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...Ordering cost is the administrative cost of manual order processing and procurement. The move toward Internet-based procurement should lower ordering costs significantly and hence reduce order quantities. Internet-based procurement has been estimated to reduce the typical costs of processing purchase orders from $75-$150 down to $5-$10. Ford Motor Company is moving nearly all its business with more than 4,200 key suppliers onto Covisint, the internet auto exchange jointly operated by Ford, GM and DaimlerChrysler. Many other companies are seeking to do procurement "on the Net"; this is expected to reduce errors, decrease processing time, and lower order processing costs significantly. With sharp reductions in order processing costs, there is much less reason to "batch" orders.
It may also be possible to reduce transportation batch sizes. For example, instead of using a large truck, several smaller trucks might be used for deliveries, thus allowing for smaller quantities with more-frequent deliveries. Furthermore, combining deliveries from several different suppliers would again allow for more frequent deliveries of smaller quantities. Third-party logistics providers, the so-called "3PLs", facilitate such combining of deliveries from different suppliers. We can illustrate this by looking inside the trucks:
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SCM102 Specifications
Rating:
(1456 ratings)Total Reading Time: Approx. 1 - 2 hours (for average readers)
Word Count: Approx. 9,000 words
Author: Dr. Warren H. Hausman
Professor of Management Science & Engineering, Stanford University
Certificate: Counts toward Fundamentals of Supply Chain Management
Datasheet: 
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Contents
- Introduction to Supply Chain Strategies
- Functional vs. Innovative Products
- Efficient vs. Responsive Supply Chain Strategies
- Aligning Products and Strategies
- Product Life Cycle Revisited
- Improving Efficient Supply Chains
- Beer Game Introduction
- Beer Game Simulation
- Beer Game Results
- Bullwhip Effect: Importance and Causes
- Cause 1: Information Distortion
- Cause 2: Order Batching
- Cause 3: Promotions
- Cause 4: Allocation Gaming
- Counteracting Information Distortion: Forecasting Problems and the Hockey Stick Effect
- Counteracting Information Distortion: Vendor-Managed Inventory (VMI)
- Counteracting Information Distortion: Supplier Managed Availability (SMA)
- Counteracting Information Distortion: Reducing Lead Times, Reserving Capacity, and Direct Sales
- Counteracting Information Distortion: Keeping Safety Stocks Steady
- Counteracting Order Batching
- Counteracting Promotions
- Counteracting Allocation Gaming
- Conclusions
- Test Your Knowledge
- Feedback