(PROJECT WORK FORMATS) Report On Title (Cost Minimization for VRL Logistics)

Prepared by Name: Pradyumna.S Registration No: EPG5-01081239 Under the Guidance of Dr. Prof Srinath Krishna
In partial fulfillment of the Course: Project Work In Term IV of the Executive Post Graduate Program in Global Management Class of January 2008

Abstract
The ability of an organization to effectively move and store materials from and to a complex network of suppliers and end users is not a simple task, and the success of any world class supply chain is heavily dependent upon the effectiveness of its logistics network and delivery capability; in essence, its logistics function, comprised of inventory, warehouse, and transportation management. Do you know how your logistics organization compares to your industry peers? Do your performance metrics indicate you are a 1st quartile performer, or perhaps a 4th quartile one? How much improvement could be made in your logistics organization in terms of cost, quality and service. Managers are finding creative ways to mitigate supply chain costs while maintaining operational efficiency. New approaches, technologies, and methodologies are aiding with these cost-cutting measures. Use of a third party logistics provider (3PL), radio frequency identification (RFID) rentals, and attribute-based demand planning can drastically reduce supply chain costs and increase customer satisfaction. The main aim of this project is reduce operating cost for running Logistics operation. The project has been implemented by using Supply chain and logistics concepts. We concentrate here mainly on 3PL operation for running Logistics. Third-party logistics (abbreviated 3PL) providers are able to take over the supply chain functions of businesses and manage them better in many cases than what the companies could do on their own. As a 3rd Party Logistics Provider (3PL), creating high customer service levels and maintaining a healthy profit margin depends on being able to maintain accurate and efficient inventory and warehousing practices. Profitable freight services also depend on your ability to conduct errorfree, on-time shipment handling and information at the warehouse level. To broaden your services to meet the needs of current and future customers, you need to implement and integrate information technologies. In this way you can create real-time visibility and transaction capabilities over the internet and develop collaborative relationships with your customers and their business partners. As a small to medium sized 3PL you need a system that can meet or surpass that of your bigger competitors, but at a price point that lets you protect your capital.

Chapter-1 1.1 1.2 1.3 1.4 1.5 1.6

Introduction to Supply Chain and Logistics 6 6 7 10 14 15

Supply Chain Introduction to Logistics Third Party Logistics Top 10 Logistics Companies of India Logistics Operation 3PL Operations Optimization

Chapter-2 VRL Logistics 2.1 2.2 2.3 2.4 2.5 2.6 VRL Business Overview Purchase of Vehicle Factors affecting VRL Road Transportation VRL Strategy Warehousing Express Cargo
16

17 19 21 23 24

Chapter-3 Cost Minimization 3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 3.1.6 3.1. 7 The fuel efficient strategies Maintain up-to-the-minute diagnostic status Enable connectivity and real-time communication Decrease idling times Speed monitoring Maximize load efficiency Provide expense management capabilities via gas card integration 26 27 27 27 27 27 28 28

Offer valuable intelligence on when to upgrade to fuel-efficient vehicles

3.1.8 3.1.9 3.1.10 3.1.11 3.1.12 3.2

Practice smart and efficient day-to-day usage and maintenance Provide real-time tire pressure data. Optimize routes and scheduling Managing driver behavior Estimate your own potential fuel savings Truck Purchase Reduction in Inventory cost Use of RF Mobile in warehousing operation Benefits Freight Payment and Audit Services as Growth Strategy Solution for minimizing cost Models for cost Minimization Transportation model Logistics Network Design Logistics network design with differentiated delivery lead time Logistics network design with price discount Consolidated logistics network design using consolidation hubs Common data Model. E-commerce Reverse Logistics INTERRELATIONSHIPS BETWEEN TRANSPORTATION AND LOGISTICS Transport Costs and Goods Characters in Logistics The Effects of Transportation on Logistics Activities

28 29 29 29 30 30

3.3 3.3.1 3.3.2 3.4

32 33 36 37 37 38 39 45 49 54 55 55 56 56 58

3.5 3.5.1 3.6 3.6.1 3.6.2 3.6.3 3.7 3.8 3.9 3.10 3.10.1 3.10.2

3.10.3 3.11

The Role of Transportation in Service Quality Express Delivery Implementation Extended web portal Lowest business overheads Schedule intelligently Need for Lead Logistics Managers Information-Technology Priorities JIT Vehicle Tracking and Dispatch Routing and Scheduling Warehouse operations Attribute-based Demand Planning Strategic Alliances, Partnerships and Collaboration Creating a Lean Supply Chain Value Stream Mapping for waste Elimination.

58 58

Chapter-4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13

59 59 59 59 59 60 61 61 61 61 62 62 62

Chapter-5 5.1 5.2 5.3 5.4 5.5

Area of Improvements Inventory Management Warehouse Management Material transportation & routing Organization Culture Performance management 64 64 64 65 65

Chapter-6 Areas to concentrate 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 Information Technology Focus on Future Growth Shorter Product Life Cycle Improvement of Logistics Facilities Improvement of services Intelligent transport system E-commerce and JIT Purchasing Role of transport in Service Quality Assessing and improving your current Logistics operation Lean Value Stream Mapping Kaizan and the Supply Chain Warehouse Space 66 68 67 68 68 68 68 69 70 71 71 72 65

Chapter-7 Result
7.1

Transportation Model Strategies

73

Chapter-8 8.1 8.2 8.3 8.4 8.5

Strategic Model Customer Buying Behavior Supply Chain Response Strategy Recruiting, Developing and Retaining People Government Involvement

78 78 80 81 81 82

Chapter-9 Future Prospects Chapter-10 Conclusion

1.1 Supply Chain

The term supply chain refers to the complex sequence of activities, information and material flows involved in producing and distributing a firm's outputs. Supply chains consume vast amounts of capital - in the form of plant, equipment and inventories - and are responsible for most of a firm's cost-of-goods and operating expenses. Supply chains create significant value and ultimately determine a firm's ability to satisfy the demands of its customers. As a result, effective supply chain management is a major strategic challenge for most firms. But formulating effective strategy requires a good understanding of what drives cost and service in a supply chain. Supply chain drivers y y y y y y Inventories Transportation Facilities and handling Information Sourcing Pricing

1.2 Logistics in India India spends about 13.0 percent of its total Gross Domestic Product (GDP) on logistics, as per 2005 estimates. The major logistics functions for the Indian industries include Transportation, Warehousing, Freight Forwarding, and other Value Added Operations including Management of Information Systems (MIS). Of these functions, transportation and freight forwarding have been traditionally outsourced to external service providers with relevant expertise and infrastructure. The warehousing and MIS functions have been mostly managed in-house by industries. But the huge diversity in geographic conditions, consumer habits, and infrastructure conditions across the country make it a major challenge for Indian industries to efficiently manage their supply chain to reach all parts of the country. Additionally, Indias retail network is very vast, estimated at about 3.3 million outlets in 2005. The highest priority of all industries in India is to achieve a consistent presence of their products across maximum possible section of this vast retail network. This could be achieved through a well knit end-to-end logistics process managed efficiently by a professional logistics service provider.

Nevertheless, the logistics industry, providing services to fulfill these major logistics needs of the Indian industries is highly fragmented. The transportation service provider segment is completely dominated by small trucking companies and individual truckers. The freight forwarding service provider segment is also represented by thousands of small customs brokers and clearing & forwarding agents. Similarly, there are a huge number of participants in the warehousing service segment and MIS service segment also. Few service providers have the capability to provide more than one service and it is very rare that a single service provider has the capability to provide all the logistics services. Such fragmentation had lead Indian industries to outsource packets of individual logistics functions to different service providers while retaining the overall control of logistics in-house, despite incurring heavy administrative and infrastructural costs
So what is logistics?

Logistics is traditionally understood as encompassing activities concerned with the transport, storage and handling of goods. It also includes the procurement of transport a core activity of freight forwarding companies. However, this narrow definition no longer adequately describes the full range of logistics activities. The range of services provided by logistics companies has expanded constantly over the last 20 years or so. Its focus is no longer solely on the transport, warehousing and handling of goods, but can also include the associated information flow and staffing, funding and energy requirements. Logistics companies are now increasingly providing their clients with additional services, which are referred to as value-added services. The business relationship between the client and the logistics provider is often geared towards the long term and encompasses the management of complex logistics processes.
Outline of the differing logistics concepts

The different logistics concepts can be described as follows: First Party Logistics (1PL): Companies perform the logistics activities using their own resources. The main activities are transportation, storage and handling. Second Party Logistics (2PL): The core logistics activities are also the focus of this business concept. However, they are performed by external providers using their own resources. Third Party Logistics (3PL): External logistics providers perform a broader range of activities (value-added services, information management etc.) using their own capacities. Fourth Party Logistics (4PL): An external company performs all supply chain management activities on behalf of its client. In this case the provider does not use its own logistics capacities (e.g. fleet of vehicles, warehouses), but uses a variety of independent subcontractors
We Concentrate Here mainly on 3PL operations in this project.

1.3 Third-party logistics

A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to companies for part, or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customers needs based on market conditions and the demands and delivery service requirements for their products and material.

Types of 3PL providers

y

Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing , and distribution(business) the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity. Service developer: this type of 3PL provider will offer their customers advanced valueadded services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks. The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the companys logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small. y The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.

Advent and Growth of 3PL Industry in India

3PL industrys origin in India can be traced back to mid 1990s. The industry was pioneered by global logistics majors as a part of extending these services to the Indian subsidiaries of multinational companies in automobile, electronics and FMCG sectors. Indian subsidiaries of multinational companies in these sectors took cue from their parent companies and began to outsource a share of their logistics functions to these specialist service providers. Though insignificant in the first few years, Indian 3PL industry is experiencing a rapid growth after year 2000. The number of participants in this industry had grown to be more than 400 by year 2005. The Indian 3PL industry can be divided into three distinct tiers - National Major 3PL companies with nationwide presence, Regional 3PL companies with strong presence in one or two regions, and Small Remote 3PL companies.

3PL Market in India Poised for a Remarkable Growth

The 3PL market in India is still in a relatively nascent stage, with multinational companies in all industries being the predominant users of these services. However, domestic major companies in leading industry sectors have also begun to follow the footsteps of their multinational counterparts, starting with outsourcing their basic logistics functions. Realizing the significant cost reductions and several other benefits gained by these companies, the large numbers of small to medium companies in all the industries are gearing up to use 3PL services in their logistic functions, resulting in a tremendous potential market for the 3PL market in India. The opportunities for growth of 3PL usage could be varied among different types of companies. The multinational companies that are already using 3PL in basic logistic functions might graduate to outsourcing value-added advanced services such as customer support, inbound logistics, and reverse logistics. Whereas, the domestic major companies might increase their 3PL usage in the basic logistic functions and occasionally experiment with the value-added advanced services. On the contrary, the small and medium companies could just begin to use 3PL services for their basic logistic functions. Nevertheless, considering that the most important logistics functions for Indian industries still are transportation and warehousing, which are likely to be outsourced to 3PL in increasing share, a high level of growth is estimated for the Indian 3PL market in the next 5-7 years. The Indian 3PL market, estimated at about US$890.3 billion in 2005, is expected to grow at a compound annual growth rate of 21.9 percent to reach US$3,556.7 million in 2012. Frost & Sullivans research identified that the largest end-user industry for 3PL services as of 2005, is the auto industry. A lot of multinational automobile makers, like Suzuki, Honda, and Ford, have set up manufacturing bases in India, and have been major users of 3PL services. Expansion of manufacturing facilities by most of these companies indicates huge potential for 3PL services in this industry. Other sectors that have shown substantial contribution to 3PL market and significant growth potential include the information technology (IT) hardware and electronics, Fast Moving Consumer Goods (FMCG), and retail sectors.
y Some Factors That are Driving Indian Logistics towards 3PL

Value Added Tax (VAT), the Indian Governments proposed uniform tax regime, is expected to drive Indian industries towards using more 3PL services. Introduced partially in 2005, a full implementation of this regime is expected to necessitate having centralized large warehouses in regional hub cities, to achieve best efficiency in logistics. Since building such large warehouses requires huge investments, most Indian companies are likely to outsource the warehousing function, creating immense potential market for 3PL service providers. Leading companies in major industries have already started planning for the new scenario and the required warehousing capacity to be outsourced. Others are expected to follow them soon. The government of Indias increased focus on improving logistics infrastructure is expected to have a huge positive impact on 3PL market. The government has invested US $17 billion to upgrade highway networks, with the implementation of two major projects, namely the Golden Quadrilateral network and the North-South-East-West (NSEW) Corridor. Apart from this, in a

remarkable infrastructure related decision, the government has opened up rail freight operations to private players, thereby creating opportunities for cheaper and faster movement of goods. Transportation by rail is definitely cheaper than by road, as trains are faster and have lower costs per unit distance traveled. This is expected to enable 3PL service providers in offering more costeffective services to clients, thereby increasing the 3PL usage by all industries. Apart from these factors, the increasing list of multinational companies starting operations in India is expected to fuel the growth of 3PL market. Entry of giants like BMW, Flextronics, and Wal-Mart are expected to contribute to considerable growth of 3PL usage in their respective industry sectors. The opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to 3PL market growth. The wide-spread information technology awareness and expertise in India is also expected to help 3PL companies in offering several value added services using IT such as Fleet Management Systems, Warehouse Management Systems, and integrated Supply Chain Management systems.

y Summary of Key Findings

Overall, the results of this study help provide a better understanding of the marketplace for 3PL services and the ways in which providers of such services continue to develop and grow. Considering that the total annual revenues of these companies are currently between $50 billion and $60 billion,5 the services offered by 3PL providers consume a significant portion of overall logistics and supply chain budgets. The following points capture the major findings of this research study: The markets for 3PL services are changing rapidly, with both users and providers moving up the curve toward greater sophistication in their management practices and expectations of each other. While cost, control and service are still a continuing concern, todays marketplace is characterized by the emergence of more meaningful 3PL-customer relationships. Generally speaking, and although many 3PLs have significantly improved their operating practices and range of capabilities, a gap still exists between what customers would like to see, and what they feel has been achieved to date. 3PL providers should now focus on the needs for: capable IT, effective management and relationship processes, global responsiveness, and delivering comprehensive, integrated solutions that create real supply chain savings. Considering that customer demands for performance and sophistication are accelerating, improving these areas is a key imperative for 3PLs.

