a warm welcome from the executives,staff and tutors of ... · learning how to really study the...

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LMSMod1(20X8) © CAMBRIDGE INTERNATIONAL COLLEGE ISBN 0 948182 85 7

A Warm Welcome from the Executives,Staff and Tutors of

Cambridge International College - Britain

STUDY & TRAINING GUIDE FOR MODULE ONE ON

LOGISTICS, MATERIALS &SUPPLY CHAIN MANAGEMENT

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STUDY GUIDE FOR MODULE ONEA full ‘Study & Training Guide’ will accompany the

Study or Training Manual(s) you will receive soon by airmail post or courier.

This Study Guide - like all our Study & Training Materials - has been written by professionals; experts in the Training of many hundreds of thousands of ambitious men and women in countries all over the world. It is therefore essential that you:-

Read this Study Guide carefully and thoroughly BEFORE you start to read and study Module One, which is the first ‘Study Section’ of a CIC Study & Training Manual you will receive for the Program for which you have been enrolled.

Follow the Study Guide exactly, stage by stage and step by step - if you fail to do so, you might not succeed in your Study & Training or pass the Examination for the CIC Diploma.

STAGE ONE

Learning how to really STUDY the College’s Study & Training Manual(s) provided - including THOROUGHLY READING this Study Guide, and the full ‘Study & Training Guide’ which you will soon receive by airmail post or courier.

STAGE TWO

Studying in accordance with the professional advice and instructions given

STAGE THREE

Answering Self-Assessment Test Questions/Exercises

STAGE FOUR

Assessing - or having someone assess for you - the standard of your answers to the Self-Assessment Test

STAGE FIVE

Preparing for your Final Examination

STAGE SIX

Sitting the Final Examination

Remember: your CIC Program has been planned by experts. To be certain of gaining the greatest benefit from the Program, it is essential that you follow precisely each one of the SIX stages in the Program, as described above.

STAGE ONE is your thorough reading of this ‘Study Guide’

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ABOUT CIC STUDY & TRAINING MANUALSA CIC Study & Training Manual (which comprises 6 Modules - the first Module of which follows) supplied by the College as part of your Program is NOT simply a text book. It must therefore not be read simply from cover to cover like a text book or another publication. It MUST be studied, Module by Module, exactly as explained in the following pages. Each CIC Study & Training Manual has been designed and written by specialists, with wide experience of teaching people in countries all over the world to become managers, administrators, supervisors, sales and accounting personnel, business-people, and professionals in many other fields.

Therefore, it is in your own best interests that you use the Study & Training Manuals in the way CIC’s experts recommend. By doing so, you should be able to learn easily and enjoyably, and master the contents of the Manuals in a relatively short period of time - and then sit the Final Examination with confidence. Every Study & Training Manual is written in clear and easy to understand English, and the meanings of any “uncommon” words, with which you might not be familiar, are fully explained; so you should not encounter any problems in your Studies and Training.

But should you fail to fully grasp anything - after making a thorough and genuine attempt to understand the text - you will be welcome to write to the College for assistance. You must state the exact page number(s) in the Study & Training Manual, the paragraph(s) and line(s) which you do not understand. If you do not give full details of a problem, our Tutors will be unable to assist you, and your Training will be delayed unnecessarily.

Start now by reading carefully the following pages about Stages Two, Three and Four. Do NOT, however, start studying the first Study & Training Manual until you are certain you understand how you are to do so.

STAGE TWO - STUDYING A CIC MODULESTEP 1

Once you have read page 1 of this document fully and carefully, turn to the first study section - called Module One - of Study or Training Manual One.

Read the whole of Module One at your normal reading pace, without trying to memorise every topic covered or fact stated, but trying to get “the feel” of what is dealt with in the Module as a whole.

STEP 2

Start reading the Module again from the beginning, this time reading more slowly, paragraph by paragraph and section by section. Make brief notes of any points, sentences, paragraphs or sections which you feel need your further study, consideration or thought. Try to absorb and memorise all the important topics covered in the Module.

STEP 3

Start reading the Module again from its start, this time paying particular attention to - and if necessary studying more thoroughly - those parts which were the subject of your earlier notes. Do not pass on to other parts or topics until you are certain you fully understand and remember those parts you earlier noted as requiring your special attention. Try to fix everything taught firmly in your mind.

Note: You might not wish to, or be able to, carry out Steps 1, 2 and 3 one after the other. You could, for instance, carry out Steps 1 and 2 and then take Step 3 after a break.

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STAGE THREE - ANSWERING SELF-ASSESSMENT TESTS

STEP 4

When you feel that you have fully understood and learned everything taught in the whole Module (and if necessary after a further careful read through it) turn to the Self-Assessment Test set at the end of it, and read the Questions/Exercises in it carefully. You do not have to attempt to answer any or all of the Questions/Exercises in the Test, but it is best that you do so, to the best of your abilities. The reasons for this are:-

By comparing your answers with the Recommended Answers printed in the Appendix at the end of the Module (or after the final Module in a Manual) you will be able to assess whether you really have mastered everything taught in the Module, or whether you need to study again any part or parts of it.

By answering Questions/Exercises and comparing your attempts with the Recommended Answers, you will gain experience - and confidence - in attempting Test and Final Examination Questions/Exercises in the future. Treat the Self-Assessment Tests as being ‘Past Examination Papers’.

Professional Advice on Answering Self-Assessment Test (and Examination) Questions and Exercises

1. You may answer the Questions/Exercises in a Self-Assessment Test in any order you like, but it is best that you attempt all of them.

2. Read very carefully the first Question/Exercise you select, to be quite certain that you really understand it and what it requires you to do, because:

some Questions/Exercises might require you to give full “written” answers;

some Questions/Exercises (called “multiple-choice questions”) might require you only to place ticks in boxes against correct/incorrect statements.

In your Final Examination you could lose marks if you attempt a Question/Exercise in the wrong way, or if you misread and/or misunderstand a Question/Exercise and write about something which is not relevant or required.

3. Try to answer the Question/Exercise under ‘true Test or Examination conditions’, that is, WITHOUT referring back to the relevant section or pages of the Module or to any notes you have made - and certainly WITHOUT referring to the Recommended Answers. Try to limit to about two hours the time you spend on answering a set of Questions/Exercises; in your Final Examination you will have only two hours.

4. Although you are going to check your Self-Assessment Test answers yourself (or have a friend, relative or colleague assess them for you) practise writing “written” answers:-

in clear, easy-to-read handwriting;

and

in good, grammatical language.

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STAGE FOUR - ASSESSING YOUR ANSWERSSTEP 5

When you have answered all the Questions/Exercises set in Self-Assessment Test One to the best of your ability, compare them (or ask a friend, relative or a colleague/senior at work to compare them) with the Recommended Answers to that Test, printed in the Appendix at the end of the Module (or the last Module in a Manual.) In any case, you should thoroughly study the Recommended Answers because:-

As we have already explained, they will help you to assess whether you have really understood everything taught in the Module;

and

They will teach you how the Questions/Exercises in subsequent Self-Assessment Tests, Progress Tests and in your Final Examination should be answered: clearly, accurately and factually (with suitable examples when necessary) showing your knowledge and understanding, with details and explanation, and how they should be planned and well-laid out for maximum effect and marks.

MARKS AND AWARDS

To assist in the assessment and grading of your answers, the maximum number of marks which can be earned for each answer to a Self-Assessment Test Question/Exercise is stated in brackets at the end of each one.

The maximum number of marks for any one Test is 100.

Your answers should be assessed fairly and critically. Marks should be awarded for facts included in your answer to a Question/Exercise, for details, explanations and descriptions, for presentation and for neatness. It is not, of course, to be expected that your answers will be identical to all those in the Appendix. However, your answers should contain the same facts, although they might be given in a different order or sequence - and any examples you give should be as appropriate to the Questions/Exercises as those given in the relevant “Recommended” Answers.

Add together the marks awarded for all your answers to the Questions/Exercises in a Self-Assessment Test, and enter the total (out of 100) in the “Award” column in the Progress Chart which you will find with the full ‘Study & Training Guide’ when you receive it. Also enter in the “Matters Requiring Further Study” column the number(s) of any Question(s)/Exercise(s) for which you did not achieve high marks.

GRADES

Here is a guide to the grade your Self-Assessment Test Work has achieved, based on the number of marks awarded for it:

50% to 59% PASS 60% to 64% HIGH PASS 65% to 74% MERIT 75% to 84% HIGH MERIT 85% to 94% DISTINCTION 95% to 100% HIGH DISTINCTION

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The Examiner who assesses your Final Examination answers will take into account that English might not be your national or main language. Nevertheless, to be able to assess whether you really have learned what we have taught you, he or she will need to be able to read and understand what you have written. You could lose marks if the Examiner cannot read or understand easily what you have written.

5. Pay particular attention to neatness and to layout, to spelling and to punctuation.

6. When “written” answers are required, make sure what you write is relevant to the Question/Exercise, and concentrate on quality - demonstrating your knowledge and understanding of facts, techniques, theories, etc. - rather than on quantity alone. Write fully and clearly, but to the point. If you write long, rambling Final Examination answers, you will waste time, and the Examiner will deduct marks; so practise the right way!

7. The Questions set in our Self-Assessment and Progress Tests should be treated as being “Past Examination Questions”. Therefore, you should read and study carefully the ‘recommended answers’ we provide because they form an integral and essential part of the Study & Training Program as a whole. Read the wording of each Question/Exercise carefully, and note, in particular, how our answer to each is presented and explained fully and clearly - not too briefly; whilst at the same time being detailed, but not over-long and rambling. To gain high marks, your own answers should certainly be no shorter or less detailed than our Recommended Answers.

