Jeff Bezos founded Amazon.com in 1994. Originally the business was based out of his garage in his Bellevue, Washington home. A businessman by the name of Nick Hanauer believed in Bezos’ idea and decided to invest $40,000 in the venture.  When Amazon first decided to go online, its layout was not as flashy as it is today. In fact, the site looked very plain and unattractive to most visitors, causing the business to start out on shaky ground. A man by the name of Tom Alburg decided to invest $100,000 in Amazon in 1995, which helped the company fund a better looking website and hosting capabilities. When people began purchasing books from Amazon, Bezos was in awe that he had customers from all over the country, not just Washington State, purchasing books.

Bezos decided that he had to create more than just a bookstore if he wanted people to come back as customers. He added the option of buyers to write their own book reviews, which is a huge credit to Amazon.com’s success. People began to look at Amazon as more of an online community and not just a place to purchase things. By 1997, Amazon.com had generated $15.7 million in revenue. Once the company went public the same year, they decided to add CDs and movies to the website. In 1998, Amazon added some new items to the roster: software, electronics, video games, toys, and home improvement items. Once the company began showing signs of success, people became skeptic and claimed that Amazon was getting too large in too short an amount of time. 

Despite these crytics in 2006, Amazon.com sells a lot more than books and has sites serving seven countries, with 21 fulfillment centers around the globe totaling more than 9 million square feet of warehouse space. 

Indeed the above as an interesting case of study, but of our topic, Logistics, I thought would have been interesting how does this company manage the warehouse and the delivery process of thousands items per day, millions per week. 

Following is a good video which explain us how the warehouse is done in an Amazon distribution center. The speaker explain us as after receiving the order all items are picked up by pickers (persons) scanned and put into boxes, and dropping these to the packaging area where different orders are packaged and ready to be distributed. 

A question came up to me after seeing this video: wouldn’t be much cheaper for a company as Amazon to implement an automatic warehousing as we’ve seen Mercadona, for example, is doing in Ciempozuelos??? 

And also a video where its explaines us how with this service, customers send inventories directly to Amazon where it these are stored and managed in a secure, climate controlled facility. When orders are received, Amazon will professionally pick, pack and ship the product directly to their customer:

And to conclude a final video on news and politics on Amazon which basically gives us an idea of the importance that Logistics have on the labour market. 

UPS is the largest packages delivery company in the World, deliveryng 3,5 billions packages around the World, which means more than one package for every two people in the World.  It has more then 17 hundred operating centers troughout the World with 70 thousands UPS drivers interacting with more than 8 million customers EVERY DAY.

When talking about this kind of companies we’re talking about firms which are offering a complex service of last mile delivery in most of the countries of the World.

Indeed it’s a complex and complicated essay, where new technologies play a core and relevant role. Could be said that technology powers every service the company offers and every operation it performs.

Following two interesting video:

The first one answer to the question “What happens to your packages after you dropped them off to UPS?

The second after rapidly gives us a clear idea of the use of technologies in the last mile of logistics in UPS and the importance of these.

Have a look, they’re pretty interesting!

As Professor Dr. José Pedro Garcia Sabater suggested us during one of his class, this past week-end I took my girlfriend and went to IKEA at Murcia.

I had already been at IKEA but I wanted to go seeing it with this new “logistics” perspective.

Well, we drove a lot and walked even more but indeed the prices tha IKEA offers are really competitive, even if you have to go from Valencia to Murcia.

Anyway IKEA is not that perfect it seems. There are several things it could be improved in my opinion.

Once you go there, as seen in class, in order to visit the exposition is there a route you have to follow, and if you forget  and have to come back, I assure you that you start getting nervous.

Here above the IKEA store in Murcia  and in the image below on the right side the trolleys used in the exposition area:

Once at the recollecting area, if you go during the week and you are a man, then there would be no problems, bur if you go there on week-end or if you’re not a man you’re should have serious problem in buying most of the IKEA furniture. Why? Simply because, even if the FLAT PACKAGES are indeed really well engineered, these packages are still really heavy, which means most of the women could not effort to bring and load them in their trolleis. And the IKEA staff that could help you is really reduced in this area.

One of the others things I noticed is that for example the opening time is different from Italy where IKEA is open all the year’s sundays and indeed this is the day when they sell the most.  In Murcia they don’t open on Sundays.

 By the way,  we bought some furniture, which I had than to assembly. Well, I can assure you that the instructions were really easy to understand and the furniture to assembly, much more than those all others furniture shops.

Just to conclude that apart from the mega shelves they have,  always impressing, and the way IKEA run its business, what catched-up my attention this time was a ”QUARTER PALLET” of which existence I read in on efeedback the teacher gave in on eof my colleagues’ blog and that I saw for the first time.

 Following some pictures of my visit to IKEA:

In these two first images some shelves at the recollection area:

 And also, the QUARTER PALLET:

And to conclude one of the key of IKEA, which is the base of their strategy, the “DO IT YOURSELF”. Below two images of the papers you have to use while passing trough the exposition ot get note of the furniture youwould like to have and where to recollect it later on at the recollection area:

as one of my collegues stated in one of his blog-posts, please allow me to remember you that this blog is “alive”. Old posts have been continuously rewieved and improved, and so it would be for the future. This means that old post could change during the time, thanks to the new informations, and feedback the writer (me) will recollect.

So those subscribed via RSS, please note that you might not get a notification for the changes done in old posts, neither for added information. My suggestion is than that of keeping revising the all blog, especially the posts you liked the most, and rememember that your feedbacks are always more than welcomed.

As some of you would probably know by reading the news, in these days (25th and 26th of May) has taken place in Barcelona the 8th Mediterranean Transport and Logistics Forum which has been held within SIL 2010 framework and with the collaboration of the Association of Mediterranean Chambers of Commerce and Industry (ASCAME), the Consorci de la Zona Franca and Barcelona’s Chamber of Commerce and with the impact of the Free Trade Mediterranean Area foreseen for the next year 2010. At the same time, the 3rd Mediterranean Ports Summit, 1st Port de Barcelona Conference -which have been held the second day (yesterday 26th of May) -  has focused its interest in the Port management and logistics infrastructures financing; the Mediterranean ports contribution towards a logistics system more sustainable and efficient; and the Sea Mediterranean Highways Development.

Within the 8th Mediterranean Transport and Logistics Forum have been held a session on the 25th May focused on Business Meetinngs (B2B), where trade agreements, foreign investments and cooperation among companies of both Mediterranean shores will be taking part.

Furthermore during the meeting have been approached issues related to the new boost given to the Euro-Mediterranean association and its integration through Union for the Mediterranean and the importance of the transport and logistics sector as economic pillars and determining factors for the integration into a single united Mediterranean market. An analysis have been made of the different results arising from the implementation of different European projects for the development of the Mediterranean logistics area and the status of the port infrastructures.

The new infrastructures plans, situation and the financial mechanisms for Union for the Mediterranean has constitute the focus of debate during the opening session of the 8th Mediterranean Transport and Logistics Forum. At this moment in time, promoting the Mediterranean Sea as the epicentre of the world can provide a decisive cooperation model within the current global economic situation.

And who is acting the best? It seems that my home country: Italy. Here following an interesting article on the results tha comes out at the MEDA (unfortunately is in spanish):

Italia muestra su potencial logístico en el Salón Internacional de la Logística y de la Manutención de Barcelona

El 8º Fórum Mediterráneo de Logística y Transporte finaliza con éxito con la celebración de la 3ª Cumbre Mediterránea de Puertos y la 1ª Jornada del Port de Barcelona.

Barcelona. Italia ha sido uno de los protagonistas del segundo día de celebración del Salón Internacional de la Logística y de la Manutención (SIL 2010) que se está celebrando hasta el próximo viernes 28 de mayo en el pabellón 2 del Recinto Gran Via de Fira de Barcelona. El país transalpino ha presentado todo su potencial logístico a través de una serie de conferencias: su completa oferta logística, su extensa red de puertos, el papel de las autopistas del mar para la integración Euromediterránea, proyectos de futuro. En estas presentaciones han participado diferentes organizaciones com ASSOPORTI (Asociación de los Puertos Italianos), el UIR (Unión de las Plataformas Logísticas Italianas), la RAM (Red Autopistas Mediterráneas), la ALOT (la Agencia de la Lombardía Oriental para el Transporte y la Logística) y la Universidad de Cagliari.   

