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Management
Sub Code - 335
Developed by
Prof. Sandeep Narvekar
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
!
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe
2. Dr. B.P. Sabale
3. Prof. Dr. Vijay Khole
4. Prof. Anuradha Deshmukh
Group Director
Chancellor, D.Y. Patil University, Former Vice-Chancellor
Former Director
Welingkar Institute of Navi Mumbai
(Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
1st Edition, August 2007 2nd Edition, August 2008 3rd Edition, May 2019
CONTENTS
Contents
9 Warehousing 316-350
! !3
INTRODUCTION TO LOGISTICS
Chapter 1
Introduction To Logistics
Objectives
Structure
1.8 Summary
! !4
INTRODUCTION TO LOGISTICS
! !5
INTRODUCTION TO LOGISTICS
1. The definition says that it is part of the supply chain management – this
means that supply chain involves a bigger process which engages
different organizations; however, logistics determines how well or how
poor an individual firm can achieve their goals.
2. It is part of SCM that plans, implements, and controls – this means that
logistics must cover all these areas not just one or two.
3. It also mentions the efficient, effective, forward and reverse flow and
storage – this means “How well does the company do what they are
going to do?”
4. Goods, services, and related information between the point of origin and
point of consumption – this means that information about what you are
delivering is as important as the delivery itself.
Activity A
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INTRODUCTION TO LOGISTICS
Logistics must deliver products to a customer at the time, method and cost
to satisfy that particular customer's requirements [Fig. 1(a)].
Responsiveness is needed, the quicker the better, the smoother the better.
Flexibility is needed to meet the quickly changing market and customer
demands.
Effective and efficient physical movement of the tangible product will speak
of intangible services associated with the product and the organization
which is delivering it. In case of intangible product, the delivery of
tangibles at the right place and right time will speak about its quality. On
the macro level, infrastructure such as various modes of transport,
transportation, equipment, storage facilities, connectivity and information
processing are contributing to a large extent in the physical movement of
goods produced in manufacturing, mining and agriculture sectors.
At micro level, logistics plays a critical role in the value delivery system of
business organization to provide superior customer service, i.e., to achieve
a desired level of delivered services and quality at the lowest possible cost.
In a nutshell, any productivity improvement that could be achieved in any
part of logistic system, at the micro or macro level, would help in cost
reduction and proper deployment of scarce national resources to their
productive purposes. India’s logistic cost as a percentage of the GDP is as
high as 13%-14%.
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INTRODUCTION TO LOGISTICS
Activity B
• What is the importance of logistics and how does it affect the delivery
system?
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INTRODUCTION TO LOGISTICS
Given that a system/product will likely fail at some point in time during its
operation, some maintenance will then be required in order to restore the
system to normal operational use so that it can continue to accomplish its
mission.
In other words, one needs to address all of the activities in the life cycle for
a given system, to include not only what is presented in Fig. 1(b), but
those activities which support material phase out, recycling, and/or
disposal.
!
Figure 1(b): Logistics in the System Life Cycle
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INTRODUCTION TO LOGISTICS
Information Flow:
• Order registration
• Order checking and editing
• Order processing
• Coordination
Warehousing:
• Material Storage
• Load Utilizing and Material Handling
• Site Selection and Network Planning
• Order Picking and Filling
• Dispatch Documentation
Inventory Control:
• Material Requirement Planning
• Inventory level decisions for customer service objectives
Packaging:
• For Handling and Damage Prevention
• For Communication
• For Inter-modal Transportation
Transportation:
• Route Planning
• Mode Selection (Air, Sea, Road, Rail, Pipeline, Ropeway)
• Vehicle Scheduling
! !10
INTRODUCTION TO LOGISTICS
The logic of this trend is that the company will increasingly focus on those
activities in the value chain in which it has a distinctive advantage and
outsource everything else. As shown in the Fig. 1(c), the value chain
activities of a firm can be categorized into primary activities: Inbound
Logistics, Operations, Outbound Logistics, Marketing and Sales, and
Services. Support activities such as: Firm Infrastructure, Human
Resources, Technology and Procurement.
! !11
INTRODUCTION TO LOGISTICS
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Figure 1(c): Customer Value Delivery Chain
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INTRODUCTION TO LOGISTICS
Marketing and Sales: Involve activities that create awareness among the
general public regarding the product.
Services: All those activities that increase the value of product or services.
Activity C
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Figure 2: Logistics Functions
! !13
INTRODUCTION TO LOGISTICS
Order Processing
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Figure 2(a): Order Processing Cycle
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INTRODUCTION TO LOGISTICS
Activity D
Inventory Management
Stocking the right amount of inventory is crucial. If you order too little,
your customers will start looking elsewhere. If you order too much, there is
a chance you will be stuck with lots of extra stock that you will be forced to
sell at clearance prices, or risk having them become obsolete.
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INTRODUCTION TO LOGISTICS
Activity E
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Just-in-Time
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INTRODUCTION TO LOGISTICS
ABC Analysis
This is a popular way to analyze your inventory. Under this method, you
classify the inventory into three categories, such as A, B and C. These
categories are based upon the inventory value and cost significance. Also,
the number of items and values of each category are expressed as a
percentage of the total.
The nice thing about Group C is that it can be fairly hands-off, while Group
A requires special attention. You can use ABC analysis in conjunction with
the just-in-time technique to help you get your reorder timing just right.
! !17
INTRODUCTION TO LOGISTICS
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Figure 4: FIFO Method
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INTRODUCTION TO LOGISTICS
Activity F
Stock Review
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INTRODUCTION TO LOGISTICS
Manual reviews should not be performed because they can take a lot of
time and possibly produce errors. Businesses are starting to invest in
software to automate the review, and it will help organizations keep track
of their inventory, ensure timely reorders, and avoid costly shortages.
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INTRODUCTION TO LOGISTICS
keep one or two extra units of a given machine part on hand, just in case
an emergency situation arises, or one of the units proves to be defective
once installed. Creating this cushion or buffer helps to minimize the chance
for production to be interrupted due to a lack of essential parts in the
operation supply inventory.
! !21
INTRODUCTION TO LOGISTICS
Warehousing
Warehousing Location
Number of Warehouses
Transportation
! !22
INTRODUCTION TO LOGISTICS
Logistical Packaging
! !23
INTRODUCTION TO LOGISTICS
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Example of Package Measuring = (60 × 50 × 40 cm)
(60 cm × 50 cm × 40 cm) / 5000 = 24 kg
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! !24
INTRODUCTION TO LOGISTICS
Information
Synchronizing the supply chain is, in essence, getting all of the partners
operating in a manner that is mutually supportive (flexible, cooperative)
and seamless (smooth, unnoticed by customers).
Often, vertical channel conflict (i.e., between layers of the supply chain)
occurs due to ambiguous or conflicting roles and responsibilities. That is,
conflicts such as poor service levels, passive sales efforts, and missed
deadlines.
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INTRODUCTION TO LOGISTICS
Educate the people. Explain in simple terms what synchronization is, what
it intends to achieve, how it intends to achieve it and what is their role in
it.
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INTRODUCTION TO LOGISTICS
• Develop the supply chain schedule. This varies for each supply chain.
Mapping and understanding current supply chain flows and timings, and
developing a new optimized supply chain synchronization model are
essential.
• Map the current process. Map it from start to finish, including volume and
timing for all trading partners. Trends and levels of competency within
the group of players will become apparent during this process. Use
current supply chain timing to compare with proposed timing models to
identify any opportunities at hand.
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INTRODUCTION TO LOGISTICS
3. Product/Information Linking
Collect data in parallel with the overall effort, streamlining the process to
minimize additional work. Data collection should be a byproduct of the
supply chain process, not activity unto itself.
Develop rules to test items as they move through processes and flag those
exceptions requiring action for monitoring and improvement purposes.
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INTRODUCTION TO LOGISTICS
In the end, clients will remember the final execution, and not the
attempted synchronization if in their case failed to deliver. Physical
movement and modal optimization (objective function) must be
synchronized. Whether provided directly by the synchronizing party or by
another supporting carrier, they must be foolproof.
Finally, define the optimal trailer (carrier) as the goal of the load
optimization process. This methodology can be built into load-building
algorithms in the provider's system, based on the total order flow cube,
density and quantities for all products moving to a given destination in the
same service timeframe.
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INTRODUCTION TO LOGISTICS
Define rules and methods for ongoing adjustments and optimization of the
processes in response to rapidly changing variables which can impact the
supply chain. Integrate the ability to switch to the varying size and
capacity of containers should volume fluctuations so dictate. Analyze cubic
imbalances and actively solicit new business partners to balance these.
1.8 Summary
! !30
INTRODUCTION TO LOGISTICS
2. What are the key elements and activities of the business logistics
function?
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INTRODUCTION TO LOGISTICS
1. Physical items that can be perceived by the sense of touch, e.g., cars,
food items, computers, telephones, etc. are known as:
(a) Intangible products
(b) Tangible products
(c) Sensible products
(d) Delivery products
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INTRODUCTION TO LOGISTICS
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INTRODUCTION TO LOGISTICS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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TRANSPORTATION INFRASTRUCTURE
Chapter 2
Transportation Infrastructure
Objectives
Structure
2.8 Summary
! !35
TRANSPORTATION INFRASTRUCTURE
Introduction
! !36
TRANSPORTATION INFRASTRUCTURE
Activity A
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Data is very important in a supply chain. As the goods flow forward in the
supply chain, information flows backward to the supplier. The tracking of
data in the supply chain operations is called analytics. The data that a
company collects is dependent on whether the company wants to reduce
manufacturing defects, increase sales or effectively manage resource use.
First, the information on the allocation of resources is very important. In
the supply chain, this data can help the company in its merchandising
strategies.
Other important data is the sales per location. This information enables
firms to shift their local inventory so that they can meet the demand of
different areas. The companies that have a lot of resources can use this
information to forge new paths and to find advantages in other areas. This
data is also important for online retailers because they reduce their
delivery time and manage their store inventories.
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TRANSPORTATION INFRASTRUCTURE
With the advent of parcel TMS platforms, data warehouses and business
analytics technology, it is easier and more affordable than ever to manage
multi-carrier shipping costs.
Parcel TMS platforms can capture and store shipping data from across the
enterprise in a single data repository and then match it against carrier
invoice data. Business intelligence tools can analyze and identify
transportation cost reduction opportunities that can then be enforced by
improved parcel shipping processes in order entry, purchasing, fulfillment
centers, drop ship suppliers, stores, offices, mail centers and customer
service. The more data you have, the more opportunities there are to mine
for nuggets of cost savings.
Activity B
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! !39
TRANSPORTATION INFRASTRUCTURE
A big impediment to TMS adoption had been its cost. Until recent years,
software had to be purchased and installed on a company’s servers. This
was expensive and inflexible. Installing a TMS in a modern business is
likely to be a five-figure spend, including computer hardware, software
licenses, maintenance and required expertise to manage the software.
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TRANSPORTATION INFRASTRUCTURE
• Additionally, there are TMS service vendors that provide not just the
technology, but also services to the shippers to run their daily
transportation operations. In this arrangement, however, shippers retain
control over the key relationships between carriers and customers.
! !41
TRANSPORTATION INFRASTRUCTURE
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Figure 2.1: Transport Management System
Activity C
! !42
TRANSPORTATION INFRASTRUCTURE
Transportation Functionality
1. Product Movement
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TRANSPORTATION INFRASTRUCTURE
2. Product Storage
Activity D
! !44
TRANSPORTATION INFRASTRUCTURE
Transportation Principles
1. Economy of Scale
2. Economy of Distance
Activity E
! !45
TRANSPORTATION INFRASTRUCTURE
Transportation Participants
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Figure 2.1: Major Relationships among Transportation Participants
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TRANSPORTATION INFRASTRUCTURE
Government
Internet
Public
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TRANSPORTATION INFRASTRUCTURE
Activity F
• Rail
• Road
• Air
• Water (Sea/Inland)
• Pipeline
• Ropeways
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TRANSPORTATION INFRASTRUCTURE
1. Rail Transportation
Rail transport is literally the strategic sector that offers a broad possibility
for the integration of transport in sustainable development. Railway
development has always played an important part among major regional
economic cooperation projects, especially over the past decade, in
particular due to freight transport safety, due to the superiority of rail
transport in terms of pollution, but mostly due to transport costs against
road or sea transport. The railway infrastructure plays the role of a catalyst
for an increased regional integration, but also in supporting trade and
foreign investments. In developing or expanding their projects, major
companies and logistics operators seek a reliable railway infrastructure and
especially a railway network that provides access to sea ports.
Transport infrastructure development has been the main focus of all major
projects of economic cooperation in Europe and Asia. This was mainly due
to freight transport safety, the fact that railway transport is eco-friendly,
but especially due to the fact that, from the point of view of the transport
costs, compared to land-maritime transport, railway transport is much
more efficient. Transited by major international transport corridors, east to
west and north to south, the Black Sea area stands in the middle of all
routes linking Europe and Asia. Being aware of these advantages, all the
countries plan to make the most of their situation. On another note, the
international financial institutions make massive investments in the
infrastructure projects developed in Europe and Asia.
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TRANSPORTATION INFRASTRUCTURE
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Figure 2.3: Rail System Configuration
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TRANSPORTATION INFRASTRUCTURE
• Environmentally friendly
Activity G
! !51
TRANSPORTATION INFRASTRUCTURE
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Figure 2.4: Rail RORO
RORO vessels have either built-in or shore-based ramps that allow the
cargo to be efficiently rolled on and off the vessel when in port (Fig. 2.5).
While smaller ferries that operate across rivers and other short distances
often have built-in ramps, the term RORO is generally reserved for large
oceangoing vessels. The ramps and doors may be located in stern, bow or
sides, or any combination thereof.
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Figure 2.5: Sea RORO
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TRANSPORTATION INFRASTRUCTURE
Reefer Services
While a reefer will have an integral refrigeration unit, they rely on external
power, from electrical power points (“reefer points”) at a land based site, a
container ship (Fig. 2.7) or on quay. When being transported over the road
on a trailer or over rail wagon, they can be powered from diesel powered
generators (“gen sets”) which attach to the container whilst on road
journeys. Refrigerated containers are capable of controlling temperature
ranging from –65°C up to 40°C.
! !53
TRANSPORTATION INFRASTRUCTURE
Some reefers are equipped with a water cooling system, which can be used
if the reefer is stored below deck on a vessel without adequate ventilation
to remove the heat generated.
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Figure 2.6: Road Reefer
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Figure 2.7: Container Ship Reefer
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TRANSPORTATION INFRASTRUCTURE
Activity H
The support for this assertion is straightforward and there are many ways
we can justify it.
