JUNE 2010

1. Explain how RFID technology may be use to p!o"ie a !ange o# ope!ational

imp!o"ements in the supply
chain.
RADIO FREQUENCY IDENTIFICATION $RFID% is a p!ouct t!ac&ing technology. 'n RFID
e"ice( o#ten calle a tag( can be attache to a piece o# me!chanise an in#o!m a !eae!
about the natu!e an location o# what it is attache to.
RFID can !elay this in#o!mation to a management system that can c!eate a pictu!e o# what
me!chanise is whe!e at a le"el o# etail that has not p!e"iously been possible. ' big
a"antage o# RFID technology o"e! ba!)coes is that the tag oes not ha"e to be i!ectly
in the line o# sight o# the !eae!. *ags can be etecte by !eae!s !emotely because the
!aio wa"es can pass th!ough many mate!ials. *he management system enables ata
#!om tags to be collecte an so!te #o! the pu!poses o# management in#o!mation an
action.
*he &ey piece o# in#o!mation hel on a tag is the elect!onic p!ouct coe. *his +numbe!
plate, is uni-ue to each tag. *he uni-ue numbe! can then be lin&e to in#o!mation about
the p!ouct to which it is attache( #o! example about
.hen an whe!e the p!ouct was mae(
.he!e its components came #!om an
/hel# li#e etails.
/ome tags may hol this aitional in#o!mation on boa! howe"e! the intention is that
most tags will only hol the E01 an aitional in#o!mation will be sto!e !emotely( on a
atabase lin&e to the management system.
Readers Tell Us
.hat the p!ouct is an
.he!e it is locate in the supply chain.
'llows us to &now how many p!oucts a!e p!esent at that location #o! each time buc&et.
Due To This We Get To Know
2now !ates o# consumption( an
/toc& ata at a gi"en point in time 3
*ogethe! with what nees to be one.
4ne can al!eay en"ision that such ata will enable supply chain planning an cont!ol to
be t!ans#o!me.
0!ouct tagging allows #o! se"e!al inte!esting applications incluing5
*!ac&ing p!oucts th!oughout the ist!ibution pipeline $+asset t!ac&ing,% to p!o"ie
continuous -uantities an position by s&u in the supply chain6
*!ac&ing p!oucts th!ough bac& o# sto!e to the shel#
Intelligent shel"es( whe!eby +sweeping, o# p!ouct by thie"es #!om shel"es in sto!e
shows up automatically an !aises ala!m signals6
Registe!ing sales without in"ol"ing a cashie!5 a #ancie #utu!e state is one whe!e
shoppe!s push thei! t!olley past !eae!s that automatically !ea E01s #o! each item in the
t!olley( an p!esent the bill #o! c!eit ca! payment to the shoppe! without the nee #o!
!etaile! pe!sonnel to be in"ol"e.
7ene8ts #o! 9anu#actu!e!s Inclue the 'bility to Une!stan
.hen p!oucts a!e in the sto!e but not on the shel# $a sou!ce o# lost sales that
manu#actu!e!s cannot cont!ol%( an !eucing the oppo!tunities #o! the#t. Retaile!
bene8ts inclue ability to t!ac& p!oucts in the pipeline against eli"e!y scheules(
automation o# the chec&out p!ocess an ability to expan custome! in#o!mation on
buying patte!ns.
*echnically( p!oucts can be t!ac&e all the way to the custome!,s home an into it.
*he othe! ma:o! hu!le to implementation is the p!ice o# the tags. 0!ice;ma!gin le"els in
most consume! pac&age goos tags nee to be low enough to be a<o!able at the
ini"iual p!ouct le"el.
2. Discuss the s&ills an &nowlege a!eas that may be !e-ui!e by logistics an supply chain
manage!s in the #utu!e.
*he!e a!e se"e!al &ey capabilities that will ma&e o! b!ea& supply chain manage!s o# the
nea! #utu!e5
*hese manage!s nee to be e<ecti"e at inte!#acing with custome!s. *his is new
because in the past supply
chain sta< use to be almost completely inte!nally an ope!ationally #ocuse. /ales
monopolise the custome!( lea"ing supply chain manage!s sho!t o# +supply chain
!ele"ant, custome! insight.
Functional &nowlege is a base !e-ui!ement $this use to be a i<e!entiato!( now it is
a -uali8e!%.
*hey nee to ha"e st!ong inte!pe!sonal s&ills. /upply chain sta< use to be technical
an ope!ational in bac&g!oun an t!aining. *hey we!e hea"ily #ocuse inte!nally( without
the ability to align pee!s a!oun e<o!ts an p!io!ities( an unable to engage business
people in thei! e<o!ts.
*hey nee to ha"e gene!al management an st!ategic management capabilities an
s&ills. =ence( they shoul no longe! be solely ope!ationally #ocuse an boxe in( which
ma&es them unable to integ!ate an be seen as cont!ibuting to co!po!ate st!ategic goals.
*hey nee to be able to e"elop an #oste! !elationships inte!nally an exte!nally $as
oppose to being #ocuse only on !unning an ope!ation%.
*hey nee to be able to t!anslate supply chain e<o!ts an :a!gon into business
language that thei! pee!s can !espon to an !elate to thei! own ay)to)ay e<o!ts
*hey nee to ha"e a se!"ice ethic that oes not inclue always saying +yes,.
Finally( we ha"e a #ew pointe!s #o! the supply chain manage!s o# the #utu!e5
*!aitional ope!ations people a!e o#ten seen as being best at saying +no,. '"oi saying
+no, #o! technical !easons( but as& about the business nee that a !e-uest se!"es.
Do not !ely on technology as a +be all an en all,. 9ost i>cult supply chain challenges
can at best be suppo!te by technology( but they mostly in"ol"e people) an change)
!elate issues.
/upply chain people o#ten su<e! #!om initiati"e o"e!loa. '"oi ta&ing in all business
!e-uests an saying +yes, too o#ten.
'"oi being caught out by ta&ing initiati"es without clea! business an c!oss #unctional
in"ol"ement( owne!ship( sponso!ship an goal sha!ing.
*!aitional supply chain people o#ten spen a lot o# time ta&ing calls about p!oblems(
8ghting 8!es an being the he!o o# the ay. 7ut this can ist!act #!om wo!&ing on
st!uctu!al solutions that will p!e"ent those p!oblem calls #!om happening to begin with. /o
stop 8xing things( an sta!t sol"ing p!oblems.
*!aitional supply chain people we!e bo!n an !aise in a!eas o# #unctional expe!tise an
ha"e built thei! ca!ee!s a!oun that. *his leas to communication an business alignment
issues. /upply chain management is a c!oss #unctional :ob. /o stop being a #unctional
expe!t( an sta!t being a business gene!al manage!.
*hin& g!owth( not :ust cost containment. *he supply chain is o#ten calle upon to eli"e!
sa"ings an ope!ational syne!gies 3 most o#ten in tough times an u!ing me!ge!s( the
supply chain is calle upon 8!st. .hile the supply chain has a &ey !ole to play he!e( an
emphasis on cost containment une!estimates the possible cont!ibution o# the supply
chain to g!owth( an &eeps it in a negati"e box 3 insulate #!om the happy times u!ing
pe!ios o# g!owth?
.hat oes +leaing ege, logistics en"isage in te!ms o# the supply chain o# the #utu!e@
*he ability to align the o!ganisation inte!nally a!oun supply chain oppo!tunities(
p!io!ities an e<o!ts in o!e! to a"oi pa!tial( ine<ecti"e o! #aile supply chain
imp!o"ement e<o!ts.
*he capability to spot an select the limite numbe! o# collabo!ati"e oppo!tunities
upst!eam with pa!tne!s an supplie!s( an ownst!eam with custome!s.
*he capability to map t!ue an complete cost to #ul8l custome! o!e!s an to manage
se!"ices an costs #o! inc!ease p!o8table g!owth
*he e"elopment o# a +new b!ee, o# supply chain manage!s that will help !ealise all o#
the abo"e.
A. Explain what you une!stan by sustainable loisti!s an explain *=REE ways in which
to imp!o"e the sustainability o# logistics an supply chain systems. Use examples to
suppo!t you! !ecommenations.
B!een o! sustainable logistics is conce!ne with !eucing en"i!onmental an othe! negati"e
impacts associate with the mo"ement o# supplies. /ustainability see&s to ensu!e that ecisions
mae toay o not ha"e an a"e!se impact on #utu!e gene!ations. B!een supply chains see& to
!euce negati"e impact by !eesigning sou!cing( ist!ibution systems an managing !e"e!se
logistics so as to eliminate any ine>ciency( unnecessa!y #!eight mo"ements an umping o#
pac&aging.
B!een logistics( in the context o# humanita!ian logistics encou!ages all sta&ehole!s to consie!
the impact o# thei! actions on the en"i!onment. *he main ob:ecti"e o# B!een logistics is to
coo!inate the acti"ities within a supply chain in such a way that bene8cia!y nees a!e met at
Cleast costC to the en"i!onment. It is a p!inciple component o# !e"e!se logistics. In the past DcostE
has been e8ne in pu!ely moneta!y te!ms( whe!e)as CcostC can now also be une!stoo as the
exte!nal costs o# logistics associate with5 climate change( ai! pollution( umping waste
$incluing pac&aging waste%( soil eg!aation( noise( "ib!ation an accients.
B!een logistics aims to int!ouce logisticians to g!een logistics an encou!age them to thin& in
+g!een, te!ms( to highlight the challenges an to inicate some a"antages o# thin&ing +g!een,
in o!ganisations.
/ustainable /1F explicitly manages the en"i!onmental an social impacts o# /1F acti"ities6 that
is( the e<ecti"e an e>cient mo"ement an sto!age o# goos between the points o# o!igin an
estination o! bac& again.
' goo example o# one Fogistics aspect that poses g!eat !is& to the en"i!onment is
pac&aging.
"a!#ain re$resents one o% the reatest !hallenes to en"i!onmental #!ienly logistics
while at the same time being "ital in shipping an sto!age.
1o!!ect o! inco!!ect pac&aging has conse-uences #o! how much o# a p!ouct can be sto!e(
how it is sto!e an o! t!anspo!te in a gi"en space. *his can inc!ease to the unit cost i# the
pac&aging hine!s optimiGation o# sto!age space. 9any inust!ies ha"e e"elope #o!ms o#
pac&aging that o all that is !e-ui!e o# them in t!ansit but o not :usti#y the expense o#
!etu!ning them to the point o# o!igin. *his pac&aging is only use once an then isca!e. *his
p!inciple goes all the way own to the le"el o# ini"iual tins o! ca!tons o# #oo.
It is this type o# pac&aging that p!esents the g!eatest challenge to logisticians as( inc!easingly(
the!e is a !esponsibility #o! the supplie! an the buye! to !eco"e! an !ecycle o! e<ecti"ely
ispose o# pac&aging
*=REE .ays In .hich *o Imp!o"e *he /ustainability 4# Fogistics 'n /upply 1hain /ystems
&' INCREA(E FORECA(T ACCURACY
Inc!easing the accu!acy o# supply an eman #o!ecasts can !euce waste an in"ento!y
along the supply chain( inc!ease supply chain "isibility an !esponsi"eness an enhance
custome! se!"ice. 'n a"ance supply chain management p!actice aime at imp!o"ing
#o!ecast accu!acy is collabo!ati"e planning an #o!ecasting. B!eate! collabo!ation can ta&e
place between a company,s inte!nal #unctions( as well as between a company an its
custome!s an supplie!s. /uccess#ul collabo!ation is base on t!ust an long)te!m
!elationships an can ta&e many #o!ms( incluing sha!ing o# in#o!mation( mate!ials( assets(
capital( !is&s( technology o! othe! !esou!ces.
Example( 1onsie! the #ollowing best p!actices to inc!ease #o!ecast accu!acy.
H In"ol"e sales an ma!&eting( ope!ations an logistics epa!tments in e"eloping
integ!ate sales an ope!ational plans.
H 1onuct a collabo!ati"e planning initiati"e with exte!nal supply chain pa!tne!s
$custome!s( supplie!s an A0Fs% to exchange #o!ecast in#o!mation.
H Use technology to #acilitate !eal)time sha!ing o# point)o#)sales ata( in"ento!y le"els(
!eo!e! status an p!ouction an eli"e!y scheules. Imp!o"e in#o!mation "isibility can
!euce speculati"e o!e!s( excess p!ouction( unnecessa!y shipments an waste.
)' O"TI*I+E WARE,OU(E -AYOUT AND WORKF-OW
.a!ehouse layout an ope!ations impact ene!gy e>ciency an wo!&e! p!oucti"ity.
Ine>cient use o# space !esults in excess utility an labou! costs( slowe! custome!
se!"ice( lowe! asset utiliGation( highe! capital !e-ui!ements an a bigge! physical
#ootp!int on the en"i!onment.
Example( 1onsie! the #ollowing best p!actices to optimiGe the e>ciency o# wa!ehouse
layout an wo!&Iow an to !emo"e waste#ul steps #!om goos hanling p!ocesses.
H Where $ossible. share warehouse s$a!e with othe! use!s.
H Orani/e warehouse la0out #o! sa#e an e>cient ci!culation an in"ento!y pic&ing
an put) away an to
minimiGe !epetiti"e hanling.
H Relate interior and e1terior re!ei2in and shi$$in o$erations to the Iow o#
goos th!ough the wa!ehouse.
H Con3ure !artons. $allets and ra!#in to ma&e #ull use o# a"ailable height.
H O$ti4i/e $i!#in 4ethodolo0 #o! ene!gy e>ciency an p!oucti"ity
4!e! pic& $single pic&e!( single o!e!%
7atch pic& $single pic&e!( multiple o!e!s%
.a"e pic& $multiple pic&e!s( multiple o!e!s%.
H Train e4$lo0ees on e>cient wo!&Iow p!ocesses an p!oceu!es
3. INCREA(E ENERGY EFFICIENCY OF WARE,OU(E O"ERATION(
1ommon wa!ehouse systems $e.g.( =J'1( lighting an secu!ity% an e-uipment $e.g.(
con"eyo!s an #o!&li#ts% consume signi8cant amounts o# ene!gy an cont!ibute to high
ope!ating costs. Implementing ene!gy e>ciency
measu!es !elate to wa!ehouse ope!ations can !esult in cost sa"ings o# 20K o! mo!eL an
!euce the !aw on ene!gy !esou!ces.
Example 1onsie! the #ollowing best p!actices to ma&e you! wa!ehouse ope!ations mo!e
ene!gy e>cient.
H Designate an ene!gy manage! an conuct an ene!gy auit to ienti#y oppo!tunities to be
mo!e e>cient.
H Install !api action loaing oo!s that minimiGe the time oo!s a!e open #o! the app!oach o!
epa!tu!e o# eli"e!y "ehicles( thus cont!olling exposu!e to weathe! an !eucing ene!gy costs.
H Use ene!gy)e>cient lighting 8xtu!es( such as motion)senso! o! time lighting systems. Use
natu!al light whe!e #easible.
H *u!n o< lights an =J'1 when not in use.
H Use i!ect igital cont!ol systems an lin& =J'1 systems with the wa!ehouse ope!ating
scheule.
H Use natu!al "entilation "e!sus ene!gy)intensi"e mechanical "entilation. Natu!al "entilation
can p!o"ie acceptable inoo! ai! -uality an use less ene!gy( though p!ecautions must be
ta&en to p!otect against outsie contaminants.
H Use ceiling mounte #ans to !euce heat st!ati8cation an p!o"ie ai! ci!culation.
H *empe!atu!e monito!ing e-uipment
H 1ompute! cont!ol an ene!gy monito!ing #o! !e#!ige!ation e-uipment
H New lighting that emits less heat
H Reco"e!y o# waste heat #!om cooling #acilities
H Use o# en"i!onmentally #!ienly !e#!ige!ants
H 'nnual ene!gy !euction ta!gets #o! #acility manage!s
H 9aximiGe the ene!gy e>ciency o# mate!ials hanling e-uipment such as con"eyo!s(
palletiGe!s an automate sto!age systems. Fo! example( '1 inuction moto!s ha"e become
the stana! #o! use in mate!ials hanling e-uipment ue to thei! supe!io! ene!gy e>ciency
an ope!ation. /enso!s( a:ustable spee !i"es an so#t sta!t
capabilities allow con"eyo!s to be tu!ne o< o! !un at lowe! spees when not in use( thus
conse!"ing ene!gy while minimiGing amage to con"eyo! systems an p!oucts.
5' ,AND-E AND (TORE ,A+ARDOU( *ATERIA-( (AFE-Y
9anu#actu!e!s sto!e a "a!iety o# paints( #uels( sol"ents an othe! chemicals #o! use in
ope!ations o! asset maintenance. .he!e the use o# non)haGa!ous alte!nati"es is not an
option( sa#e hanling an sto!age o# haGa!ous mate!ials $haGmat% is essential to p!e"ent
wo!&e! health an sa#ety issues( ope!ational owntime( en"i!onmental contamination #!om
spills o! lea&s( highe! insu!ance p!emiums an highe! en"i!onmental pe!mitting costsMnot to
mention amage to a company,s b!an e-uity.
1onsie! the #ollowing best p!actices to hanle an sto!e haGmat sa#ely an to minimiGe waste
an pollution.
H .he!e possible( !eplace haGmat with non)haGa!ous alte!nati"es.
H *!ain wa!ehouse wo!&e!s on sa#e hanling( p!ope! sto!age techni-ues an spill an
lea& p!e"ention.
H Inspect tan&s o! containe!s use to sto!e haGmat to etect an co!!ect the potential
#o! li-ui o! "apou! lea&s.
H /eg!egate containe!s use to sto!e haGmat #!om those use to sto!e non)haGa!ous
supplies an ensu!e p!ope! cleaning p!oceu!es a!e use p!io! to !euse o! isposal.
H /cheule !egula! haGmat waste !emo"al an isposal to comply with !egulations
!ega!ing how long haGmat may be sto!e on site.
EFFE1*/
Damage to ecosystems *!a>c congestion( noise an accients
.aste #!om excessi"e pac&aging Ene!gy consumption
=aGa!ous mate!ial exposu!e
Finan!ial 6ene3ts En2iron4ental 6ene3ts (o!ial 6ene3ts
Inc!ease !e"enue Reuce waste Reuce community impacts
$noise( t!a>c congestion(
health an sa#ety%
Reuce cost Reuce #ossil #uel
consumption
Enhance 1o!po!ate social
!esponsibility( public
pe!ception an expectation
Inc!ease asset utiliGation Reuce ai!;wate! emissions
Enhance custome! se!"ice Inc!ease ene!gy e>ciency
N. 9a&ing !e#e!ence to the p!eictability o# eman #o! p!oucts an !eplenishment lea
times( set out an explain the #acto!s you woul consie! when selecting global supply
chain st!ategies. O20P
Q. Distinguish between ethnocent!icity( polycent!icity an geocent!icity( an summa!ise the
main a"antages an limitations in the case o# a company ente!ing a #o!eign ma!&et #o!
the 8!st time.
Ethnocent!icity ) is :uging anothe! cultu!e solely by the "alues an stana!s o#
oneRs own
cultu!e. *he ethnocent!ic ini"iual will :uge othe! g!oups
!elati"e to his o!
he! own pa!ticula! ethnic g!oup o! cultu!e( especially with
conce!n to language(
beha"iou!( customs( an !eligion. *hese ethnic istinctions
an subi"isions se!"e to e8ne each ethnicityRs uni-ue cultu!al
ientity.
Ethnocent!icity can ma&e a pe!son !e:ect anything thatRs not what he o! she was
b!ought up with an taught( whethe! itRs belie#s an "alues o! #oo an !ess. It
wo!&s against une!staning( tole!ance( an peace#ul coexistence.