Otro de los aspectos destacados del día en el SIL 2010 ha sido la gran presencia de profesionales que han abarrotado los pasillos del Salón. Del mismo modo, un total de 9 jornadas técnicas de gran nivel han debatido y abordado aspectos de máxima actualidad, contando con grandes personalidades del sector como es el caso del Director General de Transportes Terrestres del Ministerio de Fomento, Juan Miguel Sánchez, el Secretario de Movilidad del Departamento de Política Territorial y Obras Públicas de la Generalitat de Catalunya, Manel Nadal, el Presidente de Puertos del Estado, Fernando González Laxe, o el Presidente de Renfe Operadora, Teófilo Serrano.

La celebración de la 3ª Cumbre Mediterránea de Puertos y la 1ª Jornada del Port de Barcelona han puesto el punto y final a la 8ª edición del Fórum Mediterráneo de Logística y Transporte. Este foro de encuentro, que se ha convertido en el punto de encuentro de la logística y el transporte del Mediterráneo reforzado por la capitalidad de Barcelona de la Unión por el Mediterráneo (UpM), ha contado con la asistencia de más de 300 profesionales de la comunidad logística internacional.

Reference: http://www.inmodiario.com/178/8488/italia-muestra-su-potencial-logistico-salon-internacional-logistica-manutencion-barcelona.html

And her is when on my sofa I start thinking how will work out the distrbibution network of this huge company. By now I have only discovered that is a pretty comple matter.

Anyway by searching on the net I found out an on a Logistic review (Logistics Today) an interesting article on Coca-Cola distribution in Mexico. Here I attached it:

Coca-Cola Mexico

Benetton for several years have been a reference in the assortment capability and have put a lot of effort on study clients garments colors choice during the pre-season period and adapted to these during the same season. Furthermore this brand have been revolutionary for using the same room for stocking selling merchandise and displying it.

I decided than to investigate a bit on the Logistics and organization of the company and found the following interesting information.

As stated in the benetton webpage (http://www.benettongroup.com/en/whoweare/distribution.htm): “Benetton has direct control of the logistics phase for both own manufactured and sourced products, and has invested in modelling, organization, and automation of logistic processes in order to completely integrate the entire production cycle, from client orders, to packing and delivery.

The state-of-the-art logistics operation at Castrette (Italy) has a fully automated innovative sorting system, whose propulsion is based on electromagnetic fields, capable of handling individual orders for over 6,300 Benetton shops worldwide.

Folded and hanging garments are automatically sorted, packed into boxes and sent through a one-kilometer tunnel to the Automated Distribution Center. This covers an area of 30,000 square meters, has a total capacity of 800,000 boxes and can handle 120,000 incoming/outgoing boxes a day with a workforce of only 28 (compared to the 400 required in a traditional operation).

The European Platform optimizes delivery and quality of service to the store network, thanks to its geographical position, close to the domestic market and European countries, and to the use of innovative technologies.

The functionality, effectiveness and efficiency of our logistic organization is completed by the Company’s hubs in Shenzehn and Mexico City; the multi-hub model is supported by a centralized IT system which is able to coordinate and optimize product deliveries customized according to required dates and destinations worldwide.

This system assures timeliness of information and better control of the business.”

Here above an interesting video on Benetton. Of Special interest for our subjetc is especially from minute 4:00 when are shown the Benetton distribution center which cover an area of 20,000 square meters, handle 40,000in & out boxes, and need only 24 workers. Is laso shown the innovative automated sorting system, which allows the company to hold the direct control of the logistics and send directly its products to the group’s 5000 retails outlets in 120 countries. 

CURIOSITY:

In view of the expected increase in the number of items being shipped, in 2007 Benetton Group started to invest around 50 million euro in the automated hub at Castrette. The strategic geographical position and use of innovative technologies confirmed the functionality, effectiveness, efficiency of Castrette in the centralized receipt of goods.

The investments allowed the distribution capacity of the Group to almost double, thanks to the development of new warehouse areas within the existing structure, and an innovative sorting system using electromagnetic propulsion.

Mercadona S. A. born in 1977, in the Group Cárnicas Roig, propiety of Francisco Roig Ballester and it’s wife  Trinidad Alfonso Mocholi with the objective to expand the comapny.

In 1981 Juan Roig, one of his sons, buy the company to its father wich at that moment counts with 8 shops in Valencia and with the collaboration of his wife and his two brothers starts the expansion.

Following the number of supermarkets owned by mercadona in different years, which cleraly underlines the company fast growth:

• 1980–>>3 supermarkets
• 1990–>>30 supermarkets
• 2000–>>600 supermarkets
• 2010–>>1200 supermarkets

Infact the tactic that Mr. Roig wanted to implement was that of growth rapidly. Let’s say it wanted to growth in a OIL SPREAD STRATEGY, which put in practice by buing small supermarkets companies chain in different areas of Spain.

Accordingly to this strategy in 1988 the company adquired 22 Supermarkets of Superette, in 1989 the companies  Cesta Distribución y Desarrollo de Centros Comerciales, in 1991  Dinos y Super Aguilar and in 1998 the ctalan chain Almacens Paquer y Supermercats Vilaró. También se firman alianzas como la aAlso alliances were signed in 1997 with Almacenes Gómez Serrano in order to introduce the comoany into the andalucian market. 

This tactic is much different from the natural way of growth, which consists in buying shops close to your base. Compared with the first this last is much slower.

Nowadays Mercadona covers most of Spain except Galicia, the farest region from the Valencia. It’s true that in Galicia Mercadona is present, but with a really low density compared with the rest of Spain.

As announed in it sinternal review, Mercadona in December 2007 opened its last Distbution Center in Ciempozuelos (Madrid), in which inverted 300 million €. The new centre was inaugurated by the President of the Madrid Region, Esperanza Aguirre (following a video of the inauguration), accompanied by the president of Mercadona, Juan Roig. This centre covers 200.000 square meters and is composed by 9 pavillion of cold and dried products (note: supply chaing are divided in 3 flows: dried products, refrigerated products and frozen products). Within the 9 pavillons results more than 80.000 square meter of contrsucted space and more than 20 floors.

Here above a video of the inauguration of the new distribution center in Ciempozuelos (Madrid) with the Madrid community President Esperanza Aguirre and Mercadona President Mr Roig.

With this new distribution center, Mercadona reinforce its presence its bet for the Region of Madrid, with a center which alone is able to provide more than 400 supermarkets. At present Mercadona counts in Madrid with 75 supermarkets, 22 inside the capital and the rest in the surrounding areas.

In this platform with the modern tcnological support a new logistic concept have been created. While people are buying at the cash of the differents supermarkets, the platform is immeditaly receving data of what is being buy. Goods movement is all automatized, workers don’t have to do nothing, just supervised. The pallets are prepared by the machines themselves, allowing a preparation of 20.000 pallets everyday.

This distribution center is the seventh, after those of Riba-Roja del Turia (Valencia), Antequera (Malaga), Sant Sadurni d’Anoia (Barcelona), San Isidro (Alicante), Huévar (sevilla) y Granadilla de Abona (Tenerife)

Below a link to the video of the Spanish television La Sexta on the ditribution center of Mercadona in Ciempozuelos:

La Sexta – Ciempozuelos distribution center

On eof teh interesting things underlined by the professor is the facts that same goods are stores in different areas, so also in case a machine broke down, they’re always able to serve that good. 

One of the KEY things Mercadona intrroduced in Spain  have been the intersupplier (inteproveedor) a white label producing only for them. Mercadona flow is teh following:

INTERSUPPLIER—>>>(T1)—>>> DCs—>>>(T2)—>>>SHOPS

They realised that trucks of their suppliers were coming back empty after have served the product, so in some way obliged some of their intersupplier to move in the area which was interesting for the company, in order to be moving goods back and forward.

This is somehow the reason why Mercadon is planning the new distribution center in Bilbao.

But, what about the future of Mercadona? Is possibel to affirm that for example Valencian Community is a mature market, cnsumers start to be quite exhausted of the same products of all the life of Hacendado.

This is the reason why the distribution chain will have to change and DISTRIBUTION NETWORKS HAVE TO BE REDESIGNED ALL THE TIME.

FAMOSA  (Fábricas Agrupadas de Muñecas de Onil Sociedad Anónima) for those who doesn’t know is a valencian games producer company located in the village of Onil (Hoya de castalla, Comunidad Valenciana, España).

Here attached its presentation:

logistics_jorge-leon-bello

Here is a link to her work:

The teacher then remarked the following facts:

• is a huge company with a huge distribution network
• 296 stores with 27 distribution centers, which means a ratio of approx 11 stores per distribution center, while for example Mercadona have approx 200. The ratio is highly dependant on the Product commercialized
• 9500 products portfolio (almost the same of Marcadona), most of them produced in Europe
• Products are directly delivered form the suppliers to the stores in order to reduce costs
• and as we all know they’re speciaized in the best practice in packaging to save space and reduce costs
• products have to be self assemblied; IKEA products are the easiest to assembly

And to conclude just to say what we have all experienced while visiting IKEA, and on what I’ve saw myself reflected when the teacher has explained it the class. The states of animum that you pass trough while walking on the IKEA long corridors that drive you from the entrance until the warehouse, where all the products are recollect, and the cash.

