Transportation & Logistics Chapter Slide Presentation

transportation and logistics

1. SCM 105-200 Transportation and Logistics Class Six September 25, 2025 Professor Asmussen (Larry)

2. Agenda Assignment Three feedback Discussion Topic Four Feedback Chapter Six – Procurement and Manufacturing ABA In Class Module Two – Quality Management / Cost of Quality ABA Practice Operations Module Two – Managing Suppliers Questions

3. Assignment – Chapter Five 1 Operation Focus Efficiency Cost-to-Provide Detailed Forecasts Predictable demand pattern Few Products Long Runs Stable Schedules Long Lead Times Maximize Production (Operations plans) Sales Focus Effectiveness Cost-to-Serve Aggregate Forecasts Tailored service and flexible product offerings Many Product Variations Rapid Response High Service Maximize Revenue (Sales forecasts/targets)

4. Assignment – Chapter Five 2 Given one new car requires four tires and one spare tire and each tire requires twenty pounds of rubber, how many pounds of rubber would a tire company need to order to fulfill an auto manufacturer requirement of 1,000 automobiles/cars? 1,000 automobiles X Five Tires (four + spare) X 20 pounds of rubber per tire 100,000 pounds of rubber

5. Assignment – Chapter Five 3 What should the average (monthly forecast) be for the next six months? Replace the unknown with what is better known.

6. Assignment – Chapter Five 4

7. Forecast Error More Examples Bias Error – greater impact to procurement, production, and inventory. Easier to see/fix and not chasing your tail.

8. Discussion Topic Four Forecast Accuracy Forecasts can be qualitative and/or statical, time series or casual. Mean Absolute Percentage Error – way to measure a forecast, regardless of how that forecast determined. Can MAPE be negative? Can forecast (inverse) be negative? Demand Planning forecasting process can include multiple steps and participants. Forecast Value Add (FVA) uses MAPE to measure the forecast accuracy at each step in this process. If the accuracy didn’t get better, did that step add value? By measuring the forecast, we hold ourselves, others, and our processes accountable.

9. Procurement & Manufacturing Chapter Six

10. Overview We will focus on how logistics impacts to the second (Procurement) and the third (Manufacturing) parts of Supply Chain. The first was Customer Accommodations, discussed in Module Four .

11. Objectives Apply the total cost of quality and the role both Procurement and Manufacturing in reducing total cost. Provide examples how Procurement has evolved as a major function in Supply Chain, specifically looking at overall total lowest cost. Identify which of the four strategic approaches to procurement are applied to which types of suppliers/relationship. Distinguish the four basic types of manufacturing through defining their impact to product variety, volume type, strategy and customer lead-time/inventory levels.

12. Quality Customer Service - Requirements Customer Satisfaction - Expectations Customer Success – Value Add

13. The 8 “competitive” dimensions of product quality Performance How well the product performs in comparison to how it was designed to perform. Reliability Likelihood that the product will perform throughout its expected life. Durability The actual life expectancy of the product. Conformance Does the product meet its specifications as designed. Features What different functions or tasks can the product perform. Aesthetics Is the styling, color, workmanship pleasing to the customer. Serviceability What is the ease of fixing or repairing the product if it fails. Perceived Quality Based on customer’s experience before, during and after they purchase a product.

14. Total quality management Total quality management (TQM) is a philosophy focused on meeting customer expectations with respect to all needs, across all company functions, and recognizing all customers, both internal and external TQM’s basic conceptual elements are: Top Management commitment and support. Maintaining a customer focus in product, service and process performance. Integrated operations within and between organizations. A commitment to continuous improvement.

15. TQM Costs (4) Appraisal Cost – inspections used to access quality levels. Internal Failure Cost – found prior to the customer. External Failure Cost – identified only after products reach customers. Preventive Cost – efforts to prevent failures and cost of other three costs.

16. Procurement “strategic activity” of the firm Several factors have elevated the importance of procurement to the firm Purchased goods and services are among the largest cost elements for most firms. The growing emphasis of outsourcing has expanded the supply base of organizations. This added complexity requires more management attention on the organizational interfaces with suppliers.

