All posts by gaetanvaujour

The Logistics Performance Index

 

As the semester is about to end in a few weeks, it is time to look back at what we have learned. In the logistics class, we managed to understand that logistics is of great importance for any kind of company, in order to reduce the costs without decreasing the quality of the product sold. But logistics is not only a company problem, it is also a state priority. Many governments throughout the World now understand that the logistic performance of one country is linked to its economic development and growth. This is proved by the fact that with a poor logistics system, costs increase and thus the global potential of a product decreases as well, which reduces the imports and exports of a country and thus decreases its economic development. In order to understand how well a country is doing compared to others in a logistics point of view, the LPI (Logistics Performance Index), has been created in 2007.

Countries are ranked on a scale going from 1 to 5 based on six factors:

  • The efficiency of customs and border clearance (“Customs”).
  • The quality of trade and transport infrastructure (“Infrastructure”).
  • The ease of arranging competitively priced shipments (“Ease of arranging shipments”).
  • The competence and quality of logistics services—trucking, forwarding, and customs brokerage (“Quality of logistics services”).
  • The ability to track and trace consignments (“Tracking and tracing”).
  • The frequency with which shipments reach consignees within scheduled or expected delivery times (“Timeliness”).

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For ten years in a row, the most performing country in the World, in terms of logistics, is Germany (with a LPI of 4.12), followed closely by the Netherlands (with a LPI of 4.05). The least performing country is Somalia with a LPI of 1.77. There is a high correlation between the economic wellbeing of a country, and its level of Logistics Performance Index. Indeed, the best ten countries are all belonging to developed countries, whereas the worst ten are still in the developing stage. There are some exceptions to that rule, for example Vietnam is one of the most performing countries in term of LPI among developing countries (with a score of 3.15, ranking it to the 48thplace).

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Countries are then divided into four categories, based on their LPI level:

  • Logistics Unfriendly
  • Partial Performers
  • Consistent Performers
  • Logistics Friendly

 

This index allows us to understand the powerful impact that a country can have on the wellbeing of the logistics department in companies. Indeed, by reducing customs and by easing the transports and logistics regulations, logistics costs are reduced.

If you want to learn more on this topic, feel free to have a look at this paper: https://openknowledge.worldbank.org/bitstream/handle/10986/20399/904190WP0LPI0R00Box385316B00PUBLIC0.pdf?sequence=1&isAllowed=y

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Wedding Logistics

 

For those who know me, you might know that I am getting married in three months… the stress is growing, the last details are adding up, and days go by as slow as a snail! From your own experience, from friends, family members or even movies, you know: getting married is not a piece of cake (do you see the joke… 😉 )

Like any events, a wedding needs organization, and to organize well, we use logistics! In the dictionary, logistics means: “the detailed organization and implementation of a complex operation”, and a wedding is one of the most complex one!

We can apply many logistics concepts that we previously used before, for example inventory management. Indeed, as many guests are going to arrive to one single locations, you might want to think about what they are going to eat during the D Day, and thus order the perfect amount so that everybody is satiated. We can also use cycle inventory, by bringing wine to the tables, the waiters have different choices: are they going to let the bottle on the table and let the guests help themselves? Are they going to fill the guests’ cups themselves? This last solution might be more expensive and should thus be examined with great care.

Bringing the food from the chef to the tables is not as easy as it sounds and needs to be meticulously prepared either by you or by the catering service that is going to help you during this special day. 300 guests means around 30 tables, 600 plates, 900 glasses, 1800 pieces of cutlery, etc. All of these items are going to be delivered by waiters that will serve one by one each table of the reception, enabling every guest to eat a warm meal without having to wait for too long. The tables themselves are a real dilemma: who is going to sit next to this old aunt of yours that is always speaking nonsense? If you thought you would let the guests do as they please, let me stop you right here, it is more complicated that it seems… If you want to learn more about catering logistics, you can look at this link: https://www.bettercater.com/the-logistics-of-catering/  

