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The final cost element for consideration is that of information system costs. These costs may represent a variety of information or communication requirements ranging from order processing to load assembly lists. In recent years, there has been a significant move from manual systems towards the use of computerized information systems to provide these requirements. These costs can vary because of the fast rate of change of information systems and the level of technology introduced.
By its very nature logistics operates in a dynamic and ever-changing environment. This makes the planning of a logistics structure a difficult process. By the same token, it is not an easy matter to appreciate how any changes to one of the major elements within such a structure will affect the system as a whole. One way of overcoming this problem is to adopt a 'total' view of the system, to try to understand and measure the system as a whole as well as in relation to the constituent parts of the system.
Total logistics cost analysis allows this approach to be developed on a practical basis. The various costs of the different elements within the system can be built together. This provides a fair representation, not just of the total logistics cost, but also of the ways in which any change to the system will affect both the total system and the elements within the system.
The concept of trade-off analysis is a key feature of this total cost approach to logistics planning. It has been shown that any change in one of the major elements within a logistics system is likely to have a significant effect on the costs of both the total system and the other elements. By the same token, it is often possible to create total cost savings by making savings in one element, which creates additional costs in another but produces an overall cost benefit.
The cost and service trade-offs within any logistics structure will, of course, vary from one company to another depending on the role the company plays within the supply chain as a whole. In the main, however, the following major costs and their associated trade-offs may need to be considered and assessed:
• Production costs. These will vary according to the type of production process or system used and the type of product manufactured. Make-to-stock or make-to- order will also be relevant. Factories may be 'focused' on one or two specific types of product or may make a large range of different products. Different distribution
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structures may be required to support different types of product. The effect on primary transport costs will be very relevant.
•Packaging costs. These are mainly concerned with the trade-off between the type of packaging and the handling and transport costs. The type of load unitization will also be important.
•Information systems costs. These cover a wide area from order receipt to management information systems. The type of DC network will affect many of these costs.
•Lost sales costs. These might occur because of inadequate customer service, and are very relevant in the context of the proximity of the DC to the customer, together with the reliability and speed of service.
•Inventory costs. These include the cost of capital tied up in inventory as well as the cost of obsolescence, etc. They have a fundamental relationship with the DC network in terms of the number of stock-holding points and the hierarchy of stockholding according to DC type.
•Transport costs. The number and location of sites within the distribution structure, and the associated throughputs significantly affect transport costs. Both primary transport and final delivery costs are affected by DC numbers and location.
•Warehousing costs. These costs vary according to the type of storage and handling systems used, together with the volume and throughput at the site. The size and type of site will thus be important, as will the location.
1. Match the words or phrases on the left with the definitions on the right.
1.network |
a) a group of |
similar |
or related goods that |
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is produced by using a |
particular |
group |
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of manufacturing procedures, processes or conditions. |
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2.option |
b) to make it easier or more likely to happen. |
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3.vehicle |
c) the nearness to a |
place or a person. |
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4.merger |
d)transport, usually |
trucks of heavy loads of freight for |
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long distances or between cities. |
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5.takeover |
e) a machine such as a car, bus, or truck which has an |
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engine and is used to carry people or cargo from place |
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to place. |
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6.impetus |
f) a system of things which are connected and which |
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operate together |
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7.buffer |
g) a manufacturing method which aims to reduce |
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wastage, for example by keeping stocks low and by |
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working more flexibly. |
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8.throughput |
h) the act of gaining control of a company by buying |
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more of its shares than anyone else. |
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9.proximity |
i) the amount of things it can do or deal with in a |
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particular period of time. |
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10.line-haul vehicle |
j) the joining together of two separate companies or |
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organizations so that they become one. |
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11. production runs |
k) something makes a process happen or progress more |
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quickly. |
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12.lean manufacturing |
l) to change a lot in an irregular way. |
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13.discrete |
m) something that prevents something else from being |
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harmed or that prevents two things from harming each |
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other. |
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14. to facilitate |
o) a large and important change, increase, or advance. |
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15. to fluctuate |
p) something that you can choose to do in preference to |
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one or more alternatives. |
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16.leap |
q) separate and distinct from each other. |
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2. Find the words in the text meaning the following:
Channels; to be informed about; prime, supreme; estimation, evaluation; to alter, to differ; applicable; to go up and down; an alternative, a choice; to develop; impulsion, push.
