INTRODUCTION TO SUPPLY MANAGEMENT
SCOPE OF SUPPLY MANAGEMENT
Supply management: This is a process responsible for the development and management of a firm’s total internal and external supply system.
The specific activities include:
- Early purchase involvement (EPI) and early supplier involvement (ESI) in product design and subsequent specifications development for important items through the use of cross-functional teams
- Conduct of all purchasing function and procurement process activities
- Heavy use of cross-functional teams in supplier qualification and selection
- Heavy use of purchasing partnering arrangement and strategic alliances with suppliers-to develop close and mutually beneficial linkages with key suppliers in the value chain and control quality and costs
- Continuous identification of threats and opportunities in a firm’s supply environment
- Development of strategic , long term acquisition plans for all major materials
- The monitoring of continuous improvement in the supply chain
- Active participation in the corporate strategic planning process
Its prudent to note that supply management concept represents the most advanced stage in the evolutionary development of purchasing/procurement.
Objectives of supply chain management:
- Enhancing Customer Service/satisfaction
- Expanding Sales Revenue
- Reducing Inventory Cost
- Improving On-Time Delivery
- Improving quality
- Reducing Lead Time
- Reducing Transportation Cost
- Reducing Warehouse Cost
- Reducing / Rationalize Supplier Base
- Expanding Width / Depth of Distribution
PLANNING FOR MATERIALS
Material management: Can be defined as the planning, organizing and control of all aspects of inventory embracing procurement, warehousing, work-in process and distribution. The goal of materials management is to consolidate and efficiently handle core services. The specific materials management activities include:
- Purchasing and supply management
- Inventory management
- Stores and warehousing
- In-plant materials handling
- Production planning, scheduling and control
- Traffic and transportation
SUPPLY MANAGEMENT RELATIONSHIP WITH OTHER DEPARTMENTS
Relationship between the purchasing and supply function with other departments:
Some issues on which interaction and cooperation may take place between purchasing and other company departments include the following:
Purchasing and finance/accounts department:
- Finance/accounts department prepares budget allocation for goods/services to be purchased in a given time period
- The purchase department establishes and forwards to finance/accounts department value analysis report for goods/services to be purchased
- Finance/accounts department briefs the purchasing department on issues based on supplier payment
- Purchasing department gives accounts department information based on damaged items and obsolete items
- Purchasing department gives out information based on stock movement to the accounts department
- Purchasing/supplies department works together with accounts department during stock taking exercise which is based on assessing the variance status of the company’s inventory.
- Stores personnel who works under purchasing/supplies department works together with the accounts personnel when it comes to the issue of receiving goods from the supplier(s). The accounts personnel checks whether the amount indicated in the invoice correspond with the amount indicated in the local purchase order (LPO).
Purchasing and design department:
- Preparation of specifications for purchase of materials and components
- Quality assurance or defect prevention
- Value engineering and value analysis
- Information to departments regarding availability of materials, suppliers and costs
- Agreement of alternatives when specified materials are not available
- Creation of library of books, catalogues, journals and specifications for joint use by the design and purchasing departments
Purchasing and production (User department)
- Preparation of material schedules to meet just in time requirements
- Ensuring that delivery schedules are maintained
- Control of inventory to meet production requirements
- Disposal of scrap and obsolete items
- Quality control or defect detection and correction
- Approval of ‘first-off samples’
- Make or buy decisions
- General involvement in such techniques and systems as optimised production technology, computer integrated technology, materials requirement planning (MRP) and manufacturing resource planning (MRP 2)
Purchasing and human resource development:
- Purchasing professionals gives out technical expertise when a prospective purchasing staff is being interviewed for a job.
- Human resource personnel liaise with purchasing managers on checking the performance of purchasing employees through job appraisal analysis.
- Human resource development relates with purchasing department when it comes to issues of arranging training and seminars for the purchasing staffs.
- Human resource development work hand in hand with purchasing department through provision of motivational incentives for the purchasing staffs. This entail the acknowledgment of best employees through giving out Awards, presents and so on.
- Purchasing department works also with human resource development on disciplinary matters of the employees.
Purchasing and marketing:
- Provision of sales forecasts on which purchasing can base its forward planning of materials, components etc
- Ensuring that through efficient buying, purchasing contributes to the maintenance of competitive prices
- Obtaining materials on time to enable marketing and production to meet promised delivery dates to the end-customer
- Exchange of information regarding customers and suppliers
- Marketing implications on partnership sourcing
Purchasing and information technology department (IT):
Purchasing department and IT have an increasing number of interdependencies. In some cases IT function is outsourced by the purchasing function. To this extent therefore its performance is evaluated accordingly by the purchasing department. Also the manager of IT works closely with purchasing manager to develop automated procedures and reports in line with purchasing. To add on that IT department establishes computer devices to purchase and to this extent the IT manager prepares purchase order requisition (POR) for such items and forwards the same to purchasing department. On the other hand the purchasing department sources for such devices on behalf of the IT department.
IMPORTANCE OF SUPPLY MANAGEMENT
members of the organisation. Organisation design and structure is concerned with such elements as:
INTEGRATED SUPPLY LOGISTICS
Logistics is the management of the flow of goods and services between the point of origin and the point of consumption in order to meet the requirements of customers. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software.
Logistics is considered to have originated in the military’s need to supply themselves with arms, ammunition and rations as they moved from their base to a forward position. The Oxford English Dictionary defines logistics as “the branch of military science relating to procuring, maintaining and transporting materiel, personnel and facilities.” Another dictionary definition is “the time-related positioning of resources.” As such, logistics is commonly seen as a branch of engineering that creates “people systems” rather than “machine systems”. When talking in terms of human resources management, logistics means giving inputs, i.e. “recruiting manpowers”, which ultimately work for the final consumer or to delivery. 9
This refers to the process of strategically managing the acquisition, movement and storage of material, parts and finished inventory through an organization and its marketing channels to fulfill orders most cost-effectively. Logistics does add value and can play a vital role in the organization‘s profitability. However, only by linking all logistics activities directly to the organizations strategic plan can it be useful in supporting the organization‘s strategy for achieving competitive advantage. Procurement is thus a supporting activity in logistics which should be properly handled to enable firm‘s improve cash flow, open new territories, introduce new products etc.
Components of a logistics system include the following:
The two key components of a logistics system are:
- Physical Distribution
Other components of a logistics system include the following:
-Storage and Materials Handling
Types of Logistics
- Event Logistics – The network of activities, facilities and personnel required to organize, schedule and deploy resources for an event to take place. 111
- Service Logistics – The acquisition, scheduling, and management of facilities personnel and material to support and sustain a service operation or business.
- Business Logistics – It is the part of the Supply Chain process that plans, implements, and controls the efficient flow and storage of goods and services from point of origin to point of use or consumption.
- Military Logistics – This is the design and integration of all aspects of support for the operational capability of the military forces and their equipments to ensure readiness, reliability and efficiency in war and other military operations.
- Reverse logistics Stands for all operations related to the reuse of products and materials. It is “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. An example is the recycling of bottles by soft drinks manufacturing companies.
- Third party Logistics –”A firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or “bundled” together, by the provider. Among the services are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.” (Council of Supply Chain Management Professionals‘) an example is Transami, DHL and G ansami, DHL and G4S.
7.Fourth Party Logistics – An arrangement in which a firm contracts out (outsources) its logistical operations to two or more specialist firms (the third party logistics) and hires another specialist firm (the fourth party) to coordinate the activities of the third parties. A fourth-party logistics provider is a consulting firm specialized in logistics, transportation, and management e.g. Deloitte and Price water house coopers
Objectives of Logistics Management:
- -To make available the right quantity of quality products at the right place and time in the right condition.
- -To offer the best service to consumers.
- -To minimize the cost of operations.
- -To maintain transparency in operations.
Functions of Logistics Management
- -Ordering, billing/invoicing, handling and packaging
- -Product assembly and storage, warehousing and material handling
- -Product shipping by air, railways, waterways, pipelines, and containers.
- -Product export, import, documentation, marking and consolidation.
- -Product tracing, tracking, recycling and disposal.
- -Setting of customer service standards in terms of time, availability and errors.