17. Purchasing perspective Purchasing was historically perceived as just a buying function for manufacturing and repair materials and supplies. Purchasing agent tried to get lowest price possible for acceptable quality. Transactional focus led to getting the best possible “deal” today. Did not focus on future transactions. No concept of Supply Chain. Purchasing seldom looked beyond the first-tier supplier. Purchasing simply responded to demands of production group.

18. Procurement perspective Procurement is an organizational capability that ensures the firm is positioned to implement its strategies with support from its supply base. Procurement looks up and down the entire supply chain for impacts and opportunities. Cost of Goods (or service) account for $0.55 cents of every $1.00 (sometimes more). Focuses on building relationships with suppliers and downstream customers. Involvement with outsourcing includes more than just purchasing raw materials and parts. Also includes finding alternate sources for manufactured products or services to help manage demand.

19. Procurement objectives focus on several issues related to the firms’ supply base Continuous supply (stockouts and downtime) Rationalized Inventory Investment (balancing carry material inventory and possibility of production stoppage). Quality improvement Technology and innovation Lowest total cost of ownership (TCO)

20. Major categories for the components of total cost of ownership

21. Insourcing vs. Outsourcing Make or buy decision. Begins with establishing the need for a particular good or service. Does that good or service fit into your firm’s core competencies? If Outsourcing has an overall lower cost, why would a firm choose to continue to source internally? What are advantages of Outsourcing non-core activities?

22. Four Strategic Approaches to Procurement User Buy Volume Consolidation Supplier operational integration Value management extends beyond buyer-seller operations

23. Four Strategic Approaches to Procurement User Buy Volume Consolidation (advantages) Reduction in continually bidding for a buyer’s business, ensuring constant pressures to quote low prices Maintaining multiple sources reduce the buyer’s dependence on any one supplier thus reducing the buyer’s risks of a single supplier disruption. Consolidation volumes with a limited number of suppliers, procurement is also positioned to leverage it’s share of a supplier’s business. Allows the supplier to improve economies of scale by spreading fixed costs over a larger volume of output. More likely to make investments in capacity or processes to improve customer service.

24. Four Strategic Approaches to Procurement Supplier operational integration. Building partnerships. Sharing information and knowledge. Identifying linked processes and shared opportunities for improvement. Value management extends beyond buyer-seller operations. Involving the supplier early in product design. Reducing complexity. Value engineering.

25. Value management through early supplier involvement in product design

26. Procurement Strategy Portfolio

27. Global Sourcing Rationale for low-cost-country sourcing. Countries with low wage rates typically reduces manufacturing costs. Look at total cost considering logistics costs, transportation and inventory. Increases the number of sources for material and thus increases the competitive pressure on domestic suppliers. Can increase the firm’s exposure to state-of-the-art product and process technologies. Creates pressure to domestic suppliers to invest into technologies. Having a local presence helps facilitate sales in the international country.

28. Global Sourcing Challenges for low-cost-country sourcing. Difficult to identify the sources capability to produce the materials in the quality and quantity required. Protection of the firm’s intellectual property as products or components are produced and transported. Understanding import/export compliance issues (government regulations). Communication with suppliers and transportation firms; time zone, languages, and technology differences. Need to guarantee the security of the products while in transit. Extended transit times requires more inventory increasing inventory and obsolesce risks. Understanding the difference between piece cost and total cost. Must consider freight, inventory, obsolesce, duties, taxes, recovery, and other risk considerations.

29. Guidelines for Sourcing Domestically vs. Low-Cost Country Infrastructure Technology (communication, power, and production facilities) Political Environment.

30. Logistics Just-in-Time Procurement JIT delivery. More frequent delivery of smaller quantities. Close cooperation and communication. JIT II. Integration of suppliers into manufacturing processes. Performance based logistics has been found to improve BOTH Quality AND Reduce Cost for a buying organization.

31. Procurement of Logistics Services Primary Concerns “Direct spend” or user-buy strategies and relationships with the suppliers of materials, components, and other physical product inputs. Add in Logistics service Focus on “Indirect spend” is rapidly growing to have the same strategic considerations. Continued growth in the outsourcing of non-core capabilities, procurement of logistics services (transportation and warehousing).

32. Performance-Based Logistics (PBL) Case Study, Page 149 (eBook #72) Department of Defense new contract strategies. What changed? Did this improve quality? Did this reduce cost?

