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Business Logistics Test 2 flashcards |

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  • Inventory

    an asset on the balance sheet and a variable expense on the income statement.

    Inventory v GDP

    GDP increased at a higher rate than inventory costs. It created higher revenues with less assets.

    Batching Economies Sources

    Procurement, Production, Transportation


    Arises in Demand and obtaining materials from suppliers.


    associated with manufacturing; how long it takes to get from raw materials to finished goods, and the costs associated.


    time associated with transportation and the inventory costs that are associated with it.

    Seasonal Stocks

    Can occur in the supply of raw materials, in the demand for finished product, or in both. There is a need to know the proper inventory level to have. Can impact transportation.

    Anticipatory Stocks

    When an organization anticipates that an unusual event might occur that will negatively impact its source of supply.

    Areas where logistics interfaces:


    Inventory Carrying Costs

    Costs incurred by inventory at rest and waiting to be used.

    Capital Cost

    Opportunity Cost. Cost of capital tied up in inventory.

    Hurdle Rate

    Minimum rate of return on new investments.

    Weighted average cost of capital (WACC)

    Reflects the direct debt service cost of having capital tied up in inventory.

    Storage Space Cost

    Includes handling costs associated with moving products into and out of inventory, as well as such costs as rent, heat, and light

    Inventory Service Cost

    includes insurance and taxes

    Inventory Risk Cost

    reflects the possibility that inventory value might decline for reasons beyond firm's control

    Ordering Cost or Setup Cost

    refers to the expense of placing an order for additional inventory, not including product cost

    Order Cost

    Cost of placing order which may have both fixed and variable components

    Setup Costs

    expenses incurred each time an organization modifies a production or assembly line to produce a different item for inventory

    Expected Stockout Cost

    Back order, which has variable costs. Loss of sales. Loss of customers

    In-Transit Inventory Carrying Cost

    Owner of product while it is in transit will incur resulting carrying costs.

    Determining the Cost of In-Transit Inventories

    Capital Cost = Carry Inventory
    Storage space cost is not relevant
    Insurance requires special analysis
    Obsolescence is not as important

    independent demand

    when such demand is unrelated to the demand for other items

    dependent demand

    when it is directly related, or derives from, the demand for another inventory item or product

    pull approach

    relies on customer orders to move product through a logistics system

    push approach

    uses inventory replenishment techniques in anticipation of demand to move products.

    Just-in-Time Approach Elements

    Zero Inventories
    Short, consistent lead times
    small, frequent replenishment quantities
    high quality, or zero deficits


    Materials requirement Planning

    Materials requirement Planning

    supplying materials and component parts whose demand depends on the demand for a specific end product


    Master Production Schedule


    Bill of Materials


    Inventory Status File

    MRP system elements

    Master production schedule (MPS)
    Bill of materials file (BOM)
    Inventory status file (ISF)
    MRP program
    Outputs and reports


    Distribution Requirements Planning

    Distribution Requirements Planning

    is to more accurately forecast demand and to explode that information back to develop production schedules


    Vendor-Managed Inventory

    Vendor-Managed Inventory

    The supplier and its customer agree on which products are to be managed using in the customer's distribution centers.
    Also called "pull" data

    ABC Analysis

    Assigns inventory items to one of three groups according to the relative impact or value of the items


    Most important


    Lesser Importance


    Least Important

    Pareto's law

    many situations were dominated by a relatively few vital elements.


    involves the physical movement of goods between origin and destination points.
    The transportation system links geographically separated partners and facilities in a company's supply chain.

    Transportation facilitates which utilities

    Time, Place

    Transportation Challenges

    -Supply chain complexity
    -Competing goals among supply chain partners
    -Changing customer requirements
    -Limited information availability
    -Synchronizing transportation
    -Capacity constraints
    -Rising transportation rates
    -Governmental requirements

    Modes of Transportation

    Intermodal transportation

    Trucking Percent


    Rail Percent


    Air Percent


    Water Percent


    Pipe Percent



    Widely Used, Low fixed cost, high variable


    High fixed, low variable

    Air Carriers

    High variable and low fixed cost

    Water Carriers

    High variable and low fixed cost


    High fixed versus low variable.
    Product moves through it in high volume

    Department responsible for transportation


    Accessibility advantage:

    Motor carriage

    Accessibility disadvantage:

    Air, rail, and water

    Transit time advantage:

    Air and motor carriage

    Transit time disadvantage

    Rail, water, and pipeline

    Reliability advantage:

    Air and motor carriage

    Reliability disadvantage:

    Water carriers and rail carriers

    Safety advantage:

    Air and motor carriage

    Safety disadvantage:

    Rail and water

    Cost advantage:

    varies greatly

    Cost disadvantage:

    Air and motor carriage


    bill of lading

    The Bill of Landing does what?

    originates the shipment
    provides all the information the carrier needs
    stipulates the contract terms, including carrier's liability for loss and damage
    acts as a receipt for the goods the shipper tenders to the carrier
    in some cases, shows certificate of title to the goods

    Freight bill

    carrier's invoice for carrier charges

    Freight claims form

    recoup monetary losses


    key performance indicators


    Transportation Management Systems

    Transportation Management Systems Involve

    Routing and scheduling
    Load planning
    Load tendering
    Status tracking
    Appointment scheduling

    The Role of Distribution in SCM

    Balancing supply and demand.