1.4 Top 10 Logistics Companies of India

S.No

Site

1. 2.

TNT
AFL DHL

3.
Blue Dart

4.
Gati

5.
Safexpress

6.
Ashok Leyland

7.
Agarwal Packers & Movers

8.
DTDC

9.
First Flight

10.

Tracking with GPS

Global Positioning Systems have helped overcome the logistics hurdle for companies in the BPO and public transportation sectors. The adoption of Global Positioning System (GPS) technology in India is growing. Companies in the transportation business use GPS technology to track the direction of vehicles, duration of halts, and to keep a check on over-speeding to ensure the safety of the vehicles, goods and passengers. Recently, thieves made away with a Bangalore Metropolitan Transport Corporation (BMTC) bus. But thanks to the GPS receiver located in the vehicle, BMTC officials were able to recover it the very next day. This is just one example of how technology can help tackle problems confronting the transportation sector. BMTC is among the few public transport organizations to implement a GPS-enabled mechanism in its buses. It plies 34 lakh commuters in 4,000 buses from 1,200 bus stops and makes 56,000 trips per day. Technology has helped BMTC procure accurate information about things such as traffic conditions, the number of people using its buses, and the time taken to cover a route.

Strengths of 3rd Party Logistics (3PL). Benefits

3PL allows a firm to gain competitive advantage via:

y y y y

Allowing firms to focus on developing their Core Competences. Cost competitiveness. Freeing up resources (money). Benefit from the logistics know-how and international distribution networks of specialized 3PL Logistics providers, allowing for superior customer service levels.
y Limitations of 3rd Party Logistics (3PL). Disadvantages and Risks

To implement 3PL successfully, one may need to bear in mind some possible pitfalls:
y y y y

Loss of control over the logistics function (especially for critical parts). More distance from clients. Loss of human touch. Discontinuity of services of 3PL provider. Differences of opinion or perception of the service level of the third party provider.
y Assumptions of 3rd Party Logistics (3PL). Conditions

It can be inferred that the firm engaging this practice is likely:

1. A firm that does not focus on logistics as one of its core competencies. 2. At least a mid-sized corporation such that the logistics cost is substantial enough to justify the engagement of the outsourcing services.
y Logistics operation.

We can break the complex Logistics process down into five smaller areas:
y

y y

Vehicle Tracking and Dispatch involves being able to keep track of the location and the inventory on board every vehicle in the field and having the latest information on its position and operating status. Route Analysis is the operation which aims at minimizing the cost of travel involved in transporting goods from one location to another whether in terms of trips required or time or distance or a combination of these. Warehouse Operations become significant in cost reduction when the operation grows big and each warehouse becomes a very large operation in itself. Facilities and Depot Management involves minimizing waste by considering the locational aspects, the available capacity, the inventory in question and the range or effective covered area of each facility. Routing and Scheduling aims at minimizing all kinds of costs including mileage, overtime and maximizing all attendant benefits including customer satisfaction, adherence to schedules etc.

Vehicle Tracking and Dispatch

As global positioning systems (GPS) become cheaper, their applications is becoming cost effective and widespread. The United States Postal Services has equipped its trucks with radio transmitters and GPSs. The radio transmitters send the location of the truck at specific intervals to the central control where ESRI GIS software interprets the signal and posts it on the town map as symbol. This enables the dispatcher to track the location of this truck and the rest of the fleet in real time. Once other systems like real time traffic monitoring systems become available, the dispatcher could also be able to leverage the real time traffic conditions to modify the route the truck could or should take to minimize delays. In a similar manner retail chain could use a real time or near real time system to monitor its fleet and ensure that vehicles follow their routes and maintain efficiency and schedules. Route Analysis In the United States, annual traffic density figures are available off the shelf for almost all areas and all streets in the United States. We, in India are moving gradually towards a similar market scenario. A route analysis system could utilize this kind of data to generate the most efficient routes that any vehicle should take based on the current inventory load it is carrying. The system could then generate a manifest that has not only the drop-off address but also driving direction and even a map that details that route which the system finds most suitable. ESRI's Arc Logistics Route has such a routing and manifest generation toolkit which allows you to set a tradeoff between time saving which the system uses as a parameter to solve a travelling salesman problem involving all the drop-off locations. The system can also be joined to a inventory control system in ERP software like SAP R/3 which could help create geographically aware inventory 'packets' for delivery taking in to account the locations of the address and the capability of the truck that will service the specific route. Warehouse operations A large warehouse poses the same problems as the routing application that we detailed above. Instead of drop-off locations, now we are talking about shelves as rows of shelves on which certain kinds of goods are stored. Once the inventory control system decides that a certain truck will carry a certain set of goods, a forklift ill then pick up the requisite goods and transport these goods to the truck waiting in the loading bay.

To minimize the waiting time on the part of the truck and the trip distance for the fork lift Sears uses a custom application that does just that. It solves the travelling salesman problem within the warehouse. The savings are substantial.

Facilities and Depot Management This cab be approached from the present and the future points of view. The future view involves analyses for the location of new depots based on factors like source of incoming material and the target market to which the stocks will travel the related communications networks and the fleet required/available to service these requirements. From the present point of view, Arc Logistics Route and Arc/Info could form suitable tools to monitor the present inventory scenario along the supply chain. The software could demonstrate graphically what location has what stocks against what kind of demand allowing the manager to allocate new stocks to areas, which require the new stock. The system could also be programmed to take care of anticipated demand. If summer is approaching, for a soft drink company, getting larger stocks than usual to the consumption centers becomes a priority. If these stocks arrive too early then the holding costs would go up; on the other hand a delay could mean that the competition takes over the market. The system would then present comprehensive data in an easily understandable format for the manager to be able to take an informed decision.

Routing and Scheduling

Finally, the operational routing and scheduling could be handled by the software to cut costs and maximize benefits on an ongoing basis. The term benefits are employed instead of profits because maximizing benefits is a larger term and encompasses intangible benefits like customer goodwill and satisfaction. The routing and scheduling modules will take care of day to day operations, generation of routes and manifests for the various trucks based on their inventory loads and tracking and monitoring the delivery. 1.6 Logistics Operations Optimization for 3PL

Third Party Logistics (3PL) providers are competing worldwide through Logistics Optimization
to reduce costs while achieving high delivery standards. Logistics optimization is currently the biggest opportunity for most companies in order to attain significant reduction in operational costs. It can save 3PL providers up to 10 40% on operational costs by improving decisions such as the optimal selection of inventory placement and transportation modes.

Logistics optimization problem for the Type 1 3PL can be solved with the Vehicle Routing Problem in order to minimize transportation costs. For the Type 2 3PL Company, logistics optimization is achieved by vehicle routing problem and additionally minimizing the inventory carrying costs at their warehouse. A logistics optimization problem starts with defining the network. Figure 1 illustrates a common network with one supply depot and various demand nodes. The Vehicle Routing Problem determines the routes for the network.

Inventory Optimization for Type 2 3PL Providers

For the second type of 3PL, the additional objective is to meet the desired service level and supplying the Economic Order Quantity (EOQ) at the demand nodes. This is done cost effectively by maintaining inventories at the 3PL provider warehouse. This can be achieved by the inventory optimization model with the following objective function:
i. Minimize inventory holding cost, shortage and backlogs

The model minimizes the inventory holding costs ensuring the best feasible solution considering all the constraints. The optimization model considers the following variable and constraints: Demands and EOQ calculations at the delivery nodes Products and/or product groups Penalties on safety stock (Backlog penalties, Shortage penalties) Warehouse Constraints (Warehouse capacity)

 Inventory Constraints (Inventory holding capacity by product and/or product group) Inventory holding costs The output of the model provides the optimum inventory levels by product at the warehouse in order to meet the demands at a certain service level and also minimize the inventory holding cost.

Chapter-2 2.1 VRL Business Overview

We are into the business of transportation and logistics service of goods and transportation of passengers by road. We have a long operating track record of more than two decades in this business. Our chairman Mr.Vijay Sankeshwar has over three decades of experience in the transportation industry. We have also recently forayed into wind power generation and air charter business VRL offer following services which are summarized below 1. Goods Transportation a. Full truck Load

b. Less than full truck Load (Parcel) General Parcel Express Cargo c. Courier d. Passenger Travels 2. Wind Power Generation 3. Air Charter Business

Our Goods Transportation and distribution business is carried across 17 states and 7 Union Territories i.e. Pondicherry, Daman, Silvassa, Chandigarh, Karaikal, Yanam, Mahe covering 649 cities throughout India. We cover the states of Karnataka, Andhra Pradesh, Tamilnadu, Kerala, Maharashtra, Goa, Gujarat, Rajasthan, Punjab, Haryana, Delhi, Himachal Pradesh, Uttar Pradesh, Chhattisgarh, Madhya Pradesh, West Bengal (Kolkata) and Uttarakhand under this business. Our fleet strength as on February 29, 2008 comprises of 2,683 vehicles, all of which are owned by our Company. Our fleet comprises of 2,446 vehicles for goods transportation, 197 vehicles for passenger travels and 40 vehicles for internal use which includes fork lifts, cranes, staff buses, water tankers, diesel tanker, tractors etc.

2.2

Purchase of Vehicle

Presently we own 2446 vehicles for goods transportation. We use our vehicles for the transportation of various kinds of goods including textiles, agricultural products, pharmaceutical products, etc. We are now planning also to transport iron ore from the state of Karnataka. For transporting iron ore and other goods, we require 300 trucks with higher tonnage capacity (more than 15 tonnes).The body of the trucks purchased will be designed in our own body designing unit at Varur. The estimated total cost of 300 trucks is Rs. 5,365.06 Lacs.

DOMESTIC ROAD FREIGHT TRANSPORTATION SERVICE

Overview

Going forward, given the buoyancy in the economy and expected completion of infrastructure projects, the overall freight movement is expected to remain strong. As a result, roadways will further gain market share, backed by its inherent advantages of flexibility and due to the growth in demand from redistribution segment. On the other hand, railways share will decline on

account of capacity constraints, until the dedicated freight corridors are completed. In 2006-07, road transport services comprised nearly 58 per cent of the total freight share, followed by rail transport at around 32 per cent and coastal shipping and pipelines with relatively smaller shares of around 5percent each. As per CRISIL Research roadways expects to continue to dominate freight movement, with share expected to grow to a tidy 61 per cent in 2011-12 (excluding demand from last mile). On the other hand, the share of railways is expected to decline to 29 per cent in 2011-12, on account of capacity constraints during the same period, while the share of pipelines and coastal movements will remain small. Thus, road transport will remain the growing segment, owing to its plus points such as greater coverage, higher flexibility and door-to-door delivery. The sector will enjoy the benefits out of its inherent advantages despite higher effective cost. y Road freight movement: Haulage-wise The road transport sector can be broadly divided into two areas, primary transportation that is, long haul(>800 km), medium haul (350-800 km) and short haul (50-350 km)] and secondary transportation (referred to as last mile distribution with <50 km). In 2006-07, out of the total primary road freight movement (estimated in km terms), long haul contributed close to 20 per cent, medium haul contributed over 55 per cent and short haul around 25 per cent. (Source:CRISIL Research)

y Inherent advantages, infrastructure support give an edge to road transport

Historically, railways has remained a dominant mode of transport in India, over the past few decades, roadways has gained a significant share in the overall traffic movement, while railways has lost its market share. The reasons that have helped roadways gain market share are as follows: Greater coverage as compared to any other mode of transport Higher flexibility in terms of door-to-door delivery, giving it an edge despite higher effective cost Lower risk of handling loss, due to lesser loading and unloading of goods Investments made by the government in the NHDP.

Fuel price and capital cost

The following graph will show the trends in freight rates and diesel prices Fuel costs typically constitute more than 50 per cent of the transport operators total costs; accordingly, anyincrease

in diesel prices may reduce the players operating margins. However, empirically, it has been observed that while the transport operators have been able to pass on the fuel cost increase through higher freight rates when freight availability was at its peak, the same has not been the case
during recessionary periods, when they had to absorb the small changes in diesel prices, and take a toll on their profitability.

y Capital costs (Interest and depreciation): also constitute as a major cost for transport operators; in fact these costs constitute 6-10 per cent of their freight income. Moreover, considering the 95 per cent penetration of finance in new truck sales and over 85 per cent penetration in second hand sales, interest cost have gained significant importance in the cost structure of transport operators over the past few years.

2.3 Factors affecting Road Transportation y Road development

India has a road network of 3.3 million km, one of the largest in the world, of which national highways and state highways together contribute only about 6 per cent. But they carry about 80 per cent of the total road traffic. Given that roads occupy a crucial position in the growth and development of the transportation industry in general and specifically the road transportation segment, the government

undertook several projects to expand the road network nationwide to provide connectivity and mobility in both the rural and urban areas.
Vehicle utilization

Vehicle utilization is measured in terms of the distance covered by the operator during the year. Changes in vehicle utilization significantly affect the cash flows of an operator. A 10 per cent improvement in equipment speed, leads to a 5-7 per cent increase in distance covered during the year, thereby resulting in a 15 per cent improvement in cash flows.