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TRANSPORTATION INFRASTRUCTURE
in India is resulting not only from the country’s rapid economic growth in a
feedback mode, but also due to population expansion and changing
economic lifestyles.
Growth of transport sector post globalization has well exceeded what was
achieved over 40 prior years. Still, the level attained so far is quite low
when compared with international norms. Rather importantly, in India one
has noticed a gradual transition from rail-dominated transport to a road-
dominated one. Besides, the contribution of transport sector to GDP, as
expected, has been rising. It rose from 3.8% in 1980-81 to 4.6% in
1990-91 and then to 5.5% in 2000-01 grossing 6.7% of the annual growth
rate in 2008-09 and estimated to be 8.0% in 2010-2011.
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TRANSPORTATION INFRASTRUCTURE
Note: X1: Rail contribution to GDP; X2: Road contribution to GDP; X3:
Water contribution to GDP; X4: Air contribution to GDP; X5: Total transport
infrastructure contribution to GDP.
Activity I
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TRANSPORTATION INFRASTRUCTURE
India has one of the largest transport sectors. The railway network
connecting the four metropolitan cities of Delhi, Mumbai, Chennai and
Kolkata is known as the “Golden Quadrilateral” of The Indian Railways. The
hypothetical diagonals of this Golden Quadrilateral connect Delhi-Chennai
and Mumbai-Howrah. The total route length of the Golden Quadrilateral
and its diagonals add up to 10,122 km and is responsible for generating
more than 55% of the total revenue of the Indian Freight Railways. Though
covering 16% of the routes in India, these corridors are “High Density
Corridors” carrying 52% passengers and 58% freight.
A corridor project that will enable the Railways run faster, longer and
heavier goods trains along dedicated tracks is planned by the Indian
Railways in an ambitious $4 billion (Rs. 25,000 crore) programme inviting
the private sector to build and develop multimodal logistics parks along the
proposed eastern and western dedicated freight corridors. The first phase
of this plan involves the construction of two DFCs, the Western DFC and
the Eastern DFC. The Eastern DFC will start from Ludhiana in Punjab
passing through the States of Haryana, Uttar Pradesh, Bihar and finally
ending in Dankuni, West Bengal. The Western Corridor will start from Dadri
to Mumbai and pass through the States of Delhi, Haryana, Rajasthan,
Gujarat and Maharashtra. The two corridors are estimated to span a route
length of 3300 kilometers and expected to be completed by 2017. The
basic objective of the logistics projects is to enhance the volume of rail
freight in the overall transport chain of the country with complete solutions
to help companies reduce both the cost and time of transporting goods.
Activity J
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TRANSPORTATION INFRASTRUCTURE
2. Road Transportation
Road transport is one of the most promising and potent means for rapid
industrialization and agricultural advancement. It plays an important role in
the economy of the country and is particularly suitable for short and
medium distance. It provides the basic infrastructure for bringing the
majority of the people who are living in far-off villages into the mainstream
of life by connecting them with the rest of the country.
Full Truckload
Less-than-Truckload
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TRANSPORTATION INFRASTRUCTURE
because it does not follow a direct route from the shipper to the
destination.
Activity K
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TRANSPORTATION INFRASTRUCTURE
In this model on single route, there are multiple drivers handling one truck
or vehicle. A driver never drives a particular vehicle for more than a day.
The driver is able to return his family on the same day itself within 24
hours. (May be driving the return truck, not sure though.) This improves
the quality of life of drivers and also the moral of driver remains good. If
we compare this to other logistics companies, drivers generally spend 25 to
30 days away from family driving single vehicle. This reduces the
efficiency.
Case Study
“Logistics firm Rivigo to treble truck fleet to 3,000 units, banks on driver
relay system”.
The firm, which has a fleet of 800 trucks, claims that based on its
innovative ‘drivers relay system’, truck loads are delivered to Chennai from
DELHI in two days instead of conventional eight days.
He said the company is eyeing to occupy the top slot in logistics market as
its innovative relay model for drivers has not only facilitated their return to
home the same day but ensured the truck kept on moving, resulting in a
faster and efficient delivery of goods.
By drivers relay, the company made sure drivers got back home on the
same day (or within 24 hours) and thereby, saved 50-70 per cent of the
turnaround time on long haul routes.
Deepak Garg, the Founder, further said to tap the opportunities in the
sector, Rivigo plans to ramp up current network of 41 trucking pit-stops
and a similar number of processing centres to over 200 across the country
over the next 12 months.
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TRANSPORTATION INFRASTRUCTURE
3. Air Transportation
The newest but least utilized mode of transport is air freight. Its significant
advantage lies in the speed with which a shipment can be transported. A
coast-to-coast shipment via air requires only a few hours contrasted to
days with other modes of transportation. One prohibitive aspect of air
transport is the high cost. However, this can be traded off for high speed,
which allows other elements of logistical design, such as warehousing or
inventory, to be reduced or eliminated. The air cargo industry plays a
critical role as it is involved from the procurement cycle to the delivery of
the finished product overseas. Liberal and open sky policies are great
catalysts and can trigger unconstrained growth capability, which is
important for any developing economy.
UDAAN
Deloitte India partner, Peeyush Naidu, who is part of the team working with
the Ministry on UDAN, says that, besides looking at some of these
demands, the scheme also needs to expand to include freight by
identifying suitable business models at some point. Regional connectivity
can be expanded to include freight, move cargo in defined period of times
to either domestic hub airports or through AFSs (air freight stations), which
can be co-existing with multimodal logistics parks, CFSs (container freight
stations) and so on.
Air cargo offers clients the benefits of secure handling, speed and
geographic and temporal flexibility but, with per kilogram costs that
average six times those of ocean container freight, is relatively expensive.
That high cost is compensated by reduced inventory and warehousing
costs. Air cargo service has become increasingly more integrated and
ground-linked, characterized by door-to-door service from shipper to
customer, as opposed to airport to airport. That advantage has allowed
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Two major changes have taken place over recent years in many
manufacturing industries and it is due to these changes that air freight is
becoming a popular choice for transporting products internationally. The
reason for this increase is:
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Figure 2.8: Air Cargo Transportation
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TRANSPORTATION INFRASTRUCTURE
Air express service has been valued by a significant segment of the express
cargo market to the point that integrated express now accounts for an
estimated 11% of the international air cargo market. In the United States,
air express actually accounts for over 70% of all air cargo shipments,
despite its premium cost, and the average weight of each shipment has
now risen to approach six pounds. FedEx, UPS, and DHL are the largest
integrated air express companies with operations in over 200 countries
each and 952,000 employees, collectively. They own or operate 677, 577,
and 420 aircraft, respectively, placing each among the largest airlines in
the world and they serve over 300 airports internationally.
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TRANSPORTATION INFRASTRUCTURE
! !65
TRANSPORTATION INFRASTRUCTURE
The Air Cargo industry in the Indian market has seen unprecedented
growth in the last decade. This significant growth over the last few years is
expected to continue over the next decade. International cargo traffic is
concentrated on the three key international gateway airports — Mumbai,
Delhi, and Chennai. With the development of supporting infrastructure in
the new Greenfield airports, Bangalore and Hyderabad will also experience
higher traffic rates. Although international air cargo traffic is much higher
than the domestic traffic, the latter offers greater potential for Indian
investors, since regulations prevent foreign airlines from competing in the
domestic air cargo market.
Many interesting trends are taking place like the construction of an air
cargo hub in tier-II city of Nagpur in Maharashtra, rise in budget airlines
and cargo carriers with the relaxation in regulations. The cost of air-freight
is expected to drop in the coming years which will open up new economic
opportunities in India’s second tier cities which are now being added to the
air network. There are plans by many airlines to create full-fledged cargo
operations and it is expected that these cargo carriers will also move to
tier-II and tier-III cities. Even logistics companies are planning to acquire
their own aircrafts. All these augur well for aviation logistics and as the
demand for air cargo continue to grow steadily, it will attract many more
new players facilitating faster growth.
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TRANSPORTATION INFRASTRUCTURE
Domestic air freight market in India was at 568 metric tons in 2007-08
amounting to a total of Rs. 20,149 million. The market is likely to grow at a
rate of 12.9% in next 5 years and reach a figure of 1043 metric tons by
2012-13. At current realization level, this will amount to Rs. 36,986 million
by 2012-13.
Key players in the Domestic sector are Jet Airways (38% market share),
Indian Airlines (27% market share) and Blue Dart (17% market share). Jet
Airways also leads in value share at 38%, followed by Blue Dart at 26%
and Indian airlines at 22%. Mumbai and Delhi are the busiest ports with
Mumbai – Delhi being the most important sector.
The International air freight market in India was at 1146 metric tons of
which about 55 metric tons gets into interline movement within India. It is
estimated that the growth in the international sector will continue in the
coming years at an estimated growth rate of around 12.8% on a year-to-
year basis over the next five years.
Key players in the International sector are Singapore Airlines (12% market
share), Lufthansa (9% market share), Emirates (7% market share), Air
India (7% market share) and British Airways (7% market share).
Activity L
Drone Deliveries
Delivery drones are logistical devices that carry materials from a retail
outlet to their consumer’s location. The main purpose is to deliver a
product or material towards the intended target location. A delivery drone
provides a mechanical assistance to clients who are unable to carry heavy
objects. Delivery drones are used by retail outlets and logistics companies
around the world.
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TRANSPORTATION INFRASTRUCTURE
The main delivery drone users are logistics companies and retail outlets.
These companies heavily rely on commodity transfer from one place to
another. Using a set of delivery drones is very helpful to keep a continuous
logistic operation. One example is a product delivery service to the
intended consumer to their residents.
Today, there are drones that are big enough to challenge the size of cargo
planes. On the other hand, there are delivery drone types that are as small
as the size of your palm that carry smaller objects. Regardless of the size
or type, delivery drones are helpful for companies and retail outlets to
maintain market productivity. Adoption of drones within businesses is
poised to take off over the next five years. Companies around the globe
are working on solutions and services to leverage the technology’s
capabilities, and that’s especially true for delivery companies, which are
looking for ways to meet consumer demand for fast and cheap fulfillment
services.
Drones can be used to cut down the cost of shipments and potentially
attract customers. Deutsche Bank expects delivery automation to be the
greatest cost-reduction opportunity for
e-commerce giant Amazon, lowering the cost of last-mile shipping by 80%.
The advantages of offering drone delivery are too large to ignore, which
likely means that the development, testing and full deployment of these
types of services will accelerate.
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TRANSPORTATION INFRASTRUCTURE
1. Expensive device: Delivery drones are still expensive because they are
just introduced in the market. Only a few large companies use delivery
drones to improve their logistics operations. The average drone cost per
piece ranges between $50 for small and $500 for large drone.
2. Battery defects: Drones can easily drain their battery with just a few
minutes. Delivery drones easily runs their battery out while delivering
the products to a target location.
If delivering fails, it can generate complaints from consumers in the
market.
! !69
TRANSPORTATION INFRASTRUCTURE
!
Figure 2.9: Drone Deliveries
Amazon, for example, made more than five billion deliveries to Prime
customers in 2017, and a conservative estimate of the company’s shipping
costs is at the $20 billion mark for last year. Commercial drones can travel
at up to 100 mph and deliver goods under 5 lbs (2.3 kgs).
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TRANSPORTATION INFRASTRUCTURE
Activity M
Air way Bill: An airway bill is a shipping document airlines use. Similar to
a bill of lading, the airway bill is a contract between the shipper and airline
that states the terms and conditions of transportation. The airway bill also
contains shipping instructions, product descriptions, and transportation
charges.
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• Does not track the shipment while it is in the cartage agent's possession.
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Terminal: Freight building and grounds where shipments are prepared for
local delivery or transportation to other terminals.
Shortage: The number of units received is less than the quantity shown
on shipping documents. The outstanding units may be delivered later.
4. Water Transportation
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The significant cost saving shows that the promotion of Inland Water
Transport (IWT) is expected to have a positive impact on reduction in
overall logistics cost.
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*Inclusive of taxes
IWT is an energy and fuel efficient mode of transport with relatively low
operating costs and less negative effects on the environment.
The purpose of greening the inland waterway transport sector is that the
environment and the economy could go hand-in-hand. The emissions will
be an increasingly important economic factor and more and more
contracting authorities will ask for environmentally friendly transport. This
applies not only for the inland waterway transport, but for the whole
transport chain. As a result of this, there arises a strong need to an
overview of the emission problems and possible solutions.
Sea Transport
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Is the sailing an inducement sailing, the vessel will only call the port of
loading or discharge if there is sufficient cargo to load or discharge.
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A visit to any harbour around the world will highlight the many different
types of ships that one finds plying international waters. The most common
types of ships operating in international waters are given below:
• Conventional break bulk ships that carry only break bulk, non-
containerized cargo.
• Ro-Ro ships that are multipurpose, with the addition of a stern ramp, to
the quayside, by which cargoes are received and dispatched.
• Lo-Lo vessels have their own gantry or crane on board. These vessels
can load and discharge their own cargoes.
Activity N
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The shipping sector has witnessed significant cyclicality in the last decade
with a surge in freight demand in the middle of the decade slowing down
dramatically owing to a global recession towards the end. With the sector
completely open to foreign investment, there have been significant
improvements in shipping capacity available to Indian manufacturers and
traders as well as operational and scale efficiencies. Today, India is firmly
placed within the global liner network connecting Indian importers and
exporters to the remotest parts of the world. The average capacity and
parcel size of a vessel calling Indian ports has trebled since the beginning
of the decade and there have been significant improvements in turnaround
time and similar measures of operational efficiency. There has been
significant investment made in the sector both by Indian shipping
companies and international organizations alike. Challenges, however,
remain both on the physical and operational front as well as on the policy
front. Indian shipping is not able to achieve its full potential restricted by
limited draft availability in most ports, sub-optimal distribution of port
capacity across the coastline, limited road and rail evacuation capabilities
and restrictive legislative infrastructure in terms of tax and other policies.
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Commercial Invoice: The commercial invoice is a bill for the goods from
the seller to the buyer. These invoices are often used by governments to
determine the true value of goods for the assessment of Customs duties
and are also used to prepare consular documentation. Governments using
the commercial invoice to control imports often specify its form, content,
number of copies, language to be used, and other characteristics.
Cost and Freight (C&F): Cost and Freight (CFR) to a named overseas
port of import. Under this term, the seller quotes a price for the goods that
includes the cost of transportation to the named point of debarkation. The
cost of insurance is left to the buyer's account. (Typically used for ocean
shipments only. CPT, or carriage paid to, is a term used for shipment by
modes other than water.) Also, a method of import valuation that includes
insurance and freight charges with the merchandise values.
