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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 3 of 28
The real wordsTheory

The party model: 1PL to 3PL

1PLA firm or individual that has their own cargo and moves it themselves.
2PLThe manufacturer hires a carrier or warehouse manager as a subcontractor, for the operational execution of a clearly defined transport or logistics task. The logistic actor does what the client instructs.
3PLA specialist company providing a range of distribution, storage, transport and fulfilment services, on which customers rely for end-to-end management of specific services.

4PL and 5PL sit above these as integrators and network orchestrators. The step that matters is 2PL to 3PL: the client stops giving instructions and starts buying an outcome.

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