CHAPTER 4 - Matching Supply and Demand
CHAPTER 4 - Matching Supply and Demand
CHAPTER 4 - Matching Supply and Demand
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4.1 The lead-time gap (cont.)
➢ In the conventional organisation the only way to
bridge the gap between the logistics lead time and
the customer’s order cycle is by carrying inventory.
Example: logistics lead time
• the time taken to complete the process from goods inwards
to delivered product
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4.1 The lead-time gap (cont.)
➢ Reducing the gap can be achieved by
shortening the logistics lead time (end-to-
end pipeline time) whilst simultaneously
trying to move the customer’s order cycle
closer by gaining earlier warning of
requirements through improved visibility of
demand.
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4.2 Improving the … (cont.)
➢ In so many cases the supplying company receives no
indication of the customer’s actual usage until an order
arrives.
Example
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4.2 Improving the … (cont.)
➢ The area below the surface of the iceberg
represents the on-going consumption,
demand or usage of the product which is
hidden from the view of the supplier.
➢ It is only when an order is issued that any
visibility of demand becomes transparent.
Measure performance
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4.3 Demand management … (cont.)
Generate aggregate demand forecast
• Wherever possible these plans should be made on
the basis of high-level aggregate volume forecasts at
the product family level.
• As we get closer to the point of demand fulfilment
then we can start to think about product mix
requirements.
• Because it is generally easier to forecast at the
aggregate level, statistical forecasting tools should
enable a reasonable level of accuracy to be achieved.
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4.3 Demand management … (cont.)
Modify the forecast with demand intelligence
• This stage of the S&OP process should involve key customers or accounts.
• The benefit of a joint supplier/ customer process to create a forecast is
that a wider array of intelligence can be taken into account.
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4.3 Demand management … (cont.)
Create a ‘rough cut’ capacity plan
• Essentially the logic behind the rough cut capacity plan is to
look at the aggregate product family forecast for the planning
period and to translate that into the capacity and resources
needed, e.g. how much machine time, how much time in an
assembly process, how much transport capacity and so on.
Source: ECR
Europe/Accenture,
European CPFR Insights,
2002
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Figure 4.8: Benefits of CPFR
Inventory
• 20-25% reduction
inventory carrying cost
• Improved forecast accuracy
Wastage • 50% reduction in
Benefits Decrease Costs unplanned overtime
• Up to 500% ROI on
Overtime promotions
• Reduced excess and
obsolete inventory
Transportation • Reduction in lead time
cost
Better
Increase availability • Reduced out-of-stocks
revenue • Improved consumer
Improved satisfaction ratings
consumer
satisfaction
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4.5 Logistics operations
➢ There are three types of logistics operation:
✓ Transportation
✓ Warehousing
✓ Packaging and materials handling
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4.5.1 Transportation (cont.)
The Transport Selection Decision
➢ Carrier Selection Determinants:
Various modes of transportation should be
considered.
Cost
Transit time and reliability
• Can be a competitive advantage
• Lowers customers’ inventory costs
Capability
Accessibility
Security
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Table 4.1: The Carrier Selection Determinants and User
Implications
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4.5.1 Transportation (cont.)
The Transport Selection Decision
➢ The Pragmatics of Carrier Selection:
Transit time reliability
Negotiated rates
Consolidating shipments among a few carriers
Financial stability
Sales rep
Special equipment
S C
u u
p Inbound Logistics Outbound Logistics
s
p t
l o
i m
e e
r r
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Figure 4.11: Manufacturing Support (inbound logistics)
Supplier A
Supplier B
Warehouse
Supplier C
Supplier D
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Figure 4.12: Mixing Warehouse (outbound logistics)
1 2 3 4
Customer W
Plant A, Product 1
1 2 3 4
Plant B, Product 2
Customer X
1 2 3 4
Plant C, Product 3
Customer Y
Plant D, Product 4
1 2 3 4
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Figure 4.13: Mixing Warehouse (outbound logistics)
Customer W
Plant A, Product 1 1
1 2 3 4
Plant B, Product 2 22
Customer X
Mixing Warehouse 1 2 3 4
Plant C, Product 3 3
Customer Y
Plant D, Product 4 44
1 2 3 4
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Figure 4.14: Consolidation Warehouse (outbound logistics)
Customer
Plant A
Plant B
Customer
Consolidation Warehouse
Plant C
Customer
Plant D
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Figure 4.15: Breaking Bulk
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Figure 4.16: Breakbulk Warehouse (outbound logistics)
Customer 1
Customer 2
Plant Breakbulk Warehouse
Customer 3
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4.5.2 Warehousing (cont.)