Cost, Insurance and Freight (CIF): Cost, insurance, and freight (CIF) to
a named overseas port of import. Under this term, the seller quotes a price
for the goods (including insurance), all transportation, and miscellaneous
charges to the point of debarkation for the vessel. (Typically used for ocean
shipments only.)
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Return to Top
FCL or CY: Full Container Load, also known as CY. CY is the abbreviation of
Container Yard. When the term CY to CY, it means full container load all the
way from origin to destination.
River Freight: In many countries around the world, from North America to
Asia and from Europe to Africa, river transportation is extremely important
and these countries could not survive without river transportation. To some
extent, river transportation is dealt with in a similar way to sea freight and
pretty much any type of cargo can be transported along some of the larger
rivers in the world. Other rivers may have width and depth problems,
requiring the cargoes to be transported overland instead.
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India's 7,500 kms coastline and over 14,000 kms of navigable waterways
make it an ideal geography to effect transportation by coastal shipping and
inland waterways movement. Coastal shipping and inland waterways are
two modes that are cost-efficient and environment friendly but are
currently rendered unattractive due to a relatively restrictive policy regime
and market dynamics. Coastal shipping requires very simple infrastructure,
unlike the ocean-going vessels, with provision for smooth transfer of cargo
between coastal ships and ocean-going ships. Most major ports are ill-
equipped as far as providing infrastructure to coastal shipping vessels is
concerned. Ocean-going vessels and coastal shipping vessels are treated
on par and ports do not differentiate them in terms of port charges which
are not conducive to the incubation of an industry in its infancy.
5. Pipeline Transportation
As for gases and liquids, any chemically stable substance can be sent
through a pipeline. Therefore, sewage, slurry, water, or even beer pipelines
exist; but arguably the most valuable are those transporting crude
petroleum and refined petroleum product including fuels: oil, natural gas
(gas grid), and biofuels.
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6. Ropeways
A cargo airline uses a freight terminal to load and unload the cargo onto
airplanes. This type of airline specializes in sending large packages and
uses airplanes that are larger than familiar passenger planes. Most cargo
plans have large cargo holes at the rear of the aircraft that are used for
loading and unloading packages. A cargo airline is often used by the
military to transport heavy equipment and construction material.
At railroad terminals, special freight cars are loaded onto trains so that
goods can be transported across large areas. Many railroad terminals are
located at seaports, where freight cars are loaded onto trains from ships.
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These freight cars hold many bulk materials including stone, steel, and
wood. The automobile industry relies on freight terminals to ship cars and
trucks. These terminals are located near assembly plants so manufacturers
can send newly assembled cars around the world.
Rail
• Slow, but inexpensive way to transport heavy freight that doesn’t require
special handling, long distances
Road
Water
• Very slow, but inexpensive way to transport large, heavy freight over
long distances (e.g., oceans, rivers, inland waterways, lakes)
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Air
• Very fast; used for transporting high value and/or high perishability
product over short to medium distances
Pipeline
Table 1.a
Operating Characteristics Rail Road Water Air Pipe
Speed 3 2 4 1 5
Availability 2 1 4 3 5
Dependability 3 2 4 5 1
Capability 2 3 1 4 5
Flexibility 3 1 4 2 5
Composite 13 9 17 15 21
1 = best, 5 = worst
Activity O
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of rail, motor, and air. Package service provides both regular and premium
services.
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Activity P
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2.8 SUMMARY
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8. Explain at least two strategies that a firm can use to overcome the
challenges related with the air transportation infrastructure.
9. In comparison to the Air, Rail and Road transport, how is the Inland
Waterways Transport advantageous?
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4. The analytical data collected in the supply chain process can be used to
devise sales strategies, reduce costs and manage inventories.
(a) True
(b) False
5. Logistics is a part of SCM involved with the forward and reverse flow of
_________.
(a) Goods and services
(b) Costs and inventories
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Answers:
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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TRANSPORTATION OPERATIONS
Chapter 3
Transportation Operations
Objectives
Structure
3.4 Documentation
3.5 Summary
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Introduction
Confronted with these and many other challenges, how can organizations
strategically streamline their transportation and logistics processes to
maximize supply chain efficiencies, customer satisfaction and profit
margins?
Economics and pricing are concerned with factors and characteristics that
drive cost. To develop effective logistics strategy, it is necessary to
understand such factors and characteristics. Successful negotiation
requires a full understanding of transportation economics. An overview of
transportation economics and pricing builds upon four topics: (1) the
factors that drive transport costs, (2) the cost structures or classifications,
(3) carrier pricing strategy, and (4) transportation rates and ratings.
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Activity A
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!
Figure 3.1: Generalized Relationships between Distance and
Transportation Cost
2. Weight: The second factor is load weight. Transport cost per unit of
weight decreases as load volume increases. Fixed costs of pickup and
delivery as well as administrative costs get spread over additional
volumes. Smaller loads must be consolidated into larger loads.
This relationship, illustrated in Figure 3.2, indicates that transport cost per
unit of weight decreases as load size increases.
Activity B
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!
Figure 3.2: Generalized Relationships between Weight and
Transportation Cost
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Activity C
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Activity D
• How can one achieve the optimum stowability while transporting goods?
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i. Variable Costs: Variable costs or direct costs are expenses that change
in direct proportion to the activity of a business. Costs that change in a
predictable, direct manner in relation to some level of activity are
labeled variable costs. Variable costs include direct carrier costs
associated with movement of each load. For example, fuel, travel time
and crash risk are variable vehicle costs because they increase directly
with vehicle mileage. These expenses are generally measured as a cost
per mile or per unit of weight. Typical variable cost components include
labor, fuel, and maintenance.
ii. Fixed Costs: It is important to realize that fixed costs are fixed only
within a certain range of activity or over a certain period of time. If
enough time passes, all costs become variable.
Fixed costs are expenses whose total does not change in proportion to
the activity of a business. (Indirect costs may be fixed or variable.) Fixed
costs are associated with fixed inputs. Fixed costs can be further
subdivided for many transport operations into “Standing Costs” (i.e.,
vehicle operating costs which do not vary with vehicle usage but are
specific or traceable to particular vehicles) and “Administrative
Overheads” (i.e., general fixed costs that cannot be directly attributed to
particular vehicles or services).
iii. Joint Costs: A joint cost occurs when the production of one good
inevitably results in the production of another good in some fixed
proportion. For example, consider a rail line running only from point A to
point B. The movement of a train from A to B will result in a return
movement from B to A. Since the trip from A to B inevitably results in
the costs of the return trip, joint costs arise.
iv. Common Costs: Common costs arise when the facilities used to
produce one transport service are also used to produce other transport
services (e.g., when track or terminals used to produce freight services
are also used for passenger services).
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Activity E
• What are the major differences between: (a) fixed costs and variable
costs and (b) joint costs and common costs?
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Activity F
• Which among the four pricing strategies are most simple to calculate?
Why?
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The rate is the price to move a product per hundred weight between two
locations (also known as tariffs) or per mile in TL. Rates may include
minimum charges and surcharge (e.g., to cover fuel cost risk).
(i) Class Rate: The intent of the class rate system is to simplify the
process for pricing freight with inherently different freight
characteristics. Rather than have a unique price for each and every
commodity, articles with similar freight characteristics are assigned to
common freight ‘classes’. The logic is, the lower the class the lower the
price. The principle factors used in the freight classification process are:
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Activity G
• How does packaging affect the ratings given while classifying the
products?
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Rating may also include the development of narrative and exhibit material
and related information to be used by others request and negotiate new or
revised rates; it may also include the preparation of material concerning
rate matters in cases to be presented before representatives of the
carriers, regulatory bodies, and the courts. The steps in the rating process
are also followed in the pre-audit and post-audit of freight bills since the
purpose is to determine appropriateness of the classification, rates, routes,
and the actions of the carriers.
Activity H
• Why are minimum and surcharges paid over and above the variable
rates?
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(v)Exception Rates: Some carriers will offer exception ratings when the
characteristics of a commodity varies from the characteristics of the
same commodity in a different region. This allows carriers to offer
discounts to shippers which operate large volumes of shipments, or if
there is increased competition.
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Activity I
Joint Rate: Rate which applies for carriage over the lines of two or more
carriers and which is published as single amount (air cargo).
Local Rate: Charge which applies to carriage over the lines of a single
carrier (air cargo).
Activity J
• FAK Rate; Local Rate; Joint Rate; Proportional Rate: Mention when each
of them are applicable.
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Activity K
Table 3.1
COD: Collect payment on delivery
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Fuel
As unstable as fuel prices are these days, the need for fuel is one of the
biggest guessing games that the logistics industry faces when planning for
the future. Many logistics companies are making the move to Hybrid
electric vehicles (HEVs). However, this is out of the budget of many for the
time being.
That doesn’t mean there’s nothing a logistics company can do to cut down
on fuel, though. For example, changing to fuel-efficient tyres can shave up
to 10% off fuel costs, and training drivers to cut down on idling time can
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It is important for supply chain managers to keep an eye out for these
incentives and grab the opportunity while it’s available. Investing in
renewable energy, for example, will cut down on operating costs in the long
run, with the government tax incentives thrown in as a bonus.
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• They will create a carbon report that provides you with the confidence to
design your own carbon reduction strategy.
There are many ways for a company to reduce their ecological impact.
• Packing items more efficiently: Packing the items in a way that more
can fit in a single box;
Activity L
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Yard process execution – check in/out trailers and tractors, and park
trailers at staging areas or move to dock doors for loading/unloading.
Load Planning
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Software packages will help with some of these tasks, for example, to
match the size of loads with the vehicles needed to move them etc.
Movement Administration
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Activity M
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Freight costs are directly related to size of shipment and the length of haul
places a premium upon freight consolidation. Traffic management is the
business function responsible for achieving freight consolidation. Cargo
consolidation is a service provided by a freight forwarder in which several
smaller shipments are assembled and shipped together to avail of better
freight rates and security of cargo. Also called assembly service, cargo
consolidation, or freight consolidation.
Why drive alone when you can take mass transportation? The same theory
applies to businesses sourcing transportation. Why have two trucks deliver
half-full when one can carry the entire load?
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TRANSPORTATION OPERATIONS
Activity N
Activity O
Activity P
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3.3.3 Negotiation
The key principle of carrier rate negotiation is: volume is king, but
profitability is queen. A shipper with enormous volumes, can negotiate
from a position of strength.
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Vehicle management systems are also structured in a way that enables the
capturing of information on various aspects of fleet usage, maintenance
and operations. For example:
• distances travelled;
• destinations reached;
• distance travelled by vehicle showing official and private mileage;
• fuel consumption;
• repair and maintenance per vehicle;
• rate of consumption of spare parts; and
• servicing planned and completed.
Activity Q
• How did the regulation on Hours of Service bring about a change in the
working conditions of the truck driver?
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Activity R
Activity S
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3.4 Documentation
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!
Figure 4: Bill of Lading
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The freight bill may be either prepaid or collect. A prepaid bill means that
transport cost is paid by the shipper prior to performance, whereas a
collect shipment shifts payment responsibility to the consignee.
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3.5 Summary
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3. Describe the difference between a rate and a rating. How do they relate
to classification?
7. What is the role of the freight bill and the bill of lading in a
transportation transaction?
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TRANSPORTATION OPERATIONS
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TRANSPORTATION OPERATIONS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !130
OPERATIONAL INTEGRATION
Chapter 4
Operational Integration
Objectives
Structure
4.8 Summary
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OPERATIONAL INTEGRATION
Introduction
The reason for having value integration is to establish how you work with
your supply chain partners, including suppliers, distributors, customers,
and even your customers’ customers. As the marketplace becomes more
competitive, it is critical to reinforce existing relationships and work
together. And for all these reasons, a well executed value integration
results in value creation for the organization.
A truly integrated supply chain does more than reducing costs. It also
creates value for the company, its supply chain partners, and its
shareholders. The foundation of integration is information sharing.
Coordination is the next dimension. Then comes the organizational linkages
that enable sharing of risks, costs, and gains. There has been a drastic
increase in the pressure on organizations to find new ways to create and
deliver value to customers through SCM and marketing initiatives. The goal
of SCM and marketing integration is to create unique competitive
advantages by linking together customer values with a more effective flow
of products. The flow must always be refined and create customer value
proposition in a constantly changing market.
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Following are the major drivers for SCM and marketing integration:
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Activity A
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Value results from the synergy among firms constituting a supply chain as
a result of five critical flows: information, product, service, financial, and
knowledge. It is imperative that every company specifically define the
functional responsibility of all departments within each of their
organizations. Integrating activities both within and beyond organizational
boundaries has become and will continue to be a major challenge for
supply chain executives. Integration efforts now extend beyond traditional
product-process design and functional integration to focus on extra-
organizational links with customers and suppliers. The object is to produce
"supply chain-enhanced" products and services. This eliminates any doubt
as to which department has responsibility for addressing any issues that
arise.
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Supply chain integration focuses on two key issues – alignment and linkage
– both inside an organization and across organizations.
Supply chain integration (Figure 4.1) calls for every organization and
individual involved in the process to understand that they can all benefit
from their efforts. The supply chain is a multi-organizational team that
should be working together. Although the buyer has the most to gain, the
supplier’s and the transportation company’s observations can often lead to
improvement in the manner the supply chain functions. An integrated
supply chain should benefit all participants. Logistics is the primary conduit
of product and service flow within a supply chain arrangement.
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OPERATIONAL INTEGRATION
!
Figure 4.1: Supply Chain Integration
Activity B
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OPERATIONAL INTEGRATION
Activity C
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Evaluation and reward systems are mechanisms that a firm can use to
stimulate or foster cooperation between functional areas. Adequate
incentives can bring together disparate individuals to achieve common
goals. Thus, firms whose evaluation and reward systems recognize
cooperation and teamwork may experience higher levels of marketing/
logistics cross-functional collaboration and more effective marketing/
logistics inter-departmental relations.
!
Figure 4.2: Cross Functional Integration
Activity D
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Activity E
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OPERATIONAL INTEGRATION
Activity F
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OPERATIONAL INTEGRATION
Activity G
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OPERATIONAL INTEGRATION
Activity H
The final logistical design objective is life cycle support. Few items are sold
without some guarantee that the product will perform as advertised over a
specified period. In some situations, the normal value-added inventory flow
toward customers must be reversed. Product recall is a critical competency
resulting from increasingly rigid quality standards, product expiration
dating and responsibility for hazardous consequences. Return logistics
requirements also result from the increasing number of laws prohibiting
disposal and encouraging recycling of beverage containers and packaging
materials.
