Chapter 10: Purchasing Logistics Services

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Chapter 10Purchasing Logistics Services

• Presented by Group 4
• Marion Binet
• Dorothée Capart
• Scott Dagenais
• Pauline Guérin
• Andrew MacKay

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Purchasing Logistics Services

• Transfer purchased goods from origin to
  destination
• Minimize inventory amounts
• Ensure production and customer service
• Three categories of Logistics
• Inventory Carrying Costs
• Administrative Costs
• Transportation

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Inventory Carrying and Administrative Costs

• Associated with holding goods in storage
• Include
• Interest Charges
• Warehousing
• Obsolescence
• Deterioration
• Labor Costs
• Insurance
• Taxes

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Transportation Costs

• Currently near 4 of Canadian GDP, 6 of US GDP
• Dependant on fuel costs and labour
• Dependant on industry (high value electronics vs
  commodity goods)
• Quality considerations
• Will the service meet the production schedule?
• What modes of transport are available?

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JIT and Logistics

• JIT requires
• On-time delivery
• No damage to items in transit
• Inventory Cost savings gt Additional
  transportation costs

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Global Sourcing and Logistics

• Global Sourcing requires
• Extended lead times
• Quick transportation decision making

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Outsourcing Logistics

• 3PL (Third-Party Logistics) providers
• Size of organization
• Nature of logistical operations

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Organizational Considerations

• Smaller firms Transport decisions handled by
  buyer
• Large Firms separate department handles
  logistical decisions
• Very Large Firms multiple, specialized
  departments

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Third-Party Logistics (3PL)

• Intermediaries between trading partners
• Example service providers
• Freight Bill Auditors
• Site Selection Consultants
• Carriers
• Transportation Intermediaries

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Third-Party Logistics (3PL)

• 3PL Services
• Trucking and Warehousing
• Express, Courier and Freight Forwarding
• Dedicated Human Resources
• Customized Systems and Communications

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Purchasing and Transportation

• Purchasing has a growing involvement in
  transportation decisions
• Regulations have been easing over the past few
  decades
• Industry is suffering from congestion
• Mergers and Antitrust
• Cargo Liability
• Safety Regulations

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The Transportation Industry (US)

• U.S. Agencies
• Department of Transportation (DOT)
• Maritime Administration (MARAD)
• Surface Transportation Board (STB)
• Federal Motor Carrier Safety Administration
  (FMCSA)

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The Transportation Industry (Canada)

• Canadian Agencies
• Transport Canada (Ottawa)
• Policy Group
• Safety and Security Group
• Programs and Divestiture Group
• Support Group

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Transportation Industry Segments

• Air Cargo
• Air Passenger
• Motor Freight
• Railroad

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FOB Terms and Incoterms

• FOB Free on Board
• Goods are delivered to a specified point with all
  transport charges paid
• FAS Free Alongside Ship
• CFR Cost and freight
• CIF Cost, insurance and freight

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FOB Point

• FOB Point determines the following
• Who pays the carrier
• When legal title to goods being shipped passes to
  buyer
• Who is responsible for preparing/pursuing claims
  with carrier
• Who routes Freight

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Freight Classification

• Importance of a proper classification
• 4 characteristics of classification
• Density
• Stowability
• Handling
• Liability
• Uniform classification system

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Selection of mode and carrier

• The buyer generally want to specify carrier
• Inherent advantages of different transport modes
• Determining the mode of transport
• 4 types of freight terminals
• Pickup delivery
• Breakbulk
• Relay
• Interlining

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Motor carriers

• 3 categories
• Less-than-truck load (LTL)
• Truckload (TL)
• Small parcel
• Problem of lack of drivers

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Rail carriers intermodal shipments

• Growth of intermodal shipments
• Special equipment and services
• Ex Piggyback service

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Air Carriers

• Integrated carriers
• Time-definite and Time-deferred
• Growth of small shipment services and same-day
  service
• Fierce competition among forwarders