It is important that your own answers to Test and (in due course) Examination Questions/Exercises are presented in a similar clear, detailed and easy to read style, to ensure that you receive the best possible marks and award in due course for your Examination Work. Brief, incomplete answers, or lists of unexplained “bullet points”, are not sufficient to gain good marks. It is better for you to write in more detail than too little, so long as your answers are clear and relevant. Include examples where helpful, and use wisely all the “time allowed” (usually two hours) in which to write full, well-explained answers. Plan your answers, and ensure that you answer all sections or parts of each question.

An Assessor needs to be shown by your answers that you really have understood what we have taught you in the Modules - and that you could implement and use the various subject-matters in practical work situations - so make sure your answers demonstrate that!

8. When you have finished writing your answer, read through what you have written to see whether you have left out anything, and whether you can spot - and correct - any errors or omissions you might have made.

Warning: some Questions/Exercises comprise two or more parts; make certain you have answered all parts.

9. Attempt the next Question/Exercise in the Self-Assessment Test in the same manner as we have explained in 1 to 7 above, and so on until all the Questions/Exercises in the Test have been attempted.

Note: There is no limit on how much time you spend on studying a Module before answering the Self-Assessment Test set on it, and some Modules are, of course, longer than others. You will, however, normally need to spend between twelve and fifteen hours on the thorough study of each Module - and that time may be spread over a number of days if necessary - plus approximately two hours on answering the Self-Assessment Test on each Module.

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STEP 6

Study again thoroughly the section(s) of the Module relating to the Question(s)/Exercise(s) to which your answers did not achieve high marks. It is important that you understand where or why you went wrong, so that you will not make the same mistake(s) again.

STEP 7

When you receive the complete Study or Training Manual One** from the College by airmail post, ‘revise’ - study again - Module One printed in it, and then turn to Module Two and proceed to study it thoroughly in exactly the same way as explained in Steps 1, 2 and 3 in this ‘Study Guide’.

When you have completed your thorough study, follow steps 4, 5 and 6 for the Self-Assessment Test on Module 2.

Continue in the same way with each of Modules 3, 4, 5 and 6 until you have attempted and assessed your work to Self-Assessment Test 6, and have completed the study of Study or Training Manual One. But - and this is important - study the Modules one by one; complete Steps 1 to 6 on each Module before you proceed to the next one (unless during the course of your reading you are referred to another Module).

**Note: When you receive Study or Training Manual One by airmail post or courier, it will be accompanied by a 24-page ‘Study & Training Guide’ (containing a ‘Progress Chart’) which you MUST read very carefully before starting your study of Module Two.

Above are scenes from a Graduation Ceremony held in Egypt attended by College Vice Principal, David Lawson, who presented awards to CIC Members from Egypt, Saudi Arabia, Kuwait, Qatar, Libya, Yemen (middle left) and Nigeria (bottom left)

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STUDY & TRAINING MANUAL ON

LOGISTICS, MATERIALS &SUPPLY CHAIN MANAGEMENT

Module OneCONTENTS

Module 1 - Background to Logistics and Supply Chains 10 Early peoples and problems encountered Subsistence production and domestic production Need for movement and exchanges Surplus production, the beginnings of trade Trade goods and barter Development of the urban culture Examples of logistics in global development: Ancient Egyptians and the pyramids Phoenician galleys and sea trade Alexander the Great and military logistics Development of infrastructure: roads and highways sailing vessels, steamships and sea trade routes canals and barges rail transportation air transportation Logistics during the two World Wars Manufacturing and end products: finished goods and consumer products raw materials, components and assemblies Logistics and the supply chain: differences and associations inbound logistics operational logistics warehousing and stock/inventory outbound or distribution logistics customer service Supply chains involving multiple organizations Advent of supply chain management Supply chains and supply networks: partner organizations: physical flows and information flows computer aided design software example of the global textile supply chain

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Value and Value Chains

Meaning of “value” in accounting, economics, marketing Customers’ perceived value Activities making up the value chain: primary elements and support or secondary elements Difference between supply chains and value chains addition of perceived value in the value chain business to business (B2B) focus, and end user orientation Summary of supply chain management elements and activities Glossary of Definitions

Recommended Answers to Self-Assessment Test One 25

You will find the Contents/Syllabus of what you will learn in Modules 2 to 12 of this Program starting on page 28

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BACKGROUND TO LOGISTICS, SUPPLY CHAINS AND VALUE CHAINS

Introduction

From the earliest times humans were faced with the problem that many products which they needed were not found or produced where people wanted to use or consume them. Another problem was that some products which people needed were not always available at the times those people wanted to use or consume the products. For example, various foodstuffs and other commodities (such as flints for tools) were found in relatively few places, whilst other products (such as root crops or fruits) were only available in abundance at certain times of the year.

Very few communities were able to remain totally self-sufficient or self-reliant and to be able to provide for the needs of all members of the community group. In the distant past, previously hunter-gatherer nomadic families, clans, tribes or other groupings began to settle on land and grow crops and/or raise domestic animals (cows, goats, sheep, camels, etc) or came to depend on fishing in rivers, lakes or the sea. Small groups lived by what is termed “subsistence production” in which output was just enough for survival - the amount of production was not adequate to meet more than the needs and wants of a family or a small community; for example, subsistence farming might produce just enough crops to feed a family, and for its survival, but nothing more. What today we call “wealth” was not created, because whatever was produced was consumed.

Early peoples were faced with the choice of consuming products in their immediate locations, or moving certain products to other relatively close locations where they could be stored for later use. In those far off times the movement of products was limited to what individuals or groups (such as families, clans or tribes) could move or carry themselves or carry with the aid of domesticated animals. Similarly, in most situations the storage of perishable products (such as meat and fish) was possible for only limited periods of time. Typically both “settled” and nomadic peoples were forced to live fairly close to the sources of products - such as cultivated plots for crops, river banks or sea shores for fish, forests or prairies for game animals - and to consume a rather limited range of products.

Even today, there are some areas of the world - such as in developing nations in Asia, South America and Africa - where consumption and production take place only within a very limited geographic region, and people still live in small, semi-self-sufficient villages, where most of the products needed by the residents are produced or acquired in the immediate vicinity. Relatively few products are brought in - or “imported” - from other areas, or sent - “exported” - to other areas. In such isolated communities, productive efficiency and economic standards of living are therefore generally low.

Some communities in the past practised what is called “domestic production” which provides sufficient output to satisfy fairly limited local or domestic needs and wants, and also offers some opportunities to exchange or “trade” for different products. The increased output of agricultural produce and other products not only satisfied local or domestic demand, but also led to “excess production” or “surplus production”. Some or all of any surpluses of products produced in one community or area could be exchanged (by a process called “barter”) or traded for different products which were surplus to needs in other communities or areas, some nearby but increasingly others further away. For example, a weapon-maker might exchange flint arrowheads for articles of clothing; whilst a farmer might exchange grain for a hunter’s meat or animal hides.

And this is where what today we call “logistics” can really be said to have begun although

Module One

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not, perhaps, in the format in which we view logistics today. In simple terms, logistics can be defined as:

making available the right types of products - goods or services - in the right quantities, in the right places, at the right times and in the right condition.

There is one further “business” element, which is that the products must be offered “at the right prices”. (Not all logistics efforts are carried out for business or commercial reasons - military and humanitarian logistics are two examples - but the principles are much the same, and logistical work must be undertaken with the finances and other resources available.)

Due to differing geographical or climatic or other natural advantages (such as fertile soil, accessible minerals, plentiful grazing for animals, hunting, timber or fishing) or advantageous location, some communities or areas were able to “specialise” in producing some products, whilst other communities or areas were able to offer different products - many products were what we can define today as being “trade goods”. It is clear that efficient methods of transporting products from where they were produced to where they were needed - and where people would exchange other products (by “barter”) for them, or pay money for them - had to be developed.

As communities increased in size over time - often as the result of conquest or the need to find protection in larger numbers or to find non-agricultural work - and an “urban culture” developed, the need arose not only for greater output, but demand also increased for a wider range of products. That was especially true of the leaders of groups, such as chiefs and chieftains, nobles, princes and kings, who would want to demonstrate their power and wealth by the possession of better or more valuable products than those of ordinary members of the groups over which they held sway. From small beginnings, over centuries the variety and volume of trade grew, both within regions and between different regions of the world. Today we call trade which takes place within a country’s borders “domestic trade” or “home trade”. Trade which is undertaken with other countries is called “international trade” or “foreign trade”. The function of logistics and its role in supply chain management have become increasingly important.

Logistics in Global Development

Logistics has played a fundamental role in national and global development for thousands of years. Since the construction of the pyramids in ancient Egypt, logistics has made remarkable strides. Time and again, ground-breaking logistics solutions and inventions have formed the basis for the transition from one historical and economic era to another, and helped to build civilization as we know it today. Here are just a few significant events to demonstrate how developments in logistics have helped to mould the modern world which we all live in today.

As long ago as “circa” (around) 2,700 BCE (before Christian Era) large numbers of blocks of stone weighing thousands of kilograms were transported to and assembled at the construction sites of the pyramids in Egypt. To build the Great Pyramid of Giza - which is 146 meters high and weighs 146 million tons (over 146,000 million kilograms) - the ancient Egyptians needed to use sophisticated materials transport and handling equipment capable of moving the massive building blocks to the building site and setting them into place.

