BUS606: Operations and Supply Chain Management

8a. Determine the optimal number and location of distribution centers for a given product type 

• How can the number and location of distribution centers affect demand uncertainty?
• How do transportation needs affect distribution centers?

Centralizing the inventory at distribution centers is considered an effective way to manage customers' demand uncertainty to achieve appropriate service levels to customers. Designing a distribution network consists of three subproblems: location allocation, vehicle routing, and inventory control.
 
Central to any supply chain is transportation. Goods must be moved from the manufacturers through the assemblers, distribution centers, retailers, and final consumers. Designing a logistics system in conjunction with distribution centers is important to keeping costs low. Location-Routing Problem (LRP) is a newer form of logistics addressing the location of facilities, such as distribution centers and depots, while simultaneously considering routing (transportation) needs.
 
To review, see Location, Routing, and Inventory and Location-Routing for Distribution Centers.
 

8b. Describe what areas of logistics have changed with the rise of e-commerce and why 

• How have manufacturing paradigms shifted from small artisans to mass customization?
• How have these shifting paradigms affected manufacturing?
  

The rise of mass customization based on consumer demand may forever change manufacturing processes. What began 500 years ago with small craft production through the standardization of products led to mass production, then lean production. With the rapid increase of online purchasing and global markets, manufacturing is again evolving into mass customization.
 
To respond to consumer demand for more customized goods and services, manufacturers must offer more product options or variants of their standard products. Manufacturers must focus less on standard production and more on products, processes, and production systems that support product variety and adaptability. Through mass customization, manufacturers can provide products with enough variety and customization that nearly everyone finds what they want. No longer must consumers purchase automobiles from a car lot; they can build one online to their exact model type, color, and accessories. Automobile manufacturers can attain economies of scope by limiting the options available to the consumer.
 
Personalized production is a new trend affecting manufacturers. With personalized production, individual customer demand is met by integrating the individual into the design of products.
 
Even with shifting manufacturing paradigms, mass production will always be needed for commodities such as sugar, milk, and general-purpose products.
 
To review, see The Life Cycle of Manufacturing Networks in the Mass Customization Era.
 

8c. Describe how firm size and logistics complexity indicate why some businesses use third party logistics 

• What are 1PL, 2 PL, 3PL, and 4PL?
• What are some advantages and disadvantages of using 3PL for an international aid organization?
  

1PL stands for first-party logistics. The use of 1PL means that the producer of the good or service uses their own transportation system to deliver the product. 2PL stands for second-party logistics. With 2PL, you use a second party to transport or ship your goods. 3PL is third-party logistics. With 3PL, you contract for multiple integrated services.
 
Using 3PL has many advantages: these organizations are well-versed in integrated supply chains, combine shipping to create economies of scale, and allow for easier up- and down-scaling for the organization. As demand fluctuates, organizations do not need to contend with layoffs or rehiring as the 3PL company provides those services.
 
3PL organizations can be a good choice for maintaining low transportation and shipping costs. However, there are some disadvantages. In the case of global health and aid distribution, 3PL organizations may not have experience in a particular region of the world. Additionally, 3PL organizations may not be able to deal with security constraints or standards of neutrality and impartiality needed by the aid organization.
 
A 4PL organization is often an entity separate from the organization it is serving. Additionally, 4PLs often manage all functions of the supply chain.
 

8d. determine optimal transportation mode depending on the type of logistics, such as 1PL and 2PL 

• How important is the mode of transportation to an organization?
• What are the broad categories of transportation?
• What are new trends in transportation modes?
  

Shipping COVID-19 vaccinations by Pfizer required very specialized equipment, including maintaining specific frozen temperatures using dry ice; these conditions had to be maintained for worldwide shipping times of up to 3 days. Additionally, the sensors used to control temperature had to be returned to Pfizer – requiring a reverse supply chain. Can you see how important transportation was just for this one process?
 
Determining the mode of transportation depends on the product, the urgency of the shipping, and the restrictions necessary for moving that product. The major modes of transportation are trains, trucks, airplanes (cargo and passenger planes), ships, and pipelines. Easily transported products with a more standardized shipping routine, such as toilet paper, might use the least costly form of transportation. Sometimes, though, much like the Pfizer vaccine, other factors determine the mode of transportation. People living in rural areas that are not serviced by roads and ships – such as Northern Alaska – must depend on small computer planes to bring goods and services to their small villages.
 
Another determination of the transportation mode is how much product you must ship: Less than a Truck Load (LTL), Less than a Container Load (LCL), Full Truck Load (FTL), Full Container Load (FCL) or bulk – such as oil and wheat.
 
Finally, can you think of what new modes of transportation are on the horizon? Amazon is experimenting with drone delivery; perhaps robot deliveries are next. We are seeing more and more bicycle carriers delivering food and groceries. Might a company like SpaceX create a new mode of transportation with its rocket program?
 

Unit 8 Vocabulary 

This vocabulary list includes the terms that you will need to know to successfully complete the final exam.

• 1PL (First-person logistics)
• 2PL (Second-person logistics)
• 3PL (Third-person logistics)
• 4PL (Fourth-person logistics)
• bulk
• craft production
• Full Container Load (FCL)
• Full Truck Load (FTL)
• lean production
• Less than a Container Load (LCL)
• Less than a Truck Load (LTL)
• Location-Routing Problem (LRP)
• mass customization
• mass production
• personalized production