The purpose of this report is to show the integration of the logistics activities in the core functional areas such as production, marketing, accounting and finance. The report also shows the efficacy of fixed time interval and fixed quantity interval of ordering.
The purpose of this report is to show the integration of the logistics activities in the core functional areas such as production, marketing, accounting and finance. The report also shows the efficacy of fixed time interval and fixed quantity interval of ordering. The applications of the various techniques such as ABC inventory analysis and economic order quantity to improve the present order cycle are based on the best to the industry standards. In order to increase the operational efficiency models based on program evaluation and review techniques has been shown based on the present operation cycle. Terex, headquartered at Westport Connecticut, United States is recognized as a leading manufacturer for construction equipments and providing material handling solution to variety of industries range from shipping, mining, infrastructure building, transportation facilities and refining. The company’s main logistics center of Terex is based in North Blend, Washington for the aerial work platform of the equipment. The Company’s European and Asian Pacific parts of the logistics operation are mainly controlled through outsourcing of man power resources. The MHPS (material handling & port solutions) section of Terex provides new designs for manufacturing universal cranes, ropes, electric motors and light crane component. The material process section of the company provides various solutions like material processing of equipment, washing systems, apron feeders, biomass, wood processing and recycling machines. The company has major distribution hubs in Louisville and Kentucky and a large part of the raw materials is supplied to other parts of the world from these locations. (Equipment – Terex Corporation, 2016)
The amalgamation of the various business activities with the supply chain operant is known as logistics management. The integration of the supply chain operations with the core functional areas like accounting, marketing finance and production is done by enterprise resource planning. The implementation of Enterprise resource planning makes the integration process effortless. The company uses Oracle software solutions in order to link all the areas of financial services, material handling, procurement and marketing activities through the mentioned ERP system. The various modules that the company uses to make interface with software includes Oracle Financials (equipment financing), Oracle warehouse module (for material management)
The quality management if the company is also handles with the use of ERP system. The entire operation material management like creation of purchase orders, sourcing of vendors, plant maintenance, and procurement of the construction equipment along with vendor evaluation becomes seamless through the integration of all the functional areas with the enterprise resource planning software. The vendor sourcing plays a crucial role in tracking of the distributors and selection of the vendors offering distribution service at best price in the market. The company is not only able to efficiently manage the activities related to production and ordering, it also takes care of the warehousing activities through the ERP implementation process (Madapusi & D’Souza, 2012). The impacts of logistics in the core departmental areas are discussed below as follows:
Terex’s Order to cash cycle
The order to cash (O2C) is the standard business procedure for accepting and managing customer orders dealing in goods and varied range of service offered by a business entity. These activities are of paramount importance for an efficient order processing and avoiding financial discrepancies. The outcomes of improper order management can have a detrimental impact either departmental or core functional areas of a business due to O2C cycle The primary purpose of order to cash is to fulfill the orders placed by the customers. (Brooks & Mukherjee, 2013)
The order to cash cycle involves the following procedure:
Organizations focus on enhancing the credit exposure visibility by optimization of the outstanding amount at the day end. The key components involved in order to cash service to meet the key challenges involve:
Some of the improvement in the ordering activities includes directly placing of the materials to the customer. Hence only after the materials having been procured though procure to pay cycle the required equipments can be prepared for the final delivery. The next step is inventory sourcing from the warehouse of the company. The warehouse picking of the materials is based on the warehouse pick slip. The slip consists of crucial information related to quantity rack or bin location. After the shipments are conformed the items will be ready to be shipped to the customer’s destination. The seamless tracking of the equipment is made possible thorough GPS tracking facility. The customers are able to check their order status by logging in to the company’s website. The billing and payment activities are followed after the shipments of the products.
Figure 2
The present inventory planning needs to be designed as per the model stated by A, B, C analysis. According to this form of inventory planning the A category of items are of the highest importance due to its cost and demand and thus this product is given the first priority in the inventory. The A category item are considered in the top 30% of the dollar value. The next sets of items are categorized as B category items and these items are prioritized on the basis of below 30% of the total dollar value. The C category items are of least importance and they are the items which are categorized in the below 10% of the total dollar value.
