·Frozen

oMeat/fish

oHardly any decay

·Non-edibles

oPharmaceutical and photographic products

Main products

·Vegetables

·Meat

·Dairy

·Fruit

·Nuts

·Live plants and trees

·Fish and crustaceans

SC functions

·For a SC analysis of fresh products there are two types of relevant functions:

oCommercial function – all functions involved with the ownership of the product (production/sales/consumption)

§Grower

§Trader (importer/exporter)

§Customer (retailer/wholesaler)

§Consumer

oLogistical function – all functions involved with the transport of the product

§Logs service provider

§Trucking company

§Multimodal transport company

Consumer characteristics

·The average consumer is very demanding and very unpredictable

·Consumer characteristics can be divided into the following categories

oHigh product quality

oService quality

oPurchase behaviour

oPrice

·

Customer (wholesaler/retailer) strategies

·The customer is the final actor in the SC who directly or indirectly sells their goods to the consumer

·Retail chains usually focus on one of the following two strategies

oQuality retailer (product leadership/ customer intimacy)

oLow cost retailer (operational excellence)

·Business strategy

Operational excellence

·Low priced gods and services

·Minimisation of problems for customers

·Requirements for the implementation of operational excellence includes efficient, standardised processes and dedicated measurement systems

·Business strategy

o

Product leadership

·Products that push performance boundaries

·Innovative and/or best possible in terms of features and benefits to customers

·Stimulation of innovation and a risk-oriented management style

·Business strategy

o

Customer intimacy

·Delivery of what specific customers demand

·Strong overall focus on customer requirements

·Companies select one or a few high value market niches

·Companies put large amount of effort in getting to know the customer

·Full range of services available

Main customer drivers

·The difference in strategy focus implies differences in the strategies for both product management and logs management

·The main drivers for the customer are”

oHigh product quality

§Constant quality

§Proof of quality

oEfficient logs

§Depends on leadership strategy

oLow costs

·

Stakeholder transporter requirements

·Three different stakeholder groups:

oCommercial actors

oLogistical actors

oExternal parties

·For each stakeholder the market characteristics are translated into transport requirements based on the following structure:

oProduct quality

oLogistics

oCosts

oHardware

Commercial actors

·This stakeholder comprises all parties who are part of the commercial chain, either as a sender or receiver of goods

oProduct quality

§Guaranteed climate control

§Product knowledge

§Monitoring and control-repair during transport

§Trackability/traceability

oLogistics

§High level of responsiveness

§Acceptable transit time

§Just-in-time delivery

§High frequency

§Suitable for small parcel sizes

§Reliability of services

oCost/tariffs

§Competitive transport price

§Low interest loss on valuable cargo

oHardware

§Availability of infrastructure

Logistical actors

·Arrange the transport of the perishables

·Logistics 

oInterconnectivity of its service with other services

oMinimum of procedures augmenting transit time

oCo-operation of customer in logs

·Costs/tariffs

oTariffs must at least compensate transport costs

oAvailability of return cargo

oCritical mass/economies of scale

·Hardware

oInfrastructure available for mode and area

oDay and night availability of infrastructure

oContinuous energy supply for the cooling unit

oEfficient handling facilities

External parties

·Stakeholder comprises all parties affected by the transport of perishable products – governmental bodies, interest groups, environmental, lobby or consumer orgs

·Product quality

oTraceability

oQuality guarantee

oHealth and safety

·Logistics

oSafety

oMinimal interference with passenger transport

·Costs

oMinimisation of public costs

oMinimisation of investments in infrastructure

·Hardware

oOptimisation of infrastructure and use of infrastructure

oMinimisation of emission of harmful gases

oMinimisation of noise

oMinimisation of energy use by transport modes

oOptimal land use

oSustainability (modal shift)