Types of Warehousing: XYZ Company Warehouse
➢ Direct store delivery.
➢ Private warehousing.
Advantages Disadvantages
• Control • Fixed costs, especially if built
• Flexibility in design and for peak seasons
operation • Investment. Return may be
• Long-term cost better if money is placed
• Better use of human resources elsewhere
• Tax benefits: depreciation
• Intangibles: image of stability
Sorting area
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4.5.2 Warehousing (cont.)
Cross-docking in at least two of these conditions:
➢ Product destination is known upon receipt.
➢ Destination is ready for immediate delivery.
➢ You daily ship to less than 200 locations.
➢ More than 70% of products fit conveyors.
➢ You receive large quantities of individual items.
➢ Products arrive pre-labeled.
➢ Some products are time-sensitive.
➢ Distribution center is near capacity.
➢ At least some inventory is pre-priced.
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4.5.3 Packaging and materials
handling
Packaging Fundamentals
➢ Building-blocks concept
Smallest unit is consumer package
Each unit is stocked within the next larger one to protect
the product
➢ Packaging
refers to materials used for the containment, protection,
handling, delivery, and presentation of goods
Serves three general functions
• To promote
• To protect
• To identify (label) the relevant product
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4.5.3 Packaging and … (cont.)
Labeling
➢ Retroflective labels
➢ Batch numbers
➢ Weight
➢ Specific contents
➢ Instructions for use
➢ Information to allow passage through customs
➢ Compliance labeling
➢ One- or two-dimensional bar codes
➢ Smart labels or RFID labels
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Figure 4.18: Examples of Shipping Labels
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4.5.3 Packaging and … (cont.)
Labeling
➢ Hazardous Materials
− Governmental regulations address labeling of hazardous
materials
➢ Requirements involve
− Labeling
− Packaging and repackaging
− Placing warnings on shipping documents
− Notifying transportation carriers in advance
➢ Globally Harmonized System of Classification and
Labeling of Chemicals (GHS) is a global system to
classify and label hazardous materials
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4.5.3 Packaging and … (cont.)
Issues in Packaging
➢ Environmental Protection
– Reduce packing materials used
– Use packaging materials that are more
environmentally friendly with recycled content
– Use reusable containers (closed-loop system)
– Retain or support services that collect used
packaging and recycle it (closed-loop system)
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4.5.3 Packaging and … (cont.)
Packaging’s Influence on Transportation
Considerations
➢ Carrier’s tariffs and classifications influence the type of
packaging and packing methods that must be used.
➢ Carriers established classifications for two main reasons:
– Packaging specifications determined by product density lead to
the best use of the equipment’s weight and volume capabilities
– Carrier specifications for protective packaging reduce likelihood
of damage to products thus reducing the loss and damage
claims filed against the carrier
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4.5.3 Packaging and … (cont.)
Unit Loads in Materials Handling
➢ A unit load (unitization) refers to consolidation
of several units (cartons or cases) into larger
units to improve efficiency in handling and to
reduce shipping costs.
• Source: http://cscmp.org/digital/glossary/glossary.asp
Advantages Disadvantages
• Additional protection • Provides large quantity
• Pilferage is discouraged that sometimes is of
• More fragile items can be limited value to resellers
stacked inside the load dealing in smaller
quantities
• Mechanical devices can be
substituted for hand labor • Must use mechanical or
automated device to move
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4.5.3 Packaging and … (cont.)
Unit Loads in Materials Handling
➢ Basic unit is a pallet or skid
– Can be constructed from wood, wood composites,
plastic, paper, and metal
– Each pallet material has advantages and
disadvantages
– Should be less than 50 pounds
➢ Pallet or skid alternatives
– Slip sheet
– Shrink-wrap
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4.5.3 Packaging and … (cont.)
Unit Loads in Materials Handling
➢ Beyond the unit load
– Use of load-planning software
– Bracing
– Inflatable dunnage bags
– Load is subjected various forces including
• Vibration
• Roll
• Pitch
– Weighing out