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Logistics, Distribution, and Transportation

Q1. (a)Logistics decisions a company should consider

The evaluation of the traditional transport function of logistics to a strategic decision or

functions in the modern economy relates to the following encompasses the following factors:

Mode of transport: To achieve efficiency and cost-effectiveness in transportation, the logistic

function must select among road, air, water, rail, pipeline, and hand delivery which best suits

the business needs.

Warehouse design: Where the logistic functions involve sorting shipments, then a choice

among consolidation, cross-docking, and hub and spoke design system that matches the

shipment objective should be selected.

Warehouse selection: The strategic location of a warehouse is critical to the minimization of

inbound and outbound transportation cost. The choice of the warehouse location is

constrained by proximity of customers, infrastructure of host community, and trade

agreements.

Plant location: Factor rating system, transportation method of linear programming, and

centroid method can be used in setting an optimum plant location.

Q1. (b) Approaches to warehouse design

Consolidation: This is whereby shipments from various sources are combined into larger

shipments with a common destination.

Cross-docking: This is whereby large shipments are broken down into small shipments for

local delivery in an area.

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Hub and spoke system: This is an approach that combine the idea of consolidation and cross-

docking.

Q2. Criteria that influence manufacturing plant and warehouse location

Factors influencing location of a manufacturing plant or warehouse can be discussed under

three main headings:

The internal factors: These refers within the full control of the business such as cost

consideration which can be altered depending on firms’ budget and the overall objective of

the location set-up purpose of the plant or warehouse is within the forms mandate.

Micro-factors: These refers to external factors partly within the business influence such as:

(1) proximity of customers which alters the target consumer to influence location set-up

towards the business needs, (2) proximity of suppliers which scouts for a set-up within a

specific industry that influences the choice of suppliers.

Macro-factors: It refers to external factors outside the control of the business such as:

Legal environment: The regulatory framework stipulated by the government can influence

location set-up through trade quotas, free trade areas, and tax incentives.

Political environment: Political stability is the key to the protection of property rights.

Q3. Methods used to determine plant location

Factor rating system: This method first identifies factors key to the location of the plant and

possible sites. Then rates each site against each factor (assign points). The site with the

highest points is then selected.

Transportation method of linear programming: This method formulates a function (Y) that

helps to identify a site location that minimizes costs and maximizes profits.
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Centroid method: This method uses the grid system to identify coordinates (x,y) that

optimizes the distance between existing facilities and volume of goods to be shipped.

Q4. The location of service facilities versus manufacturing plants

The objective function: The manufacturing sites are based on minimization of costs whereas

service sites are based on maximization of profits.

The number of sites: The higher the number of sites the higher the profits in service sites

whereas the lower the cost (the higher the profits) depending on the efficiency of other

management functions.

Global Sourcing and Procurement

Q1. (a) Importance of strategic sourcing

Fostering beneficial long-term relationship with suppliers help achieve profit maximization

objective in the following ways:

Cost leadership: Guaranteed timely flow of factor inputs ensures dominance of the supply

chain this was a characteristic feature in Walmart operations.

Cost management: The outsourcing management of inventory costs such as ordering and

holding costs through vendor management system helps to reduce operational costs.

Improved customer relations: Continuous flow of factor input ensures continuity in

production and distribution of finished goods to meet customers needs.

Q1. (b) Factors to consider when sourcing

Responsiveness of supplier: Delays in deliveries affect the entire operations sourcing should

be based on supplier ability to timely supplies.

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Total cost equation: Focusing on unit cost rather than the total cost equation disguises hidden

cost such as taxes, and delivery costs.

Quality: In competitive markets, quality supersedes costs.

Supplier proximity: It has an overall effect on the time frame of delivery and delivery costs.

Q2. The supply chain strategies

Refers to framework which defines strategies that can be used with managers to efficiently

manage varying demand and supply:

Efficient supply chain: It utilizes strategies aimed at creating the highest level of cost

efficiency. This can be achieved through outsourcing the logistics function or using vendor

managed inventory systems to manage fluctuations in supply.

Risk-hedging supply chain: It utilizes strategies that pool resources in a supply chain so that

the risks in a supply disruption can be shared. This model can be used to curb the effects of

supply uncertainties. For example, the case of retail outlet sharing its safety stock with supply

starved units.

Responsive supply chain: It utilizes strategies aimed at being responsive and flexible to the

changing needs of customers. This model can be used to correct demand uncertainties where

innovative products can be tailored to meet individual customer needs.

Agile supply chain: A mix of risk hedging and responsive supply chain strategies that can be

used to correct a combination of demand and supply uncertainties.

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