0olycent!icity )
In inte!cultu!al competence $is the ability o# success#ul communication with people
o# othe! cultu!es% the te!m polycent!ism is une!stoo as attitue an openness
towa!s othe! cultu!es( opinions an ways o# li#e5 when inte!cultu!al actions an
co!!elations a!e inte!p!ete not only with the bac&g!oun o# own cultu!al
expe!iences( but when the inepenence o# othe! cultu!es is !ecogniGe an
app!eciate an when cultu!al "alues a!e !elati"iGe an seen in the whole context.
*his in the way o# non)ethnocent!ism( opposite to ethnocent!ism.
Beocent!icity)Is ha"ing the ea!th as the cent!e
S. 4utline the many i<e!ent se!"ices that may be p!o"ie by a thi!)pa!ty logistics
company an iscuss a !ange o# #acto!s that woul inIuence you! choice o# a logistics
se!"ice p!o"ie!.
*hi!)pa!ty logistics $A0F% in"ol"es using exte!nal o!ganiGations to execute logistics
acti"ities that ha"e t!aitionally been pe!#o!me within an o!ganiGation itsel#. thi!)pa!ty
logistics inclues any #o!m o# outsou!cing o# logistics acti"ities p!e"iously pe!#o!me in)
house. I#( #o! example( a company with its own wa!ehousing #acilities ecies to employ
exte!nal t!anspo!tation( this woul be an example o# thi!)pa!ty logistics.
*he concept o# Fou!th)0a!ty Fogistics $N0F% p!o"ie! was 8!st e8ne by as an integ!ato!
that assembles the !esou!ces( capabilities an technology o# its own o!ganiGation an
othe! o!ganiGations to esign( buil( an !un comp!ehensi"e supply chain solutions.
.he!eas a thi! pa!ty logistics $A0F% se!"ice p!o"ie! ta!gets a #unction( a N0F ta!gets
management o# the enti!e p!ocess. /ome ha"e esc!ibe a N0F as a gene!al cont!acto!
who manages othe! A0Fs( t!uc&e!s( #o!wa!e!s( custom house agents( an othe!s(
essentially ta&ing !esponsibility o# a complete p!ocess #o! the custome!.
A0F is e8ne as Ca 8!m that p!o"ies multiple logistics se!"ices #o! use by custome!s.
0!e#e!ably( these se!"ices a!e integ!ate( o! bunle togethe!( by the p!o"ie!. 'mong the
se!"ices A0Fs p!o"ie a!e t!anspo!tation( wa!ehousing( c!oss)oc&ing( in"ento!y
management( pac&aging( an #!eight #o!wa!ing.C
(er2i!e "ro2ided b0 7"-8s
1. *!anspo!tation o# !aw mate!ials an semi)8nishe goos
2. .a!ehousing o# !aw mate!ials an semi)8nishe goos #o! 8!ms
A. 1!oss)oc&ing
N. In"ento!y management
Q. 0ic&ing T 0ac&aging o# goos #o! 8!ms
S. F!eight #o!wa!ing se!"ices
U. Dist!ibution se!"ices
L. ' uni-ue secu!ity system
*ypes 4# A0F 0!o"ie!s
*hi!)pa!ty logistics p!o"ie!s inclue #!eight #o!wa!e!s( cou!ie! companies( as well as
othe! companies integ!ating T o<e!ing subcont!acte logistics an t!anspo!tation se!"ices
' soli I* #ounation an a #ocus on economies o# scale an scope will enable this type o#
A0F p!o"ie! to pe!#o!m these types o# tas&s.
U. Explain the i<e!ence between outsou!cing an o<sho!ing an ienti#y the e"aluation
c!ite!ia to be use #o! the selection o# an outsou!cing appointment.
Outsour!in
Is the p!ocess o# cont!acting an existing business #unction o! p!ocess o# an o!ganiGation to
an inepenent o!ganiGation( an ceasing to pe!#o!m that #unction o! p!ocess inte!nally(
instea pu!chasing it as a se!"ice.
It is sometimes con#use with o9shorin which is esc!ibe as Da company ta&ing a
#unction out o# thei! business an !elocating it to anothe! count!y(E whethe! the count!y is
o<sho!e o! not. 4utsou!cing( on the othe! han( can be eithe! #o!eign o! omestic.
*he opposite o# outsou!cing is calle "e!tical integ!ation o! insou!cing. =owe"e!( a
business #unction can be b!ought in)house without in"ol"ing "e!tical integ!ation.
4utsou!cing is sai to help 8!ms to pe!#o!m well in thei! co!e competencies an mitigate
sho!tage o# s&ill o! expe!tise in the a!eas whe!e they want to outsou!ce.
4utsou!cing can o<e! g!eate! buget Iexibility an cont!ol
4utsou!cing lets o!ganiGations pay #o! only the se!"ices they nee( when they nee
them.
It also !euces the nee to hi!e an t!ain specialiGe sta< $1ut own on labou!
costs%
7!ings in #!esh enginee!ing expe!tise( talents an expe!ience in ce!tain 8els.
Reuces capital an ope!ating expenses
'ccess to mo!e &nowlege
Inc!ease p!o8t
Ris#s o% Outsour!in
Ris& o# lea&age( !euce con8entiality( p!i"acy an secu!ity conce!ns an loss o# :obs in the
home count!y.
O9shorin esc!ibes the !elocation by a company o# a business p!ocess #!om one count!y to
anothe!Mtypically an ope!ational p!ocess( such as manu#actu!ing( o! suppo!ting p!ocesses(
such as accounting. E"en state go"e!nments employ o<sho!ing. 9o!e !ecently( o<sho!ing has
been associate p!ima!ily with the sou!cing o# technical an aminist!ati"e se!"ices
suppo!ting omestic an global ope!ations #!om outsie the home count!y( by means o#
inte!nal $capti"e% o! exte!nal $outsou!cing% eli"e!y moels.
4<sho!ing can be seen in the context o# eithe! p!ouction o<sho!ing o! se!"ices o<sho!ing.
1hina has eme!ge as a p!ominent estination #o! p!ouction o<sho!ing. '#te! technical
p!og!ess in telecommunications imp!o"e the possibilities o# t!ae in se!"ices( Inia became
a count!y leaing in this omain though many pa!ts o# the wo!l a!e now eme!ging as
o<sho!e estinations.
*he economic logic is to !euce costs. I# some people can use some o# thei! s&ills mo!e
cheaply than othe!s( those people ha"e the compa!ati"e a"antage. *he iea is that
count!ies shoul #!eely t!ae the items that cost the least #o! them to p!ouce.
Nea!sho!ing is the !elocation o# business p!ocesses to $typically% lowe! cost #o!eign
locations( but in close geog!aphical p!oximity $e.g.( shi#ting Unite /tates)base
business p!ocesses to 1anaa;Fatin 'me!ica%
Insho!ing means pic&ing se!"ices within a count!y
7estsho!ing o! !ightsho!ing( pic&ing the Cbest sho!eC base on "a!ious c!ite!ia.
7usiness p!ocess outsou!cing $704% !e#e!s to outsou!cing a!!angements when enti!e
business #unctions $such as Finance T 'ccounting( 1ustome! /e!"ice( etc.% a!e
outsou!ce.
L. Desc!ibe the costs an !elati"e ope!ating cha!acte!istics o# the i<e!ent t!anspo!t moes.
O20P
DECE*6ER ):&:
1. +*he g!owth o# logistics has ha a i!ect e<ect on the e"elopment o# wo!l economies.,
1omment on this statement an use examples to suppo!t you! !ecommenations. O20P
2. Distinguish between lean an agile supply chain st!ategies an ienti#y the #acto!s you
woul consie! in selecting the most suitable option.
-ean thin#in5 a cyclical !oute to see&ing pe!#ection by eliminating waste in all aspect o#
the business an the!eby en!iching "alue #!om the en)custome! pe!specti"e.
*he en)custome! shoul not pay #o! the cost( time an -uality penalties o# waste#ul
p!ocesses in the supply netwo!&.
' lean supply chain is a g!eat enable! #o! any o!ganiGation that st!i"es to become mo!e
lean an e>cient.
Fou! p!inciples a!e in"ol"e in achie"ing the 8#th( /ee&ing pe!#ection.
/peci#ying "alue
Ienti#ying the "alue st!eam
9a&ing "alue Iow
0ull scheuling.
&' ("ECIFY ;A-UE
Jalue is speci8e #!om the custome! pe!specti"e. F!om the en)custome! pe!specti"e(
"alue is ae along the supply netwo!& as !aw mate!ials #!om p!ima!y manu#actu!e a!e
p!og!essi"ely con"e!te into the 8nishe p!ouct bought by the en custome!( such as the
aluminium o!e being con"e!te into one o# the
constituents o# a can o# co&e.
F!om a ma!&eting an sales pe!specti"e the can o# co&e shoul be +always within !each o#
you! thi!st,. *hat is an attempt to e8ne "alue #!om the en)custome! pe!specti"e. 'nothe! is
0o!te!,s concept o# the "alue chain( which sees two types o# acti"ity that a!e o# "alue to the
custome!.
*he 8!st is the p!ima!y "alue acti"ities o# t!ans#o!ming !aw mate!ials into 8nishe
p!oucts( then ist!ibuting( ma!&eting an se!"icing them.
*he secon is suppo!t acti"ities( such as esigning the p!oucts an the
manu#actu!ing an ist!ibution p!ocesses neee to une!pin p!ima!y acti"ities.
)' IDENTIFY T,E ;A-UE (TREA*
Following on #!om the concept o# "alue( the next p!inciple is to ienti#y the whole
se-uence o#
p!ocesses along the supply netwo!&.
7' *AKE ;A-UE F-OW
*his means applying the #ollowing #acto!s( 9inimising elays( in"ento!ies( e#ects
an owntime
suppo!ts the Iow o# "alue in the supply netwo!&. /implicity an "isibility a!e the
#ounations to
achie"ing these &ey #acto!s.
5' "U-- (C,EDU-ING
0!ouce only in !esponse to a signal #!om the custome! $the next p!ocess% that
mo!e is neee. *his implies that eman in#o!mation is mae a"ailable ac!oss the
supply chain. .he!e possible(
supply #!om manu#actu!ing( not #!om stoc&.
.he!e possible( use custome! o!e!s not #o!ecasts. .hile some o# these concepts
may be istant
#!om cu!!ent p!actice( lean thin&ing sha!es the philosophy o# +big JI*,5 see& pe!#ection.
*his is the 8#th p!inciple( an is achie"e by g!aually getting bette! at e"e!ything we
o( s-ueeGing waste
out at e"e!y step.
T,E (E;EN WA(TE( ) any acti"ity that oes not a "alue is a #o!m o# waste
The Waste O% O2er$rodu!tion5 ma&ing o! eli"e!ing too much( too ea!ly o! +:ust
in case,. Instea( the aim shoul be to ma&e +:ust)in)time, 3 neithe! too ea!ly no! too
late. 4"e!p!ouction c!eates une"enness o! lumpiness o# mate!ial Iow( which is ba
#o! -uality an p!oucti"ity. It is o#ten the biggest sou!ce o# waste.
The Waste o% Waitin< ta&es place whene"e! time is not being use e<ecti"ely.
It shows up as
waiting by ope!ato!s( by pa!ts o! by custome!s.
The Waste o% Trans$ortin5 mo"ing pa!ts a!oun #!om one p!ocess to the next
as no "alue.
Double hanling( con"eyo!s an mo"ements by #o!&li#t t!uc& a!e all examples o# this
waste. 0lacing p!ocesses as close as possible to each othe! not only minimises the waste
o# t!anspo!t but
also imp!o"es communications between them.
The Waste o% Ina$$ro$riate "ro!essin5 using a la!ge( cent!al p!ocess that is
sha!e between
se"e!al lines $e.g. a heat t!eatment plant% is an example o# this type o# waste. 'nothe!
example is a
p!ocess that is incapable o# meeting -uality stana!s emane by the custome! 3 so it
cannot help ma&ing e#ects.
The Waste o% Unne!essar0 In2entor05 in"ento!y is a sign that Iow has been
is!upte( an that
the!e a!e inhe!ent p!oblems in the p!ocess. In"ento!y not only hies p!oblems( it also
inc!eases lea times an inc!eases space !e-ui!ements.
The Waste o% Unne!essar0 *otions5 i# ope!ato!s ha"e to ben( st!etch o!
exten themsel"es
unuly( then these a!e unnecessa!y motions. 4the! examples a!e wal&ing between
p!ocesses( ta&ing
a sto!es !e-uisition #o! signatu!e( an ecanting pa!ts #!om one containe! into anothe!.
The Waste o% De%e!ts5 p!oucing e#ects costs time an money. *he longe! a
e#ect !emains
unetecte $e.g. i# it gets into the hans o# the en)custome!%( the mo!e cost is ae.
De#ects a!e
counte!acte by the concepts o# +-uality at sou!ce, an +p!e"ention( not etection,.
*he application o# lean thin&ing in"ol"es
Examining the p!ocess(
Vuanti#ying waste within it(
Ienti#ying !oot causes o# the waste( an
De"eloping an implementing solutions.
*he application o# lean thin&ing is the means by which many companies b!ing thei!
p!ocesses une! cont!ol. Following a systematic app!oach to tac&ling waste( they see&
to minimise e#ects(
to minimise owntime an
to maximise simplicity an "isibility
A$$li!ation O% -ean Thin#in To 6usiness "ro!esses
Order to re$lenish4ent
*he o!e! !eplenishment cycle conce!ns the time ta&en to !eplenish what has been sol. Fean
thin&ing see&s to manage the o!e! !eplenishment cycle by !eplacing only what has been sol
within !api !eplenishment lea times.
Order to $rodu!tion
*he o!e! to p!ouction cycle is the se!ies o# steps that a!e #ollowe to !espon to an o!e!(
o!ganise an une!ta&e p!ouction( an eli"e! the p!ouct to the custome!. *his +ma&e to o!e!,
p!ocess may be containe within a company o! can exten own the supply chain.
"rodu!t de2elo$4ent
0!ouct e"elopment eli"e!s new p!oucts o! se!"ices that can be sol. *his p!ocess is essential
i# an o!ganisation is to ha"e #utu!e success. Fean thin&ing can be applie to this p!ocess to ma&e
it mo!e e<ecti"e by suppo!ting the e"elopment o# p!oucts with esi!able att!ibutes an
#eatu!es an achie"ing this on time. It can also ma&e the p!ocess mo!e e>cient an ensu!e that
p!oucts a!e e"elope to cost.
Role O% -ean "ra!ti!es
Fean thin&ing is associate with a numbe! o# ope!ational p!actices that help to eli"e! the aim o#
waste minimisation. *wo o# the most signi8cant a!e5
/mall)batch p!ouction6
Rapi changeo"e!.
(U**ARY OF -EAN T,INKING
Fean thin&ing is base a!oun the simple philosophy o# eliminating waste. *his concept can be
applie to almost all business p!ocesses in almost any company. ' simple metho to help
companies achie"e this is #o! them to pu!sue the goal o# single)piece Iow( whe!e the batch siGe
passing th!ough the p!ocesses o# a company is a single item. 0!oblems encounte!e u!ing
p!og!ess towa!s this goal !e"eal the a!eas that nee to be !esol"e in o!e! to become leane!.
*o ai waste elimination( a numbe! o# p!actices ha"e been e"elope.
2ey ones such as !api changeo"e!( p!esente he!e( p!o"ie stana! solutions that a!e wiely
applicable( an help most companies to !euce costs an imp!o"e -uality
DI(CU((ION(
How is material fow planned and controlled in the supply chain?
*he most etaile planning an cont!ol systems ha"e been e"elope in manu#actu!ing
3 hence ou! #ocus on manu#actu!ing planning an cont!ol $901 systems%. *hey a!e base on
th!ee time pe!ios 3 long te!m( meium te!m an sho!t te!m.
*he #ocal 8!m +game plan, comp!ises a set o# inte!)lin&e moules !anging #!om +#!ont
en, $eman management( !esou!ce planning( sales an ope!ations planning an maste!
p!ouction scheuling% to +engine, $mate!ials an capacity planning% to +bac& en, $etaile
planning an cont!ol o# sou!ce3ma&e3 eli"e! p!ocesses%. 'll a!e lin&e to the ente!p!ise
!esou!ce planning $ER0% atabase.
'#te! manu#actu!e( inepenent eman items in the supply chain must be manage by
o!e! point methos li&e E4V an 04V. 0e!ioic !e"iew places o!e!s o# "a!iable siGe at
8xe inte!"als.
Fin&ing 901 systems between 8!ms g!eatly inc!eases the nee #o! management o#
etail. *he!e a!e many mo!e ways to inhibit the accu!ate exchange o# ata than within a #ocal
8!m. *his !esults in unesi!able symptoms li&e the bullwhip e<ect an e"en chaotic beha"iou! o#
mate!ial mo"ements.
What is JIT, and how does it apply to logistics?
JI* is a b!oa)base philosophy o# oing the simple things !ight an g!aually oing
them bette!. 's applie to logistics( JI* can be concei"e as a py!ami o# &ey #acto!s that
cent!e on minimum elay an minimum in"ento!y.
+=ow many@, an +when@, to o!e! a!e &ey -uestions that impact on elay an in"ento!y.
JI* cont!ibutes to the answe!s to these -uestions by cutting own the sou!ces an causes o#
waste in logistics. /peci8c cont!ibutions inclue the !euction o# changeo"e! times an
simple( pape!less systems o# mate!ial cont!ol.
Fongstaning app!oaches to mate!ial cont!ol( such as !eo!e! point stoc& cont!ol $R40%(
economic o!e! -uantities $E4V% an mate!ial !e-ui!ements planning $9R0%( can be mae #a!
mo!e !esponsi"e by the application o# JI* p!inciples. Examples a!e !eucing batch siGes an
!eo!e! -uantities( an !eucing lea times. /yne!gies can be eli"e!e( too5 JI* pull scheuling
wo!&s best #o! cont!ol( 9R0 #o! planning.
What is lean thinking, and how can it be applied to logistics?
Fean thin&ing see&s pe!#ection by g!aually !eucing waste #!om each o# #ou! a!eas5
speci#ying "alue #!om the custome! pe!specti"e6 ienti#ying the "alue st!eam $th!ough time)
base mapping%6 ma&ing the p!ouct Iow th!ough the supply netwo!& $by applying JI*
p!inciples%6 an letting the custome! pull $th!ough pull scheuling%.
Fean thin&ing #ocuses on how the se"en wastes can be use to suppo!t lean p!inciples.
Fean thin&ing #ollows JI* p!inciples "ia the concept o# +one piece Iow,. Fean thin&ing extens
these p!inciples into p!ouct an #acility esign.
Q. .hy o companies see& to outsou!ce ce!tain acti"ities( an what a!e the most
common causes o# #ailu!e in outsou!cing !elationships@
*he buye!,s unclea! expectations up #!ont as to its ob:ecti"es
*he pa!ties, inte!ests a!e aligne up #!ont but become misaligne as the buye!,s business
en"i!onment o! nees change
*he p!o"ie!,s poo! pe!#o!mance against se!"ice le"el ag!eements
*he pa!ties o not consie! each othe!,s inte!ests to ensu!e thei! !elationship is mutually
bene8cial
0oo! go"e!nance st!uctu!e #o! managing the ongoing !elationship
0oo! cultu!al 8t compatibility o# the pa!ties
0oo! communication6 the pa!ties o not p!oacti"ely sha!e necessa!y in#o!mation with each othe!
1hallenges a!ising because o# the buye!,s multi)supplie! en"i!onment O20P
Q. Discuss the economic #acto!s that inIuence the choice o# t!anspo!t moe in the supply
chain.
In toay,s business en"i!onment( outsou!cing p!ocesses to a thi! pa!ty has become !elati"ely
commonplace. *he p!actice gi"es o!ganiGations an oppo!tunity to gain e>ciencies( imp!o"e
pe!#o!mance( lowe! costs( an #ocus on co!e competencies. 9any businesses( howe"e!( #ail to
complete necessa!y ue iligence wo!& be#o!e the outsou!cing !elationship begins an neglect to
ta&e su>cient ca!e o# the !elationship( aopting an Dout o# sight( out o# minE app!oach once
outsou!cing begins.