Types of fruit

·Deciduous fruit

oPome fruit

oStone fruit

oGrapes

·Citrus fruit

·Subtropical fruit

·Exotic fruit

Steps in the SC

1.Picking floor plan

2.Sorting

a.Local market and export

3.Packed

4.Placed in cold storage

a.Maintain temperature through the journey

Transport

·Adds time value

·Adds place value

·Ocean transport : 83% of travel time and 60-68% of travel costs

·Inland transport: 11% of travel time and 19-27% of travel costs

Distribution of transport costs along the value chain

·

Inland transport

·Road

·Rail

oType of fruit

oDistance travelled

oCosts

oUrgency

·Problems in SA

oService delivery is not meeting the necessary levels of efficiency

oRoad freight operators do not load their trucks according to the recognised standards

oInefficient use of rail is having negative effects on the containerised transport of goods

oShortage in the provision of transport for the fruit industry

oLack of modal collaboration

Handling of fruit

·Materials handling is very important when it comes to fruit

·It can be handled in one of two ways

oPallets

oOn pallets, inside containers

Containerisation

·Refrigerated containers are mainly 20’ or 40’ containers

oPorthole container

oIntegral container

·Porthole containers are insulated containers with two holes or ports in the end wall

oThey do not have an integral refrigeration unit

oThey have larger internal volume and payload than the integral containers

oCold air is supplied by the ship’s central cooling plant

oCool air is blown in at the bottom and the war air is removed at the top

oClip-on units are used to keep the porthole containers cool when not onboard a ship

oIt is also important that there is sufficient airflow inside the containers

·Integral containers

oBuilt-in cooling mechanism

oPowered by electricity and are therefore self-sustainable

oRefrigeration unit is arranged in such a way that the external dimensions of the container meet International Safety Organisation (ISO) standards and thus designed to fit into the container ship cell guides

oWhilst being transported onboard a ship, integral units have to be connected to the on-board power supply system

oThe number of refrigerated containers that may be connected at one time depends totally on the capacity of the ship’s individual power supply system

oContainers that are stacked in the harbour are connected to the terminal’s power supply

oContainers that are transported from their inland destinations by road or rail are kept cold with the help of diesel generators

oAir flows through the integral container from the bottom to the top

oOrdinarily, the ‘warm’ air is sucked out from inside of the container

oIt is then cooled in the refrigeration unit and subsequently blown back into the container as cold air

oIn order to ensure adequate circulation of the cold air throughout the container, the floor is provided with gratings

oPallets form a supplementary space between the container floor and the cargo which also results in a satisfactory airflow channel

oIn addition, the side walls of the container are ‘corrugated’, which ensures adequate air flow there too

oIn the upper area of the container, sufficient space (at least 12cm) must similarly be provided for airflow

oTo ensure vertical flow from bottom to top, packaging must also be appropriately designed and the cargo must be sensibly stowed

oIn addition to temperature regulation, integral units must also allow a controlled fresh air exchange, for example by removal of metabolic products (CO2) and ethylene in the case of transporting fruits

The fruit export supply chain for reefer containers

·Step 1: provision for crop estimates

·Step 2: re-supply of empty reefer containers

oEurope, ME or Far East

oMinimum time required for ordering and delivering empty containers is about 4 weeks

·Empty containers are transported to the container depots, where the reefer containers are prepared for export

·A container is prepared for export as follows:

oContainer structure is inspectedà container is then washed and left to drip dry

oContainer is moved to pre-trip towers where the refrigeration unit is under power for 4-6 hours, with special shipments up to 24 hours

oContainer is then presented to the PPECB for export approval

oContainer is ready for trip

oPre-trip process lasts 2-4 days on average

oContainers are transported to packing stations

oOnce in the port the containers are stacked according to certain criteria, such as port of discharge, vessels

oPrior to stack closing, a central stowage co-ordinator of the shipping line allocates stowage areas on the vessel, based on the info provided by the exporter or agent, at the time of booking

oFactors taken into account to facilitate the stowage of the containers are the port of discharge and the gross weight of the containers

