IELM Logistics & Freight

Transportation Operations
Introduction
RECAP on week 1

 Course Overview - Lab replaced with Site Visits to be scheduled in

Mar/Apr.
 Brief History of Supply Chain Management
 Examine supply chain models
 Complexity of supply chain - goods move around
 Flow of material vs flow of value-add
 Control of supply chain becomes more important in the value chain
 Controller of the supply chain dictates the price of goods
Complexity of Apple supply chains

 Example of Apple Inc, Supply Chain Planning at Apple Inc

 http://www.supplychainopz.com/2013/01/is-apple-supply-chain-really-
no-1-case.html
Complexity of modern supply chains

 Supply Chain Model of Apple Inc

Value-Added

iPhone 4 (16gb)
• Bill of materials:
• Selling price: US$499

Apple created most of the value

Value-chain of iPhone 4
Design
• Apple

Component Manufacturing
• Suppliers
• E.g., Samsung, Toshiba, Infineon, Sharp

Assembly
• Contract manufacturers in China
• Foxconn

Distribution
• US distributors; logistics firms
• E.g., AT&T, Verizon
Role of Logistics for iPhone4

Components manufactured in different countries

• Processor and RAM in Korea (Samsung)
• Display and flash memory in Japan (Toshiba)
• Camera and GPS receiver in Germany (Infineon)
• Various electronics parts in Taiwan and Mainland (Foxconn
and others)
• Lose interest from bank account
Final product assembled in China
• All components must be delivered at the right time and in
the right quantities
Role of Logistics for iPhone4

Product distributed worldwide by air

• Fast
• Expensive

Price dropping over time

• Short product life cycle

Sell as many units as quickly as possible

Value-added Logistics Activities

Generation of extra value to product

• Beyond physical handling and delivery of cargo

Examples
• Tracing and tracking – increase visibility of flows
• Expedited shipping – reduce lead time
• Catch-up shipping – compensate for lost time
• Consolidation – achieve economies of scale
• Inventory control and fulfillment – reduce cost and stock-outs

Requirement: Knowledge-based LM,

IE capabilities
Logistics and Supply Chain Management
SCM: a set of approaches utilized to:
• efficiently integrate suppliers, manufacturers, warehouses,
and stores
• so that merchandise is produced and distributed at the
right quantities, to the right locations, and at the right time
• in order to minimize system wide costs while satisfying
service level requirements
Different players in Apple Supply
Chain
 Apple Inc purchases raw materials from various sources then get
them shipped to an assembling plant in China.
 Assembler will ship products directly to consumers (via UPS/Fedex)
for those who buy from the Apple's Online Store.
 For other distribution channels such as retail stores, direct sales and
other distributors, Apple Inc will keep products at Elk Grove,
California (where central warehouse and call center are located) and
supply products from there.
 At the end of product's life, customer can send products back to the
nearest Apple Stores or dedicated recycling facilities

http://www.supplychainopz.com/2013/01/is-apple-supply-chain-really-no-
1-case.html
Complexity of Apple supply chains

 Global economy could affect the Company.

 Some re-sellers may also distribute products from the competing manufacturers.
 Inventories can become obsolete or exceed the anticipated demand.
 Some components are currently obtained from the single or limited sources.
 Some custom components are not common to the rest of the industries.
 Ability to obtain components in sufficient quantities is important.
 Supply chain disruption such as the natural and man-made disasters can be serious.
 Company depends on logistical services provided by outsourcing partners.
 Company also relies on its partners to adhere to supplier code of conduct.
The above information is also from annual report. As you can see, most of the risks are
on the supply side
http://www.supplychainopz.com/2013/01/is-apple-supply-chain-really-no-1-case.html
Supply Chain Structure

3rd party logistics

UPS, etc.

Sup
Foxc Son
plier
onn y
s Contract Manufacturer Original Equipment
Suppliers (CM) Manufacturer (OEM)
(located worldwide) (headquartered in (located in USA /Japan)
Taipei, factories in
Shenzhen, etc.)
Manufacturing: Traditional Focus

An order placed by Sony triggers manufacturing at

Foxconn:

• Production planning
• Purchasing
• Warehousing
• Assembling
• Facility Management
• Maintenance Control
• Quality control and assurance
Global Sourcing and Distribution

Plastic: Electronic
From components:
Malaysia, From Taiwan, via
by sea HK

Memory chip:
Casing From Korea, by
metal: air
From China,
by truck
Screws: From
China, by rail

Parts and materials may change hands many times during the
process
Final product distributed worldwide
Who are Involved?

Players in the supply chain

• Original equipment manufacturer (OEM): Sony

• Contract manufacturer (CM): Foxconn
• Suppliers
• Agents: forwarders who arranges the shipping
• Logistics service companies: e.g., trucking
• Terminal operators: airport/ container freight station
• Shipping lines: air/sea
• Warehouse operators
• Distributors
Logistics vs. Transportation

Transportation:

• Movement of “things”
• People – Passenger Transportation
• Goods – Freight Transportation

Logistics:

• Management of processes that brings product to customers:

• Estimating customers’ needs
• Communicating with customers
• Preparing for production
• Transporting to customer
• ……
History of the GAP Inc

 Doris and Don Fisher opened the first Gap store in 1969.
The reason was simple. Don couldn’t find a pair of jeans
that fit.

 One day, Don decided to buy a handful of jeans and

slacks from the salesman. The product arrived from a
distribution center. When he tried on the pants, none fit.
He needed a 34-waist, 31-length. All the pants had 30-
inch lengths.

 So he asked if the salesman would exchange the pants

for the correct sizes. He hesitated, saying it would be a
paperwork nightmare. But the salesman suggested
exchanging the pants at a city department store.
History of GAP

 Don took him up on the idea, and asked Doris to pay a

visit to Macy’s, in San Francisco. She found a Levi’s
display table in the basement and cringed at the mess.
But she sorted through the items and reported back to
Don. “They carried only even sizes, about five pair in
each size category: 34 x 32, 36 x 32 and so on,” he said.
He tried another floor. Same problem. He tried another
department store, The Emporium. Again, no luck.

 “What if,” Don had mused, “someone put together all the
styles, colors and sizes Levi Strauss had to offer in one
store?”
GAP traditional merchandise
GAP new merchandise
GAP Success story

 Fit customer demand for variance in sizes / colors

 Right market target – in line with Baby Boomer American Culture
 Overseas production – sourcing vs locals (lower cost)
 Young and Casual life style - Culture
 8 seasons a years. New items in store every 2 weeks / change display
 Attract new buys
 Yield Management to maximize profit
 Source:
http://www.gapinc.com/content/gapinc/html/aboutus/ourstory.html
http://www.gap.cn/category/31.html
http://
littletaylor.pixnet.net/blog/post/93181226-gap%E4%BE%86%E5%8F%B0%E7%81%A3%E5%9B%89%EF%BC%81gap%E5%
93%81%E7%89%8C%E7%89%B9%E6%90%9C%E9%9B%86%E5%90%88%EF%BC%81
Gap Supply Chain

Garme GAP Supply

Factories
deliver boxes
Ocean liners Distributio Store
ship to US
Chain HQ to ocean n center put on
nt in HK consolidator
port (says
West coast delivery to
and put on the shelves
Factor (controller container (one
and East
Coast) – enter
stores
for
the buying container may (across
y in and have goods a distribution
center for the custome
from 2 or more
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Gap Supply Chain

Source:
http://
www.leegardens.com.hk/shopping/HP/107/GAP?lang=zh-HK