/uccess#ul outsou!cing is no i<e!ent #!om any othe! business !elationship M it !e-ui!es
nu!tu!ing an management so that the nees o# all pa!ties a!e met. It is c!itical that both the
pu!chase! an the supplie! o# outsou!ce p!ocesses une!stan each othe!,s expectations an
epenencies( as well as #ocus on maintaining a st!ong communication channel. Regula!
monito!ing an !epo!ting( #o! example( p!o"ie "aluable in#o!mation on the health o# the
!elationship. 9o!eo"e!( the o!ganiGation nees to consie! ca!e#ully any !is&s in"ol"e in the
outsou!cing engagement an pe!#o!m necessa!y up)#!ont planning in a"ance o# "eno!
selection. Inte!nal auito!s play an impo!tant !ole in ma&ing su!e !is&s ha"e been a!esse an
"e!i#ying that the necessa!y steps ha"e been ta&en to ensu!e the outsou!cing !elationship is
success#ul.

*=E RI/2 4F 4U*/4UR1INB
'n o!ganiGation might outsou!ce nume!ous acti"ities to a thi! pa!ty5 I* se!"ices an
in#!ast!uctu!e( help es& se!"ices( an t!ansaction p!ocessing( to name :ust a #ew. 'n although
these a!!angements ha"e the potential to eli"e! signi8cant "alue( the o!ganiGation typically has
little o! no cont!ol o"e! the se!"ice p!o"ie!,s inte!nal p!ocesses. 1onse-uently( any o!ganiGation
that ecies to outsou!ce pa!t o# its ope!ations puts its !eputation( along with any ata
p!ocesse o! custome! inte!actions pe!#o!me on its behal#( in the hans o# a thi! pa!ty.