Fuel cost

Fuel cost constitutes a major part of the cost structure of a transport operator; it constitutes between 55-60 per cent of the total costs. Moreover, fuel costs are variable in nature; hence, a small movement in fuel price or fuel efficiency significantly affects the cash flows of the

transport operator. A 10 per cent increase in fuel costs, for instance, increases the total cost by 4 per cent.

y Commission to intermediaries As the small fleet operators depend on intermediaries to procure business, a substantial part of their income is pocketed by the intermediaries as commission. For instance, a 25 per cent fall in broker dependence (from 100 per cent to 75 per cent) results in a rise in cash flows by 135 per cent.

2.4

VRL Strategy y Improving operating efficiency

We have developed a good reputation for the efficiency and quality of transportation services that we offer. While we presently invest in several in-house capabilities to increase efficiency, we also intend to further improve our service standards as we remain committed to providing timely and reliable transportation and logistics services. In order to increase our efficiency levels, we propose to add more transshipment hubs that serve as re-distribution points. This will ensure better utilization of our vehicles, rationalization of routes covered by our vehicles resulting in cost efficiencies. The Issue proceeds will be partly utilized towards set up of additional transshipment hubs.

y Less dependence on hiring the Trucks We prefer to operate our owned trucks and hire trucks only in cases of emergency or in seasons where we see very high demand. The advantages of operating our own trucks are many. Hiring trucks involves a higher cost of operation because we are required to pay for the operation of the truck and also are required to pay the owner for using the truck. Therefore, operating our own

trucks enables us to eliminate the cost payable to the owner of the truck and thus operate at a lower cost. In light of the same, we are not required to pass on the increased costs to our customers and thus are not forced to operate at a high cost. Secondly, there is also no guarantee that vehicles will be available for hire whenever we need the same. In times of scarcity of trucks, the cost of hiring the trucks increases making it non profitable to hire the same. Thirdly we may not get higher volume / higher pay load vehicles from the market.

y Expansion of consignment transportation into East and North East states in India Our passenger transport business currently covers the states of Karnataka, Maharashtra and Tamil Nadu while our goods transport business covers 17 states and 7 Union Territories in India. However except Kolkata we presently do not have any presence in the eastern and north eastern states of India. With the vast expertise in the transport sector, we plan to expand our consignment transport business into Eastern and North Eastern states of India. We have identified growing opportunities in this geographic area. Our expansion into this new geographic zone will establish us as a Pan India integrated transport and logistics service provider.

y Maintain our commitment to time bound delivery. We have developed a reputation for ensuring timely transport of our passengers and have also maintained our commitment towards timely and safe delivery of the consignment in relation to our goods business. As we seek to expand the goods business, our reputation of ensuring timely deliver is very essential and we intend to continue to focus on ensuring timeliness and efficiency. For example we ensure that there are two drivers in a vehicle carrying express cargo or covering a distance of more than 1,000 kilometers. . The same is done to avoid excessive stress on one single driver and the chances of accidents due to stress on drivers is greatly reduced. Also the stoppage time is reduced. We shall continue this practice so as to ensure that neither our passengers nor the goods delivered are affected in any manner. y Renting out space on vehicles to corporate for advertisement
We provide space to corporate for advertising their products on our trucks. Since we cover many states and cities through out India providing this kind of service to the corporate will help them in displaying their products in cities as well as remote areas.

y Information Technology Our information technology division is located in our workshop in Varur. This division oversees thein formation technology requirements of our Company including the computerizing of our branches, hubs and offices. The computerization of our hubs has facilitated mailing of delivery reports and quick flow of information Between different offices, delivery offices and transshipment hubs of our Company. This enables effective coordination and tracking of the consignment. Our information technology division prepares software which are hardware-related such as office automation-related, courier tracking and accounting software. Global Positioning System (GPS) We have developed our own GPS based tracking device which we have installed in selected vehicles. In addition to helping us keep track of the movement of the vehicles, the GPS system also tracks the time spent by the vehicle when not in motion, the location it has stopped in addition to tracking pre assigned route to be followed by the vehicle. This discourages our drivers from not complying with the instructions given to them regarding the route and time sheets that they are required to comply with. Some of the important developments of our information technology division include: Vehicle Maintenance Tracker: This application schedules the maintenance of the entire fleet and generates reminders and alerts automatically when any maintenance events become due. These reminders help in avoiding the premature failure and the excess consumption of parts. Vehicle Traffic Application: This application controls the entire movement of the vehicles and keeps track of the drivers performances in terms of the fuel average and the distance travelled. This also tracks the advance amount paid to the drivers and the diesel vouchers issued for en route fuelling. This application is online and ensures access to this data from any part of the world. Consignment Delivery Application: This application is used in delivery branches to raise online cash receipts and track the consignment. This application also maintains a record of the stock in our Companys godowns and is used to answer queries from the customers regarding the

arrival of consignments. The records of stock and the delivery particulars are updated every 24 hours.

2.5 WAREHOUSING & 3 PL SOLUTIONS

"Tailor-Made Multi-Locational Service" Seamless logistics solutions organization encompassing various components like supply chain management, inventory control management, warehousing management, JIT movement with an emphasis on CRM. Integrated 3PL solution Inventory Management Warehousing facility at various locations Communication & IT Service Intra-city & re-distribution services SKU management Vendor management Order Management

2.6 VRL EXPRESS CARGO "Anywhere Anytime" Delivery on time zero excuses. This mantra is driving force behind the success of VRL Express Cargo.

Surface, Train & Air Cargo mode services Dedicated company owned vehicles Door pick-up and door delivery On-time delivery Online track & trace facility 24X365 days operations

Chapter-3 Cost Minimization .

Total Logistic Cost are the sum of the inventory ,transportation and facility cost for supply chain network. Below are the things where VRL Pumping money for operation 1>Vehicle Purchase 2>Setting of Transportation Hub 3> Equipments for the HSD pump, its fabrications and installation charges 4> Construction of underground tank and other civil work 5> General Corporate Purposes 6> Expenses of the Issue 7>Inventory cost

Major cost involved in VRL Transportation

Fuel costs: Typically constitute more than 50 per cent of the transport operators total costs;

accordingly, any increase in diesel prices may reduce the players operating margins. However, empirically, it has been observed that while the transport operators have been able to pass on the fuel cost increase through higher freight rates when freight availability was at its peak, the same has not been the case during recessionary periods, when they had to absorb the small changes in diesel prices, and take a toll on their profitability.
Capital costs :(Interest and depreciation): also constitute as a major cost for transport operators;

in fact these costs constitute 6-10 per cent of their freight income. Moreover, considering the 95 percent penetration of finance in new truck sales and over 85 per cent penetration in second hand sales, interest cost have gained significant importance in the cost structure of transport operators over the past few years.

y Vehicle-mix and fuel efficiency Transport operators can maximize their profitability by maintaining a suitable vehicle mix, given the existing freight availability, its range of operations, type of freight carried and contracts with customers. Since the late nineties, the preference for higher gross vehicle weight commercial vehicles has been increasing, as they are more profitable with their higher payload capacity and relatively better fuel cost economics.

y Commission to intermediaries As the small fleet operators depend on intermediaries to procure business, a substantial part of their income is pocketed by the intermediaries as commission. For instance, a 25 per cent fall in broker dependence (from 100 per cent to 75 per cent) results in a rise in cash flows by 135 percent.

Ten Dimensions of Logistics Effectiveness:

Suggestion for Cost minimization 3.1 The fuel efficient strategies

Experiences have shown that there are a few common improvements to be made, which can significantly reduce the emissions, so the list of the best possible advice to reduce the emissions rate would be: y 3.1.1 Maintain up-to-the-minute diagnostic status A well-maintained vehicle performs better on the road, decreases maintenance costs, improves fuel efficiency, and reduces carbon emissions. y 3.1.2 Enable connectivity and real-time communication The connectivity between mobile workforce, back-office (dispatcher/call center operator/scheduler or supervisor) and a customer is a critical component in the effectiveness of the overall workforce management and for successful short or long term decision making. The information flow between the back-end office and driver is very important; real-time communications enable efficient collaboration and cooperation. It is not simply a two-way dialogue between driver and dispatcher; rather it involves sending mission critical, real-time information out to the field, information that is drawn from across the enterprise and the extended supply chain. y 3.1.3 Decrease idling times Drivers often allow their engines to idle, serving as a power source for heating/AC, ventilation, food preparation and storage, lighting and entertainment. Idling quickly

consumes fuel allocated for the drivers delivery route according to estimated miles traveled. Mobile asset management system can provide detailed reports of idling patterns, alarm the control center of the ongoing idling, and reveal the situations where fuel savings and emissions reductions can be maximized while minimally affecting operations (Integration of energy efficient devices ).

y 3.1.4 Speed monitoring Generate alerts when vehicles arent operating at peak efficiency. Its no surprise that taking it slow can help to substantially reduce fuel consumption. According to www. fueleconomy.gov, highway speeds in excess of 60mph greatly decrease vehicles fuel efficiency, accounting for a decrease in fuel efficiency of up to 23% for every 5mph over the 60mph speed limit.

y 3.1.5 Maximize load efficiency Carrying excess weight places unnecessary strain on a vehicles engine and greatly affects its fuel efficiency. With sensors and RFID tags in place, fl eet operators know exactly how much cargo a vehicle is carrying at any given time.

y 3.1.6 Provide expense management capabilities via gas card integration Many fuel providers offer savings to frequent users via gas cards or corporate accounts. Some Expense Management solutions provide convenient tools for recording and compiling all trip-related expenses. Costs are imported from various sources (fuel payment systems, road toll payment systems, credit cards), processed and allocated to individual vehicles and/or drivers. This way, all of the expenses are collected in a singular table, optimizing the expense management process. A vehicle costs report can be generated for a specific vehicle model and production year making it possible for the analysis to show when a vehicles maintaining and repairing is more costly than its replacement. y 3.1.7 Offer valuable intelligence on when to upgrade to fuel-efficient vehicles Whenever possible, invest in modern fuel-efficient vehicles. Fleets leveraging hybrid technology has reported savings of thousands of dollars per vehicle. One of the hardest decisions in fleet management is when to replace the vehicle. Along with strictly financial factors, you should also consider non-financial, non-qualitative factors like company image, employee

morale, employee retention and safety as part of a replacement decision. A common mistake in thinking is that once an asset is purchased and fully depreciated, it costs nothing to own. This is not true, because the vehicle still requires fueling and maintenance. The point where the diminishing cost of ownership is offset by the increasing cost of maintenance is the point where it is most wise to replace the vehicle with a new one.

Ownership Cost Maintenance Cost Total cost of Ownership

y 3.1.8 Practice smart and efficient day-to-day usage and maintenance An efficient mobile asset management system must keep track of the maintenance, advancing from Preventive to Predictive Maintenance. This allows the exact maintenance intervals are predicted from the information collected through provided sensors and On Board Diagnostics connectivity, which lead to reduction in unplanned downtime, optimized inventory and improved manpower utilization. y 3.1.9 Provide real-time tire pressure data. Proper tire inflation not only improves gas mileage (save as much as two weeks worth of fuel per year) and reduces emissions but also yields several other benefits including improved vehicle and braking performance and an increase in tire life. Bearing in mind, that under-inflated tires (inflated by 2psi) can increase the fuel consumption by 13%, while at the same time exposing the tire to failure and damage (an average cost of tire failure is 750$/accident), one can easily see, that a proper tire inflation and maintenance scheduling warning system, can be very efficient in improving the fuel efficiency of the fleet. y 3.1.10 Optimize routes and scheduling Truly integrated mobile asset management systems can provide GIS and schedule feedback data that can be fed back into routing and scheduling software systems and dramatically improve the performance of these systems. An Intelligent transport solution should generate fastest route in different time of a day, thus making it possible for the fleet operator to give the best advice to the driver at any given moment. The dynamic routing allows the operator to (in the case of emergency or failure) locate the

nearest vehicle on the map and send it to the desired location trough the fastest route, thus optimizing the reaction time of the fleet as well as its overall efficiency.

y 3.1.11 Managing driver behavior

A properly trained driver can be a companys best asset in the fight to increase vehicle fuel efficiency and decrease emissions. Mobile asset management systems provide drivers and operators with the most up-to-date information and metrics in fuel-saving and emission-reduction techniques (e.g., keep tires inflated, drive the posted speed limit, limit excess vehicle weight), based directly on the vehicle ID, that is collected through the monitoring of the every different, company-specific type of vehicle. Carefully collecting the information on every possible vehicle type, to provide our clients with the best possible estimation of the DRIVER SCORE, which takes into account many of the metrics listed above. The driver scores are collected through monitoring of the driver attributes, which are then related back to the driver score components to create a complete picture of driver performance. The complete driver performance scoring allows management to boil down an operators fuel. efficiency or emission-reduction performance into one number that can be efficiently compared with either that same operator at a different date or across the board with other operators. The improvement of the driver score, and thus the reduction of his emissions and fuel consumption, would literally mean the improvement of the driving habits. But this is only the first step to the best results, achieving the best possible performance with the given vehicle. The improvement of the driver score, and thus the reduction of his emissions and fuel consumption, would literally mean the improvement of the driving habits. But this is only the first step to the best results, achieving the best possible performance with the given vehicle. y 3.1.12 Estimate your own potential fuel savings Numbers are based on driving 100,000 miles per year and purchasing fuel at a price of $3.00 per gallon US and $5.00 per gallon in EU.
Approximate yearly savings on fuel expenses ($) for US

mpg 6,5 6,5 7 7,5

6,5 3,845 / / /

7 7,143 3,297 / /

7,5 10,0000 6,154 2,857 /

8 12,500 8,654 5,357 2,500

Approximate yearly savings on fuel expenses ($) - for EU

mpg 6 6,5 7 7,5

6,5 6,495 / / /

7 11,905 3,297 / /

7,5 16665 6,154 4,760 /

8 20830 8,654 8,925 4,165

mpg 6,5 7 7,5 8 6 6,405 11,905 16,665 20,830 6,5 / 5,500 10,260 14,425 7 / / 4,760 8,925 7,5 / / / 4,165 If you improve your fuel economy from 6 mpg to 7 mpg (16.7%), you will save $11,905 per year on driving 100,000 miles.