    Protecting against uncertainty.

    Allowing quantity purchase discounts.

    Supporting production requirements.

    Promoting transportation economies.

    Distribution Facility Functionality
    Primary Functions:






    Producing and acquiring goods.


    Like product together.


    Focus on available inventory.


    likely products together. Bread and Jelly

    Distribution Challenges

    Labor availability

    Demand variation

    Increasing customer requirements

    Capability Requirements

    Product characteristics must drive the design of the distribution process such as product value, durability, temperature sensitivity, obsolescence, volume, and other factors

    Two options for product flow

    Direct shipment of goods

    Movement of goods through distribution facilities to customers

    Distribution Tradeoffs

    Cost of distribution centers and inventory vs. cost of transportation

    Cost of additional facilities vs. level of customer service

    Space vs. equipment

    Equipment vs. people

    People vs. space

    Cross Docking

    Goods flow from receiving to shipping with minimal interim sorting

    Distribution cost tradeoffs with other functional areas

    Transportation costs
    Cost of lost sales
    Warehousing costs
    Inventory costs

    Facility Considerations

    determine the size of each operation within the network

    Distribution Execution

    Product Handling Functions

    Support Functions

    Distribution Metrics

    Customer Facing Measures

    Internal Measures

    Support Functions

    Inventory control
    Safety, maintenance, and sanitation
    Performance analysis
    Information technology

    Distribution KPIs

    cost efficiency
    inventory accuracy
    order fill rates
    capacity utilization

    Order accuracy and order completeness

    the exact products and quantities that they ordered

    Perfect order index (POI)

    delivered to the right place
    at the right time
    in defect-free condition
    with the correct documentation, pricing, and invoicing

    Internal Measures

    Distribution cost efficiency
    Aggregate cost efficiency
    Asset utilization
    Resource productivity
    Resource efficiency

    Warehouse Management Systems (WMS)

    software control system that improves product movement and storage operations

    value-added capabilities of a WMS

    generate performance reports
    support paperless processes
    enable integration of materials handling equipment
    picking systems
    sorting systems
    leverage wireless communication

    Short run planning

    a firm's logistics/supply chain network and the locations of its key facilities are fixed.

    impractical in the short run

    Site availability, leases, contracts, and investments make changing facility locations

    Shifting Locations of Customer and/or Supply Markets

    U.S. population shifts

    Service/cost requirements of JIT manufacturing

    European Union

    Continuing searches for lower-cost manufacturing
    growing economic importance of China and the
    sourcing of raw materials from offshore suppliers

    factors driving design change

    Change in Corporate Ownership
    Cost Pressures
    Competitive Capabilities
    Corporate Organizational Change

    Current Trends Governing Site

    Positioning of inventories located at "market-facing" logistics facilities
    Greater use of "customer direct" delivery
    Due diligence for location and site selection
    Greater use of third-party-logistics services

    Modeling Approaches




    Optimization Models

    Precise mathematical procedures that are guaranteed to find the "best" solution

    Simulation Models

    the process of designing a model of a real system and conducting experiments with this model for the purpose either of understanding the behavior of the system or of evaluating various strategies within the limits imposed by a criterion or set of criteria for the operation of the system

    Heuristic Models

    are able to accommodate broad problem definitions, but they do not provide an optimum solution.

    help to reduce a problem to a manageable size and search automatically through various alternatives in an attempt to find a better solution.

    Potential Supply Chain Modeling Pitfalls to Avoid

    Short-term horizon
    Too little or too much detail
    Thinking in two dimensions
    Using published costs
    Inaccurate or incomplete costs
    Use of erroneous analytical techniques
    Lack of appropriate robustness analysis

    The Grid Technique Advantages

    Simplicity and its ability to provide a starting point for location analysis.
    Provides a starting point for making a location decision.

    The Grid Technique Limitations

    A static approach, and the solution is optimum for only one point in time.
    The technique assumes linear transportation rates, whereas actual transportation rates increase with distance but less than proportionally.
    The technique does not consider the topographic conditions.

    Foreign Trade Zone (FTZ)

    a geographic area into which importers can enter a product and hold it without paying duties—and only paying duties or customs when is it shipped into U.S. customs territory.

    Commercial Zone

    specific blanket area, the transportation definition of a particular city or town.

    Transit Privilege

    permits the shipper to stop a shipment in transit and to perform some function that physically changes the product's characteristic.

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