/uccess#ul outsou!cing in"ol"es balancing the !is&s an bene8ts o# obtaining exte!nal expe!tise
in suppo!t o# a set o# tas&s that a!e beyon the capabilities o# inte!nal sta< o! cannot be
pe!#o!me cost e<ecti"ely in)house. 'n while a ecision to outsou!ce may help o<set ienti8e
!is&s( the ultimate !esponsibility #o! e<ecti"e pe!#o!mance o# the #unction an #o! compliance
with legal an !egulato!y !e-ui!ements still !esies with the o!ganiGation. 9o!eo"e!( *he
1ommittee o# /ponso!ing 4!ganiGations o# the *!eaway 1ommission,s Ente!p!ise Ris&
9anagement3Integ!ate F!amewo!& oes not allow #o! !is& associate with an outsou!ce
p!ocess to be assume by the se!"ice p!o"ie!. Instea( the !is& can only be sha!e with that
p!o"ie!. In such an a!!angement( the o!ganiGation !emains !esponsible #o! !is&s an is !e-ui!e
to monito! the outsou!ce p!ocess to ensu!e !is&s a!e a!esse app!op!iately. *he se!"ice
p!o"ie! can assume only the ope!ational component o# !is&.

*he le"el o# !is& to the o!ganiGation inc!eases when the outsou!ce p!ocess o! #unction in"ol"es
&ey business ope!ations #o! which ae-uacy an e>ciency must be ensu!e. *hat le"el inc!eases
e"en mo!e when outsou!cing in"ol"es I* #unctions( as I* i!ectly impacts 8nancial !epo!ts an
management o# c!itical custome! ata. 9o!eo"e!( !is& le"els climb still #u!the! when outsou!ce
wo!& in"ol"es the secu!ity an p!i"acy o# co!po!ate in#o!mation.

1auses o# Relationship Failu!es
Nume!ous #acto!s can cause an outsou!cing a!!angement to #ail. ' #ew o# the mo!e common
!easons inclue5
/e!"ice #ailu!es. *he se!"ice p!o"ie! may not be able to p!o"ie the le"el o# se!"ice o! expe!tise
!e-ui!e to meet the nees o# the outsou!cing o!ganiGation.
/uppo!t conIicts. *he outsou!cing o!ganiGation an its suppo!ting se!"ice company may ente!
the !elationship with i<e!ent expectations !ega!ing the se!"ices to be pe!#o!me an the
timeliness o# those se!"ices. /uch isag!eements may !each the point at which the !elationship
is issol"e !athe! than continue.
9oneta!y consie!ations. .hen all o# the costs in"ol"e in an outsou!cing a!!angement a!e
consie!e( the !esulting se!"ice may not be as cost)e<ecti"e as anticipate. 1onse-uently( the
o!ganiGation may b!ing the #unction bac& in house to sa"e expense.
Fanguage i<e!ences. ' common complaint in custome!)#acing se!"ices is poo! communication
with suppo!t sta< an an inability to achie"e mutual une!staning. *his complaint also applies
to !elationships between sta< membe!s within the outsou!cing o!ganiGation an se!"ice
o!ganiGation sta< membe!s. Failu!e to ensu!e ae-uate une!staning can in tu!n cause the
outsou!ce #unction to #ail o! to lose some o# the outsou!cing o!ganiGation,s custome! base.
1ompliance gaps. 'n exte!nal suppo!t a!!angement may be iscontinue because o# gaps in
legal o! !egulato!y compliance !e-ui!ements( o! by a public #ailu!e to meet compliance nees
$e.g.( a b!each o# the o!ganiGation,s netwo!& secu!ity%. /uch #ailu!es may be cause by nume!ous
#acto!s( incluing local cultu!al no!ms ta&ing p!eceence o"e! a legal ag!eement( technical
#ailu!e on the pa!t o# se!"ice suppo!t sta<( lac& o# app!op!iate o"e!sight by the outsou!cing
o!ganiGation,s management( an unwillingness on the pa!t o# the "eno! to meet the
outsou!cing o!ganiGation,s compliance nees. In all such cases( the "eno! may not be able o!
willing to meet establishe !e-ui!ements( an the pa!ent o!ganiGation might nee to ma&e othe!
a!!angements.
1o!e #unctions. Functions pe!#o!me by an outsou!cing se!"ice entail a eg!ee o# sepa!ation #!om
inte!nal #unctions. In some cases( o!ganiGations ete!mine that they a!e unable to ope!ate
e<ecti"ely because the o!ganiGation no longe! has cont!ol o"e! the enti!e p!ocess. *he
o!ganiGation subse-uently may ete!mine that the outsou!ce #unction is in #act a co!e business
p!ocess that shoul be maintaine in)house to imp!o"e ope!ational e>ciencies. *he o!ganiGation
will then ma&e the necessa!y in"estment in inte!nal expe!tise an systems to ta&e o"e! the
p!ocess in"ol"e.
.hen consie!ing the possibility o# outsou!cing a business o! I* #unction( the o!ganiGation shoul
e"aluate the !is&s associate with pe!#o!ming the acti"ity o! tas& in)house "e!sus hanling it
exte!nally. *he o!ganiGation also shoul examine business !e-ui!ements an ob:ecti"es. I# the
!is&s associate with pe!#o!ming a p!ocess in)house o not match the ob:ecti"es set #o! the
o!ganiGation( an the eg!ee o# !is& in"ol"e in outsou!cing the p!ocess is acceptable( then
exte!nal options may be an app!op!iate path to pu!sue.

2EW RI/2 'RE'/
Une!staning &ey a!eas o# exposu!e associate with outsou!ce p!ocesses an e"eloping
steps to mitigate those exposu!es a!e c!itical to the outsou!cing p!ocess. .hene"e! a
!elationship with a thi! pa!ty is #o!me( st!ong ue iligence p!ocesses a!e necessa!y to gain
con8ence in the sounness o# the business( incluing its t!aining p!og!ams( management style(
an insu!ance co"e!age. /till( many o!ganiGations #ail to loo& beyon the potential !etu!n on
in"estment #o! the outsou!ce p!ocess an consie! the !is&s. .hile cost sa"ings will always be a
ma:o! #acto! in selecting a thi!)pa!ty p!o"ie!( nume!ous !is&s may ha"e a g!eate! impact on
the o!ganiGation an its bottom line. *he inte!nal auito! shoul "e!i#y that all applicable !is&s
ha"e been ienti8e an consie!e when ma&ing ecisions !elate to the outsou!cing se!"ice.

Reputation
.hen a p!oblem occu!s M an ine"itably it will M the o!ganiGation( not the outsou!ce 8!m( will
bea! !esponsibility no matte! whe!e that p!oblem lies o! who c!eate it. I# the o!ganiGation has
sta&e its !eputation on exceptional custome! se!"ice o! !api tu!na!oun( #o! example( it shoul
consie! how these a!eas might be a<ecte when i!ect cont!ol !esies outsie the co!e
business. Fo! instance( when an outsou!ce! p!o"ies help es& se!"ices( it acts as a custome!
inte!#ace on behal# o# the o!ganiGation. .hen p!o"iing bac&)en p!ocessing( the p!o"ie! eals
i!ectly with the custome! ata on the o!ganiGation,s behal#. In both cases( the custome! ag!ees
to a !elationship with the o!ganiGation( the!eby placing the o!ganiGation,s !eputation at !is&.

/t!ategy
.oul outsou!cing the p!ocess une! consie!ation help the company meet its st!ategic
ob:ecti"es@ I# the p!ocess comp!ises bac&)o>ce acti"ities an can be pe!#o!me by a "eno!
with g!eate! expe!tise an !esou!ces( then outsou!cing may allow the o!ganiGation to bette!
#ocus on its co!e st!engths. I# it in"ol"es a &ey business p!ocess( those !esponsible #o! the
ecision nee to une!stan how outsou!cing 8ts with company st!ategy. 9o!eo"e!( the
o!ganiGation nees to ete!mine the le"el o# t!aining an management that may be !e-ui!e to
ma&e su!e the outsou!ce p!ocess wo!&s e<ecti"ely an continues to suppo!t the st!ategy.

1ompliance
/imila! to !eputational !is&s( accountability #o! compliance with speci8c !egulations o! inust!y
stana!s M such as the U./. =ealth Insu!ance 0o!tability an 'ccountability 'ct o# 1XXS $=I0''%
o! the 0ayment 1a! Inust!y Data /ecu!ity /tana! $01I D//% M cannot be outsou!ce. 9e!ely
as&ing "eno!s whethe! they will comply with a set o# !e-ui!ements is gene!ally inae-uate(
because the answe! in"a!iably will be a !esouning Dyes(E !ega!less o# the "eno!,s actual
intent o! capabilities. Inte!nal auito!s shoul consie! assessing whethe! the o!ganiGation has
clea!ly e8ne its expectations o# the "eno!( incluing any p!oceu!es it may be !e-ui!e to
#ollow. 'itionally( they shoul ete!mine whethe! those !e-ui!ements a!e being met th!ough
acti"e management o! monito!ing o# exte!nally e8ne ce!ti8cation status( such as those
associate with 01I D// compliance.

/ecu!ity an 1on8entiality
4!ganiGations nee to consie! who has access to sensiti"e o! con8ential in#o!mation an how
that access a<ects compliance with !egulations an policies. *hose !esponsible #o! the
outsou!cing p!ocess shoul consie! se"e!al issues( incluing5

.ill the "eno! limit its employees, access to sensiti"e in#o!mation@
Is in#o!mation sto!e at a "eno! site@ I# so( is e"e!y sto!age location &nown to the outsou!cing
o!ganiGation@
.hat cont!ols an secu!ity p!actices oes the "eno! en#o!ce to p!o"ie assu!ances that c!itical
in#o!mation is hanle app!op!iately@

*o obtain mo!e i!ect insight on how the "eno! hanles sensiti"e in#o!mation( o!ganiGational
ecision)ma&e!s shoul also as& the "eno! to supply any ce!ti8cations o! outsie assessment
!epo!ts #o! auit !e"iew.

4!ganiGational /t!uctu!e an 1omposition
'n o!ganiGation,s st!uctu!e( siGe( an sta>ng can play c!itical !oles in the success o# an
outsou!cing !elationship. Jeno!s that can !eact -uic&ly to a change in !e-ui!ements o! a!ess
an issue !apily( #o! example( can o<e! an a"antage in meeting ce!tain nees. =owe"e!( this
same nimbleness o# !esponse can be et!imental i# soli cont!ols an acti"ity !epo!ting a!e
!e-ui!e #o! !egulato!y pu!poses( as the "eno! may comp!omise in these a!eas to achie"e
e>ciency. In aition( i<e!ences in inte!nal !epo!ting st!uctu!es between the company an the
outsou!cing p!o"ie! can lea to long)te!m conIicts i# not !ecogniGe an a!esse ea!ly in the
p!ocess. Fo! example( an outsou!cing p!o"ie! may ha"e a ecent!aliGe an in#o!mal secu!ity
st!uctu!e( which can be p!oblematic #o! an o!ganiGation that !e-ui!es a mo!e #o!mally st!uctu!e
app!oach to in#o!mation secu!ity cont!ols. /mall se!"ice p!o"ie!s may be mo!e !esponsi"e to
the o!ganiGation,s nees because they "alue the o!ganiGation,s business( but !esponsi"eness
may ec!ease i# they ha"e inae-uate sta>ng le"els to suppo!t ope!ational nees. Fo!maliGe
p!ocesses within la!ge! o! mo!e matu!e outsou!cing o!ganiGations can help suppo!t compliance
an !epo!ting nees( but can also slow !esponsi"eness i# not optimiGe. /ta< tu!no"e! within the
p!o"ie! 8!m an an inability to !etain sta< expe!ience in the bac&g!oun an !e-ui!ements o#
the company can also impact the success o# the outsou!cing e<o!t.

4ngoing Relationship 9anagement
'ny o!ganiGation that outsou!ces business o! technical #unctions must acti"ely manage the
!elationship. Inte!nal auito!s shoul consie! ta&ing the #ollowing actions to ensu!e ongoing
"eno! management e<o!ts a!e e<ecti"e5
1on8!m the cu!!ent legal an !egulato!y en"i!onment o# the o!ganiGation( an its impact on the
"eno! ag!eement.
Une!stan the !is&s int!ouce th!ough the "eno! !elationship( o! !is&s that a!e inhe!ent in the
cont!acte o!ganiGation o! outsou!ce p!ocess. Ensu!e the!e is an ongoing !is& assessment
p!ocess an that high)!is& outcomes a!e mitigate app!op!iately.
Bain an une!staning o# the existing inte!nal cont!ols pe!taining to the cont!act.
Bain an une!staning o# the "eno! o!ganiGation an any changes since the p!e"ious auit.
4btain an !e"iew copies o# any "eno!)ope!ations an use! manuals !elate to the se!"ices
p!o"ie to the o!ganiGation.
4btain an !e"iew copies o# any thi!)pa!ty o! inte!nal auits o# the "eno! !elate to the
se!"ices p!o"ie to the o!ganiGation.
1on8!m that the se!"ices p!o"ie meet the o!ganiGation,s expectations as e8ne in the
se!"ice)le"el ag!eements.
Je!i#y that expenses incu!!e a!e app!op!iate base on the se!"ices p!o"ie( cont!acte costs(
an se!"ice)le"el ag!eement !e-ui!ements met. *his p!ocess must inclue "e!i8cation o# "eno!
expenses th!ough "aliate !epo!ting p!oceu!es.
Eithe! th!ough a thi!)pa!ty !e"iew o! an inte!nal assessment o# cont!ol p!ocesses( con8!m that
"eno! cont!ols aime at p!otecting the se!"ices p!o"ie to the o!ganiGation #unction
e<ecti"ely.
Ensu!e that the o!ganiGation #ollows up with "eno!s to p!o"ie #eebac& on thei! se!"ices an
le"el o# compliance as establishe th!ough the "eno! assessment p!ocess.
Fo! aitional in#o!mation an guiance !elate to "eno! management( see *he II',s 0!actice
Buie( 'uiting Exte!nal 7usiness Relationships.