INBOUND, OUT BOUND AND INTERNAL LOGISTICS
A key consideration in the examination and development of a logistics strategy is the Value Chain Concept (Porter 1985). The value chain provides a framework for examining interdependencies within logistics; between logistics and other areas of the firm; and between the firm, its suppliers, and customers and is focused on eliminating non-value adding activities in the supply chain. 113
An organization can also develop a logistics strategy by looking at four distinct levels of their organization. That is, Strategic, which reflects the overall organization‘s corporate objectives, Structural, the physical elements of logistics like warehousing, distribution centre‘s or operations within the manufacturing plant, Functional, this involves a strategic review of how each function in the logistics system is to achieve functional excellence and Implementation, this will include configuration of an information system, introduction of new policies and procedures and the development of a c
IMPORTANCE OF INTEGRATED LOGISTICS
Relationship between the purchasing and supply function with other departments:
Some issues on which interaction and cooperation may take place between purchasing and other company CONCEPT OF TOTAL COST AND TRADE OFFS
members of the organisation. Organisation design and structure is concerned with such elements as:
MATCHING SUPPLY AND DEMAND
Definition of terms:
- Supplies: The term supplies refers to all the materials, goods and services used in the enterprise regardless of whether they are purchased outside, transferred from another branch of the company or manufactured in-house.
- Demand: Refers to an urgent or peremptory requirement or request. Demand may be either independent or dependent. Independent demand for an item is influenced by market conditions and not related production decisions for any other item held in stock. In manufacturing only end items i.e. the final product sold to customer, have exclusively independent demand. An item is said to have dependent demand if the demand for it is dependent upon the demand for another item. For instance demand for tyres to be used in a car assembly plant is dependent upon the number of cars that are to be produced.
- Inventory: This is an American accounting term for the value or quantity of raw materials, components, assemblies, consumables, work in progress (WIP) and finished stock that are kept or stored for use as the need arises.
- Inventory (or stock) control: Refers to the techniques used to ensure that stocks of raw materials or other supplies, work in progress and finished goods are kept at all levels which provide maximum service levels at minimum costs.
Inventory control methods:
There are two basic approaches on which inventory; control systems both manual and automatic are based. These are: the action level method and the periodic review approach.
- The action level method (Fixed order quantity): The action level method of controlling inventory is way of fixing each commodity and stock levels that are recorded in the stock control system and subsequently used as a means of indicating when some action is necessary. There are various kinds of stock levels, but the fundamental controls are: ordering, hastening and maximum levels. In order to keep abreast with the changing conditions after stock level have been established, they should be carefully reviewed at suitable intervals e.g. quarterly, monthly or weekly and should be adjusted to meet any changes as circumstances may require.
Advantages of fixed order point:
- On average, stocks are lower than with the periodic system
- Economic order quantity are applicable
- Enhanced responsiveness to demand fluctuations
- Appropriate for widely differing inventory categories
- Replenishment orders are automatically generated at the appropriate time by comparison of actual stock levels against re order levels
Disadvantages of fixed order point:
- The re-ordering system may become overloaded if many items of inventory reach re-order level at the same time
- Leads to random re-ordering pattern thus increasing ordering costs
2) The periodic review system: In this system an item’s inventory position is reviewed periodically rather than at a fixed order point. The periods or intervals at which stock levels are reviewed will depend on the importance of the stock item and the costs of holding that item. A variable quantity will be ordered at each review to bring the stock level back to maximum. Maximum stock can be determined by adding one review period to the lead time, multiplying the sum by the average rate of usage and adding any safety stock. This can be expressed as:
M-W (T+L) +S
Where: M= Pre-determined stock level
W= Average rate of stock usage
T= Review periods
L= Lead time
S= safety stock
Advantages of periodic review system:
- Greater chance of elimination of obsolete items owing to periodic review of stock
- The purchasing load may be spread with possible economies in placing orders
- Large quantity discounts may be negotiated
- Production economies due to more efficient production planning and lower set-up costs may result from orders always being in the same sequence
Disadvantages of periodic review system:
- On average, larger stocks are required than with fixed order point system
- Re-order quantities are not based on economic order quantities (EOQ).
- If the usage rate changes shortly after a review period, a stock-out may occur before the next review date
- Difficulties in determining appropriate review period unless demands are reasonably consistent.
- Material requirement planning (MRP1): This is a product- oriented computerized technique aimed at minimizing inventory and maintaining delivery schedules. It relates the dependent requirements for the materials and components comprising an end product to time periods known as ‘buckets’ over a planned horizon (typically of one year) on the basis of forecasts provided by marketing and sales and other input information.
While having elements common to all inventory situations, MRP 1 is most applicable where:
- The demand for items is dependent
- The demand is discontinuous that is ‘Lumpy’ and non-uniform
- In the job, batch and assembly or flow production or where all manufacturing methods are used
The aims of material requirement planning:
- To synchronize ordering and delivery of materials and components with production requirements
- To achieve planned and controlled inventories and ensure that required items are available at the time of usage or not much earlier
- To promote planning between the purchaser and the supplier to the advantage of each
- To enable rapid action to be taken to overcome material or component shortages due to emergencies, late deliveries etc
- Material resource planning (MRP 11): This is concerned with virtually any resource entering into production including manpower, machines and money in addition to materials. MRP 11 is an expanded system of MRP 1 which has to new capabilities that are first, financial interface which provides the ability to convert operating production plans into financial terms so that the data can be used for financial planning and control purposes of a more general management nature, then secondly provision of a simulation of capability that makes it possible for management to do more extensive alternative planning work in developing the marketing and the business plans. MRP 11 is concerned to be more comprehensive when compared with MRP 1 and many users MRP 11 as the umbrella system while MRP 1 as the major component of MRP 11.
- Distribution requirements planning (DRP): This is an inventory control and scheduling technique that applies MRP principles to distribution inventories. It may also be regarded as a method of handling stock replenishment in a multi-echelon environment. An echelon is defined by chambers dictionary as: a stepwise arrangement of troops, ships, planes etc. Applied to distribution the term multi-echelon means that instead of independent control of the same item at different distribution points using EOQ formulae, the dependent demand at higher echelon (e.g. a central warehouse) is derived from the requirements of lower echelons e.g. regional and local distributions and purely merchandizing organizations e.g. supermarkets.
6) Just-in-time system: This is an inventory control philosophy whose goal is to maintain just enough material in just the right place at just the right time to make just the right amount of product. For JIT to work two things must be happening that are:
(a) all parts must arrive where they are needed, when they are needed and in the exact quantity needed
(b) all parts that arrive must be usable parts. In achieving these requirements, purchasing has the following responsibilities:
- Liaison with the design function
- Liaison with suppliers
- Investigating of the potential suppliers within reasonable proximity of the purchaser to increase certainty of delivery and reduction of lead time.
- Establishing strong, long-term relationships with suppliers in a mutual effort to reduce costs and share savings
- Establishment of an effective supplier certification programme which ensures that quality specifications are met before components leave the supplier so that receiving inspections are eliminated.
- Evaluation of supplier performance and the solving of difficulties as an exercise in cooperation.
Benefits of Just-in-time:
- Quality– fast detection and correction of unsatisfactory quality and ultimately higher quality in purchased parts
- Design– fast response to engineering change requirements
- Productivity- reduced rework, reduced inspection, reduced parts related delays
- Capital requirements– reduced inventories of purchased parts, raw materials, work in progress and finished goods
- Part costs– low scrap costs; low inventory carrying costs
- Administrative efficiency: fewer suppliers, minimal expending and order release work; simplified communications and receiving activities.
- ABC analysis: This is application to stock holding. ABC analysis shows that the high inventory is normally represented by relative few items and vice versa. While the percentage varies between organisations setup, the following presentation shows a proportion of how inventory is segmented:
Category (Usage) Approximate % of inventory Approximate % of usage value
A-High value 10% 60%
B-Moderate value 30% 30%
C-Low value 60% 10%
Category A: These are items which are small in number and high in value. They are essential to the operation of the production such that the absence of such materials can result to breakdown of pro duction.
Category B: They are medium in number and have medium usage value.
Category C: They are high in number and low in usage value. The absence of such items in the short-time cannot affect the performance of the company.
Conducting the ABC analysis:
It involves the following steps:
- Calculate the annual usage value of each stock item
- Rank the items in descending order of usage value i.e. from the most valuable to the least
- Prepare sub-totals of each usage value beginning with the biggest
- Plot a pareto curve
- Insert the ABC break points
- Enterprise resource planning (ERP): This is a business management system that is supported by multi-module application software that integrates all the department’s functions of an enterprise. It is the latest and possibly the most significant development of MRP 1 and MRP 11. While MRP allows the manufacturers to track supplies, work in progress and the output of finished goods to meet sales orders, ERP is applicable to all organisations and allows managers from all functions or departments to have a consolidated view of what is or is not taking place throughout the enterprise. Most ERP systems are designed around a number of modules each of which can be stand-alone or can be combined with others.