The most significant aspect of reverse logistical operations is the need for
maximum control when a potential health liability exists (i.e., a
contaminated product). In this sense, a recall program is similar to a
strategy of maximum customer service that must be executed regardless
of cost. The operational requirements of reverse logistics range from lowest
total cost, such as returning bottles for recycling, to maximum
performance solutions for critical recalls. The important point is that sound
logistical strategy cannot be formulated without careful review of reverse
logistical requirements.
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OPERATIONAL INTEGRATION
Activity I
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OPERATIONAL INTEGRATION
Silo Mentality
In many instances, firms have not considered the impact of their actions on
the supply chain and its long-term competitiveness and profitability. Silo
mentality manifests itself in the form of using cheaper suppliers, paying
little attention to the needs of customers, and assigning few resources to
new products and service design. Eventually, these firms will create quality,
cost, delivery timing, and other customer service problems that are
detrimental to the supply chain. Cachon (2005), in his paper, describes silo
mentality as the most significant obstacle to overcome in supply chain
management of most companies.
Internally, the silo effect can also be present among departments. The
transportation manager for instance, may be trying to minimize total
annual transportation costs while inadvertently causing safety stocks to be
higher, shortages to occur, and customer service levels to deteriorate. To
overcome the silo mentality, the firm must strive to align supply chain
goals and the goals and incentives of the firm. Functional decisions must
be made while considering the impact on the entire firm’s profit and those
of the supply chain. Performance reviews of managers must include their
ability to integrate processes internally and externally and to meet the
overall supply chain goals.
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OPERATIONAL INTEGRATION
Activity J
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OPERATIONAL INTEGRATION
Activity K
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OPERATIONAL INTEGRATION
The cultural, trust, and process knowledge differences in firms are such
that firms successfully managing their supply chain must spend
significant amount of time influencing and increasing the capabilities of
themselves and their partners. Change and information sharing can be
threatening to people; they may fear for their job security, particularly if
outsourcing accompanies integration. Additionally, as firms construct
their supply chain information infrastructure, they may find themselves
with multiple ERP systems, a mainframe manufacturing application, and
a desktop analysis and design software that all need to be integrated
both internally and externally. Thus, firms must realize that the people to
be using the system must be involved earlier on, in terms of purchase
decision, the implementation process, and in training. For all
organizations, successful supply chain management requires a regiment
of ongoing training. When education and training are curtailed,
innovation cannot occur, and innovation fuels supply chain
competitiveness (Wisner et al, 2006).
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OPERATIONAL INTEGRATION
Activity L
Integration across the total supply chain began to achieve the end-to-end
efficiencies that many had anticipated. There were also some unintended,
but positive, consequences. For one thing, increased connectivity allowed
suppliers to become involved in new product innovation. Moreover,
companies that gained more end-to-end visibility began to tap expertise
that previously had been excluded from activities that affected consumers.
The result was not only greater supply chain efficiency but also major
increases in effectiveness and customer relevancy.
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Activity M
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OPERATIONAL INTEGRATION
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OPERATIONAL INTEGRATION
Each of the eight supply chain management processes has both strategic
and operational elements - that is, a strategic element in which the firm
establishes and strategically manages the process and an operational
element in which the firm executes the process. The strategic elements
should be led by a management team comprised of representatives from
multiple functions including marketing and sales, finance, production,
purchasing, logistics, and research and development. This team is
responsible for developing the procedures at the strategic level and seeing
that they are implemented. The strategic team also identifies how the
external partners will be integrated into the supply chain. The operational
component of each process, where the day-to-day activities take place, is
executed by the managers within each functional area.
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Activity N
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OPERATIONAL INTEGRATION
Activity O
Sales and Operations Planning ties together your operational plan with your
strategic business plan, providing a holistic view of demand, supply, and
finance so that you can literally plan to profit. Sales & Operations Planning
provides a holistic framework for balancing demand with supply and
incorporates key financial measures to ensure the operational plan is
aligned with the strategic plan to produce the best possible business
results.
With multiple "what if" scenarios on both demand and supply, the best plan
to meet the customer service and financial goals can be identified,
responded more quickly to the changing landscape of demand, and
ensured the S&OP process remains strong throughout the business.
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OPERATIONAL INTEGRATION
• Senior executives
• Demand planning managers
• Production managers
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OPERATIONAL INTEGRATION
Table. 4.3
Manufacturing: Marketing Logistics and New Product
Distribution: Development
“Sales are highly “There’s a new “We will require “I can guarantee
ove-rstated, we promotion we exc-essive that this new
will figure out need to do next overtime and air product will fly out
what to decrease “ week.” freight to of the warehouse
accomplish what is
being asked of us.”
Activity P
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OPERATIONAL INTEGRATION
!
Figure 4.3: S&OP Process
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OPERATIONAL INTEGRATION
Activity Q
Activity R
1. Demand Planning
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OPERATIONAL INTEGRATION
According to research, there are three main obstacles facing the industry in
the area of forecast accuracy performance, as follows:
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OPERATIONAL INTEGRATION
Collaboration is Key
Activity S
2. Production Planning
The goal of production planning is to help you produce your products more
efficiently. Supply and demand plans need to be transformed into feasible
and meaningful production and purchasing plans and schedules. The
production planning process determines when a specific production order
needs to be produced and on which production line. It also takes into
account the availability of resources and components. Purchasing/
production orders are generated in time to decrease supply costs without
endangering the production process.
! !159
OPERATIONAL INTEGRATION
Although there has been a definite trend toward make-to-order (MTO) and
assemble-to-order (ATO) manufacturing, such response-based practices
are not always possible because of production technology, capacity,
resource constraints, or customer requirements. The limitations occur in
the form of facility, equipment, and labor availability.
Activity T
3. Logistics Planning
! !160
OPERATIONAL INTEGRATION
Activity U
• What is the kind of coordination that takes place between the logistics
department and its channel partners while devising a logistical plan?
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! !161
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!
Figure 4.5: Advance Planning and Scheduling Overview
! !162
OPERATIONAL INTEGRATION
• Material availability
• Machine and labour capacity
• Customer service level requirements (due dates)
• Inventory safety stock levels
• Cost
• Distribution requirements
• Sequencing for set-up efficiency
Resource Management
! !163
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! !164
OPERATIONAL INTEGRATION
ATP is used to designate that even though actual inventory is not currently
available, it will be available for shipment or promise at a specific date in
the future. CTP is used to designate when requested product can be
promised for future delivery. ATP and CTP can dramatically enhance supply
chain performance and effectiveness by allowing commitments against
future production and capacity. The result is more rapid commitments to
customers, fewer customer surprises, and enhanced resource utilization.
! !165
OPERATIONAL INTEGRATION
Activity V
• What are the APS Systems components? Write 2-3 lines on each of their
functions.
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There are three broad benefits that accrue from planning system
utilization. These are responsiveness to changes, comprehensive
perspective, and resource utilization.
First, logistics and supply chain managers have used extended lead times
and schedule freezes to plan for future supply chain activity. For example,
production would be scheduled three to four weeks into the future and
then frozen to minimize uncertainty and allow for effective resource
utilization. Long lead times and freeze periods were necessary since the
planning process was complex and required substantial analyzes. While this
approach reduced uncertainty, it also substantially reduced flexibility and
responsiveness. Today’s customer requires more responsiveness to market
needs, and demand for lower inventory levels rules out long cycle times.
Marketplace and firm changes can be quickly made in the demand
management and resource management modules, allowing for the
planning process to use the most current and accurate information. The
requirements optimization module then solves the allocation, allowing daily
and single week planning cycles rather than multiple weeks or months.
Supply chain planning thus results in a process that can be much more
responsive to marketplace or firm changes.
! !166
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Activity W
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! !167
OPERATIONAL INTEGRATION
! !168
OPERATIONAL INTEGRATION
Activity X
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! !169
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4.8 Summary
The time has come to accept integrated logistic support as the only
definition for total logistics involving both management and technical
activities. In order to be competitive, management needs to closely
integrate all functions of the organization. Logistics in itself has no
purpose. Logistics supporting an organization in an integrated way provides
an impetus to achieving the goal, MAKING MONEY.
! !170
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7. Why does trust play such an important part between supply chain
partners?
8. How do reward systems serve as barriers to enterprise integration?
10.What is the process that aligns raw material and production to meet
demand?
! !171
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5. Customer satisfaction relies heavily on how fast you can respond to his
demands.
(a) True
(b) False
! !172
OPERATIONAL INTEGRATION
Answers: 1. (d), 2. (c), 3. (c), 4. (ii), (iii) and (iv), 5. (a) 6. (b), 7. (b),
8. (b), 9. (d)
! !173
OPERATIONAL INTEGRATION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !174
GLOBAL STRATEGIC POSITIONING
Chapter 5
Global Strategic Positioning
Objectives
Structure
5.4 Summary
! !175
GLOBAL STRATEGIC POSITIONING
Introduction
GSCM makes it possible to build and deliver products better, faster, and
cheaper. Supply chain managers have a tremendous impact on the success
of an organization. These managers are engaged in every facet of the
business process – planning, purchasing, production, transportation,
storage and distribution, customer service, and more! In short, these
managers are the "glue" that connects the different parts of the
organization. Their performance helps organizations control expenses,
boost sales, and optimize profits.
! !176
GLOBAL STRATEGIC POSITIONING
!
Figure 5.1: Global Supply Chain Integration
! !177
GLOBAL STRATEGIC POSITIONING
Supply chain use a combination of various modes like air, package carriers,
trucks, rails, water, pipelines and Intermodal for the transportation
purpose. Logistics firms operate with considerable specialized knowledge
on the movement of goods, the use of information, and the organization of
supply chains, all of which are particularly complex in the case of
international shipments. The logistics industry also plays a pivotal role in
the contemporary global economy by enabling cross-border coordination of
production and making possible the seamless flow of commodities globally.
! !178
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Activity A
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While firms and supply chains are trying to increase product velocity in the
supply chain to lower cost by reducing product storage time and damage,
the transit times and border delays characteristic of global logistics
constrain product velocity. Extended transit times and exposures in-transit
increases the product risk for intentional or unintentional damage as well
as reducing velocity and ultimate flexibility. However, over time, business
units operating within a foreign market area will adopt local business
practices.
! !179
GLOBAL STRATEGIC POSITIONING
Activity B
• What are the complexities involved for a company which is doing its
business overseas?
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These are enterprises that effectively make decisions with little regard to
national boundaries. In these, even though historically they have a country
foundation, a high percentage of its sales, ownership and assets are
outside the country of origin, e.g., ABB Switzerland, ICI Britain, Nestle
Switzerland, Phillips Netherlands, etc.
Managers are able to identify and evaluate alternative strategies and have
the authority for implementation. Search for alternative materials, logistics
service providers, manufacturing plants, warehouses, customer alliances,
etc. There is a need to develop and implement flexible systems and
procedures. Product sourcing and marketing decisions can be made across
a wide range of geographical alternatives. Systems and procedures are
designed to meet individual country requirements and are aggregated as
necessary to share knowledge and for financial reporting. It is actually
through the levels of global integration that the global logistics
perspectives vary.
Activity C
! !180
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! !181
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Activity D
! !182
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Transportation
Activity E
! !183
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Operational Considerations
! !184
GLOBAL STRATEGIC POSITIONING
Activity F
Systems Integration
Global Supply Chain Integration is, above all, about integrating data feeds
to provide a holistic view of the system performance. The choice of a
centralized or distributed SC infrastructure should not be driven by
technology but rather by real business needs.
Alliances
! !185
GLOBAL STRATEGIC POSITIONING
Activity G
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! !186
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their unique characteristics and expand the depth and breadth of the
processes to meet the requirements of their organizations.
Once a firm has identified and prioritized the risks that it faces, it can
devise risk treatment plans. This includes measures to protect the supply
chain from risks, plans to respond to events that these risks may cause,
and plans to continue operations in the face of disruptions and fully
recovering from them. This may also involve determining ways to measure
risks and the effectiveness of plans to limit them or to respond to
disruptions. Enterprises must also undertake continual communication and
consultation as well as monitoring and review throughout this process.
Monitoring and review entails not only evaluating the effects of risk
treatment but also maintaining the plan and responding to changes in
suppliers, processes, and regulation affecting elements of the supply chain.
It also entails continually identifying opportunities for improvement.
! !187
GLOBAL STRATEGIC POSITIONING
!
Figure 5.2: Supply Chain Risk Mitigation
Activity H
! !188
GLOBAL STRATEGIC POSITIONING
! !189
GLOBAL STRATEGIC POSITIONING
!
Figure 5.3: Security Solution and Design
Several factors have made crafting a supply chain and sourcing strategy a
central focus for firms, including rapid changes in demand for products and
services, the globalization of the economy, and the availability of advanced
planning and communication tools for coordinating the activities of supply
chain participants.
! !190
GLOBAL STRATEGIC POSITIONING
Although cost savings remains the top reason for companies to focus on
emerging markets and LCCR, the other reason is the competitive edge,
which these companies can enjoy. They can successfully carve substantial
markets for themselves by offering the products in the local markets as
well.
Activity I
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! !191
GLOBAL STRATEGIC POSITIONING
Apart from the hunt for capable suppliers, a number of cultural and political
differences might keep companies away from establishing contacts in the
country they choose. Language remains a major issue and is accompanied
by the problems related to norms, standards and specifications which you
want to convey to the supplier. Labor quality, business license limitations,
project management challenges and technical capabilities in the supply
base also play an important role in determining LCC sourcing success.
Although legislations in most of these countries are evolving rapidly to
protect copyrights and patents, companies will need to be warned about
IPR (International Property Rights) risks when you are choosing vendors in
any of these nations.
Activity J
! !192
GLOBAL STRATEGIC POSITIONING
! !193
GLOBAL STRATEGIC POSITIONING
Activity K
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! !194
GLOBAL STRATEGIC POSITIONING
5.4 Summary
Global operations are becoming more of the norm for logistics and supply
chain executives. Decisions regarding global sourcing and marketing
require more complex trade-off analyses than traditionally required for
domestic logistics. Both the quantitative and qualitative factors are more
complex. While transportation, inventory, and warehousing costs are very
substantial for global operations, other cost components, including taxes,
tariffs, duties, documentation, and import restrictions, can also have a
substantial impact on true total cost. However, in addition to the
quantitative considerations, international operations introduce a number of
other variables that are much more difficult to quantify. Many of these
variables relate directly to logistics operations. The major qualitative
considerations include relationship management, infrastructure
consistency, production and transit reliability, and security. With increased
global marketing and manufacturing operations, logistics management
needs to be more involved in developing and implementing global
strategies.
