Unit 3
MBA/BBA/B.com/ PGDBM /UGC Net
By
Dr. Anand Vyas
Trade-Offs in International Logistics, Multi-Modalism
• Interaction between related activities such as the offsetting of higher
costs in one area with reduced costs or other benefits in another. In
air freight, for example, the classic “Tradeoff” is one of time (quick
delivery) versus money (greater expense).
• Total logistics costs consider the whole range of costs associated with
logistics, including transport and warehousing costs and inventory
carrying, administration, and order processing costs. Administration
and order processing costs are relative to the total volume being
handled. However, for the same volume being handled, transport and
warehousing costs will vary according to the adopted distribution
strategies.
• Here are some potential benefits to your clients that effective and efficient SCM
can provide:
• Reduced Costs: Improving your bottom line can result in bringing the costs down
for you and for your consumer.
• Better delivery: As you research and improve transportation methods, the
delivery of your product to the end user will improve.
• Enhanced Product Conformity/Reliability: Improvements to your product based
on research, design improvement and adherence to standards results in better
reliability and performance.
• Better Service: As you explore methods to better serve your customers, overall
public perception of your product will improve.
• Customer Satisfaction: Your customer will be more impressed with your product,
and therefore more apt to continue to purchase, use and enjoy it.
• Better Technology: When you add technology to the development of your
product, you improve the technology of the end product itself.
• Better Availability: As you increase your methods of delivery, shelf stocking,
sales, and product distribution, your customer benefits because your product is
there when he needs it, where he needs it.
• Multi-Modalism
• Intermodalism involves the organization of a
sequence of modes between an origin and
destination, including the transfer between the
modes. intermodalism is about organizing a
series of transportation modes (like trains,
trucks, ships) to connect different places. It
helps link transportation systems that couldn't
be connected otherwise because they serve
different areas. However, each segment of the
journey requires a separate ticket or contract.
On the other hand, multimodalism is an
extension of intermodalism where the entire
journey, including transfers, can be covered by a
single ticket or contract provided by one carrier.
Key Factors in a Transport Modes & Trade-Off
• 1) Cost of Transport
• 2). Reliability and Regularity of Service
• 3) Safety
• 4) Characteristics of goods
• 5) Budget
• 6) Timescale
• 7) Flexibility
Considerations of Speed, Frequency
• Inventory Velocity = (Opening Stock / Next Month’s Sales Forecast)
• This metric is important as it helps in the understanding of the match of the inventory in
hand to its demand. Monthly tracking of Inventory Velocity sheds light on the areas of
improvement with regards to realigning the inventory level to meet optimal levels of
results. It works in matching the supply with demand and prevents the needs for
excessive stocking in the warehouses.
• Perfect Order Measurement
• Perfect Order Measurement = [(Total orders – Error orders) / Total orders] × 100
• Inventory Turnover Ratio
• Inventory Turnover Ratio (ITR) = Cost of Goods/ [(Opening Stock + Closing Stock) / 2]
• The Inventory Turnover ratio helps determine the number of times a company sells or
turns the average inventory that is kept in the storehouses. Therefore, in other words, it
is a measure of opportunities to make profits from the working capital that is invested in
the form of inventory.
• Cash to Cash Cycle Time
• Cash to Cash Cycle Time = Materials payment date – Customer order payment date
• This ratio measures the number of days between the payment of materials to the getting the payment
for the product. It is averaged on a weekly, monthly or quarterly basis. The ratio tells of the amount of
time the operating capital is tied up for and it is important from the point of view that cash tied up is
unavailable for use for other purposes. A smooth cash to cash operation denotes a supply chain that is
profitable.
• Days of Supply
• Days of Supply = [Average inventory on hand (as value) / Average monthly demand (as value)] × 30 (for
measurement on a monthly basis)
• This forms one of the key performance indicators that measure the efficiency in supply chain.
• Days Sales Outstanding
• Days Sales Outstanding = (Receivables/Sales) × Days in Period
• This metric provides a measure of how quickly revenue can be collected from clients. The lower the day’s
sales outstanding number, the more efficient a business.
• Inventory Turnover
• Inventory Turnover = (Cost of Goods / Average Inventory)
• The Inventory Turnover denotes the number of times a company’s inventory cycle takes place during a
year. A high turnover means the supply chain is efficiently managed.
• Customer Order Cycle Time
• Customer Order Cycle Time = (Actual delivery date – Purchase order creation
date)
• This ratio measures the amount of time it takes to deliver an order to the
customer after the purchase order (PO) has been received. Another variant of
this ratio is expressed as:
• Customer Order Cycle Time = Requested delivery date – Purchase order creation
date
• Gross Margin Return on Investment
• Gross Margin Return on Investment (GMROI) = [Gross Profit] / [(Opening Stock-
Closing Stock) / 2] × 100
• The GMROI ratio is indicative of the gross profit that is earned for every average
investment that is made with regards to inventory. Tracking this metric on a
monthly cycle helps in identifying which item produces a higher gross profit in the
inventory.