The invention and development of large rowing vessels called galleys created the basis for rapid travel and transportation across the seas and oceans, and the foundation of international and intercontinental trade. In the ninth century BCE the legendary Phoenicians were famous traders, whose sea-going galleys enabled them to establish colonies and trading posts at almost every strategic trading point on the Mediterranean Sea. Their innovations and those of the ancient Greeks formed the foundation for the creation of enormous logistical supply systems required by mobile army camps (food, supplies, communications, etc.) In the 4th century BCE, using such logistics capabilities, Alexander the Great undertook campaigns with his troops, their families and their weapons of war which extended from eastern Europe all the way eastwards to India.

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Construction of the famous Mezquita Mosque in Cordoba, Spain, began in 756CE (Christian Era); it is considered to be the largest mosque in Europe. Extraordinary procurement logistics was required to “source” (find) the raw materials and workers need to shape and transport the pillars of the mosque to Spain from all parts of the Islamic Empire.

Fig.1/1. the pyramids at Giza, Egypt Fig.1/2. Phoenician galley

The city of Hamburg, in Germany, was founded in 1188 CE as a base on the edge of the North Sea for the Hanseatic League, to make travel on the sea more secure, and to better support trade and business interests abroad. Hanseatic trade extended from the Black Sea to what is now Tallinn in Estonia. From a modern-day vantage point, the League’s cross-border trade bears strong similarities to the current European Union (EU).

In the early 16th century CE, Franz von Taxis organised the first European postal service with strictly defined transit times. Letters were collected from various locations and then delivered to places such as Paris, Ghent, Spain and the imperial court of Vienna. Considering the limited infrastructure of the times and the political fragmentation created by the array of small principalities in Europe in that century, the mail reached its destinations with surprisingly little delay, due to good logistical planning and efficient logistics management.

Development of Infrastructure

The term “infrastructure” refers to the physical and organizational structures and facilities (such as buildings, roads, bridges, power supplies and systems) available and needed for the operation of a society, economy, business, industry, country, city, town or area.

Roads formed a physical infrastructure which was vital to the development of and control over early civilizations, and particularly to the Roman State, and many roads (some of which still exist) were built from about 500 BCE throughout the expansion and consolidation of the Roman Republic and later Empire. Roman roads provided efficient means for the overland movement of armies, officials, and civilians, and the inland carriage of official communications and, significantly, trade goods.

During the “Industrial Revolution” in Britain (1756 to 1836 CE) the first modern highways, using inexpensive paving material of soil and stone aggregate (called “macadam”) were developed for use by improved forms of horse-drawn wheeled wagons, carriages and other vehicles. Then with the development of motor transport (cars, vans, lorries, trucks, etc) came an increased need for hard-topped durable roads to reduce washaways, pot-holes, bogging and dust on both urban and rural roads. Cobblestones and wooden paving were initially used in major Western cities, but were replaced in the early 20th century by stronger, longer-lasting tar-bound macadam (“tarmac”) and concrete paving, which were extended into non-urban areas.

Over the centuries, with improved construction methods, larger and better sailing vessels were developed, built and refined, which enabled ships to sail from Europe to circumnavigate the globe, initially for exploration but in so doing opening up new trading opportunities and “trade routes”. Specialised boats/ships were also developed and built for fishing and for whaling. During the Industrial Revolution in Europe (from 1760 to 1840) the first steamboats and later diesel-powered ships were developed, both for war and for trading purposes. Innovations and improvements continue, improving trade and transport opportunities.

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From early times, specialised craft were developed to transport people and goods by river and canal. Canals were developed in Mesopotamia (modern day Iraq) circa 4,000 BCE, as well as in China and various Asian civilizations; barges pulled by horses or men could transport much larger loads on a canal than a horse-drawn wagon could on a road. Canal networks were built and developed in the “Middle Ages” (5th to the 15th century CE) in Europe, in Venice and the Netherlands. During the Industrial Revolution, inland canals were built in France, England and later in the United States of America for the same reasons.

Rail transportation dates back nearly 500 years, and includes systems which used man-power or horse-power and rails of wood (or occasionally stone) and were mainly for moving ore (such as tin) and coal from mines to a river or to the sea, from where it could continue its journey by boat or ship. Modern rail transport systems were first developed in England in the 1820s. These systems, which made use of steam locomotives, were the earliest practical form of mechanised land transport, and gradually replaced canal transport which in comparison was both slower and less flexible in routes. Railways remained the primary form of mechanised land transport for the next 100 years. With the development of railways, large and heavy loads could be transported, more quickly than by road, river or canal, over long distances. Raw materials for processing might be transported in one direction, and processed or manufactured products for distribution might be carried in the opposite direction, thus reducing the costs involved of running the railways, and of using that service. It is likely that humanity’s desire to fly dates from the first time man observed birds, and much of the focus of early research was on imitating birds. Through trial and error, balloons, airships, gliders and eventually powered aircraft and other types of flying machines were invented and developed. Most major developments and innovations were pushed forwards by the demands of war and for military reasons, but whenever war was over, these innovations were embraced by entrepreneurs and businesses to improve trade, transport and related activities. Today, air transport is the fastest means of moving people and goods, within large countries, internationally and globally, but it is by no means the least expensive, and it is limited as to the weights and volumes which can be carried.

During World War I (1914-1918) military logistics was the vital link in the network that supplied troops with rations, weapons and equipment. Logistics evolved considerably during World War II (1939-1945) during which the military forces of the “Allies” (Britain, United States and their allies) strove to ensure that services and supplies were provided at the right times and at the right places, to the right forces and personnel. They also tried to provide those services when and wherever they were required, in the most optimal and economical manner; and the best available options to do the task were developed. As a result of the logistical knowledge and experience gained, and a recognition of the importance of efficient logistical operations in achieving specified goals (and overcoming the opposition), after the war logistics gained an important place in the business world with the transfer of military logistics concepts to a business context.

The invention and patenting of the sea container (large, strong, metal boxes ideal for transporting goods long-distance by sea) in 1956 changed production and transportation conditions for nearly all industries around the world and, as a result, altered peoples’ consumption habits (because a much larger variety of products in large numbers could now be safely transported and made available for sale.) Sea containerisation ensures that suitable harbours and sea ports can gain major business contracts (to receive and handle container ships and their cargoes), that countries and regions experience commercial booms, that new markets can be created and existing markets satisfied, and that products from all parts of the world can be bought and sold at reasonable prices when and where they are needed (see the “Definitions” Section at the end of this Module for the business meaning of “market”). Containerisation has significantly contributed to globalisation.

Procurement, Kanban, J.I.T

Between 1970 and 1980, two influential concepts (called “Kanban” and “just-in-time” (see below) were developed and introduced by the Toyota Motor Company in Japan, with the objective of effectively linking logistics to other operational functions, with special emphasis on procurement. The process of “procurement” is the acquisition of products - goods and/

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or services - from external sources (outside an organization itself); the products must be appropriate (or “fit”) for the purpose for which they are required, and be procured at the best possible prices to meet the needs of the purchaser, in terms of quality, quantity, delivery timing and location.

Briefly, Kanban is a system to control the logistical chain from a production point of view; it is an inventory or stock control system used to improve and maintain a high level of production. Just-in-time (or JIT) manufacture or production is a strategy which organizations use to increase efficiency and to decrease wastage, by receiving materials only as and when they are actually needed for the production processes. These systems are discussed in greater detail in Module 10.

What is called “quick response codes” (QRC) technology was developed during the 1990’s, and is used by many retail and wholesale organizations. QRC involves the use of “barcodes”, which are machine-readable optical labels - in the familiar black and white stripes seen printed on many products and/or their packaging - containing information about the items to which they are affixed. QRC and related technologies had a major impact on logistics (for reasons including that data about product items, their locations and movement, can be accessed very quickly, allowing quick actions and decisions to be made.) As a result, modern distribution centres are tasked with moving goods instead of simply storing them. This enables organizations to speed up reaction times to market developments, and to set up more efficient systems for the supply of products to customers.

Manufacturing and End Products

Manufacturing is the production of goods or merchandise for use or sale, using labour and machines, tools, chemical and biological processing, or formulation (which involves assembling components or using ingredients in specific ways). The term might be used to refer to many different human activities, ranging from handicrafts to “high tech”, but in business and commerce it most commonly refers to industrial production, in which raw materials are transformed on a large scale into “end products” (sometimes called “finished goods”) or “consumer products”.

The end products might be used as “components” (or “parts”) in the manufacture or assembly or processing of other, more complex products, such as aircraft, household appliances or automobiles; for example, one business might make special windows, and another business might make special seats, which are incorporated by aeroplane manufacturers into the aircraft they build. Or various components might be sold to wholesale businesses, which in turn sell them to retail businesses, which then sell them to end users, who are the “consumers”.

What are called “raw materials” are materials or substances which are used in the primary production or manufacturing of goods. Raw materials are often natural resources such as oil, iron and wood, and before being used in manufacturing processes, their forms or make-ups are often altered or refined in some way so they can be more easily used in other, different processes. Raw materials are often referred to as being “commodities”, and they might be bought and sold on “commodities exchanges”; these are organised markets on which future delivery contracts for industrial metals (such as copper, lead, zinc and aluminium); or energy sources (such as crude oil and natural gas); or agricultural produce (such as grains, cotton, sugar, coffee and wool) are bought and sold around the world.

