4892

41

The final cost element for consideration is that of information system costs. These costs may represent a variety of information or communication requirements ranging from order processing to load assembly lists. In recent years, there has been a significant move from manual systems towards the use of computerized information systems to provide these requirements. These costs can vary because of the fast rate of change of information systems and the level of technology introduced.

By its very nature logistics operates in a dynamic and ever-changing environment. This makes the planning of a logistics structure a difficult process. By the same token, it is not an easy matter to appreciate how any changes to one of the major elements within such a structure will affect the system as a whole. One way of overcoming this problem is to adopt a 'total' view of the system, to try to understand and measure the system as a whole as well as in relation to the constituent parts of the system.

Total logistics cost analysis allows this approach to be developed on a practical basis. The various costs of the different elements within the system can be built together. This provides a fair representation, not just of the total logistics cost, but also of the ways in which any change to the system will affect both the total system and the elements within the system.

The concept of trade-off analysis is a key feature of this total cost approach to logistics planning. It has been shown that any change in one of the major elements within a logistics system is likely to have a significant effect on the costs of both the total system and the other elements. By the same token, it is often possible to create total cost savings by making savings in one element, which creates additional costs in another but produces an overall cost benefit.

The cost and service trade-offs within any logistics structure will, of course, vary from one company to another depending on the role the company plays within the supply chain as a whole. In the main, however, the following major costs and their associated trade-offs may need to be considered and assessed:

• Production costs. These will vary according to the type of production process or system used and the type of product manufactured. Make-to-stock or make-to- order will also be relevant. Factories may be 'focused' on one or two specific types of product or may make a large range of different products. Different distribution

42

structures may be required to support different types of product. The effect on primary transport costs will be very relevant.

•Packaging costs. These are mainly concerned with the trade-off between the type of packaging and the handling and transport costs. The type of load unitization will also be important.

•Information systems costs. These cover a wide area from order receipt to management information systems. The type of DC network will affect many of these costs.

•Lost sales costs. These might occur because of inadequate customer service, and are very relevant in the context of the proximity of the DC to the customer, together with the reliability and speed of service.

•Inventory costs. These include the cost of capital tied up in inventory as well as the cost of obsolescence, etc. They have a fundamental relationship with the DC network in terms of the number of stock-holding points and the hierarchy of stockholding according to DC type.

•Transport costs. The number and location of sites within the distribution structure, and the associated throughputs significantly affect transport costs. Both primary transport and final delivery costs are affected by DC numbers and location.

•Warehousing costs. These costs vary according to the type of storage and handling systems used, together with the volume and throughput at the site. The size and type of site will thus be important, as will the location.

1. Match the words or phrases on the left with the definitions on the right.

43

2. Find the words in the text meaning the following:

Channels; to be informed about; prime, supreme; estimation, evaluation; to alter, to differ; applicable; to go up and down; an alternative, a choice; to develop; impulsion, push.

3. Comprehension/interpretation:

1.What is the common reason why logistics networks are out of balance?

2.What are the main reasons why DCs and warehouses are required?

3.What are extreme solutions to the best possible customer service? What is the compromise between these extremes?

4.What are the types of DCs?

5.What kind of information makes it possible to measure the effectiveness of the existing logistics operations?

6.What will the importance of storage and warehousing costs depend upon?

7.How does the economy of scale illustrate the effect of the site size?

44

8.What are the types of delivery distance?

9.When is the effect of primary transport elements greater?

10.What are four main areas of key costs?

11.What major costs and their associated trade-offs may need to be considered and assessed in logistics planning?

4.Give explanations to the following.

Decoupling point

“Drop” distance “Stem” distance

Primary transport Information system costs Total logistics cost analysis Lost sales costs

5.Fill in the gaps with missing prepositions.

1.Prior ____ the DC location decision, a lot of work must be undertaken.

2.Generally, it is necessary ____ a compromise to be reached _______ what is 'best' and what is currently ___ existence.

3.It needs a forward-looking management or a particularly significant change ____

a company to undertake a large-scale study ____ this nature.