oShipping leg of export process is relatively uncomplicated, with the exception of the port delays and the knock-on effect to the schedules

oThe ship receives a manifest, which is the document with the carrying instructions for the containers, as well as the PPECB letter

oThe vessel is required to report any inconsistencies to the necessary officials and monitor the containers as well as repair malfunctions

oWhen special commodities are being shipped, then the vessel is required to report daily temperatures to both the PPECB and the shipping lines

oPrior to the arrival of the ship in port of discharge, the vessel receives a pre-arrival telex which allows the ships staff to plan the unplugging of the reefers and thus limiting the off power period

oThis port may not be the port of final destination and may be a transhipment port, where the terminal operator again takes responsibility for the container until it is loaded onto the on-carrying vessel

oUpon discharge, the port operator ensures that the containers are plugged in immediately and monitored every day

oPrior to the arrival of the vessel in the final port of discharge, the shipping line notifies the receiver, and also supplies the local customs with the shipping manifest

oThe container is then cleared by the receiver or receivers’ agent and then collected for further transportation by road, rail for further delivery to the consignee

Inventory

Inventory functionality and definitions

·Manufacturer – inventory risk is long term

oInventory commitment begins with raw materials and ends with finished goods

oSometimes they have to store the goods as well

oInventory commitment is deep and of long duration

·Wholesaler

oPurchases large quantities from manufacturers and sells smaller quantities to retailers

oSeasonal products mean stockpiles developed

§Increases depth and duration of risk

·Retailer

oInventory management is about the velocity of buying and selling

oPurchase a wide variety of products and assume substantial risk in marketing process

oRisk is broad but not deep

oHigh cost of store location, retailers place prime emphasis on inventory turnover

·Inventory functionality

oInventory perspective, ideal situation is a response-based SC

§Not achievable in practice

oInventory is a current asset that should provide return on capital investment

oFour functions: they require inventory investment to achieve operating objectives

1.Geographical specialisation – geographical positioning across many manufacturing and distributive units of an enterprise

·Invent maintained different locations/stages of value creation process allows specialisation

2.Decoupling – allows economy of scale within a single facility and permits each process to operate at max efficiency rather than entire process constrained by slowest

3.Supply and demand balancing – accommodates elapsed time between invent availability and consumption

4.Buffering uncertainty – accommodates uncertainty related to demand in excess of forecast or unexpected delays in order receipt and order processing in delivery and is typically referred to as safety stock

·Inventory definitions

oInventory policy

§Consist of guidelines regarding what to purchase/manufacture, when to take action and in what quantity

§Includes decisions regarding geographical inventory positioning

·Advantageous to use geographic postponement strategy, centralising invent position for items with high demand uncertainty or high value

·Speculative positioning better for low value of quick customer accessibility

§Inventory management practices

·Independently manage inventory at each stocking facility

·Central inventory management of all stocking locations

oEffective communication and co-ordination

oIncreased availability of info tech allows this to be implemented

oCan reduce demand uncertainty

oService level

§Performance target specified by management, states invent performance objectives

§Measured in performance cycle times, case fill rate, line fill rate, order fill rate

·Performance cycle – elapsed time between release of purchase order by buyer to receipt of shipment

·Case fill rate – percent of cases/units ordered that are shipped as requested

·Line-fill rate – percent of order lines filled completely

·Order fill – percent of customer orders filled completely

§Inventory management is major element of SC logs strategy, integrated to achieve overall service objectives

§High service level to increase inventory or faster more reliable transport

oAverage inventory

§Inventories rolling mean across time is average inventory

§Cycle inventory or base stock – portion of invent that results from replenishments

§Stock level – max following a stock receipt from supplier

§Replenishment order – initiated so that a stock out doesn’t occur

·Ordered before or when invent level is forecasted demand during performance cycle time

