Coyle Supply Chain Management A Logistics Perspective

Coyle Supply Chain Management: A Logistics Perspective Chapter 10 Test Bank CHAPTER 10 TEST QUESTIONS True-False 1. Efficiency of distribution facilities and networks is not nearly as critical as their speed. ANSWER: False 2. Customers use distribution KPIs to objectively assess the speed of service provided by the distribution operation. ANSWER: False 3. Proper product slotting can improve labor productivity and generate other advantages for the organization and its customers. ANSWER: True 4. Organizations may benefit substantially from the establishment of one or several warehouses to reduce transportation costs. ANSWER: True 5. A common productivity is measured as the ratio of real output to real input. ANSWER: True 6. One of the primary tradeoffs at the facility level is space versus equipment. ANSWER: True 7. It is not difficult to find and train high-quality personnel for DC operations. ANSWER: False 8. When establishing a distribution strategy, the first and most obvious consideration is the product. ANSWER: True 9. Cross-docks typically increase transportation costs. ANSWER: False 10. The drawback of centralized inventory is the long distance to customers, which typically extends lead times and results in higher transportation costs. ANSWER: True 11. Contract warehousing is different than 3PL warehousing. ANSWER: False 12. The first facility consideration is to determine the size of each operation within the network. ANSWER: True 13. After the layout of the operations is determined, attention shifts to the facility size of the operations within the distribution operation. ANSWER: False 14. Slotting is defined as the placement of product in a facility for the purpose of optimizing materials handling and space efficiency. ANSWER: True 15. Product handling functions include both receiving and shipping. ANSWER: True 16. KPIs cannot be used in connection with distribution center activities as they do not provide tangible, relevant data. ANSWER: False 17. Order accuracy and order completeness are the same. ANSWER: False 18. Asset utilization is very important in a 3PL warehouse. ANSWER: False 19. WMS is more than a simple database that provides stock location information. ANSWER: True Multiple Choice 20. The roles of the distribution center include _____. a. balancing supply and demand b. protecting against uncertainty and promoting transportation economies c. promoting transportation economies d. balancing supply and demand, protecting against uncertainty, and promoting transportation economies ANSWER: d 21. The two largest cost centers in a DC are: a. equipment and space. b. labor and space. c. pallets and labor. ANSWER: b 22. One important interaction that must be considered is the tradeoff between distribution and _____. a. transportation b. finance c. marketing d. ANSWER: a services 23. The primary tradeoffs and relationships between resources include the following: a. space vs. equipment. b. equipment vs. people. c. people vs. space. d. all of these answers. ANSWER: d 24. As the number of picks per order picker decreases on a given tour, his/her total time out _____ and the time per pick _____. a. decreases; decreases b. increases; increases c. decreases; increases d. increases; decreases ANSWER: c 25. If a DC that picks primarily cases switches to mostly broken cases (with the same items), which of the following would occur in the DC? a. Labor costs would increase b. Total transportation costs would increase c. Total inventory holding costs would increase d. Total packaging costs would increase e. None of these answers ANSWER: a 26. A downside of direct shipping is: a. that it takes product flow away from the distribution center. b. can create higher transportation charges. c. that customers may not like this method. d. the product may not lend itself to this method. ANSWER: b 27. The drawback of centralized inventory is: a. that it undercuts the dispersed distribution concept. b. that it increases the amount of inventory required. c. strains the ability of the carrier network. d. that it extends lead times and results in higher transportation costs. ANSWER: d 28. The key financial consideration in choosing between private and 3PL distribution options is: a. warehouse location(s). b. competency of in-house staff. c. volume of product being moved. d. type of product being handled. ANSWER: c 29. The first facility consideration is to determine: a. how close to the source it should be. b. the size of each operation within the network. c. how close to the customer it should be. d. where competitors are located. ANSWER: b 30. The primary facility operations focus is: a. on the movement and storage of product. b. on inventory control and personnel issues. c. in making sure KPIs are fulfilled. d. the WMS system. ANSWER: a 31. Which of these is not a support function? a. Inventory control b. Safety, maintenance, and sanitation c. Information technology d. Movement and storage ANSWER: d Essay 32. Distribution operations help organizations overcome challenges, support other processes, and take advantage of economies of scale. Name and briefly discuss five roles that these operations play. ANSWER: • Balancing supply and demand—Whether seasonal production must service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday wrapping paper), distribution facilities can stockpile inventory to buffer supply and demand. • Protecting against uncertainty—Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes. • Allowing quantity purchase discounts—Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can hold the additional quantities until needed, reducing the purchase cost per unit. • Supporting production requirements—If a manufacturing operation can reduce costs via long production runs or if outputs need to age or ripen (e.g., wine, cheese, fruit), the output can be warehoused prior to distribution. • Promoting transportation economies—Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping "air" and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements. 