4.The recent realization ___ the importance ____ logistics to most companies, and the need to cut costs and improve efficiency, have provided sufficient impetus

____ a number ____ companies to review their logistics and distribution structure _____ a particular emphasis ____ the use and location ____ DCs and warehouses.

5.There are a number of reasons why DCs and warehouses are required. These vary ____ importance depending ____ the nature ____ a company's business.

6.This helps to smooth the flow ___ products ___ the supply chain and assists ___

operational efficiency, enabling an 'agile' response to customer demands.

7.____ the other extreme, the cheapest solution would be to have just one DC (or central warehouse) and to send ____ a large truck to each customer whenever his or her orders were sufficient to fill the vehicle so that an economic full load could be delivered.

45

8._____ certain operations, ___ course, even these simple relationships will vary because ____ the need ____very high levels ___ customer service or the very high value ___ products.

9.To plan an efficient logistics structure, it is necessary to be aware ___ the interaction _______ the different distribution costs, specifically as to how they vary ____ respect ___ the different site alternatives.

10.______ this system, it is possible to trade off one element _____ another, and so gain an overall improvement ____ the cost-effectiveness ___ the total system.

11.This is because larger DCs can often achieve better space and equipment utilization and can benefit _____ spreading overhead costs _____ the higher throughput.

12.They have a fundamental relationship _____ the DC network ___ terms ___ the number ___ stock-holding points and the hierarchy ___ stock-holding according

___ DC type.

6. Chose the correct alternatives to complete the text below. A planned approach or methodology

An approach to logistics and distribution strategy 1) ________ describes the practical steps that need to be taken 2) ________ a physical distribution strategy from a corporate business plan. This type of approach requires the collection, collation and analysis of a great deal of data. It is thus 3) _________, although a degree of qualitative assessment may also be necessary.

Some initial points to note are:

• Great care should be taken 4) _________ the precise overall problem. It is likely to be concerned with the use and 5) _________ of DCs within a distribution network, but it is vital to have clear limits and boundaries. These might include, for example, whether all production 6) _________ must be retained, whether product 7) ________ can be relocated or whether there are existing sites that cannot be closed down.

•The planning horizon into the future needs to be determined.

•All relevant cost 8) _________ need to be identified and understood.

•The relevant product 9) _______ for different patterns of demand and supply need to be established. Important aspects will include the type of products, the 10)

_______ of these products (factories, etc), the 11) _________of products (shops,

46

hospitals, factories, etc) and the amount and type of product going through the system ((12) __________, etc).

It is also very important to analyze, cost and compare 13) ________. So, consider the following:

•The identification of all 14)_________ data and information requires consideration. There are always problems in finding and obtaining the data and information required. It may be necessary to make 15) ___________ over the data that are available. Data 16) _________ is always the largest part of a study. Data should be collected in the format in which they will be finally used in the analysis.

•A sourcing or 'flow' model is likely to be an important 17) ________ in the process of moving from a corporate to a logistics plan.

•Both cost and service elements are vital 18) _________ to the logistics planning process.

•Essential to the development of a suitable logistics plan is the need 19)

____________some fairly detailed quantitative analysis.

•Additional planning tools and 20) ________ may also be used as an add-on to this planning process, but they are normally used as a second stage. They include, for example, 21) ________ models (to determine stock levels and stock location) and vehicle 22) ________ and scheduling models (to determine fleet size and vehicle mix).

•Once a suitable logistics strategy has been identified, it is essential to undertake the dual process of 23) __________ this strategy against the preferred business strategy and ensuring that due account has been taken of any practical considerations.

47

7. Complete the following passage with the words from the list below.

Any number of 1) _________may be relevant in a logistics-based study, and these will of course vary according to the industry, the company, the marketplace, etc. Some of the factors that may be relevant will include:

•2) ________availability;

•infrastructure changes (e.g. new roads, rail links, etc);

•regulatory changes (transport legislation, customs regulations, etc);

•information technology (EDI, EPOS, etc);

•technology changes (new vehicle design, 3) _________, etc);

•environmental impacts;

•industry trends.

