Materials Management

BUS 3 – 141

Physical Inventory:Logistics, Transportation, & Disposal

Week of Feb 19, 2007

Page 2 2

Agenda

– Questions from Last Week

– “Deal of the Weekend”

– Transportation Modes and Carriers

– Shipping Terms and Conditions

– Third Party providers

– Pricing and Supplier Management

– Material Salvage and Disposal

Page 3 3

Reminder about Grading Policy

Category Due Points TotalExams 28-Feb 100 300

11-Apr 10017-May 100

Research Paper / Project 25-Apr 100 100

Cases 21-Feb 10 5021-Mar 102-May 10TBD 10TBD 10

Class Participation Daily 50 50

Grand Total 500

Transportation Modesand Carriers

Page 5 5

Definitions

The management of inventory at motion and at rest

Logistics – from the Textbook *

That part of the supply chain that plans, implements, andcontrols the efficient, effective flow and storage of goods,

services, and related information from the point of origin to thepoint of consumption in order to meet customers’ requirements

Logistics – from the Council of Logistics Management (CLM)

The movement of goods from the point of origin to the point ofconsumption: a subset of the overall Logistics process

Transportation

* Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 6 6

Transportation Modes: Planes, Trains, and Automobiles

Page 7 7

3 Major Types of Carriers

Type CharacteristicsCommon – Service to all shippers

– Standard, published Rates – Examples are UPS and FedEx – Most large organizations negotiate discounted rates based

on volumes

Contract – Specific arrangement for exclusive service for a limited number of shippers

– Usually lower rates because of more predictable schedules and routes

– Examples are Curriers for medical offices, bus companies to transport students to school

Private – In-sourced transportation; Dedicated equipment and

facilities that are either owned or leased by the company – Example is Sysco Foods has its own fleet of refrigerated

trucks – Becoming more and more rare

Page 8 8

Factors to consider when choosing mode and carrier

– Required deliver time

– Cost

– Type of Item being shipped

– Shipment size

– Distance to destination

Shipping Terms & Conditions

Page 10 10

Transportation Terms: F.O.B. – Free On Board

– Who pays the freight costs?

– When does title pass?

– Who makes the claims when something goes wrong?

– Who routes the freight?

The FOB decision addresses several issues involving the COST andRESPONSIBILITIES of delivering goods between seller and buyer

Origin DestinationTransportation(Seller) (Buyer)

There are several options between seller and buyer whenchoosing shipping terms. There is no “one size fits all”

that fits every company or every transaction

Page 11 11

F.O.B. Origin

Title passesto buyer

F.O.B. Origin, Freight Collect

Freight charges paid by buyer

Seller Buyer

Buyer - Pays freight chargesBuyer - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)

Seller - Pays freight chargesSeller - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)

F.O.B. Origin, Freight Prepaid

Title passesto buyer

Freight charges paid by seller

Seller Buyer

F.O.B. Origin, Freight Prepaid and Charged Back

Title passesto buyer

Freight charges paid by seller

Seller Buyer Seller - Pays freight chargesBuyer - Bears freight chargesBuyer - Owns goods in transitBuyer - Files claims (if any)…then collected from buyer

by adding amount to invoice

* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 12 12

F.O.B. Destination

Title passesto buyer

F.O.B. Destination, Freight Collect

Seller Buyer Buyer - Pays freight chargesBuyer - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

F.O.B. Destination, Freight Collect and Allowed

Title passesto buyer

Freight charges paid by buyer

Seller Buyer

Buyer - Pays freight chargesSeller - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

Seller - Pays freight chargesSeller - Bears freight chargesSeller - Owns goods in transitSeller - Files claims (if any)

F.O.B. Destination, Freight Prepaid

Title passesto buyer

Freight charges paid by Seller

Seller Buyer

Freight charges paid by buyer

…then charged to seller by deducting amount

from invoice

* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Third Party Logistics Providers

Page 14 14

Services provided by Third Party Logistics providers (3PL)

