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GLOBAL PURCHASING & MATERIALS HANDLING
CHAPTER VIII
PHYSİCAL DİSTRİBUTİON
OUTLİNE
Introduction to physical distiribution
Channels of distributions
Physical Distribution Activities
Transportation Costs
Warehousing Role in Physical Distribution
A sophisticated physical distribution method: Milk Run
PHYSİCAL DİSTRİBUTİON
The activities associated with the movement of material,
usually finished goods or service parts, from the
manufacturer to the customer”
Physical Supply is the movement and storage of goods
from supplier to manufacturing.
Physical Distribution is the movement and storage of
finished goods from the end of the production to the
customer.
PHYSİCAL DİSTRİBUTİON
CHANNELS OF DİSTRİBUTİON
Company may deliver directly to the customer.
Company uses other companies or individuals to deliver
goods.(Intermediaries)
Wholesalers, agents, transportation companies,
warehousers are example for intermediaries.
The Transaction Channel: Negotiating,
selling,contract.intangible
The Distribution Channel:Movement of goods.tangible.
PHYSİCAL DİSTRİBUTİON
THE WAY OF MATERİAL MOVEMENT
The channels of distribution being used.
The type of market. Geographic Dispersion
Number of Customers
The characteristics of Product: Weight, density, fragility.
The type of transportation avaibility.
REVERSE LOGİSTİCS
Supplier Customer
Returned Goods
Information
REVERSE LOGİSTİCS
A complete supply chain dedicated to the reverse flow
of products or materials for the purpose of returns,
repair , remanufacture, and or recycling. (Publishing
industry, automative industry)
Asset Recovery: Return of actual products.
Green Logistics: Sorting and movement of
enviromentally sensitive materials.
REVERSE LOGİSTİCS
Goods are returned for reasons;
Quality Demands by the final customers
Damaged or defective products
Inventories that result from over-forecast demand
Seasonal Inventories
Out of date Inventories
Remanufacturing and refurbishment of products.
PHYSİCAL DİSTRİBUTİON ACTİVİTİES
Transportation
Distribution inventory
Warehouses
Materials handling
Protective packaging
Order processing
PHYSİCAL DİSTRİBUTİON ACTİVİTİES
Transportation: Add place value to the product moved. It
is the single highest cost in distribution, accounting for
from 30% to 60% of the total distribution cost.
Distribution Inventory: All finished goods inventory at any
point in the distribution system. It includes 25%-30% cost
of total distribution cost.It adds time value to the product.
Warehouses: Making decisions, layout plans, method of
receiving, storing goods.
PHYSİCAL DİSTRİBUTİON ACTİVİTİES
Materials Handling: The movement of goods inside the
distribution center. There is a trade-off between capital
and labor costs.
Protective Packaging: Goods moving in a distribution
system must be protected and identified by means of
packaging. Standartization in packaging.
Order Processing and Communication: It is a time
element in whole process and the most important part of
customer service.
TOTAL DİSTRİBUTİON COST
The aim of distribution system is to provide the
customer service at the least total system cost.
Changes in one activity will affect other activities, total
system cost and customer service.
Management must treat the system as a whole and
understand the relationships among them.
TOTAL DİSTRİBUTİON COST A company normally ships a product by rail. Transport by rail
costs $200, and the transit time is 10 days. However, the can
be moved by air at a cost of $1000 and it will take one day to
deliver. The cost of inventory in transit is $100 per day. What
are the costs involved in the decision?
Rail Air
Transportation Cost $ 200 $1000
Inventory Carrying Cost 1000 100
Total $1200 $1100
TRANSPORTATİON MODES Rail
Road
Air
Water
Pipeline
The cost or service characteristic of each mode determine
which mode is appropriate for the goods to be moved. Trucks
are best suited to moving of smal quantities in a wide market
and bulk cargo is moved by water way or rail-way.
TRANSPORTATİON COSTS Fixed Costs: The costs that do not change with the volume
moved : buildings, equipment, trucks.
Variable Costs: The costs that changes with the volume
moved: Maintenance, labor cost, fuel.
COMPARİSON OF MODES Rail-way: It provides its own ways, terminals and vehicles
thus they need a large capital investment. Most of the total
cost of a railway is fixed cost.
We need high traffic on railways to absorb high fixed cost.
Flexible
Cheaper than road service when carrying bulk goods.