A |
Top 30% of total dollar volume |
B |
Below 30% |
C |
Below 10% |
Product |
Yeary Demand (Billion) |
Ordering Cost (million $) |
Demand x Cost (million $) |
Holding Cost |
Order Quantity (EOQ) |
% of total cost |
Product Class |
Aerial Work Platforms |
0.2 |
39 |
7.8 |
0.035 |
36 |
54% |
A |
Construction Equipment |
0.1 |
1 |
0.1 |
0.04 |
3 |
1% |
C |
Concrete mixer trucks |
0.1 |
1.2 |
0.12 |
0.035 |
3 |
2% |
C |
Cranes |
0.4 |
2.3 |
0.92 |
0.05 |
12 |
3% |
C |
Light Towers |
0.3 |
9 |
11.7 |
0.03 |
62 |
12% |
C |
Material Handlers |
0.3 |
2.8 |
0.84 |
0.045 |
11 |
4% |
C |
Off Highway Trucks |
0.1 |
16 |
1.6 |
0.04 |
10 |
22% |
B |
Crawler Vehicle |
0.1 |
1.3 |
0.13 |
0.05 |
2 |
2% |
C |
Total |
1.6 |
73 |
116.16 |
0.325 |
42 |
100% |
In order to get a better understanding of when to order a product we need to consider fixed point model and fixed order interval model into ordering cycle of Terex Limited.
The fixed order point technique of ordering stock takes into consideration the reorder point of a stock. Reorder point is the sum total of average demand per day times the lead time and safety stock. The ideal ordering tine is that time when the inventory which currently being used goes to reorder point. The inventory ordering time follows a fixed quantity for ordering of new items.
Fixed order point model
Figure 3
The advantage of using fixed order point is to precisely locate the reorder point of individual items in the inventory. It also takes into account less safety stock in compared to the fixed interval mode of ordering as the ordering quantity is fixed.
The second model of ordering inventory deals with fixed order interval for ordering of inventory. Terex can use this model to set an ordering time interval for example every Friday for cranes and every Monday for aerial platforms. The ordering process can be based either on monthly basis or biweekly basis. The orders are placed for varying quantities so that the company is able to achieve. The diagram given below shows the difference between ordering as per fixed quantity and fixed time interval.
Figure 4
Model showing the difference between fixed quantity ordering and fixed interval ordering
Terex needs to analysis the present ordering lead time and apply various quantitative tools such as optimization and critical path analysis. An augmented effort needs to put on the inventory level by elimination of low turnover and obsolete items in the inventory.
If Terex is able to forecast the customer demands from beforehand then it will be able to considerably reduce the holding costs and delivery time of the manufacturing and construction equipments. (Bartmann & Bach, 2012).
The performance measurement of inventory is done on the basis of amount of reorder quantity weekly or monthly basis. The measurement factor also takes into consideration the safety stock level of the present inventory. If the company is unable to meet the demand due to poor supply then the inventory will reach in danger level and the company will face acute shortage of inventory. (Marodin & Saurin,2015)
The improvement in the present distribution activities can be improved through Critical path analysis. Terex needs to develop the critical path strategy for the supply chain operations. In order to implement the critical path method at first it needs to determine the unit rate productivity, assigning of working hours of the working of labors, loading/unloading time of the products. (Kazamzadeh & Yari, 2015).
Conclusion
The integration of core functional activities have been shown thorough the ERP implementation process and the various interface shows the connection of logistics management with the core functional areas of the company. The report takes into consideration various practices currently followed by Terex corporations in terms of logistics and supply chain operations. The report also shows the various inventory planning procedures by studying the current ordering cycle and production activities of the companies. The report represents comprehensive details on procure to pay cycle of Terex and its feasibility on the present system of the company. The customer order cycle also shows the various steps involved in delivering the items to the final customers following the procurement procedure. The warehouse operation of the company is integrated to the ERP system so it becomes easy to plan and manage the inventory for the company. It is equally important for the company to maintain a fixed time of oredering and fixed quantity of ordering. The ABC analysis and EOQ will further enhance the selection and ordering process of the inventory. The report also highlights on the inventory demand and planning procedure techniques for improving the ordering strategy according the market requirements.
Reference List
Bartmann, D., & Bach, M. F. (2012). Inventory control: models and methods (Vol. 388). Springer Science & Business Media.
Equipment – Terex Corporation. (2016). Terex.com. Retrieved 24 May 2016.
Kazamzadeh, E., & Yari, H. (2015). Determination of permeability using electrical properties of reservoir rocks by the critical path analysis.
Kumar, M. S., Anand, N. V., & Rao, R. S. (2015). Impulse energy approximation of higher-order interval systems using Kharitonov’s polynomials. Transactions of the Institute of Measurement and Control, 0142331215583326.
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Mulama, O. A., Chirchir, M. K., & Magutu, P. O. (2013). The Effect of Logistics Outsourcing Practices on the Performance of Large Manufacturing Firms in Nairobi, Kenya.
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