Advantages of Enterprise resource planning:
- Faster inventory turn-over-manufacturers and distributors may increase inventory turns by tenfold and reduce inventory cost by 10 % to 40 %
- Improved customer service: In many cases an ERP system increase fill rates to 80 % or 90 % by providing the right product in the right place at the right time thus increasing customer satisfaction
- Better inventory accuracy, fewer audits: An ERP system can increase inventory accuracy to more than 90 % while reducing the need for fewer physical inventory audits
- Reduced set up times: ERP can reduce set up time by 25 % to 80 % by grouping similar production jobs together with the efficient use of equipment and minimizing down time through efficient maintenance
- Higher quality work: ERP software with a strong manufacturing component proactively pin points quality issues providing the information required to increase production efficiency and reduce or eliminate re-work
- Timely revenue collection and improved cash flow: ERP gives manufacturers the power to proactively examine accounts receivable before problems occur instead of just reacting. This improves cash-flow.
Disadvantages of enterprise resource planning:
- ERP implementation is difficult:
This is because implementation involves a fundamental change from a functional to a process approach to business
- ERP systems are expensive:
This is especially so when the customization of standard modules to accommodate different business process is involved
- Cost of training employees to use ERP can be high
- There may be a number of un intended consequences such as employees stress and resistance to change and the sharing of information that was closely guarded by departments or functions
- ERP systems tend to focus on operational decisions and have relatively weak analytical capabilities
STORAGE OF SUPPLIES
Definition of terms:
Management of storage facilities:
Analysing requirement with regard to storage facilities:
The management of storage facilities is an essential task of the stores department. For efficiency of operations a storage facility requires the following:
- Space: should be enough to accommodate large quantities of inventory
- Equipment: should have adequate storage equipment
- Handling: Handling equipment should be adequate and appropriate
- Power: There should be adequate and continuous source of power to facilitate smooth operations.
- Sanitation: There should be adequate sanitation for proper hygiene
- Ventilation: Store house should be properly ventilated
- Drainage: There should be proper drainage to prevent dampness and wetness
- Special facilities: Like cold storage, strong room etc
- Floors: Carries the weight of the stock held and provides surface for operation of wheeled vehicles. It must be strong with a smooth hard finish level for items.
- Receipt and discharge docks
- Lighting: Natural lights should be utilised as possible
- Fire risk: To prevent the occurrence of fire, construction with timber materials or other inflammable components should be avoided.
- Ancillary services: They should not be overlooked and should be sited in appropriate locations. They include boiler room, electricity sub-station, garage fuel pump depot, first aid centre etc.
Identifying types of commodities to be stored and their characteristics with regard to storage and handling needs:
- Perishables- Milk, fish, pork etc
- Fragile- Glass, electronics
- Hazardous-Gas, acids, chemicals etc
- Durable- Generators
- Bulky goods-Industrial equipment
- Liquids-Petroleum etc
- Granular-Grains, cereals, nuts etc
Characteristics with regard to storage and handling:
- Stored in cool and refrigerated places
- Should be handled with care in small batches
- Limited exposure to windy and sunny conditions
- Requires to be protected from exposure to contaminants
- Should be handled with care/without too much shocks
- Storage under cushioning to avoid shock
- Minimum stacking
- Storage should be close to the entrance for minimum handling
- Storage under light conditions (Enclosures).
- Should be away from predisposing conditions
- Should be away from other goods to reduce risk of hazards
- Require large storage space
- Stacking can go up to high as required
- Can be kept in shelves
- Handling can be done with manual or mechanised systems
- Require large storage space
- Require one level/no stacking
- Handling-special due to irregular shape
- Handling equipment-heavy duty due to weight
- Storage under segregated or open storage spaces.
- Rigid packaging to allow stacking and handling
- Need to be stored away from moisture/humidity etc
- Coating can be used during storage to minimise rusting
- Should be stored away from ground
- Water proof should be used
- Require containers to contain the liquid
- Special storage equipment to prevent spillage
- If packaged observe stacking requirements
- Handling with special equipment
- For consumable liquids-observe sanitation e.g. milk.
- Require storage on containers, shelves bins etc
- Need to be packaged
- Storage at ideal conditions e.g. store in a cool and dry place
- Can be packaged or exposed e.g. bags or silos
- Handling only when packaged, otherwise require special equipment
Stores accounts are the basic requirement for material costing. They do this in two ways ie:
- Provide prices by means of which the cost of any item can be calculated
- Provide comparison between total value of issue recorded and the value of material charges to various jobs.
Materials cost comprise of the following elements:
- Transport charges
- Custom duty
- Trade discount
- Quantity discount
- Cash discount
Stores location systems:
Refers to the way items are located in the store house. The following methods are used:
- Numbering of locations
- Fixed location systems
- Random location systems
Numbering: The store house is divided into sections each given a letter or number. Each stack is given a number from one end. Each bay of shelving or racking forming a stack is identified. Each bin is given a number e.g. A: 24.3.13.
Fixed: This is the traditional idea of a placing for items in a distinct place. Storage for each item is more or less static. Its advantage is that it is consistent and therefore stores personnel can easily recognise where items are. Its also easier to find items in the store since similar items are stored in a similar area. Its weaknesses include:
- Spare storage space/capacity is needed just in case major relocations of stock are to be carried out.
- Doesn’t consider handle ability and store ability characteristics of each item and this may lead to lack of sequence
- Exceptions should be made in case of popularity storage and this is out of sequence.
Random: Is common where stores are fast moving storage space is scarce and expensive. Its a systematic and very highly organised approach to stock placement using computer technology. Advantages of random method entail: maximum utilization of available storage space, Its suitable for fast moving items which are not bulk, efficient stores operations etc. disadvantages are: there are major differences in sizes shapes and weight of items, requires computer system for its operation which can fail.
Single level structures and multi-level structures:
Single level structure entails a complex construction of one entity which facilitates storage of goods. Multi-level structures on the other hand entail complex construction of more than one storage facilities. In both level structures the arrangement and interrelationship of parts in construction should be laid down well to ensure a high degree of fitness.
Methods of stores layout to optimise the use of space and minimise picking costs:
There are five objectives of a good layout. These are:
- Straight-line flow of activity through the storage areas with minimum backtracking
- Minimum handling and transportation of materials
- Minimum travel and waste motion for personnel
- Efficient use of space
- Provision for flexibility and expansion of layout
The main criteria used in laying out most stores are size, shape and type of material to be stored.
Methods of stores layout:
- Inverted T warehouse flow: In regard to this layout:
- Goods in and goods out activities are on the same side of the building
- Shape allows the use of high, medium and low usage areas to minimise materials handling by locating high and low usage areas respectively nearest to and furthest from the goods received and goods outwards areas, thus minimising materials handling for high usage items
- Better utilisation of receiving and issue areas and the associated mechanical handling equipment
- The total area required is less than where there are separate loading and unloading areas
- Facility to extend the building (subject to site constraints) on one or more of three sides
- Unified bay operations provide for better security control and easier surveillance
The main disadvantage is that the centre aisle may become congested in high throughput situations
- Cross flow warehouse flow: The flow in this type of layout is a one way system with an ‘in-feed’ aisle and a separate ‘out-flow’ from the other end of the racks. Front entry and dispatches uses a common yard area and the layout retains the benefits from the integration of bulk and picking stocks, but if bulk stocks are a large proportion of total stock this may not be practical.
- Corner warehouse flow: In the corner warehouse flow, inward and outward flows are on the adjacent but different sides of the building. This layout helps to reduce congestion of aisles in times of high throughput. The disadvantages are that expansion is possible only on the two sides without doors. As the activities in the yard and within the store are not visible from a single vantage point, there are potential problems in security and surveillance.
- Through flow warehouse: In this layout goods inwards and outwards are on the opposite sides of the building. All items must therefore travel the full length of the store. The layout also requires separate goods in and dispatch management with dual yard access and doubles the internal bay areas. The layout is useful where the goods in and out vehicle requirement is different, such as in their platform height or where the nature of the unit load warrants the separation of the two facilities. Disadvantages include the limitation of future extensions of the building.
