Page 70 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 3: Customer Accommodation

time of customer order receipt, an unexpected disruption in manufacturing, goods arriving Notes
damaged at a customer’s location, or delivery to an incorrect location. These result in a
time disruption in operations that must be resolved. Potential reduction of variance relates
to both internal and external operations. Operating areas of a logistical system are subject
to potential variance. The traditional solution to accommodate variance was to establish
safety stock inventory or use high-cost premium transportation. These practices, given
their expense and associated risk, have been replaced by using information technology to
achieve positive logistics control. To the extent, variances are minimized; logistical
productivity improves as a result of economical operations. Hence a basic objective of
overall logistical performance is to minimize variance.

 Minimum Inventory: The aim of minimum variance involves assets, commitment and
relative turn velocity. Total commitment is the financial value of inventory deployed
throughout the logistical system. Turn velocity involves the rate of inventory usage over
a period of time. High turn rates, coupled with inventory availability, means that assets
devoted to inventory are being utilized effectively. The aim is to reduce inventory
deployment to the least level consistent with customer service goals to achieve the least
overall total logistics cost. Zero inventories have become increasingly important as
managers seek to reduce inventory storage. The reality of reengineering a system is that
operational defects do not become apparent until inventories are reduced to their least
possible level.

Notes The goal of eliminating all inventories is attractive; it is important to note that
inventory can and does facilitate some important benefits in a logistical system.

Inventories can provide improved return on investment when they result in economies of
scale in manufacturing or procurement. The aim is to reduce and manage inventory to the
lowest possible level while simultaneously achieving desired operating aim. To achieve
the aim of minimum inventory, the logistical system design should control commitment
and turn velocity for the entire firm, not only for each business location.
 Consolidated Movement: The most important logistical costs are transportation.
Transportation cost is directly proportional to the type of product, size of shipment, and
distance. Logistical systems that feature premium service depend on high-speed, small-
shipment transportation. Premium transportation is typically high-cost. To decrease
transportation cost, it is desirable to achieve movement consolidation. The larger the
overall shipment and the longer the distance it is transported, the lower is the transportation
cost per unit. To achieve this, it requires innovative programmes to group small shipments
for consolidated movement. These kinds of programmes must be facilitated by working
arrangements that transcend the overall supply chain.
 Improvement in Quality: Another logistical aim is to seek continuous improvement in
quality. Total Quality Management (TQM) has become a major commitment in all
departments of industry. Total commitment to TQM is one of the major forces which
contribute to the logistics. In case a product becomes defective or if service promises are
not kept, value is added by the logistics. Logistical costs, once increased, cannot be reversed.
When quality fails, the logistical performance typically needs to be reversed and then
repeated. Logistics itself must perform to the required quality standards. The challenge of
achieving zero defect logistical performance is illustrated by the fact that logistical
operations typically must be performed across a wide geographical area at all times of the
day and night. The quality challenge is illustrated by the fact that most logistical work is
performed due to supervisor’s vision. Reworking a customer’s order due to incorrect

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