Therefore, railways can move large volumes of bulky goods
over long distances.
COMPARİSON OF MODES Road-way:
Trucks do not provide their own way but they pay a fee to the
government as license, tolls and taxes.
Vehicle cost is smaller than vehicle costs for the other modes.
Door-to-door service is very flexible for either supplier or
purchaser.
This mode is used for small volume goods to many delivery
locations.
COMPARİSON OF MODES Air-way:
Uses government provided terminals and air traffic control
systems.
High variable costs for fuel and operating costs.
The main advantage is speed of service on the other hand it is
the most expensive mode.
Used for high value, low weight goods over long distances.
COMPARİSON OF MODES Water-way:
Nature provides ways, canals are government controlled.
Carrier pays for use of terminals.
Carriers own the ships.
Unit operating cost is very low.
Slow and not very flexible.
It is used for low value bulk cargo over long distances.
COMPARİSON OF MODES Pipelines:
Pipelines are the modes of transportation in that they move
only gas, oil on a widespread basis.
They have very high capital costs.
It is not so flexible.
TRANSPORTATİON COST ELEMENTS Line Haul Costs:
Fuel ,Labor, Depreciation are in this group of cost.
It is approximately the same per mile whether full or empty. LHC = Total Line-Haul Cost
Distance Travelled
TRANSPORTATİON COST ELEMENTS Pick up and Delivery Costs:
Pick up costs depend more on time rather than distnace
travelling.
Making several shipments at one time or consolidation of
cargo will reduce the costs.
Terminal Handling Costs:
Cost depends on how many times the shipment must be
handled.
TRANSPORTATİON COST ELEMENTS Pick up and Delivery Costs:
Pick up costs depend more on time rather than distnace
travelling.
Making several shipments at one time or consolidation of
cargo will reduce the costs.
Terminal Handling Costs:
Cost depends on how many times the shipment must be
handled.
Billing and Collecting Costs:
WAREHOUSİNG TYPES İN PHYSİCAL DİSTRİBUTİON
Plant WarehousesRegional WarehousesLocal WarehousesWholesalersPublic Warehouses
WAREHOUSİNG SERVİCES General Warehouse:
Goods are stored for long periods, the aim is to protect goods
until they are needed. There is minimal handling and
movement.
Distribution Warehouse:
It has dynamic purpose of movement.
Goods are received in large volumes.
Goods are sorted and consolidated into customer orders.
ROLE OF WAREHOUSES Transportation Consolidation:
Consolidating small shipments into large shipments reduces the
transportation costs.
Milk – Run
Product Mixing:
Avoids many small LTL shipments.
Customers want a mix of products often from different
manufacturers or locations.
The distribution center can assemble many small items into one
shipment
ROLE OF WAREHOUSES
PACKAGİNG Identifies the product.
Contains and protects the product.
Contribute to physical distribution efficieny.
Unitization: The consolidation of several units into large units
for fewer handlings.
Container
AS A DİSTRİBUTİON METHOD:MİLK RUN The phrase "milk run" originates in American culture, with
the distribution of milk bottles by the milkman. On his daily
route, the milkman simultaneously distributes the full bottles
and collects the empty bottles. After the completion of round
trip, he returned with the empties back to the starting point.
On the round trips are either goods collected from several
suppliers and transported to one customer, or goods
collected from one supplier an transported to several
customers.
AS A DİSTRİBUTİON METHOD:MİLK RUN It is the combination of shipments from multiple vendors in
close geographic proximity into one shipment received by the
customer, normally done for a defined route on a recurring
basis.
AS A DİSTRİBUTİON METHOD:MİLK RUN
AS A DİSTRİBUTİON METHOD:MİLK RUN
Üretim Sonrası - Milk Run
(Boş Kasa/Palet)
Yan Sanayii (Tedarikçi) Yan Sanayii
(Tedarikçi)
Ana Sanayii
(Fabrika)Tedarikçi
Üretim öncesi - Milk Run
(Yedek Parça)
AS A DİSTRİBUTİON METHOD:MİLK RUN(ADVANTAGES) Fast inventory turnover
Less inventory and inventory area equipment
Easier inventory recording and monitoring
Speed and flexibility
Effcient Control on the subsidiary industries for the main industry
Creating economics of scale for subsidiary industry and efficient
consolidation possibility.
Ability to provide common services to different users in subsidiary
industry and productivity increase.
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