! !195
GLOBAL STRATEGIC POSITIONING
! !196
GLOBAL STRATEGIC POSITIONING
Answers: 1.(d), 2. (a), (b) and (c), 3. (c), 4. (d), 5. (b) They are more
complex in a global market
! !197
GLOBAL STRATEGIC POSITIONING
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !198
NETWORK INTEGRATION
Chapter 6
Network Integration
Objectives
Structure
! !199
NETWORK INTEGRATION
Introduction
! !200
NETWORK INTEGRATION
In a discrete facility location problem, the selection of the sites where new
facilities are to be established is restricted to a finite set of available
candidate locations. It refers to choosing the locations for distribution
centers, warehouses, and production facilities to facilitate logistical
effectiveness and efficiency. The major factors influencing decisions are
markets and resource availability; most facilities are located near one or
the other. Labor and transport services are two other key factors in facility
location. Also, advantages in technology and communications have had
considerable influence on locational decisions in recent years.
! !201
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Facility location has a long-term impact on the supply chain and must be
part of the firm’s strategy. Companies can locate anywhere in the world
due to increased globalization, technology infrastructure, transportation,
communications, and open markets. Location still matters as clusters in
many industries show that innovation and competition are geographically
concentrated.
Customers fell that unless a supplier maintained inventory within the local
market area it would be difficult, if not impossible, to provide consistent
delivery. This perception, commonly referred to as the local presence
paradigm, resulted in inventories being maintained in a numerous local
markets. Some firms went so far as to have full-line inventory warehouses
located near all major sales markets.
! !202
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Activity A
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! !203
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Activity B
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! !204
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Such a life cycle focus is the result of distinct buying practices that directly
impact the nature and functionality of supply faced warehousing. Value-
added services related to procurement are increasingly being de-bundled
from the purchase price. Such de-bundling facilitates functional absorption
and spin-off between manufacturers and their suppliers. There is also a
trend toward more response-based business strategies which is redefining
expectations concerning supplier support and participation in the value-
added process. The result is new structural relationships, such as tier one
suppliers and lead facilitators.
Activity C
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! !205
NETWORK INTEGRATION
Activity D
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! !206
NETWORK INTEGRATION
! !207
NETWORK INTEGRATION
Activity E
Market-based ATO
! !208
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Activity F
! !209
NETWORK INTEGRATION
Activity G
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Though keeping inventory at any stage of the supply chain has well-known
costs, inventory and the warehouses that maintain stocks serve many
necessary purposes. Finished goods inventory ensures that customer
demand is met, regardless of market uncertainty and volatility in today’s
competitive environment. The same can be said for raw materials
warehouses that ensure that inputs are readily available for manufacturing.
Whether warehouses are truly necessary is becoming an issue of debate.
Information technologies and just-in-time delivery systems are reducing
the necessity of maintaining vast amounts of inventory. Fewer warehouses
must be utilized under these considerations, lessening the “evil”, costly
nature of their existence.
! !210
NETWORK INTEGRATION
can provide service as a result of spot stocking, full line stocking, product
support, and market presence.
Activity H
! !211
NETWORK INTEGRATION
shippers and offers prices based on its existing lane network and the lanes
it is anticipating to get by the time of service.
The shipper procures the transportation service from the carrier that offers
the lowest price for the shipper’s freight request. A key aspect that affects
the carrier’s operational cost is asset repositioning. Asset repositioning,
equivalently deadheading, is an empty truck movement from a delivery
location to a pickup location. Carriers often have to reposition their assets
to satisfy the demands of different shippers. Asset repositioning decreases
the capacity utilization of the carrier, which results in an increase in
operational costs.
!
Figure 6.1: Transportation Cost as a Function of the Number of
Warehouse Locations
! !212
NETWORK INTEGRATION
Inventory refers to the stock of materials of any kind stored for future use,
mainly in the production process. Semi-finished goods, which are awaiting
use in the next process, or finished goods, which are waiting for sale, are
also included in this broad category. But these are practically idle
resources. Thus, inventories are materials/resources of any kind having
some economic value, either awaiting conversion or use in future.
! !213
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! !214
NETWORK INTEGRATION
! !215
NETWORK INTEGRATION
companies do not want to keep unused stock on hand, but they also do not
want to run short.
Activity I
In-transit inventory generally refers to the goods that have not yet made it
from one company to another. This wholesale-to-retail transaction can
sometimes take a significant amount of time to occur, especially when it
involves the shipping of a large quantity of goods overseas from a
manufacturer to either a wholesale supplier or directly to a retailer.
! !216
NETWORK INTEGRATION
!
Figure 6.2
Activity J
! !217
NETWORK INTEGRATION
!
Figure 6.3
! !218
NETWORK INTEGRATION
Activity K
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! !219
NETWORK INTEGRATION
"C" Category items represent 50% of actual items but only 5% of the
inventory value. Most organizations can afford a relatively relaxed
inventory process surrounding these items (Figure 6.4).
! !220
NETWORK INTEGRATION
!
Figure 6.4
Economic order quantity (EOQ) is that size of the order which gives
maximum economy in purchasing any material and ultimately contributes
towards maintaining the materials at the optimum level and at the
minimum cost.
! !221
NETWORK INTEGRATION
quantities may decrease the unit cost of acquisition, but this saving may
not be more than offset by the cost of carrying materials in stock for a
longer period of time. (Figure 6.5).
!
Figure 6.5
2*A*Cp
! Ch
Where, A = Demand for the year
Cp = Cost to place a single order
Ch = Cost to hold one unit inventory for a year
TRC = Total Relevant Cost
Variables
C = Carrying cost per unit per year
Q = Quantity of each order
F = Fixed cost per order
D = Demand in units per year
! !222
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Calculation:
2*16,000*$50
=800 units perorder
! $2.50
Activity L
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! !223
NETWORK INTEGRATION
service associated with any given least total cost system design is referred
to as the threshold service level.
Activity M
Of course, logistics costs will largely depend on the nature of the goods.
The process is quite different for perishable and imperishable goods.
! !224
NETWORK INTEGRATION
Consolidated Shipments
It goes without saying that shipping goods in FCL (full container loads) is
preferable to LCL (less than a container load); it’s safer and more cost-
effective. Also, your goods are loaded according to your specifications in a
space that is not shared with other vendor goods. Otherwise, you may
experience customs delays through no fault of your own.
This being said, there are circumstances when LCL is the preferred and
more economical option. Namely, for transporting a relatively small freight,
a good way to reduce logistics costs is by consolidating shipments. This
involves a combination of several smaller shipments from multiple
suppliers sharing the same destination into one consolidated shipment.
Cargo insurance
Logistics planning and cost saving strategies won’t mean much if you don’t
insure your cargo properly. The insurance should fully cover the value of
your products to prevent unpleasant surprises.
! !225
NETWORK INTEGRATION
Outsourcing
This way, they can react quickly and find alternate routes of supply or
distribution if the need arises. This also reduces the need for large safety
stocks and contributes to better cost control.
! !226
NETWORK INTEGRATION
Timely Planning
Activity N
• When the overall intention is to minimise costs; when are high service
costs justified?
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! !227
NETWORK INTEGRATION
Logistics companies in India have evolved over the years from being mere
first-party logistics providers (1PL) to second-party logistics providers
(2PL) to integrated fourth-party logistics providers (4PL) by providing a
complete package of logistics services, including transportation,
warehousing, pool distribution, management consulting, logistics
optimization, etc. and complementing them with advanced supply chain
facilities.
The proposed goods and services tax (GST) will help companies reduce
logistics cost by redesigning their supply chains with four key structural
changes
India becomes one big market, there will be fewer and larger warehouses.
GST will result in larger trucks on road while the overall number of vehicles
will go down. The new tax will result in greater adoption of a hub-and-
spoke model in segments such as warehousing, cold chain, container
freight stations and inland container depots.
GST will also bring in scale to logistics companies as there will be a lot of
savings, stoppage of wastage and lower delays.
The above changes will lead to greater economies of scale for transport
operators and lead to more companies outsourcing their logistics
operations.
For manufacturers, the goods and services tax (GST) has now replaced the
multiple state VATs and the need to have a hub across all states will cease
to exist. This will allow firms to redesign supply chains and centralize hub
operations to take advantage of scale economies. It will also allow firms to
employ efficient practices such as bulk-breaking and cross-docking from a
central location.
! !228
NETWORK INTEGRATION
Cost/Time Saving:
With GST when all check posts are gone, a truck that departs from Kashmir
to Chennai will reach on time. Goods will be delivered on time.
Predictability levels post GST will significantly improve. For Example if you
are moving goods by air, the price differential between air and road is
nearly one-eighth. Once logistics manager sees that he can manage his
inventory in a manner where it gets more predictable by road, people will
switch more volume by road.
Forward Integration:
As these companies gather scale, that will enable them to offer services at
lower costs. As a result, companies for whom transportation is not a core
part of their business will increasingly outsource their logistics operations
to third party logistics (3PL) and fourth party logistics (4PL) service
providers.
Single Rate
Standard tax rates will allow corporations to move away from the practice
of building a warehouse in different states to adhere to each state’s tax
code. A big packaged consumer goods company could thus make do with
one large mother warehouse at critical points in the country and employ
logistics companies to manage distribution and supply chains.
! !229
NETWORK INTEGRATION
The threshold service resulting from the least total cost logistical design
provides a basis for sensitivity analysis. The basic service capabilities of a
network can be increased or decreased by variation in number of
warehouses, change in one or more performance cycles to increase speed
or consistency of operations, and/or change in safety stock policy.
! !230
NETWORK INTEGRATION
The problem of serving the given set of customers from the chosen
warehouses is considered. The objective is to minimize the sum of fixed
charges for establishing the warehouses and transportation costs
corresponding to the supply of demands.
!
Figure 6.6
! !231
NETWORK INTEGRATION
Chopra and Meindl note that an increase in the number of facilities tends to
increase total supply chain inventory costs due to the need to increase
total system-wide safety stock in order to meet customer service level
expectations. Conversely, a reduction in the number of facilities that hold
safety stock permits a reduction in total safety stock cost as a result of the
risk-pooling benefits from aggregating safety stock in fewer locations.
The portfolio effect can be estimated using the square root rule. The
square root rule, originally proposed by “Maister”, suggests that the safety
stock increase as a result of adding a warehouse is equal to the ratio of the
square root of the number of locations in the newly prepared network
divided by the square root of the number of existing location.
! !232
NETWORK INTEGRATION
NI
×SSK
• SSl =! 1
• Nl = 2
• Nk = 1
2 × SSK
• SSl =! 1
• SSl = 1.41 x SSK
• So you need 1.41 the safety stock for two warehouses vs. one.
4
× 1000
SSl = ! 3
SSl = 1155
Activity O
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1 97
2 141
3 173
4 200
5 224
! !233
NETWORK INTEGRATION
Finally, the square root rule requires that demand for each warehouse
approximate a normal distribution. While the appropriateness of these
assumptions must be reviewed, the square root rule is a useful way to
estimate the inventory impact of adding or deleting warehouses to a
logistical network.
! !234
NETWORK INTEGRATION
Consider the long run, profit maximizing strategy of a distributor that holds
a good (good 1) in inventory for immediate delivery and that offers a
second good (good 2) for delayed delivery. When the two goods are
substitutes, an out-of-stock situation for good 1 will cause some consumers
(“walkers”) to seek the good elsewhere, other consumers (“waiters”) to
accept a rain check for later delivery of good 1, and others still
(“switchers”) to place an order for good 2. It is shown that a profit
maximizing strategy may entail setting a price for the delayed delivery
item so as to encourage switching behavior. The rationale is that the
distributor can hold a smaller inventory, thereby incurring lower holding
costs, because out-of-stock situations are less costly than they would be
without some consumers being willing to switch.
! !235
NETWORK INTEGRATION
6.14 Summary
! !236
NETWORK INTEGRATION
6. Why is it important to have the right inventory at the right place at the
right time?
! !237
NETWORK INTEGRATION
! !238
NETWORK INTEGRATION
! !239
NETWORK INTEGRATION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !240
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Chapter 7
Logistics Design And Operational Planning
Objectives
Structure
7.3 Data Collection and Analysis. Big Data: Use and Inclusion of Big Data
Analytics
7.8 Summary
! !241
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Introduction
Any finite system will have a boundary and anything outside that boundary
can be regarded as the environment. An important aspect of the study of
systems involves examining the interaction between systems and their
environments. Indeed, the way in which a system interacts with its
environment will largely determine the usefulness or degree of success of
! !242
LOGISTICS DESIGN AND OPERATIONAL PLANNING
The supply chain system could be regarded as shown in Figure 7.1. The
interaction of the system with its environment is represented by the
system inputs and outputs. In practice, supply chain systems can be
broken down into subsystems. This aids understanding of the operation of
the system and facilitates systems analysis. Each of the subsystems should
display the characteristics of a system; each subsystem will have inputs,
outputs and a boundary. When considering a company’s internal supply
chain, the subsystems can be regarded as the company’s business
processes (e.g., designing, buying, making, moving, and selling). These
business processes are multidisciplinary activities that cross traditional
functional department boundaries. When considering a supply chain which
comprises several companies, the subsystems can be regarded as the
individual companies or the business processes which cross company
boundaries. Traditionally, efforts at improving supply chain or
organizational effectiveness have focused on making changes within the
subsystems. This often resulted in optimal subsystems but sub-optimal
total systems.
! !243
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Customer and competitor attitude keeps varying and also the market
demands, costs and service needs. Naturally, questions arise about
warehouses; their numbers and locations; about striking a balance
between inventory and service in each warehouse; material handling and
routing of vehicles etc.
!
Figure 7.2: Generalized Planning System Illustrating Major Phases of
Work
! !244
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Activity A
! !245
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Activity B
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! !246
LOGISTICS DESIGN AND OPERATIONAL PLANNING
1. Situational Analysis
Activity C
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Activity D
! !247
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Activity E
! !248
LOGISTICS DESIGN AND OPERATIONAL PLANNING
The alternatives along with being practical should also challenge the
existing practices. A recommended procedure requires the manager
responsible for evaluating the logistical strategy and to develop it with
potential benefits by underlining the most attractive strategy alternatives.
! !249
LOGISTICS DESIGN AND OPERATIONAL PLANNING
3. Cost-Benefit Ratio
Activity F
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Activity G
• What are the service levels that the management will always try to
achieve?
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Activity H
Activity I
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Once the feasibility assessment and project plan are completed, the next
activity focuses on data collection and analysis. This includes activities to
define assumptions, collect data, and analyze alternatives.
Activity J
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iii. Analysis assumptions define the constraints and limitations that must be
included to fit the problem to the analysis technique. These assumptions
frequently concern problem size, degree of analysis detail and solution
methodology.
Activity K
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Activity L
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1. Operational Excellence
Because of these reasons, logistics started to position itself to put big data
to better and efficient use.
