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Sem 5 Prep
← OperationsLogistics and supply chain

Formulas for this chapter

Value density

Value density = rupee value of the product / its weight

Choosing a transport mode. High value density favours air; low value density favours rail or water.

rupee value
Unit cost or price of the item
weight
Shipping weight of the item

Inventory created by a transport mode

In-transit (pipeline) stock = demand per period x transit periods Cycle stock = shipment size / 2 Total inventory = in-transit + cycle

Comparing two modes. A slower mode with bigger lots creates inventory on both counts.

transit periods
Transport plus customs time, in the same period as demand
shipment size
Lot size the mode imposes

Cost of a transport mode per period

Cost = total inventory x carrying cost per unit per period + demand per period x freight per unit Carrying per unit per week = annual % x unit cost / 52

The mode comparison itself. Convert the annual carrying rate to the period the demand is quoted in.

annual %
Inventory carrying cost as a fraction of item cost, e.g. 0.20
freight per unit
Quoted rate for that mode

RATER classification rule

Perceived < Minimum -> Negative Minimum <= Perceived <= Desired -> Satisfactory Perceived > Desired -> Positive

Scoring a service against the three baselines. Positive can also mean over-resourced.

Minimum
Lowest adequate service level
Desired
The highest level, what the customer hopes to receive
Perceived
The customer's perception of current service
Step 1 of 28
The ideaTheory

Making it is the easy half

A printer built in India has to reach a shop in Germany. Somebody has to decide whether it flies in a week or sails in four, and how many go in each load.

Fly it and the freight bill is high but almost nothing sits in a warehouse. Sail it and the freight is cheap but a month of stock is floating on the sea, paid for and earning nothing.

That trade-off, made in rupees, is the last chapter of the course, and it turns on how valuable the product is per kilogram.

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