– Economies of Scale

– Professional focus and expertise

– Warehousing

– Outbound and Inbound transportation

– Freight bill auditing and payment

– Freight consolidation

– Distribution

– Order Fulfillment

– Cross-docking

– Packaging

– Returns

Major Carriers enable their customers to focus on core competencies,while the carrier drives efficiencies and increased services in

transportation and logistics

Page 15 15

Other logistics services

– Expedited shipments, including same day services

– Freight forwarding

– Reserving dedicated freight capacity

– Brokering between shipper and carriers

– Customshouse brokers for imports

Page 16 16

Factors to consider when establishing a transportation partner

– Reliable On-Time Delivery

– Assured capacity

– Worldwide reach

– Low cost

– Security

– Carrier final situation

– Minimal damaged goods

– Invoicing and ease of doing business

– Tracking capability and other IT Information

– Experience with your product or industry

Negotiating transportation deals should be a collaboration betweenthe Purchasing and Logistics groups

Pricing & Supplier Management

Page 18 18

Rates and Pricing

Transportation Costs are a function of:

– Distance

– Quantity and size

– Speed

Don’t pay for more than you need. Use overnight services for urgent needs ONLY; don’t get on the habit of automatically overnighting

If you spent the premiums for expedited shipping, don’t let the itemsSIT in receiving, or somewhere else, inside your business

For lowest cost, make every reasonable effort for full containers:Full pallet loads, Full trucks, Full Ocean Containers, Full Planes, etc..

Distance

Speed

Quantity&

Size

Materials Salvage and Disposal

Page 20 20

Definitions

The Recovery of some amount of the originalinvestment after materials have been determined

to be no longer usable in their current form

Salvage

Disposal

The Removal of some amount of the originalinvestment after materials have been determined

to be no longer usable in their current form

The goal is to AVOID THE NEED to manage salvage and disposal. Any chronicpattern of waste must be identified, root causes understood, and correctiveaction taken. However, some amount of disposal and salvage are inevitable

and should be managed in a way that brings the least cost and most revenue,while being environmentally responsible

Page 21 21

The Reverse Flow of Materials

raw material processing manufacturing distribution consumption

Recovery

recycle remanufacture reuse

WasteProcessing

disposal

resell

• Reduce

• Reuse

• Recycle

less riskless complexityeasier to implementsmaller environmental benefits

* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 22 22

Materials Recaptured from a Computer

Plastic

Pothole Filler

Aluminum

Cans, Foil

Steel

CarsConstruction Beams

NonleadedGlass

Usable Glass

Copper

Wiring, Pipes,Computer Circuitry

Lead

Car Batteries,Film

Leaded Glass

Asphalt,Industrial Abrasives

Precious Metals

Jewelers, Dentists,Chip Makers

* Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 23 23

Ways to Salvage material and help the environment

– Reduce Scrap and waste

– Convert waste to byproducts that can be sold

– Carefully manage the storage and use of Hazardous Materials

– Recover precious metals

Most well-run global organizations follow the strictUnited States environmental standards throughout the world

Page 24 24

Six categories of Material for Disposal

Excess - Surplus

Obsolete - No longer required

Rejected End Items – Poor conformance to specifications

Scrap - Residual from a production process; rejected components. May be converted to another use

Waste – Similar to scrap, but unusable

Hazardous (HazMat) – Toxic, flammable, corrosive

Page 25 25

Actions to take before disposal

– Carry excess materials for a reasonable time (Forecasts change frequently; what appeared to have no demand may soon be required)

– Find a substitute use for the item

– Find another division or Business Unit (for large organizations) that may need the material

– Disassemble and sell the spare parts

– Have a “fire sale” and sell for less than standard price (similar to a garage sale for a business)

– Repair damaged goods and sell as refurbished

Page 26 26

Business Reasons for carefully Managing Disposal

Receive some amount revenue (even if deeply discounted from original cost)

Avoid the risk of poor quality products delivered to customers

– Ensure that no issues emerge that could impact image and liability

Protect Intellectual Property

– Many items have been taken from landfills and been reverse-engineered. Any item that might represent a competitive advantage must be removed or destroyed before disposal

Comply with governmental regulations

Reclaim some amount of the original material and protect the environment

Page 27 27

Methods for Waste disposal

– Sell “as-is” to non-competing markets

– Public auctions

– Return excess to the original supplier (an acceptable instance for paying restocking charges)

– Consign to a broker

– Sell to a dealer

– Donate to charities and schools

The skills and contacts that exist in the Purchasingorganization are ideal for negotiating disposal deals