This is a situation whereby an organisation decides to transfer part or the whole storage functions to outside contractors who provide the service to the organisation at a fee. The advantages of this approach are lower cost of storage, less staff employed, helps the company to concentrate on some other core tasks and less investment in storage fixtures and equipment. Disadvantages are no loyalty to the organisation, high chances of pilferage and loss of goods, increases charges of stock out.
Vendor managed inventory (VMI):
Vendor-managed inventory (VMI) is a JIT technique in which inventory replacement decisions are centralized with upstream manufacturers or distributors. The aim of VMI is to enable manufacturers or distributors to eliminate the need for customers to re order, reduce or exclude inventory and obviate stock outs. With VMI customers no longer ‘pull’ inventory from suppliers. Rather, inventory is automatically ‘pushed’ to customers as suppliers check customers inventories and respond to previously agreed stock levels.
Maintenance of security and prevention of theft:
Keeping stock secure depends on knowing what you have, where it is located and how much it is worth. The distinct security maintenance entails the following:
- Building and stock yards- Doors should have limited entrants. Adequate locks should be fitted. Also its important to allow only authorised personnel to enter into the building.
- Custody of the keys: All keys belonging to stores keepers and stock yard should be monitored, numbered registered with instructions on the person responsible for them.
- Installation of electronic surveillance devices e.g. CCTV, video recorders, alarm systems etc
- Statutory and other regulations adherence
- Marking of stock-to avoid pilferage
- Access to stores premise should be limited
- Segregation of pilferage items-Provision of extra security for the items
- Inspection by supervisors
Material Handling is the field concerned with solving the pragmatic problems involving the movement, storage in a manufacturing plant or warehouse, control and protection of materials, goods and products throughout the processes of cleaning, preparation, manufacturing, distribution, consumption and disposal of all related materials, goods and their packaging. The focus of studies of Material Handling course work is on the methods, mechanical equipment, systems and related controls used to achieve these functions. The material handling industry manufactures and distributes the equipment and services required to implement material handling systems, from obtaining, locally processing and shipping raw materials to utilization of industrial feedstocks in industrial manufacturing processes. Material handling systems range from simple pallet rack and shelving projects, to complex conveyor belt and Automated Storage and Retrieval Systems (AS/RS); from mining and drilling equipment to custom built barley malt drying rooms in breweries. Material handling can also consist of sorting and picking, as well as automatic guided vehicles.
Material handling is an important element, which determines the productivity of a warehouse. Material handling is highly labor intensive as compared to any other operations in a warehouse. Therefore the personnel cost in material handling is usually high. Most of the activities in material handling require significant manual handling and hence has little benefits from computerization and improved information technology.
Objectives / Roles
The primary handling objective in a warehouse is to sort inbound shipment according to precise customer requirements. The three handling activities are receiving, in-storage handling and shipping.
When material reaches the warehouse it has to be received by the warehouse. One of the important activities here is to unload the goods from the transportation vehicle. Most of the time unloading is done manually. Containerized or unit-load shipments considerably reduce the unloading time.
- In-storage Handling:
In-storage handling consists of all movement within a warehouse facility. The two types of in-storage handling are transfer and section.
Various transfers of goods happen within the warehouse. The goods as soon as they are received in the warehouse are transferred to the storage area. The second transfer may be required during order selection where goods are transferred from storage area to order selection area. The final transfer of goods takes place when the goods are finally shipped from the warehouse. Here the goods are transferred from the or election to the shipping or outbound area.
Selection activity basically involves selecting different materials and is grouped to meet the , customer demand. The idea of using warehouse as a selection area is to reduce the overall transportation cost.
- Shipping: Shipping consists of checking and loading orders onto transportation vehicles. As in receiving, shipping is manually performed in most systems.
- Five Major Types Of Materials Handling Methods:
Movement – involves the actual transportation or transfer of material from one point to the next.
- Quantity – dictates the type and nature of the material handling equipment and also cost per unit for the conveyance of the goods.
- Time -how quickly the material can move through the facility
Space – concerned with the required space for the storage of the material handling equipment and their movement, as well as the queuing or staging space for the material itself.
- Control – tracking of the material, positive identification, and inventory managementA major competitive advantage,due to its impact on
in sum,a revenue enhancer,not a cost contributor.
Advantages of correct materials handling
– – Savings in storage and operating space
– – Better stock control
– – Improved working conditions
– – Improved quality
– Lower risk of accidents
– – Reduced processing time
– – Lower production costs
– – Less waste of time and materials
In order to perform the activities of materials handling the basic goal is to minimise the production costs. This general objective can be further subdivided into specific objectives as follows :
i) To reduce the costs by decreasing inventories, minimising the distance to be handled and increasing productivity.
ii) To increase the production capacity by smoothing the work flow, iii) To minimise the waste during handling.
iv) To improve distribution through better location of facilities and improved routing.
v) To increase the equipment and space utilisation.
vi) To improve the working conditions. ‘
vii) To improve the customer service.
Basic Materials Handling Systems : The different material handling systems can be classified according to the type of equipment used, material handled, method used or the function performed.
Equipment-Oriented Systems : Depending upon the type of equipment used, there are several systems. :
i) Overhead systems
ii) Conveyer systems
iii) Tractor-trailor system
iv) Fork-life truck and pallet system
v) Industrial truck systems
vi) Underground systems.
Material Oriented Systems : These may be of the following types:i) Unit handling systemsii) Bulk handling systemsiii) Liquid handling systems
A unit load consists of a number of items so arranged that it can be picked up and moved as a single entity such as a box, bale, roll etc. Such a system in more flexible and requires less investment.
Method Oriented Systems : According to the method of handling and method of production, the material handling systems can be:
i) Manual systems
ii) Mechanized or automated systems
iii) Job-shop handling systems, or
iv) Mass-production handling systems
Function Oriented Systems : The systems can be defined according to the material handling function performed as follows:
i) Transportation systems
ii) Conveying systems
iii) Transferring systems
iv) Elevating systems
Selection and Design of Handling System : The selection and design of the material system should be done alongside the development of the layout as each one affects each other. Hence, an integrated approach to the design process is usable. A computerized technique known as COFAC (Computerized Facilities Design) has been developed for
integrated handling system and layout design. The steps to be followed in the selection and design of handling systems are as follows :i) Identification of system
ii) Review of design criteria and objectives of the handling system iii) Data collection regarding flow pattern and flow requirements iv) Identification of activity relationships
v) Determining space requirement and establishing material flow pattern
vi) Analysis of material and building characteristics
vii) Preliminary selection of basic handling system and generation alternatives
considering feasibility of mechanization and equipment capabilities
viii) Evaluation of alternatives with respect to optimal material flow, utilizing gravity, minimum cost, flexibility, ease of maintenance, capacity utilisation and other objectives of the system design considering various tangible and intangible factors
ix) Selection of the best suited alternative and checking it for compatibility
x) Specification of the system
xi) Procurement of the equipment and implementation of the system
MATERIAL HANDLING PRINCIPLES
The principles of materials handling which ensures effective and efficient handling of material are as follows:
- Planning Principle: All material handling should be the result of a deliberate plan. Non-plan movement of materials should be avoided as far as possible.
- Standardization Principle: Material handling equipment, controls, and software should be standardized. While standardizing it should be ensured that performance objectives and flexibility in operations are not sacrificed.
- Work Principle: Material handling work should be minimized without sacrificing productivity.
- Ergonomic Principle: human capabilities and limitations must be taken into consideration while designing material handling tasks and equipments.
- Unit Load: Unit load should be properly determined so that it accommodates all materials and material handling becomes easier.
- Space Utilization Principle: Effective and efficient use must be made of all available space.
- System Principle: Material handling and storage should be fully integrated so that there is a smooth flow of materials in the warehouse.
- Automation Principle: Material handling operations should be mechanized and/or automated where feasible in order to improve operational efficiency. This will reduce potentially unsafe manual labor operations.
- Environmental Principle: Environmental impact and energy consumption such as petrol, diesel, should be considered as criteria when designing or selecting material handling systems.
- Life Cycle Cost Principle: Cost of equipment throughout its entire lifecycle and not only its initial cost should be considered before selecting it.
Designing Handling Systems
The following guidelines should be considered while designing the mate handling systems.
- Equipment for handling and storage should be standardized as possible.