In addition to or instead of raw materials, many manufacturers need “components” or “parts” which will be used in or incorporated into the end products they manufacture (as in our example above). Components might be “bought in” from other manufacturers and/or might be produced in other sections of an enterprise’s own manufacturing complex. The end products of some manufacturing enterprises might be components which will be used by other manufacturers in their specific products, such as the range of components which are sourced and incorporated - or assembled - into a completed motor vehicle.

It should be noted that what are the end products of one manufacturing or industrial enterprise might be the raw materials of another. For example, a forestry plantation business

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grows trees, which are eventually felled; its end products - logs - might be sold to a timber/saw mill, where they will be considered its raw materials. The end products of the mill might be cut and planed planks and sheets of wood. Some of that wood might be sold to a furniture manufacturing business, in whose factory the wood will be considered one of the raw materials on which it depends. The furniture manufacturer is likely also to need to purchase components from other manufacturers, such as those which produce nails, screws, foam, fabrics, and so on, all of which products are needed to produce the factory’s end or “finished products” - which is furniture in this case.

Note: For convenience, in these Manuals we sometimes use the term “merchandise” to refer to all materials and products, goods and services, in general.

Logistics and the Supply Chain

It is important not to confuse the term “logistics” with the term “supply chain”. Some people think that the two terms mean the same and can be used interchangeably, but that is not the case in practice.

Logistics involves planning, implementing and controlling the efficient and effective flow and storage (warehousing) of goods, materials and services from the time of their purchase from external sources, to the point at which they are received into or “enter” an organization, and the onwards flow through the organization to the point at which its end products are transported - distributed or delivered - to its customers (customer service). All these activities need to be co-ordinated and integrated to form one smooth “journey”.

For closer study, it is convenient to break-down the overall logistics system into these functions, which will be studied in greater detail during the Program:-

[ Inbound logistics which is concerned with purchasing or procurement, arranging the inbound movement or transport of materials, parts, and/or end products from suppliers to the buying organization’s manufacturing or assembly sections, storage and warehousing facilities, or to retail outlets (such as shops, stores and supermarkets.)

[ Operational logistics which are activities related to production planning and control.

[ Warehousing which relates to storage and warehousing, including stock or inventory holding and control, and includes activities such as unloading, receiving, inspecting, storing, safekeeping, relocating, picking, packaging, consolidating, loading, trans-loading, and shipping.

[ Outbound or distribution logistics

which concern the delivery of the end products to customers. Transport is central to this function, but good organisation and co-ordination are essential because the time, place, and quantity of production differs from the time, place, and quantity of consumption. For example, a bakery might produce large quantities of loaves of bread from the early hours (if not throughout the night) and the loaves must be delivered in smaller quantities to many different retail outlets ready for sale to consumers (perhaps singly) when the outlets open, and throughout the day.

[ Customer service which is the “output” of the logistics system, and should be designed to deliver a desired and acceptable level of customer service at the lowest total cost.

Logistics is generally viewed as functioning “within” and affecting the activities of one individual organization although, as we have explained, in practice logistics manages the flow of products between that organization and its suppliers and customers. Although for convenience and explanation we have listed and separated out the main logistics elements, in practice they are all integrated - part of - the overall logistics process; they are undertaken and occur concurrently - at the same time - to provide effective logistical operations.

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Fig.1/3. integrated logistics activities

In contrast, a supply chain involves many or multiple organizations, such as suppliers, manufacturers, and distributors (for example, wholesalers and retailers) - in fact, every organization which comes into contact with a particular product. A supply chain should be a co-ordinated system of organizations, people, activities, information and resources, which are all involved in moving a product from suppliers to customers - often looked on as being “end to end”. Supply chain activities involve the transformation of natural resources, raw materials, and components - by manufacture or assembly or other processes - into a finished or end product which is eventually sold and delivered to end users or consumers.

If we think of a supply chain as being a human “body”, we can consider that logistics is its “life blood”. If logistics (the blood) does not flow or is constrained, or if one part of logistics - such as transportation or distribution - does not flow freely, then the supply chain (the body) will be harmed or damaged.

Fig.1/4. example of a supply chain

Advent of Supply Chain Management

The concept of supply chain management is based on two core assumptions. The first is that practically every product which reaches an end user represents the cumulative effort of multiple organizations. As we have seen, these organizations are referred to collectively as forming a “supply chain”.

The second assumption is that whilst supply chains have existed for a very long time, the managements of most organizations have too often paid attention only to what was happening within their own surrounds or spheres of influence. In the past, the managements of few businesses understood - much less managed - the entire chain of activities which ultimately delivered products to their final customers. That lack of management attention resulted in disjointed and often ineffective or wasteful and inefficient supply chains.

What is called “supply chain management” is the active management of supply chain activities to maximise customer value and to achieve a sustainable advantage over competitors. It represents a conscious effort by the managements of organizations in a supply chain to develop their respective supply chains in the most effective and efficient

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ways possible. Supply chain activities cover product development, sourcing, production, and logistics, as well as the information systems needed to co-ordinate all those activities.

The organizations which make up a supply chain are “linked” together as “partners” through “physical flows” and “information flows”. Physical flows involve the transformation, movement, and storage of goods and materials, as well as “customer order management” (that is, managing the orders received from customers for goods or services) - they are the most visible component of the supply chain. But just as important are information flows, which allow the various partners in a supply chain to co-ordinate their long-term plans, and to control the day to day flows of goods and materials through the supply chain.

Supply Chains and Supply Networks

Both supply chains and supply networks describe the flow and movement of materials and information, by linking organizations together to better serve the end customer. What are called “networks” are created between different “partner” organizations within the same supply chain. Increasingly, partner organizations use the very latest electronic data exchange technologies, and create interdependencies, because each partner is more heavily dependent upon its suppliers (through exchanging up to date information quickly and accurately, each “partner” is better informed and can better manage its operations). By this process a simple supply or distribution chain becomes a “web-like structure” dependent upon many more participants, and giving rise to much more complex relationships between organizations.

When organizations are “linked” to their customers (which might not be the final end user of a product), better planning and far greater use of technology can be made. For example, by using “computer aided design software” (CAD) it is possible for components to be designed online with the input of both the customer and the supplier. This greatly increases the interdependence which is typical of partnerships between customers and suppliers which rely on high levels of integrated (and shared) technology.

Every stage in production which involves the expenditure of time and resources will add value to the product. In manufacturing generally, it is common to find long “supply chains” comprising successive stages, each undertaken by an organization which is likely to be both a customer, and a supplier. The textile industry is a good illustration.

Fig.1/5. the global textile supply chain

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The first stage is the gathering or production of the fibre. This raw material is processed, which itself might comprise several stages, such as cleaning and sorting. Then follows the spinning, and usually the material is twisted into a product called yarn. This is then woven or knitted to produce grey fabric, which then undergoes a major change - bleaching, dyeing, printing and finishing - to produce a finished fabric. That is then made into garments, or items of clothing ready for sale to consumers.

All those stages - from the cotton field to the clothing shop or store - involve successive people and organizations in costs; buying in, performing certain changes and selling on the result. Each contributor to this process has interests in other contributors who are also part of this “chain”. As interested parties they are “stakeholders”, even though they might be widely located around the world. There are also transport organizations involved at various stages in the chain, moving raw materials, components and finished products. When eventually the garments are manufactured it is likely that CAD will be used again, so that, for example, the professional buyers for shops and stores might influence the cut, style, colours and other details of the clothes even as the work progresses.

VALUE AND VALUE CHAINS

All businesses are established and run with the intention of gaining profits for their owners (whether they are individuals or small or large groups, such as shareholders or stockholders). In any business there are certain processes which need to be performed - and done well - if any profits are to be achieved. One such process is implementing an effective “value chain”.

Before examining what a value chain comprises, let us consider the term “value” because it can have different meanings at different stages in both supply chains and value chains, as well as to different individuals or organizations who have contact with them. In accounting: “value” is considered to be the monetary or material worth of an “asset” (a

possession), a business entity, goods sold, services rendered, or a liability or an obligation acquired.

In economics: “value” is the worth of all the benefits and rights arising from ownership of something. Two types of economic value are: (1) the “utility” or usefulness of a good or service, and (2) the power of a good or service to command or require a certain amount of other goods, services, or money, to be given for it in voluntary exchange.

In marketing: “value” is the extent to which a good or service is perceived or considered by a customer to meet his or her needs or wants, measured by customers’ willingness to pay for it. That typically depends more on customers’ perception of the “worth” (to them) of the product, rather than on its intrinsic or actual value.

Let us look at the third meaning in greater detail - that, is, the worth that a product or service has in the mind of the consumer. A customer’s “perceived value” is an opinion of a product’s value to him or her. It might have little or nothing to do with the product’s market price, and depends on the product’s ability to satisfy a customer’s immediate or longer-term needs or requirements. For example, an ice cream or a cold drink on a warm day will satisfy a customer’s immediate needs, and a meal might satisfy hunger for a while, but the benefits or value of other products, such as electronic devices, extend over a longer period.

The consumer’s perceived value of a good or service affects the price which he or she is willing to pay for that product. In the majority of cases consumers are unaware of the true cost of production for the products they buy. Instead, they simply have an instinctive feeling or perception for how much certain products are worth to them. Therefore, in order to obtain higher prices for their products, producers and suppliers might pursue marketing strategies to create a higher perceived value for their products.

