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Explain the main elements of Supply Chains besides transportation. (5)
The factory produces the goods, which, by transportation, are sent to warehouses. From there they are transported to the customers. Through reverse logistics, which are product movements from the end consumer to the manufacturer, the goods are sent back to the vendors, plants and ports first. After that, through transportation over the warehouses, they arrive back at the factories for re-usage or proper disposal.
Reverse Logistics
Produktbewegungen vom Endkunden um die Produkte wiederzuverwenden, Wert zu schöpfen oder sachgerecht zu entsorgen (Beispiel: Amazon Rücksendungen, …)
Three main activities of logistics systems
Order processing, inventory management, freight management
Explain a PULL supply chain (also known as make-to-order SC).
In a Pull or make-to-order SC, products are made only when customers request them. This results in a low or null inventory for the manufacturer, but in high transportation cost as a consequence.
Explain a PUSH supply chain (also known as make-to-stock SC).
In a Push or make-to-stock SC, production is based on forecasts of anticipated demand. In contrast to Pull SC, this leads to high inventory costs but low transportation costs.
Explain a MIXED supply chain (also known as make-to-assembly SC).
In a Mixed SC, the production is push-based to assembly flows and the flows to the customers are pull-based.
Why are SCM and Logistics so significant?
Costs for Logistics are high (up to 30% of sales), Customers grow more demanding of the supply chain (mass customization, quick response rates). It’s an integral part of company strategy with lots of room for improvement and generating more revenue ( → profit). Logistical lines are lengthening.
What happens, if you outsource Logistics?
Logistics costs increase, Labor costs decrease, Profit increases.
Explain Vertical Integration vs Third-Party Logistics (3PL)
In a vertical supply chain, all components, from raw material to transportation systems, belong to the same firm. In a 3PL, independent companies are contracted to operate the product distribution ( = outsourcing). Positive: There’s low / no investment in infrastructure necessary and the effects of low demand periods is reduced. Negative: Possibly higher logistics unit costs and the loss of control over the logistics sector.
When would vertical integration be useful?
Vertical Integration is useful in markets where the demand is steady and product trends are sparse. Additionally, having only a few companies offering our desired raw materials makes it harder for other competitors to compete with us. Slowly changing markets are necessary, because it’s a huge investment to build a vertical integration production chain, when all its elements need to be in our own hands. Having changing demands and products / requirements that change within months would negate all the positive effects.
Explain retailer-managed & vendor-managed inventory.
In retailer-managed inventories the customers themselves monitor their inventory and control the resupply in terms of when and how much to order. In a vendor-managed inventory, the vendors monitor the customers’ inventories and sales and control how much to resupply and when. For the latter, both sides benefit. The vendor achieves savings from a better coordination of logistics. The customer does not have to invest in inventory control.
What would reasons for holding inventories be?
It improves the customer service level by reducing lead times, when the goods are stored close to the end-customers. It allows to exploit Economies of Scale by increasing the transported volumes. If bought in advance, it can exploit price seasonality in which we hope for a price increase for our goods. Another reason would be production seasonality.
Describe direct shipment as a type of inventory / transportation strategy
Direct shipment, where goods are shipped directly from the manufacturer to the end-customer with reduced lead times. It is not applicable to settings, where typical customers order small shipment sizes and the customers are scattered, which would necessitate a large amount of vehicles that are not completely filled. It is applicable especially to settings where fully loaded trucks are required and / or when the order is needed in a timely manner.
Describe warehousing as a type of inventory / transportation strategy
Warehousing, where goods are stored in warehouses which take care of the reception of new goods, storage, order picking and shipping. This can either be done in a single (central) warehouse, or multiple decentralized, regional warehousing. The trade-off to keep in mind is the reduction of lead times vs. reduction of safety stocks.
Describe Crossdocking as a type of inventory / transportation strategy
Crossdocking, where a transshipment facility (Umschlagsplatz) sorts incoming goods, consolidates them (zusammenlegen) with other products and transfers them directly to outgoing trailers (Anhänger) without intermediate storage or order picking. The retention time (Verweildauer) is typically a few hours. Crossdocking requires a high volume of demand and little variability of demand and easily handable products.
What are the main features of freight transportation?
Distribution channels, freight consolidation, modes of transportation.
Name and explain the different types of freight consolidation.
Facility consolidation: Individual shipments are consolidated at hubs for further transportation between hubs. Multi-stop consolidation: Individual shipments are delivered to the end-customers on routes, where several customers can be served. Temporal consolidation: Scheduling of shipments can be shifted forward or backwards to allow the shipment of large quantities periodically.
What are the different types of transportation modes and what is intermodal transportation?
Air, Truck, Train, Ship, Pipeline. Intermodal transportation is the combination of several of these 5 modes.
Name and explain the different types of Logistics Decisions.
Strategic decisions: Planning horizon of up to several years, decided by the top management, data is very imprecise and incomplete (Example: Facility location and layout).
Tactical Decisions: Planning horizon of up to a year, decided by middle management, data is aggregated and available (Example: Resource allocation, distribution planning)
Operational decisions: Planning horizon of a few days, with precise data available for the lower management’s decision. (Example: Order picking, vehicle dispatching)
What is the difference between Simulation and Optimization?
Simulation models reproduce the system’s behaviour to allow parameter studies.
Optimization models make strong assumptions (i.e. nonlinear → linear) to identify optimal decisions.
Explain a way to deal with bi-objective problems.
A way to deal with bi-objective problems is to construct (approximate) trade-off curves. For this, all pareto-optimal solutions are graphed out, where the x-axis depicts the first objective and y depicts the second objective.
Explain why holding inventories may not always be the right decision and which relevant costs occur for inventories in general.
Holding inventories may be expensive. Inventories in general come with:
Procurement costs, which are the costs of purchasing inventory for use or sale.
Holding costs, which are created by opportunity costs by investing money ( → money that is invested loses us opportunities somewhere else) and warehousing costs to operate warehouses with personnel, equipment and space.
Shortage costs, when items are purchased from competitors instead of us and if backorders (Lieferrückstände) occur, which, if the product is not easy to replace, leads to delayed sales.
Obsolescence costs play a role, when our inventory becomes obsolete over the course of not being sold. This may be by seasonal / customer demand shifting, technological reasons or simply storing for too long.
Name some of the underlying assumptions for the Economic Order Quantity (EOQ) equation.
Demand is constant Cost parameters are constant No uncertainty 1 product only Single echelon network Shortages may be allowed No quantity discounts Resupply may be instantaneous
What is the Economic Order Quantity and its meaning? What do its parameters stand for?
The EOQ is the order quantity that minimizes the total holding costs and ordering costs. Its formula is sqrt((2kd)/h), where k are the fixed reorder costs, d is the constant demand rate (in units per time) and h are the holding costs for one item (per unit of time).