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Big Data Application will execute Dynamic Route Optimization after with
data received from fleet telematics, customer mobile App and other
sources about roadblocks or breakdowns. With a Big Data Powered Route
Optimization tool, companies can manage thousands of reschedules per
second to achieve less environment impact and better customer service all
within budget.
5. Customer Experience
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6. Business Strategy
Logistics providers manage a massive flow of goods, and at the same time,
create vast data sets. For millions of shipments every day, origin and
destination, size, weight, content and location are all tracked across global
delivery networks. Businesses that segregate operations cannot fully
harness the potential of cross-functional platforms. But aggregating all
data into a single, multi department system, a company’s analytics
capabilities grows exponentially. Since supply chain businesses are
comprised of multiple branches, a centralized unit should connect each
branch for a holistic understanding.
Executives should clearly outline goals for revenue, sourcing and P2P
development that makes sense for each team individually, as well as
establish goals that work in concert with one another to achieve the
overarching company mission. Executives must identify top business
priorities to pull the necessary data. Once these are established, executives
can concentrate on how to leverage organized data. It is tempting for
executives to pull the reports for all processes and streamline all at once
when the data becomes available. Businesses must first prioritize goals and
efforts in order to optimize their data. Executives should concentrate on
the top-line items before moving on to additional analysis in order to best
understand the data and forecasts.
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!
Figure 7.3: Big Data Analytics
Activity M
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Case Studies
1. Delta Airlines
All airlines know a top concern for passengers is lost baggage, particularly
when they are on a flight that is delayed and missed connections involved.
Delta looked further into their data and created a solution that would
remove the uncertainty of where a passenger’s bag might be. Customers
can now snap a photo of their baggage tag using the “Track My Bag”
feature on the Delta app and then keep tabs on their luggage as it makes
its way to the final destination. Even if a bag does not make it on the
intended flight, passengers save time tracking it down. Finding a new way
to put big data to use for the benefit of their passengers put Delta out front
in a competitive market.
2. Healthcare Singapore
In the health care industry, Big Data is being put to work to improve the
quality of patient treatment — and save lives. Healthcare providers in
Singapore are beginning to gather Big Data insights from analytics
platforms to transform how they manage chronic diseases.
Take diabetes, a condition that can lead to extended hospital stays, which
is both costly and puts strain on medical infrastructure. But when
Singapore healthcare providers dig into analytics to better understand each
patient’s condition, lifestyle choices, work and home environment, they can
create personalized treatment plans tailored to that person’s individual
behavior. For example, if the patient struggles to remember when to take
her medication, her specialized treatment would address that specific
problem.
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You typically pay only for cloud services you use, helping lower your
operating costs, run your infrastructure more efficiently and scale as your
business needs change.
Siri, Alexa and Google Assistant – all are cloud-based natural language
intelligent bots. These chatbots leverage the computing capabilities of the
cloud to provide personalized context-relevant customer experiences. The
next time you say, “Hey Alexa!”. Remember that there is a cloud-based AI
solution behind it. Most of the messaging and calling apps like Skype and
WhatsApp are also based on cloud infrastructure.
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1. Real-time Pricing
2. Real-time Inventory
The inventory you have on hand is your most direct means of controlling
for risks and optimizing costs. Real-time inventory management allows you
to maximizing your ability to respond to demand fluctuations while holding
onto your buffer against emergencies. Data flow from the cloud gives you
infinitely more precise control over your inventory levels.
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You can also add users from multiple locations. Some companies use
freelance office workers, marketing or sales people to supplement their
workforce. With cloud based systems, you can add additional workers
easily onto the system. They can access the database through their home
computers, tablets or smartphones. All you need is a web connection. It is
an easy way to get everyone working from the same data, and keeping
your systems up-to-date no matter who accesses them.
A process that was previously too complex to accurately estimate can now
be forecasted and monitored through a real-time, online dashboard.
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Cloud-integrated logistics not only provides more data in real time, but also
makes it accessible to your entire team, regardless of location or time.
Universal accessibility makes processes that require round-the-clock
oversight far more easily handled.
7. Security is Excellent
One concern that many business owners have when they consider cloud
computing is the security level. Cloud computing works off of shared
servers, and companies often worry that their data may be compromised
or somehow less secure when it is kept off-site than when it is housed on
hard drives within their four walls. If you require your systems to be on-
site, you can still gain many benefits from an on-premises cloud. If you
choose to have a cloud hosting vendor, you can expect to see some of the
strictest security protocols available in place to ward off viruses and
hackers intent on damaging or stealing data. You cannot “accidentally”
access anyone else’s data on the cloud. So, your company’s information is
secure. Cloud computing is secure computing.
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!
Figure 7.4: Cloud ERP Logistics and Distribution Planning
Activity N
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The Internet of Things (IoT) is a computing concept that describes the idea
of everyday physical objects being connected to the internet and being able
to identify themselves to other devices. The term is closely identified with
RFID as the method of communication, although it also may include other
sensor technologies, wireless technologies or QR codes.
The unpredictable nature of fuel costs, rising labor rates, increased traffic
and a changing regulatory environment, continue to make operations
challenging. Whether by air, ground or sea, transportation and logistics are
essential components to many enterprises’ productivity, and access to real-
time data is critical.
With the right IoT solution in place, enterprises can connect all devices
across a centralized cloud network, and capture and share their mission-
critical data, allowing them to gain real-time visibility of their operations.
Though these types of solutions have already helped transportation and
logistics businesses make improvements over the years, leveraging them
with enabling technologies like the IoT can deliver even more asset
intelligence, leading to more informed decisions.
Activity O
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Recommendations
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Activity P
Implementation
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Activity Q
• What is the criteria for ensuring the success of the implementation plan?
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A robust infrastructure plan must take into account all of the business
requirements for years to come. To optimize the plan, total supply chain
cost, customer service and strategic business initiatives are to be
considered. Through this process, the optimal infrastructure plan to
support the business operations including critical decisions related to plant,
warehouse and distribution center locations and utilization will be
determined. Some of the management questions that are raised are:
• What are the transportation modes and lanes that should be used to
move product through your network?
• Which customers should be served from each facility and by which modes
of transportation?
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Activity R
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transportation costs) versus costs that are more likely to change in a slow,
sustained manner (e.g., labor costs). Figure 7.3 illustrates the scope of
a typical supply chain design.
Activity S
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Firms often must find the location for a new facility. Usually, this decision
follows a process of system analysis and design, wherein a determination is
made of how many facilities the firm should be operating. A growing firm
may decide that it needs a new warehouse to serve a certain region.
Several layers of analyses would be performed, each with a finer focus.
After a region was selected, then a city within the region would be chosen.
Criteria to this point would include markets, availability and wage rates of
labor, tax rates, climate, and transportation. Within that chosen city,
various sites would be examined, taking into account such factors as land-
use controls, street traffic capability, and room for expansion, soil stability,
water- and sewer-line capacity, police and fire protection, and proximity to
rail tracks. Some firms serve contracting or shrinking, markets. They must
decide which production or distribution facilities to choose, and the closure
must be scheduled in a way that reduces adverse impact upon the firm’s
overall operations.
Activity T
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Mathematical Programming
Simulation Techniques
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Given the design objective, the simulation choses the best from the
maximum number of potential locations. The deletion procedure eliminates
the most costly warehouse from the remaining in-system facilities on a
marginal cost basis. The demand previously serviced by the eliminated
warehouse is then reassigned to the next-lowest-cost supply point, and the
quantification procedure is repeated.
Activity U
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CASE STUDY
It took, IBM consultants, six weeks to set up and run the computer model
with Tesco's help. Joe Galloway, Tesco's divisional director of supply chain
information technology, reports that much of that time was spent gathering
a year's worth of detail-laden data about its distribution center operations
to input into the model. "We were looking for data on the actual orders that
went through our supply chain by (product) line and by store," he says.
Once the data were fed into the application, it corroborated the soundness
of the model.
When Tesco executives ran the same data through the computer model to
simulate a restructured supply chain with a dedicated frozen food facility,
the results supported their assumptions. The model indicated that the food
retailer could achieve distribution savings in the range of 2% to 5%,
depending on the actual mix of frozen food products stored in the
dedicated facility. Transportation costs would drop because Tesco could
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eliminate trips between distribution centers and make more direct store
deliveries. In addition to consolidating outbound trips, Tesco also
determined that it could realize some savings on the inbound haul because
it would only have to move products from suppliers to a single point rather
than to two or three warehouses.
Inventory carrying costs would decline. If all of the frozen food supplies
were stored in a dedicated facility, the model showed Tesco could actually
reduce its stock holdings or even expand its mix of frozen food products
and increase store sales in this category. Tesco also would eliminate the
need to construct more facilities in the future. Moving frozen foods out of
the distribution centers would free up warehousing space for the expansion
of chilled products. The simulation also indicated that the company might
benefit by trying some alternative approaches.
Finally, the simulation gave Tesco some insights into its current operation
that allowed it to make an immediate, money-saving change. The company
discovered that it could cut back deliveries of certain slow-moving items to
once a week and still maintain adequate stock for its stores. Although
computer simulation helped persuade the board to approve the
restructuring plan, it had another benefit as well. The simulation gave
Tesco's logistics managers a deeper insight into their own supply chain's
operation.
In a discrete facility location problem, the selection of the sites where new
facilities are to be established is restricted to a finite set of available
candidate locations. The primary location analysis data requirements are
definitions of markets, products, network, customer demand,
transportation rates, and variable and fixed costs.
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Organizations use the finding to guide the investment decisions they make
to advance their success. The findings of a market analysis may motivate
an organization to change various aspects of its investment strategy.
Affected areas may include inventory levels, a workforce expansion/
contraction, facility expansion, purchases of capital equipment, and
promotional activities.
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Determining how many of each type of facility are needed, their geographic
locations, and the work to be performed at each is an important part of
network analysis. In certain situations, some of the facility operations may
be outsourced to service specialists. Regardless of who does the actual
work, all facilities must be managed as an integral part of a firm’s logistical
network. Network analysis, not only determines the number and location of
all types of facilities required to perform logistics work, but also determines
what inventory and how much to stock at each facility and where to assign
customer orders for shipment. The network of facilities including
information and transportation forms a structure from which logistical
operations such as processing of customer orders, maintaining inventory
and material handling performed. The analysis must consider geographical
variations. In context of global logistics, issues relating to network design
become increasingly more complex.
Activity V
Variable and Fixed Costs: The final location analysis data requirements
are the variable and fixed costs associated with operating distribution
facilities. Involves such decisions as:
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Activity W
• What are the differences between variable and fixed costs? Are
transportation costs fixed or variable?
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Traffic simulation models are the best strategies that affect traffic flow, and
can provide a relatively accurate assessment of impacts. The use of global
positioning satellites (GPS) has also facilitated determination of network
locations and possible routes with directions for locating addresses
mentioned on the packages.
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Activity X
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!
Figure 7.4: Freight Lane Analysis
• A-items are goods whose annual consumption value is the highest. The
top 70-80% of the annual consumption value of the company typically
accounts for only 10-20% of total inventory items.
• C-items are, on the contrary, items with the lowest consumption value.
The lower 5% of the annual consumption value typically accounts for
50% of total inventory items.
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7.8 Summary
Ad hoc tactical analyses such as freight lane balancing and ABC inventory
analysis must be completed regularly to respond to changes in
transportation rates, flows, and product demands. Regular supply chain
planning and location analysis is becoming increasingly critical to respond
to changes in global material availability, market demands, and production
resource availability. More tactical tools such as dynamic simulation and
routing and scheduling algorithms can be used to investigate and evaluate
inventory and transportation alternatives. The importance of such
comprehensive planning and analysis methods and tools is growing due to
the possible alternatives to and complexity of global supply chains.
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4. How can Big Data help SCM Managers to best of their ability?
11.At what point in the typical analysis does the technique give way to the
managerial review and evaluation process?
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5. You cannot “accidentally” access anyone else’s data on the cloud. So,
your company’s information is secure. Cloud computing is secure
computing.
(a) True
(b) False
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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Chapter 8
Logistics Outsourcing And Best Practices
Objectives
• The 4PL Providers and Capabilities of 3PL and 4PL service Providers
Structure
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Introduction
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Activity A
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Logistic decisions of the firm are driven and justified by various factors
including, among others, the need to achieve operational flexibility,
customer service, risk mitigation, cost reductions, operational efficiency
and access to resources and markets. It is argued that out of these many
factors, cost reduction and expectation to improve services are the most
frequently cited factors for outsourcing.
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Activity B
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Standard 3PL providers are the most basic form of a 3PL provider.
Activities performed include the most basic functions of logistics ─ ‘picking
and packing’, warehousing, and distribution. 3PL functions are not the main
activity of these firms.
Customer developers are the highest level 3PL provider with respect to
its processes and activities. A 3PL provider integrates its activities with the
customer and controls the entire logistics function. Extensive and detailed
tasks are performed for few providers.
Activity C
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Tailored Services
Third party logistics have the ability to tailor their services to what is
required of them and can offer a range of solutions for individual
companies to reduce their overall costs and increase efficiency. They can
ensure your company needs are met using the most effective, cost and
time efficient systems.
Third party logistics can offer enhanced shipment control. The outsourced
company can contract and work with overseas suppliers with their greater
booking options and service types. Shipping and transportation costs
become cheaper by combining greater volumes to be transported together.
Up-to-date Technology
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Activity D
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One of the downsides of using 3PL services is that the client businesses
have no direct control over their operation. They are relying on the 3PL
company to consistently come through in delivering the promised services.
This lack of direct control means that client companies are at the mercy of
any problems the 3PL company faces. Beyond the possible loss of business,
the damage that results from 3PL services failing to deliver certain
products on time is the client company's problem, not the 3PL’s.
Pricing Models
3PL services promote their service as the most cost-efficient way to get
logistics done. While this may be true, contracting with such a service
means that the company is locked into the pricing model specified in the
business agreement. By handing logistics over to a 3PL service, companies
are forgoing the possibility that an in-house logistics department could
figure out a cheaper and more efficient solution.
Dependency
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free market dictates that a business which is dissatisfied with its 3PL
service could always find another, or develop its own logistical
infrastructure, the reality is not so simple. Switching the nature of a
company's logistical support can cost the company a great deal in
unforeseen costs resulting from the transition. When businesses contract
with 3PL services, it creates a dependency which is no small matter to
change. This dependency puts the client company in uncomfortable
situations if pricing schemes or service reliability from the 3PL service is
not working out as expected.
Activity E
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Activity F
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Activity G
• Can part of a logistics activity be outsourced? What are the major factors
which decide on outsourcing?