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For example, perceived value is often used for the marketing of perfumes and similar cosmetics. Producers and sellers of perfumes might attempt to associate their products with glamorous celebrities in order to create a mystique and perception of luxury. Alternatively, the products might be the subject of elaborate and expensive advertising campaigns to create a strong image for a particular perfume. Consumers commonly do not realise that the costs of production (the ingredients and the mixing, combining and processing of them) for perfumes are relatively low; the cost of an attractive bottle and the eye-catching packaging is generally far more in cost than the ingredients. Therefore, whilst the cost of production for perfume might be quite low, the perceived value of perfumes can be far greater, allowing them to be offered at increased prices.

Simply put, a “value chain” is the set of input activities which an organization carries out or in which it is involved in order to create “value” for its customers. By this we mean that for a business to be able to make profits it has to create a saleable product which has “value”, which people are prepared to pay for. This might involve finding raw materials for use in manufacture, or packaging and marketing products for retail. The key to making profits is how an organization takes whatever “business input” it has, and transforms that into “outputs” or products to be presented to its customers. That has to be done in such a way that the result of the whole process is having an output which is of higher value than the whole process and the cost of creating that output.

How much profit a business makes is determined by the quality of the “value” it creates:

The way a business creates value for its customers determines its costs, which affects its profits. There are several factors or elements involved in the value chain:-

Primary elements involve the physical creation of a product, its packaging, its sales and marketing and, where applicable, its maintenance.

Support or secondary activities are those which help the primary elements to function effectively, such as procurement, the human resource department, the technical department and the organisation and infrastructure of the business.

Fig.1/6. components of a value chain

Supply Chains and Value Chains

It is sometimes easy to confuse the “value chain” with the “supply chain”. There is a difference between the two - although it is seemingly subtle, it is actually a big difference.

As we have seen, a supply chain is what ensures that the products which customers

the cost of creating and capturing that

value,

the value a business creates and captures,

its profit marginless equals

Value Chain Activities

Secondary Activitiesw Infrastructurew Human Resource

Managementw Tecnology Development

w Procurement

Primary Activitiesw Inbound Logisticsw Operations

w Outbound Logisticsw Marketing & Sales

w Service

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want or value actually get to them. Some of the products which people buy and use are manufactured in many different countries, sometimes half-way across the world from where the consumers buy those products in local shops and stores. A supply chain therefore involves bulk storage and transportation.

The major difference between a supply chain and a value chain is that within a supply chain no value to end users or consumers is added. In a supply chain, in reality all that is being done is “conveyance” - one product or material is taken from one organization or location or country or from one “end”, and transported to another “end”. Of course, there are procedures involved such as proper storage and careful transportation, and expenditure is incurred at each stage.

Transportation and some storage is also involved in value chains, but the main purpose of a value chain is to add perceived value to the product in order to make it more attractive to end users and customers, and encourage them to buy it. That is often achieved through packaging, marketing and sales techniques - which, as we have seen, is one of the primary elements of the value chain.

It is essential to appreciate that supply chains and value chains are equally important in the business world - without one or the other, domestic, international and global trade as we know them today would be impossible. Supply chains are what connect the world. A particular product produced or manufactured on a different continent might be essential for a customer’s daily consumption.

The reason the customer can usually find that product on the shelves in his or her local shops or stores, is because supply chains operate continuously. The reason why the customer will buy the product is because of its perceived value to that customer. Consumers determine the value of a product - not the other way around. However good and reliable a product might be, if consumers do not recognise its value to them, they will not buy it. Therefore, in value chain management, the consumer is seen as the source of value - consumers create value for manufacturers and suppliers when they demand products. The focus is not on the cost of the products, as in supply chain management, but in creating value in the eyes of consumers.

Although this is a very simplistic way of looking at supply chains and value chains, it does show you the essence of the whole concept - that is, how our modern worlds of business and trade operate. Supply chains and value chains might be difficult to separate because some of their functions overlap; for example, as we have stated, both supply chains and value chains need transportation and storage. The major difference is that:

In a supply chain some functions - such as packaging or marketing of the product - are not always involved, at least not directly with customers. That is because organizations within supply chains typically market themselves to other organizations; that is, there is more a “business to business” (or “B2B”) function.

In stark contrast, value chains are absolutely customer or end user oriented in order to increase sales and the profits of the business. It is consumer wants and demands which set the value of a product.

Supply Chain Management

The objective of supply chain management is to manage the flow of materials and products from suppliers to consumers. As we have discussed, a whole series of related processes take place along the supply chain; each and every one of them must be properly controlled in order for an enterprise to deliver goods to end users whilst remaining competitive and earning profits. Supply chain management consists of five main elements:-

Planning and designing a product to meet consumer demand.

Sourcing the materials or components needed to produce the goods.

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Manufacturing the product.

Delivering the product to the buyer.

Accepting “returns” of defective products.

In supply chains the primary focus is on the costs of materials and on efficient delivery. Effective supply chain management reduces costs to the consumer and increases profits for the manufacturer. Successful supply chain management can contribute to an organization’s profitability in ways such as these:-

Choosing and managing suppliers of components or raw materials.

Strategic planning for production and delivery to support marketing efforts, special offers and seasonal demand.

Monitoring inventory and product flow to avoid supply shortages and/or excess stock or inventory holding.

Many organizations operate separate departments (such as purchasing or procurement, production, warehousing, sales and marketing, etc) which control various activities or functions within the supply chain, and that leads people to believe that supply chain management is itself simply a “function” - which it is not. As we have explained, a supply chain is actually a “network” consisting of a variety of “partners”. Some of the main activities involved in “management” include: planning, forecasting, implementing policy, controlling - and supply chain management involves planning, implementing and controlling the supply network(s).

Supply chain management involves the flows of materials or products, information and finance (money). Increasing competition, the drive to reduce costs, and consumer demand for diversity of products, has lead to the increasing globalisation of the supply chain, and today it is difficult for an enterprise to survive in isolation from its suppliers and other business partners. Information flow is therefore an integral component of a supply chain network because it “connects” the various other components, activities and operations.

Fig.1/7. flows of materials, information and funds in a supply chain

Traditionally the supply chain concerned the “physical” flow of materials or products. Today, the information flow in a supply chain is of equal importance, and to achieve success an enterprise must acquire and share relevant information about the different aspects of the supply chain of which it forms part. The different partners in a supply chain need to share information to enable their activities to be “synchronised” (co-ordinated), and a smooth information flow improves the integration of supply chain processes, which in turn results in a smoother flow of materials and products, and reduces stock/inventory holding and warehousing costs.

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Glossary of Definitions

It will be beneficial for you to read this “glossary” of definitions thoroughly and learn the following definitions of words and terms which will be used regularly in the Modules in this Program, and refer back to it for clarification as and when necessary during your studies:-

$ The process of moving or transporting products from one location over a distance to a “destination” is often called “shipping”, and the term is commonly used even when the mode of transport is not on a ship or another type of waterborne vessel. A “shipment” is a quantity of products which is to be sent to another party; alternatively, it might be called a “consignment” (see below). Once the shipment is “in transit” - that is, on the way or “en route” (a term borrowed from French) - it is said to have been “shipped”. The journey between the point of departure of a shipment to its final destination might be separated into a number of stages or “legs”.

$ A “consignment” is a quantity of products which is shipped or sent - “consigned” - because the products have been sold to a person, organization or place, or have been sent to a person, organization or place in order to be sold. A consignment might be just one package, or might be made up of a number of packages - in some circumstances it is referred to as a “load”.

$A person or organization (commonly the seller or exporter) sending a shipment to be delivered, whether by land, sea or air, is called the “consignor”.

$ A “shipper” is considered to be a consignor, seller or exporter (who might be the same or different parties) who is named in the shipping documents as being the party responsible for initiating a shipment, and who might also pay the freight or transport charges involved.

$ A “consignee” is the party (usually a buyer) named by the consignor (usually a seller) in transportation documents as being the party to “whose order” a consignment will be delivered at the port of destination. The consignee is considered to be the owner of the consignment for the purpose of filing the customs declaration, and - in the case of importation - for paying any customs duties and/or taxes. However, formal ownership of - or “title” to - the consignment transfers to the consignee only upon payment of the seller’s invoice in full. In contrast, if a buyer pays for products in advance - “up front” - before they are shipped, that buyer immediately becomes the beneficial owner of the products.

$ A “carrier” is any person or business which transports goods, materials or other property or people by any means of conveyance - such as by truck, van, automobile, motorcycle, coach, aeroplane, railway, ship - almost always for a charge. Carriers who use lorries or trucks are often called “road hauliers”, and are engaged in “road haulage”. Carriers by sea are commonly called “shipping lines”. “Commercial carriers” - sometimes called “common carriers” - are those which are engaged in the transport business. We discuss transport and carriers in more detail in Module 7.

$ The term “cargo” refers in particular to physical products (that is, merchandise such as goods, materials or produce) being conveyed - generally for commercial gain - by ship, boat, or aircraft. However, the term is now often extended to cover all types of cargo, including that carried by other “modes” of transport, such as railway, van, truck or lorry, or a combination of two or more modes, called “intermodal”.

$ The term “freight” refers to goods or other physical products (cargo) carried by a vessel or vehicle, especially by a commercial carrier or transporter. There are various methods or modes of shipping consignments: by air, road, sea, inland waterway or rail. Some consignments require “intermodal” solutions, which means that they need to be moved by more than one mode of transport during their journeys; in many cases air and sea and in other cases air, sea, and road. The most common intermodal method of shipping involves freight being collected by a truck or lorry and taken to a railway station for transport by train, and then being collected at the end of the train journey to be taken by another truck or lorry to the delivery point - this is expanded upon in Module 7.