- When in motion, the system should be designed to provide maximum continuous product flow.H
- Investment should be in handling rather than stationary equipment
- Handling equipment should be utilized to the maximum extent possible.
- Wherever practical, gravity flow should be incorporated in system design.
FACTORS AFFECTING THE SELECTION OF MATERIAL HANDLING EQUIPMENT
The selection of materials handling equipment requires the attaining of proper balance between the production problem, the capabilities of the equipment available, and the human element involved. The ultimate aim is to arrive at the lowest cost per unit of material handled.
Equipment factors to be taken into consideration may well include the following:
- Adaptability: the load carrying and movement characteristics of the equipment should fit the materials handling problem.
- Flexibility: Where possible the equipment should have flexibility to handle more than one material, referring either to class or size.
- Load capacity: Equipment selected should have great enough load-carrying characteristics to do the job effectively, yet should not be too large and result in excessive operating costs.
- Power: Enough power should be available to do the job.
- Speed: Rapidity of movement of material, within the limits of the production process or plant safety, should be considered
- Space requirements: The space required to install or operate materials handling equipment is an important factor in its selection.
- Supervision required: As applied to equipment selection, this refers to the degree of automaticity designed into the equipment.
- Ease of maintenance: Equipment selected should be easily maintained at reasonable cost.
- Environment: Equipment selected must conform to any environment regulations.
- Cost: The consideration of the cost of the equipment is an obvious factor in its selection.
Material-handling equipment is equipment that relate to the movement, storage, control and protection of materials, goods and products throughout the process of manufacturing, distribution, consumption and disposal. Material handling equipment is the mechanical equipment involved in the complete system. Material handling equipment is generally separated into four main categories: storage and handling equipment, engineered systems, industrial trucks, and bulk material handling.
- 1 Material handling and efficiency
- 2 Types of material-handling equipment
- 2.1 Storage and handling equipment
- 2.2 Engineered systems
- 2.3 Industrial trucks
- 2.4 Bulk material handling
- 2.5 On-rails transfer cart
- 2.6 Conveyors
- 2.7 Cantilevered crane loading platform
- 3 See also
- 4 References
- 5 External links
Material handling and efficiency
Material handling equipment is used to increase output, control costs, and maximize productivity. There are several ways to determine if the material-handling equipment is achieving peak efficiency. These include capturing all relevant data related to the warehouse’s operation, measuring how many times an item is “touched” from the time it is ordered until it leaves the building, making sure you are using the proper picking technology, and keeping system downtime to a minimum. A special analytical data-set known as Stock-keeping units (SKUs) has been devised to aid analysis of materials handling, which is obviously less efficient when a material asset is handled any more than a minimally necessary number of times.
Types of material-handling equipment
- Storage and handling equipment
Storage and handling equipment is a category within the material-handling industry. The equipment that falls under this description is usually non-automated storage equipment. Products such as pallet racking, shelving, casters and carts, among others, belong to storage and handling. Many of these products are often referred to as “catalog” items because they generally have globally accepted standards and are often sold as stock materials out of Material handling catalogs.
- Engineered systems
Engineered systems are typically custom engineered material-handling systems. Conveyors, Handling Robots, AS/RS, AGV and most other automated material-handling systems fall into this category. Engineered systems are often a combination of products integrated to one system. Many distribution centers will optimize storage and picking by utilizing engineered systems such as pick modules and sortation systems.
Equipment and utensils used for processing or otherwise handling edible product or ingredients must be of such material and construction to facilitate thorough cleaning and to ensure that their use will not cause the adulteration of product during processing, handling, or storage. Equipment and utensils must be maintained in sanitary condition so as not to adulterate or contaminate product.
- Industrial trucks
Industrial trucks usually refer to operator driven motorized warehouse vehicles, powered manually, by gasoline, propane or electrically. Industrial trucks assist the material-handling system with versatility; they can go where engineered systems cannot. Forklift trucks are the most common example of industrial trucks but certainly aren’t the extent of the category. Tow tractors and stock chasers are additional examples of industrial trucks. Their greatest advantage lies in the wide range of attachments available; these increase the truck ability to handle various types and shapes of material.
- Bulk material handling
Main article: Bulk material handling
Bulk material-handling equipment is used to move and store bulk materials such as ore, liquids, and cereals. This equipment is often seen on farms, mines, shipyards and refineries. This category is also explained in Bulk material handling.
- On-rails transfer cart
On-rails transfer cart is a kind of material-handling equipment. It moves on the rails and can transfer heavy cargoes or equipment with the weight 1-300t between the workshops or warehouses in the factory. It is widely used in the line of metallurgy, coal, heavy manufacturing, automotive assembly, etc. Its power can be AC or DC. DC Power has rail transmit power and battery power, while AC power includes cable power and slippery touch line power. In addition, there is the manual rail transfer cart or towed rail transfer cart, also called motorized transfer trolley.
Conveyors are another form of material handling. Conveyors can be used in a multitude of ways from warehouses to airport baggage handling systems. Some types of conveyors are unbuilt, power and free, chain, towline and roller conveyor.
- Cantilevered crane loading platform
Cantilevered crane loading platforms are temporary platforms attached to the face of multi-storey buildings or structures to allow materials and equipment to be directly loaded on or shifted off floor levels by cranes during construction or demolition. They may be fixed or rolling and a variety of designs are used including fully fabricated and demountable types. The platforms are supported on needles (cantilevered beams) anchored to the supporting structure
Packaging is the technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of packages. Packaging can be described as a coordinated system of preparing goods for transport, warehousing, logistics, sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells. In many countries it is fully integrated into government, business, institutional, industrial, and personal use.
Package labeling (American English) or labelling (British English) is any written, electronic, or graphic communication on the package or on a separate but associated label.
IMPORTANCE/ROLE OF PACKAGING IN SUPPLY OPERATIONS
- Physical protection – The objects enclosed in the package may require protection from, among other things, mechanical shock, vibration, electrostatic discharge, compression, temperature, etc.
- Barrier protection – A barrier from oxygen, water vapor, dust, etc., is often required. Permeation is a critical factor in design. Some packages contain desiccants or oxygen absorbers to help extend shelf life. Modified atmospheres or controlled atmospheres are also maintained in some food packages. Keeping the contents clean, fresh, sterile and safe for the intended shelf life is a primary function. A barrier is also implemented in cases where segregation of two materials, prior to end use is required, as in case of special paints, glues, medical fluids etc. At consumer end, the packaging barrier is broken or measured amounts of material removed for mixing and subsequent end use.
- Containment or agglomeration – Small objects are typically grouped together in one package for reasons of efficiency. For example, a single box of 1000 pencils requires less physical handling than 1000 single pencils. Liquids, powders, and granular materials need containment.
- Information transmission – Packages and labels communicate how to use, transport, recycle, or dispose of the package or product. With pharmaceuticals, food, medical, and chemical products, some types of information are required by governments. Some packages and labels also are used for track and trace Most items include their serial and lot numbers on the packaging, and in the case of food products, medicine, and some chemicals the packaging often contains an expiry/best-before date, usually in a shorthand form. Packages may indicate their material with a symbol.
- Marketing – The packaging and labels can be used by marketers to encourage potential buyers to purchase the product. Package graphic design and physical design have been important and constantly evolving phenomenon for several decades. Marketing communications and graphic design are applied to the surface of the package and (in many cases) the point of sale display. Most packaging is designed to reflect the brand’s message and identity.
- Security – Packaging can play an important role in reducing the security risks of shipment. Packages can be made with improved tamper resistance to deter tampering and also can have tamper-evident features to help indicate tampering. Packages can be engineered to help reduce the risks of package pilferage or the theft and resale of products: Some package constructions are more resistant to pilferage and some have pilfer indicating seals. Counterfeit consumer goods, unauthorized sales (diversion), material substitution and tampering can all be prevented with these anti-counterfeiting technologies. Packages may include authentication seals and use security printing to help indicate that the package and contents are not counterfeit. Packages also can include anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance tags that can be activated or detected by devices at exit points and require specialized tools to deactivate. Using packaging in this way is a means of loss prevention.
- Convenience – Packages can have features that add convenience in distribution, handling, stacking, display, sale, opening, reclosing, use, dispensing, reuse, recycling, and ease of disposal
- Portion control – Single serving or single dosage packaging has a precise amount of contents to control usage. Bulk commodities (such as salt) can be divided into packages that are a more suitable size for individual households. It is also aids the control of inventory: selling sealed one-liter-bottles of milk, rather than having people bring their own bottles to fill themselves.