2ey 0!ocesses
Inc!easingly( companies ecie to outsou!ce &ey business p!ocesses to meet speci8c st!ategic
ob:ecti"es. ' &ey p!ocess is one that is cent!al to the se!"ices a business eli"e!s an has a
i!ect e<ect on o!ganiGational success( such as t!ansaction o! claims p!ocessing. .hen a &ey
business p!ocess is outsou!ce it #alls into a catego!y o# se!"ice p!o"ie! calle business p!ocess
outsou!ce! $704%. *he!e a!e many potential a"antages to outsou!cing to a 704 M such as
imp!o"ing client se!"ice( tu!na!oun time( an p!o8tability M because the company is able to
#ocus on mo!e st!ategic ob:ecti"es an allow the 704 to hanle ay)to)ay p!ocesses with
g!eate! e>ciency an expe!tise. =owe"e!( the potential !is&s when outsou!cing a &ey p!ocess
a!e g!eatly inc!ease because the outsou!cing company gi"es up a signi8cant amount o# cont!ol
o"e! how that se!"ice is eli"e!e to custome!s.

4FF)/=4RINB
I# the p!ospecti"e "eno! o<)sho!es some o# its se!"ices( the o!ganiGation nees to examine this
p!actice c!itically. 4<)sho!ing is gene!ally e8ne as outsou!cing o# p!ocesses to a nonomestic
count!y. Recent e8nitions sometimes esc!ibe o<)sho!ing #o! U./. companies as in"ol"ing
o!ganiGations within 'sia an Inia( whe!eas U./. outsou!cing to Eu!ope an 1ent!al an /outh
'me!ica is o#ten !e#e!!e to as nea!)sho!ing. /e"e!al c!ite!ia shoul be consie!e i# eithe! o#
these p!actices is use.
9'R1= 2011
F4BI/*I1/ T /U00FW 1='IN 9'N'BE9EN*
1. Explain the !elationship between the custome! o!e! p!ocess an the custome!
p!ocu!ement p!ocess. O20P
2. Ienti#y the c!ite!ia that can be use in o!e! to e"aluate an select potential supplie!s.
O20P
N. Discuss the main a"antages an limitations o# the /14R moel an the B/1F moel.
*he /14R moel ienti8es 8"e &ey p!ocessesMplan( sou!ce( ma&e( eli"e!( an !etu!nM
associate with supply chain management. Each o# the 8"e p!ocesses inicates the impo!tant
!ole o# logistics in supply chain management. *he!e a!e eight !ele"ant p!ocesses in the B/1F
moelMcustome! !elationship management( custome! se!"ice management( eman
management( o!e! #ul8llment( manu#actu!ing Iow management( supplie! !elationship
management( p!ouct e"elopment management( an !etu!ns management. Fogistics also
plays an impo!tant !ole in the supply chain p!ocesses in the B/1F moel. O20P
Q. Ienti#y FIJE logistics costs an highlight the p!actical i>culties associate with
measu!ing these costs. O20P
S. .!ite notes on *=REE o# the #ollowing5
a% 0!ocess)o!iente layout ) It eals with low)"olume( high "a!iety p!ouction $C:ob shopC(
inte!mittent p!ouction%. *he esign places epa!tments with la!ge Iows o# mate!ial o! people
togethe!. Depa!tment a!eas ha"ing simila! p!ocesses locate in close p!oximity e.g. 'll x)!ay
machines in same a!ea. Its use in p!ocess)#ocuse p!ocesses
b% 0!ouct)o!iente layout
c% 0!ouction layout
%Economic 4!e! Vuantity ) Economic o!e! -uantity is the o!e! -uantity that minimiGes total
in"ento!y holing costs an o!e!ing costs. *he #!amewo!& use to ete!mine this o!e! -uantity
is also &nown as 7a!abas Fo!mula
E4V applies only when eman #o! a p!ouct is constant o"e! the yea! an each new o!e! is
eli"e!e in #ull when in"ento!y !eaches Ge!o. *he!e is a 8xe cost #o! each o!e! place(
!ega!less o# the numbe! o# units o!e!e. *he!e is also a cost #o! each unit hel in sto!age(
sometimes exp!esse as a pe!centage o# the pu!chase cost o# the item.
.e want to ete!mine the optimal numbe! o# units to o!e! so that we minimiGe the total cost
associate with the pu!chase( eli"e!y an sto!age o# the p!ouct.
*he !e-ui!e pa!amete!s to the solution a!e the total eman #o! the yea!( the pu!chase cost #o!
each item( the 8xe cost to place the o!e! an the sto!age cost #o! each item pe! yea!. Note
that the numbe! o# times an o!e! is place will also a<ect the total cost( though this numbe!
can be ete!mine #!om the othe! pa!amete!s.
Underl0in assu4$tions
*he o!e!ing cost is constant.
*he !ate o# eman is &nown( an sp!ea e"enly th!oughout the yea!.
*he lea time is 8xe.
*he pu!chase p!ice o# the item is constant i.e. no iscount is a"ailable
*he !eplenishment is mae instantaneously( the whole batch is eli"e!e at once.
4nly one p!ouct is in"ol"e.
E4V is the -uantity to o!e!( so that o!e!ing cost Y ca!!ying cost 8ns its minimum. O20P
U. Explain you! une!staning o# the global logistics pe!#o!mance inex $F0I% an summa!ise
its impo!tance to ma!itime o!ganisations.
*he Fogistics 0e!#o!mance Inex is base on a wo!lwie su!"ey o# ope!ato!s on the g!oun
$global #!eight #o!wa!e!s an exp!ess ca!!ie!s%( p!o"iing #eebac& on the logistics D#!ienlinessE
o# the count!ies in which they ope!ate an those with which they t!ae. *hey combine in)epth
&nowlege o# the count!ies in which they ope!ate with in#o!me -ualitati"e assessments o# othe!
count!ies with which they t!ae( an expe!ience o# global logistics en"i!onment.
Feebac& #!om ope!ato!s is supplemente with -uantitati"e ata on the pe!#o!mance o# &ey
components o# the logistics chain in the count!y o# wo!&( ata collecte #o! 1QQ count!ies.
*he F0I consists the!e#o!e o# both -ualitati"e an -uantitati"e measu!es an helps buil p!o8les
o# logistics #!ienliness #o! these count!ies. It measu!es pe!#o!mance along the logistics supply
chain within a count!y an o<e!s two i<e!ent pe!specti"es5 Inte!national an Domestic.
Inte!national F0I p!o"ies -ualitati"e e"aluations o# a count!y in six a!eas by its t!aing pa!tne!s
) logistics p!o#essionals wo!&ing outsie the count!y.
Domestic F0I p!o"ies both -ualitati"e an -uantitati"e assessments o# a count!y by logistics
p!o#essionals wo!&ing insie it. It inclues etaile in#o!mation on the logistics en"i!onment( co!e
logistics p!ocesses( institutions( an pe!#o!mance time an cost ata.
*he F0I su!"ey was esigne an implemente by the .o!l 7an& Inte!national *!ae an
*!anspo!t Depa!tments( with FinlanRs *u!&u /chool o# Economics $*/E%. It was eno!se an
p!omote by the Blobal Facilitation 0a!tne!ship #o! *!anspo!tation an *!ae $BF0%. *he F0I
/u!"ey woul not ha"e been possible without the acti"e suppo!t an pa!ticipation o# the
Inte!national Fee!ation o# F!eight Fo!wa!e!s 'ssociations $FI'*'% an the Blobal Exp!ess
'ssociation $BE'%.
.o!l 7an& conucts the F0I /u!"ey e"e!y two yea!s to imp!o"e the !eliability o# the inicato!s
an to buil a ataset compa!able ac!oss count!ies an o"e! time.
AREA( OF E;A-UATION INC-UDE
EFFICIENCY OF CU(TO*( C-EARANCE "ROCE(( $1Zlow to QZhigh%
Fogistics p!o#essionalsR pe!ception o# the e>ciency o# count!yRs customs clea!ance
p!ocesses $i.e. spee( simplicity an p!eictability o# #o!malities%( on a !ating !anging #!om
1 $"e!y low% to Q $"e!y high%. /co!es a!e a"e!age ac!oss all !esponents.
QUA-ITY OF TRADE AND TRAN("ORT=RE-ATED INFRA(TRUCTURE
De8nition5 Fogistics p!o#essionalsR pe!ception o# count!yRs -uality o# t!ae an t!anspo!t
!elate in#!ast!uctu!e $e.g. po!ts( !ail!oas( !oas( in#o!mation technology%( on a !ating
!anging #!om 1 $"e!y low% to Q $"e!y high%. /co!es a!e a"e!age ac!oss all !esponents.
EA(E OF ARRANGING CO*"ETITI;E-Y "RICED (,I"*ENT(
Fogistics p!o#essionalsR pe!ception o# the ease o# a!!anging competiti"ely p!ice shipments
to a count!y( on a !ating !anging #!om 1 $"e!y i>cult% to Q $"e!y easy%. /co!es a!e
a"e!age ac!oss all !esponents
CO*"ETENCE AND QUA-ITY OF -OGI(TIC( (ER;ICE(
Fogistics p!o#essionalsR pe!ception o# count!yRs o"e!all le"el o# competence an -uality o#
logistics se!"ices $e.g. t!anspo!t ope!ato!s( customs b!o&e!s%( on a !ating !anging #!om 1
$"e!y low% to Q $"e!y high%. /co!es a!e a"e!age ac!oss all !esponents.
O;ERA--
Fogistics 0e!#o!mance Inex o"e!all sco!e !eIects pe!ceptions o# a count!yRs logistics
base on e>ciency o# customs clea!ance p!ocess( -uality o# t!ae) an t!anspo!t)!elate
in#!ast!uctu!e( ease o# a!!anging competiti"ely p!ice shipments( -uality o# logistics
se!"ices( ability to t!ac& an t!ace consignments( an #!e-uency with which shipments
!each the consignee within the scheule time.
FREQUENCY WIT, W,IC, (,I"*ENT( REAC, CON(IGNEE WIT,IN (C,EDU-ED
OR E>"ECTED TI*E
Fogistics p!o#essionalsR pe!ception o# how o#ten the shipments to assesse count!y !each
the consignee within the scheule o! expecte eli"e!y time( on a !ating !anging #!om 1
$ha!ly e"e!% to Q $nea!ly always%. /co!es a!e a"e!age ac!oss all !esponents.
A6I-ITY TO TRACK AND TRACE CON(IGN*ENT(
Fogistics p!o#essionalsR pe!ception o# the ability to t!ac& an t!ace consignments when
shipping to the count!y( on a !ating !anging #!om 1 $"e!y low% to Q $"e!y high%. /co!es a!e
a"e!age ac!oss all !esponents
L. 4utline *=REE eli"e!y patte!ns that can be consie!e an summa!ise the bene8ts an
limitations o# E'1= eli"e!y patte!n.
Deli2er0 (trate0 Des!ri$tion 6ene3ts -i4itations
' Di!ect shipment o# #ast
mo"ing p!eictable
lines. =el locally(
p!obably p!e
con8gu!e.
/ho!t lea time to
custome!s
9ultiple in"ento!y
points leaing to
uplication o# points
7 In"ento!y o# meium
"elocity( less
p!eictable eman
lines hel at gene!ic
le"el awaiting 8nal
con8gu!ation
Fowe! o"e!all le"els o#
in"ento!y(
consoliate
shipments to
ist!ibution cent!es
an concent!ate
hanling
Fonge! lea time to
custome!s
1 /lowest mo"ing lines(
least p!eictable.
0e!haps one sha!e
global in"ento!y o!
ma&e to o!e!
Fow o"e!all in"ento!y
le"els.
Fong lea time to
custome!s.
JUNE 2011
F4BI/*I1/ T /U00FW 1='IN 9'N'BE9EN*
1. Discuss the !ole o# the inte!net in supply chains.
*he Inte!net can #acilitate supply chain e<ecti"eness an e>ciency by p!o"iing oppo!tunities to simultaneously
imp!o"e custome! se!"ice an !euce logistics costs. *he Inte!net allows one supply chain pa!ty to ha"e "i!tually
instantaneous "isibility to the same ata as o othe! supply chain pa!ticipants. *his can ultimately !esult in lowe!
in"ento!ies an imp!o"e p!o8tability th!oughout the supply chain O20P
2. Discuss measu!ement systems that coul be use to assess supply chain pe!#o!mance.
O20P
A. Explain what agility is an iscuss how it cont!ibutes to the competiti"eness o# the supply
chain. O20P
N. .hat p!oblems might be encounte!e in setting up a "eno!)manage in"ento!y system@
O20P
Q. Discuss the implications o# :ust)in)time #o! logistics. O20P
S. /et out an app!oach that coul be aopte #o! the implementation o# time)base p!actices
in logistics. O20P
U. Explain the !is&s in inte!national logistics in te!ms o# time an in"ento!ies an iscuss how
they can be
a!esse. O20P
L. Distinguish between o!e! -uali8e!s an o!e! winne!s. O20P
JUNE 2011
F4BI/*I1/ T /U00FW 1='IN 9'N'BE9EN* $9a!itime%
1. Ienti#y the most common goal conIicts between the ma!&eting #unction an the
p!ouction #unction an suggest ways o# eliminating such conIicts. O20P
2. Wou ha"e been as&e to explain the #ollowing te!ms to one o# you! clients5
a% *he mate!ial supply system
b% Fogistics system an supply chain
c% Fogistics st!ategy
.hat in#o!mation woul you inclue in you! explanations@ O20P
A. Ienti#y the main a"antages an limitations o# *=REE #!eight t!anspo!t moes. O20P
N Explain why o!ganisations t!y to outsou!ce ce!tain acti"ities( an highlight the most
common causes o# #ailu!e in outsou!cing !elationships. O20P
Q. Discuss the *=REE eli"e!y patte!ns that can be use by supplie! companies an p!o"ie
examples to suppo!t you! !ecommenations.
*he th!ee eli"e!y patte!ns that can be use by supplie! companies a!e5 /ea #!eight logistics( 'i!)
#!eight logistics an Fan logistics.
(ea Freiht -oisti!s
*he shipping inust!y plays an impo!tant !ole in inte!national #!eight. It can p!o"ie a cost
e<ecti"e means o# t!anspo!tation along with a high ca!!ying capacity con"eyance #o! supplie!s.