§Order quantity – amount ordered for replenishment

§Transit inventory – inventory in transit between facilities or not yet received

§Obsolete inventory – out of date stock (donated, destroyed or sold at loss)

§Speculative invent – bought prior to need to hedge currency exchange

§Safety stock – protect against demand and performance cycle uncertainty

·Only used near end of replenishment cycles

§Reorder point – defines when a replenishment order is initiated

§Inventory turns= total sales/units of average inventory

oIndependent vs dependent demand

§Consumer level= independent, don’t tell retailer when they coming to buy

·Expect item to be on the shelf

·Just in case inventory (in case consumer walks in to buy item)

§Supplier end= dependent, assembled into final products, have a schedule with their suppliers

Inventory carrying cost

·Expenses associated with maintaining inventory

·Inventory expense= annual invent carrying cost % x ave invent value

·Capital – appropriate charge on capital investment in invent varies widely

oCost of capital may vary significantly by firm/industry

oFirms that are aggressive in uses of cash (higher cost of capital %)

oIndustries with high value/short life cycle product, higher cost of capital to drive lower inventories

·Taxes – inventory held in warehouses

oUsually a direct levy, but rate ad means of assessment vary by location

·Insurance – calculated by estimated risk or loss over time

oDepends on product value and storage facility (camera’s, electric fence ect)

·Obsolescence – cost from deterioration of a product during storage (sell by date)

·Storage – facility expense related to holding rather than handling the product

oAllocated on requirements of specific products since it’s not always related to value

Planning inventory

·Consists of when and how much to order

·When to order

oReorder point can be specified in terms of units or days

oR=D x T (R= reorder point, D= average daily demand, T=average performance cycle length)

oR=D x T + SS (SS=safety stock)

·How much to order

oLot sizing balances inventory carrying cost with the ordering cost

oAverage inventory is half the order quantity

§Larger order quantityàlarger average inventàgreater annual carrying costs

§Larger order quantityàless ordersà lower ordering costs

oEconomic order quantity (EOQ)

§Minimises the combined invent carrying and ordering cost

§EOQ=

·Co=cost per order, Ci=annual invent carrying cost

·D=annual sales volume, U= cost per unit

§Major assumptions

1.All demand is satisfied

2.Rate of demand is continuous, constant and known

3.Replenishment performance cycle time is constant and known

4.There is a constant price of product that is independent of order quantity or time

5.There is an infinite planning horizon

6.There is no interaction between multiple items of inventory

7.No inventory is in transit

8.No limit is paced on capital availability

§Other adjustments

1.Production lot sizes

oMost economical quantities from manufacturing perspectives

2.Multiple-item purchase

o1+ items bought concurrentlyàquantity and transport discounts

3.Limited capital

oBudget limitations for capital investment

4.Dedicated trucking

oFixed cost considerations

5.Unitisation

oQuantity discounts

Managing uncertainty

·Two types of uncertainty: demand and performance cycle

·Demand uncertainty

oSales forecasting estimates unit demand during invent replenishment cycle

oGood forecasting system still exceeds or falls short of actual numbers

oProtect against a stockout, safety stock is added to base inventory

oAverage inventory= half order quantity + safety stock

oNormal distribution is used (bell shaped: mean=median=mode)

oPredicting demand during performance cycle using normal distribution=std dev

§68.27% 1 std dev, 95.45 2 std dev and 99.73 3 std dev

·Performance cycle uncertainty

oOperations cannot assume consistent delivery

oPlanner should expect actual performance cycle experience will cluster near the expected value and be skewed toward delayed deliveries

oPoisson frequency distributions

§Smaller the meanàgreater the degree of skewness

·Safety stock with combined uncertainty

oThis requires combining two variables

oDuration of the cycle in the SR is independent of daily demand

·Dependent demand replenishment

oInventory requirements are a function of known events that are generally not random

oDoes not require forecasting as there is no uncertainty

oNo specific safety stock needed

oRests on two assumptions

§Procurement replenishment to support planning is predictable and constant

§Vendors and suppliers maintain adequate inventories to satisfy 100% of purchase requirements

oApproaches to implement safety stock into dependent demand

§Safety time – item ordered earlier than required to assure timely arrival

§Over-planning top-level demand – increase requisition by a quantity specified by some estimate of expected plan error