Factors influencing Packaging decisions and considerations in International Marketing
There are a number of factors that influence decisions in respect of packaging features like size, shape, design, surface graphics, color schemes, labeling, materials etc.
- Physical Characteristics:
Packaging decisions are influenced by certain physical characteristics of the product like the physical state, weight, stability, fragility, rigidity, surface finish etc.
- Chemical characteristics:
Certain physio-chemical factors like the effect of moisture, oxygen, light, flame, bacteria, fungi, chemical action etc., on the product are vary important factors to considered while making packaging decisions.
While packaging is very important in marketing, it is costly too. Indeed, there are a number of cases where the cost of packing is more than the cost of the content. The rising cost of packaging has become a matter of serious concern. Every effort should therefore, be made to reduce the packaging costs as much as possible without impairing the packaging requirements.
packaging should also necessarily possess the quality of convenience from the point of view of consumers, distributors and producer. Hence, apart from the functional needs, a good package should possess certain features like ease to open and close, ease to dispense, ease to dispose of, ease to recycle, ease to identify, ease to handle, convenience to pack, convenience to stack, convenience to display etc.
- Miscellaneous Factors:
Apart from the factors mentioned above, packaging decisions may be influenced by a number of other factors. For example, if there is any statutory rule in respect of packaging, it will have to be abided by. The socio-cultural factors could influence packaging decision. Consumer attitudes also have to be given due consideration. The growth of consumerism in a number of countries, inter alia, also suggests that packaging decisions should be made with meticulous care.
Special Considerations in International marketing:
In addition to the general considerations in packaging mentioned above, there are certain special factors to be considered in export packaging decisions. Important among them are the following:
- Regulations in the Foreign Countries:
Packaging and labeling may be subject to government regulation in the foreign countries. Some countries have specified packaging standards for certain commodities. The trend toward requiring labeling in a countryâ€™s native language is growing. If such regulations are not strictly followed, the goods may be confiscated or may attract some other punitive action.
- Buyers Specifications:
In some cases, buyers like the exporters to give packaging specification. While incorporating such specifications it should also be ensured that packaging satisfies other requirements like the statutory requirements.
- Socio-cultural factors:
While designing the packaging for a product, socio-cultural factors relating to the important country like customs, traditions, beliefs etc, should also be considered.
- Retailing Characteristics:
The nature of retail outlets is a very important consideration packaging decision. For instance as pointed out earlier, in some of the foreign markets as a result of the spread of supermarkets and discount houses, a large number of products are sold on a self-service basis. The package has, therefore, to perform many of the sales tasks and hence it must attract attention, describe the products features, give the consumer confidence and make a favorable overall impression.
- Environmental factors:
Packaging decisions are also influenced by certain environmental factors like weather and climate factors. The impact of such factors in the place where the product originates, while the product is in transit and while in the market etc., should be considered. The package should be capable of withstanding the stresses and hazards of handling and transportation, stacking, storing etc., under diverse conditions.
Attention should also be paid to the aspects relating to the disposal of the packaging. One of the qualities required for good package is that it could be easily disposed of or recycled. In some of the developing countries like India many packaging materials easily find some other use or are recycled. But the situation is different in other countries. Indeed, the disposal of packaging materials is causing environmental problems in a number of countries Reusable packages the risk of misusing it for selling bogus products.
- Containers plastics and mettalic
- Role of packaging in supply operations
The traditional “three R’s” of reduce, reuse, and recycle are part of a waste hierarchy which may be considered in product and package development.
- Prevention – Waste prevention is a primary goal. Packaging should be used only where needed. Proper packaging can also help prevent waste. Packaging plays an important part in preventing loss or damage to the packaged-product (contents). Usually, the energy content and material usage of the product being packaged are much greater than that of the package. A vital function of the package is to protect the product for its intended use: if the product is damaged or degraded, its entire energy and material content may be lost.
- Minimization – (also “source reduction”) The mass and volume of packaging (per unit of contents) can be measured and used as one of the criteria to minimize during the package design process. Usually “reduced” packaging also helps minimize costs. Packaging engineers continue to work toward reduced packaging.
- Reuse – The reuse of a package or component for other purposes is encouraged. Returnable packaging has long been useful (and economically viable) for closed loop logistics systems. Inspection, cleaning, repair and recouperage are often needed. Some manufacturers re-use the packaging of the incoming parts for a product, either as packaging for the outgoing product or as part of the product itself.
- Recycling – Recycling is the reprocessing of materials (pre- and post-consumer) into new products. Emphasis is focused on recycling the largest primary components of a package: steel, aluminum, papers, plastics, etc. Small components can be chosen which are not difficult to separate and do not contaminate recycling operations. Packages can sometimes be designed to separate components to better facilitate recycling.
- Energy recovery – Waste-to-energy and Refuse-derived fuel in approved facilities are able to make use of the heat available from the packaging components.
- Disposal – Incineration, and placement in a sanitary landfill are needed for some materials. Certain US states regulate packages for toxic contents, which have the potential to contaminate emissions and ash from incineration and leachate from landfill. Packages should not be littered.
Packaging machines may be of the following general types:
- Accumulating and Collating Machines
- Blister packs, skin packs and Vacuum Packaging Machines
- Bottle caps equipment, Over-Capping, Lidding, Closing, Seaming and Sealing Machines
- Box, Case and Tray Forming, Packing, Unpacking, Closing and Sealing Machines
- Cartoning machines
- Cleaning, Sterilizing, Cooling and Drying Machines
- Coding, Printing, Marking, Stamping, and Imprinting Machines
- Converting Machines
- Conveyor belts, Accumulating and Related Machines
- Feeding, Orienting, Placing and Related Machines
- Filling Machines: Handling dry, powered, solid, liquid, gas, or viscous products
- Inspecting: visual, sound, metal detecting, etc.
- Label dispenser
- Orienting, Unscrambling Machines
- Package Filling and Closing Machines
- Palletizing, Depalletizing, Unit load assembly
- Product Identification: labeling, marking, etc.
- Sealing Machines: Heat sealer
- Slitting Machines:
- Weighing Machines: Check weigher, multihead weigher
- Wrapping machines: Stretch wrapping, Shrink wrap, Banding
- Form, Fill and Seal Machines
- Other specialty machinery: slitters, perforating, laser cutters, parts attachment, etc
The 8 biggest challenges packaging distributors face:
- The perception that “Packaging is a commodity.”
Yes, packaging materials are available from many sources. Many materials can be substituted freely. Packaging is as important as any other component of a product. For consumer products, packaging often is the deciding factor in a purchase decision. An academic study determined 70% of decisions at grocery stores are made at the point of purchase.1 What is influencing that decision? Packaging is a
critical component of how we choose what we buy. While most industrial packaging will never been seen by the consumer, it does play an important role in getting product to consumers undamaged and in an efficient manner. An efficient use of packaging materials is a competitive advantage. That
advantage does not always have to be price driven. Reducing damaged product, improving supply chain efficiency, and providing protection against theft, counterfeiting, and tampering are all vital roles packaging plays.
Rather than trying to focus on a packaging product with your customers, discuss their business processes and challenges with them. Is damage an issue? Where in the supply chain? What are their supply chain challenges? Focusing on the bigger picture will help your customer understand the importance of packaging.
- Differentiating your value proposition is difficult.
We all try to sell our value. We are all “partners” with our customers. Very few companies differentiate themselves well. Why? Because very few of us, executives and sales forces, differentiate ourselves well. Most often, we use price to differentiate. Price is something easy for the customer to see. It is a strategy, if you are the low cost producer and have the capital base to hold out a protracted price war, but usually using price to differentiate creates a vicious circle that results in
margin compression if it is not stopped.
The key to differentiation is looking at the world through your customers’ eyes. They can buy boxes, stretch, labels, etc. from a myriad of sources. Why should they buy from you? Because you don’t care if they buy from you: You care that they improve their businesses. That’s your goal: help your customer improve. If you do that, they will have no choice but to buy from you.
How can you help your customer improve? The process begins by understanding his or her business. What are the drivers of success? What are the hurdles the business must overcome? This is the key first step in differentiation. Offering programs – vendor managed inventory, savings guarantees, etc. – are great. They are also generic. You can only offer specific solutions if you truly understand your
You can also differentiate by working with your suppliers. The supplier‐distributor relationship is a two way street – we need each other. Often, the relationship turns adversarial. Work with your suppliers and they will work with you.