*he!e#o!e( it has a "ital position in the t!anspo!tation o# pa!ticula! goos( such as c!ue oil an
g!ains. Its isa"antage is that it nees longe! t!anspo!t time an its scheule is st!ongly
a<ecte by weathe! e"ents. *o sa"e costs an enhance competiti"eness( cu!!ent ma!itime
logistics 8!ms ten to use la!ge) scale ships an coope!ati"e ope!ation techni-ues.
9o!eo"e!( cu!!ent ma!itime custome!s ca!e about se!"ice -uality mo!e than the eli"e!y p!ice.
*he!e#o!e( it is necessa!y to buil new logistics concepts in o!e! to inc!ease se!"ice satis#action(
e.g. !eal time in#o!mation( accu!acy an goos t!ac&ing systems. *he ope!ation o# ma!itime
t!anspo!t inust!y can be i"ie into th!ee main types5 $1% Fine! /hipping5 *he business is
base on the same ships( !outes( p!ice( an !egula! "oyages. $2% *!amp /hipping5 *he
cha!acte!istics o# this &in o# shipping a!e i!!egula! t!anspo!t p!ice( unsteay t!anspo!t !outes(
an scheule. It usually eli"e!s pa!ticula! goos( such as D!y 7ul& 1a!go an c!ue oil. $A%
Inust!y /hipping5 main pu!pose o# inust!y shipping is to ensu!e the supply o# !aw mate!ials.
*his sometimes nees specialiGe containe!s( such as the high)p!essu!e containe!s #o! natu!al
gas.
Air Freiht -oisti!s
'i!)#!eight logistics is popula! #o! many inust!ies an se!"ices to complete thei! supply chain
an #unctions. It p!o"ies the eli"e!y with spee( lowe! !is& o# amage( secu!ity( Iexibility(
accessibility an goo #!e-uency #o! !egula! estinations( yet the isa"antage is the high
eli"e!y #ee. 'i! #!eight logistics is selecte +when the "alue
pe! unit weight o# shipments is !elati"ely high an the spee o# eli"e!y is an impo!tant #acto!,.
*he cha!acte!istics o# ai! #!eight logistics a!e that5 $1% ai!planes an ai!po!ts a!e sepa!ate.
*he!e#o!e( the inust!ies only nee to p!epa!e planes #o! ope!ation6 $2% it allows to spee
eli"e!y at #a! estinations6 $A% ai! #!eight t!anspo!t is not a<ecte by lan#o!ms. Resea!ch ata
show that the #!eight t!anspo!t ma!&et &eeps g!owing. Bi"en the t!en o# global ma!&ets( ai!
#!eight logistics also has to change thei! se!"ices. *he #utu!e tenencies o# ai! #!eight
e"elopment a!e integ!ation with othe! t!anspo!t moes an inte!nationalisation an alliance
an me!ge! between ai! t!anspo!t companies *he #utu!e patte!n o# ai! #!eight logistics is
coope!ati"e with othe! t!anspo!t moes( such as ma!itime an lan t!anspo!t( to p!o"ie a
se!"ice base on Just)In)*ime( an oo!)to)oo!
-and loisti!s
Fan logistics is a "e!y impo!tant lin& in logistics acti"ities. It extens the eli"e!y se!"ices #o! ai!
an ma!itime t!anspo!t #!om ai!po!ts an seapo!ts. *he most positi"e cha!acte!istic o# lan
logistics is the high accessibility le"el in lan a!eas. *he main t!anspo!t moes o# lan logistics
a!e !ailway t!anspo!t( !oa #!eight t!anspo!t an pipeline t!anspo!t.
Railway t!anspo!t has a"antages li&e high ca!!ying capacity( lowe! inIuence by weathe!
conitions( an lowe! ene!gy consumption while isa"antages as high cost o# essential
#acilities( i>cult an expensi"e maintenance( lac& o# elasticity o# u!gent emans( an time
consumption in o!ganiGing !ailway ca!!iages. Roa #!eight t!anspo!t has a"antages as cheape!
in"estment #uns( high accessibility( mobility an a"ailability. Its isa"antages a!e low
capacity( lowe! sa#ety( an slow spee. *he a"antages o# pipeline t!anspo!t a!e high capacity(
less e<ect by weathe! conitions( cheape! ope!ation #ee( an continuous con"eyance6 the
isa"antages a!e expensi"e in#!ast!uctu!es( ha!e! supe!"ision( goos specialiGation( an
!egula! maintenance nees. *he excessi"e usage o# lan t!anspo!t also b!ings many p!oblems(
such as t!a>c :ams( pollution an t!a>c c!ashes. In the #utu!e( to imp!o"e the lan t!anspo!t in
t!anspo!t e>ciency an !eliability( a !e"olution o# t!anspo!t policies an management is !e-ui!e(
e.g. p!icing.
S. .hat a!e the main e"aluation c!ite!ia you will use in o!e! to select a potential supplie! as
pa!t o# you! company,s p!ocu!ement p!ocess@ O20P
U. .!ite notes on *=REE o# the #ollowing5
a% *a#e to order ?*TO@ 3 ' manu#actu!ing p!ocess st!ategy whe!e the t!igge! to begin
manu#actu!e o# a p!ouct is an actual custome! o!e! o! !elease( !athe! than a ma!&et #o!ecast.
Fo! 9a&e)to)4!e! p!oucts( mo!e than 20K o# the "alue)ae ta&es place a#te! the !eceipt o#
the o!e! o! !elease( an all necessa!y esign an p!ocess ocumentation is a"ailable at time o#
o!e! !eceipt.
*a#e=to=(to!# $9anu#actu!e)to)stoc&% $9*/%5 ' manu#actu!ing p!ocess st!ategy whe!e
8nishe p!ouct is continually hel in plant o! wa!ehouse in"ento!y to #ul8l expecte incoming
o!e!s o! !eleases base on a #o!ecast.
b% Economic 4!e! Vuantity $E4V%
c% /a#ety stoc&
% 1ent!alise wa!ehouse O20P
/E0*E97ER 2011
F4BI/*I1/ T /U00FW 1='IN 9'N'BE9EN*
2. Wou ha"e been as&e to explain the #ollowing te!ms to a g!oup o# :unio! sta<5
a% Incote!ms
b% Route 0lanning
c% 7!ea&point Dist!ibution
.hat in#o!mation woul you inclue in you! explanations@ O20PO2
O20P
Q. .!ite notes on *=REE o# the #ollowing5
a% En"i!onmental impact assessment )
'n en"i!onmental impact assessment is an assessment o# the possible positi"e o! negati"e
impact that a p!opose p!o:ect may ha"e on the en"i!onment( togethe! consisting o# the
en"i!onmental( social an economic aspects.
*he pu!pose o# the assessment is to ensu!e that ecision ma&e!s consie! the ensuing
en"i!onmental impacts when eciing whethe! to p!ocee with a p!o:ect
b% Re"e!se logistics) ' specialiGe segment o# logistics #ocusing on the mo"ement an
management o# p!oucts an !esou!ces a#te! the sale an a#te! eli"e!y to the custome!.
Inclues p!ouct !etu!ns #o! !epai! an;o! c!eit.
Re"e!se logistics stans #o! all ope!ations !elate to the !euse o# p!oucts an mate!ials. It
is Cthe p!ocess o# planning( implementing( an cont!olling the e>cient( cost e<ecti"e Iow o# !aw
mate!ials( in)p!ocess in"ento!y( 8nishe goos an !elate in#o!mation #!om the point o#
consumption to the point o# o!igin #o! the pu!pose o# !ecaptu!ing "alue o! p!ope! isposal. 9o!e
p!ecisely( !e"e!se logistics is the p!ocess o# mo"ing goos #!om thei! typical 8nal estination #o!
the pu!pose o# captu!ing "alue( o! p!ope! isposal. Remanu#actu!ing an !e#u!bishing acti"ities
also may be inclue in the e8nition o# !e"e!se logistics.CO1P *he !e"e!se logistics p!ocess
inclues the management an the sale o# su!plus as well as !etu!ne e-uipment an machines
#!om the ha!wa!e leasing business.
No!mally( logistics eal with e"ents that b!ing the p!ouct towa!s the custome!. In the
case o# !e"e!se( the !esou!ce goes at least one step bac& in the supply chain. Fo! instance( goos
mo"e #!om the custome! to the ist!ibuto! o! to the manu#actu!e!.
Fet,s loo& at an example6 a manu#actu!e! p!ouces p!ouct ' which mo"es th!ough the
supply chain netwo!& !eaching the ist!ibuto! o! custome!. 'ny p!ocess o! management a#te!
the sale o# p!ouct ' in"ol"es Re"e!se Fogistics. I# p!ouct ' happene to be e#ecti"e the
custome! woul !etu!n the p!ouct. *he manu#actu!ing 8!m woul then ha"e to o!ganise
shipping o# the e#ecti"e p!ouct( testing the p!ouct( ismantling( !epai!ing(
!ecycling o! isposing the p!ouct. 0!ouct ' will t!a"el in !e"e!se th!ough the supply
chain netwo!& in o!e! to !etain any use #!om the e#ecti"e p!ouct.
c% In"ento!y tu!no"e! ) In"ento!y tu!no"e! is a measu!e o# the numbe! o# times in"ento!y
is sol o! use in a time pe!io such as a yea!
% In2entor0 !arr0in !osts) 4ne o# the elements comp!ising a companyRs total supply)
chain management costs. *hese costs consist o# the #ollowing5
1. O$$ortunit0 Cost5 *he oppo!tunity cost o# holing in"ento!y. *his shoul be base on
you! companyRs own cost o# capital stana!s using the #ollowing #o!mula. 1alculation5
1ost o# 1apital x '"e!age Net Jalue o# In"ento!y
2. (hrin#ae5 *he costs associate with b!ea&age( pil#e!age( an ete!io!ation o#
in"ento!ies. Usually pe!tains to the loss o# mate!ial th!ough hanling amage( the#t( o!
neglect.
A. Insuran!e and Ta1es5 *he cost o# insu!ing in"ento!ies an taxes associate with the
holing o# in"ento!y.
N. *otal 4bsolescence #o! Raw 9ate!ial( .I0( an Finishe Boos In"ento!y5 In"ento!y
!ese!"es ta&en ue to obsolescence an sc!ap an inclues p!oucts exceeing the shel#
li#e( i.e. spoils an is no goo #o! use in its o!iginal pu!pose $o not inclue !ese!"es ta&en
#o! Fiel /e!"ice 0a!ts%.
Q. Channel Obsoles!en!e5 'ging allowances pai to channel pa!tne!s( p!o"isions #o! buy)
bac& ag!eements( etc. Inclues all mate!ial that goes obsolete while in a ist!ibution
channel. Usually( a ist!ibuto! will eman a !e#un on mate!ial that goes ba $shel# li#e%
o! is no longe! neee because o# changing nees.
S. Field (er2i!e "arts Obsoles!en!e< Rese!"es ta&en ue to obsolescence an sc!ap.
Fiel /e!"ice 0a!ts a!e those in"ento!y &ept at locations outsie the #ou! walls o# the
manu#actu!ing plant i.e.( ist!ibution cent!e o! wa!ehouse.O20P
DE1E97ER 2011
F4BI/*I1/ T /U00FW 1='IN 9'N'BE9EN*
2. Explain what you une!stan by the #ollowing te!ms5
a% /a#ety stoc& ) /a#ety stoc& $also calle bu<e! stoc&% is a te!m use by logisticians to
esc!ibe a le"el o# ext!a stoc& that is maintaine to mitigate !is& o# stoc&outs $sho!t#all in !aw
mate!ial o! pac&aging% ue to unce!tainties in supply an eman. Vuantity esigne to o<set a
:ump in eman an;o! a elay in supply;p!ouction. /a#ety /toc& is an Dunp!oucti"eE stoc&.
'e-uate sa#ety stoc& le"els pe!mit business ope!ations to p!ocee acco!ing to thei! plans.
/a#ety stoc& is hel when the!e is unce!tainty in the eman le"el o! lea time #o! the p!ouct6 it
se!"es as an insu!ance against stoc&outs.
.ith a new p!ouct( sa#ety stoc& can be utiliGe as a st!ategic tool until the company can :uge
how accu!ate thei!
#o!ecast is a#te! the 8!st #ew yea!s( especially when use with a mate!ial !e-ui!ements planning
wo!&sheet. *he less accu!ate the #o!ecast( the mo!e sa#ety stoc& is !e-ui!e. .ith a mate!ial
!e-ui!ements planning $9R0% wo!&sheet a company can :uge how much they will nee to
p!ouce to meet thei! #o!ecaste sales eman without !elying on sa#ety stoc&. =owe"e!( a
common st!ategy is to t!y an !euce the le"el o# sa#ety stoc& to help &eep in"ento!y costs low
once the p!ouct eman becomes mo!e p!eictable. *his can be ext!emely impo!tant #o!
companies with a smalle! 8nancial cushion o! those t!ying to !un on lean manu#actu!ing( which is
aime towa!s eliminating waste th!oughout the p!ouction p!ocess.
*he amount o# sa#ety stoc& an o!ganiGation chooses to &eep on han can !amatically a<ect
thei! business. *oo
much sa#ety stoc& can !esult in high holing costs o# in"ento!y. In aition( p!oucts which a!e
sto!e #o! too long a time can spoil( expi!e( o! b!ea& u!ing the wa!ehousing p!ocess. *oo little
sa#ety stoc& can !esult in lost sales an(
thus( a highe! !ate o# custome! tu!no"e!. 's a !esult( 8ning the !ight balance between too much
an too little sa#ety stoc& is essential.
Reasons For (a%et0 (to!#
/a#ety stoc&s a!e mainly use in a C9a&e *o /toc&C manu#actu!ing st!ategy. *his st!ategy is
employe when the lea time o# manu#actu!ing is too long to satis#y the custome! eman at
the !ight cost;-uality;waiting time.
*he main goal o# sa#ety stoc&s is to abso!b the "a!iability o# the custome! eman. Inee( the
0!ouction 0lanning
is base on a #o!ecast( which is $by e8nition% i<e!ent #o!m the !eal eman. 7y abso!bing
these "a!iations( sa#ety stoc& imp!o"es the custome! se!"ice le"el.
7y c!eating a sa#ety stoc&( you will also p!e"ent stoc&)outs #!om othe! "a!iations 5
H an upwa! t!en in the eman
H a p!oblem in the incoming p!ouct Iow $machine!y b!ea&own( supplies elaye( st!i&e.
b% 0e!ioic 4!e! Vuantity $04V%) A term used when ordering raw materials or supplies in lots based on