$ “Distribution” is the movement of finished goods (parts, components or “final” products) from their manufacturer or distribution centre to a customer. Shipments from one source might be separated into a number of parts and distributed to many receivers. Large

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quantities of freight might be picked up or collected at a single point and taken to the “logistics centres”, where they are processed for shipping to end customers.

$ A “freight forwarder” - alternatively called a “forwarder” or a “forwarding agent” - is a person who or a business which organises shipments for individuals or organizations, and arranges to “carry” consignments from manufacturers or producers to markets, to customers, or to their final points of distribution. Forwarders act as agents and as professionals in the logistics network; they do not move consignments, but instead arrange or “contract” with commercial carriers to move cargos - which might range from raw materials, agricultural produce to manufactured goods - on a variety of modes of shipping or transport, including ships, aeroplanes, trucks, and railways.

“International freight forwarders” handle international shipments, and offer additional expertise in preparing and processing customs and other documentation, and performing activities relating to international shipments. We consider them further in Module 7.

$ What is called “groupage” occurs when a freight forwarder combines the shipments of several consignors into one load or container. There are various types and sizes of shipping containers - often simply called “containers” - the most commonly recognisable of which are very large reusable steel boxes which are used for intermodal shipments. They need sufficient strength to be able to withstand the rigours of mechanical handling, storage, stacking (usually a number, and often full, containers one on top of another) and shipping, as well as many and varied climatic and weather conditions.

$ “Assets” are possessions - what a business owns. Different businesses might own or use diverse assets, which might range from land and building to plant and machinery and equipment, trucks and lorries, shelving and racking in storehouses and warehouses. In business an asset is considered to be anything tangible or intangible which is: (1) capable of being owned; or (2) capable of being controlled to produce value and which is accepted as having positive economic value.

$ “Fixed assets” are items which an enterprise acquires in order to be able to carry out

its activities and to earn revenue or income, and they are usually acquired with the intention of their being retained for a length of time, perhaps many years. The variety of such items is great and, depending on the type and size and activities of a particular enterprise; they might range from desks and chairs, computer systems and other office equipment, to real estate - such as factory or office or storage or accommodation or other buildings or land - equipment, machinery and plant, motor vehicles, etc. In fact any material item large or small in size or value which assists the enterprise to run efficiently and profitably. In some countries fixed assets are called “working assets” because they enable the enterprise to perform its “work”.

$ All other assets of an enterprise are called “current assets”, and their total value is

constantly changing or “fluctuating” (rising and falling) with the day to day operations of the enterprise. Current assets include stocks/inventory of goods and/or raw materials and components and work in progress, cash and bank balances, debts owing to the enterprise, etc, whose total values change daily as purchases and sales are made, as suppliers are paid and as customers pay their debts.

$ A “market” refers to the actual or potential buyers, purchasers, users or consumers of a product or service. A “market” requires there to be a “mechanism” or process through which products or services can be bought and sold. The “market” for a product might be a particular type of consumer, business or industry, or a city, region, country or area. The subject of “marketing logistics” is considered in Module 3.

$ “Stock” or “inventory” constitutes the value of materials and goods held by an organization (1) to support production (raw materials, sub-assemblies, work in process); and (2) for support activities (repair, maintenance, consumables); or (3) for sale or customer service (merchandise, finished goods, spare parts). Stock or inventory is often the largest item by value in the current assets category, and must be accurately counted and valued at the end of each accounting period to determine a business’s profit or loss. Organizations whose inventory items have a large unit cost generally keep a day to day record of changes in inventory (called “perpetual inventory method”) to ensure accurate and on-going control.

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SELF-ASSESSMENT TEST ONE You will find Recommended Answers - against which you may assess and compare your own answers to the Questions - in the Appendix, which starts on the next page. The maximum mark which may be awarded for a Question appears in brackets at the end of that Question. Do NOT send your answers to these Questions to the College for assessment.

No.1. Explain clearly the differences between: (a) logistics management and supply chain management; and (b) a supply chain and a value chain. (maximum 30 marks)

No.2. Distinguish between raw materials, components and finished products. Give an example of your own of how the end products of one enterprise might be the raw materials and/or the components of another enterprise. (maximum 30 marks)

No.3. Describe the processes by which value chains can provide added value for the customers of manufacturers, suppliers and vendors. (maximum 30 marks)

No.4. Place a tick in the box against the one correct statement in each set.

(a) Outbound logistics involves: 1 procuring supplies of materials and components from sources outside a business. 2 importing raw materials, components and end products from foreign countries. 3 the exchange of products either for other products or for money. 4 the delivery of end products to the customers of a business.

(b) A “competitive edge” refers to: 1 a method of driving competitors out of the market by substantial advertising and

sales promotion campaigns. 2 cut-throat business rivalry between competing enterprises. 3 an advantage a business has which allows it to outperform its competitors. 4 a business which is narrowly outperforming its competitors.

(c) It is appropriate to refer to a supply chain as: 1 a network which consists of a variety of partners located in one or more countries. 2 being just one section of the logistics function. 3 the links which bind suppliers, sellers and customers together and eliminates

competition. 4 the number of potential customers willing and able to buy a particular product.

(d) A “perceived value” comprises: 1 the cost of a product plus a margin added to cover advertising and selling costs. 2 factors which vendors consider contribute to the selling prices of products. 3 the stages at which value is added to products before they are sold as end products

to consumers. 4 the worth that a product - goods or service - has in the minds of consumers.

(e) Supply chain management: 1 involves ensuring that all partners in a chain contribute equally to its success. 2 is necessary for the success and profitability of every business, regardless of its

size or range of activities. 3 involves the smooth and uninterrupted flows of materials, products, information

and finance. 4 is required for an enterprise which concentrates on international markets rather

than on its domestic market.

(2 marks for a statement correctly ticked - maximum 10 marks)

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Appendix

RECOMMENDED ANSWERSSELF-ASSESSMENT TEST ONE

TEST ONE

No.1. (a) Logistics management and supply chain management are often used to describe the same business operations and practices because both are involved with the creation, supply, transfer, and the handling of materials, goods, services and people, and both can contribute to an increase in customer service and business profitability. However, in practice there are significant differences between them.

The function of logistics management involve the planning, implementation, and control of the efficient, effective forward and reverse flow and storage of materials, goods, services, and related information between the point of origin and the point of consumption to meet customers’ requirements. Logistics management activities typically include inbound and outbound transportation, warehousing, storage, materials handling, order fulfilment, stock/inventory management and control, and their movement to users and/or customers. Its major concern is within the organization which it serves, although there will inevitably be contacts with sources (such as with suppliers and customers) outside the organization.

A supply chain is made up of the flow of all information, products, materials and funds between the different stages of creating and selling a product. Every step in the processes from designing and creating a good or service, manufacturing it, transporting it to a place of sale, and then selling it, forms part of a supply chain. That supply chain includes all functions involved in receiving and filling customers’ requests, and includes product design and development, marketing, operations, distribution, finance and customer service. Importantly,

Importantly, supply chain management also encompasses co-ordination and collaboration with partners in the supply network, which might be suppliers, intermediaries, third-party service providers, and customers. Supply chain management integrates supply and demand within and across different organizations.

(b) The difference between a value chain and a supply chain is that a supply chain encompasses all the processes of all the partners involved in fulfilling a customer request from point of origin to consumer, whilst a value chain is a set of interrelated activities which an organization uses to create a “competitive advantage”, which is a condition or circumstance that puts it in a favourable or superior business position in relation to its nearest competitors.

An effective value chain can give an organization the ability to create value which exceeds the cost of providing its goods or service to customers. There are five relevant activities, which are inbound logistics, operations, outbound logistics, marketing and sales, and customer service, and maximising one or more of those activities allows a business to have a competitive advantage or “edge” over competitors in its industry.

Inbound logistics includes receiving materials and goods, warehousing, storage and stock/inventory control. Operations management includes value-creating activities which involve the design, development and transformation of ideas and materials and components into products. Outbound logistics includes activities required to get finished products to distributors and customers. Marketing and sales are activities which are associated with creating awareness of and encouraging customers to purchase a product. Service activities include those which maintain and enhance a product’s value and its supplier’s reputation, such as customer support before, during and after purchases have been made.

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No.2. Raw materials are any product of agriculture, forestry and fishing, as well as any mineral which is in its natural form or which generally needs to undergo some transformation or alteration in order to prepare it for use in the primary production or manufacturing of goods, or components which will form part(s) of other goods. Typically raw materials are natural resources such as oil, iron ore, copper, lead, zinc and aluminium, and agricultural produce such as timber, grains, cotton, sugar, coffee and wool.

Components are manufactured products or natural items which will form parts of other products. They might be manufactured or produced “in-house” by a manufacturer, or they might be “bought in” from other manufacturers or sources. A prime example is in the automobile industry, in which some 4,000 or more “parts” or components - including body or chassis parts, wheels, lights, doors and handles from many different producers and suppliers - are assembled into the final product, which is an automobile.

Finished or end products are those on which all necessary processing or assembly by a manufacturing organization has been completed and which are ready for sale to its customers. However, those products might not be ready for selling to consumers, and instead the end products of one manufacturer might be components or parts of the products of other manufacturing organizations which will produce end products for consumers.