- Customers do not do an “apples to apples” comparison of competitors’ products.
After you have worked hard to combat the perception that packaging is a commodity and you truly do provide value to your customer, you get the following
phone call: Customer: “I just got a quote from XYZ. Their price on [corrugate, stretch, tape, labels, fill in the blank] is 25% cheaper than yours. I’m not happy.
You: “Are you sure it meets the specifications you set for the product?” Customer: “The rep provided me a specification sheet that matches what you’re selling me and overcharging me for.”
As a supplier, we encounter situations like this almost daily. Inevitably, it has one of the following causes:
- The specification is not an apples to apples comparison.
- The specification is an apples to apples comparison and the other vendor
is trying to protect or win other business with a lowball price.
- The specification is apples to apples and the competitor does not
understand making money is important.
- Some combination of the above.
A is relatively easy to combat. Explain why the initial product was specified and what its advantages are. If you cannot, you were overselling. That strategy inevitably leads to an irate customer. I suggest you offer alternatives today before a competitor does.
B is the most difficult situation to combat, particularly if the particular item is one that you use to earn your margin. This is where your differentiation strategy will pay off. If you are selling a bundle of products, it might be time to revisit the value you bring to the customer. If you are not selling a bundle of products, now is the time to propose a solution that offers you more share of his spend.
C will correct itself in time. It is a painful process. Just matching a price sends the message that you are no different (better) than your competitor. In certain circumstances, you might have to match the price. That is a last resort, particularly if there is little or even negative margin associated with the product/account.
D is the typical situation seen in the packaging industry. Because we struggle to differentiate ourselves, we use price to stand out, as mentioned above. You can avoid this by properly differentiating yourself among your competitors.
- Rising raw material costs.
Commodities associated with packaging have risen dramatically over the last 2 years. Oil, pulp, and chemicals have increased significantly over this time period.
Component January 2009 January
No one associated with packaging has been immune to the increases. Many suppliers have held out as long as they could; double‐digit increases are the norm. If you are not raising your prices, you will most likely find yourself out of business in a very short period of time. Raising prices is seen as a non‐productive activity. Use the opportunity to develop your differentiated position as a solutions provider. The increases cannot be avoided, but they can be mitigated. Are there opportunities to change processes? Don’t just focus on material substitutions. Yes, those opportunities most likely exist, but real savings will come from helping your customer improve his business processes. We
recently worked with a distributor who was able to help his customer reduce his shipping function staffing from 3 FTEs to 1. It required an increase in packaging spend but an overall significant savings to the customer. There was no down‐gauging or substitution; the process was completely redesigned. Do you think that distributor is worried about price competition?
- “Just in time inventory” at the customer level means more emergencies.
- “Just in time inventory” at the supplier level means longer lead times.
We all fell in love with just in time inventory when the economy was good. We reduced inventories and knew we could get product when we needed. Now, we face rampant inflation and component shortages. Additionally, cutbacks at the customer level have resulted in new people handling tasks they did not handle in the past. Cutbacks at the supplier level mean they do not have capacity to meet your customers’ emergency requests. It all means you are stuck in the middle between a customer that needs product and a supplier that cannot provide it. Here is again where your differentiation strategy pays off. With your customer, you SHOULD manage inventory of all products you sell to them. That is a critical function you can play. With your vendors, do not be the boy who cried wolf. Vendors understand emergencies and will work with you. However, if every order is an emergency, you will have zero credibility.
- Vendors go direct.
In an increasingly lower margin world, many packaging manufacturers have responded by going direct to end user customers. That can circumvent the value add you as a distributor bring. Most manufacturers cannot do what you do. They cannot improve processes; they are experts in a certain area. They don’t see the big picture; their goal is to sell what they make. You have a distinct advantage in these areas. Use it! The more you see the big picture, the more valuable your services are.
- Customers are demanding higher service levels but don’t want to pay more for the
Customers want you to hold more inventory, do more frequent deliveries at lower volumes, and cut their prices! Oh, and your management has increased loads and increased the minimum order the company will deliver. Again, you are caught in the middle.
First, one simple axiom: the customer pays the bills. Repeat: the customer pays the bills. That mantra should drive how this situation is handled. Right below that is the mantra: We need to make money. We need to make money. There is certainly a tension that exists. It can be balanced, however, by planning and creativity.
Do your delivery days coincide with demand? Does your customer have space constraints that cause issues? These can be planned for and optimized. Again, the more you know about your customer’s business, the more you can optimize. Work
with them to solve these issues. Get creative. Can the route schedule be changed? Can your vendors drop ship? Can you make the emergency deliveries of certain items? The demands for increased service levels are an opportunity for you to
demonstrate your value. Take advantage or a competitor will.
Physical distribution is the group of activities associated with the supply of finished product from the production line to the consumers. The physical distribution considers many sales distribution channels, such as wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging, order processing, and transportation and logistics. You often will hear these processes be referred to as distribution, which is used to describe the marketing and movement of products.
Accounting for nearly half of the entire marketing budget of products, the physical distribution process typically garnishes a lot of attention from business managers and owners. As a result, these activities are often the focus of process improvement and cost-saving initiatives in many companies.
Importance of Physical Distribution
The importance of physical distribution to a company can vary and is typically associated with the type of product and the necessity it has to customer satisfaction. Strategically staging products in locations to support order shipments and coming up with a rapid and consistent manner to move the product enables companies to be successful in dynamic markets.
Physical distribution is managed with a systems approach and considers key interrelated functions to provide efficient movement of products. The functions are interrelated because any time a decision is made in one area it has an effect on the others. For example, a business that is providing custom handbags would consider shipping finished products via air freight versus rail or truck in order to expedite shipment time. The importance of this decision would offset the cost of inventory control, which could be much more costly. Managing physical distribution from a systems approach can provide benefit in controlling costs and meeting customer service demands.
Functions of Physical Distribution
The key functions within the physical distribution system are:
- Customer service
- Order processing
- Inventory control
- Transportation and logistics
- Packaging and materials
- The customer service function is a strategically designed standard for consumer satisfaction that the business intends to provide to its customers. As an example, a customer satisfaction approach for the handbag business mentioned above may be that 75% of all custom handbags are delivered to the customer within 72 hours of ordering. An additional approach might include that 95% of custom handbags be delivered to the customer within 96 hours of purchase. Once these customer service standards are set, the physical distribution system is then designed to attain these goals.
- Order processing is designed to take the customer orders and execute the specifics the customer has purchased. The business is concerned with this function because it directly relates to how the customer is serviced and attaining the customer service goals. If the order processing system is efficient, then the business can avoid other costs in other functions, such as transportation or inventory control. For example, if the handbag business has an error in the processing of a customer order, the business has to turn to premium transportation modes, such as next day air or overnight, to meet the customer service standard set out, which will increase the transportation cost.
- Inventory control is a major role player in the distribution system of a business. Costs include investment into current inventory, loss of demand for products, and depreciation. There are different types of inventory control systems that can be implemented, such as first in-first out (or FIFO) and flow through, which are methods for businesses to handle products.
- First in-fir st out, or FIFO, is a method in which the new products coming into the warehouse replace existing products of the same SKU so that merchandise is cycled and does not expire or become old as more recent production is available. Flow through, on the other hand, is product that does not get processed in the warehouse. It is offloaded from an inbound trailer, pushed across the warehouse and onto outbound trailers for departure without being stored in the warehouse.
The basic elements of specific functions that make up physical distribution include (i) Materials handling; (ii) inventory planning and control ; (iii) order processing ; (iv) transportation ; and (v) a communication system to integrate the physical distribution process.’
These components of Physical Distribution are explained below:
- Materials Handling:
It involves moving products in and out of a stock. It consists of routine tasks that can be performed through mechanisation and standardisation. Efficiency is increased through use of electronic data processing to control conveyor systems, order picking and other traffic flaws.
The modern mechanised handling services and protective packaging have improved the level of customer service and at the same time lowered physical distribution costs. Material handling and packaging services have also speeded up the order processing and movement of consignments.
- Inventory Planning And Control:
Inventory refers to the stock of products a firm has on hand and ready for sale to customers. Inventories are kept to meet market demands promptly. Inventory is the link interconnecting the customer’s orders and the company’s production activity.