the quantity that will be used over a given time period or series of periods. For example, a bulk order for a component might be placed based
on the expected usage rate to fulfill orders over a three month period. The goal of defining a period order quantity is to maximize cost
savings by buying in bulk while minimizing storage costs for holding items that will not be used in the near future.
c% .o!& in 0!og!ess $.I0% 3 0a!ts an subassemblies in the p!ocess o# becoming
complete 8nishe
goos. .o!& in p!ocess gene!ally inclues all o# the mate!ial( labo! an o"e!hea cha!ge
against a p!ouction o!e! which has not been abso!be bac& into in"ento!y th!ough !eceipt o#
complete p!oucts.
O20P
A. Ienti#y the main a"antages an limitations o# sea t!anspo!t( !ail t!anspo!t an !oa
t!anspo!t. O20P
/ea *!anspo!t
'DJ'N*'BE DI/'DJ'N*'BE
Je!y 1heap /low
Je!y !eliable
=uge Vuantity can be t!anspo!te
*he best #o! long istance inte!national t!ae
Rail *!anspo!t
'DJ'N*'BE/ DI/'DJ'N*'BE/
Fast Reach is limite
'ccess to lanloc&e economies
Roa *!anspo!t
'DJ'N*'BE/ DI/'DJ'N*'BE/
Je!y cheap
Reaily '"ailable $1ommon%
N. Distinguish between single an multiple sou!cing o# mate!ials an highlight the
a"antages an limitations associate with E'1= option. O20P
U. .!ite notes on *=REE o# the #ollowing5
a% Incote!ms 3 Inte!national te!ms o# sale e"elope by the Inte!national 1hambe! o#
1omme!ce to e8ne selle!sR an buye!sR !esponsibilities.
b% Economic 4!e! Vuantity $E4V% ) 'n in"ento!y moel that ete!mines how much to
o!e! by ete!mining the amount that will meet custome! se!"ice le"els while minimiGing total
o!e!ing an holing costs.
c% Route planning ) 1% 0!ocess o# ete!mining how shipment will mo"e between o!igin
an estination. Routing in#o!mation inclues esignation o# ca!!ie!$s% in"ol"e( actual !oute o#
ca!!ie!( an estimate time en !oute. 2% Right o# shippe! to ete!mine ca!!ie!s( !outes an points
#o! t!ans#e! shipments. A% In manu#actu!ing this is the ocument which e8nes a p!ocess o# steps
use to manu#actu!e an;o!
assemble a p!ouct.
% In"ento!y tu!no"e!) *he cost o# goos sol i"ie by the a"e!age le"el o# in"ento!y on
han. *his !atio measu!es how many times a companyRs in"ento!y has been sol u!ing a
pe!io o# time. 4pe!ationally( in"ento!y tu!ns a!e measu!e as total th!oughput i"ie by
a"e!age le"el o# in"ento!y #o! a gi"en pe!io6 =ow many times a yea! the a"e!age in"ento!y #o!
a 8!m changes o"e!( o! is sol. O20P
L. Wou ha"e been as&e to explain *.4 mate!ial planning methos to one o# you! clients.
.hat in#o!mation woul you inclue in you! explanations@ O20P
9'R1= 2012
-OGI(TIC( A (U""-Y C,AIN *ANAGE*ENT
1. Discuss the &ey pe!#o!mance "a!iables o# a logistics system an p!o"ie examples to
suppo!t you!
!ecommenations. O20P
2. .hat o you une!stan by the #ollowing te!ms5
a% /a#ety stoc&s ) *he in"ento!y a company hols abo"e no!mal nees as a bu<e!
against elays in
!eceipt o# supply o! changes in custome! eman.
Vuantity esigne to o<set a :ump in eman an;o! a elay in
supply;p!ouction.
/a#ety /toc& is an Dunp!oucti"eE stoc&.
b% Fe"elling stoc&s
c% Re)o!e! point metho O20P
A. Explain *=REE eli"e!y patte!ns that can be use by a supplie! o! a logistics se!"ice
p!o"ie!. O20P
N. Discuss the main bene8ts o# outsou!cing ce!tain acti"ities( an ienti#y the most common
causes o# #ailu!e in outsou!cing !elationships. O20P
Q. .!ite notes on *=REE o# the #ollowing5
a% Fean supply chains
b% 9ultiple supply chains
c% Je!tically integ!ate supply chains
% Fate!al supply chains
Je!tical integ!ation is pa!t o# a company,s st!ategy #o! i"e!si#ying its ope!ations by expaning
within its supply chain o# ope!ations( eithe! bac&wa!s o! #o!wa!s( o! into those o# businesses in
its p!ouction path. Je!tical integ!ation is essential #o! a company because( epening on its
inust!y o# ope!ations( this may be the only way it can compete e<ecti"ely as well as ope!ate in
a mo!e e>cient manne! by minimiGing costs within the supply chain.
Je!tically integ!ate companies in a supply chain a!e unite th!ough a common owne!. Usually
each membe! o# the supply chain p!ouces a i<e!ent p!ouct o! $ma!&et)speci8c% se!"ice( an
the p!oucts combine to satis#y a common nee. It is cont!aste with ho!iGontal integ!ation.
Je!tical integ!ation has also esc!ibe management styles that b!ing la!ge po!tions o# the supply
chain not only une! a common owne!ship( but also into one co!po!ation $as in the 1X20s when
the Fo! Ri"e! Rouge 1omplex began ma&ing much o# its own steel !athe! than buy it #!om
supplie!s%.
Je!tical integ!ation is one metho o# a"oiing the hol)up p!oblem. ' monopoly p!ouce
th!ough "e!tical integ!ation is calle a "e!tical monopoly.
'"antages 'n Facto!s Fa"o!ing Je!tical Integ!ation
*he!e a!e istinct a"antages #o! "e!tically integ!ating a company. *he 8!m can expect a
!euction in t!anspo!tation costs( especially i# it ope!ates in se"e!al geog!aphical a!eas. *he!e is
also enhance coo!ination within the supply chain. *he company may be able to o<e! mo!e
i<e!entiation by ha"ing mo!e cont!ol o"e! inputs within the supply chain. *he ac-uisition o#
p!o8t ma!gins( both upst!eam an ownst!eam( a!e also attainable once a company "e!tically
integ!ates since the 8!m will tap into those p!o8ts in a!eas which p!e"iously we!e out o# its
scope. Je!tical integ!ation also o<e!s ent!y into new ist!ibution channels which p!e"iously may
ha"e been inaccessible. ' company,s co!e competencies a!e expane because the company is
able to concent!ate its expe!tise in p!o"iing bette! p!oucts o! se!"ices. 9o!eo"e!( the!e may
be some #acto!s that may #a"o! o! encou!age a company to go #o! "e!tical integ!ation( such as
go"e!nment imposition o# tax b!ea&s an !egulations on ma!&et t!ansactions. Ine>ciencies
within the supply chain( such as obstacles #o! the #o!mulation an monito!ing o# business
cont!acts( may also p!ompt a business to aopt "e!tical integ!ation. Economies o# scale( ue to
cost !euction an cont!ol o"e! a wie! a!ea in the supply chain( a!e also consie!ations.
Disa"antages 4# 'n Facto!s Discou!aging Je!tical Integ!ation
Je!tical integ!ation can also ha"e setbac&s an be unatt!acti"e ue to the i>culties it may
impose. ' company may expe!ience a !euction in the -uality o# p!oucts ue to
ecent!aliGation o# co!e business ope!ations an( subse-uently( ec!ease p!o8ts. 4pe!ation
costs may be highe! ue to supplie! competition which may ha"e &ept costs low. 9o!eo"e!( othe!
#acto!s that may come up an iscou!age a company to go #o! "e!tical integ!ation a!e supplie!s
who may o!e! less than the lowest cost)e>cient scale neee to p!ouce the p!ouct. Je!tical
integ!ation may also be iscou!aging whe!e the!e is o"e!)p!ouction( an its subse-uent
p!ouction costs a!e g!eatly !euce as o"e!all -uantity inc!eases. Fu!the!mo!e( p!oblems may
a!ise i# the co!e competencies o# the integ!ation( ue to thei! i<e!ences in ope!ations( a!e "e!y
i<e!ent.
O20P
S. Discuss the economic #acto!s that inIuence the choice o# t!anspo!t moe in the supply
chain.
0!ice
/pee
/ecu!ity
Jalue ae $sto!age%
9'R1= 2012
-OGI(TIC(
1. Discuss the implications o# :ust)in)time #o! logistics. O20P
2. Explain the "alue o# acti"ity)base costing #o! a logistics o!ganisation. O20P
A. Discuss the att!ibutes o# lean an agile supply. O20P
N. Discuss the p!e) an post)t!ansaction elements o# custome! se!"ice. O20P
Q. Explain the concept o# the pu!chase po!t#olio mat!ix. O20P
S. Discuss the &ey !i"e!s #o! !eucing the numbe! o# i!ect supplie!s that a company uses.
O20P
U. 'ssess the conse-uences o# inte!nationalising logistics netwo!&s. O20P
L. Explain the supply chain !e#e!ence moel. O20P
*hi! pa!ty logistics $A0F% companies a!e a becoming an impo!tant pa!t o# toay,s supply chain.
*hese companies o<e! se!"ices that can allow businesses to outsou!ce pa!t o# all o# thei! supply
chain management #unction. 9any A0F companies o<e! a wie !ange o# se!"ices incluing6
inboun #!eight( #!eight consoliation( wa!ehousing( ist!ibution( o!e! #ul8llment an outboun
#!eight. *he g!owth o# A0F companies has been !i"en by the nee #o! businesses to become
leane!( !eucing assets an allowing #ocus on co!e business p!ocesses.
Rise 4# *hi! 0a!ty Fogistics 0!o"ie!s
*he g!owth o# A0F companies began bac& in the 1XL0,s when businesses began to loo& #o! new
ways in which they coul outsou!ce logistics #unctions an concent!ate on thei! co!e business.
4ne company that has been associate with the A0F !e"olution is FeEx. *he company,s
o"e!night eli"e!y se!"ice change the way in which business to business an business to
custome! t!ansactions ope!ate. *his o<e!e businesses the oppo!tunity o# using :ust)in)time
techni-ues( which sa"e wa!ehousing space an !euce o"e!all costs. *he int!ouction o#
e>cient)consume!)!esponse $E1R% techni-ues le to smalle! an mo!e e>cient shipment siGes(
which in tu!n #u!the! !euce costs.
's companies saw the bene8ts o# outsou!cing eli"e!y an wa!ehousing #unctions( the numbe!
o# thi! pa!ty logistics companies began to !ise o<e!ing an e"e! inc!easing numbe! o# se!"ices.
*he inc!easing numbe!s o# A0F,s ine"itably le to inc!ease competition between these 8!ms(
which le to g!eate! sa"ings #o! the companies who employe them. *he last ecae has seen
the A0F p!o"ie! t!ansitioning #!om a local o! !egional business to one that o<e!s national o!
global co"e!age. In U/( the A0F ma!&et has been g!owing at a compoun annual !ate o# 1N.2
pe!cent since 1XXS an in 200S6 A0F,s in the Unite /tates !epo!te [LX.N billion in g!oss
!e"enue.
/electing ' A0F
Deciing to a use a thi! pa!ty logistics company is a ecision that epens on a "a!iety o#
#acto!s that i<e! #!om business to business. *he ecision to outsou!ce ce!tain business
#unctions will epen on the company,s plans6 #utu!e ob:ecti"es( p!ouct lines( expansion(
ac-uisitions( etc.
4nce a ecision has been mae to outsou!ce ce!tain p!ocesses then a company will begin a
sea!ch #o! the !ight A0F that 8ts all thei! !e-ui!ements at the best possible p!ice. *he!e a!e th!ee
types o# *hi! 0a!ty Fogistics 1ompany that ope!ate toay.
'sset 7ase
9anagement 7ase
Integ!ate 0!o"ie!s
'sset base thi! pa!ty logistics companies use thei! own t!uc&s( wa!ehouses an pe!sonnel to
ope!ate thei! business. 9anagement base companies p!o"ie the technological an manage!ial
#unctions to ope!ate the logistics #unctions o# thei! clients( but o so using the assets o# othe!
companies an o not necessa!ily own any assets. *he thi! catego!y( Integ!ate 0!o"ie!s( can
eithe! be asset base o! management base companies that supplement thei! se!"ices with
whate"e! se!"ices a!e neee by thei! clients.
.hen selecting a A0F( the !e-uest #o! in#o!mation $RFI% o! -uotation $RFV% shoul be as etaile
as possible. *he company that is selecte shoul be able to #ul8ll all the logistics !e-ui!ements
an that can only be assu!e i# e"e!y !e-ui!ement is communicate to potential companies. *he
RFI shoul inclue a etaile esc!iption o# the a!eas to be outsou!ce. *his will usually inclue5
*he scope o# the cont!act( incluing locations( #acilities( epa!tments.
In#o!mation on "olumes in"ol"e6 numbe! o# eli"e!ies( wa!ehouse siGes( numbe! o# items( etc.
*he logistics tas&s a!e to be pe!#o!me( e.g. wa!ehousing( t!anspo!tation( etc.
*he le"el o# pe!#o!mance !e-ui!e.
'#te! the bis ha"e been !ecei"e by a company #!om the p!ospecti"e A0F,s( an e"aluation woul
ta&e place whe!e a multi)iscipline team will !e"iew each bi base on a p!e)e8ne set o#
c!ite!ia. *hese will inclue some o# the #ollowing.
Does the A0F p!o"ie the se!"ices !e-ui!e@
Does the A0F ha"e the technology !e-ui!e to pe!#o!m the tas&s !e-ui!e@