For example a manufacturer of a range of travel goods would require materials such as leather, skin, canvas, nylon, rayon, PV, polyester, fibreglass and aluminium, produced or supplied or processed as end products by other producers or manufacturers. In addition, components such as handles, straps, locks, small items like studs, and consumables such as glues and dyes would be purchased from yet other businesses. All such items would be needed to make finished travel goods products, such as suitcases of different sizes or shapes, vanity cases, briefcases, rucksacks, trunks, sports bags, and others.

No.3. A value chain consists of the full range of activities - including design, production, marketing and distribution - which businesses engage in to bring a product - a good or service - from conception to delivery to customers. For organizations which produce goods, the value chain starts with the raw materials used to make their products, and consists of everything that is added to it (such as components and packaging) before it is sold to consumers. The goal of value chain management is to ensure that the people and entities involved at each stage of the value chain are communicating with one another, to help make sure the product will get into the hands of customers as seamlessly and as quickly as possible.

Products pass through a chain of activities in sequence, and at each activity the product gains some value. The chain of activities in its entirety gives the products greater added value than the sum of added values of all the separate activities. For example, the activity of a diamond cutter illustrates the difference between cost and the value chain; the cutting activity might have a low cost, but the activity adds much of the final value to the end product, because a rough (uncut) diamond has significantly less value than a cut diamond.

The primary activities in the value chain are:

* Inbound logistics which involve arranging the inbound movement of materials, components, and/or end products from suppliers to manufacturing or assembly plants, warehouses, distribution centres or retail outlets.

* Operations concerned with managing the processes which convert inputs (in the forms of raw materials, labour, and energy) into outputs (in the form of goods and/or services).

* Outbound logistics which involves the storage and movement of the end products and the related information flows from the end of the production processes to end users.

* Marketing and selling goods or services and processes for creating, communicating, delivering, and exchanging offerings that have value for customers and/or clients.

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* Customer service involving all the activities required to keep the product/service working effectively for the buyer after it has been sold and delivered.

No.4. The correct statement from each of the sets selected and ticked:

(a) 4 (b) 3 (c) 1 (d) 4 (e) 3

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WHAT YOU WILL LEARN ABOUT LOGISTICS, MATERIALS & SUPPLY CHAIN MANAGEMENT

IN MODULES 2 TO 12 OF CIC’s TRAINING PROGRAM

Module 2 - Strategy Formulation

Definition of demand: the quantity demanded the demand relationship the law of demand Definition of supply: how much sellers are prepared to offer the supply relationship law of supply Business models Corporate strategy and business strategy Value-added functions of supply chains Utility as a measure of customer satisfaction Differentiation of supply chains Cost factors affecting supply chains: logistics costs transit time reliability supply chain risk Customer value: buying motives of corporate buyers and consumers: wants, needs and benefits desired value and perceived value logistics and supply management in creating/increasing customer value Customer service strategy: corporate culture customer service defined characteristics of good quality customer service: reliability politeness and courtesy professionalism communications convenience availability Supply chain strategy: customer differentiation business sustainability fragmented supply chains competitive strategy: cost focus strategy differentiation strategy lean supply chain strategy agile supply chain strategy configuring the supply chain elements differences between push and pull strategies push strategies: based on projected demand pull strategies: just-in-time methods

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combined push/pull strategies Developing a logistics strategy levels of logistics operations: strategies, structural, functional, implementation managerial considerations: transportation, outsourcing, competitors, information ensuring customers get what they want Factoring logistics into strategy: short-term and long-term considerations Strategy audit: appropriate questions which must be answered Economies of scale The business life cycle

Module 3 - Relationship Between Marketing and Logistics

Changes in customer expectations: the need for: responsiveness reliability and dependability resilience relationships between suppliers and customers The marketing and logistics interface: the need for collaboration and co-ordination practical example of how logistics can assist marketing evolution of marketing logistics Relevance of the 4Ps to marketing logistics: prices and pricing promotion - advertising and publicity place - location product delivery - delivery timing Importance of customer value: how it arises elements in customer service: organisational pre-transaction accounting and cashiering product delivery post-transaction brands, brand names and brand loyalty creating an extended offering Order cycle time: time-related events in the cycle: order transmittal time order processing time: picking and marshalling Measuring customer service based on: order entry quality order documentation accuracy transportation efficiency inventory and product availability product damage and returns production/warehousing processing times Stockouts: what they are and how they might arise alternative scenarios and consequences for suppliers Back ordering: what is involved alternative scenarios and consequences for suppliers Cancelled orders: loss of goodwill

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losses of customers and sales revenue Customer retention: what is involved and its importance factors in customer retention: brand reputation loyalty program perceived value quality assurance customer experience Market-driven supply chains market research Market segmentation The Pareto Principle: the 80-20 rule ABC classification of stock/inventory items

Module 4 - Products

Industrial products: raw materials capital products fabricated parts, components, sub-assemblies accessories industrial supplies and consumables Consumer products: convenience goods shopping goods speciality goods Product life cycle: introduction growth: the break-even point maturity decline logistics strategies for different stages Product characteristics: dimensions, weight, volume, value, perishability, flammability Weight-bulk ratio Value-weight ratio Substitutability Risk characteristics Product packaging: transport packaging outer packaging sales packaging Packaging materials Product pricing factors and costs involved: manufacturing/production costs nature of product and demand for it transportation storage and safeguarding of products prices of competitive products immediate or long-term profit government intervention Pricing policy and constraints Pricing strategy Incentive pricing: quantity discount: why and how it is offered special circumstances: over-stocking, clearance

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Module 5 - Sourcing and Procurement

Activities in sourcing and procurement Principles of sourcing: objectives sources of supply professional buyers Attributes of good suppliers Sourcing for different types of supplies: groupings of supplies skills needed by professional buyers Making sourcing decisions: rating and weighting suppliers: rating factors Selection of preferred suppliers: setting criteria Supplier appraisal: appraisal checklist Desk research on potential suppliers Field research on potential suppliers Schedule of approved suppliers Principles of procurement: benefits of efficient procurement: reductions in operating costs increased added value: reduction in waste reduction in customer complaints Procurement and purchasing Procurement objectives: setting specific or focused targets financial and practical targets Catering for continuous operations Continuity of supply Economy in procurement and purchasing Stock and inventory control Co-operation and co-ordination with other departments Structure of the procurement function: its role and significance in different organizations Procurement strategy: manufacturing for stock/inventory strategy manufacturing to order strategy Just-in-time manufacture and procurement: controlling conditions Forward buying strategy Procurement strategy in trading/distributive organizations Procurement strategy in service organizations Economic order quantity: minimising inventory costs economic order quantity model Partnership sourcing in procurement Documents used in procurement and purchasing: enquiries quotations estimates and tenders purchase orders pro-forma invoices

Module 6 - Receipt and Storage of Stock/Inventory

Activities involved in inbound logistics Importance of accuracy and efficiency

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Receiving Service

Warehousing and stores personnel Sources of incoming consignments: external suppliers and internal receipts Documentation for receipts: copy purchase orders advance despatch advices carrier’s consignment notes packing notes bills of lading air waybills Receiving procedures and routines: examples of common procedures laid down for: checking documentation immediate and delayed examinations measuring equipment shortages and damages personnel authorised to sign for incoming consignments Quality inspections: inspections by warehouse personnel qualified inspectors timing of inspections Goods received records: manual and computerised methods electronic proof of delivery systems

Storage and Control of Stock/Inventory

Reasons for maintaining stocks Functions and sections of a warehouse Warehouse premises: factors which influence layout and design Warehouse location advantages of ground floor location factors influencing location on upper storeys Floors in warehouses: essential features Warehouse doors and other openings: security, positioning, number, sizes Lighting in warehouses Warehouse security Types of warehouses and sub-stores Warehouse layout: for economy, accessibility, flexibility, protection Gangways and aisles: accessibility and accident prevention Warehouse equipment Storage equipment: racking, shelving, bins, cupboards Materials handling: manual handling and equipment mechanical or powered handling equipment: advantages and disadvantages accident prevention Economy of movement: avoiding double handling Palletisation

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Module 7 - Stock/Inventory Control, Order Processing and Issuing

The necessity for stock/inventory control Objectives of stock/inventory management Identification: item identification numbers benefits of a good identification system codes and coding Theft prevention: secure doors, windows and fanlights protection of keys and duplicate keys, electronic locks burglar alarms, watchmen and security firms Prevention of pilfering controlling entry to the warehouse/store safety precautions for “target” items; lockable enclosures, cabinets and bins marking items with paint, dye or etching Prevention of fraud: checks of documents and computer records spot checks on stock items Protection of stock/inventory from: bad or careless handling ullages, seepages and spillages water damage and dampness dirt and dust incorrect temperature or humidity control contamination rodents and insects incorrect issue order Fire prevention and precautions: alarm system fire-fighting equipment fire drills and evacuation drills Stock/inventory levels: avoidance of shortages and excesses of stock future requirements, shelf-life, reserves and allocations Levels commonly set: minimum, reorder, higher, hastening Issues of Stock/Inventory: Importance of an efficient issuing service Users and customers Issues to another section or department Authorisation for issues Timing of issues Checking/amending requisitions Production programmes and schedules Replacement and imprest issues, issues on loan, assemblies and kits Order Processing or Fulfilment: Order preparation and transmittal Order entry and processing Order-picking: manual and automated Marshalling

Packing and Despatching: Protection of outgoing consignments: containers packing materials pictorial shipping signs The despatch section Insurance cover for losses of or damage to stocks

