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Unit 2: Homework Assignment

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Introduction

Each chapter of your textbook has a list of study questions. Check your understanding of the concepts by completing the selected study questions.

Requirements

· Each question response should be 50-100 words.

Due Date

· Submit by Sunday, 11:59 p.m., CST.

Homework Assignment Questions

· Chapter 3, Page 76,  Questions # 1, 2, 4, 6, 10

provide a definition of logistics and a rationale for why is it important in private companies and public organizations ?

Logistics refers to the control and supervision of the movement of goods. Logistics can be considered a mixture of professional disciplines such as: Planning, Controlling, Directing, Coordination, Forecasting, Warehousing and Transportation, Facility Location, and Inventory Management. In business terms, it can be summarized as a competitive strategy adapted by the enterprise to meet and exceed the expectations of its existing and prospective customers. Logistics management encompasses logistics systems in the private and public sector, government and nonprofit organizations. Every company from restaurants, to banks and hospitals all have need for a productive logistics management system

2.Explain the importance of logistics on a macro level and the contributions of logistics to the economy?

Answer:

Logistics is important on a macro level because it assists with the growth in the economy. If more goods and services are produced, total logistics costs will increase. The reduction in relative cost allows organizations to be more competitive since it directly impacts the cost of producing goods. It can be argued that the turnaround that occurred inthe U.S. economy in the early 2000s was due in part to the reduction in relative logistics costs.

4.Explain the relationship between logistics and supply chain management?

Answer:

Supply Chain Management is a process that is always evolving and changing to become more efficient and effective in the way that it manages a company’s products and services. This is done by consolidating with different aspects throughout their supply chain including but not limiting to the marketing, transportation, manufacturing, planning, storing, and managing of the products. The relationship that supply chain management has with logistics is that each one of these aspects listed above use their own form of logistics to help determine what needs to be improved or changed and what they can do to help them with these improvements and changes. For example, in and outbound logistics is and was a form of improvement to the transportation aspect of the supply chain. This form of improvement helped save millions of dollars in transportation costs which in turn could be spent on other factors of the supply chain to improve or upgrade more than just transportation. Logistical managers have also determined different ways to package products so that they last longer in storage and in transit which also saves the company money, time and materials. Therefore, as you can see from the examples above logistics is a form of improving the effectiveness and efficiency of the supply chain.

6.Discuss the relationship between manufacturing and logistics. What are the trade-offs between the two areas?

Answer:

The following are a couple of points about the relationship between manufacturing and logistics:

· The main interface between the two relates to the length of the production run. Manufacturing efficiency is often based upon long production runs or scale with infrequent manufacturing line setups or changeovers. 

· Managers must analyze the cost trade-offs of longer and shorter production runs and their impact on inventory cost; depending on how long the manufacturer is producing for impacts the costs involved with logistics

· This is especially important for seasonal products

· The two also interface with the inbound side of production

· The logistics manager should ensure that available quantities of raw materials are sufficient to meet production schedules and that are conservative to in terms of inventory carrying costs.

10.What product characteristics affect logistics costs? Discuss the effects of these characteristics on logistics costs.

Answer:

The different characteristics of products that affect logistics cost include:

· Dollar Value

· The product’s dollar value typically affects warehousing costs, inventory costs, transportation costs, packaging costs, and even materials-handling costs. As the product’s dollar value increases, the cost in each identified area also increases. Transportation prices reflect the risk associated with the movement of goods, and higher value products are often more susceptible to damage and loss and/or require more care in the movement. Transportation providers may also charge higher prices for higher-value products since these customers may be willing to pay higher rates for transportation service. Warehousing and inventory costs also increase as the dollar value of the product increases. Higher value means more working capital invested in inventory, resulting in higher total capital costs. In addition, the risk factor for storing higher-value products increases the costs of obsolescence and depreciation. Also, since the physical facilities required to store higher-value products are more sophisticated, warehousing costs increase with higher dollar value products.