You enter happy with your couple and with a linemeter in your hands. Start measuring and want to buy all the wonderful products that they have. You keep on walking trough the corridors, while your girlfriend is looking at all the things sshe may buy and you start thinking on your poor credit card and at when it would be switched. You keep walking and a bit tired you go down the stairs and arrive at the gadget area where your girlfriend, which at this point really want to buy something, to notice something in her hands, shows clear signals home-gadgets illness and start buying as many thing as she can.

You keep walking and with plenty of things you arrive at the warehouse and start picking up what you signed on your paper, go to the cash, and is when the cashiers tell you the counts. Andhere is when you start thinking:  ”why did I come here?!!!”

You’ve just spend a lot of money and have just carton packs into your hads, that must fit into your car and once back at home you will have to assembly them…but you look at your girlfiend and the smile on her face pay-off..and you start thinking on how beatiful will be your home ad how much you will have payed by goig into another furniture shop. And at the END dear teacher, this is also in my opinion the ESSENCE of IKEA.

Following a nice funny video in spanish which resumes (more or less) what said above:

But also the interesting video saw in class on the IKEA flat pack warehouse:

The main contents seen have been:

1. Phisical ditribution Network
2. Clients & Intermediaries
3. Distribution Networks Taxonomy (which is not the same of typology)
4. Third and fourth party logisics providers

Referring at point 3 as teacher has said and as explained in it’s webpage is not the same a typogy or a taxonomy. Referring to it’s webpage: 

One typlogy is a classification of conceptual models, assuming a prioris that should be empirically verified when one element is part of one type.

One taxonomy classifies real things, referring to dimensions that should be measured or defined. And once classified in one taxonomy is when is verified if they have common elemnts.

Here is an article, on typology and taxonomy.

Continuing with the class have been underlined the importance of the almost only objective that have a Logistics Manager: reduce cost fulfilling the service levels. This means give a better price to the final clients without affecting the final service that nowadays is seen as a design factor. Could be said that Logistics should be where one company differentiate from another in today World.

Have been than analysed the characteristics that affect service levels and costs

Service Level:

• Response time
• Product variety
• Product availability
• Customer Experience
• Time to Market
• Order visibilty
• Returnability

This last for example is what have differentite the “El Corte Ingles” from the rest” of shopmall here in Spain. It is high cotly for the company as they havea backflow, which the client are notta goanna pay for (or better say that when you buy at “El Corte Ingles” you pay a bit more for much services as this one could be).

How to manage the service level factor:

• Inventory
• Transportation
• Faciity and handling
• Information

On slide 5 of the teacher PP presentation have been then seen all the Network Disgtribution Functions:

• Transportation
• Service
• Risk assumption
• Financial function
• Strorage and handling
• Unit Load transfer

and some graphs on the importance of the Product on the network design, where for example is not the same having to do with small products with a high value or big products with small relative value.

We have then analysed DEMAND, INTERMEDIARIES and DISTRIBUTION CHANNELS where a fast definition have been given.

Then Cost and client Service have been analysed:

How to improve the customer perceived level:

• Response Time
• Product Variety
• Product Availability
• Customer Experience
• Time to Market
• Order visibility
• Returnability

Cost drivers:

• Inventory
• Transport
• Number and location of Facilities
• Information Systems

Total cost vs number of facilities:

Total Logistics vs Response Time:

Finally we’ve seen the Material Flow (Trasnport and Storage)

Parameters:

• Number of warehouses
• Warehouse type: Cross Dock, CW, RW
• Direct delivery or route delivery

and Information Flow:

• Logistics management is the management of material and information flow.
• In traditional networks, the material flow followed the path of the flow of information, but in reverse.
• The information and communications technology allow a decoupling between the management elements of both flows: the material flow do not need to follow the same paths that the followed by the information flow.

6 BASIC NETWORK DESIGNS:

1. Manufacturer Storage with Direct Shipping Network
2. In-transit merge network
3. Distributor Storage with Carrier Delivery
4. Distributor Storage with Last Mile delivery
5. Newtwork with Customer Pickup Sites
6. Local Storage at Consumer Pickup sites

The class concludes with a fast overview on Distibution Networks, the characteristics of a Product and client preferences in the desig of a network and also the network design in practice.

Last two slides referred to Third and fourth Party Logistcis Providers (3PL – 4PL):

in the past (around 1980 s) all the companies where of this type where the owner of teh equipment was also its manger and viceversa

2L–>> then with the second party Logistics some companies started to outsourcing Facilities and equipment; basically they were producing the product and needed someoneto distribute it

3L–>> ex. DHL or UPS. Thes doen’st own the facilities and equipment bt gives the service.

4l–>> someone that gives you the facility and doesn’t own anything (is a pure intermediary)

During class, speaking about space savings come out interesting on the space saving in packaging.

The example given was the famous young childrens game “EL TRAGABOLAS” where the company MB in order to save space and therefore money decided to change the packaging and the game to be asseblied at home. Is funny that once out of the package and assemblied the game could be not put againg into it to be stored.

But not always the companies may want to reduce their packaging to save space and money. This doens’t occur for example in the case of:

1. when theyhave loadsof products and want to standardised in order to use the same package for several products
2. some items like perfumes, with an gih value and a really small volume
3. to show that the quantity is more when the client buy some companies may want to use bigger packages than the product itself.

Warehousing is not about storing products, is about making them flow trough.

Main operations in a warehouse are two:

1. Receiving
2. Put away to storage

Main warehousing operations – sequence of operations:

1. Order Picking
2. Order grouping/unitizing
3. Shipping

PALLETS:

In the World are not always the same. Ex. Tyde industry in Castellon had real problems in changing the pallets due to owning maritm pallets.

They should be of different materials:

-plastic, metal wooden etc.

Metallic boxes (common in the automobile industry) they itself are warehouse as cab be piled up one each other.

WAREHOUSE EQUIPMENT

Floor Storage. Equipment is cheap (almost no equipment). If you have storage than is OK. 

Incovenient: you should not have good access to the goods.

We have than to start improve space utilization and reducing workers movement.

CONVENTIONAL RACKING

Disadvantages:

You loose a lot of space in the aisles.

A good solution to solve it is to use the DRIVE IN DRIVE TROUGH:

Disadvantages:

You can’t use the FIFO.

LIFE STORAGE

Disadvantages:

quite expensive due to the movement mechanism

MOBILE RACKING

You can use it if you have not a lot of movements; it could be the same for pallets (MOBILE SHELVING)

You can use it when you don’t have space and its terribly costly.

There are some other alternatives to use space utilisation, the first of the two PROBLEMS.

But we also have to solve the second problem: reduce workers movement

DEFINITION

Fleet management is the management of a company’s vehicle fleet. Fleet management includes commercial motor vehicles such as cars, vans and trucks. Fleet (vehicle) management can include a range of functions, such as vehicle financing, vehicle maintenance, vehicle telematics (tracking and diagnostics), driver management, fuel management and health & safety management.

FIELDS OF APPLICATION

At the beginning was more related with vehicle maintaining and selling before the devaluation would have been too much. The original was related to repairing and selling.

Fields:

• Object tracking (vehicle tracking)
• Health and safety tracking (ambulances for ex.)
• Fuel and speed management (for ex related with pollution taxes etc.)
• Sales order transmission
• Route Planning
• Driver Management (i.e. avoid people from driving too much or too away from home)
• Vehicle diagnostic

ROUTE PLANNING

VEHICLE ROUTING PROBLEM

LOCATION TRACKING:

• helps move product faster
• monitor assets
• prevent inventory loss
• track vehicle fleets

Companies have to know how to track inventory in SMALL and WIDE are.

TRACKING TECHNOLOGIES:

• Is not one single technology
• RFID – radio detection – for Local Area & Indoor Tracking: small, battery-less microchips attached to consumer goods, vehicles and objects to track movements.
• Wide Are tracking – GPS – Signals received from Satellites to track movements of object moving great distances.

With this technology every vehicle must be equipped with GPS receivers.

ADVANTAGES:

• Improve efficiency & productivity
• Reduce operating costs
• Speed up Logistics activities
• Transparency of all the transport events 
• Automatical data transfer

Going in a deeper analysis with the Professor:

RFID is used a lot in CHEP, a quite well known company in the pallets industry.

CHEP: common health pooling system

A system of sharing pallets, owned by CHEP and you only hire them, and this company is monitoring where they are going. You save a lot of money because you don’t have to transport them.

