A DIALOGUE IN A DIALOGUE IN DETROIT.DETROIT.

     

1. Determining Number of 1. Determining Number of Facilities RequiredFacilities Required

     

Facilities ConsideredFacilities Considered

SupplierSupplier PlantsPlants WarehousesWarehouses Distribution CentersDistribution Centers Retail outletsRetail outlets

Supplier CriteriaSupplier Criteria

Product CapacityProduct Capacity QualityQuality Brand NameBrand Name Warranty/Product supportWarranty/Product support Price (not always the most Price (not always the most

important)important)

Aspects of Many vs. Few SuppliersAspects of Many vs. Few Suppliers

Increased competition may promote Increased competition may promote better quality & reduced cost better quality & reduced cost

Low likelihood organization will be left Low likelihood organization will be left without production inputs without production inputs

Suppliers will experience decreased Suppliers will experience decreased demand, driving sales down and costs up.demand, driving sales down and costs up.

Logistics and operations become complex Logistics and operations become complex and difficult to manage.and difficult to manage.

Utilizing many suppliers can undermine Utilizing many suppliers can undermine trusting relationship and display a lack of trusting relationship and display a lack of commitment to long term business.commitment to long term business.

Suppliers gain considerable amount of Suppliers gain considerable amount of bargaining power. Less resource to bargaining power. Less resource to potentially exploit.potentially exploit.

High risk of suppliers defaulting on High risk of suppliers defaulting on deliverydelivery

Increased demand makes it easier for Increased demand makes it easier for

suppliers to experience economies of suppliers to experience economies of scale.scale.

Streamlined logistics and operations Streamlined logistics and operations are easy to manage. are easy to manage.

Shows commitment to long term Shows commitment to long term relationships which can promote trust.relationships which can promote trust.

Many Suppliers Few Suppliers

Draft a list of supplier requirements that Draft a list of supplier requirements that contribute to the fulfillment of contribute to the fulfillment of customers needs.customers needs.

Formulate evaluation criteria for Formulate evaluation criteria for suppliers.suppliers.

Determine the importance (weight) of Determine the importance (weight) of the criteria. the criteria.

Rank your suppliers, and make Rank your suppliers, and make appropriate selection that will appropriate selection that will accommodate customer needs. accommodate customer needs.

QFD & Choosing SuppliersQFD & Choosing Suppliers

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The Number of WarehousesThe Number of Warehouses

Factors Affecting the Factors Affecting the Number of WarehousesNumber of Warehouses• Inventory costsInventory costs• Warehousing costsWarehousing costs• Transportation costsTransportation costs• Cost of lost salesCost of lost sales• Maintenance of Maintenance of

customer service customer service levelslevels

• Service small Service small quantity buyersquantity buyers

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Table 8-3: Table 8-3: Factors Affecting Factors Affecting the Number of Warehousesthe Number of Warehouses

Factor Centralized Decentralized

Substitutability Low High

Product Value High Low

Purchase Size Large Small

Special Warehousing

Yes No

Product Line Diverse Limited

Customer Service Low High

Customer DemandCustomer Demand

Density Of DemandDensity Of Demand

Size of DeliveriesSize of Deliveries

Customer Service RequirementCustomer Service Requirement

SupplySupply

Supply LocationSupply Location

Inbound CostsInbound Costs

Factors Effecting Number of Factors Effecting Number of Distribution CentersDistribution Centers

Contd..Contd..

Site AvailabilitySite Availability Appropriate size and locationAppropriate size and location Land Building CostLand Building Cost

Location CharacteristicsLocation Characteristics Access to highways, airports, sea-coast, Access to highways, airports, sea-coast,

railwaysrailways Labor availability costLabor availability cost Local Govt. restrictionsLocal Govt. restrictions

General Factors Influencing General Factors Influencing Number of FacilitiesNumber of Facilities

· Ease of future expansion or change · Ease of future expansion or change · Flow of movement· Flow of movement · Materials handling · Materials handling · Output needs · Output needs · Space utilization · Space utilization · Shipping and receiving· Shipping and receiving · Ease of communication and support· Ease of communication and support · Impact on employee morale and job satisfaction · Impact on employee morale and job satisfaction · Promotional value · Promotional value · Safety · Safety

Number of facilitiesNumber of facilities

RequiredNumber of Facilities

Desired Response Time

Number of facilitiesNumber of facilities

InventoryCosts

Number ofFacilities

Number of facilitiesNumber of facilities

TransportationCosts

Number ofFacilities

Number of facilitiesNumber of facilities

FacilityCosts

Number ofFacilities

Number of facilitiesNumber of facilities

Number ofFacilities

Total Logistics Costs

Response time

2. Determining Location of 2. Determining Location of each Facilityeach Facility

     

FACILITY LOCATIONFACILITY LOCATION

Important Issues in Facility Location:Important Issues in Facility Location: Proximity to customers.Proximity to customers. Infrastructure.Infrastructure. Quality of labor.Quality of labor. Suppliers.Suppliers. Government Barriers.Government Barriers. Environment Regulations.Environment Regulations. Climatic Conditions.Climatic Conditions.

Facility Location MethodologyFacility Location Methodology Factor Rating Method:Factor Rating Method:

Major Factors

Point Range

Site A Site B

Raw Materials

0-400 250 350

Power Supply

0-200 75 125

Transportation

0-50 25 40

Labor Skills 0-100 75 50

Climatic Conditions

0-50 25 25

TOTAL: 400 590

Centroid MethodCentroid Method::Using this method, one can get the coordinates Using this method, one can get the coordinates

of the point which defines an optimum of the point which defines an optimum location of a facility.location of a facility.