§Utilise setting safety stocks directly to component rather than to item of top-level demand

Inventory Management Policies

·Inventory management implements inventory policy

1.Pull approach uses customer demand to pull product through distribution channel

2.Push or planning approach proactively allocates or deploys inventory on the basis of forecasted demand and product availability

3.Hybrid uses a combination of push and pull

·Inventory control

oManagerial procedure for implementing an inventory policy is inventory control

oAccountability of control measures units on hand at specific location and tracks the +/-

§Manual or computerised basis

oPerformed on perpetual and periodic basis

oPerpetual review

§Continuously reviews invent levels to determine replenishment needs

§Accurate tracking of all SKU’s is required

§ROP=D x T + SS

·ROP=reorder point, D=average daily demand

·T=average performance cycle length, SS= safety stock

§Order quantity is determined used EOQ

§Compares on-hand and on-order inventory to item’s reorder point

·On-hand + on-order quantity<established reorder pointàreplenishment

oI +OQ_O≤ROP, then order OQ

oInvent on-hand + invent on order from suppliers ≤ ROP, then order the order quantity

oPeriodic review

§Reviews the invent status of an item at regular intervals (weekly or monthly)

§ROP= D(T + P/2) + SS

·D=average daily demand, T=average performance cycle length

·P=review period in days

§Average inventory formula is:

·Iaverage= OQ/2 + (P x D)/2 +SS

·Reactive methods (pull inventory system)

oResponds to channel members inventory needs by drawing the product through the distribution channel

oReplenishment shipments are initiated when available warehouse stock levels fall below a predetermined minimum or order point

oAmount ordered is based on lot-sizing formulation

oClassical reactive inventory logic is rooted on assumptions

§All customer market areas, and products contribute equally to profit

§Infinite capacity at source (product produced as desired and stored)

§Infinite inventory availability at supply location

§Performance cycle time can be predicted and cycle lengths are independent

·Each performance cycle is random

§Operates best when customer demand patters are relatively stable and consistent

§Determine each distribution warehouse’s timing and quantity of replenishment orders independently of all other sites, including the supply source

·Planning methods

oUse a shared database to co-ordinate inventory requirements across multiple locations or stages in the SC

oCan occur centrally to co-ordinate inventory allocation and delivery to multiple locations

oCan co-ordinate inventory requirements across multiple channel partners (manufacturers)

oAdvanced planning and scheduling (APS) systems illustrate the capability of planning applications

oAPS systems computerise the process, important that logs managers understand the underlying logic and assumptions

oTwo inventory planning methods: fair share allocation and distribution requirements planning (DRP)

oFair share allocation

§Provides each distribution facility with an equitable distribution of available invent

§Inventory planner determines amount of invent that can be allocated to each warehouse from available invent at the plant

oRequirements planning (RP)

§Approach that integrates across the SC, taking unique requirements into consideration

§Materials RP vs DRP

·MRP is driven by a production schedule (dependent demand)

oCoordinates scheduling/integration of materials into finished goods (controls invent until assembly/manufacturing is complete)

·DRP is driven by SC demand (independent demand)

oCoordination once finished goods are received in plant warehouse

oCoordinates invent levels, schedules and reschedules invent movement between levels

·Close coordination between the two systems = min safety stock

§Time buckets – projects one period of activity

§Constraints

·Require accurate and coordinated forecasts for each warehouse

oNecessary to direct flow of goods through SC

oSystem does not maintain excess invent at any location

·Requires consistent and reliable product movement between warehouse facilities

oUncertainty reduces the planning systems effectiveness

·Subject to system nervousness or frequent rescheduling due to production breakdowns or delivery delays