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Wedding logistics also includes waste management. For 300 guests, which makes 900 dishes (for a three courses dinner), there is going to be a lot of waste, and the catering service might not want to keep it, but will rather throw it away. Researchers from the Guardian have established that a tenth of all the food in a wedding is thrown away (which represents on average 650 euros). Hopefully many solutions exist: giving it away, finishing the food the next day, etc. (https://www.theguardian.com/environment/2017/jul/28/tenth-of-wedding-food-thrown-away)

 

Anyways, I have got some planning to do! But if you enjoyed this post and have more questions… do not hesitate to ask me 😉

 

Cycle Inventory in Supply Chain Management

As we were studying logistics and supply chain, something occurred to me: why couldn’t we simply order a lot so that we have enough inventory for a long period of time? Otherwise, why couldn’t we order the exact quantity to match the customer demand? Well, reading through logistics article, I found my answer! A company cannot afford to order a huge quantity of product as the holding costs (cost of keeping the product in the company inventory) will be extremely high. At the same time, a company cannot afford to have low or no inventory as the demand can have a high variability and a lack of storage can lead to loss of sales and loss of customers.

Inventory depends on several things:

–      Demand(which has a certain degree of uncertainty)

–      Leadtime(which is the gap between when an order is placed and when the merchandise actually arrives)

–      Holding costs (cost of keeping the inventory in house)

–      Order costs(fixed costs incurred each time an order is placed)

–      Discounts (depending on the quantity purchased, the supplier can offer discounts which need to be taken into account)

–      Product price

The term Cycle Inventoryis used to define the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer. It follows the following formula:

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A lot size (or batch size): Q: is the quantity that a stage of supply chain either produces or purchases at a specific time.

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A typical example of lot size is shown with this graph: Q (lot size) is the quantity order at a time t. In this case, the demand is kept constant, which mean that we forget about the variability of demand. If we want to take the variability of demand into account, a company can add a “safety inventory”:

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In order for the company to understand which quantity they can order so that they can minimize the total costs, several models exist. One of which is the EOQ: Economic Order Quantity, which is the optimal lot size. This quantity can be found using this formula:

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With: D: Demand; S: Setup Costs; h: Holding Costs; C: Cost per unit of product

There are many other models used to calculate the quantity required in order to minimize the total cost, or maximize the efficiency such as: Production Lot Sizing, Lot Sizing with capacity constraint, Lot Sizing with multiple products or customers,…

 

I hope that you now understand a little bit better the key concepts of Cycle Inventory. If you want to learn more about this, you can read through Chopra’s book (which is part of our class material): Supply Chain Management: Strategy, Planning and Operation.

World Hunger is a Logistics Issue

World_hunger_Solution_Borgen

Once, I went to a restaurant called Flam’s, eating a traditional Alsatian cuisine: the Flammkuchen (it is REALLY good, I advise you to try it out sometimes… 😉 ). We picked a menu where we can have unlimited amount of this dish and the waiters kept bringing more food on the table, up to a point where we had to tell them to stop. But they were already done so they had to throw it away, and they do this every day. This made me think of the problems that we have with hunger and food waste in the world and what could be done to prevent this from happening. In the World, more than 795 million people do not have enough food to live a healthy life. This is around one out of nine person. This number affects mostly developing countries, where poor nutrition is the leading cause of death among children: each year 3.1 million children aged from 0 to 5 die from hunger in the world. The United Nations have been able to collect many statistics regarding world hunger and the potential solutions that could help to reduce this problem. But Hunger is not a food problem, it is a Logistics issue. (https://wfpusa.org/articles/tedups-why-hunger-logistics-problem/) The issue is to bring the appropriate food to the people who need it the most.

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One third of the amount of food produced every year in the World is wasted, which is around 1.3 billion tonnes. If we could save only a third of that amount, that would be enough to feed the World. Logistics, which is the services, knowledge, and infrastructure that allow for the free movement of goods and people, has been recognized to be a key element in achieving sustainable food security, and thus a driver of competitiveness and economic development. Scientists have developed the term of agro-logistics, which can help, for example, to address the food security challenge: from “farm to fork” and all the stages in between.