48

The importance of the many 4) ________ will certainly vary from industry to industry. It is generally possible to categorize these in two ways: firstly, 5)

_________ or descriptive factors that relate directly to the operation under review; and secondly, 6) ________ facts and figures. Both qualitative and quantitative information are used to help 'describe' the business in an 7) ________context. These factors will be developed in much greater detail to represent the inputs into the 8) ________for costs, product flows and customer service requirements.

Establishing current position is 9) ________ of the study. It is aimed at producing a mathematical description of the main existing material and product 10)

_______ of the logistics operation. In addition, the respective service level requirements should also be identified. The 11) _________is then used as the basis for testing any options that are subsequently identified for analysis. This is a very detailed and necessarily 12) ___________but is essential to the study as a whole. Data accuracy is crucial because it provides the basis against which all alternative solutions are measured.

Costs and product flow: data collection section summarizes the data that will be used as the basis for determining the current situation and for the subsequent logistics modelling and analysis that will 13) _______ the entire strategy planning process. Several important decisions concerning data collection should be made very early in the 14)_________. These decisions will affect 15) _________ such as the type of data to be collected, various data categories that need to be determined and suitable time periods.

These include:

•The unit of measure: this should be suitably representative of the whole 16)

________ that is being assessed. This is often not easy to determine, as there may be several different 17) _________ that are used within a company — pallets for bulk stock, cartons for picking, and roll cages for transport. In some industries a common unit is 18) _______ — in the brewing industry, for example, the barrel is a universal measure.

•Product groups: it is not possible to model each individual product, so products must 19) _________ suitable groups that reflect similar logistics characteristics — e.g. sector (cosmetics, personal care, cleaners), format (powder, liquid, hazardous), pack type (box, bottle).

49

•Customer classification: to differentiate between 20) _______ products for any different service level requirements.

•Time periods: generally a financial year is most suitable, but data collection time periods will vary if, for example, seasonality needs to be determined (several years needed for this) or if 21) __________are limited.

Typical examples of 22) ________include:

•product groups;

•own and bought-in sourcing locations;

•number and type of sites and facilities;

•major transport modes;

•handling systems used;

•unit load types;

•own versus third-party operations;

•main customer groups;

•customer service levels;

•logistics information systems.

Examples of 23) _________ are:

•major product flows;

•transport modal split for the major flows;

•demand by region, by major product group, by customer type, etc;

•market segmentation;

•customer service goals and achievements;

•carrier analysis;

•inventory holding profile;

•product profile;

•customer profile;

•planned future expansion requirements.

As well as preparing 24) ________of data, it is also a good idea to make visual representations. This can be essential in helping to understand the implications of the data in terms of the demand for different product groups in different geographical areas and the subsequent recommendations for DC location. There are many 25)_______ that provide this functionality. It is advisable to collect initial data in the format that can be used for the subsequent logistics strategy

50

26)_________. This will usually include the following key variables and key data requirements:

•27) ________: - location and capacity of each plant, DC or transshipment depot; - cost functions for storage, primary transport and local delivery;

- demand locations and amounts.

•28) ______: - customer location and demand;

-DC location and throughput;

-primary transport costs (fixed and variable);

-local delivery costs (fixed and variable);

-inventory holding costs.

Quantitative data may not always be readily available, so descriptive information or alternative data may have 29) _______. For example, it may be recognized that customers can be broadly profiled in terms of, say, national accounts, key accounts, dealers, distributors and specialist users. It may not be possible to make precise quantitative comparisons in terms of tonnage distributed 30) ________to each grouping, but some type of value analysis may be available.

The quantitative data derived are crucial to the analytical process carried out and thus to the final conclusions and recommendations made. Although 31) ________is extremely time-consuming, it is important that data are correct and that they do adequately reflect the real flows and costs within the business.

Customer service requirements provide a key input to any 32)

________planning study. It is essential to understand what customer service levels need to be achieved because these will have a vital impact on the type of 33)

________ that should be developed. There is a vast difference between offering a low-cost service solution compared to 34) _________ (high-cost) solution, and the chosen approach must be reflected in the logistics structure that is chosen.

8. Match logistics models (A – E) with the texts (1 – 5). Retell the texts and reveal the main ideas of the logistics models.

A)Distribution centre location modelling

B)Heuristics

C)Simulation

D)Mathematical programming

E)Sourcing models