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Module 8 - Transportation

Modes of transportation: road, rail, water, air, pipeline Divisions of transportation: infrastructure, vehicles, operations Factors in transport efficiency: economy, speed, convenience, regularity Rail transport: travelling speed and timing, time-tabling, operating costs Road transport/haulage: advantages: door-to-door, flexibility, economy disadvantages: dis-economies, travelling time road haulage operators: services commonly provided Own vehicle transportation Inland waterways and pipelines Air transport: delivery speed, shortened transit times weight limitations, vulnerability to adverse weather Sea transport: cargo-carrying ships, coastal shipping, container ships, bulk carriers, roll-on-roll-off ferries requirements for efficient sea transportation Courier services Factors in selecting the mode of transportation: locations, distances, natures of products, customer’s instructions, true cost, speed, security, reliability Freight forwarders: duties and responsibilities why their services might be utilised Unit loads and palletisation: cargo shipping instructions Containerisation: common sizes of containers advantages of containerisation Bulk freight: direct loading onto vessels Groupage: consolidating different consignments Freight handling: bulk quantities and general cargo container terminals Intermodal transport: piggyback - rail-truck Advantages and disadvantages of own vehicle fleets

Module 9 - Operations Management

Activities involved in operations management: processes and functions Role of operations management in supply chains Co-operation and co-ordination with other functions Strategic, tactical and operational operations management Role of operations management in different organizations Operations management in: smaller organizations not for profit organizations Product design and development: factors to be considered product characteristics

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effective product design aesthetically pleasing products health and safety considerations Features of products Components and benefits of products: core product and consumable product core benefits augmented product: guarantee or warranty customer service complementary products accessibility Production strategy: product mix production strategies: demand matching level production make-to-stock make-to-order assemble-to-order Product range: specialisation diversification Production levels: cost, unit, prime cost, oncost production overheads: period costs, direct labour hours, machine hours calculation of total production costs Financial considerations in production Methods of production: job production batch production flow, continuous or line production Production planning and control: standards and targets progress control Inspection: raw materials inspection work in progress inspection quality control Work study: motion study and work measurement Quality control and assurance: modern concepts of quality price, specifications, product life, reliability Traditional and contemporary quality processes: goods inwards inspections Activities involved in quality assurance

Module 10 - Lean Logistics and Supply Chain Management

Lean principles and lean thinking Waste: contemporary thinking: value-add descriptions of the eight wastes: defects, overproduction, waiting, nonutilisation/underutilisation, transportation,inventory or stock, motion or movement, excess processing

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Linear processing Parallel processing Just-in-time: the background and evolution the kanban fundamental elements necessary pull demand driven inventory system identifying and removing bottlenecks One and two tier suppliers Agile supply chains: differentiating between agility and lean flexible manufacturing systems supply chain synchronisation business process re-engineering reducing complexity, standardisation the silo mentality Supplier relationships: sellers market buyers market win-win situations Nonstandard supplier relationships: external reciprocity internal reciprocity intra-company trading Supplier relationships in JIT manufacturing: increasing supplier responsibilities benefits of JIT processes Partnership sourcing metholodgy Advantages and disadvantages of partnership sourcing

Module 11 - Facility Location

Definition of facilities The importance of the right location Factors which influence site location decisions Locations of other entities in the supply chain Facility locations for: trading and distributive businesses: passers-by and passing-trade: businesses which rely on passing-trade, and businesses which do not classes of customers to whom sales are made trade-off between suitable locations and costs service providing businesses Distribution centres: why they are established types of distribution centres and what they handle importance of DC location in supply chains transportation considerations Factory or plant location: considerations in selecting sites: raw materials ease of access for transportation utilities: electricity, fuel, water labour availability attitudes of local authorities Warehouse location: single-storey and multi-storey buildings weight-limits location in basements of buildings transportation considerations

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Outsourcing Logistics Third-party logistics providers (3PL) Benefits claimed from a partnership with a 3PL

Reverse Logistics

Definition - the backwards flow of products Gaining residual value Forward and reverse logistics compared Major reasons for the need of reverse logistics: sales returns from customers: main causes of returns sale or return terms: why sellers may offer them reasons for returns Why managements might neglect reverse logistics: consequences of neglecting reverse logistics benefits of a good reverse logistics policy Defective products: products with imperfections, flaws or deficiencies defective goods and defective services product liability laws: to whom they apply, duty of care health and safety considerations damages or compensation Product recall: what is involved major reasons for product recall bad publicity and PR campaigns Reverse logistics in eCommerce: activities involved in eCommerce reasons for increasing quantities of returns costs involved in handling returns Damage in transit: risks of damages and losses occuring better packaging to reduce damage action to prevent theft or pilfering transit insurance Recourse for major problems with goods: rejection of goods and receipt of a refund rejection of goods and receipt of an identical replacement retention of goods and receipt of compensation credit and credit notes customer friendly reverse logistics refund, restock or refurbish decisions end of life recycling Maintaining good relations with distributors Warehouse operations for returned products

Module 12 - Project Management

Definition of projects; features, deliverables Project constraints: time, budget, scope, quality, complexity, technology Categories of projects: industrial, manufacturing, management, research Project initiation The roles of project leaders/managers: project management plan

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stages through which a project is managed Project sponsors Project stakeholders: internal and external positive and negative stakeholders importance of maintaining good relationships Typical responsibilities of project managers/leaders Project teams: different make ups skills and expertise of team members co-ordination, motivation and control Examples of diverse projects

Disaster Management and Humanitarian Aid & Relief

Differences in objectives between: disaster management humanitarian aid development aid Emergency planning Principles of humanitarian aid: humanity, impartiality, neutrality, independence Donors and Human Relief Organizations (HROs) Humanitarian logistics: essential role in relief aid problems causes by: unpredicatability of emergencies high employee turnover destruction of infrastructure transportation and accommodation important considerations: operations planning, mobilisation, in-country operations, co-ordination with other HROs, reporting Learning from corporate logistics Reverse logistics in aid operations

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ASSOCIATED PROGRAMS YOU MIGHT LIKE TO STUDY NEXT

Diploma in Purchasing, Resourcing & Procurement ManagementThis Program is specially designed to teach the skills and knowledge needed to become a well-trained and successful purchasing and resourcing - procurement - manager. Whether an enterprise is involved in manufacturing, distribution or providing a service, the function of purchasing or “buying” is a job for trained professionals. Proficient purchasing can greatly increase the efficiency, competitiveness and profitability of a business; but unwise buying can seriously damage its operations, reputation and profits. This very practical Program covers the responsibilities and duties of modern professional buyers. Major Topics Covered in this Diploma Program include:

The modern purchasing function; its objectives, strategy and policy formulation, implementation, evaluation and control; strategic options, logistics; just-in-time (JIT) manufacture and purchasing. Contributions of proficient purchasing to profitability.

Purchasing organisation: centralisation & decentralisation; purchasing in the management hierarchy; job structures and specifications; total quality management, partnerships.

Purchasing procedures, documentation, records, control systems. Information technology: effects on purchasing & supply, statistics; master production schedules; supplier appraisal.

Human resource in the supply chain: planning, recruitment, training and development, supervision, control; management styles and leadership, motivation, employee relations.

Sourcing; matching supply with demand, production, materials requirement planning; specifying and assuring quality of supplies; contemporary quality concepts, quality control, assurance, standards and approval; controlling prices, costs and quality; relationships.

Potential suppliers, stages in negotiations, bargaining, win-win; support tools: supplier tendering procedures: competitive and compulsory tendering, forecasting, costing; quality management, techniques; buying power, purchasing research, performance, ethics.

ASK THE COLLEGE FOR MORE INFORMATION ABOUT (AND THE FEES FOR) THESE PROGRAMS, OR VISIT WEBSITE www.cambridgecollege.co.uk

Diploma in Warehouse Management & Stock/Inventory ControlThis Program produces professional warehouse and storehouse personnel and managers. Efficient warehouse management and organisation can significantly influence an enterprise’s success, help save money, retain customers and maintain continuous operations and production. It teaches how to manage warehouses, stores, stockyards and stock/inventory; and organise, train, supervise and control warehouse personnel. This Program is for anyone seeking a good job or promotion in warehousing, stores, stock and inventory management, and for business people needing knowledge to manage inventory professionally.

Major Topics Covered in this Diploma Program include:

Warehouse function and activities, efficiency; recruiting, training, controlling, motivating warehouse personnel; attributes looked for in staff. Health and safety, accident prevention.

Warehouse buildings, location, design, layout, floors, entrances, planning, heating, gangways and aisles. Stockyards: materials, location, design, layout, through-flow, access.

Manual and powered equipment, materials handling - safe manual and mechanical handling, storage equipment: shelves, racking, bins; measuring and general equipment; order picking, packaging, uses of pallets. Protective clothing, safety equipment.

Protection of stock against loss and damage, causes of spoilage, storehouse and stockyard security, keys, prevention of theft and pilfering, fire prevention, fire drills and equipment.

Stock items, inventory identification, codes, coding systems. Stock records: contents, uses, accuracy, statistics and reports; the warehouse/stores office. Procedures for stock receipts and issues; manual and mechanical picking, marshalling, packing, despatch.

Procurement, purchasing, orderingstock/inventory items; setting stock levels, reorder levels, factors; costs, ABC, EOQ; stocktaking, spot checks, stock valuation, inspections; obsolete and obsolescent stock, disposals. Documentation, data safety, backups.