33. What are the primary capabilities, advantages, and disadvantages of direct distribution, DCs, and cross-docks? ANSWER: An issue that has a major impact on the distribution strategy and network structure is the product flow requirements of the supply chain. Two options are available: (1) direct shipment of goods from the manufacturer to retailer or retailer to consumer or (2) movement of goods through distribution facilities to customers. Direct shipping operations bypass distribution facilities, fulfilling retail store requests from the primary production point (manufacturer's factory or warehouse) rather than interim distribution facilities that hold inventory. Similarly, Internet retailers directly distribute goods to the end consumer without the need for retail outlets. Direct shipping avoids the need to build and operate distribution facilities, reduces inventory in the system, and often compresses order cycle time. Direct shipping works particularly well when customers place orders for truckload quantities or when product perishability is an issue. For example, it is better to have bread and milk delivered directly to a grocery store than to a DC as they are high-volume products and direct shipping maximizes product shelf life. On the downside, it is expensive to deliver small quantities to buyers (reduced transportation efficiencies), and there is no safety stock readily available to protect against demand surges. Furthermore, many companies are not capable of fulfilling orders for case and individual unit quantities. Thus, it is important to consider product characteristics, demand volume and variability, and related issues before making the decision to establish a direct shipping strategy. Properly planned distribution facilities can address the shortcomings of direct shipping. These facilities, including traditional warehouses, DCs, and cross-docking facilities, provide the supply chain with additional capabilities. Warehouses and DCs can hold goods in anticipation of customer orders, provide a buffer of safety stock to protect against contingencies, and handle small quantity orders efficiently from transportation and fulfillment standpoints. Cross-docks can provide a high-velocity alternative to direct shipping at lower transportation cost with product mixing capabilities. Of course, it is necessary to analyze the inventory, transportation, and service tradeoffs before choosing between direct shipping and the use of distribution facilities. The ultimate answer may be to employ a combination of the two strategies to ensure distribution efficiency and customer satisfaction. Many companies, like Walmart and Target, use a wide variety of distribution methods depending on product volume, size, and supplier proximity. (Pages 380–382) 34. Discuss inventory positioning and the differences between centralized and decentralized inventory. ANSWER: Inventory positioning focuses on the issue of where inventory is located within the supply chain. One strategy is to hold a centralized stock of inventory at a single location such as the origin point or some other advantageous location in the supply chain. Product is distributed to customers across the network from this central stocking point. The benefit of this consolidation strategy is greater control over the inventory and reduced demand variability due to risk pooling. The central or national inventory pool supports higher in-stock availability, though there is a need for less safety stock. The drawback of centralized inventory is the long distance to customers, which typically extends lead times and results in higher transportation costs. Despite these drawbacks, manufacturers of high-value, low-weight products such as prescription pharmaceuticals often rely on one strategically placed inventory pool. The transportation costs associated with next-day and second-day order delivery are offset by the reductions in inventory carrying costs, the enhanced visibility of product flows, and the improved control over order-filling processes, product pedigree issues, and recall events. The alternate inventory positioning strategy is to hold product in multiple customer-facing positions. Stocking inventory regionally or locally helps to reduce customer delivery costs and order cycle time. Product is positioned closer to demand points and can be readily dispatched to meet customer requirements. This decentralized inventory strategy works well for high-volume, low-cost products with low demand uncertainty such as laundry detergent, pet food, and cereal. The decentralized inventory strategy is not without challenges. First, more facilities are required to stock the product, leading to higher handling costs, the risk of product damage, and the potential for product pilferage, not to mention the additional expenses of running the facilities. Also, average inventory levels will rise as each facility will have to hold safety stock to cover demand variation within the region. To combat these issues, some organizations have shifted toward more centralized distribution systems with fewer stocking points. Which inventory positioning strategy is best? There is no single answer, and many organizations use both strategies. 35. Discuss the choices for facility ownership, including public and contract warehousing. ANSWER: The final piece of a network design strategy is the facility ownership question—should an organization own and operate private distribution facilities or contract with third-party logistics providers for distribution services? This issue is difficult to address without first determining facility roles, numbers, and locations. After these issues have been resolved, it is easier to understand the scope of tasks to be undertaken and to evaluate the organization's options for handling distribution requirements. They essentially have three choices: (1) private facilities, (2) public facilities, and (3) contract facilities. Private DCs are internal facilities owned by the organization producing or owning the goods. The focus of the facility is to store goods and distribute them to customers. Owning and operating facilities provide the organization with greater control over fulfillment processes and inventory. Also, economies of scale can be achieved if the volume of activity is high enough. If this is the case, the cost per unit delivered to the customer is less, and the retailer can charge a lower price or maintain a higher profit margin. Private facilities are company assets that can be depreciated and can also provide a source of income by renting or leasing excess space to those who need storage facilities. In