· Density

· Density affects transportation and warehousing costs. As density increases for a product, its transportation and warehousing costs tend to decrease. The less dense an object usually the bigger and heavier it is, therefore the more space and floor weight it takes up the more it costs to store.

· Susceptibility to damage

· The more fragile that a product is the more precautions that are taken out to make sure the product stays undamaged. When providers for transportation are aware that it is a fragile product they normally charge more in order to make sure the risk and liability are compensated for in case the product is damaged, and they need to replace it.

· Special handling requirements

· These special requirements usually increase transportation, warehousing and packaging costs in order to maintain the added requirements safety

Chapter 4, Page 128,  Questions # 1, 2, 3, 5, 6, 7, 8, 9

1.In what ways can the design of a firm’s logistics/supply chain network affect its ability to create value for customers through efficiency, effectiveness, and differentiation?

When choosing a design, a firm must think of one that will bring optimum results. Following the key steps in designing a network ensures that coordination with the overall business strategy is adhered to. They are : Define the Logistics/Supply Chain Network Design Process, Perform a Logistics/Supply Chain Audit, Examine the Logistics/Supply Chain Network Alternatives, Conduct a Facility Location Analysis, Make Decisions Regarding Network and Facility Location, and Develop an Implementation Plan.

2. What are the steps in the process of logistics/supply chain network design? Of these steps, which are most relevant to the task of selecting a specific site for a logistics facility?

Answer :

There are major the six major steps that are recommended for a comprehensive logistics network design process.

Step 1: Define the Logistics Network Design Process Of initial importance is the formation of a logistics network reengineering team to be responsible for all elements of the logistics network design process. This team will first need to become aware of overall corporate and business strategies and the underlying business needs of the firm and the supply chains in which it is a participant. Also in this step, it is important to establish the parameters and objectives of the logistics network design or redesign process itself. An awareness of the expectations of senior management, for example, is essential to the effective progress of the overall reengineering process. Issues pertaining to the availability of needed resources in the areas of funding, people, and systems must be understood at an early stage in the process

Step 2: Perform a Logistics/Supply Chain Audit The logistics/supply chain audit provides members of the transformation team with a comprehensive perspective on the firm’s logistics process. In addition, it helps to gather essential types of information that will be useful throughout future steps in the redesign process.

· Customer requirements and key environmental factors

· Key logistics goals and objectives

· Profile of the current logistics/supply chain network and the firm’s positioning in respective supply chain(s)

· Understanding of key logistic/supply chain activities and processes

· Benchmark, or target, values for logistics/supply chain costs and key performance measurements

· Identification of gaps between current and desired logistics/supply chain performance (qualitative and quantitative)

· Key objectives for logistics/supply chain network design, expressed in terms that will facilitate measurement

Step 3: Examine the Logistics/Supply Chain Network Alternatives The next step is to examine the available alternatives for the logistics/supply chain network. This involves applying suitable quantitative models to the current logistics system as well as to the alternative systems and approaches under consideration. The use of these models provides considerable insight into the functioning and cost/service effectiveness of the various possible networks. Essentially, the principal modeling approach will be optimization, simulation, heuristic, or some combination of these three approaches that are explored in detail later in this chapter. Briefly, optimization approaches search for“best”solutions, simulation models replicate the functioning of the logistics/supply chain network, and heuristic techniques are able to accommodate broad problem definitions but do not provide optimum solutions.

Step 4: Conduct a Facility Location Analysis Once a general configuration of the desired logistics/supply chain network has been recommended, the next task is to carefully analyze the attributes of specific regions and locales that are candidates for sites of logistics facilities, distribution centers, crossdocking operations, etc. These analyses will have both quantitative and qualitative aspects. Many of the quantitative elements have already been incorporated into Step 3 of the modeling effort. The qualitative aspects, to be discussed in a later section of this chapter, include such considerations as labor climate, transportation issues, proximity to markets and customers, quality of life, taxes and industrial development incentives, supplier networks, land costs and utilities, overall supply chain and logistics infrastructure, and company preference.