Infact the entire physical distribution management rotates around the inventory management. Inventory management is the heart of the game of physical distribution.
Marketing managers undertake an inventory planning to develop adequate assortments of products for the target market and also try to control the costs involved in obtaining and maintaining inventory.
Marketing managers generally take three decisions while conducting inventory management, viz, (i) how can the track be kept, on a day-to- day basis of location, amount and the condition of the inventory? (ii) How can inventory information best be channelled to production managers or buyers for resale to help them schedule their activities? (iii) What inventory information can other departments in the organisation use to help them perform their functions efficiently?
- Purchasing /Order Processing:
Order-processing and inventory control are related to each other. Order processing is considered as the key to customer service and satisfaction. It includes receiving, recording, filling, and assembling of products for dispatch. The amount of time required from the dates of receipt of an order up to the date of dispatch of goods must be reasonable and as short as possible.
It comprises in undertaking the processes that are needed to make certain orders processed quickly, accurately, and efficiently. The marketing manager has to decide about these along with such issues as what is the most efficient way to bill customers; how cans the paper work may be minimized? And how can the physical function of assembling orders more efficiently?
-Discuss the aspects covered in designing distribution system.
-Discuss the aspects covered in monitoring and evaluating the efficiency of a distribution system.
-Explain challenges encountered when devising and evaluating distribution system.
It is an essential element of physical distribution. It involves integrating the advantages of each transportation method by adopting containers and physical handling producers to permit transfers among different types of carriers.
For example, to place containers in railway flat cars and then load the containers on motor vehicles is called “piggy back” and if the containers are off loaded to water carriers, it is called “flash back.” Exchange of containers between air and truck carriers are referred to as “Air truck” or “birdy back”.
The marketing manager has to decide to (i) what mode or combination of modes of transportation (rail, truck, pipeline, water ways or air) should be used to transport products to warehouses and from there to customers? (ii) Should the transportation cost be reduced and the desired levels of customer service still maintained.
It is a process of passing information and understanding from one person to another. This includes the information system which should link producers, intermediaries, and customers. Computers, memory systems, display equipment and other communication technology facilitate the flow of information among other members in the channel.
A manager to be successful must develop an effective system of communication. So that he may issue instructions, receive the reactions of the subordinates, and guide and motivate them.
The person in charge of the physical distribution should co-ordinate all Activities into an effective system to provide the desired customer service in the most efficient manner. Examples of organizational consideration are: (i) How can the five elements of physical distribution best be coordinated so that a team effort results? How can compartmentalization thinking be avoided? (ii) If a central head is established to direct all physical distribution activities, to whom should he report—The Head of the Marketing or The Chief Executive Officer?
D.Modes of transportation
- MODES TRANSPORT
Transportation plays a major role in the economy. It increases the production efficiency and it links to the logistics system. Vehicle should have some characteristics which are used for easy transport of goods and services.
Transportation is generally of two types. They are public transport and transport for non generic-use. Public transport is nothing but which is used for meeting the needs of all sectors of the people for transportation of goods and services. Transport non-generic will be for the plant operations here the transportation means may be by the non-transport enterprises.
Coming to the different types of transport which are usage generally are:
- Ability of loading and unloading goods and services is more.
- Frequency of delivering the goods over long distances is more.
- Climatic conditions have no effect
- No traffic or congestion easy movement of the vehicle.
- Capital and initial investments are more.
- High material usage for the construction and even the fuel consumption
- The above are some of the advantages and disadvantages of using the rail.
- High flexibity and ability to move the vehicles fastly.
- Uses different routes to reach the destination quickly.
- Does door to door service
- High safety for the cargo.
- Chance to select the carrier which is suitable for carrying the goods.
- It mostly depends on climatic conditions.
- High cost for long distances.
- Productivity is low.
- Some of the advantages and disadvantages are discussed above.
- Highest speed
- Even delivers goods to remote places.
- High reliability
- Highest cost of transportation.
- Even adverse weather conditions effect the transportation.
- Material and fuel consumption is costly.
- It is economical mode for transporting heavy loads and even cargo.
- It is the safest mode which provides convenience to the people without accidents.
- Cost of construction and maintenance is very low.
- It even provides international transport
- It is highly affected by the weather conditions.
- It requires large initial investment
- I t is a slow process.
FACTORS TO BE CONSINDERRD IN SELECTING TRANSPORTATION MODE.
- Cost of Service:
The cost of transportation adds to the cost of the goods so it should always be kept in mind. Rail transport is comparatively a cheaper mode of transport for carrying heavy and bulky traffic over long distances. Motor transport is best suited and economical to carry small traffic over short distances. Motor transport saves packing and handling costs.
Water transport is the cheapest mode of transport. It is suitable to carry only heavy and bulky goods over long distances where time is not an important factor. Air transport is the most costly means of transport but is particularly suited for carrying perishable, light and valuable goods which require quick delivery.
- Speed of Transport:
Air transport is the quickest mode of transport but it is costliest of all. Motor transport is quicker than railways over short distances. However, the speed of railways over long distances is more than that of other modes of transport except air transport and is most suitable for long distances. Water transport is very slow and thus unsuitable where time is an important factor.
Railways, water and air transport are inflexible modes of transport. They operate services on fixed routes and at preplanned time schedules. The goods have to be carried to the stations, ports and airports and then taken from there. Motor transport provides the most flexible service because it is not tied to fixed routes or time schedules. It can operate at any time and can reach the business premises for loading and unloading.
- Reliability/Regularity of Service:
Railway service is more certain, uniform and regular as compared to any other mode of transport. It is not much affected by weather conditions. On the other hand, motor transport, ocean transport and air transport are affected by bad weather such as heavy rains, snow, fog, storms etc.
Safety and security of goods in transit also influence the choice of a suitable means of transport. Motor transport may be preferred to railway transport because losses are generally less in motor transport. Water transport exposes the goods to the perils of sea and, hence from safety point of view, sea transport is thought of as a last resort.
- Nature of Commodity:
Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable goods which require quick delivery may be carried through motor transport or air transport keeping in mind the cost and distance.
- Other Considerations:
A number of special services such as warehousing, packing, loading and unloading are also taken into consideration while deciding about a mode of transport. From the above discussion it is clear that each mode of transport is suited for a particular type of traffic.
The rail transport is particularly suited for carrying heavy and bulky goods over long distances. Motor transport is suitable for carrying small consignments over short distances. Air transport is suited to light and precious articles which are to be delivered quickly. Ocean transport is appropriate for carrying heavy bulky goods over long distances at the cheapest possible cost
DOCUMENTS USED TO FACILITATETRANSPORTATION OF GOODS
- Air way bill: This is the consignment note used for carriage of goods by air. It is basically a receipt for goods for dispatch and is prima facie evidence of the conditions of carriage.
- Bill of lading: This is a receipt for goods shipped on board a vessel, signed by the person who contracts to carry them and stating the conditions in which the goods were delivered to (and received by) the ship.
- Packing list: This is a document that sets out details of the packing of the goods. The documents are required by customs authorities to enable them to make spot checks or more thorough checks on the contents of any particularly content.
- Bill of Entry : A declaration by an importer or exporter of the exact nature, precise quantity and value of goods that have landed or are being shipped out. Prepared by a qualified customs clerk or broker, it is examined by customs authorities for its accuracy and conformity with the tariff and regulations. See also customs entry.
- Consignment note:
This is a document prepared by a consignor (Supplier) and countersigned by the carrier as a proof of receipt of consignment for delivery at the destination. This document evidences the receipt of the goods an attribute which shows the truthfulness of the actual delivery of the consignment from the consignor to the consignee. The document is generally used as an alternative to bill of lading (especially in inland transport), it is generally neither a contract of carriage nor a negotiable instrument.
- Goods receipt note (GRN):
This is a document used to record the inward entry of any goods received at the premises of the organization. The document normally consist of the details of Quantity Received, Quantity Rejected and Quantity Accepted, Supplier name and Purchase order number. The practice of preparing GRNs is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization. The GRN preparation is a part of effective Inventory Control Management.
- Advice note:
This is a note sent to a customer (Buyer) by a supplier of goods to advise him that an order has been fulfilled. The advice note may either accompany the goods or be sent separately. Also an advice note notifies the buyer that goods have been dispatched or are ready for collection. Copies of the advice note may be sent to relevant departments e.g. purchasing and stores