33. Manufacturing Convert raw materials, parts, and components into finished products to meet the needs of their customers.

34. Four basic manufacturing processes Job shop creates a custom product for each customer Batch process manufactures a small quantity of an item in a single production run Line flow process has standard products with a limited number of variations moving on an assembly line through stages of production Continuous process is used to manufacture such items as gasoline, laundry detergent and chemicals Modifications of the above can create new options Mass customization produces a unique product quickly and at a low cost using a high-volume production process

35. Matching Manufacturing Strategy to Market Requirements Job shop Batch Line flow Continuous process Mass customization One-on-One (builds on unique or customized product/service offerings to each/every customer. Focused Segmental Mass (limited product/service differentiation) For a manufacturing firm to effectively compete, it must be able to intergrade manufacturing capability into a meaningful marketing value proposition.

36. Manufacturing Strategies Engineer to Order (ETO) is used when products are unique and extensively customized for the specific needs of individual customers Make to Order (MTO) relies on relatively small quantities, but more complexity Requires much interaction with customer to work out design and specification. Usually shipped direct to customer. Assemble to Order (ATO) is when base components are made, stocked to forecast, but products are not assembled until customer order is received Manufacturing postponement practiced here. Make to Plan (MTP) features economies of scale, large volumes, long production runs, low variety, and distribution channels

37. The choice of strategy determines which performance cycles the customer experiences

38. Manufacturing process characteristics Product Variety Volume Strategy Customer Leadtime Job Shop Very high Very low ETO/MTO Very long Batch High Low ETO/MTO/ ATO Long Line Flow Limited High ATO/MTP Short Continuous Flow Very limited Very high MTP Very short

39. Mass customization: Where does it work? Market Characteristics: Sufficiently large customer segment that values “translatable variety.” Turbulent, dynamic market. Unpredictable demand - but not entirely unpredictable! Little impact of regulation or other constraints (designer drugs?). Product/Process Characteristics: Modular or adjustable product building blocks. Predictable components/functions interactions. Standardized process/skill building blocks. Reasonable lead times, steps, work content.

40. Lean Systems, Produce when Only the products (good/services) that customers want. Only as quickly as customers want to use them. With perfect quality. In minimum possible lead-times. With features customers want, and no others. With no waste of labor, material, or equipment; designate a purpose for every movement to leave zero idle inventory. With methods that reinforce the occupational development of workers.

41. Defining the Six-Sigma Program All processes inherently move over time To go from the traditional TQM three-sigma to six-sigma quality effort requires a more intensive approach To achieve truly world-class quality and performance, we need to focus on the processes Six-sigma quality is the result of a well-defined and structured process

42. Guiding Methodologies: 6 σ Six Sigma : quality improvement through elimination of defects and variation Standard deviation : statistical measure of variation Sigma Level Defects per Million 2 σ 308,537 3 σ 66,807 4 σ 6,210 5 σ 233 6 σ 3.4

43. Design-for-Logistics (DFL)

44. ABA In Class Module Two Quality Management / Cost of Quality Complete, due Tuesday, September 30. How does this relate to your Practice Operations Module Two, Managing Suppliers? Did anyone look in student manual and do a supplier assessment chart?

45. ABA Practice Operations Modules Computer Simulation 1 Complete all five modules Production Process Managing Suppliers Forecasting and Contracts Human Resources & Capacity Planning The New Branch Game Score (five modules total) Reputation Score – 15% Completed on Time – 15% Net Worth – 20% Goal Achieve – 50%

46. ABA Practice Operations Modules Computer Simulation 2 Email Etiquette Informative Subject Line Clear and concise short statements Correct statements, no spelling, punctuation or grammar errors Start and close Real World On time Complimentary without emotion. Concise, avoid lengthy paragraphs. Effectively use bullet points. Add one/few charts or graphs.

47. ABA Individual Presentation Schedule

48. ABA Individual Presentation Rubric

49. Thank you! What’s due? ABA Practice Operations Module Two Completion & Email (two parts) Individual Presentations next class. ABA In Class Module Two Quality Management – Cost of Quality. Smart Book Chapter Seven (10/8) Make ups?