order to make a private distribution cost-effective, the facility needs high product throughput, requires stable demand, and should be located in or near a dense market area. Additionally, the organization must have distribution expertise, the resources to build facilities, and the desire to operate them. If these attributes are not present, the firm should look to third party logistics (3PL) service providers to handle distribution and warehousing. Public warehousing is the traditional external distribution option. A public warehouse rents out space to individuals or firms needing storage capacity. Additional service offerings vary by 3PL provider. Some provide a wide array of services including packaging, labeling, testing, inventory maintenance, delivery, data processing, and pricing to different types of customers. Others focus more on providing short-term storage solutions for specific types of goods—general merchandise, refrigerated goods, household goods, and bulk storage. Public warehousing capacity is often rented on a short-term, transactional basis without significant commitments or unique service requirements. Contract warehousing is a customized version of public warehousing in which an external company provides a combination of distribution services that the organization itself has traditionally provided. These 3PL providers dedicate space, labor, and equipment to a client's specific product needs with the goal of providing integrated, accurate distribution services. These facilities can meet the specialized handling requirements for critical products such as pharmaceuticals, electronics, and high-value manufactured goods. The customized nature of contract facilities leads to strong relationships between the 3PLs and a small group of highly important clients. These external distribution services should be considered for several reasons. First, buying the services on an as-needed basis alleviates capital investment in private distribution facilities. Second, short-term commitments for 3PL capacity maintain maximum distribution network flexibility. Another benefit of outsourcing distribution responsibilities is that you do not have to manage the personnel issues (hiring, training, benefits, etc.) associated with owning and operating the facility. Essentially, distribution becomes a variable cost activity that is run by 3PL experts who can often leverage their investments and capacity across multiple customers. 36. Discuss facility layout and what factors should be considered. ANSWER: After the facility size is determined, attention shifts to the layout of the operations within the distribution operation. The company must make decisions regarding aisle space, shelving, materialshandling equipment, and the interior dimensions of the facility. Organizations design the interior of the distribution facility to support timely, accurate, and efficient customer order fulfillment. A number of objectives must be kept in mind during the planning process, with utilization of the facility's cubic capacity being first and foremost on the list. One storage area design feature that lends itself to this objective is the use of larger storage bays with more limited access. The turnover or throughput level will affect the storage bays' actual size. For example, when turnover is very low, as in supply warehouses, the bays can be wide and deep, with limited access, and the aisles can be narrow. Increased turnover necessitates quick access for better customer service and, consequently, smaller bays and wider aisles. Product protection is another key objective. The layout must accommodate the physical characteristics of the products being handled. For example, hazardous materials such as explosives, flammable items, and oxidizing items must be separated from other items so as to eliminate the possibility of damage. Also, high-value goods must be safeguarded against pilferage, and temperature-sensitive products must receive proper refrigeration or heat. Finally, distribution personnel should avoid stacking or storing light or fragile items near other items that could cause damage. Proper use of automation and materials-handling equipment is an important goal. Both offer great potential to improve distribution efficiency. Careful planning should include consideration of the risks of investing in automation—obsolescence due to rapid technological change, market fluctuations, and return on the large investment. Mechanized materials-handling equipment generally works best when items are regular in shape and easily handled, when order selection is the middle range of activity, and when product moves in high volumes with few fluctuations. Another objective is process flexibility. The facility design should not be so permanent as to limit the facility from handling new product lines and providing value added services when new requests emerge. For example, reconfigurable racking and multifunctional materials-handling equipment can prevent the building from becoming obsolete if demand patterns change significantly. Continuous improvement is the ultimate facility objective. An organization should not design an initial layout and then assume that it will work perfectly. Goals and standards for costs, order-handling efficiency, and customer service must be set and monitored on a regular basis. If measurements reveal that optimal facility performance is not being achieved, steps must be take to improve productivity. The final facility consideration is product placement within the facility. Before order fulfillment operations begin, goods must be located or slotted in the facility. Slotting is defined as the placement of product in a facility for the purpose of optimizing materials-handling and space efficiency. The main objective of slotting is to minimize, or in some instances even eliminate, travel and the amount of time that a stock-keeping unit is handled. This is important because travel and other nonproductive tasks can account for up to 60 percent of distribution labor hours. 