3.2

Truck Purchase

VRL has to look for outsourcing some of their transportation to other providers like 2PL who are specialized in these activites.VRL is pumping more cash for purchase of truck for running fleet and maintaince of these trucks. By outsourcing partial of their of work to providers like 2PL, they can drastically reduce some of their operation cost which is the key point of supply chain.

y Main Business owner - MB: It is the main business around which logistics processes are built: i.e. mobile phone manufacturer, editors, automotive parts manufacturer, etc. y Fourth Party Logistics Service Provider - 4PL: General contractors; It manages the entire process integrating different added value services offered to logistics service providers or to other actors.

The 4PL assembles and manage resources, knowledge and technology of other service providers (especially of other logistics service providers). The business model of 4PL can be defined as Virtual Logistics Provider. 4PL name has been proposed by Accenture.
y

Third Party Logistics Service Provider - 3PL: It is a service operator who manages the main part of the logistic process outsourced by the MB outsourcing activities to 1PL or 2PL (or other 3PLs). It manage the goods flow between different organizations, from the transportation to the warehousing. Its main objective is the minimization of the costs while respecting contract service levels.

Second Party Logistics Service Provider - 2PL: It manages one activity (or sub process) of the logistics process. An example is the Transportation company. First Party Logistics Provider - 1PL: It execute a logistics activity. An example is the Truck driver. Examples of Logistics Service Operators:

y 4PL:
y y y y

Messaggerie Musicali, Amazon, lulu Many 3PLs are moving towards 4PL...

3PL:
y y y y

DHL, TNT, UPS, SDA.

2PL:
y y

Bartolini, Barsanti.

1PL: Owner of single resources such as Vehicles, Warehouses, handling vehicles, etc.

3.3 Reduction in Inventory cost

y 3.3.1 Use of RF Mobile in warehousing operation.

If your role in the supply chain is to have stock immediately available to meet your customers' needs, then it is time to take a closer look at best practices for RF (radio frequency wireless). As a distributor or 3PL, know that RF technology advances are now at the forefront of internal operational improvements in wholesale distribution. RF is a mature technology and has been implemented in thousands of facilities. There is little question, therefore, that the modern warehouse is wireless, incorporating paperless receiving, put away, picking, shipping and inventory counting. (According to Pembroke Consulting, well over 2/3rds of industrial distributors already use wireless local area networks). we're going to look at how to use RF in your operation to respond to the not uncommon scenario in which your customers demand almost 100% order accuracy (often comprised of smaller and more frequent shipments) at the same time that you're asked (by management or ownership, or your lenders if you're the owner) to increase productivity and reduce costs. Cost reduction is key because an analysis of your labor costs will likely show that picking and packing are two of the most labor intensive and costly jobs in your operation. (This is certainly true if you're picking and packing without the aid of automation). Does the following description characterize your operation? At each step, employees record items, quantities and locations on paper. This type of manual picking and packing is a primary source of errors, expense, and decreased efficiency.
y Why Wireless

While it is possible to address errors, expense, and decreased efficiency in other ways, RF automation could be the right solution for you. Productivity improvements materialize due to substituting technology for potentially error-prone human activities such as order processing, inventory control, or picking. Data can move directly from the warehouse floor into your business system rather than via process of manual counting and recording and entering information into the system. Information from hand-held wireless scanners provides real-time stock information and can even eliminate the need for manual inventory counting. To make data continually available to employees whenever it is needed reduces lapses in

productivity and virtually eliminates wasteful trips to a stationary terminal, docking station or dispatch location to grab pick or put away instructions. If two pickers can do the previous work of three pickers, then youre picking productivity has just jumped 50%. If this means that your picking accuracy increases from 95% to over 99%, your customers will be happier.
y Wireless Starts with a Barcode?

The bar code is the heart of the modern warehouse or distribution center. Barcodes help identify items when they arrive, when they are later picked to fill orders and shipped out, and when they are counted during cycle or annual physical counts. The best way to capture and manage the information on these barcode labels, particularly if you want to quickly and accurately ship thousands of items, is with RF technology. Using RF barcode scanning to capture real-time data and send it wirelessly to back-end operations, nancial, and customer service systems is the standard for today's warehouse. While simplicity is one of the key reasons, RF networks also offer great efficiency by enabling warehouse employees to interact with the system directly from the point of activity. y 3.3.2 Benefits RF wireless systems are increasingly common because the advantages generally far outweigh the initial costs. As companies become more experienced and adept using the technology, these increases in productivity, inventory accuracy and order visibility progressively reduce overall costs every year. Here is a laundry list of what you can gain:
Greater Efficiency and Throughput

With a streamlined paperless wireless system, you should also be able to track barcoded products from receiving, put away, and picking, to packing, shipment confirmation, and cycle counting. These greater efficiencies should allow you to handle more orders during peak periods.
Increased Storage Capacity/Greater Flexibility in Inventory Allocation

With greater picking, packing, and put away flexibility, you should be able to escape the clutches of fixed inventory allocation by moving to a random storage model. Put away can become based on the specific space requirements for each product, something that will boost your space utilization and increase the percentage of your potential storage capacity.
Lower Head Counts (Permanent and Seasonal)

By employing automated data capture, you can immediately reduce the number of employees who were previously doing redundant manual data entry. You should also be able to reduce seasonal or temporary labor costs by providing novice pickers with more

accurate and intelligent routing/pick lists that will greatly increase productivity.
Faster Employee Training

By relying on the system accuracy and ease-of-use of RF terminals, you should be able to train employees faster. This is especially important if you use a temporary workforce and loads of overtime to meet seasonal or demand peaks.
Greater Data Entry and Accuracy

Barcode scanners liberate users from the limitations and errors of hand recording which requires printed reports and unnecessary data re-entry. With multiple processes available within a single application, the user is able to accurately complete tasks in a timely fashion.

Faster Inventory Counts

Counting is faster because errors have previously been eliminated and safety stock levels reduced (due to the confidence of having more accurate real-time inventory data).

Faster Error Correction

Depending on your Warehouse Management System (WMS), warehouse staff can obtain real-time feedback, which enables problems to be confirmed and investigated quickly. For instance, if too much product arrives from a supplier, exceeding the purchase order, the system can alert the buyer or receiver that it is invalid. The extra cartons can be immediately set aside or refused. y
Reduced Travel Time by Warehouse Personnel

Wireless can help reduce travel time for warehouse personnel by enabling companies to distribute work to individual employees by zones. y Inventory Management Once the goods are put away, they become inventory. Anyone with more than a year in the warehousing industry is likely familiar with the drudgery that is the laborious task of physical inventory. Using sheets of paper and pencils is both inefficient and inaccurate. In contrast, the RF version of inventory management is much easier to perform, faster and nearly eliminates human error. Because product movements have been recorded in real time, RF systems provide accurate, real-time inventory information with the current inventory data available. The result is huge time savings over manual paper counting/data entry systems. Just think of the time difference when grocery shopping for the checkout clerk to either scan a product bar code or manually type it in.

TIP: By implementing an RF system in combination with a WMS, you should be able to eliminate the annual inventory count and much of your cycle counting activity. The non-wireless/classic inventory scenario requires employees to count (some cynics might say interpret) part and stock numbers and then mark them and the respective quantities on counting sheets. The much more elegant RF scenario has the employee scanning an item's bin or shelf label, and then either manually counting the quantity or scanning the each item within a bin. One key result is that you can generate inventory reports much faster and identify discrepancies. The non-wireless/classic inventory scenario requires employees to count (some cynics might say interpret) part and stock numbers and then mark them and the respective quantities on counting sheets. The much more elegant RF scenario has the employee scanning an item's bin or shelf label, and then either manually counting the quantity or scanning the each item within a bin. One key result is that you can generate inventory reports much faster and identify discrepancies.
TIP: An RF system allows stock retrieval and replenishment to be combined, reducing the number

of movements involved in the internal transport of material and the number of empty runs. Integrating RF automation into your operation by moving your operation from a completely manual system involves more than just installing an RF system. It also involves a process learning curve for the employees who will operate the equipment. Make sure that you include training in your project planning. While training should be fairly quick, there are process changes (call them improvements) that you will have to implement.

3.4 Freight Payment and Audit Services as Growth Strategy Solution for minimizing operation cost.
One approach that 3PLs can take to position themselves for growth is to partner with a freight payment and audit company to handle back-office freight payment processing. Leading freight payment and audit companies are abreast of the latest technological advances and utilize best practices to manage their business. Partnering with an outside provider can benefit your company in a variety of ways.

Cost Savings

Automation of freight payment and audit services can improve manual or substandard processes, which helps 3PLs realize cost savings. And these savings can be significant. Companies can save up to 60% in processing costs, and transportation savings can be as much as 7% with a pre-payment audit.
Retention of Current Clients

3PLs that offer a substandard freight payment and audit service can increase the retention of current clients by providing a better solution to their clients. Not all freight payment solutions are alike. High quality freight payment and audit solutions should include business flexibility, robust features and extensive management reporting tools. y
Monitoring of Progress

Does the freight payment and audit company continue to stay involved and measure progress? Leading freight payment companies show 3PLs how their services help them meet their business objectives. If clear objectives are defined, metrics will be developed to measure those objectives. Monthly or quarterly scorecards, along with regular meetings, help both parties think strategically about whether or not the business objectives are being met, and what improvements can be made on both ends to ensure success.

3.5

Model for cost Minimization.

Logistics optimization is typically based on algorithms that optimize logistics costs based on multiple variables. Essentially, optimization models balance the lower inventory and warehousing investment costs associated with centralized network designs against the lower transportation costs associated with decentralized network designs to create the optimal combination. The theoretical optimal design is then adapted to take into consideration sunk facility costs, customer response time targets, and other customer or corporate requirements. One of the most important variables in logistics improvement initiatives is transportation cost. Given the dramatic fuel cost increases of the past two years, combined with the national truck driver shortages (and associated cost increases), there is very likely a need for Logistics managers to re-evaluate their logistics strategies and network design. y 3.5.1 Transportation model

Fuel cost is one of the major cost that is involved in operation cost of VRL Logistics .These cost has to be drastically come down to see profit in logistics operation. I here use transportation model for minimizing the cost of operation and as well as fuel cost. Transportation plays a vital role in the movement of raw materials and finished goods from one place to another. Trucks play a vital role in the movement of materials and are indispensable part of almost every shipment, both domestic and international. On the average, thirty-nine percent of the total logistics cost is spent on transportation. Therefore reducing the transportation cost may significantly reduce the total logistics cost.

In todays fast moving world, products are produced in one region and consumed in other, due to cheap production cost, availability of cheap labor, etc. The product produced in one region have to reach its consumers who are located in different regions,because of this reason transportation plays a major role in supply chain for transporting raw materials and finished goods from suppliers to retailer. Transportation choices have a large impact on supply chain responsiveness and efficiency. Improved transport planning could therefore significantly reduce transport costs y Truckload Transportation and Less-than-Truckload Transportation

There are two different truck shipments, namely truckload (TL) and less-than truckload (LTL) shipments. Shipment that is charged by its maximum capacity, either by weight or cube is called a TL shipment. Trucking company which dedicates trailers to a single shippers cargo is called a TL carrier. TL carriers charge for the full truck irrespective of the quantity shipped by the shipper. Carriers give a rate reduction for shipping a TL size shipment and the rates vary with distance. The general rule, which influence the transportation cost for any mode of transportation is higher the quantity shipped, lower will be the transportation cost . The quantity of freight required in filling a trailer to truck load capacity is usually more than 10,000 pounds. In less-than truckload the cost of the freight will usually depend upon the weight of the freight shipped and the cost of shipment varies with distance. Trucking company that consolidates LTL cargo for multiple destinations on one vehicle is called LTL carriers . Unit shipping cost is less for TL if the truck is filled to its maximum capacity. The unit shipping cost of LTL is bit high when compared to TL. TL is more profitable for long distance shipment. Road transport has the disadvantage of cargo weight limitations and cannot carry heavy containers, but its door-to-door delivery is convenient to production schedules of some industries particularly the textiles/garments Recommendation y y Monitor and study the reasons for the wide range of prices on the road service. Provide technical assistance to support and train personnel of the Road Transporters

Association. y Establish Route Management Groups (RMGs) with neighboring states on each transport Corridor.

Transportation problems are encountered in physical distribution of goods. The objective here is to minimize the cost associated with transportation. The details of this model with results I will be explaining in Result section

3.6 Logistics Network Design.

Logistics network design is concerned with the determination of the number and location of warehouses and production plants, allocation of customer demand points to warehouses, and allocation of warehouses to production plants. The optimal configuration must be able to deliver the products to the customers at the least cost (commonly used objective) while satisfying the service level requirements. Therefore, 3PL companies must have the capability to design cost effective and efficient networks to distribute the products for their clients .The three models encompass the following areas: y y
y

Logistics network design with differentiated delivery lead time Logistics network design with price discount Consolidated logistics network design using consolidation hubs

The 3PL company wanted to explore the possibility of designing the network by segmenting customers according to their delivery lead time, which is defined as the time delay allowed by the customer, from the time the order is placed to the time the order is received. They also wanted to study the use of price discount to entice customers to accept a longer delivery lead time and move from one segment to the other, thereby improving the profit to run the network and distribute the products. Logistics network design with differentiated delivery lead time, and logistics network design with price discount are applicable to managing the order fulfillment for brand owners, whereas, consolidated network design using consolidation hubs is applicable to managing suppliers for manufacturers. y 3.6.1 Logistics network design with differentiated delivery lead time

Logistics network design has been referred to as facility location problems in literature. Location theory was first introduced by Alfred Weber (1909) who considered the problem of locating a

single warehouse among customers to minimize total distance between warehouse and customers. The simplest location problem deals with minimizing the network cost for a single Commodity with unlimited facility and flow capacities and linear cost.