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Resources: Some organizations may just fail to take full advantage of 3PL
or 4PL outsourcing as a result of lack of necessary resources to support
real collaboration. The resources may be financial, labor or technological
resources like an adequate information system depending on the nature of
the organization. For successful outsourcing relationships, there is a need
to orchestrate necessary resources and facilitate collaboration; this has to
be done on time and at the level that matches requirements over the life of
the relationship. As we have seen, all these factors and their related
elements are critical for a successful collaborative relationship between a
client organization and its external logistics providers. Since different client
organizations have different goals and face different level of challenges in
their effort to establishing collaborative relationships with service
providers, most would calibrate these factors in such a way as to meet
their specific needs. One inevitable outcome from these calibrations is
availability of variety of strategies that organization pursue to facilitate
collaborative relationship with their 3PL and 4PL providers.
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Activity H
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It became clear that companies across industries and around the globe
regard logistics and supply chain management as intrinsic to their success.
Many place a high value on their partnerships with third party logistics
(3PL) companies. They credit 3PLs with helping them to attain goals
related to service, cost, and customer satisfaction.
The factors cited by 3PL users as contributing to this success can help
others maximize the benefits they receive from 3PLs:
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The takeaway: Setting, and then driving toward, a commonly held set of
expectations is an essential element of success. Interestingly, larger the
revenue group, the more importance 3PL users place on a carefully
designed and signed contract that supports innovative arrangements
between a 3PL and a customer. One plausible explanation is that higher-
revenue companies may be more sensitive about carefully drafted
contracts, as they may have more at stake financially and otherwise. Also,
higher-revenue companies may have policies and procedures in place that
require use of a more formal agreement or contract that includes a
commensurate level of detail.
Activity I
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“4PL supply chain outsourcing has undergone a paradigm shift from a cost
centre to a revenue generating opportunity. It has leveraged logistics to
improve the service level to customers, accelerate the speed of launching
new products and stimulate market penetration.” Accordingly, 4PL’s main
competency lies in sustaining long-term investment and ongoing benefits
once initial cost savings are achieved.
Activity J
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With all the array of 3PLs and 4PLs in the supply market, the challenge of
identifying and collaborating with the best service provider is left with the
firm that seek to outsource their logistics functions. This becomes even
harder when most providers claim to position themselves as having the
necessary capabilities to meet customer needs. How an outsourcing firm
determines whether its logistics providers have these capabilities is an
important parameter in determining its success in 3PL/4PL outsourcing.
While first 8 steps make a framework for initial screening, the final
selection of provider in this model is determined in the last step. This is
where the ANP methodology is actually applied by comparing shortlisted
providers based on dimensions, determinants and enablers and
interdependence among them.
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Activity K
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8.14 Summary
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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WAREHOUSING
Chapter 9
Warehousing
Objectives
Structure
9.1 Definition
9.2 Concept of Warehousing
9.3 Importance of Warehousing in Wholesale and Retail
9.4 Functions and Importance of Warehousing
9.5 Economic Benefits of Warehousing
9.6 Types of Storage
9.7 Types of Warehouses
9.8 Warehouse Design
9.9 Warehouse Layout
9.10 Product-Mix Analysis
9.11 Material Handling
9.12 WMS
9.13 Safety and Security
9.14 Summary
9.15 Self Assessment Questions
9.16 Multiple Choice Questions
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Introduction
9.1 Definition
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Activity A
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Activity B
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Figure 9.1
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WAREHOUSING
• Packing and shipping: The final stage before shipment of orders, which
include checking for completeness, containerization, documentation,
weighing, accumulating orders for outbound carrier, and loading of
trucks.
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Activity C
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WAREHOUSING
A break bulk operation receives a single large shipment and arranges for
delivery to multiple destinations. Economy of scale is achieved by
transporting the larger consolidated shipment. The break bulk warehouse
or terminal sorts or splits out individual orders and arranges local delivery.
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!
Figure 9.2: Consolidation and Break Bulk
Activity D
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Sorting
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!
Figure 9.3
Activity E
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Product Mixing
Product mixing for customer order means mixing products from multiple
supplier/production facilities to shipment to a single customer. Example:
meeting customer's order.
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!
Figure 9.4
Seasonal Storage
For companies that experience seasonal demand for their products, the
supply of temporary building structures can be a cost-effective, flexible
method of storage to cope with the peaks in business.
Likewise, businesses that need additional space to protect goods over the
winter or require extra space for short periods of time, also find that
temporary on-site buildings can provide a perfect stopgap – and with no
large capital outlay or permanent build costs the expense can be kept to a
minimum.
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Both products and packaging return for a variety of reasons, but returns
can be broadly divided between those that are unplanned and undesired
what we might call “traditional returns” – and those that are planned and
desired. Unplanned returns are typically limited to products which
customers have purchased.
• Resell – where the product is resold in a secondary market “as is.” Some
logistics companies have found a niche in matching sellers with buyers in
secondary markets and say that there is a market for virtually anything.
• Junk – where the item is sent to a landfill, which can be a far more
expensive choice than most organizations realize due to landfill fees,
transportation costs, and the value of the impaired assets that are being
thrown away.
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Activity F
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Randomized storage: Each unit from any SKU can be stored in any
available location.
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WAREHOUSING
Storage
1. Determine fast, medium and slow movers and place them in the
appropriate storage medium (i.e., pallet flow, carton flow, shelving, etc.)
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Figure 9.5: Warehouse Storage Based on Product Movement Velocity
Activity G
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When inventory is held for periods in excess of that required for normal
replenishment of customer stocks, it is referred to as extended storage. In
some special situations, storage may be required for several months prior
to customer shipment. Extended storage uses materials handling processes
and technologies that focus on maximum space utilization with minimal
need for quick access.
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Warehouses may also retain products for an extended basis when they are
purchased on a speculative basis. The magnitude of speculative buying
depends upon the specific materials and industries involved, but it is very
common in marketing of commodities and seasonal items. For example, if
a price increase for an item is expected, it is not uncommon for a firm to
buy ahead at the current price and warehouse the product for later use. In
this case, the discount or savings have to be traded off against extended
storage and inventory carrying cost. Commodities such as grains, oil, and
lumber may be purchased and stored for speculative reasons.
Activity H
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WAREHOUSING
Private Warehousing
The major benefits of Private Warehousing are control, flexibility, cost, and
a range of intangibles. Private warehouses offer substantial control since
management has authority to prioritize activities. Such control should
facilitate integration of warehouse operations with the balance of a firm’s
logistics operations.
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Activity I
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Public Warehousing
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Public warehousing can also have the potential to share scale economies
since the combined requirements of users can be leveraged. Such leverage
spreads fixed costs and may justify investment in state-of-the-art handling
equipment. A public warehouse may also leverage transportation by
providing consolidation of multiple client freight. For example, rather than
require both supplier A and supplier B to deliver to a retail store from its
own warehouse, a public warehouse serving both clients could arrange
combined delivery, thus providing reduced transportation cost for the
customer.
Activity J
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Contract Warehousing
Activity K
• Which amongst the three warehouses – private, public and contract – are
best suited for companies?
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The ideal warehouse design is a one-floor building that eliminates the need
to move product vertically. The use of vertical handling devices, such as
elevators and conveyors, to move product from one floor to the next
requires time and energy, and typically creates handling bottlenecks. So,
while it is not always possible, particularly in business districts where land
is restricted or expensive, as a general rule distribution warehouses should
be designed as one-floor operations to facilitate materials handling.
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!
Figure 9.6
Activity L
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There are five areas which are necessary to the functionality of the
Warehouse:
1. Receiving: Usually, the dock area where inventory will arrive, be signed
for by County personnel, and be counted for entry into the inventory
management system.
Depending on the facility being utilized, these areas may be either right
next to each other or on opposite ends of the building. The Material Unit
Leader is the staff member who will decide where these areas will be and
will relay that information to the Host Warehouse staff.
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!
Figure 9.7: Warehousing Layout
Activity M
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9.12 WMS
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After the successful launch of the WMS system, many businesses will find
that the resources required to operate the system is greater than prior to
the implementation. This is primarily due to the data intensive nature of
the software and the fact that warehouses are in a state of flux; racks are
moved, placement and removal strategies changed, new items added, new
processes developed. Warehouse accuracy is paramount for the software to
operate and to do this data will need to be entered accurately and in a
timely fashion. Although most WMS implementations will reduce labor
costs in the placement and removal of materials, there is often an added
warehouse management function required just to operate the software.
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!
Figure 9.8
Activity N
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• Make sure that stacked loads are straight and even, to prevent them
from toppling over.
• Keep the aisles and areas surrounding your shelf systems free from
obstruction.
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Forklift Safety
• Never allow anyone who is under the age of 18 and/or not specifically
trained in forklift operation to operate a forklift.
• Make sure that aisles and loading docks that are traversed by forklifts are
kept clear, allowing plenty of space for a forklift to safely maneuver
through.
Damage
The moment a lift truck handles the product. The entire process of
reducing damage and how companies do it is interconnected with every
stop a product makes in the supply chain. Load damages represent the
largest cause of delivery exception in a supply chain. Communicating
changes in product case size along the supply chain is essential. A good
idea is to store product as much as possible off the floor, and using pallet
flow rails reduces damage from fork trucks and helps keep staged product
organized.
One of the most common causes of load damage is the result of the jolts
that occur to the load when the forklifts are crossing the dock levelers from
the dock to the trailers. Moving the loads from the dock floor to the trailer
floor causes the trailer to bounce during loading and this creates instability
in the lading process. A well-developed loading/unloading system will
enable the smooth, continuous flow of material into, through, and out of
the warehouse. The operating improvements achieved will more than
compensate for the initial cost of upgrading warehouse and loading dock
equipment.
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Activity O
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9.14 Summary
Warehousing facilities play a vital role in the overall supply chain process.
This chapter addressed “back to the basics” that are fundamental for
warehouses to achieve both efficiency and effectiveness in supply chains,
and provide some perspective on current challenges and the future. It is
evident that continuing globalization and changes/challenges occurring in
such areas as reverse logistics, environmental sustainability, information
technology, and overall supply chain integration are further evolving the
strategies, roles, and responsibilities for warehouses.
In fact, the term “distribution center (DC)” may be much more appropriate
in representing the broad range of activities that now occur in modern
warehouses that go beyond filling customer orders to provide an ever
expanding array of value-added services.
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4. What is the concept of market presence, and how does it relate to the
functionality of warehousing?
10.What are some of the hazards you might come across in a warehouse?
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A B
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Answers: 1.(d), 2. (a), 3. (c), 4. [(i) (c), (ii) (d), (iii) (a), (iv) (b)], 5. (a)
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !350
PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Chapter 10
Packaging, Material Handling And Storage
Systems
Objectives
Structure
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Introduction
Not only the weight, but also the space a shipment occupies, is an
important part in determining the shipping costs. There is less space in an
aircraft than in a container vessel. That is why, when calculating the price
of the shipment, the volume-weight and the ‘chargeable’ weight is taken
into consideration.
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For each shipment, the volume-weight is calculated and compared with the
actual weight in kilos. This calculation is done according an approved
formula. In air freight 1 cbm (cubic meter) equals 167 kilo. In ocean
freight (LCL), 1 cbm is calculated as a maximum of 1000 kilo, while in road
transport, 1 cbm matches 333 kilo. The highest weight (volume or actual)
will be charged.
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Volumetric weight is higher than the actual gross weight. So, we have to
use volumetric weight as our chargeable weight, which is 1202.4 kgs.
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You should take sea shipment volumetric weight constant as 1000 kgs/
cbm, when calculating the chargeable weight in sea shipments.
Step 1: Calculating the gross weight of the cargo: The gross weight
of our cargo is 8000 kgs.
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Volumetric weight is higher than the actual gross weight. So, we have to
use volumetric weight as our chargeable weight, which is 18000 kgs.
Road shipment volumetric weight constant is different than both air and
sea shipment volumetric weight constants. Other than that, all steps are
the same for calculating chargeable weight.
You should take road shipment volumetric weight constant as 300 kgs/
cbm, when calculating the chargeable weight in road shipments.
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Step 1: Calculating the gross weight of the cargo: The gross weight
of our cargo is 9600 kgs.
Gross weight is higher than the volumetric weight. So, we have to use
actual gross weight as our chargeable weight, which is 7192.8 kgs.
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Perspectives of Packaging
Activity A
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10.4 Unitization/Containerization
Unitization is the process of grouping master cartons into one physical unit
for materials handling or transport. The concept of containerization
includes all forms of unitization, from taping two master cartons together
to the use of specialized transportation equipment. The master carton and
the unitized load become basic handling units for logistical operations. The
weight, cube, and damage potential of the master carton determines
transportation and materials handling requirements. If the package is not
designed for efficient logistical processing, overall system performance
suffers.
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Rigid Devices
Activity B
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Flexible Devices
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!
Figure 10.3: Basic Pallet Master Carton Stacking Patterns
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Activity C
• What are the limitations of pallet packaging? How can they be overcome?
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Product Code
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!
Figure 10.4: Identification Displays
Communication
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Activity D
• Manually
• Using non-powered or powered hand trucks
• Using powered industrial trucks (i.e., a fork truck)
• Overhead cranes
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In the last several years, material handling has become a new, complex,
and rapidly evolving science. For moving material in and out of warehouse,
many types of equipment and system are in use, depending on the type of
products and volume to be handled. The equipment is used, in loading and
unloading operations, for movement of goods over short distances. The
handling of material in warehouse is restricted to unitized forms, which
require smaller size equipment.
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
A good material handling system will enhance the speed and throughput of
material movement through the supply chain.
Activity E
Material handling function helps reduce the number of staff required for
managing inventory and reduce dangers of obsolescence. This, in turn,
helps reduce total cost. The need for material handling at various stages in
production and distribution has always existed. The cost of such activities
can represent anything up to 50% of total production cost of the product.
Logistics while stressing upon this activity, aims at reducing this cost
through development in material handling techniques. This activity centre
deals with determining equipment selection and replacement policies, order
picking procedures and stock storage retrieval.
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Material handling equipment can be used to move and lift heavy loads and
stack it, the movement of load can be done safely, etc. The use of material
handling equipment also results in higher productivity resulting in higher
return on investment. Hence, material handling is very critical to the
operations of a warehouse.
Activity F
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
• Lifting the material from its storage place during order picking.
The planner should select methods and equipment that can perform a
variety of tasks under a variety of operating conditions and in anticipation
of changing future requirements.
• Order Picking
• Batch Picking
• Bulk Picking
Order Picking: Of all warehouse processes, order picking tends to get the
most attention. It is just the nature of distribution and fulfillment that you
generally have more outbound transactions than inbound transactions, and
the labor associated with the outbound transactions is likely a big piece of
the total warehouse labor budget. Another reason for the high level of
importance placed on order picking operations is its direct connection to
customer satisfaction. The ability to quickly and accurately process
customer orders has become an essential part of doing business.
