Materials Management
BUS 3 – 141
Physical Inventory:Logistics, Transportation, & Disposal
Week of Feb 19, 2007
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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
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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
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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
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Transportation Modes: Planes, Trains, and Automobiles
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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
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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
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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
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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
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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
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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
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Other logistics services
– Expedited shipments, including same day services
– Freight forwarding
– Reserving dedicated freight capacity
– Brokering between shipper and carriers
– Customshouse brokers for imports
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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