One way to ensure that demand is satisfied on time is to include the time dimension in location problem. OKelly (1986) addressed the location of two interacting hubs and the objective was to minimize the sum of travel times between every pair of customers. Another approach to take care of service level requirement is to use a product specific delivery delay bound, where the average time taken to deliver the product, summed over all customers and warehouses, must be less than the bound. This idea was discussed in Geoffrion and Graves (1974). Kolen (1983) relaxed the distance constraint and solved the minimum cost partial covering problem where the objective is to minimize the facility setup costs and a penalty cost for not serving some demand points. In this case, the service level requirement was converted into a penalty cost in the objective function, for not satisfying demand Most logistics network design models have been developed assuming the customer demand to be exogenous and defined as a uniform quantity for each product, independent of the service time. In this section, we focus on modeling a two-echelon supply chain with differentiated demand-lead-time to support decision making for logistics network design. The main objectives are, to illustrate the benefits of segmenting customers and employing facility grouping method, and to derive managerial insights from the network design decision making process in response to increasing lost sales cost. The assumptions include, Single product with deterministic demand Quantity shipped per trip is the same for every trip between an origin destination (O-D) pair Shipping frequency is assumed to be higher for an O-D pair which is closer together, and lower for an O-D pair which is further apart Transportation costs are modeled with a piecewise linear concave cost function with two-segment to encourage freight consolidation

 Inventory holding cost is approximated to be linear with the amount of flow through the facility Inventory holding cost per unit is assumed higher at local warehouse than at distribution hub Capacity constraints are ignored The two-echelon supply chain is depicted in Figure 4 below, with some of the parameters and decision variables

Figure 4: Two-echelon Supply Chain

Before we study the model, let us understand how the facility grouping method is employed. The facility grouping method is the method by which we denote the facilities that can serve a customer location within a short LT interval. Consider two customer locations served by six possible facilities as shown in Figure 5. At customer location 1, the demand is split into two classes, where the short LT class needs to be satisfied in less than 2 days, and the long LT class needs to be satisfied in less than 6 days. The X indicates the number of days required for the facility to serve the customer. As an example, facility 3 can

serve customer location 1 in 1 day and facility 1 can serve customer location 1 in 2 days; thus, these two facilities can serve the short LT demand at location 1. As such, we set Sf1S to be 1 for facilities 1 and 3 and 0 for the other facilities. At customer location 2, the demand classes are defined such that the requirements are 3 day service for the short LT class and 6 day service for the long LT class. Similarly, we set Sf2S to be 1 for facilities 2, 5 and 6, and 0 for the other facilities. We can extend this facility grouping method to consider any number of demand classes, and it also offers the flexibility in defining different short or long lead times for each customer location. Most importantly, it overcomes the difficulty of including lead time consideration in network modeling.

Figure 5: Facility Grouping Method Illustration

Result- : BENEFITS OF DEMAND SEGMENTATION

The results in this section seek to illustrate the benefits of segmenting customers and using the multiple-facility grouping method. The benefits can be exemplified by a simple network involving one hub, one local warehouse and one customer location in which there are two classes

of demand. Without segmenting the customers by demand class, the network will have the structure in either Case A or Case B as shown in Figure.

Figure 6

Segmenting Versus Not Segmenting Customers

In Case A, all customers get short LT delivery service from the warehouse (WH) while for Case B, only long LT delivery service from the hub will be provided, which will result in losing the short LT customers. In Case C, where the customers are segmented, the short LT customers are served from WH and the long LT customers are served from hub. Case A will result in excess cost incurred to serve long LT demand using the local warehouse, while Case B will incur potential lost sales when the short LT demand cannot be satisfied on time. With segmentation (Case C), customers at the location are appropriately assigned to be served either from the local warehouse or hub to meet their demand lead time. Comparing cases A and C, there is obvious network cost savings; while comparing cases B and C, adding a local WH in Case C to serve the short LT customer must be balanced with the potential lost sales cost incurred in Case B. The network designs with demand segmentation (Case C) will contain a larger feasible set which incorporates both Case A and Case B. To illustrate quantitatively, we implement our model on a simple supply chain comprising one hub, five customer locations and five corresponding warehouse locations as shown in Figure 7. We consider two different demand scenarios, Scenario 1 = 30% Long LT demand, 70% Short LT demand Scenario 2 = 70% Long LT demand, 30% Short LT demand

We will compare the results of network segmentation for scenarios 1 and 2 with networks without segmentation, namely Case A (both demand classes get short LT service) and Case B (short LT demand is lost; long LT demand is served).

Fig:7 Supply Chain Network Model for Quantitative Analysis We aim to compute the following measures, a) Measure_1 = percent network cost savings comparing network with segmentation (Case C) with Case A for the two demand scenarios, Measure_1= NWA NWC / NWA Where, NWA = network cost for Case A NWC = network cost for segmented demand scenario 1 or 2 b) Measure_2 = percent network cost savings comparing network with segmentation (Case C) with Case B for the two demand scenarios, (where the cost for Case B is the network cost to serve the long LT demand, plus the lost sales cost for not serving the short LT demand.), Measure_2= NWB - NWC / NWB

Where, NWB = network cost for Case B NWC = network cost for segmented demand scenario 1 or 2 In this area, we permit a price discount as a means to entice customers to move from the short LT class to the long LT class. Such a consideration can be applied in industries where different customers have different priorities. For example in the chemical dye industry, small textile mills tend to be more lead-time sensitive while the bigger textile mills are more price sensitive, and could be enticed by price discount to accept a longer delivery lead time. We will discuss here the single-location model which becomes the fundamental building block for the analysis of larger networks.

3.6.2 Logistics network design with price discount

In order to establish if price discount is indeed an effective mechanism for improving the performance of a network design, we are motivated to find out, When is a price discount helpful? How much of the short LT demand should be enticed to move to the long LT class? Should the local warehouse be opened to serve the remaining short LT demand, or closed such that the remaining short LT demand is lost? What are there necessary conditions to satisfy when offering or not offering price discount? In the next t sections, we will discuss the single-location model which becomes the fundamental building block for the analysis of larger networks.

SINGLE-LOCATION MODEL
We first consider a single-location model with one hub, one warehouse and one corresponding customer location, to gain insights into the tradeoffs that arise when considering logistics network design with price discount. Our intent is to use this model to understand the possible network designs which can be generated. This model becomes an important building block for the larger network model.

Figure:8
The assumptions include: Single product with deterministic demand D at customer location An initial state that all of the demand has short LT requirements Unit price charged to customers receiving short LT delivery PS is known and given Capacity constraints are ignored The given parameters include: Zk, Zj = annual fixed cost of opening hub k and warehouse j respectively QS, QL = unit cost incurred to satisfy demand from the warehouse and the hub, respectively. We assume that the warehouse can service customers within the short LT, while the hub services customers within the long LT. PS = unit price charged to customers receiving short LT delivery D = total annual demand at customer location. The decision variables include, PL = unit price charged to customers for accepting long LT delivery DS, DL = amount of short and long LT annual demand respectively We consider three possible network designs, as shown in Figure 21. The optimal network design will be the one which gives the highest net profit. No-Discount This is the base case in which there is no price discount and all demand is served from the local warehouse.

 WH-Open This is the case in which we find the optimal price discount that segments the customers into two classes; the hub serves the long LT customers, while the local warehouse is open to serve the remaining short LT customers. WH-Closed This is the case in which we close the local warehouse and offer a price discount to entice some or all the customers to accept the long delivery LT provided by the hub. Any remaining short LT demand is lost.

Figure 21: Three Possible Network Designs

For each of the three possible network designs, we model the net profit equation and derive the demand conditions necessary to generate a positive net profit. No-Discount Revenue = PSD Cost = QSD + Zk + Zj Net Profit, G0 = Revenue Cost G0 = (PS QS)D (Zk + Zj) (1) To generate positive net profit, G0 > 0, we need for D>(Zk+Zj) /(PSQS) (2) Equation (2) shows that the demand value at the customer location must be greater than the RHS value, to ensure that the network is profitable for No-Discount network design.

Figure 22: No-Discount

Base Case

WH-Open Revenue = PSDS + PLDL Cost = QSDS + QLDL + Zk + Zj Net Profit, G1 = Revenue Cost G1 = (PS QS)DS + (PL-QL)DL (Zk + Zj) .(3) Where DS + DL = D Again, to generate positive net profit, G1 > 0, therefore, D> (Zk+Zj) (PLQL) DL/ (PSQS) +DL. (4) Equation (4) shows that the demand value at the customer location must be greater than the RHS value, to ensure that the network is profitable for WH-Open network design. However, the RHS of equation (4) is not a fixed value, but it depends on the optimal values of the decision variables PL and DL.

Figure 23: WH-Open Price Discount with Local Warehouse Open

WH-Closed Revenue = PLDL

Cost = QLDL + Zk Net Profit, G2 = Revenue Cost G2 = (PL QL)DL Zk (D DL) LS (5) Where, LS = unit lost sales cost for the remaining short LT demand To generate positive net profit, G2 > 0, therefore, D L > Z k + DL S/(P L Q L + L S )--------------------------------(6) And we note that, D DL (7) Equation (6) shows that the long LT demand must be greater than the RHS value, to ensure that the network is profitable for WH-Closed network design. But the long LT demand will depend on the pricing decisions.

Figure 24: WH-Closed

Price Discount with Local Warehouse Closed

3.6.3 LOGISTICS NETWORK DESIGN USING CONSOLIDATION HUBS

Logistics network design (LND) has different meaning for a company that manages its own logistics function and for a 3PL company that manages the logistics function for multiple clients. For the former, LND is about designing a network to optimally support its own supply chain, so as to deliver good performance. For the 3PL company, LND is about maximizing the utilization of its own network to support the supply chains of multiple clients, and yet be able to deliver good performance for each client. On one hand, the 3PL tries to provide customized solutions for its client, while on the other hand, it tries to maximize consolidation in terms of freight, warehouse and inventory, using a single network. Consider a 3PL that manages the suppliers for two clients. In a traditional setting (Figure 30a), the 3PL would customize the network design for separate clients. Here, the 3PL will allocate a dedicated warehouse each to manage the inventories of the components required by each set of manufacturing plants (known as the supply hub concept). The suppliers for each set of manufacturing plants will ship their

components directly to the dedicated warehouse, no matter how far they are located. The network suffers as, Suppliers do not have economies of scale in long haul LTL transportation, and long LTL transportation are very expensive The 3PL is not able to achieve consolidation. Visibility from the supplier to warehouse is not easily available By locating consolidation hubs appropriately (Figure 30b), the 3PL can design a consolidated network to serve the two clients together. Here, an appropriate number of consolidation hubs are located near to the suppliers. Suppliers only need to ship their components to a nearby hub, and the hubs will consolidate all the components bound for the same warehouse before shipping. Such a consolidated design is expected to deliver a 3-partywin-win-win solution. Suppliers win because they need to deliver components to a nearer location on LTL rates which is more economical when compared to long haul LTL shipping rates. 3PL wins because it can integrate the network of the two clients and improve consolidation in shipping. With the consolidation hubs, the 3PL can have better control of the inventories coming in from the suppliers, since any wrong deliveries or inferior quality components can be returned to the suppliers quickly. Also, this advantage gives their clients greater confidence in allowing the 3PL to manage the network. The manufacturer wins because it is able to achieve advance information on inventories of the components available once the supplier components reach the consolidation hubs. This advance information helps to reduce uncertainty in the assembly plan.

Figures 30a and 30b : Locating Consolidation Hubs

Designing such a consolidated network to serve multiple clients requires coordinating several aspects intrinsic to the distribution of the multiple components within the network, to make sure that the right amounts of components are required from the suppliers; the right amounts of inventories are carried at the warehouses; the right amounts of components are replenished from the warehouse to the manufacturers. Such a network design is complex because the optimal decision to locate the hubs and using the optimal shipping option cannot be decided without proper analysis. It is therefore a challenge to formulate a representative model to encompass all these aspects together, interrelating one aspect with another, and yet able to overcome the numerous complexities expected. When providing complete business solutions to its clients, a 3PL firm designs a dedicated logistics network for each client to effectively manage storage, distribution and inventories. With several clients, the 3PL is faced with the challenge of maintaining adaptability to specific customer requirements, and yet be able to standardize processes, to pool variability, to consolidate volumes and movements to achieve efficiencies and economies of scale and scope. It would then be beneficial if a 3PL company is able to design a consolidated logistics network to serve multiple clients. In this section, we propose the use consolidation hubs to perform such business consolidation The focus is on managing the suppliers for more than one manufacturer, each of who operates an assembly process. Such a logistics arrangement is known as a supply hub (Barnes et al., 2003) in (Figure 31). Here, the supply hub is the dedicated warehouse, located close to the manufacturers facility, where all or some of the manufacturers supplies are warehoused with the agreement that the materials and components will be paid for only when consumed. The dedicated warehouse is committed to replenish the manufacturer frequently to support just-in-time (JIT) production. This strategy is especially common in the electronics industry, to reduce cost and improve responsiveness, due to the short life-cycle and high demand variation. Examples of industry players who are active in using the supply hub concept are Compaq, Hewlett Packard, Apple and Dell.