Collaborative Inventory Replenishment

·Quick response (QR)

oTechnology-driven cooperative effort between retailers and suppliers to improve invent velocity while closely matching replenishment supply to consumer buying patters

oImplemented by sharing retail sales for specific products between SC participants to facilitate right product assortment availability when and where is required

oContinuous info exchange regarding availability/delivery reduces uncertainty and increases flexibility

oFast, dependable order response, invent committed as requiredàincreased turnover/availability

·Vendor-Managed Inventory (VMI)

oModification of QR that eliminates need for replenishment orders

oGoal create SC arrangement so flexible/efficient that invent is continuously replenished

oQR customer makes decision, VMI supplier assumes more responsibility

·Profile replenishment (PR)

oSome businesses are experimenting with this sophisticated collaboration

oPR extends QR and VMI by giving suppliers right to anticipate future requirements

oSupplier can simplify retailer involvement by eliminating need to track unit sales and invent level for fast-moving products

Inventory management practices

·An integrated invent management strategy defines the policies and process used to determine where to place inventory and when to initiate replenishment shipments

·Strategy development process employs three steps to classify products and markets, define segment strategies and operationalise policies and parameters

·Product/market classification (fine-line or ABC classifications)

oObjective is to focus and refine invent management efforts

oGroups products, markets, customers with similar characteristics to facilitate invent management

oPareto 80/20 analysis

·Segment strategy

oDefine invent strategy for each product/market group

oService objectives, forecasting method, management technique, review cycle

oKey realisation is that product segments have different degrees of importance with respect to achieving the enterprise mission

·Policies and parameters

oDefine detailed procedures and parameters

oProcedures define data requirements, software applications, performance objectives and decision guidelines

oParameters delineate values such as review period length, invent carrying cost %, order quantities and reorder points

Green Logistics

Key considerations

·What drives your decision making when trying to build a world class SC

oCost, service, differentiation

·Do you strive to be the best in the world

·What price are you willing to pay to achieve this

·What is the potential cost of getting it wrong

·Are your efforts aligned with your customers and your partners

Sustainability

·Broadens the concept of performance

·

oOften we can only get two of the above

§Social and economic

§Environmental and economic

There is still widespread uncertainty about how to move forward with green SC initiatives

·Knowing – become educated

·Doing – measure company’s carbon footprint and ID change levers

·Being – embark on business case-supported initiatives

·

Freight transportation negligible considerations in company strategy with regards to environmental responsibility

·Current business practices such as international sourcing and quick turnaround times challenge this by extending transportation distances and minimising lead times in the SC

Shippers and carriers have a key role to play here with green SC initiatives

·Retain drivers

·Improve equipment

·Shift modes

·Improve transport efficiency

·Change packaging

·Optimise network, loads, docks and routes

·Automated billings

·Move toward greener buildings

Future of intermodal transport solutions

·Intermodal is the seamless use of more than one transport mode

·It is not the same as multi-modal, container transport and is not limited to international shipments

·Seamless is important, implies ‘unitisation’ of some form

What is extra distance

·The difference between the number of kms vehicles actually run vs how many they could have run with proper planning and execution (data, info required)

·Economic impact – more fuel is required to complete delivery

·Environmental impact – more CO2 produced

·Used to conduct root cause analysis

The way forward

1.Admit that there is a problem

2.Volatile energy costs substantially drain company resources

3.New proposed carbon taxes will force companies to cut energy use of pay penalties

4.Pressure from customers, shareholders and advocacy groups continues to mount for companies to reduce their carbo emissions

Business need to unite

Reverse Logistics

Reverse Logistics Systems

·Four important flows along a SC

oMaterials, info, financials and demand

·Critical area of SCM

·Logs systems designed to handle product flows in one direction

·Manufacturers did not expect their products to fail or receive them back from customers