For more info hera is a link to the company internet site: http://www.chep.com/

CODING

This last is a really huge topic which should be analysed during another class.

What is it? Just an abbreviation of IN.ternational CO.mmercial TERMS.

Incoterms or international commercial terms are a series of international sales terms, standard definitions of ocmmercial terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. This set of commercial terms have been in use since 1936 and are accepted by international traders around the world. At prsent these have last release in year 2000 but soon this year (2010) new Incoterms will be released.

What do they do:

-Define key elements of international contracts

-Reflect Parties’ agreement

- Can be used for purchasing pars both within EU and outside EU.

What they do not:

- Cover transportations right

Note: they should change from USA to E.U.

RISK VS OBLIGATION

We are mainly dealing with movement of goods from the manufacter until the final user. We could than identifying the 13 Groups depending unti which point of the route ihe responsibility isof the buyer or of the seller.

Here attached a table of these13 Groups:

incoterm

Or even a Picture:

The following is just the solution in an Excel File to Question 1.

Shortly will be also updated an explanation on the work done, and with the Teacher’s help also response to Question 2.

He especially underline the dynamic assortment capability that the firm possess and which distiguish it from the rest of its competitors. This capbility consist in the firm ability to revise it’s product assortment during the selling season.

In a fast changing environment as it is actual World market, this gives to the firm a tremendous flexibility and capacity or adaptability to the market market demand. Indeed Logistics in Zara is a core company value. 

Following an interesting video about Logistics in Zara (inditex Group):

Once back at home I decided to search for some info on the largest logistic park in Europe.

In the year 2000, the Government of the Autonomous Community of Aragón, Spain, made public a project for the development of a large-scale logistics park in the outskirts of the city of Zaragoza. With an area of nearly 13 square kilometers, PLAZA (an acronym for Zaragoza Logistics Platform) is today by far the largest logistics in all of Europe.

The government and industry have invested millions of Euros to develop infrastructure for distribution centers, intermodal transportation, customs clearance, and value added activities alongside areas for commercial, educational, and sports & leisure facilities.

The logistics park is adjacent to a major freeway exchange, the high-speed railway connecting to Madrid and Barcelona, and has direct, secure access to the 24/7 airport, which can accommodate the world’s largest cargo planes. It’s geographical situation is the secret of the project, being the city either in the half way between the three biggest cities in Spain: Barcelona, Madrid and Valencia and therefore two huge ports and an airport. 

Compared to other Logistics parks: GVZ in Germany (340 hectars), french Eurocentre (300 hectars), the italian park if Turin (280 hectars), the CET at Coslada, Madrid (100 hectars) and the ZAL in Barcelona of 67 hectars, is pretty clear that PLAZA with its 12000 hectars is by far the Largest European logistic Park.

Unfortunately after the Expo the crysis arrived in Zaragoza and most of the companies that had already signed a contract with PLAZA saw themselves in need to broken it, and so by stopping the growthing importance of this Logistic area. The only solution to see how this would end is to wait and see what will happen.

Consignment Inventory allows you to ship products to your customers transferring ownership at the time of consumption.

Some previous notions:

 BENEFITS:

• Ship products to your customer and retain ownership until the product has been consumed.
• Maintain accurate financial physical inventory records from shipment through consumption.
• Receive consumption notices electronically.

Features:

• New fields in Warehouse Master allow you to flag a warehouse for use as a consignment warehouse.
• Create inventory transactions for receipts and adjustments in the consignment warehouse.
• Utilize new inquiries and reports for tracking consignment inventory balances and customer orders.
• Create the consignment relationship between a product, customer, and warehouse in one master file.

Study case solution will be uploaded shortly.

STUDY CASE: MANAGING INVENTORIES AT ALKO INC.

Study case solution will be uploaded shortly.

Teacher introduced its statistical way to review our works thanks to Google reader and wordpress.com/feed.

By revising the Blogs some questions (how not) about the topics come out…

MULTISTAGE INVENTORY. Shall we have a clear definition?

It is high related with the bullwhip effect. Image when you go to Mercadono to buy the peanuts:

you (final user) buy to Mercadona, Mercadona to the Importer and the Importer to the Farmer:

FINAL USER–>>MERCADONA–>>IMPORTER–>>FARMER

Each one see the same demand in a different way:

Controlling Multistage Inventory is terribly complicated. To understand how complicated it is, imagine when you’re going buying a car, you have to go to the dealer, and the dealer to the fabric (and need engines), for the engines the fabric will need loads of pieces etc etc. 

MRP (Material Replecement Planning) is one of the way to try to control the Planning.

Multistage is then related to BULLWHIP, JUST IN TIME, VENDOR MANAGED INVENTORY and SMED which techniques are used to try to control, or avoid problems derived from the fact that market is not stable and even not always perfectly forecasting, that we have a lot of factor to keep under controll etc etc.

Multistage Inventory is the natural way of controlling Inventory. In terms of

In any Factory we can not produce less the the SETUP. The idea is then the SMED, ot reduce the setup cost and Long Team time, affecting the Forrester effect.

This is called SMED (Single Minute Exchange of Die)

In this video you´ll see how the quick changeover works perfectly on a kaizen event, Ignius as an expert share this learning experience with you to understand how this tool works nice and easy.

SMED (simplyfing to undestand)

We have then other techniques:

KANBAN: Japanes word for”tarjeta”. This ystem originally developed by the Japanese is now used worldwide. 

Traditionally in factories the need for parts in one area was signaled by using a “card,” hence the name “kanban.” Today, even though the system is still called kanban, many facilities do not use cards. Usually the cards or the signals serve as indicators that one unit of inventory is needed by that part of the production. Thus inventory movement at any given time throughout the production facility is in small unit sizes.

For example in pharmacies holding costs are terribly high. The main objective of kanban is to reduce inventory costs. This is achieved by moving inventory only as and when needed. The system is used in many manufacturing and service companies.

This system is not used only for Pharmacies: wide used is made even in car manufacturers, supermarkets, fast food chains, retail chains and pharmacies.

Kanban places a lot of emphasis on meeting schedules, reducing setup costs, reducing lead times in production and economic handling of materials.

The pull system and kanban inventory management are demonstrated by The Sailboat Company of Naples simulation. This is an example from an e-Learning course at EducateVirtually.com.

NESTED POLICIES

Just-in-time is a movement and idea that has gained wide acceptance in the business community over the past decade. As companies became more and more competitive and the pressures from Japans continuous improvement culture, other firms were forced to find innovative ways to cut costs and compete. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. In order to accomplish this goal a firm must constantly be seeking ways to reduce waste and enhance value. A recent survey of senior manufacturing executives showed that 71% used some form of JIT in their processes (Pragman). This simple statistic illustrates that JIT is here to stay and also that firms must constantly be searching for ways to cut costs and achieve an advantage. JIT is one way to achieve that end result.

Strengths of JIT

There is a lot of strength in incorporating JIT lean manufacturing in a company. JIT makes production operations more efficient, cost effective and customer responsive. JIT allows manufacturers to purchase and receive components just before they’re needed on the assembly line, thus relieving manufacturers of the cost and burden of housing and managing idle parts. In that respect, company spokesman for Dell Venancio Figueroa, says “With our pull-to-order system, we’ve been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be” (Songini, 2000). The benefit of carrying smaller amounts of inbound, in-process, and finished goods inventory exists regardless of the firm’s operating context (size, production technology, etc.). Just In Time appeals to many companies because it helps prevent manufacturers from being stuck with inventory that may become obsolete. JIT was initially developed and justified based on cost reduction and quality improvement dimensions. Now, companies view JIT as providing an approach to achieving excellence in the elimination of waste (thought of as all things that do not add value to the product), as well as making the company more responsive to short-term customer demand patterns.

JIT manufacturing can be a real money-saver for a company. Companies are not only more responsive to their customers, but they also have less capital tied up in raw materials and finished goods inventory, allowing companies to optimize their transportation and logistics operations (UPS, 2003).

Overall, JIT manufacturing results in lower total system costs and improved product quality. With JIT, some plants have reduced inventory more than fifty-percent and lead time more than eighty-percent (Droge, 1998). JIT is lowering costs and inventory, reducing waste, and raising the quality of products.

Weaknesses of JIT

Just as JIT has many strong points, there are weaknesses as well. “In just-in-time, everything is very interdependent. Everyone relies on everybody else” (Greenberg, 2002). Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain. JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions.

Labor strikes, stock outs, and port lockouts can quickly disrupt an entire supply chain while JIT processes are in place. “Adhering to the just-in-time concept can be expensive in times of emergency such as at ports” (Greenburg, 2002). When a ship arriving from Asia full of supplies cannot make it to shore, the company using JIT generally has very little inventory to compensate for the emergency. This lack of inventory is exactly what makes JIT so great to companies in reducing costs, yet making it risky as well by in some cases not having enough buffer inventories to react and keep the supply chain moving.