Figure 31: Supply Hub Concept

In our work, we focus is on choosing appropriate locations for consolidation hubs and assigning the suppliers to these hubs, so that the 3PL can leverage on the economies of scale (assuming concave transportation costs) when transporting the goods from the consolidation hubs to the dedicated warehouses (Figure 32). One critical aspect in designing such a consolidated network is the coordination of the inventory replenishments from the suppliers to the hubs, and from the warehouses to the manufacturers. We also include the inventory holding costs of the components incurred at the warehouses, to trade-off with the network shipping cost. In view of all the related issues, we shall refer to previous literature which covers the four aspects as follows: a) Network design with hubs b) Network design with inventory costp c) Coordination of production and shipping lot sizes

Figure 32: Consolidated Network Design using Consolidation Hubs

a>Network design with hubs Hubs are transshipment facilities that allow the construction of a network where large numbers of direct connections between nodes (including suppliers,warehouses and customer locations) can be replaced with fewer, indirect connections. When locating hubs, several critical questions need to be considered, including i) Are the supply nodes assigned to one hub or multiple hubs? ii) Are direct node-to-node links permitted to bypass the hub? iii) When there are multiple hubs, are hub-to-hub links permitted? In solving hub location problems, two distinct aspects need to be resolved: finding the best location for the hubs, and identifying the best route for flow of materials from the origin nodes to the destination nodes via the hubs.

b>Network design with inventory cost Network design is considered a strategic level decision making process, where the facility once located must be in operation for a long period of time. Inventory policies on the other hand are tactical level decisions that determine the order lot size, review period and safety stock level. There have been attempts to include inventory costs when modeling location problem; thus the specific area of location-inventory problem has emerged.

c> Coordination of production and shipping lot sizes Since our work requires coordinating the shipping lot size in which items are shipped from the suppliers to the hubs, to the lot size in which the items are shipped from the warehouses to the manufacturers for assembly.

3.7 Common data Model. y y y y Store all data in single Database Consolidate Data from multiple system Eliminate need for redundant and integration Scale to meet growth demand This model reduces the cost associated with maintaining database of all activities.

Logistics Purchasing

Finance Common Data Model Inventory

Service Planning

Stodjnkjnre all data in a

3.8 E-commerce E-commerce is the future trend of business style. It brings many benefits for both companies and consumers: (1) E-commerce expands the market area from regional to global; (2) Ecommerce uses electronic techniques instead of traditional paper works, which promotes the industries efficiency and competitiveness; (3) The number of trips is increased. On the other hand the average load of single trip is reduced, which means it needs higher carriage if using the same means of transportation; (4) E-commerce will impact on transport system due to the increased trips; (5) E-commerce might reduce the number of warehouses and the stock cost. Therefore the prices could be lowered. 3.9 Reverse Logistics. The concept of reverse logistics has been applied in promoting customer service and resources recycling. Concerning quality control, the defective components and finished products will be returned to their producers through reverse logistics systems. Nowadays, reverse logistics has been developed rapidly for increasing industries competitiveness, promoting customer service level, and recycling the reusable material. Meanwhile, the demand of reverse logistics brings out a new market for the third-party logistics industries. Rogers et al. (1998) defined reverse logistics as the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. Figure 5 shows the structure of logistics systems, which includes forward logistics, backward logistics and information flow. The flow in black arrows presents the direction of reverse logistics, whose direction is counter to the ordinary logistics represented in hollow arrows. The information flow interlaces between different stakeholders within the system. Each stakeholder can communicate with the others directly to maximum their profitability. Reverse logistics will be adopted in various modes and applications in the future due to its efficiency and benefits in environment protection. The two main reasons behind the rise of reverse logistics are the globalisation of markets and policies for environment protection. A successful reverse logistics could help to increase the service level of companies and reduce the costs of producing processes. More and more companies want to build their reverse logistics system, however the system needs professional knowledge in logistics management and particular facilities. Thus the third-party logistics service provides another option for small to middle size companies to have their reverse logistics system. Figure 6 shows a system of reverse logistics service on how FedEx, a third party logistics provider, serves Acer computer, the customer company. At the first step of the system, the customer applies a request for returning the product through the Internet, and then FedEx builds the data of the products; meanwhile the system organizes the route of the delivery trips of the product. The customer can check the processing condition and wait for sending back at the right time.

Figure 5. Consumer supply chain

Figure 6. Third-party reverse logistics

3.10 INTERRELATIONSHIPS BETWEEN TRANSPORTATION AND LOGISTICS 3.10.1 Transport Costs and Goods Characters in Logistics Transport system is the most important economic activity among the components of business logistics systems. Around one third to two thirds of the expenses of enterprises logistics costs are spent on transportation. Figure 3 shows the components of logistics costs based on the estimation from Air Transportation Association (Chang, 1988). This analysis shows transportation is the highest cost, which occupies 29.4% of logistics costs, and then in order by inventory, warehousing cost, packing cost, management cost, movement cost and ordering cost. The ratio is almost one-third of the total logistics costs. The transportation cost here includes the means of transportation, corridors, containers, pallets, terminals, labors, and time. This figure signifies not only the cost structure of logistics systems but also the importance order in improvement processing. It occupies an important ratio in logistics activities. The improvement of the item of higher operation costs can get better effects. Hence, logistics managers must comprehend transport system operation Movement Packing 22 Warehouse Transportation

Management

aa

9ulkkk117

Ordering Inventory

Figure 3. Cost ratio of logistics items

Transport system makes goods and products movable and provides timely and regional efficacy to promote value-added under the least cost principle. Transport affects the results of logistics activities and, of course, it influences production and sale. In the logistics system, transportation cost could be regarded as a restriction of the objective market. Value of transportation varies with different industries. For those products with small volume, low weight and high value, transportation cost simply occupies a very small part of sale and is less regarded; for those big, heavy and low-valued products, transportation occupies a very big part of sale and affects profits more, and therefore it is more regarded. 3.10.2 The Effects of Transportation on Logistics Activities Transportation plays a connective role among the several steps that result in the conversion of resources into useful goods in the name of the ultimate consumer. It is the planning of all these functions and sub-functions into a system of goods movement in order to minimize cost maximize service to the customers that constitutes the concept of business logistics. The system, once put in place, must be effectively managed. 3.10.3 The Role of Transportation in Service Quality The role that transportation plays in logistics system is more complex than carrying goods for the proprietors. Its complexity can take effect only through highly quality management. By means of well-handled transport system, goods could be sent to the right place at right time in order to satisfy customers demands. It brings efficacy, and also it builds a bridge between producers and consumers. Therefore, transportation is the base of efficiency and economy in business logistics and expands other functions of logistics system. In addition, a good transport system performing in logistics activities brings benefits not only to service quality but also to company competitiveness. 3.11 Express Delivery As the increasing demand of time accuracy and decentralization of production, the need to reduce stock costs has led to the Just-In-Time (JIT) delivery principle, which involves more frequent delivery of materials at the right time and at the right place in the production process. The characteristics of express delivery are: (1) door-to-door service; (2) efficiency; (3) traceability; (4) Just-In-Time (JIT); (5) growing various delivery demands. The trend toward increasingly compact products is expected to improve the cost-benefit ratio of express delivery by decreasing the transportation cost share. Smaller products will enlarge the market for express delivery services. Also, the increasing value of products requires rapid transportation, because companies want to reduce the interest costs bound up in stock and inventories. For future development, the industries should consider integrating the services 24-hour stores so that customers could choose a certain shop as the pick-up station. Meanwhile, the services would become more efficient and controlled due to more regular routes to those shops instead of personal houses.

Chapter-4 Implementation
Below are to be implemented by VRL Logistics 4.1 Extended web portal Solution integrated corporate site provides information to track and monitor the status of consignment to consignee and consignor. Online request for booking and door collection, delivery time details, customer friendly tracking interface, synchronized status of consignments, duplicate waybills printing, customer accounts page retrieval are made possible online. 4.2 Lowest business overheads Reduction of communication leads to considerable amount of cost and effort savings. The clarity and accuracy of inter office communications, cutting costs and investments for leased lines are direct benefits other than considerable reduction in duplication of tasks. The logistics cycle is completed with minimum resources and manpower providing maximum control over the process. This alone have significant effect on reduction of business overheads. 4.3 Schedule intelligently Effective Trip Management and route planning to maximize income per route. Trips evaluation for cost saving, resource analysis for effective usage is useful in day to day scheduling. Break Journey, temporary trip management, rescheduling consignment are some of the features. 4.4 Need for Lead Logistics Managers The study shows that the future role for 3PLs will be a sophisticated one--- and one that will require a great deal of integration into clients businesses. This observation is supported by user preferences for a broad range of 3PL services, the development and use of capable IT by 3PLs, and more collaborative relationships with 3PLs. These signals all point to a desire for 3PLs to essentially assume more of a lead logistics manager role than has been evident to date. This change should result in clients having more of a strategic view of their 3PLs, well above the resource provider and resource manager descriptors evident today. 4.5 Information-Technology Priorities Looking at this years study results, most of the IT-based services currently provided by 3PLs are functionally oriented capabilities (e.g., transportation management systems, warehouse management systems, shipment tracking/tracing, and export/import), and to a lesser extent, webenabled communications. Looking at future needs, the areas of highest priority include IT capabilities related to supply chain planning, supplier management systems, customer order management, transportation-logistics electronic markets and further development of web-enabled communications. This reflects a deeper need for 3PL-based information technologies to facilitate processes relating to supply chain planning and execution, and to developing sound relationships with suppliers and customers.

Factors Impacting Emergence of 3PL Leadership: The convergence of several factors will set the stage for 3PLs to assume greater leadership with respect to IT-based services: a) Increasing emphasis on the need for overall supply chain leadership; b) Expected growth in the markets for outsourced logistics services; c) Customers looking to 3PLs and technology providers for access to IT-based capabilities; and d) enhanced efforts by 3PL providers to differentiate themselves in the marketplace and to structure IT- and client-based relationships that will lead to improved market positioning and greater profitability. Collectively, these factors will set the stage for capable 3PLs to become not only leaders in the area of IT based services, but in overall supply chain pursuits as well 4.6 JIT The just-in-time concept has been in use for many years now in many sectors of industry (e.g. in the auto industry). Companies synchronize the procurement of inputs required for their production processes, so they only have to keep smaller inventories on hand and can shorten their order-to-invoice times. All in all, the concept reduces the cost of tied-up capital, but it boosts transport costs since the transport volume per shipment decreases while transport frequency increases. As a consequence, rising transport prices limit the potential of this strategy. Standardized processes can be sold more easily in bulk than customer-tailored solutions. However, there are narrow boundaries on the scope for standardization particularly in the growth field of contract logistics. As standardization progresses, the automation trend in the industry continues unabated, but some experts say it is gradually slowing down. The primary objective of automation is to cut costs. Electronic systems control and manage inventories; fully automatic order-picking systems (picking robots) perform what used to be manual jobs. The technology deployed is becoming increasingly autonomous, enabling staff reductions and cost savings. But since greater importance is now being attached to service aspects as a whole and in addition the automation potential in many areas has already been exhausted, the trend is petering out. One of the reasons for this is that, despite the increased autonomy of modern robots, full automation inevitably results not only in lower costs but also a reduction of flexibility. Standard routines are not able to handle (customer-) specific business processes. All the same, information logistics and thus information technology are continuing to grow in importance versus pure-play transport logistics in the sector. For instance, transport routes are being optimized dynamically in real time by factoring in traffic jam data, and electronic logistics marketplaces are being created on the internet to match up supply and demand for transport capacities with the greatest degree of transparency possible. The primary objective of IT support for logistics processes is to boost capacity utilization.

4.7 Vehicle Tracking and Dispatch As global positioning systems (GPS) become cheaper, their applications is becoming cost effective and widespread. The United States Postal Services has equipped its trucks with radio transmitters and GPSs. The radio transmitters send the location of the truck at specific intervals to the central control where ESRI GIS software interprets the signal and posts it on the town map as symbol. This enables the dispatcher to track the location of this truck and the rest of the fleet in real time. Once other systems like real time traffic monitoring systems become available, the dispatcher could also be able to leverage the real time traffic conditions to modify the route the truck could or should take to minimize delays. 4.8 Routing and Scheduling Finally, the operational routing and scheduling could be handled by the software to cut costs and maximize benefits on an ongoing basis. The term benefits are employed instead of profits because maximizing benefits is a larger term and encompasses intangible benefits like customer goodwill and satisfaction. The routing and scheduling modules will take care of day to day operations, generation of routes and manifests for the various trucks based on their inventory loads and tracking and monitoring the delivery.
4.9 Warehouse operations

A large warehouse poses the same problems as the routing application that we detailed above. Instead of drop-off locations, now we are talking about shelves as rows of shelves on which certain kinds of goods are stored. Once the inventory control system decides that a certain truck will carry a certain set of goods, a forklift ill then pick up the requisite goods and transport these goods to the truck waiting in the loading bay. To minimize the waiting time on the part of the truck and the trip distance for the fork lift Sears uses a custom application that does just that. It solves the travelling salesman problem within the warehouse. The savings are substantial. 4.10 Attribute-based Demand Planning The goal of a supply chain is to operate at the least possible dollar amount invested in inventory while maximizing efficiency and adaptability to changing customer demands. An approach to reducing the size of the chain is to reduce the amount of inventory within that chain. Reducing inventory can lead to recovered monies that can be applied to the bottom line. A method of doing this is attribute-based demand planning. This is a variation of the just-in-time (JIT) methodology for inventory reduction. Attribute-based demand planning is defined as the granular differentiation of product, with additional products or services added to products in order to increase value or to minimize the total inventory carried.

4.11 Strategic Alliances, Partnerships and Collaboration

Increasing globalization, use of new information technologies, and a series of acquisitions, alliances and mergers, are transforming the logistics services industry Business models that supported arms-length relationships with suppliers, and customers, are being replaced by supply chain collaboration. New companies and business networks have evolved, developing entirely new business models that are based on capabilities geared towards improved customer service, and competitiveness in the marketplace. The creation of a partnership/alliance reflects the intention to pursue a common objective by improving coordination of business activities through mechanisms such as collaboration, i.e. better understanding of the partners business; greater information sharing; coordinated investments and joint planning.