3. Comprehension/interpretation:
1.What is the common reason why logistics networks are out of balance?
2.What are the main reasons why DCs and warehouses are required?
3.What are extreme solutions to the best possible customer service? What is the compromise between these extremes?
4.What are the types of DCs?
5.What kind of information makes it possible to measure the effectiveness of the existing logistics operations?
6.What will the importance of storage and warehousing costs depend upon?
7.How does the economy of scale illustrate the effect of the site size?
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8.What are the types of delivery distance?
9.When is the effect of primary transport elements greater?
10.What are four main areas of key costs?
11.What major costs and their associated trade-offs may need to be considered and assessed in logistics planning?
4.Give explanations to the following.
Decoupling point
“Drop” distance “Stem” distance
Primary transport Information system costs Total logistics cost analysis Lost sales costs
5.Fill in the gaps with missing prepositions.
1.Prior ____ the DC location decision, a lot of work must be undertaken.
2.Generally, it is necessary ____ a compromise to be reached _______ what is 'best' and what is currently ___ existence.
3.It needs a forward-looking management or a particularly significant change ____
a company to undertake a large-scale study ____ this nature.
4.The recent realization ___ the importance ____ logistics to most companies, and the need to cut costs and improve efficiency, have provided sufficient impetus
____ a number ____ companies to review their logistics and distribution structure _____ a particular emphasis ____ the use and location ____ DCs and warehouses.
5.There are a number of reasons why DCs and warehouses are required. These vary ____ importance depending ____ the nature ____ a company's business.
6.This helps to smooth the flow ___ products ___ the supply chain and assists ___
operational efficiency, enabling an 'agile' response to customer demands.
7.____ the other extreme, the cheapest solution would be to have just one DC (or central warehouse) and to send ____ a large truck to each customer whenever his or her orders were sufficient to fill the vehicle so that an economic full load could be delivered.
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8._____ certain operations, ___ course, even these simple relationships will vary because ____ the need ____very high levels ___ customer service or the very high value ___ products.
9.To plan an efficient logistics structure, it is necessary to be aware ___ the interaction _______ the different distribution costs, specifically as to how they vary ____ respect ___ the different site alternatives.
10.______ this system, it is possible to trade off one element _____ another, and so gain an overall improvement ____ the cost-effectiveness ___ the total system.
11.This is because larger DCs can often achieve better space and equipment utilization and can benefit _____ spreading overhead costs _____ the higher throughput.
12.They have a fundamental relationship _____ the DC network ___ terms ___ the number ___ stock-holding points and the hierarchy ___ stock-holding according
___ DC type.
6. Chose the correct alternatives to complete the text below. A planned approach or methodology
An approach to logistics and distribution strategy 1) ________ describes the practical steps that need to be taken 2) ________ a physical distribution strategy from a corporate business plan. This type of approach requires the collection, collation and analysis of a great deal of data. It is thus 3) _________, although a degree of qualitative assessment may also be necessary.
Some initial points to note are:
• Great care should be taken 4) _________ the precise overall problem. It is likely to be concerned with the use and 5) _________ of DCs within a distribution network, but it is vital to have clear limits and boundaries. These might include, for example, whether all production 6) _________ must be retained, whether product 7) ________ can be relocated or whether there are existing sites that cannot be closed down.
•The planning horizon into the future needs to be determined.
•All relevant cost 8) _________ need to be identified and understood.
•The relevant product 9) _______ for different patterns of demand and supply need to be established. Important aspects will include the type of products, the 10)
_______ of these products (factories, etc), the 11) _________of products (shops,