Every year markets experience seasonal demand fluctuations as well as fluctuations due to demand from disasters or other unforeseen events. “Just-in-time delivery leaves retailers and manufacturers with little inventory as the holiday season approaches” (Greenberg, 2002). Relying solely on JIT systems would leave supply chains in shock due to the overwhelming seasonal market demand at different times of the year for seasonal products. Not all products should be produced with JIT systems in place. Custom made items will not work well with JIT as JIT systems respond best to mass produced and highly automated production items.

Communication is king in a JIT rich supply chain. There is a risk involved with JIT when there is a communication breakdown and the company cannot get the right amount of supplies needed to keep the just-in-time system running smoothly. Technology is playing a big role in JIT number, however, the reliance on technology can lead to breakdowns in the IT systems that can be costly to work around and go back to the �pencil and paper’ methods of doing supply/inventory demand calculations. Companies should always have backup systems in place to help thwart the possibility of technology or communication breakdown.

Weaknesses in JIT systems are very important to recognize. “From Cisco routers to Dell computers to the Gap’s leather pants, companies have found their just-in-time manufacturing systems have let them down” (Johnson, 2001). Companies must strongly evaluate the pros and cons of implementing JIT systems. The effects and risk to their supply chain must also be heavily considered. Although JIT has its weaknesses, in most cases, the benefits outweigh the risks to the JIT enabled company. Planning for and recognizing when things may go wrong with the JIT system are vital for the success of JIT implementation across all areas of supply chains.

JIT in Practice

Just in time has an overall strategic focus to provide companies with an exceptional amount of savings. There is a large variety of companies and industries that have experienced these cost savings. For our research we will feature Dell and Toyota as two examples to illuminate the cost saving effects that just in time offers.

To begin our discussion, Dell, which participates in the computer technology industry, is the only company within its industry that effectively utilizes just in time. They have “revolutionized the selling of personal computers, using a direct-business model whose fundamental tenets include taking custom orders directly from customers, thereby reducing inventory and streamlining distribution” (DI D RECT, 2001). After Dell has received a customer order, they then begin production of the product that the customer desires. This exemplifies a pull system within the supply chain. A pull system is reactive whereby production is executed in response to a customer order. This unique supply chain provides Dell with a competitive advantage within its industry allowing them to become the market leader over Compaq in 2001 (DI D RECT, 2001).

Dell’s position within its industry is a result of their strategic focus to reduce inventory and streamline distribution. This strategy has allowed them to keep only five days of inventory on hand (DI D RECT, 2001). This is the smallest amount of inventory of any company within this industry, according to Mike Gray, Supply Chain Evangelist for Dell. He stated that most companies within the computer industry currently hold between 20 and 30 days worth of inventory (Personal Communication March 10, 2005).

The limited amount of inventory held by Dell has “created value for their customers. The value created for their customers is a function of integrating the entire value chain: invention, development, design, manufacturing, logistics, service, delivery and sales” (DI D RECT, 2001). Integrating the entire value chain creates visibility and provides stronger relationships between Dell and their customers and suppliers. This visibility allows them to only “invest in what their customers want, rather than trying to guess what they might want” (DI D RECT, 2001). In addition Dell has a philosophy to “only manufacture what their customers ask them to make, when they ask them” (DI D RECT, 2001).

This strategy provides Dell with a time-to-market advantage. “They can get their customers the freshest, latest, greatest Pentium 4 and all associated operating systems 85 days faster than HP. This is true in regards to research that shows Hewlett Packard has 63 days of inventory and a distribution channel with 25 to 30 days of inventory as well. Collectively, HP has about 90 days of inventory compared to Dell’s five. The minimal amount of inventory held by Dell provides them with an economic advantage, because the value of components and manufacturing materials declines about one per cent per week. The five day inventory also minimizes a customer’s ability to change their wants before they receive their computer. For example, if an individual tells a manufacturer what they want today but they do not hear the request for 90 days, chances are by this time the customer wants something else” (DI D RECT, 2001).

Dell’s use of just in time results in cost savings, superior customer satisfaction, limited waste, and the ability to provide their suppliers with more information. In the end these benefits all result in a cost savings for Dell and higher revenue. Since Dell holds minimal inventory, they do not have to fund raw materials, work in process or finished goods inventory.

Toyota Motor Corporation is another company that effectively uses just in time. They are known as the “master and pioneer” of just in time and are currently entering the market to provide customized vehicles to customers with a minimal wait. “Toyota has spent the last six years revamping its ordering, manufacturing and distribution to make it easier for dealers and customers to make changes right before production” (Fahey, 2004). “Their goal is to reduce the average time between dealer order and delivery from Toyota’s North American factories from 70 days to 14″ (Fahey, 2004). This goal accomplishment “would not only make customers happier but also cut dealer inventory costs and the need for Toyota to spend on rebates for slow-selling vehicles” (Fahey, 2004).

In order to seek the benefits of providing customized orders and reducing the average delivery time, Toyota has developed its own software that connects dealers to factories and factories to suppliers. The integration of the value chain creates visibility for all members of Toyota’s supply chain. When a request from a dealer is received by Toyota their “software is able to figure out the availability of parts nearby, the time to resequence the assembly line and whether the change would unbalance the line by scheduling, for example, too many models loaded with time-consuming options one right after the other” (Fahey, 2004).

Toyota has also adjusted their distribution process to effectively provide customized vehicles in a just in time process. “Toyota now sends finished vehicles to sorting docks where they can be grouped by region. This new process cuts delivery by two days. And in assembling cars, Toyota now considers destination, so that it may, for instance, make vehicles headed to Seattle at the same time” (Fahey, 2004). This process adjustment has provided Toyota with a cost savings in result.

Dell and Toyota are two model companies of just in time. They effectively get the right products to their customers when they need it. Both companies have achieved a competitive advantage within their industries due to utilizing the just in time process and allowing visibility between them and other members of the value chain.

JIT and Beyond

Just-In-Time inventory systems have come a long way through out the years improving the efficiency of purchasing in many companies. But as with most things there is always room for improvement and growth. JIT inventory systems have evolved over the years with many new and exciting twists. Competition in the business world is shifting from being between company and company to supply chain and supply chain. This is why JIT is evolving in many different ways. JIT II is one such evolution of the efficiency of JIT.

JIT II is a way to improve the customer-supplier relationship. JIT II uses “systems integration” which allows, “sharing of information so that the relationship is more like a partnership” (Pragman). Essentially this equals more and more visibility throughout the supply chain, which equals better responsiveness and lower costs, the two main goals of supply chain management.

“JIT II, a customer-supplier partnership concept pioneered at Bose Corporation and now practiced by major companies and their suppliers, can aid in cutting both design and response lead time” (Pragman). This is accomplished through systems integration, which seeks ways to improve coordination between different functional areas, as well as bridges the gap between customer and supplier.

With JIT II the suppliers have a person within the customer’s organization full time acting as a purchasing department employee for the customer firm. JIT II has really impacted the following areas: “the administration of the purchasing function, logistics, concurrent engineering and value analysis and material stores and support services. In each of these areas the lead time reductions are greater with JIT II than with conventional JIT” (Pragman).

The administrative benefits of JIT II are due to the fact that the supplier is constantly available in-house. JIT II reduces administrative costs for both the customer and supplier because the purchasing costs are not all on the customer and the supplier gets all the business from that specific customer as it wants as long as things go well. Because the supplier is always present “JIT II permits concurrent engineering and value analysis to take place on an ongoing basis, not just during sporadic sales calls” (Pragman).

JIT II is not the end of the evolution of just in time systems it is actually just the beginning. ERP is another result that spawns from the premise behind JIT II. The main difference between the two is that JIT II is not computer system based and ERP is based on a computer system that helps ensure the visibility of all functional areas within a company as well as within its supply chain.

“ERP helps organizations reduce supply chain inventories due to the added visibility throughout the entire supply chain” (Wisner, Leong, Tan). A major advantage of an ERP system is that it allows managers to make better more informed decisions that effect the entire supply chain. As ecommerce and global operations continue to grow a need for visibility and data exchange between suppliers, customers and foreign offices has emerged. Thus driving ERP more to the forefront with ERP comes decreased inventories as well as responsiveness which is the major idea of JIT systems.

Sources

“DI D RECT from DELL.” (Interview) Wyatt McSpadden, Technology Review. Cambridge, Mass. July 2001. vol. 104, i 6, p. 78. Acquired from Business & Company Resource Center Database April 1, 2005.