Step 5: Make Decisions Regarding Network and Facility Location Next, the network and specific sites for logistics facilities recommended in Steps 3 and 4 should be evaluated for consistency with the design criteria that were identified in Step 1. This step should confirm the types of change that are needed to the firm’s logistics network and should do so in the context of overall supply chain positioning.

Although the feasibility of involving third-party suppliers should have been incorporated into the alternatives that were evaluated in the two preceding steps, the decision to involve external suppliers will have cost and service implications as well as strategic ones.

Step 6: Develop an Implementation Plan Once the overall direction has been established, the development of an effective implementation plan, or “blueprint for change, “is critical. This plan should serve as a useful road map for moving from the current logistics/supply chain network to the desired new one. Since it was known from the beginning that this transformation process was likely to produce recommendations for significant change, it is important that the firm commit the resources necessary to assure a smooth, timely implementation, and the continuous improvement of the network decisions that will have been made.

5.What are the major locational determinants, and how does each affect the location decision?

They are as follows:

Labor climate: the cost and availability of labor are major issues of concern.

Availability of transportation: Depending on the product type and industry to be served, it may require a variety of transportation services.

Proximity to markets and customers: The greater the number of customer firms within the market area, the greater the competitive advantage offered by the proposed location.

Quality of life: This is more important to companies that must attract and retain a mobile professional and technical workforce capable of moving to any location

Taxes and industrial development incentives: It is important to have prior knowledge of the taxes that apply to businesses. Certain incentives may be available to entice companies to come to the area.

Supplier networks: It is important to know how the proposed building sites will fit with the geographic locations of key supplier facilities.

Land costs and utilities: Questions regarding minimum or amount of land needed and the availability of utilities in the area need to be considered.

Company preference: Some CEO’s may prefer a certain region or location over others.

6.What is the difference between a regional/national location decision, and in what ways do the determinants of each differ?

A national location encompasses the whole nation, while a regional location focuses on a particular region or area of the nation.

7.Discuss the role of logistics variables in the decision as to where to locate a plant or distribution center.

Logistics variables include the availability of transportation, freight cost, and the geographical market size that can be served. The more customers that are out there, the more competitive advantage there is for businesses.

8.What are the principal types of modeling techniques that apply to the task of logistics/supply chain network design and facility location? What are the strengths and limitations of each?

The principal modeling approaches are optimization, simulation, and heuristic models. The first uses mathematical programming to find the optimum solution. In this case, the user is guaranteed the best solution based on the given data. With the linear programming in this approach, it does not allow for consideration of fixed as well as variable costs of operating logistics facilities. The second approach, simulation, allows the decision maker to test the effect of alternative locations upon costs and service levels. It evaluates the selected sites to determine respective costs. But this approach does not guarantee an optimum solution but only evaluates the alternatives that have been entered. The final approach, heuristic, can reduce a problem to a manageable size and search the alternatives to find a better solution. This approach can provide a good approximation to the least-cost location in a complex decision problem. This also does not provide optimum results.

9.Describe the grid technique. What is its purpose, and how does it lead to the making of a decision? What are its strengths and limitations?

The grid technique attempts to determine a fixed facility location that represents a least cost center for moving materials within a geographic grid. It is fairly simplistic and allows for a starting point for location analysis. It makes the decision maker focus on an area that is advantageous to logistics. The limitations however are that if any changes occur to , it will shift the least-cost center. It also assumes linear transportation rates, and also does not consider topographic conditions existing at the optimum location.

· Chapter 5, Page 161,  Questions # 1, 3, 4, 5, 6, 7, 8

1. Describe and discuss the differences and relationships between purchasing, procurement, and strategic sourcing. How have these concepts evolved?

Buying of raw-materials which involves many activities such as placing orders to the suppliers and paid money for it which is called purchasing.

The activities that are required to acquired the goods are called procurement.

Arranging best cost effective channels of supply are formed for getting good relationship between the suppliers and the company makes the effective strategic sourcing.

The differences and relationships between the above concepts are as follows:-

A.