• Turn-Earn Index
• Turn-Earn Index (TEI) = (ITR) x (Gross Profit %) × 100
Packing and Insurance in International
Transportation
• Sea or ocean freight transportation is often used by companies that
need to ship large amounts of goods at once. While this is the longest
mode of transportation, it is ideal for bulk shipments, especially
minerals and coal. It is a suitable option for products with long lead
times, and for large volumes, it is an affordable and economical
transportation solution. However, this mode of transportation tends
to be quite slow, is subject to customs restrictions, and can lead to
product damage due to environmental hazards and movement if your
goods aren’t packaged properly.
Load Optimization is Crucial When Loading an
Ocean Freight Container
• Inspect the container. Your container needs to be inspected carefully before anything is
loaded. Pay close attention to any contamination or residue on the floor, as these
substances could cause a negative reaction with your cargo.
• Load heavy materials first. Large, heavy items should always be loaded first on the floor
and against the container’s front wall. Lighter items should be placed at the top.
• Distribute weight across the container. If your container is loaded to maximum capacity,
it is important that the weight is evenly distributed across the floor area.
• Before loading, it is important to plan ahead. There are advanced tools and software
programs that use values like package weight, dimension, volume, and restrictions in
order to help you reach an optimal container load.
Transit Insurance Requirement
• A transit insurance plan proves to be most useful for businesses as it offers
many advantages. Here are some of the advantages of a transit insurance
policy that makes them must buy:
• The coverage offered by transit insurance provides businesses financial
support, which may encounter considerable losses when their goods are
damaged at the time of transit. In this way, it helps to keep the finances of
a business stable even after encountering a loss.
• As mentioned above, the coverage is provided as per global standards, thus
even when you are transporting your goods internationally, then as well
you can meet with the coverage requirements of that country wherein the
goods are headed.
• You can customize the policy as per your business requirements; therefore,
transit insurance policy is suitable for almost all types of businesses.
Warehousing & Benchmarking in Global
Supply Chain Management
• Warehousing facilities play a vital role in the overall supply chain
process. Fundamental for warehouses to achieve both efficiency and
effectiveness in supply chains, and provide some perspective on
current challenges and the future.
• It is evident that continuing globalization and changes/challenges
occurring in such areas as reverse logistics, environmental
sustainability, information technology, and overall supply chain
integration are further evolving the strategies, roles, and
responsibilities for warehouses.
Cont.
• In the dynamic landscape of global supply chain management,
warehousing and benchmarking are critical components for success.
Effective warehousing practices enable efficient storage, inventory
management, and distribution of goods, contributing to enhanced
customer service and operational efficiency. Benchmarking allows
companies to assess their performance, learn from industry leaders,
and drive continuous improvement. By leveraging the power of
warehousing and benchmarking, companies can optimize their supply
chain operations, reduce costs, and gain a competitive edge in the
global marketplace.
Supply Chain Cycle Time Reduction
• Cycle time is a measurement of how many units of product are
received, produced and shipped in a certain period of time, and it
indicates the general efficiency of the supply chain. A company’s cycle
time consists of several linked parts:
• Production cycle time: Total time producing a product.
• Order processing: Time of processing an order.
• Cash-to-cash cycle time: Time needed to regain financial investments.
• Lead Time:
• Lead time is the amount of time that passes from the start of a process until its
conclusion.
• The term borrowed from the manufacturing method known as Lean or Toyota
Production System where defined as time elapsed between a customer placing an order
and receiving the product ordered
• Lead time = ordered received – ordered delivered
• Lead time is a crucial metric for any business. It assists the company in predicting sales,
making operations efficient, and improves customer satisfaction.
• Material lead time = Procurement time + Manufacturing time + Shipping time + Delays
• Purchase order/Supply / Material lead time:
• Time between purchase order place & Items arrive at manufacturing or received at
workshop floor
• Material lead time = Procurement time + Manufacturing time + Shipping time + Delays
Demand-Driven Supply Network in International Logistics
• A demand-driven supply network in international logistics means
organizing the flow of goods based on customer demand. It involves
aligning production, inventory, and transportation with customer needs to
ensure timely delivery and minimize excess inventory.
• A Demand-driven Supply Chain (DDSC) is defined as a supply chain
management method focused on building supply chains in response to
demand signals. The main force of DDSC is that it is driven by customer
demand. In comparison with the traditional supply chain, DDSC uses the
pull (Demand pull) technique. It gives the market opportunities to share
more information and to collaborate with others in the supply chain.
• A Demand-Driven Supply Chain is dependent on aligning all entities across
the supply chain through information flows. A true DDSC can always adapt
to the changing market conditions thereby maintaining or reducing
inventory levels and reduce the invasive problem of expedited orders.