·Reverse flows are goods/materials moving upstream in the SC

·Process of returning these items to source and replacing or repairing them is often more expensive than the delivery of the original item to the market place

·High valued items or high volumes of product returns

Definition

·Reverse logistics is the management of all the activities involved in the flow of goods, demand information and money in the opposite direction to the primary logistics flow; a reduction in the generation of waste, and the management of the collection, transport, disposal, and recycling of hazardous as well as non-hazardous waste in a way that maximises the long-term profitability of the business

Critical area of a SC

·Chain of production

oInventory

oTransportation

oWarehousing

oPackaging

·Critical nature of reverse logs (PESTLE framework) – holistic overview of growing importance

oPolitical

oEconomic

oSocial

oTechnological

oLegal

oEnvironmental

Reverse logs activities and channels of distribution

·Different channels

oValue carriers

oReturns of unsold goods

oProduct recalls

oProduct returns and exchanges

Value carriers

·Reusable goods: intrinsic value

oSome may be worth more than the value of the products that they carry at a single time

·Flow in opposite direction to primary flow

·Part of the inventory of the business

·Fluctuations in demand – result in surplus or shortage if not managed carefully

·Level of shrinkage needs to be known

·Reduction in inventory – breakages, age, theft

·Cost to a business

·Continually reused

·Properly designed

·Examples- empty milk drinks and bottles, empty crates of beer, empty gas cylinders

·Costing of value carriers

oInitial purchase, subsequent management and continual replacement

oTwo main categories of value carriers

§Distributed to consumer à used repeatedly

·Deposit

·Carrier specific to the duty it performs

·Cost normally capitalised and depreciation is charged as a fixed cost

·Where the cost of the value carrier is small in relation to the cost of the goods movedà included in the selling price

·Plastic crate made for soft drinks

§Used in a closed loop

·Pallets, containers, roll-tainers

·Not sold; used in parts of the logistics chain to facilitate movement/storage

·Names of owners

·Moved with the primary flow and the returned

·Costs – overhead expense

·Rail operator

·Available for hire for third parties (containers, pallets)

·Higher costs than the purchase of items à collected/dropped at the depot closest to the goods

oCosts of returning the carrier and the management time and effort are reduced

·Depots

oContainers and rail wagons

·Road transport

oBackhauls

Return of unsold goods

·Certain industries

oNewspapers, magazines and textbooks

oIncentive for downstream members to carry more inventories

oRisk

oAnalyse customer accounts not only for profitability, but also for hidden costs

·Bread industry

oRepackaged and relabelled – now sold as croutons

oBarcoding

oPackaging must be disposed of as waste

·Examples – magazines, books, newspapers

Product returns and exchanges

·May be caused by:

oDamaged goods, incorrectly ordered/supplied goods

oWarranty claims, product support, after-sales service

·Examples – damaged clothing, incorrectly ordered items, warranties and repairs of items

·Patterns of returns must be ID and corrected

·Damaged goods

oMovement or storage

oSooner damage detected= cheaper to rectify

oValue

·Incorrectly ordered goods

oCustomers and suppliers to share an electronic info system

§Achieved by electronic data interchange

·Incorrectly supplied goods

oWho will pay for the mistake

oAll parties are negatively affected

·Warranties and repairs

oNon-conformance problems

oDetect defective goods ASAP

oReturn goods: recycled, reworked, destroyed or otherwise disposed of

·Product recalls

oDefective goods are recalled for rework or replacement

oAutomotive industry (VW)

oDifference between recalls and returns

§Logs functions: small quantity of goods

§Design or manufacturing defect: every item

§Who is financially responsible

oReverse logs can be substantially more expensive than forward flow

§Cause

§Quality

·Waste management

oAlways be generated

oSort waste as close as possible to the source

oTransport it as cost effectively as possible

oDisposing and recycling

·Hazardous and non-hazardous waste

oHazardous – negative effect on environment and human health

§Extreme to high hazardous waste (H)