37. Name the five product handling functions and discuss each. ANSWER: Product handling involves five primary processes: (1) receiving—transferring goods into the facility from the transport network, (2) put-away—moving goods into storage locations, (3) order picking —selecting goods for customer orders, (4) replenishment—moving product from storage locations to picking slots, and (5) shipping—loading goods for delivery to the customer. All five involve shortdistance movement of product, while put-away also focuses on the storage activity. At the receiving operation, the inbound carrier is scheduled to deliver the goods at a specific time so as to improve labor productivity and unloading efficiency. The goods are unloaded from the delivery vehicle onto the receiving dock. During the process, receiving clerks check the goods in to ensure that they match the purchase order and packing slips. Once on the dock, the goods are sorted by SKU, stacked on pallets to the correct ti-hi (where ti is the number of cartons stored on a layer and hi is the number of layers on the pallet), and secured using tape or shrink-wrap. The delivery is also inspected for damage and shortages. Problems are noted on the carrier's delivery receipt, and the receipt is signed. Prior to transfer, the items are tagged with pallet labels that assign storage locations in the facility or designate the goods for direct transfer to the shipping dock if needed to immediately fill a customer order. The put-away operation focuses on the physical movement of product from the receiving dock to assigned storage locations in the facility. Forklift operators check the pallet configuration to validate quantities and product safety, verify the storage location on the pallet label, pick up the pallet, and scan the bar code on the pallet label. The product is moved to the proper storage location (or sometimes the picking location, if the product is new or the slot is empty) and placed in the rack. After the process is completed, inventory records are updated to reflect receipt of the item, its storage location, and availability for customer order. The order-picking process focuses on the selection of goods to fulfill customer orders. Order fulfillment personnel travel through the facility from pick slot to pick slot and pull the requested quantity of each product identified on the pick list. The pick list may be generated as a paper checklist, labels that are placed on the carton, a computer display, or a voice-activated picking system. Once picked, the items may be labeled and put on a conveyor system for transfer to the shipping area or assembled on a pallet or cart designated for the customer. If the latter method is used, the order fulfillment personnel transfer the order to the shipment staging area and prepare it for delivery. The items are secured to the pallet or cart by means of tape, stretch wrap, or strapping, and a shipping label is created and attached. Finally, the complete customer order is staged in a predesignated area for loading onto the appropriate outbound delivery vehicle. The replenishment operation plays an important supporting role for order picking, moving product from storage locations in the facility to the designated pick slots. These storage locations are often inaccessible to the order fulfillment personnel, and specialized equipment is needed to retrieve the product. Replenishment forklift operators focus on keeping an adequate supply of product in each pick slot. When a pick slot is empty, the order fulfillment personnel will have to make a second trip to retrieve the required quantity of product. These additional trips are labor intensive and may cause split deliveries or delay the dispatch of customer orders. Hence, it is critical to synchronize order-picking and replenishment activities, shifting personnel back and forth between the functions as needed. The final movement process occurs at the shipping operation. In some facilities, empty trailers are dropped at shipping dock doors and loaded as orders arrive from the picking operation. In other operations, a "live" loading process takes place when the outbound carrier arrives at the shipping dock. The goods are moved from the staging area to the loading dock, counted and inspected as required, and loaded into the carrier's vehicle. The carrier signs the bill of lading that has been prepared by the shipper, indicating receipt of the goods, and departs from the facility. (Pages 390–393) 38. When designing a DC, what interior layout objectives and slotting principles must be considered? Why? ANSWER: The main objective of slotting is to minimize product handling and employee travel in the building. This is important because travel and other nonproductive tasks can account for up to 60 percent of distribution labor hours. Three criteria are commonly used to slot product within a distribution facility: (1) popularity, (2) unit size, and (3) cube. The popularity criterion locates high volume (popular) items near the shipping area and the low volume (unpopular) items away from the shipping area. Reduced order-picking time and effort are achieved. • Proper product slotting can improve labor productivity and generate other advantages for the organization and its customers. Several benefits will be generated by effective product slotting: • Picking productivity—Travel time is a significant portion of a picker's daily activity. A good product slotting strategy can reduce travel time, thereby reducing picking labor. • Efficient replenishment—By sizing the pick face location based upon a standard unit of measure (case, pallet) for the product in question, you can significantly reduce the labor required to replenish the location. • Work balancing—By balancing activity across multiple pick zones you reduce congestion in the zones, improve material flow, and reduce the total response time for a given order or batch of orders. • Load building—To minimize product damage, heavy product is located at the beginning of the pick path ahead of crushable product. Product may also be located based on case size to facilitate pallet building. • Accuracy—Similar products are separated to minimize the opportunity for picking errors. • Ergonomics—High velocity products are placed in easy to reach locations which reduce bending and reaching. Heavy or oversized items are placed on lower levels or in a separate area where material handling equipment can be utilized. • Pre-consolidation—Storing and picking product by family group can reduce downstream sorting and consolidation activity. For example, grocery DCs may slot products according to store aisle location to facilitate rapid restocking.