It is believed that the biggest part of the waste is happening during the production stage, but the FAO (Food and Agricultural Organization) has found out that it was mainly happening during the consumption stage. Thanks to the advances in logistics and supply chain, a lot of progress has been done and food waste has been cut in the production stages. Studies have shown that the more complex a supply chain is, the more likely it is to have a huge waste. It is also due to the fact that poor storage can deteriorate the quality of the food and thus it has to be thrown away. This is why sustainable logistics is more than ever needed! Many governments have created a program designed to help developing countries to strengthen food security and reduce food losses. For example, the USA have helped to finance projects consisting of creating better storage facilities throughout the country, so that food could not rot. A proper storage facility can reduce waste up to 98%, which is phenomenal!

Gandhi: “The world has enough for everyone’s need, but not enough for everyone’s greed.”

If you want to learn more: http://blogs.worldbank.org/transport/feed-future-let-s-make-logistics-and-transport-sustainable😉

If you want you can also watch this Ted Talks about how logistics is at the roots of world hunger and how it could be solved:

https://www.youtube.com/watch?v=oXlMn3WGHkE

 

Ryanair: a Low-Cost success story

 

During the couple days off that we had during the holidays, I went back to France to see my family. While looking at several options that I could choose from to go back home, many were way too expensive for my student budget: with usual airlines offering prices going from 250 euros and above, I could not imagine paying that amount of money! I thus decided to use Ryanair, which is one of the most well-known low-cost airlines in the world, and my wallet can now thank me for the few pennies I saved!

 

ryanair-aircraft-12

 

How do they do that? You ask (I ask myself that too… 😉 )

 

Well it’s easy, they became the best player in logistics in the airline industry. First of all, they managed to master inbound logistics. Indeed, they managed to take off and to land from smaller airports with lower landing fees. For example, in Brussels, the company mostly lands in Charleroi Airport rather than in Zaventem Airport (which is closer to the capital). This also helps the company to reduce their costs, and thus to offer cheaper flights.

Furthermore, they managed to create an efficient operation system. Indeed, through a fully automated system that enables customers to book their flight without the help of employees, the company managed to significantly reduce labor costs. They also managed to drastically reduce the costs by removing every unnecessary items that we could find on regular airlines: in person check in, food, drink, Wi-Fi, entertainment, luggage etc. Every added features will be paid by the customer.

Using outbound logistics, they realized that they did not need to rely on travel agency, as this would increase the price offered to clients because of the commissions that would have to be paid. The only way someone can buy a ticket from Ryanair is through their online platform. Ryanair also focuses on short turnaround times (TAT) (http://economics-files.pomona.edu/jlikens/seniorseminars/likens2013/reports/ryanair.pdf) : this means that every plane must be in the air most of the time, as when it is on land, the company loses money.

Ryanair has also been able to secure a strong partnership with its suppliers, such as Boeing. In March 2018, they had a fleet of 429 Boeing 737, which they bought in batches in order to reduce the costs. (https://www.airline-suppliers.com/tag/ryanair/)

 

Ryanair is thus a success story of the low-cost airline industry thanks to its performant strategy in inbound logistics, operations management and outbound logistics.

Hospital Logistics

I recently booked an appointment with a doctor in Valencia through a great website called Doctoralia. Through this website, anybody can get in touch with a specific doctor and see recommendations, details, etc. I then realized that doctors, as any other service providers, need to use marketing in order to promote themselves. This raises the question: where is the line between a client and a patient?

Hospitals, like any institutions, use marketing, finance, human resources and logistics to deliver a reliable service which helps the patients while making profit.

Through this post, we are going to see how a hospital uses logistics.

The roots of health care logistics:
The population is aging: in 1960, the persons older than 65 represented 4.974% of the world population, whereas in 2016, this number jumped to 8.482%. This means that the need for treatment has increased in the same manner. The need for more expensive treatments (for example: cancer) has increased as well. This calls for an increase in efficiency and a decrease in price in order to keep the service level required.

