Question

Please answer these questions in a summarized way.

Why might there be tensions between shipper and carrier when determining a product's freight classification. 1. How can a stockout cost be calculated? 2. How do freight forwarders work? What services do they perform? 3. How are warehouses, distribution centers, and cross-docking facilities used. What are the differences and why or when would one be better than another? 4. 5. Besides its impact on inventory management what are the consequences of JIT.

Answer 1

Answer 1

Freight Classification can be confusing and create tension, because according to a Manufacturer/ Shipper, a product may not classify, for example, as Non- Hazardous category, but for a carrier, it may classify as hazardous or inflammable or dangerous goods category. Hence, it then becomes difficult to determine the class of Freight and accordingly arrange the measures to carry it along/ or with other goods, so will Freight Carrying charges differ.

Answer 2

Stock Out Cost is incurred if the arrival of raw material is longer than the routine or decided delivery time . Can be calculated by,

Stock Out Cost = (raw material requirement) *(shortage cost)

Where the raw material requirement = number of inventory item &

Shortage cost is that Purchase price difference, when you have to buy that specific item/s, when you have shortage of it.

Example Purchase price difference occurs, if 100 tonnes of Stainless Steel ordered in January 2018, but at the time of delivery scheduled in Jan 2019, you face a shortage of 15 tonnes and have to buy from some other vendor at higher price (as per Jan 2019 time).

Answer 3

Freight Forwarders carry freight from one location to another, as part of their service providing, which not only includes Transportation facility, but also Insurance, documentation, handover of items, from the Shipper to the Consignee.

Nowadays,   Freight Forwarders like DHL, Fed Ex provided end to end solution, which include movement of goods via Ship/ Railway/ Road/ Air, across globe by their own carrier vehicles/ or chartered, and take care of customs check, airport check, complete various documentation related facilities for private and government areas, dedicated manpower to do the work, and deliver the consignment.

Answer 4

Cross docking facilities are generally used in Shipping, when you move the goods across the ports, country/ globe. A company can use as many such facilities, depending on the volume of the goods being carried/ frequency, kind of goods/ convenience etc.

Distribution centers can be big or large size, depending on the business of company. From a Distribution center, goods can be moved to Cross docking facilities and then to local/ central Warehouses or Vice Versa, whichever, the Supply Chain of the company caters too.

While Warehouses are the smallest unit in all above three, where goods are stored to distribute to retailers/ wholesellers/ direct customers.

All three are needed for a company to manage the movement of inventories or finished goods, hence there is no question which should be better!