Chhikara, Jitendra. “JIT Savings – Myth or Reality?” Business Horizons.
      May-June, 1995. http://www.findarticles.com/p/articles/mi_m1038/is_n3_v38/ai_16889371 Aquired April 1, 2005.

Fahey, Jonathon. “Just in Time Meets Just Right (Toyota Manufacturing Schedule).” Forbes. July 5, 2004. vol. 173, i 14, p. 66. Acquired from Business and Company Database April 1, 2005.

Greenberg, David. “Just-In-Time Inventory System Proves Vulnerable to Labor Strife.” Los Angeles Business Journal.
      October 7, 2002 http://www.findarticles.com/p/articles/mi_m5072/is_40_24/ai_93009975 Aquired April 1, 2005.

Johnson, Cory. “Just In Time – Industry Trend or Event?” The Industry Standard.
      February 26, 2001. http://www.findarticles.com/p/articles/mi_m0HWW/is_8_4/ai_71324386 Aquired April 1, 2005.

Pragman, Claudia. “JIT II: a purchasing concept for reducing lead times in time-based competition. (just-in-time management).” Business Horizons, July-August 1996 v39 n4 p54(5).

Wisner, J., Leong, G., Tan, K. “Principles of Supply Chain Management: A Balanced Approach.”

What is Vendor Managed Inventory (or VMI) ?
Vendor-managed inventory (VMI) Vendor Managed Inventory simply means the vendor (the Manufacturer) manages the inventory of the distributor. The manufacturer receives electronic messages, usually via EDI, from the distributor. These messages tell the manufacturer various bits of information such as what the distributor has sold and what they have currently in inventory. The manufacturer reviews this information and decides when it is appropriate to generate a Purchase Order. The supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer’s consumption location (usually a store). A third-party logistics provider can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand and supply gaps.

As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain. Furthermore, vendor (supplier) representatives in a store benefit the vendor by ensuring the product is properly displayed and store staff are familiar with the features of the product line, all the while helping to clean and organize their product lines for the store.

One of the keys to making VMI work is shared risk. Often if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place, meaning that the retailer simply houses (and assists with the sale of) the product in exchange for a predetermined commission or profit. A special form of this commission business is scan-based trading whereas VMI is usually applied but not mandatory to be used.

This is one of the successful business models used by Wal-Mart and many other big box retailers. Oil companies often use technology to manage the gasoline inventories at the service stations that they supply (see Petrolsoft Corporation). Home Depot uses the technique with larger suppliers of manufactured goods (ie. Moen, Delta, RIDGID, Paulin). VMI helps foster a closer understanding between the supplier and manufacturer by using Electronic Data Interchange formats, EDI software and statistical methodologies to forecast and maintain correct inventory in the supply chain.

Vendors benefit from more control of displays and more contact to impart knowledge on employees; retailers benefit from reduced risk, better store staff knowledge (which builds brand loyalty for both the vendor and the retailer), and reduced display maintenance outlays

Consumers benefit from knowledgeable store staff who are in frequent and familiar contact with manufacturer (vendor) representatives when parts or service are required, store staff with good knowledge of most product lines offered by the entire range of vendors and therefore the ability to help the customer choose amongst competing products for items most suited to them, manufacturer-direct selection and service support being offered by the store.

References:

Web: Wikipedia

Tempelmeier, H. (2006). Inventory Management in Supply Networks — Problems, Models, Solutions, Norderstedt:Books on Demand.

Definition from the Business Dictionary: Tendency of consumerss of a materials or products in short supply to buy more than they need in the immediate future.

Information about bullwhip effect

The Bullwhip Effect (or Whiplash Effect) is an observed phenomenon in forecast-driven distribution channels. The concept has its roots in J Forrester’s Industrial Dynamics (1961) and thus it is also known as the Forrester Effect. Since the oscillating demand magnification upstream a supply chain reminds someone of a cracking whip it became famous as the Bullwhip Effect.

Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called “safety stock”. Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop to reduce inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer). This sequence of events is well simulated by the Beer Distribution Game which was developed by the MIT Sloan School of Management in the 1960s.
The causes can further be divided into behavioral and operational causes:

Behavioural causes

• misuse of base-stock policies
• misperceptions of feedback and time delays
• panic ordering reactions after unmet demand
• perceived risk of other players’ bounded rationality

Operational causes

• dependent demand processing
  • Forecast Errors
  • adjustment of inventory control parameters with each demand observation
• Lead Time Variability (forecast error during replenishment lead time)
• lot-sizing/order synchronization
  • consolidation of demands
  • transaction motive
  • quantity discount
• trade promotion and forward buying
• anticipation of shortages
  • allocation rule of suppliers
  • shortage gaming
  • Lean and JIT style management of inventories and a chase production strategy

Methods intended to reduce uncertainty, variability, and lead time:

• Vendor Managed Inventory (VMI)
• Just In Time replenishment (JIT)
• Strategic partnershipp
• Information sharing
• smooth the flow of products
  • coordinate with retailers to spread deliveries evenly
  • reduce minimum batch sizes
  • smaller and more frequent replenishments
• eliminate pathological incentives
  • every day low price policy
  • restrict returns and order cancellations
  • order allocation based on past sales instead of current size in case of shortage

References:

Web: Wikipedia

Lee, Hau L; Padmanabhan, V. and Whang, Seungjin (1997). “The Bullwhip Effect in Supply Chains”. Sloan Management Review 38 (3): 93–102. 

What is?

The Multistage or even called multi-echelon models are central to supply chain management.

The Multi-echelon theory began when Clark and Scarf (1960) published their seminal paper. The theory is now voluminous with categories by, e.g. demand characteristics (deterministics, stochastics) and network structures (series, assembly, distribution).

Consider a production-distribution system where material is processed sequentially before being used to satisfy uncertain customer demand.  The system consist of multiple stage representing the different stocking points in the production-distribution system. Material flow from one stage to the next requires a lead time and  incurs a fixed costs (in addition to a variable cost proportional to the flow quantity). Due to the value added, inventory becomes more expensive to carry as it moves downstream (closer to the customers). Customer demand unsatisfied from one hand inventory is backlogged, incurring penalty costs. We assume that the entire supply chain is controlled by a central planner whose goal is to satisfy customer demand with minimum long-run average system-wide costs. (When the differents stages are run by indipendent mangers, the centralized solution can be used as a benchmark).

The above model was originally proposed by Clark and Scarf (1962) as a generalization of the now classic Clark-Scarf (1960) model which does not allow set up costs at any stages except the most upstream stage. They intoroduced the important concept of echelon stock: a stage’s echelon stock is the inventory position of the subsystem consisting of the stage itself and all its downstream stages.

And why is so important?

The below citations from the article of the Professor  Sridhar Tayur (Professor of Operations Management and Manufacturing at Carnegie Mellon University’s Tepper School of Business) “Moving beyond Multi-stage Inventory Optimization” give us a clear response to both questions.

A recent survey by Aberdeen Group places inventory management software at the top of the list for supply chain technology investments. Within that category, the highest priority is clearly multi-stage inventory optimization, which generates optimal inventory levels for each item across each of the stages or tiers within an organization’s supply chain network. More than 80 percent of respondents cited multi-stage inventory optimization as a top priority, nearly twice the number who named any other type of inventory management technology.

The Case for “Multi-stage” Inventory Optimization

This heightened interest in optimizing every step in the supply chain is a function of the increasing size and scope of today’s networks. As supply chains grow, often stretching across the globe, so does the complexity of homing in on appropriate, time-varying inventory targets at each point along the way. In fact, because the steps are interdependent, the complexity multiplies. At the same time, the inherent risks and uncertainties at each point virtually ensure that more problems will occur and that when they do, they will send shockwaves up and down the supply chain.

The challenges of managing every type of inventory that an organization maintains — safety, cycle, pre-build, pipeline and merchandising stock — at multiple locations and/or stages in its supply chain are indeed formidable. The complexity of the task has clearly outgrown many of the planning processes and tools that organizations have adopted even in just the past few years. Quite frankly, it outgrew the best efforts of human beings long before that.

Multi-stage or “multi-echelon” solutions provide powerful capabilities for modeling the most complex supply chains and analyzing a staggering number of variables, constraints and “what-ifs.” Sophisticated algorithms, combined with a stochastic (probabilistic) approach, enable multi-stage inventory solutions to assess vast amounts of historic and real-time information, considering multiple variabilities and interdependencies.

A case in point is Deere & Company’s Commercial & Consumer Equipment Division, which implemented a solution to optimize inventory levels for more than 300 commercial and consumer equipment products held at 2,500 North American dealer locations, plants and warehouses. To do so, the software considers 52 million variables and 26 million constraints. In four hours each week, the system generates optimal targets that have enabled Deere to reduce inventory by more than $1 billion, while significantly improving on-time shipments from factories and maintaining customer service levels at 90 percent or better.