· The scope of purchasing is narrow.

· Procurement has a broader scope than purchasing, but narrower than strategic sourcing.

· Strategic sourcing has the widest or broadest from all.

B.

· Purchasing has activities which are transactional in nature.

· The strategic process which is mainly focused on the well management of the company which is the process of procurement.

· Strategic sourcing involves activities which are of transformational in nature.

Due to the industrial revolution, there was increasing the trend of mass production which was the marked for increasing purchasing power.

From the purchasing concept, procurement concept was developed. Before world wars the concept of purchasing and procurement was mainly clerical.

Lastly, the concept of strategic sourcing was began to popular the mid '90s. In this way the concept of purchasing, procurement and strategic sourcing was evolved.

3. the MSSP process can be described in trems of a series of elements that should be used in the purchase of goods and services. Briefly discuss these elements.

An managed security service provider (MSSP) provides outsourced monitoring and management of security devices and systems. MSSP process can be described in terms of a series of elements that should be used in the purchase of goods and services. The elements are :

· Develop Strategic Plan: Create cross- functional planning committee, identify key members of sourcing team, agree on scope of sourcing process.

· Understand spend: Refine understanding of sourcing needs of process-owners, perform spend analysis, address issues of make vs. buy.

· Evaluate Supply Sources: Conduct market analysis, evaluate supplier alternatives, pre-qualify potential suppliers.

· Finalize Sourcing Strategy: Define elements of procurement strategy, agree on supplier selection criteria.

· Implement Sourcing Strategy: Manage procurement process, select suppliers, award business to select suppliers.

· Onboarding and Transitioning: Finalize understandings and agreements with suppliers, create management process for new suppliers, conduct transition and onboarding process.

· Collaborative Process Improvement: Regular feedback and communications, Locate the sources of price, calculate traditional basic input costs, calculate direct transaction costs, calculate supplier relational costs, calculate landed costs, form quality costs, and operational logistics costs. When you have all of these you can see what you can lean on.

4. Maximizing the effectiveness of the procurement process is a major goal of an organization. What steps can be taken to help ensure that the process is maximized?

Answer: Managing the sourcing and procurement process can be difficult for a multitude of reasons, ranging from inflexible organizational structures to inflexible organizational cultures. However, most firms should find the process relatively straightforward. What must be remembered when dealing with these activities is that all firms are different and will have different requirements for the procurement process. A four-step approach can be used and adapted to a firm’s particular needs. To maximize effectiveness, the following steps may be considered:1. Determine the type of purchase. In the strategic sourcing process, identifying the type of purchase will many times dictate the complexity of the entire process. Of the three types of purchasing activity, for example, the straight rebuy situation would involve only minimal additional effort in terms of procurement activities. Alternatively, the modified rebuy, and certainly the new buy situations, would involve significantly more effort.2. Determine the necessary levels of investment. The strategic sourcing process requires two major types of investments by the firm: time and information. Time is expended by the individuals involved in making the purchase; the more complex and important the purchase, the more time must be spent on it, especially if it is a new buy. Information can be both internal and external to the firm. Internal information is gathered concerning user requirements and the implications that the purchase will have for the firm. External information concerning the input to be purchased may be gathered from supply chain members, potential suppliers, and others. The more complex and important the purchase, the more information is needed for the procurement process to be effective. By determining the type of purchase (which is also a function of the user’s needs), the procurement professional can determine the levels of investment necessary in the procurement process. Problems can occur when not enough or too much investment is made to satisfy a particular user’s needs. Determining the level of investment needed in time and information to adequately meet a user’s requirements is a firm-specific process. Once the level of investment is decided, the strategic sourcing process can take place.3. Perform the procurement process. This is a relatively easy step to describe but can be a complex step to perform, depending on the situation. It includes performing those activities necessary to effectively make a purchase and satisfy the user’s requirements. This step also allows the procurement professional to collect data on the time and information actually used in making a specific purchase. The ability to measure the actual investment and how well a user’s needs were satisfied is important to the final step in managing the strategic sourcing process. 4. Evaluate the effectiveness of the strategic sourcing process. This is a control step that asks two questions: (1) were the user’s needs satisfied? And (2) was the investment necessary? Remember, the goal is to invest only enough time and information to exactly satisfy the user’s needs. If the process was not effective, the cause could be traced to not enough investment, not performing the proper activities, or mistakes made in performing one or more of the activities. In any case, when the strategic sourcing process is less effective than would be desired, the cause(s) must be identified and corrective actions taken to make sure that future sourcing strategies will prove to be effective. If the purchase satisfied the user’s needs at the proper level of investment, the strategic sourcing process may be deemed to be effective and can serve as a reference for future purchases. Thus, although the procurement process is complex, it can be managed effectively as long as the manager develops some systematic approach for implementing it. A key factor in achieving efficiency and effectiveness in this area is the development of successful supplier (vendor) relationships. In fact, many professional procurement/materials managers agree that today’s global marketplace requires developing strong supplier relationships in order to create and sustain a competitive advantage. Companies such as NCR and Motorola go so far as to refer to suppliers (vendors) as partners and/or stakeholders in their company. When vendors are “partners, “companies tend to rely more upon them to provide input into product design, engineering assistance, quality control, and so on.

