Characteristics Of Effective Logistics

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A supply chain is an integrated manufacturing process which involves different business units working together to acquire and convert raw materials into final products which are then delivered to the customer (Beamon, 1998). The correct supply chain strategy depends on several factors. A product characterized by stable demand and reliable supply cannot be managed in the same manner as one characterized by unstable demand and unreliable supply. (Lee 2011). Demand predictability is associated with product type, functional versus innovation. Functional products are characterized by low demand uncertainty, more predictable demand, stable demand, long product life, low inventory cost, low profit margin, low product variety, high volume per SKU, low stock-out cost and low obsolescence Example include basic foods. Innovative products are characterized by high demand uncertainty, difficult to forecast, variable demand, high inventory cost, high profit margins, high product variety, low volume per SKU, high stock-out costs and high obsolescence. In the absence of direct information on the actual requirement of the customer, organizations are forced to make forecasts. To avoid the possibility of stock-outs most organizations carry safety stock. What happens is that as we move further up the supply chain the magnitude of the safety stock carried increases. This phenomenon is referred to as the ‘bullwhip’ effect. (Lee et al 1997)The effects of this include excessive inventory, excessive capacity, insufficient capacity, long backlogs and uncertainty in production planning. One of the major problems that affect performance is uncertainty. There are two parameters to uncertainty. Uncertainty in demand and uncertainty in lead time. One of the major effects of lead time uncertainty is the bull whip effect which results in increases in supply chain cost and decrease in

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