Another example is packaged food giant ConAgra, whose supply chain includes 65 manufacturing facilities and a network of co-located buffer warehouses that feed into 14 mixing centers. Early results from ConAgra’s multi-stage inventory optimization project include a reduction in finished goods inventory and significant improvements in case-fill and store in-stock percentages, plus reductions in forecast error and bias. ConAgra recently reported that, after less than one year of implementing its multi-stage inventory optimization solution to set policies governing downstream stocking locations, supply chain savings and productivity gains are ahead of target.

Moving on: Enterprise Inventory Optimization

As more companies implement multi-stage inventory optimization solutions, they’ll have their own impressive results to report. They’ll also have the opportunity to drive further development and fuller deployment within their organizations, ensuring that the technology yields an even greater return on investment. However, the greatest opportunity — and the greatest reward — lies in taking multi-stage inventory optimization to the next level: the enterprise level.

“Enterprise inventory optimization” (EIO) is a term that encompasses a more comprehensive view of inventory planning and optimization than is commonly held today. It’s more than having multi-stage technology in place; it’s using inventory optimization as an enterprise asset and shaping it into a core competency that the organization can call upon as it grows, innovates and affirms its leadership in its industry.

Moving inventory optimization to the enterprise level is likely to entail integrating it into other enterprise planning and management systems, including sales and operations planning (S&OP) and systems that support the so-called “demand-driven supply network,” a phrase coined by AMR Research. The goal is to create a dynamic, ongoing planning capability that enables the organization to position resources where and when they are most needed and will turn the best profit.

When an organization aligns inventory planning and management with enterprise-wide goals and strategies, it can take advantage of new opportunities, such as winning additional market share in carefully targeted locations or channels, based on greater product availability and enhanced customer service. In this way, the organization can attain top-line revenue increases, despite flat markets and entrenched competitors. It can also improve gross margins, inventory turns and other key metrics for the organization as a whole.

Making EIO Happen

The movement toward a larger, enterprise-wide view of inventory is already under way. Aberdeen reports that, while 63 percent of companies look at inventory in the more traditional way, as a cost-related item, 27 percent now think of inventory as a way of gaining market share through superior service and product availability. Organizations with this vision can leverage their inventory as a competitive weapon and use customer, product or market channel segmentation to achieve a significantly higher return on assets than their competitors.

On the other hand, the same report points out that the use of multi-echelon approaches is still maturing. Approximately 40 percent of companies that report using multi-echelon tools are not taking a purely multi-echelon approach. Instead, they are setting customer service levels for each tier in the supply chain and separately calculating the inventories, rather than obtaining the inventory based on total supply chain cost and service-related calculations.

In addition, depending on their industry (manufacturing intensive or distribution intensive), the majority of companies are currently planning either at their manufacturing and assembly locations or their finished goods regional distribution warehouses. At this time, relatively few are planning at every level in the echelon. While many companies are achieving better performance, thanks to being able to consider variability and focusing on critical levels within their supply chains, they can achieve far more by taking inventory optimization “all the way.”

Reaching the enterprise level of inventory optimization may require education targeting greater awareness and understanding of how inventory decisions fit into enterprise goals. It may also require the use of cross-functional teams, deployment of end-to-end inventory managers, development of more enterprise-minded metrics to track performance, or perhaps “just” some additional time for people to get comfortable with a larger, more comprehensive approach to inventory planning and management.

One thing for certain: organizations that are able to take inventory optimization to the enterprise level will reap the greatest benefits.

Web: Supply and demand chain Executive http://www.sdcexec.com

Quantitative models for supply chain management:  Sridhar Tayur,Ram Ganeshan,Michael Magazine

Other interesting readings:     

Multistage Inventory models and techniques - Herbert E. Scarf, Klauss Hermann Daniel

Multistage Inventory management with Expediting: David G. Lawson, Evan L. Porteus

As largely seen and analysed in some of the previous posts we could resume by saying that inventory control is the delicate balance of the costs versus profits associated with having stock on hand.

What is inventory management about?

1. INVENTORY CONTROL
   1. Multistage Inventory
   2. Bullwhip Effect
   3. Vendor Managed Inventory
   4. Just in time
   5. Nested Policies
   6. Stock Accuracy
   7. SMED
2. TRANSPORTATION
   1. Fleet Management
   2. Routing Problems
   3. Hub for Spoke
   4. Unit Load
   5. Transportation methods
   6. Multimodality

INVENTORY TURNOVER:  L= Annual Sales / Stock

DAYS OF STOCK: Stock/ Daily Sales

Ex. Mercadona Supermarkets hold 2 days of stock in most of their goods

We stock in base of demand.

ORDER: (OUL – stock)

where OUL is UP TO LEVEL, the maximum expected demand during (review period + lead time)

In case we can only buy for example quantities of X products we must do:

qtity needed/X and then round the result to the upper o lower unity.

we have to ways of Inventory Management:

1. REORDER POINT (continuous review policy): if STOCK < ROP then order (Q)
2. PERIODIC REVIEW Policy (periodic policy): if TIME HAS ARRIVED than order (OUL-STOCK)

We must here introduce the lead time concept. LEAD TIME: Gap in time between when you decide you need and want one thing and when you can get it.

Both policies should be joint in a SINGLE POLICY:

(s,S) when TIME ARRIVES if STOCK < S then order (S-Stock)

STUDY CASE:

 Suppose:

δ=15 bottles/week

P (price)= 10 $/bottle

D (demand per year)= 780 bt/year

Lead time= 2 weeks

and where:

1. SETUP COST ($)= 100$

2. HOLDING COST: K= 20% per year; H= 2€ per bottle and year

ROP if STOCK  < ROP then order Q and where ROP= 30 bottles (safety stock)

Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. The framework used to determine this order quantity is also known as Wilson EOQ Model or Wilson Formula. The model was developed by F. W. Harris in 1913, but R. H. Wilson, a consultant who applied it extensively, is given credit for his early in-depth analysis it. ( Hax, AC and Candea, D. (1984), Production and Operations Management, Prentice-Hall, Englewood Cliffs, NJ, pp. 135) 

Min TC (Total Cost)=S+D/Q+H+Q/2 (where 2 is the average factor) in our case in numbers: 100+780/280+2*280/2= 560$/year

and Q=√2SD/H  in our case in numbers: √2*100*7802= 280 bottles

in this case Q is the EOQ (economic orderes quantity) and depends on the square root, as we can perceive from the above and the below graphic:

INTRODUCING FORECASTS:

What’s ROP?  Is the inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time.

ROP have to do with:

1. Average demand during lead time
2. Safety stock (Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur. Should not coincide with the ROP; should even not to be used. because safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage.) and it’s formula is: Zα√L, where Z is the CSL (cycle service level) and L the Lead Time.

the formula for the ROP should then be d*L + Zα√L

Resuming:

ROP = dL+ Ss

where Ss = Zα√L

Q=√2SD/h

PERIOD REVIEW POLICY

if (time arrives) then order (OUL-Stock)

where time arrives every T weeks

T=√2S/(h/nº of weeks)*d which in numbers is: √2*100/(2/52)*15=18,6 weeks.

This result is not a unit number. We should then introduce a good way to roundit: the power of 2.

THE POWER OF 2

Imagine you have  to these results from the above calculation:

a.2,5

b.1,8

c.3,3

d.4,6

Obviously you must round them, but by rounding them you will obtain a.3, b.2, c.3 and d.5, bt is still DIFFICULT to create a PLAN with these numbers and what we look at in this subject is INVENTRY CONTROL PLANNING.

By using the POWER OF 2 rule we’ll roun then as follow: a.2, b.2, c.4 and d. by creting a much clearer and logical PLAN.

Curiosity: The term stock comes form that part of the threes used to be “stocked” for warm up the homes with fire during the winters.

Inventory Management refers to how much to purchase/manufacture and when often to buy?

Is concerned with minimizing the total cost of inventory.

Mal Walker of Logistics Bureau gives an Introduction to Inventory Management

Inventory Control is often defined wit the term stock control.

The three main factors in inventory control decision making process are:

1. The cost of holding the stock:
   • Facility costs Inventory holding costs which includes rental on warehousing, mobile and static equipment, utilities, compliance costs e.g. for dangerous goods
   • Human Capital Cost of labor to manage the stock and to move it, handle it and count it
   • Management costs: White collar personnel and IT costs
   • Procurement costs: Cost of purchase, including transport
2. The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
3. The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.

The third element is the most difficult to measure and is often handled by establishing a “service level” policy, e. g, certain percentage of demand will be met from stock without delay.