·

· 5. A key part of the procurement process is the selection of suppliers. What criteria are commonly used in this selection process? Which criteria should be given the highest priority? Why?

· Answer: The most important factor in vendor selection is usually quality. As was indicated earlier, quality often refers to the specifications that a user desires in an item (technical specifications, chemical or physical properties, or design, for example). The procurement professional compares the actual quality of a supplier’s product with the specifications the user desires. In actuality, quality includes additional factors such as life of the product, ease of repair, maintenance requirements, ease of use, and dependability. In today’s total quality management (TQM) environment, not only are quality standards higher, but the supplier may also have to assume the major responsibility for quality. Reliability comprises on-time delivery and performance history, the second- and third-ranked factors for most procurement professionals. To prevent production line shutdowns resulting from longer-than-expected lead times, the buyer requires consistent, on-time deliveries. Also, the performance life of the procured product directly affects the quality of the final product, the manufacturer’s warranty claims, and repeat sales. Finally, in cases of material malfunction, the buying firm considers the supplier’s warranty and claim procedure a reliability measure. Reliability is often considered a part of a total quality management program. It should also be noted that the growing reliance upon foreign suppliers presents some special challenges to the achievement of reliability because of the distances involved. A factor of great, contemporary relevance is risk. One way this may occur is if there is likely variability in the cost of purchased products or services that may result in higher prices. Other ways in which risk may occur include supply uncertainties and unusual variation in delivery lead times. In either case, the result may be that the purchased products or services are not available when and where they are needed, thus introducing additional cost to develop appropriate countermeasures. The fourth major supplier selection criterion, capability, considers the potential supplier’s production facilities and capacity, technical capability, management and organizational capabilities, and operating controls. These factors indicate the supplier’s ability to provide a needed quality and quantity of material in a timely manner. The evaluation includes not only the supplier’s physical capability to provide the material the user needs, but also the supplier’s capability to do so consistently over an extended time period. The buying firm may answer this long-run supply concern by considering the supplier’s labor relations record. A record of supplier-labor unrest resulting in strikes may indicate that the supplier is unable to provide the material quantity the user desires over a long time period. A firm that buys from this supplier will incur increased inventory costs for storing material in preparation for likely disruptions in the supplier’s business due to labor strife. Again, sourcing from global suppliers makes this assessment more challenging. Financial considerations constitute the fifth major supplier selection criterion. In addition to price, the buying firm considers the supplier’s financial position. Financially unstable suppliers pose possible disruptions in a long-run continued supply of material. By declaring bankruptcy, a supplier that supplies materials critical to a final product could stop a buyer’s production. This criterion has become especially important in purchasing transportation service from truckload motor carriers. With the trend toward companies utilizing a smaller number of carriers, the financial failure of such a supplier is a major problem and source of disruption in a supply chain. The remaining supplier selection factors may be grouped into a miscellaneous category of desirable, but not always necessary, criteria. Although the buyer might find the supplier’s attitude difficult to quantify, attitude does affect the supplier selection decision. A negative attitude, for example, may eliminate a supplier for a buyer’s consideration. The impression or image that the supplier projects has a similar effect on supplier selection. The importance of training aids and packaging will depend on the material the buyer is purchasing. For example, packaging is important to buyers of easily damaged material, such as glass, but not important to buyers purchasing a commodity that is not easily damaged, such as coal. Training aids would be significant to a firm selecting suppliers to supply technical machinery such as computers and robots but not to a firm seeking office supplies. Likewise, a buyer would consider the availability of repair service more important when buying technical machinery another supplier selection factor is geographical location. This factor addresses the issue of whether to buy from local or distant suppliers. Transportation cost is one obvious aspect of this issue. Other factors, such as the ability to fill rush orders, meet delivery dates, provide shorter delivery times, and utilize greater supplier-buyer cooperation, favor the use of local suppliers. However, distant suppliers may provide lower prices, greater technical ability, greater supply reliability, and higher quality. This is again a choice faced more frequently in today’s global environment. The relative importance of the supplier selection factors will depend upon the material the buyer is purchasing. When a buyer purchases a computer, for example, technical capability and training aids may be more important than price, delivery, and warranties. Conversely, a buyer of office supplies would probably emphasize price and delivery more than other factors.