Solutions:
The goal is to accelerate the patient flow by assuring that they are treated in the best way possible.

  1. “Just-in-Time” logistics: this will enable to reduce the length of the treatments by providing the patients the right doctor at the right time.
  2. Use of computer systems enabled to track any patients, doctors or medicines in a hospital in order to reduce the length of the treatment which increases the life span and allows more patients to be treated. The use of technology is extremely important in this changing environment: use of RFID chips (low-cost solution for tagging equipment), fully automatic laboratory (with robotic arms for examples).

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This will be achieved by:

  • Using RTLS (Real Time Location System): about the location of equipment, personnel and patients
  • Having transparent task management across the hospital

There are 6 sectors that need to be optimized in order to achieve “Just-in-Time”:

  • Task Management
  • General Management
  • Bed Management
  • Trolley Management
  • Transport Management
  • Cleaning Management

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Applying logistics to a health care environment will be the solution to the increasing demand of expensive treatments and aging population. Some hospitals are already implementing it, such as Aalborg University Hospital in Denmark. If you want to learn more about this topic, take a look at this report: http://healthcaredenmark.dk/media/1461454/HCD-Hospital-Logistics-white-paper-v1-single-0217.pdf

Thank you for reading 😉

The Netflix Era

A couple days ago, I was watching a TV-show on Netflix at home called Stranger Things (great TV show by the way…), and I was wondering… why is Netflix so appealing to such a large audience? If like me you are watching Netflix, you are among the 128 million users worldwide (this number doubled in less than four years!).

The Netflix Era:

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Netflix has a really good supply chain, linking entertainment companies to end consumers in a way that has never been that easy. They went from renting DVDs by mail to delivering a service on the Internet. They now use a completely virtual (or digital) supply chain, which brings several advantages:

  • No lead time (subscribers can “consume” content whenever and wherever they want)
  • No need to manage an expensive network of distribution centers: this allows to cut costs and to develop more rapidly in any market having an Internet access
  • No need to manage stock: as it is virtual content, it can be streamed as many time as possible. Nevertheless, Netflix should update their inventory as soon as possible because movies and TV shows lose their value over time.

This supply chain strategy also has several risks that should be considered:

  • Upstream supplier risks: depends on entertainment companies to provide the content subscribers want
  • Downstream distributor risks: depends on ISPs (Internet Service Providers): some cable companies have complained that Netflix was increasing the traffic levels, and that they should thus pay higher fees.
  • Competitive risks: Netflix competes in a cut-throat market against companies such as Amazon (around 85.3 million users), and Hulu (around 32 million users).

This virtual supply chain also allows to easily analyze the data they are collecting. This helps to better predict what every users will probably want to watch. For example, if you watch a lot of action or superhero movies, it is highly possible that they will recommend you to watch Marvel TV Shows such as Daredevil. You can watch a short video on how Netflix uses Big Data:

https://www.youtube.com/watch?v=f_6IEKqS2l0

Netflix does not only have a good supply chain strategy, but it also can be used in many different companies. For example, the way they use Big Data can be really useful for predicting future costs, future stock level but also to choose among several suppliers (You can see more about it right here: https://www.savi.com/supply-chain-visibility-netflix-model/).

So as you can easily understand, Netflix’s success relies on a well operating business model that connects suppliers to consumers on an “easy-to-use” platform that can be accessed anywhere at any moment. The next time you are watching your favorite TV Show, just think about it… 😉

Some facts about Netflix:

  • 128 million users
  • 1 billion hours of content per week
  • 10 largest Internet based company with $11.69 billion in revenue
  • 5,500 employees in 2017
  • In Canada, 56% of the Internet users have Netflix

Videos you can watch on Digital supply Chain: https://www.youtube.com/watch?v=obXUBlgo2ow

If you want to know more on Netflix’s strategy  : https://www.impigertech.com/blog/supply-chain-management-lessons-from-netflix/