§Moderate to low hazardous waste (h)

§Radioactive waste, toxic waste and tyres

oNon-hazardous – no effect on environment and human health if managed properly

§Domestic waste, garden refuse and light industrial and commercial products

oReduction of waste in general             

§Greatest challenge

§Environmentally aware

oCollection of waste

§Sorting waste as close as possible to the source

§Hazardous waste

§General waste

oTransport of waste

§Dependent on the most economical solution

§Road transport

§Barge

§Rail

§Hazardous waste

oDisposal of waste

§Dumping ground

§Waste disposal site

§Classification of waste sites

·H class site

oEncapsulated

oMedical and pharmaceutical

·h class site

oRecycling of waste

§Glass, plastic, tin, aluminium and paper

§Reasons for recycling

·Reduction of the volume of waste

·Results in less overall energy utilised and less pollutants emitted

·Conservation of raw materials

§Most frequently used categories of recycling

·Separation at source – most effective method (occurs at home or industry)

·Scavenging – not encouraged but does still take place at some dumps (health reasons)

·Street pick-up – paper and boxes left on the pavement and collected by contractors

·Creating compost from garden refuse – reduces volumes of waste at site

oMaterial recovery facility

§Drop-off point, conveyer system and storage containers

§Balers and a rejection point

§Workers are stationed at the conveyer belt

Differences between forward and reverse logistics

·Forward logistics

oSales and marketing forecast plan

oSingle or limited origin of products

oDistribution planning possible

oHigh visibility

oCost known or can be estimated before shipping

·Reverse logistics

oDifficult/impossible to forecast

oMany-to-one distribution network

oReactive planning for distribution

oLow visibility into product flows

oDifficult to predetermine costs

Financial implications of reverse logistics

·Estimates are that returns range from 3-50% depending on the product

·Retailers lose 3-5% of gross sales to returns accounting for 4.5% of the cost of logistics

·Internet returns are about double the counter saes returns

·Cost of reverse logs is significant and increasing

·Cost adds no value to the logs function of providing the goods at right time/place

·Costs for value carriers must be carefully monitored

·Costs of items not integral to the product delivered need to be minimised

·Costs associated with waste

Life-cycle assessment (LCA)

·Quantitative determination of the resource and energy use and environmental burdens of a product or process over its entire life cycle

·Cradle to grave perspective

·Comparative nature

·Can also be used to compare distribution strategies

·Sustainability efforts can be included during a product’s life cycle:

oDesign – incorporate materials into the product that can be recycled and try to use materials that have low energy requirements during the manufacturing process

oSource – source parts and materials from suppliers that comply with environmental regulations (source locally to reducing transport requirements)

oManufacture – implement an effective environmental management system and try to reduce energy consumption at manufacturing plant (make sure waste products from manufacturing process are collected, reused or recycled)

oDistribution – reduce the use of packaging during distribution, consolidate loads where possible and measure the carbon footprint of your logs decision

oPost-sale service – try to repair products instead of always replacing them (provide feedback to design/manufacturing on defects to try limit risk of defects)

oReturns/recycling – sell returned products into secondary markets where possible (implement remanufacturing and recycling programmes)

Environmental management: ISO 14000

·Issued by the International Organisation for Standardisation (ISO)

·Records the environmental policy, objectives, measurements for and commitment to management

·Monitor progress towards compliance

·External audits

·Not mandatory

·Extremely comprehensive means of raising awareness

·Senior management commitment is critical

·ISO 14000

oEnvironmental policy that records the enterprises commitment to a specified level of environmental performance

oA strategy to meet these commitments

oThe structures that will be put in place to ensure compliance with the strategy

oThe setting of the enterprise’s required objectives and measurement targets

oPlans to give effect to the overall policy and to maintain standards

oMeasures to monitor compliance

oThe review and auditing processes and time periods

·Comprehensive process

·Once established, becomes a formal system

·Assist in marketing the firm’s products