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Ocean carriers

• Innovations in the ocean shipping industry
• Formation of shippers association
• Beginnings of contract logistics services
• Online auctions
• Vessel-Sharing agreements bring cooperation among
  ocean carriers

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Carrier Selection

• Factors determining choice of carrier
• Required delivery time
• Reliability service quality
• Available services
• Type of item being shipped
• Shipment size
• Possibility of damage
• Cost of the transport service
• Carrier financial situation
• Handling of claims
• Carriers rating systems
• Private or leased carriers

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Freight Rates

• They are determined by the classification of the
  item but many lower commodity rates are arranged
• Quantity breaks
• Unit train
• Motor Carrier Act of 1980
• Released Rates

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Documentation in Freight Shipments

• The bill of lading ( B/L )
• - describes the shipment
• - is a receipt by the carriers for the goods
• - is an evidence of ownership
• - fixes carrier liability
• - fundamental for each shipment
• Other important documents are
• the AirBill, the commercial invoice, the
  export declaration, the certificate of origin,
  the packing list etc

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Expediting and Tracking Shipment

• Expediting means applying pressure to the carrier
  to encourage faster than normal delivery service.
• Tracking permits to determine the location of
  shipped items that have not yet been received.
• Tracking tools electronic data interchange
  (EDI), e-commerce,  800  phone-line tracing
  systems and fax reports from carriers.

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Loss or Damage Claims

• The carriers liability varies depending on the
  service provided and the contractual terms
  between the shipper and the carrier.
• Unconcealed Loss or Damage its evident on
  delivery that loss or damage has occurred.
• Concealed Loss or Damage Merchandise found
  short or damaged only after the container is
  opened is known as damage gt claims are difficult
  .

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Payment of Freight Bills

• Must be paid within a set number of days.
• There is a limited period to file an overcharge
  claim with the carrier.
• Demurrage
• incurred by receivers of merchandise.
• this is a daily penalty charge for a rail car or
  a motor van that is tied up beyond the normal
  time for loading or unloading.
• ? Freight audits will uncover instances of
  overpayment to the carrier.

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Developing a Logistics strategy

• Today, development of a logistics strategy should
  include
• Value analysis of alternative and price analysis
• Consolidate freight
• Analyze and evaluate suppliers
• Using different transport modes
• Develop closer relationship with selected
  carriers
• Cost analysis / reductions
• Outsourcing / contracting out
• Safety considerations
• Environmental factors

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Specialty Brewers Case
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Case Summary
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2 Alternatives

• Alternative 1 Do everything in-house
• Alternative 2- Hire IHS

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Alternative 1 Do everything in-house

• Pros
• Full Control
• Cheaper Transportation Cost
• Less Risk and Human Error
• Increased bargaining power as they deal with more
  suppliers
• Cons
• High Fixed Cost (Have to keep inventory on sit,
  etc)
• Al has no time to do other value-added tasks
• High costs associated with overstocking HOPS

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Alternative 2- Hire IHS

• Pros
• Eliminated Outside storage cost for the breweries
  
• With HIS handling the majority of the details
  this enable to Al to give more attention to
  matters that had greater monetary significance
  for Specialty
• ISH has already established good relationship
  with Specialty
• Lower fixed costs
• Cons
• LTL shipping could get very expensive over time
  and could be risky
• Human error as Specialty staff would have to
  manage the inventory at a closer level as the
  stock of HOPS would be less then before

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Decision criteria

• Make hops available to each brewery at the lowest
  possible total cost.
• Ensure that the possibility of stockouts at the
  breweries is minimized.
• Maintain the long-run stability of supplier
  relationships to prevent bargaining power
  imbalances that might lead to unreasonable price
  fluctuations.
• Manage his own time in such a way that his
  personal value-added to Specialty is at a
  maximum.

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Alternative Evaluation
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Conclusion

• We feel that Hiring IHS would be the best
  solution as this allows Specialty Brewers to come
  up with more innovative ways to save on costs.

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End of Presentation

• The floor is now open to questions