4.12 Creating a Lean Supply Chain In moving to adopt a lean supply chain, it is important to start by identifying your team and getting it focused on reducing waste. If they do not embrace this critical value change, your effort will not succeed. Use waste reduction as the foundation for every goal you set in the transformation process. The team has to include both enterprise and partner members from all points in the supply chain in order to be effective.

Demand management is easily the most critical component of the lean supply chain because inappropriate production of goods is the source of much waste and expense. To create an environment in which demand management can be efficiently carried out, start by defining customer value. Customer value comes in the form of th e physical product itself, as well as its location and the timing of its delivery. Once those three things are clearly determined, you can begin to set up a signaling system that will inform your supply chain as to the state of product demand, and you can begin to pull your product through the supply chain, rather than push it through. 4.13 Value Stream Mapping for waste Elimination. As the market becomes more competitive and the cost of doing business more expensive, companies must find a way to work smarter and faster Value Stream Mapping (VSM) is a simple yet powerful tool that can identify improvement opportunities in the information and material flow. When done right, VSM will raise awareness within your organization and create enormous monetary gains. Use VSM to create a plan to eliminate your corporate waste today.

Day 1 Deliverables 1>Review of Operational

Excellence Principles. 2>Current State Value Stream Map (Lead Time) 3>Key Process Identification

Day 2 Deliverables
1. Lead Time Reduction Opportunity Identification 2. Cost Reduction Opportunity Identification 3. Future State Value Stream Map 4. Gap Analysis

Day 3 Deliverables 1>Review A3 Thinking

2>Action Planning (30,60,90 Day Plan) 3> A3 Tactical & Timeline Development

4> Roles & Responsibility Matrix Development 5>. Dashboard & Measurement System Development 6> Schedule & Process for Plan:Do:Check:Act

4>Review Waste Identification & Elimination 5>Process Waste (Walk a Route) 6>Material Flow Analysis

5. Work Planning (Job Design, Standard Work, Pull Triggers, Role Assignment, Visual Management FMEA)

Lean supply chain Results

Transportation Cost Reduction: up to 15% Cost of Poor Quality Reduction: up to 95% Gross Profit Improvement: up to 15% Free Cash Flow Improvement: up to 30 Productivity Improvement: up to 300% Lead Time Reduction: up to 80% Facility Space Reduction: up to 35% Materials Cost Reduction: up to 15%

Chapter -5 Improvement Areas. Some common improvement areas are listed below. These improvements typically results in significant cost saving, service improvements and quality enhancement.

5.1 Inventory management.

1>Inventory optimization 2>Improvement of data accuracy 3>Collaborative demand planning 4>Critical spare identification and management 5>Use of service level agreements

5.2 Warehouse management

1>Warehouse consolidation 2>WMS implementation 3>Robust use of warehousing performance metrics 4> Use of service level agreements

5.3 Material Transportation & routing

1>Carrier performance metrics 2>Revamped internal transport routes & guidelines 3>Full use of Transportation management system 4>Integration of transportation system with a warehouse management system 5>Real time tracking of carrier shipments

5.4 Organization Culture

1>Center-led organization structure 2>Aligned goals & objectives 3>Continuous improvements 4>Focus on training and development 5>Collaborative effort to reduce inventory level

5.5 Performance management

1>Clearly articulated savings and performance targets 2>Line of sight goals that tie to department goals 3>Performance goals and incentives tied to compensation 4>Use of total cost and modeling 5>Collaborative level to reduce to inventory level

Chapter -6 Areas to concentrate.

These include ongoing improvements and achievements in service offerings, strategic management skills, advances in IT, consultative or knowledge-based skills, and global capabilities

6.1 Information Technology.

IT remains the key enabler for achieving benefits in outsourcing. Lack of IT capabilities (or lack of access to IT capabilities), are quoted as the main reasons for not achieving full supply chain benefits. Technology improves end-to-end visibility across the entire supply chain, allowing for proactive management of logistics and supply chain events, to further improve process efficiencies and customer service. In small to medium enterprises (SMEs), the internet is providing relatively inexpensive, yet effective alternatives for information sharing. Unfortunately, these businesses are often unable to afford to buy and implement the more

expensive software solutions. This could be one motivator for SMEs to join with larger companies to benefit from improved access to superior IT capabilities. The Warehouse Management System (WMS) and Transport Management System (TMS) are software systems used by large logistics companies to manage the warehousing and transportation operations and assets. The WMS contains data such as supplier/customer warehouse inventory levels and customer ordering pattern, while the TMS contains information pertaining to the location of products and vehicles. The WMS provides information on operational efficiencies and cross-docking requirements. Such information can be utilized for order management and consolidation, as well as managing the exploding list of product SKUs. With WMS, information on the shipment such as dimensions, location, and destination, can help to increase the logistics companies ability to handle more shipment. The TMS is often regarded as the glue that holds the supply chain together by tracking the physical flow of the goods. This system is often used as a decision support tool in planning and optimization, as well as transportation execution. The TMS can help to determine the transportation mode and manage freight consolidation operations and coordinate company shipments. The TMS can also help in carrier load tendering, routing and scheduling, shipment tracking and tracing, freight payment and auditing. Studies show that savings of 10% to 40% of transportation costs can be expected upon first implementation of the TMS system. 6.2 Focus on Future Growth Of equal importance to 3PLs is ensuring that necessary resources are available to focus on future growth strategies. Many 3PLs spend considerable time and money on extraneous processes, expending unnecessary resources. In order for 3PLs to thrive in the future, the focus will be on core competencies instead of back-office operations. Automated freight payment processing can streamline the manual process to free up time to focus on future needs. Successful companies look externally as much as internally as they plan their business goals. 3PLs that only have time to focus on day-to-day operations are at a big disadvantage. A best-of-breed freight payment and audit partner provides innovative services. Using such services can help 3PLs grow by differentiating their offering in the marketplace, thus increasing sales, which in turn leads to company growth. As 3PLs try to remain competitive in this price sensitive market, providing their clients with leading-edge freight payment services, while reducing internal costs, can be critical to a successful growth strategy. 6.3 Shorter product life cycle With the current trend, the merchandise design is changing day by day, and therefore, the product life cycle is shorter and shorter, especially in computer science. To confront the impacts, logistics system must improve its efficiency and reliability of goods delivery. Otherwise an inappropriate logistics system would hinder the competitiveness of new products and the business profits.

6.4 Improvement of logistics facilities: The advancement and development of logistics are based on several techniques and complete theories. High-tech facilities and systems, e.g. ITS, could bring more possibilities and advantages to logistics. For example, the improvement of related facilities, e.g. Forklift Trucks, is necessary for transport efficiency. In the future, factory automation is the main target for the whole supply-chain procedures. It could help to improve efficiency and also reduce the operation costs. 6.5 Improvement of services: Providing a good customer service becomes a necessary requirement of business operation with the intense competition of global market. The quality of services is the main factor to affect consuming behavior among the enterprises with high similarity. The service systems involve several developed techniques now, such as Efficient Consumer Response (ECR) and Quick Response (QR). In the near future, more new techniques would be applied in providing better services for customers. 6.6 Intelligent Transport Systems (ITS) Applications of ITS in transport systems are widespread. The most common techniques for logistics include Global Positioning System (GPS), Geographic Information Systems (GIS) and advanced information systems. GPS provides the service of vehicles positioning. It could help the control centers to monitor and dispatch trucks. GIS provides the basic geographic database for the deliverers to enable to organize their routes easier and faster. Advanced Information systems provide the real-time information for both managers and delivery to adjust their paths as new demands occur. The integration of GPS, GIS and advanced information systems provide a high maneuverability of transport systems. The benefits of the integrations are better service quality, reduced unnecessary trips, and increased loading rate. 6.7 E-commerce and JIT purchasing: The continuous development of e-commerce is having a beneficial effect on JIT purchasing .Internet based information allows companies to quickly place orders for materials with their supplier. This eliminates wasted time dealing with paperwork and reduces the procurement lead time. The quality of the procurement process also improves because data entry errors created through paperwork process are eliminated .Because e-commerce transaction with the supplier represent an automated process,labour cost are reduced as well. 6.8 The Role of Transportation in Service Quality The role that transportation plays in logistics system is more complex than carrying goods for the proprietors. Its complexity can take effect only through highly quality management. By means of well-handled transport system, goods could be sent to the right place at right time in order to satisfy customers demands. It brings efficacy, and also it builds a bridge between producers and consumers. Therefore, transportation is the base of efficiency and economy in business logistics and expands other functions of logistics system. In addition, a good transport system performing in logistics activities brings benefits not only to service quality but also to company competitiveness.

6.9 Assessing and Improving Your Current Logistics Operation

The approach to assessing and improving your logistics operation includes several key elements. The Denali Consulting methodology is designed around a 4-phase process that includes a qualitative assessment of logistic processes and practices, combined with a quantitative assessment of key logistics costs, metrics and benchmarks. The qualitative and quantitative assessments serve as the basis for understanding the opportunity that exists to improve the logistics network and/or function, and deliver upon your organizations goals.

Current State Logistics Assessment

Future state Logistics design.

Logistics Option Developmen t & selection

Implementation planning

Qualitative and Quantative benchmarking, gap analysis, process analysis and focus on group reviews

Development of specific improvements recommendat ions, option and designs

Business case developmen t, risk analysis and option selection

Process and resource planning

Change Management Stakeholder management Communication planning Project management infrastructure Skill Development Transition Management Performance Tracking

The objectives of a logistics assessment and strategy project are to identify Opportunities to: Increase logistics operational efficiency Increase inventory efficiency Provide adequate levels of service and quality to meet customer requirements

6.10

Lean 1. Focus on the goal. The ultimate goal is to increase long term profitability and cash flow. Many people think that the ultimate goal is customer or employee satisfaction. While both of these are important to successfully implementing lean, you can have happy employees and customers while not making profits. Thus, to implement lean, you must understand one of the most fundamental equations: Profit = Price - Cost. You must understand that the market determines price (for the most part); cost is the controllable aspect. So, while its true that lean is not a cost-cutting program per se, it is true that costs will decrease if lean is implemented successfully. 2. Focus on the long term. Management has the tendency to focus on short term profitability. "Making the numbers" for the quarter is what matters most. The main reason for this is that incentive programs drive them to do this. To be successful, the long term must be the focus. Much lip service is paid to "long term planning;" however, in practice, most managers will sacrifice the long term for short term success. In order to change the focus to the long term, metrics and incentives must change. 3. Involve and value employees at all levels of the organization. How many times have you heard this before? Every company claims to value its employees at all levels, but few actually do it. Many lean efforts are industrial engineering initiatives driven from the supervisor and engineer level with little employee input and involvement. Lean requires a fundamental change in culture. Each employee must be given the tools/training and must be given the opportunity to provide input as to how his/her job should be done.

6.11 Value Stream Mapping - Getting it Right

Value stream mapping is a tool Toyota developed for identifying improvement opportunities to the overall flow. Toyota actually calls the tool "Material and Information Flow Mapping," which is a more accurate (but less exciting) description. Before I begin a value stream mapping workshop, I often ask how many people have used value stream mapping before. In most cases, the majority of the class believes that they have used the tool. However, by the time the class has ended, 90% of those who had believed that they had used "value stream mapping" realize that they had actually used process mapping, which is a quite different but useful tool. What makes value stream mapping different? It is the fact that there are two flows on a value stream map- the material flow and the information flow. Value stream mapping helps us understand the

relationship between the information flow and the material flow; ultimately, this helps us understand what the sources of our waste are. For example, the reason for overproduction is often rooted in the information communicated to the factory floor. When we understand our sources of waste, we can create a picture of a future state with less waste and develop an implementation plan to achieve the future state. Value stream mapping can be used to map the material and information flows within an organization or throughout an entire supply chain.
6.12 Kaizen and the Supply Chain

Kaizen is a Japanese term which means "change for the better." A company that practices kaizen is making small changes for the better on an ongoing basis- this is commonly called continuous improvement. Over the past 15 to 20 years, kaizen has become synonymous with the kaizen event, a focused improvement "blitz" in which a team works to improve (i.e., kaizen) a process. These are actually quite different. While the kaizen event is a still a very useful tool for improving points in a value stream, the term "kaizen" refers to a way of thinking, not a single tool. Practicing kaizen means eliminating waste. Seven waste:
y y y y y y y

Overproduction Waiting Processing Motion Inventory Transportation Defects

If a company is truly practicing kaizen, every employee from the shop floor worker to the CEO is working to eliminate waste on a daily basis.

6.13 Warehouse Space

Integrated transportation planning with transportation/warehouse execution

Integrate Planning And Execution

Real Time Information sharing, event management

Collaborate with all Trading Partner

Integrated performance measurement

Drive Continuous Improvements

Chapter -7

Results.

7.1 The Transportation Problem There is a type of linear programming problem that may be solved using a simplified version of the simplex technique called transportation method. Because of its major application in solving problems involving several product sources and several destinations of products, this type of problem is frequently called the transportation problem. It gets its name from its application to problems involving transporting products from several sources to several destinations. Although the formation can be used to represent more general assignment and scheduling problems as well as transportation and distribution problems. The two common objectives of such problems are either (1) minimize the cost of shipping m units to n destinations or (2) maximize the profit of shipping m units to n destinations. Let us assume there are m sources supplying n destinations. Source capacities, destinations requirements and costs of material shipping from each source to each destination are given constantly. The transportation problem can be described using following linear programming mathematical model and usually it appears in a transportation tableau. There are three general steps in solving transportation problems.

At first, it is necessary to prepare an initial feasible solution, which may be done in several different ways; the only requirement is that the destination needs be met within the constraints of source supply.