6. What are the components of TLC? Is it realistic to expect companies to consider all these components?

The components of TLC- total landed costs are all those costs that are incurred for bringing the product to the market for selling. They can be import, export duties, indirect taxes, quota and excise fees, transportation fees and following fees.

It is important to consider all of these components as that is how the accurate cost of a product will be knows to set its price and derive profits from it. If these costs are not levied on the product price then they will have to be borne by the company as a loss. Hence identifying all of them and setting including them in the actual cost of the product is essential.

7. Discuss the advantages and disadvantages of using e-commerce in the procurement process

7. Advantages of using e-commerce in the procurement process:

Through E-commerce the procurement sector has improved the efficiency of organizations and it is used to support the drive for organization profitability.

Less Cost

E-procurement provide cost-effectiveness through the online procurement solution software. It saves money by reducing duplication and offer pricing packages that empower to pay for utilization. This allows to save time through increasing the productivity on other tasks.

Improved Organization

Many organizations struggle to manage purchases and place order according to the schedule due to the disorganization. This disorganized procedure may be problematic to change and can lead to exemptions. E-procurement helps to offer suitable solution as it can restructure buying and also reduce the problems in purchasing procedure through centralized purchasing.

Errorless Task

E-procurement helps to streamline the complete purchasing process through online solution and thus it becomes easy to refer the errors. It provides the details for the organization to understand the previous order details for the comparison.

Technical Issues

E-procurement software provide the information of the report through comprehensive data analytics and data classification. If the data has been categorized as per the customization alternatives, it has to be handled by the same person. Data analytics includes high number of fields and unless the person is efficient to understand it may lead to confusion.

Onboarding Issues

The new online procurement software frameworks is hard for the established vendors to understand the details. There can be difficulties for the independent ventures on refreshing inventories with data platform. It is mandatory to select well-informed suppliers to completely profit by e-procurement and also there should be a proper monitoring of the procurement drifts is required to apply them to improve proficiency and efficiency of the organization.

Suitability

E-procurement is mainly used in the purchase catalog based on indirect materials, for example, office supplies. E-procurement is suitable only when purchasing direct materials and services. So, to get good returns for purchases it is advisable to utilize it for arranging expensive and costly purchases.

8. Describe the different types of e-commerce business models available for procurement and point out their respective benefits and disadvantage.

Seller-side Procurement Model – This model helps to configure the complex products but it doesn’t include any automatic comparison.

Buyer-side Procurement Model – It provides well supported internal authorization but it may provide poor data quality