Logistic 3 Assignment

The overall aim of this chapter is to show how logistics strategies link with the creation of value.

The chapter assumes a basic knowledge of a profit/loss account and balance sheet.  Feel free to collaborate  with an Accounting colleague to help prepare.

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Please select any one of  three (3) short case studies for submission.

Submission should be at least two (2) pages, double spaced, 10pt. Arial or Calibri font.  Charts are welcome and valued as supporting resource.

Submissions will be graded based on effort, critical thinking and grammatical structure.

Rubric:

Why did you choose this case

Relevance to the course

Brief Summary of case

Findings and conclusions with support.

Use the text and lecture material  to frame the case summary. Each case is tied to a specific section of the chapter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case study   Identify a clear input-output relationship, enable the conversion of discretionary costs into engineering costs.

Glup SA

Glup SA supplies a range of household soaps to supermarkets in northern Europe. There are 12 stock-keeping units (skus) in the range. The logistics manager has determined that an investment of €0.5 million on improved material handling equipment would convert the main distribution centre into a more flexible facility. A number of benefits in improved product availability has been identified – but current information is largely in the form of discretionary costs. Glup’s assessment of the benefits and its plans to convert the justification into engineered costs are outlined below.

 Improved in-store availability

This is the percentage of time for which a product is available on the shelf. If the product is not available on the shelf, then it will lose sales to competitive products that are available, such as supermarket own brands. (Availability is a classic ‘order losing sensitive’ qualifying criterion as described in section 1.3.) Current available data at Glup are scant, but suggest that average in-store availability is as low as 85 per cent for a given sku. In order to convert this discretionary benefit into an engineered cost, Glup intends to measure the time for which each of the 12 product lines is unavailable each week. One way to do this is to use a market research agency to conduct sample studies of product availability in selected stores at random times across the working week. This will yield an availability guide, such as the 85 per cent figure referred to. The new system will, it is believed, reduce this unavailable time. Glup then plans to model the new material-handling equipment methods using simulation, and to calculate the new in-store availability. The reduced non-availability time could then be converted into additional contribution for each sku to give an engineered cost saving.

Reduced transportation costs

The new equipment would also allow lower transportation costs, because trays of different skus could be mixed together on the same pallet. Glup again intends to use simulation modelling to identify the opportunities for savings using this method. It is considered that this will offer the opportunity to reduce overall transport costs by more flexible loading of the trailers used to distribute the products to Glup’s customers.

Promotions and new product launches

It is considered that the new equipment will enable promotions and new product launches to be delivered to selected stores more accurately and more quickly. Demand uncertainty in such situations is very high: for example, a recent ‘three for the price of two’ promotion created a fivefold increase in sales. In order to launch a new product it is first necessary to drain the pipeline of the old product, or to ‘write it off’ as obsolete stock. If the more flexible warehouse system can reduce the length of the pipeline from factory to supermarket, it is argued, then a real saving in time or obsolete stock is possible. Glup again intends to measure this by simulation. It will then be necessary to determine by how much sales will increase as a result of the new product advantages. This will be estimated by Glup marketing people, who will use experience of previous promotions and new product launches. The engineered cost will be the additional time for which the new product is available multiplied by the additional estimated sales volume multiplied by the contribution per unit. Alternatively, it will be the reduction in obsolete stocks multiplied by the total cost per product plus any costs of double handling and scrapping.

 

Resources

Textbook

  • Harrison, A., & van Hoek, R. (2011). Logistics management & strategy: Competing through the supply chain (4th ed.). Essex, England: Prentice Hall. ISBN: 9780273730224 (print version); ISBN: 9781447915768 (electronic version).

 

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