Other important factors to take also in consideration are:

• inventory turnover (rotación de stocks): how often you sell all the quantity you have in your stock.
• stock accuracy: if stock records are wrong, large amounts of time and expense can be absorbed sorting them out. Ideally stock accuracy should be above 98% I.e. 98 times out of 100 the stock ‘on system’ matches the stock ‘in bin’
• pillage: theft of goods. Unfortunately this occurs and is a cost to be factored in.
• ullage: unexplained loss or damage to goods
• service levels: too rigid or a ‘single’ service level approach can cost dearly. For example the ‘Quality’ era maxim of supplying all goods anywhere, anytime, in any quantity can cost companies unduly as they attempt superhuman deliveries to unusual places.
• Services classes; these could be of two types:
• a. critical (ex. Medical) goods needed urgently
• b. non critical
• Finance costs: when capital is tied up in inventories the cost of finance (interest), and/or lost opportunity cost of gaining returns elsewhere must be counted

Resources:

Supply Chain management: strategy, planning, and operation / Sunil Chopra, Peter Meindl

Logistics Bureau webpage:  www.logisticsbureau.com/

Class Notes

ManhattanAssociates — Manhattan Associates product manager Rod Daugherty–in his guise as Willy Wonka–outlines the concept of replenishment and how Manhattan’s SCOPE can help companies ensure they replenish the right goods at the right time.

PRICE, COST AND VALUE – In our everyday life we use these words interchangeably in normal conversation, but in the economic or academic World they have different meanings. First of all we’ll have a look at their current meaning in a language dictionary; afterwords we’ll get their meaning from an economics dictionary and finally see the different theories underlying these three simple words and how these are important for our Logistics Class.

ASSIGNMENT

Cost (1)

noun (money)

/kɒst//kɑːst/ n

[U] the amount of money needed to buy, do or make something

When you buy a new computer, you usually get software included at no extra cost (= for no additional money).

For many parents, two salaries are essential to cover the cost of (= pay for) school fees.

The supermarket chain announced that it was cutting the cost (= reducing the price) of all its fresh and frozen meat.

It’s difficult for most people to cope with the rising cost of (= increasing price of) healthcare.

I was able to buy the damaged goods at cost (= for only the amount of money needed to produce or get the goods, without any extra money added for profit).

Costs

the amount of money needed for a business or to do a particular job

We need to cut our advertising costs.

The estimated costs of the building project are well over £1 million.

(Definition of cost noun (MONEY) from the Cambridge Advanced Learner’s Dictionary)

 

Cost (2)

 
The sacrifice, measured by the price paid, to acquire, produce, or main­tain goods or services. Prices paid for materials, labour, and factory overhead in the manufacture of goods are costs. Or 2. an asset. The term cost is often used when referring to the valuation of a good or service acquired. When it is used in this sense, a cost is an asset. The concepts of cost and expense are often used interchangeably. When the benefits of the acquisition of the goods or services expire, the cost becomes an expense or loss. An expense is a cost with expired benefits. A loss is an expense (expired cost) with no related benefit.

 

Accounting, Business Studies and Economics Dictionary (http://www.tuition.com.hk/dictionary/)

 

Value (1)

 

noun (money)

/ˈvæl.juː/ n

[C or U] the amount of money which can be received for something

She had already sold everything of value that she possessed.

What is the value of the prize?

The value of the pound fell against other European currencies yesterday.

Property values have fallen since the plans for the airport were published.

I thought the offer was good value (for money)/US also a good value (= a lot was offered for the amount of money paid).

(Definition of value noun (MONEY) from the Cambridge Advanced Learner’s Dictionary)

 

Value (2)

The  amounts at which items are stated in financial records and statements. Value is expenditures or amounts deemed to benefit future periods. Or 2. highly subjective term, usually an expression of monetary worth applied to a particular asset, group of assets, business entity, or services rendered. It should not be confused with the term cost even though it is frequently measured, equated, and identified by it. Thus the term should be used with an appropriate modifying adjective. Or 3. represented by the amount of goods, services, or money necessary to complete an exchange for a specific commodity. In economic terms, value of goods equals price multiplied by quantity.

 

Accounting, Business Studies and Economics Dictionary (http://www.tuition.com.hk/dictionary/)

 

Price (1)

/praɪs/ n [C]

the amount of money for which something is sold

The price of oil has risen sharply.

House prices have been falling.

We thought they were asking a very high/low price.

The large supermarkets are offering big price cuts.

(Definition of price noun from the Cambridge Advanced Learner’s Dictionary)

 

Price (2)

Price is most often given by the amount of money an item or service would bring if or when it is sold.

 

Accounting, Business Studies and Economics Dictionary (http://www.tuition.com.hk/dictionary/)

 

 

After this overview and entering is time to go in a deeper analysis and get some conclusions. We could say that this 3 concept are fundamental in the economics World. Depending on the sector each of these three concepts have a particular importance. For example in economics and business, the price is the assigned numerical monetary value of a good, service or asset. The concept of price is central to microeconomics where it is one of the most important variables in resource allocation theory (also called price theory). There’s a lot of literature available on this topic, where Price is the main protagonist, for example two good references are “Microeconomics: Principles and Policy”‎ William J. Baumol, Alan S. Blinder – 2008 or “Microeconomics: a modern approach”‎ Andrew Schotter – 2008 .  Price is also central to marketing where it is one of the four variables in the marketing mix that business people use to develop a marketing plan. It is also foundamental in the 8Ps of Services Management. In the image below are represented the 8 Ps, where PRICE is one of these.

 

 Image: 8Ps of Services Management: “Customer Service – Principles of Service Marketing and Management “- C Lovelock & L Wright

Economists, strictly speaking, view price as an exchange ratio between goods. From this point of view, price is akin to opportunity cost, that is, what must be given up in exchange for the good or service that is being purchased.

CONCLUSIONS:

Remaining in the Marketing area in their book “Principles of marketing‎” - Philip Kotler, Gary Armstrong, Veronica Wong, John Saunders at page 639 tha authors define the PRICE as ” the amount of money charged  for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.”

Also they define the VALUE the benefits of having or using the Product, and the cost as the amount of money needed for producing, distributing and selling a specific product. Costs should be divided into fixed and variable.

We’ve seen how important are these three words and their presence in most of the strategic decisions of a company. But why are these so important for our Logistic Class. The answer is quite simple: Logistic is a foundamental part of the Costs that we have seen are the amount of money needed for producing, DISTRIBUTING an dselling a product. Is obvious that if we are able to reduce the costs in Logistics we would be able to reduce a big amount of the costs of our Product and therefore we’ll be able to sell it at a lower price if we’re interested in.

In a global Economy a good Supply Chain, able to deliver a product on time and in a short time is also a clear benefit for our end user and therefore the VALUE given would be higher. Once again Logistic is playing a main in the company success.

Concluding every company want to maximise the VALUE perceived by its customer and lower their costs in order to be able to maximise their profit, and we’ve seen how Logistic plays a main role in both tasks.

 

References:

Cambridge Advanced Learner’s Dictionary)

Accounting, Business Studies and Economics Dictionary (http://www.tuition.com.hk/dictionary/)

Microeconomics: Principles and Policy‎ - William J. Baumol, Alan S. Blinder – 2008

Microeconomics: a modern approach‎ - Andrew Schotter – 2008

Customer Service – Principles of Service Marketing and Management – C Lovelock & L Wright

Principles of marketing‎ - Philip Kotler, Gary Armstrong, Veronica Wong, John Saunders

Please allow me tho present myself. My name’s Gionata and I’m an italian 25 years old guy. After finishing my studies either in Italy and England and obtaining respectively an Economics and Tourism bachelor (Laurea in Economia del Turismo) in the University of Bologna and a Bachelor of Arts from the Coventry University I decided to move over to Spain, Valencia in order to start working.

After three years working for two different International companies, locally based with a delegation in Valencia, I decided to improve, to have a step forward in my education thanks to a Master.

I found a very interesting master called MGEP from the Spanish Master en Gestión de Empresa Productos y Servicios, in the UPV, which has among its classes, one in Logistics, a subject which I’ve never seen in deep but which looks interesting after having a short look on the net and at the program presented by the professor.

Afte Class 1, following a mad idea of our Logistic’s teacher J.P. Garcia  who decided to evaluate this subject upon each-student blog.

As the teacher itself has said “it might appear as a good idea, but it will be really tough to follow what each one is going to write…” (here is J.P. Garcia’s blog link http://jpgarcia.blogs.upv.es). This is the reason why in order to do as better as I can this assignment I will try to be sinthetic and clear trying to post as much as possible, but ordering eveything thanks to tags,categories and references and showing in this way a progressive improvement in doing this and also (how not?) in the subject.