Application of method in the DETROIT Application of method in the DETROIT case: case:

ObjectiveObjective- - To find an optimum location for storage/warehouse To find an optimum location for storage/warehouse

facility that would be assigned to 3 of DETROITs’ facility that would be assigned to 3 of DETROITs’ showrooms, given the location of showrooms and the showrooms, given the location of showrooms and the volume of goods to be moved to & from.volume of goods to be moved to & from.

Cost – Profit – Volume analysisCost – Profit – Volume analysis

The cost angle is looked at in this The cost angle is looked at in this method.method.

Here, the fact that the fixed and Here, the fact that the fixed and variable costs for each site differ.variable costs for each site differ.

Total Production cost = Fixed cost+Total Production cost = Fixed cost+(Variable cost*Annual Production (Variable cost*Annual Production Volume)Volume)

ExampleExample

Cost – Profit – Volume analysisCost – Profit – Volume analysis

Transportation ModelTransportation Model

Used to compare the total Used to compare the total transportation cost associated with transportation cost associated with each Alternative Site.each Alternative Site.

The site which involves the least cost The site which involves the least cost shall be chosen ultimately.shall be chosen ultimately.

Example.Example.

3. Determining Size of each 3. Determining Size of each FacilityFacility

    Average Inventory Level =Average Inventory Level = Annual Sales/Inventory turnover ratio .Annual Sales/Inventory turnover ratio . Space Requirement for item = 2*Average Space Requirement for item = 2*Average

Inventory levelInventory level We need to multiply the above with a factor value We need to multiply the above with a factor value

which typically = 3.which typically = 3.This factor is to account forThis factor is to account for- Access & Handling.Access & Handling.- Picking, Sorting and processing facilities.Picking, Sorting and processing facilities.- Vehicle Movement.Vehicle Movement. Example.Example.

4. Determining 4. Determining Transportation ModesTransportation Modes

     

Transportation:Transportation: Logistics the process of planning, implementing, and controlling the Logistics the process of planning, implementing, and controlling the

efficient, cost effective flow and storage of raw materials, in-process efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin inventory, finished goods and related information from point of origin to point of consumption so as to meet customer requirements. to point of consumption so as to meet customer requirements.

Right material reaches the right place at the right time. Right material reaches the right place at the right time.

Potential market of $4 Trillions. Potential market of $4 Trillions.

Challenges for Detroit Company:Challenges for Detroit Company: Inefficiency in the logistics.Inefficiency in the logistics. Regulatory environment.Regulatory environment. Fragmented Nature of the industry. Fragmented Nature of the industry.

Reason for Inefficiencies:Reason for Inefficiencies: Lower truck Speeds, larger turn around time and administrative Lower truck Speeds, larger turn around time and administrative

delays.delays. Poor Roads, Ports, and telecom lead to create a limited value to the Poor Roads, Ports, and telecom lead to create a limited value to the

customer.customer.

Continued:Continued:

Opportunities':Opportunities': Evolving business environmentEvolving business environment

15 trillion investments in developing the 15 trillion investments in developing the infrastructure for next five yearsinfrastructure for next five years

Regulations are being liberalized.Regulations are being liberalized.

The changes help leverage economies of scale, The changes help leverage economies of scale, complemented with better infrastructure, to complemented with better infrastructure, to provide integrated logistics solutions which are provide integrated logistics solutions which are cost effectivecost effective

Continued:Continued:

Major companies are expanding into to marine Major companies are expanding into to marine Logistics.Logistics.

Eg: Varun shipping, GE shipping, NYK line tied up Eg: Varun shipping, GE shipping, NYK line tied up with TATA Steel for the cargowith TATA Steel for the cargo

Maruthi and TATA are developing their own Maruthi and TATA are developing their own logistics.logistics.

Continued:Continued:

Choice Of Freights:Choice Of Freights:

Road Frights:Road Frights:

India is worth about INR 1 .42 trillion and is India is worth about INR 1 .42 trillion and is growing at about 6-8 percent year on year.growing at about 6-8 percent year on year.

almost 75 percent of the trucking 'companies' are almost 75 percent of the trucking 'companies' are single truck operators and almost 90 percent of single truck operators and almost 90 percent of trucking companies have a turnover of less than trucking companies have a turnover of less than INR 10 million INR 10 million

Continued:Continued:

Rail Freight:Rail Freight: Revenues stood at around INR 350 billion, grown Revenues stood at around INR 350 billion, grown

at around 8 percent in the recent past, last at around 8 percent in the recent past, last couple of years being around 10 percentcouple of years being around 10 percent

Rail network of 87000 and 7000 stationsRail network of 87000 and 7000 stations

Sea Fright:Sea Fright: Largest merchant shipping fleet among the Largest merchant shipping fleet among the

developing countries.developing countries. Ranks 17thin the world in shipping tonnage.Ranks 17thin the world in shipping tonnage. Growth of 15 per cent over the last five yearsGrowth of 15 per cent over the last five years

Air Freight:Air Freight: Air cargo industry is expected to double in size by Air cargo industry is expected to double in size by

the year 2010.the year 2010.

Future Logistic Scenario In Future Logistic Scenario In India:India:

Suggested Types & Sources Of Suggested Types & Sources Of DataData

Description Source

Demand planning 1. Sales figures of existing players in the market

2. Market ResearchExpected Demand

.

Master planning Material, capacity, transportation and other constraints, simultaneously.

Procurement Constraints such as vendor capacities, costs and lead times can be modeled as part of supply chain resulting in superior plans.

Transportation Consider dynamic transportation requirement and generate optimizing transportation plan.

Manufacturing Plan considering material, capacity and other constraints which impact on manufacturing.

Proposed ModelProposed Model