7.1 The Transportation Matrix

The transportation matrix for this example appears in Table 7.2, where supply availability at each factory is shown in the far right column and the warehouse demands are shown in the bottom row. The unit shipping costs are shown in the small boxes within the cells (see transportation tableau at the initiation of solving all cells are empty). It is important at this step to make sure that the total supply availabilities and total demand requirements are equal. Often there is an excess supply or demand. In such situations, for the transportation method to work, a dummy warehouse or factory must be added. Procedurally, this involves inserting an

extra row (for an additional factory) or an extra column (for an ad warehouse). The amount of supply or demand required by the dummy equals the difference between the row and column totals. In this case there is: Total factory supply 51 Total warehouse requirements 52 This involves inserting an extra row - an additional factory. The amount of supply by the dummy equals the difference between the row and column totals. In this case there is 52 51 = 1. The cost figures in each cell of the dummy row would be set at zero so any units sent there would not incur a transportation cost. Theoretically, this adjustment is equivalent to the simplex procedure of inserting a slack variable in a constraint inequality to convert it to an equation, and, as in the simplex, the cost of the dummy would be zero in the objective function.

Transportation Matrix for Chests Problem With an Additional Factory (Dummy)"

7.2 Initial Feasible Solution

Initial allocation entails assigning numbers to cells to satisfy supply and demand constraints. Next we will discuss several methods for doing this: the Northwest-Corner method, Least-Cost method, and Vogel's approximation method (VAM). Table 7.3 shows a northwest-corner assignment. (Cell A-E was assigned first, A-F second, B-F third, and so forth.) Total cost : 10*10 + 30*4 + 15*10 + 30*1 + 20*12 + 20*2 + 45*12 + 0*1 = 1220($).

Inspection of Table 7.3 indicates some high-cost cells were assigned and some low-cost cells bypassed by using the northwest-comer method. Indeed, this is to be expected since this method ignores costs in favor of following an easily programmable allocation algorithm. Table 7.4 shows a least-cost assignment. (Cell Dummy-E was assigned first, C-E second, B-H third, A-H fourth, and so on.) Total cost : 30*3 + 25*6 + 15*5 +10*10 + 10*9 + 20*6 + 40*12 + 0*1= 1105 ($). Table 7.5 shows the VAM assignments. (Cell Dummy-G was assigned first, B-F second, C-E third, A-H fourth, and so on.) Note that this starting solution is very close to the optimal solution obtained after making all possible improvements (see next chapter) to the starting solution obtained using the northwest-comer method. (See Table 7.3.) Total cost: 15*14 + 15*10 + 10*10 + 20*4 + 20*1 + 40*5 + 35*7 + 0*1 = 1005 ($).

Northwest Corner Assignment

Least - Cost Assignment

7.3 Develop Optimal Solution

To develop an optimal solution in a transportation problem involves evaluating each unused cell to determine whether a shift into it is advantageous from a total-cost stand point. If it is, the shift is made, and the process is repeated. When all cells have been evaluated and appropriate shifts made, the problem is solved. One approach to making this evaluation is the Stepping stone method. The term stepping stone appeared in early descriptions of the method, in which unused cells were referred to as "water" and used cells as "stones" from the analogy of walking on a path of stones half-submerged in water. The stepping stone method was applied to the VAM initial solution, as shown in Table 7.5 Table 7.6 shows the optimal solutions reached by the Stepping stone method. Such solution is very close to the solution found using VAM method.

VAM Assignment

7.4 Alternate Optimal Solutions

When the evaluation of any empty cell yields the same cost as the existing allocation, an alternate optimal solution exists (see Stepping Stone Method alternate solutions). Assume that all other cells are optimally assigned. In such cases, management has additional flexibility and can invoke non transportation cost factors in deciding on a final shipping schedule.

Optimal Matrix, With Minimum Transportation Cost of $1,000

Chapter-8 Strategies 8.1 Strategic Alignment Model. The Strategic Alignment Model brings together four elements that must be aligned to achieve sustained superior performance. These are: the marketplace; strategic response(s); internal capabilities (or culture); and leadership style. The major insight from overlaying the generalized version of the Alignment Model was that companies must focus attention on how customers wish to be serviced, in both sales and logistics terms. This is called behavioral segmentation, and ensures channel alternatives, logistics flow paths, and facilities, will be designed and operationalised for optimal performance Indeed, it becomes obvious that segmentation of customer needs along behavioral lines provides the ultimate frame of reference for designing the configuration of modern supply chains. 8.2 Customer Buying Behaviors Gattorna90, has observed that for any category of product or service, customers will tend to exhibit a small but finite range of dominant buying behaviors. For generic dominant buying behavior segments are presented in Figure 18. They are: Collaborative, Efficiency/Consistency, Demanding/Quick Response, and Innovative Solutions. The particular buying behavior preference expressed by the customer has implications for the type of relationship that develops between suppliers and customers, and their respective LSPs. These buying behaviors can change for short periods of time under different market conditions, although customers will always revert to their natural preferences. Understanding these buyer behaviors therefore enables an organization to focus on aligning services with the buyer values associated with each customer and product combination. Companies must go beyond the traditional methods of segmentation that are currently in use (e.g., account profitability; strategic value of the customer; customer size; etc.) and segment customers according to buyer behavior. The more traditional methods are important only as secondary considerations in achieving the primary objective: delivering most the appropriate level of service to customers - no more, no less.

There are a number of approaches an organization can use to identify customer dominant buying behaviors. It is suggested that sales staff could be used to develop an initial list of behaviors and characteristics that describe their customers. These characteristics are then grouped into predominant buying behaviors. Customers are then allocated, by name, to the appropriate group, and subsequently validated through an iterative process, during which definitions are further clarified. Following from the framework provided by the Strategic Alignment Model, corresponding value propositions and service strategies are then developed that focus on each segments dominant buying behavior.

8.3 Supply Chain Response Strategies. Following the empirical observation that there are four generic types of dominant buyer behaviors for many product categories, it follows that each of these would require corresponding responses; hence the notions of multiple supply chains and Multiple supply chain alignment. Figure 20 details the four generic types of supply chains corresponding to each of the dominant buying behaviors of the Strategic Alignment framework: Continuous Replenishment; Lean; Agile and Fully Flexible.

Demand Predictable, but loose relationship doesn t necessitate an extreme service level. Focus on Efficiency.

Respond opportunistically &manage yield. Focus on providing creative solution for premium price.

Predictable demand, easily manage through tight collaboration with customer. Focus on retention of customer relationship.

Unplanned demand sometimes loose relationship with customer. Always demand an agile response at higher cost toserve. Focus on service cost equation

This approach to developing supply chains according to customer behaviors, means, that if customers change their buying behaviors for short periods, it is no longer an issue, as long as no previously unobserved segments appear in the supply chain. Value propositions and operational processes on the ground, can be hardwired to cover the observed range of behaviors, and as a result it really doesnt matter which behavioral segment the customer transfers to - as long as this is tracked and the appropriate response strategy is applied. 8.4 Recruiting, Developing and Retaining People Logistics is being recognized as a significant growth sector in most nations, and as a consequence government and higher education institutions are supporting the development of programs and research, e.g., MIT Centre for Transportation and Logistics, and the government of Aragn, Spain, have signed a multi-tier agreement to create an international logistics education and research program.68 Logistics service companies are recognizing people and capabilities are the key to success in the industry. In China, the ongoing development of logistics is hampered by the problem of finding experienced local management staff.69 In Australia, freight logistics was recognized as 9% of GDP in 2002,70 and provided a core service for other industries. As part of the Commonwealth Governments Freight Transport Logistics Industry Action Agenda, AusLink, has specified a number of proposals, including: boosting the industrys investment in its people, making the industry a more attractive career option for existing and prospective employees, particularly young men and women.71 Another AusLink proposal is to improve the occupational, health and safety record of the logistics sector. Lack of high calibre management and appropriately skilled employees remains a blind spot for the logistics industry 8.5 Government Involvement Government structure and cross-State legislation is increasing the complexity of supply chains . This is due to the burden of tracking different policies, legislation, and taxation systems. In order to optimize resource allocation and investments in Australia these issues must be addressed sooner rather than later. Security will permeate every aspect of logistics and supply chain management, in the future. This could be viewed as an impediment or an opportunity in the management of supply chains. Due to increased security concerns, governments around the world are demanding tighter control over freight movement, storage and distribution: in China, Customs and Border Protection Officers (CBP) will be stationed at Shanghai and Shenzhen Ports to specifically inspect shipping containers destined for the USA.74 Chinas top legislature, the Standing Committee of the National Peoples Congress, passed a law on Port

Administration in 2003, to upgrade construction, management and competitiveness of the countrys sea and river ports. In the USA, Customs-Trade Partnership against Terrorism (C-TPAT), a joint government-business initiative to build cooperative relationships that strengthen overall supply chain and border security, recognizes Customs can only provide the highest level of security through close cooperation with owners of supply chains. A proactive stance by Custom Officials to screen all sea-borne containers before they reach the US will significantly contribute to the C-TPATs overall efforts to secure USA borders against dangers introduced through commercial traffic.

Chapter-9 FUTURE PROSPECTS . Facing the worldwide competition, the improvement of logistics system should be advanced by both private companies and government. The main characteristics of future logistics development are: Government role To keep competitiveness of industries, the government has to lead the way to assist the logistics industries. However it involves large of investments and some problems relating laws and national policies. Without the lead and support of government, achieving the plan is difficult. Improvement of services Providing a good customer service becomes a necessary requirement of business operation with the intense competition of global market. The quality of services is the main factor to affect consuming behavior among the enterprises with high similarity. The service systems involve several developed techniques now, such as Efficient Consumer Response (ECR) and Quick Response (QR). In the near future, more new techniques would be applied in providing better services for customers. Revolution of logistics operation IT techniques and its products bring efficiency and fluency to the logistics systems. Radio Frequency ID (RFID) is one of these techniques. The main difference between the bar-code system and RFID is that RFID does not need the action of scanning the barcode on goods. RFID could save manual operation time dramatically. RFID systems could sense the amount of goods input in the tags automatically and immediately when the costumers push their trolley through the exit. Improvement of logistics facilities The advancement and development of logistics are based on several techniques and complete theories. High-tech facilities and systems, e.g. ITS, could bring more possibilities and advantages

to logistics. For example, the improvement of related facilities, e.g. Forklift Trucks, is necessary for transport efficiency. In the future, factory automation is the main target for the whole supply-chain procedures. It could help to improve efficiency and also reduce the operation costs. Channel cooperation between companies In order to save the logistics costs, a key concept is to maximize the usage of available transport capacity. Integrating the logistics demands between numerous departments helps achieve this purpose. In practice, a conglomerate could develop its own logistics service for the branches. For some medium size companies, they could cooperate transport channels with others. Specialized logistics delivery One of the notable trends of logistics industries is specialized delivery service. For instance, delivering fresh food from the place of origin needs low-temperature containers. Compute chips, gases and petroleum need particular conveyances to carry. These demands are rising since the products became more and more delicate. Logistics centers The development of logistics centers is good for industry promotion and the development of national economic system. Logistics centers could successfully shorten the distance between production and marketing vertically and also integrate various industries horizontally, and thus decrease the costs. Governments can propose special areas for storehouses and logistics to reduce land acquisition. The future logistics will cooperate e-commerce, the Internet and the newly door-to-door service to create new business prospects. Freight transport The alliance between middle-small size delivery companies is an important trend in the future. The strategy could help to expand service areas and increase service quality, and meanwhile raise the loads of single trips to reduce delivery costs.

Conclusion
The Indian 3PL market is set to grow tremendously in the next 5-7 years, spearheading the growth of logistics market. Several factors including governments support are instrumental in this growth. Though certain challenges remain to be addressed, the general trend is highly positive. With scenario highly favorable for them, the onus is now on 3PL service companies to offer quality services at affordable pricing, and delivering consistent results to maintain the momentum. For now, surely 3PL is the way forward for Indian Logistics Market. The options of RFID outsourcing and attribute-based demand planning can add significant value to the company, by saving money, reducing the size of the chain, and even allowing the company to compete with some of the larger players within the space. RFID outsourcing options best fit an SMB model. Attribute-based demand planning is best suited for large organizations that require constant product differentiation and that have large supply chains. The physical reduction of total parts carried within the chain will lead to significant savings over the course of the year. There are many approaches to maximizing the efficiency and reducing the costs of a supply chain. One must consider the type of supply chain currently instituted, and closely analyze how these methods can benefit the current structure. It may be useful to follow a roadmap for supply chain evaluation: y y y y Assess the current supply chain and identify all bottlenecks and anomalies. Once identified, create a plan on how these situations can be corrected. Evaluate the options and possible costs, and calculate the return on investment (ROI) for any solutions that may be required. Compute a baseline for the company on key performance indicators (KPIs) that are industry standards. This information can usually be found on industry web sites for specific verticals. Implement the strategies, software, and methodologies that would solve the constraints and bottlenecks. Re-evaluate the supply chain with the new measures in place; re-establish the new baseline with the increased productivity gains. Continue to assess the state of the chain, and improve performance along the entire chain.

y y y

Executive Post Graduate Diploma in Global Management Class of January 2008

Term IV: Project Work Declaration

This is to declare that the Report entitled Cost Minimization for VRL Logistics . has been made for the partial fulfillment of the Course: Project Work in Term IV by me at Alliance Business School (organization) under the guidance of Dr.Prof Srinath Krishna I confirm that this Report truly represents my work undertaken as a part of my Project Work. This work is not a replication of work done previously by any other person. I also confirm that the contents of the Report and the views contained therein have been discussed and deliberated with the Faculty Guide.

Signature of the Student

Name of the Student (in Capital Letters) :S.PRADYUMNA Enrollment No : EPG5-01081239