Does the company ha"e the !e-ui!e wa!ehouse space( oc& capacity( wa!ehouse pe!sonnel(
etc.@
Is the A0F 8nancially soun@
'!e the A0F,s geog!aphical locations suitable to co"e! the netwo!&@
Does the A0F ha"e the Iexibility to !espon to changes@
'!e the A0F,s en"i!onmental policies compatible@
'!e the costs o# the se!"ices etaile enough #o! compa!ison to othe! bis@
'!e the custome! !e#e!ences acceptable@
Is the A0F a goo cultu!al 8t@
*he selection team will usually !e"iew each o# the bis base on the c!ite!ia an gi"e each
bie! a sco!e. Depening on the impo!tance o# each c!ite!ia( a weighting can be gi"en which
gi"es mo!e impo!tance #o! one o! mo!e c!ite!ia in the selection p!ocess. 4nce the selection team
has e"aluate the bis( management will o#ten select the top two o! th!ee companies #o! site
"isits( #ace to #ace inte!"iews an mo!e etaile !e"iews o# 8nancial !eco!s. 4nce a company
has been ienti8e cont!act negotiations woul #ollow be#o!e a 8nal ag!eement coul be
!eache.
4utsou!cing has seen a lot o# p!ess !ecently. /ome loo& to outsou!cing as the sa"io! o# thei!
company6 othe!s see outsou!cing as an e"il :ob)&illing tactic o# management. 7e#o!e you sta!t to
e"aluate i# an outsou!cing st!ategy is !ight #o! you! company( you nee to une!stan what it is
an what it is not.
4utsou!cing De8ne
4utsou!cing is any tas&( ope!ation( :ob o! p!ocess that coul be pe!#o!me by employees within
you! company( but is instea cont!acte to a thi! pa!ty #o! a signi8cant pe!io o# time. =i!ing a
tempo!a!y employee while you! sec!eta!y is on mate!nity lea"e is not outsou!cing. In aition(
the #unctions that a!e pe!#o!me by the thi! pa!ty can be pe!#o!me on)site o! o<)site.
*he most common moel o# outsou!cing that is in the news toay !e#e!s to :obs that a!e being
sent o"e! seas to count!ies li&e Inia o! 1hina. *his is mo!e commonly calle o<sho!ing.
Examples inclue telephone call cente!s( tech)suppo!t an compute! p!og!amming. 9o!e
common examples that a!e not going o"e!seas a!e :anito!ial se!"ices( a#te! hou!s answe!ing
se!"ices an secu!ity se!"ices.
.hy outsou!cing@
*he!e a!e many !easons why a company may choose to outsou!ce a pa!ticula! #unction o# thei!
business. 9ost manage!s ha"e the en)!esult)in)min that they a!e going to sa"e time an;o!
money. 4the! !easons inclue5
Resou!ce /ho!tages Relie"e by 4utsou!cing
' pa!ticula!ly st!ong !eason to outsou!ce in"ol"es a sho!tage o# a c!itical !esou!ce. *his can be
a"ailable employees that possess &nowlege in a ce!tain a!ea $e.g. enginee!s%( a"ailability o#
mate!ial $e.g. pet!oleum o! mine!als% an a labo! #o!ce at a le"el an p!ice that will o<set the
cost o# highe! p!ices alte!nati"es.
4utsou!cing 0!o"ies the 'bility to 1oncent!ate 4n the 1o!e 7usiness
/ome necessa!y( but pe!iphe!al ope!ations a!e outsou!ce most #!e-uently. *his gi"es the
manage!s the ability to concent!ate on the co!e business issues instea o# getting ist!acte by
!e-ui!e( yet mino! matte!s. ' goo example is a ma:o! hospital in ou! a!ea that outsou!ces its
secu!ity ope!ations to a thi! pa!ty company specialiGing in secu!ity.
4utsou!cing Wiels 1ost /a"ings
*he p!ices o# labo! an;o! mate!ials &eep inc!easing an competition &eeps #o!cing p!ices lowe!.
I# the!e is an outsou!cing solution that can sa"e you! company money an o"e!comes the
isa"antages o# outsou!cing( these a!eas shoul be in"estigate.
4utsou!cing 0!o"ies Flexibility
/easonal o! cyclical emans that ebb)an)Iow put "a!ying emans on the !esou!ces o# the
company. 'n outsou!cing cont!act coul p!o"ie the Iexibility neee to stabiliGe these "a!ying
emans. Example5 ' business b!ings in ext!a accountants u!ing tax season an when being
auite by the holing company that owns the business.
Reuce 4"e!hea 1osts *h!ough 4utsou!cing
/ome #unctions !e-ui!e a la!ge outlay o# money :ust to get sta!te. *his expenitu!e coul be
a"oie by cont!acting with a thi! pa!ty. Fo! example( expaning you! call cente!,s capacity to
the point whe!e it excees the capabilities o# you! telephone system.
1ommon 4utsou!ce '!eas
'lthough many a!eas an #unctions a!e outsou!ce( he!e a!e some o# the #!e-uently outsou!ce
a!eas5
In#o!mation *echnology Functions
Netwo!& an *elecommunications
=uman Resou!ces an Insu!ance 'minist!ation
'ccounting
9a!&eting
/ecu!ity
Fean supply chain management is not exclusi"ely #o! those companies who manu#actu!e
p!oucts( but by businesses who want to st!eamline thei! p!ocesses by eliminating waste an
non)"alue ae acti"ities. 1ompanies ha"e a numbe! o# a!eas in thei! supply chain whe!e waste
can be ienti8e as time( costs o! in"ento!y. *o c!eate a leane! supply chain companies must
examine each a!ea o# the supply chain.
0!ocu!ement
9any businesses ha"e complex pu!chasing ope!ations. Fa!ge companies o#ten ha"e co!po!ate
pu!chasing g!oups as well as local pu!chasing. *his can lea to "eno!s being gi"en multiple
cont!acts leaing to "a!iations in p!ices epening on location. 1ompanies that p!actice lean
supply chain management !euce thei! p!ocu!ement #unction so that each "eno! has one point
o# contact( one cont!act an o<e!s one p!ice #o! all locations. 7usinesses a!e loo&ing to new
technologies to assist them in imp!o"ing p!ocu!ement p!ocesses. *hese inclue inte!net base
pu!chasing that allows !e-uisitione!s to pu!chase items #!om "eno!,s catalogs containing
company wie cont!act p!ices. 1hanges in payment options to "eno!s can also st!eamline
p!ocesses. 1ompanies that use a two)way match( which is payment on !eceipt !athe! than
payment on in"oice( will !euce !esou!ces in thei! pu!chasing epa!tment as well as imp!o"e
supplie! !elationships.
9anu#actu!ing
Fean supply chain management gaine popula!ity in the manu#actu!ing a!ea as this is whe!e
signi8cant imp!o"ement can be achie"e. 9anu#actu!ing p!ocesses can be imp!o"e to !euce
waste an !esou!ces while maintaining ope!ational pe!#o!mance. 1ompanies who ha"e aopte
lean supply chain p!actices ha"e examine each o# thei! !outings( bill o# mate!ials an
e-uipment to ienti#y whe!e imp!o"ements can be achie"e.
.a!ehousing
.a!ehouse p!ocesses shoul be examine to 8n a!eas o# eliminating waste o# !esou!ces an
non)"alue ae steps. 4ne a!ea the companies shoul always be wo!&ing on is the !euction o#
unnecessa!y in"ento!y. *he accumulation o# in"ento!y !e-ui!es !esou!ces to sto!e an maintain
it. 7y !eucing unnecessa!y in"ento!y( a company can minimiGe wa!ehousing space an
hanling( in tu!n !eucing o"e!all costs.
*!anspo!tation
7usinesses who want to implement lean p!ocesses o#ten loo& to thei! t!anspo!tation p!oceu!es
to see whe!e they can be st!eamline. In many instances companies 8n that thei! e<o!ts to
imp!o"e custome! satis#action leas to poo! shipping ecisions. 4!e!s a!e shippe without
combining aitional o!e!s to minimiGe costs o! expensi"e shipping options a!e selecte
because o# a custome! !e-uest. 7usinesses o#ten 8n that they a!e using a numbe! o# shippe!s
unnecessa!ily when they coul be !eucing thei! shipping options an !euce o"e!all costs.
1onclusion
Fean supply chain management !e-ui!es businesses to examine e"e!y p!ocess in thei! supply
chain an ienti#y a!eas that a!e using unnecessa!y !esou!ces( which can be measu!e in olla!s(
time o! !aw mate!ials. *his will imp!o"e the company,s competiti"eness as well as imp!o"e the
company,s o"e!all p!o8tability.
's you e"aluate you! choices an ecisions in outsou!cing i<e!ent components o# you!
ope!ations( you will nee to consie! the a"antages o# outsou!cing. .hen one #o! the !ight
!easons( outsou!cing will actually help you! company g!ow an sa"e money. *he!e a!e othe!
a"antages o# outsou!cing that go beyon money. =e!e a!e the top se"en a"antages o#
outsou!cing.
1. Focus 4n 1o!e 'cti"ities
In !api g!owth pe!ios( the bac&)o>ce ope!ations o# a company will expan also. *his expansion
may sta!t to consume !esou!ces $human an 8nancial% at the expense o# the co!e acti"ities that
ha"e mae you! company success#ul. 4utsou!cing those acti"ities will allow !e#ocusing on those
business acti"ities that a!e impo!tant without sac!i8cing -uality o! se!"ice in the bac&)o>ce.
Example5 ' company lans a la!ge cont!act that will signi8cantly inc!ease the "olume o#
pu!chasing in a "e!y sho!t pe!io o# time6 4utsou!ce pu!chasing.
2. 1ost 'n E>ciency /a"ings
7ac&)o>ce #unctions that a!e complicate in natu!e( but the siGe o# you! company is p!e"enting
you #!om pe!#o!ming it at a consistent an !easonable cost( is anothe! a"antage o# outsou!cing.
Example5 ' small octo!Rs o>ce that wants to accept a "a!iety o# insu!ance plans. 4ne pa!t)time
pe!son coul not &eep up with all the i<e!ent p!o"ie!s an !ules. 4utsou!ce to a 8!m
specialiGing in meical billing.
A. Reuce 4"e!hea
4"e!hea costs o# pe!#o!ming a pa!ticula! bac&)o>ce #unction a!e ext!emely high. 1onsie!
outsou!cing those #unctions which can be mo"e easily.
Example5 B!owth has !esulte in an inc!ease nee #o! o>ce space. *he cu!!ent location is "e!y
expensi"e an the!e is no !oom to expan. 4utsou!ce some simple ope!ations in o!e! to !euce
the nee #o! o>ce space. Fo! example( outboun telema!&eting o! ata ent!y.
N. 4pe!ational 1ont!ol
4pe!ations whose costs a!e !unning out o# cont!ol must be consie!e #o! outsou!cing.
Depa!tments that may ha"e e"ol"e o"e! time into uncont!olle an poo!ly manage a!eas a!e
p!ime moti"ato!s #o! outsou!cing. In aition( an outsou!cing company can b!ing bette!
management s&ills to you! company than what woul othe!wise be a"ailable.
Example5 'n in#o!mation technology epa!tment that has too many p!o:ects( not enough people
an a buget that #a! excees thei! cont!ibution to the o!ganiGation. ' cont!acte outsou!cing
ag!eement will #o!ce management to p!io!itiGe thei! !e-uests an b!ing cont!ol bac& to that a!ea.
Q. /ta>ng Flexibility
4utsou!cing will allow ope!ations that ha"e seasonal o! cyclical emans to b!ing in aitional
!esou!ces when you nee them an !elease them when youR!e one.
Example5 'n accounting epa!tment that is sho!t)hane u!ing tax season an auiting
pe!ios. 4utsou!cing these #unctions can p!o"ie the aitional !esou!ces #o! a 8xe pe!io o#
time at a consistent cost.
S. 1ontinuity T Ris& 9anagement
0e!ios o# high employee tu!no"e! will a unce!tainty an inconsistency to the ope!ations.
4utsou!cing will p!o"ie a le"el o# continuity to the company while !eucing the !is& that a
substana! le"el o# ope!ation woul b!ing to the company.
Example5 *he human !esou!ce manage! is on an extene meical lea"e an the two
aminist!ati"e assistants lea"e #o! new :obs in a "e!y sho!t pe!io o# time. 4utsou!cing the
human !esou!ce #unction woul !euce the !is& an allow the company to &eep ope!ating.
U. De"elop Inte!nal /ta<
' la!ge p!o:ect nees to be une!ta&en that !e-ui!es s&ills that you! sta< oes not possess. 4n)
site outsou!cing o# the p!o:ect will b!ing people with the s&ills you nee into you! company. Wou!
people can wo!& alongsie o# them to ac-ui!e the new s&ill set.
Example5 ' company nees to emba!& on a !eplacement;upg!ae p!o:ect on a "a!iety o# custom
built e-uipment. Wou! enginee!s o not ha"e the s&ills !e-ui!e to esign new an upg!ae
e-uipment. 4utsou!cing this p!o:ect an !e-ui!ing the outsou!ce enginee!s to wo!& on)site will
allow you! enginee!s to ac-ui!e a new s&ill set.
Recommene Next Rea5 =ow to /elect an 4utsou!cing Jeno!
De8nition5 /ix /igma is a business management st!ategy. It will ienti#y an !emo"e the causes
o# e#ects an e!!o!s in manu#actu!ing an business p!ocesses. It uses a set o# -uality
management methos an c!eates a special in#!ast!uctu!e o# people within the company who
a!e expe!ts in these methos.