The methods for order picking vary greatly and the level of difficulty in
choosing the best method for your operation will depend on the type of
operation you have.
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
processing such as private labeling, and whether you are handling piece
pick, case pick, or full-pallet loads are all factors that will affect your
decision on a method for order picking. Many times, a combination of
picking methods is needed to handle diverse product and order
characteristics.
Cycle Time: Cycle time is the amount of time it takes to get an order from
order entry to the shipping dock.
Activity G
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!
Figure 10.5
Bulk Picking: Bulk picking has around for a while and has been improved
since the original release. In a nutshell, this allows you to combine multiple
picks across several sales orders into one consolidated pick task. The
picker is then directed to drop this off to multiple destination locators. This
saves a significant time at picking – instead of executing 10 different pick
tasks for the same item, the picker is simply directed to execute one.
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Activity H
Handling
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Activity I
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Lift Trucks
Lift trucks, also called forklifts, can move loads of master cartons both
horizontally and vertically but are limited to handling unit loads. Skids,
boxes, or containers may also be transported, depending upon the nature
of the product.
Many types of lift trucks are available. High-stacking trucks are capable of
up to 40 feet of vertical movement. These new advances are discussed
under semi-automated handling systems. Conventional lift trucks are
utilized in shipping and receiving operations and to place merchandise in
high cube storage. The two most common power sources for lift trucks are
propane gas and battery.
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Towlines
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Tractor Trailer
The tractor in combination with trailer, like a towline, is used during order
selection. The main advantage of a tow tractor with trailers is flexibility. It
is not as economical as the towline because each tow unit requires a driver.
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Conveyors
Conveyors are used widely in shipping and receiving operations and serve
as the basic handling device for a number of order selection systems.
Conveyors are classified according to power, gravity, and roller or belt
movement. In power configurations, the conveyor is driven by a chain.
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Carousels
Most systems combine different handling devices. For example, lift trucks
may be used for vertical movements while tow tractor with trailers or rider
trucks are the primary methods of horizontal transfer.
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Semi-automated Systems
An AGV system typically replaces mechanized tow tractors and trailers. The
essential difference is that AGVs are automatically routed, positioned, and
activated without a driver.
Activity J
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Robotics
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Live Racks
The rear of the rack is elevated higher than the front, causing a gravity
flow toward the front. When cartons or unit loads are removed from the
front, all other cartons or loads in that specific rack flow forward. For
example, live racks are typically utilized to sequence palletized fresh bread
for shipping from bakeries.
Potential to Automate
To date, most automated systems have been designed and constructed for
specific handling applications. For example, storage equipment in an
automated system is an integral part of the handling capability and can
represent as much as 50 per cent of the total investment.
Order Selection
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Information-directed Systems
RF Wireless (Wi-Fi)
Pick-to-Light
Activity K
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
E-Fulfillment
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Introduction
Storage Systems
Storage systems are used to store materials related to the product (e.g.,
raw materials, purchased parts, work-in-process, finished products, and
scrap and rework), and the overall support functions in the factory (e.g.,
maintenance spare parts, office supplies, and plant records). Storage
systems can be classified into conventional storage systems and automated
storage systems.
Conventional Systems
Conventional systems are ideal for storing loads of varying sizes, shapes
and weights on the same rack. Item access is direct without having to
displace or move other stored items for easy, safe and cost-effective
warehousing.
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! !385
PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Figure 10.6(a)
! !386
PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
!
Figure 10.5(b)
Advantages
! !387
PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
5. Tracking where products are stocked, which suppliers they come from,
and the length of time they are stored. By analyzing such data,
companies can control inventory levels and maximize the use of
warehouse space. Furthermore, firms are more prepared for the
demands and supplies of the market, especially during special
circumstances such as a peak season on a particular month. Through
the reports generated by an AS/RS system, firms are also able to gather
important data that may be put in a model for it to be analyzed.
Activity L
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10.18 Summary
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !393
COLD CHAIN MANAGEMENT
Chapter 11
Cold Chain Management
Objectives
Structure
! !394
COLD CHAIN MANAGEMENT
Introduction
! !395
COLD CHAIN MANAGEMENT
A pharmaceutical product usually does not lose its potency the moment its
temperature goes outside a specified range. Traditionally, pharmaceutical
companies (and the US FDA approval process) allowed for “excursions” of
certain duration – 4, 6, 24 hours or others depending upon the
manufacturer’s specifications and specialized mean temperatures – to
occur prior to administration.
But this allowance presents problems for ensuring safe delivery of products
unless the excursions are tracked to determine the length of the excursion
and analyze whether the excursion remains within the tolerance spectrum.
A regulator could legitimately ask a manufacturer (or its agent) to prove
that the cumulative amount of time a shipment has been out of range
remains below the maximum specified by the product label of the
shipment.
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Activity A
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COLD CHAIN MANAGEMENT
! !398
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Activity B
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• Training personnel
• Transport and storage equipment
• Efficient management procedures
Training Personnel
All new staff that handle or administer vaccines should be trained in proper
vaccine storage and handling practices. All other new staff should be
trained to have an understanding of the importance of cold chain
maintenance and basic practices so they are aware of their responsibilities
to the cold chain. A refresher training session should be held annually for
all staff. Staff who monitor and record vaccine storage unit temperatures
should immediately report inappropriate storage conditions (including
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COLD CHAIN MANAGEMENT
The location of each specific vaccine inside the storage unit should be
clearly labeled. Storing each vaccine in its own specifically labeled section
of the refrigerator or freezer helps decrease the chance that someone will
mistakenly select the wrong vaccine.
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COLD CHAIN MANAGEMENT
Activity C
Packaging
! !401
COLD CHAIN MANAGEMENT
One of the most critical design elements for tertiary packaging – and for
the overall cold chain system is the interplay between the longevity of the
packaging and the transportation mode. Many packages are designed to
maintain temperature at 36 hours, which implies overnight delivery (with a
safety buffer). But packaging design could provide 72-hour or even more
longevity, which implies that a shipper could use second-day air service, or
a slower overland delivery method, thereby reducing transportation costs.
Evaluating the trade-offs between the (generally) higher cost of longer-
lived packaging and the shipping costs becomes an important business
consideration for the shipper.
Temperature-controlled Packaging
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COLD CHAIN MANAGEMENT
!
Figure 11.2: Phase Change Material
! !403
COLD CHAIN MANAGEMENT
SOPs detail roles and responsibilities and set up the essential plans for
mitigating and overcoming hurdles to fast and efficient cold chain service.
It is important to establish a routine, systematic process for handling
vaccine shipments and vaccine transport. The most effective SOPs are
those that are developed between all relevant stakeholders; namely, the
shipper, the forwarder and the carrier.
! !404
COLD CHAIN MANAGEMENT
Activity D
! !405
COLD CHAIN MANAGEMENT
The cold chain is a shared responsibility between the manufacturer and the
transporter that begins from the time a vaccine is manufactured, and ends
when the vaccine is administered to the recipient. The cold chain
distribution process is an extension of the good manufacturing practice
(GMP) environment that all drugs and biological products are required to
adhere to, enforced by the various health regulatory bodies. As such, the
distribution process must be validated to ensure that there is no negative
impact to the safety, efficacy or quality of the drug substance. The GMP
environment requires that all processes that might impact the safety,
efficacy or quality of the drug substance must be validated, including
storage and distribution of the drug substance.
Guidelines
The facility standard operating procedure should specify that the vaccines
are:
Moving a shipment across the supply chain without suffering any setbacks
or temperature anomalies requires the establishment of a comprehensive
logistical process to maintain the shipment integrity. This process concerns
several phases ranging from the preparation of the shipments to final
verification of the integrity of the shipment at the delivery point:
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COLD CHAIN MANAGEMENT
• Modal choice. Several key factors play into how the shipment will be
moved. Distance between the origin and the final destination (which
often includes a set of intermediary locations), the size and weight of the
shipment, the required exterior temperature environment and any time
restrictions (perishability) of the product all effect the available
transportation options. Short distances can be handled with a van or a
truck, while a longer trip may require an airplane or a container ship. In
this case, the cost/perishability ratio becomes a factor in modal choice.
• The “Last Mile”. The last stage is the actual delivery of the shipment to
its destination, which in logistics is often known as the “last mile”. Key
considerations when arranging a final delivery concern not only the
destination, but the timing. Trucks and vans, the primary modes of
transportation for this stage, must meet the specifications necessary to
transfer the cold chain shipment. Also important is the final transfer of
the shipment into the cold storage facilities as there is potential for a
breach of integrity. Publicly available data sources are becoming
increasingly relevant for the optimal design and planning of last-mile
delivery systems and processes. These data sources provide insights into
the operational and commercial environment – from road infrastructure
characteristics to traffic and congestion dynamics to socio-demographic
profiles of the customer base.
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COLD CHAIN MANAGEMENT
3. Types of goods: Occasionally, even the type of goods can make add
to the challenges of last mile delivery. For instance, toxic, fragile,
perishable or flammable items call for more planning.
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Activity E
1. Data Loggers
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COLD CHAIN MANAGEMENT
1. USB data loggers are compact, reusable and portable, and offer low
cost, and easy set-up and deployment. Internal sensor models are used
for monitoring at the logger location, while external sensor models (with
flexible input channels for a range of external sensors) can be used for
monitoring at some distance from the logger. USB loggers communicate
with a computer via a USB interface, but for greater convenience, a
data shuttle device can be used to offload data from the logger for
transport back to a computer.
!
Figure 11.5: USB Data Loggers
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COLD CHAIN MANAGEMENT
!
Figure 11.5: BLE Data Logger
!
Figure 11.6: Web-based Data Loggers
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COLD CHAIN MANAGEMENT
!
Figure 11.7: Wireless Data Loggers
2. RFID
Radio frequency identification (RFID) is the wireless non-contact use of
radio frequency electromagnetic fields to transfer data, for the purposes of
automatically identifying and tracking tags attached to objects. The tags
contain electronically stored information. Logistics and transportation are
major areas of implementation for RFID technology. Yard management,
shipping and freight and distribution centers use RFID tracking technology.
In the railroad industry, RFID tags mounted on locomotives and rolling
stock identify the owner, identification number and type of equipment and
its characteristics. This can be used with a database to identify the lading,
origin, destination, etc. of the commodities being carried. (Detailed note in
Chapter 14)
3. Strip Monitors
Strip monitors are battery-powered single-use units that record continuous
temperature readings on a paper strip and may be used to monitor vaccine
temperatures during transport.
4. Chart Recorders
Chart recorders consist of a graph wheel with replaceable graph paper and
ink pens. The pens mark the temperature on the graph paper as the wheel
turns. Temperatures are recorded continuously, 24 hours a day. The graph
paper has a Fahrenheit or Celsius scale on it, and the temperature is read
where the ink line falls on the scale. The graph paper must be changed
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COLD CHAIN MANAGEMENT
when it completes a full circle, usually weekly. Record the date on the
graph paper when it is fitted and when you remove or change the graph
paper. Keep old graphs as a permanent record of the performance of the
vaccine storage unit. As with other thermometers, temperature readings
should be checked and recorded at least twice daily.
6. Digital Thermometers
Digital thermometers have a screen in which the temperature is displayed
in Fahrenheit and/or Celsius. Some models have a temperature probe and
an alarm that can be set to ring at a specified temperature. Digital
thermometers with a min/max feature are easy to read because they
display a number indicating the temperature and do not require
interpretation. Temperature fluctuations outside the recommended range
can be detected by referring to the minimum and maximum temperature
readings. The digital thermometer must be reset regularly (after properly
recording temperatures) for meaningful readings.
7. The Natural Synergy of the Cold Chain and the Internet of Things
Tight integration is paramount in cold chain logistics, since a high degree of
control makes it easier to ensure that temperatures are always right. To
that end, IoT sensors and applications can be installed in vehicles and at
shipping facilities to create coherent tracking networks across supply
chains.
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COLD CHAIN MANAGEMENT
8. Blockchain Technology
“Blockchain” technology records transactions, tracks assets, and creates a
transparent and efficient system for managing all documents involved in
the logistics process.
! !414
COLD CHAIN MANAGEMENT
!
Figure 11.8: Blockchain Technology
Activity F
Activity G
! !415
COLD CHAIN MANAGEMENT
A cold chain breach (CCB) occurs when the temperature falls outside of the
recommended +2° to +8°C temperature range at any point during the cold
chain process. Instances where changes occur in the Cold Chain Monitor
will affect vaccine efficacy and the shelf life of the vaccine. Common breaks
in the cold chain occur through refrigeration failure, power outage,
overheating of vaccines during transportation, and freezing of vaccines.
Temperature variations outside the +2° to +8°C temperature range can
result in loss of efficacy to the vaccine.
• Immediately isolate the vaccines within the refrigerator and label do not
use
Activity H
! !416
COLD CHAIN MANAGEMENT
Reefer trucks and containers for ocean borne freight are available, narrow
body and wide body aircraft, along with the ULDs (unit load device) that
can be carried by wide body aircraft (or trucks for that matter). As part of
their quality and control systems, carriers should have a predefined
process for checking the integrity of the equipment, and maintaining it, on
a regular basis, and these processes can be part of the overall service
agreement between the manufacturer and the carrier.
! !
Reefer Truck UCD (Unit Load Device)
! !417
COLD CHAIN MANAGEMENT
! !
Cold Box Cold Room
! !418
COLD CHAIN MANAGEMENT
Activity I
The initial focus of cold chain management should be the development and
implementation of the cold chain shipment conformance process and the
cold chain management processes (quality system) necessary to meet
product and regulatory requirements. Unlike product storage in qualified
temperature-controlled facilities, product shipping, even in qualified
temperature-controlled shipping systems, is subject to a greater number of
temperature excursions due to transportation process variability (ambient
temperature, route, mode, transit time and in-transit handling).
! !419
COLD CHAIN MANAGEMENT
the initial focus of cold chain management should be the development and
implementation of the cold chain shipment conformance process and the
cold chain management processes (quality system).
Activity J
! !420
COLD CHAIN MANAGEMENT
• Carriers and logistics providers can assist shippers. These providers have
the technical ability to link with airlines for real-time status, generate
web-based export documentation and provide electronic tracking.
• Temperature data loggers and RFID tags help monitor the temperature
history of the truck, warehouse, etc. and the temperature history of the
product being shipped. They also can help determine the remaining shelf
life.
! !421
COLD CHAIN MANAGEMENT
Activity K
Refrigerated foods are one of the fastest growing sectors of the grocery
and food service industries. Continued success relies upon effective
management of the ‘cold chain’, a term used to describe the series of
interdependent operations in the production, distribution, storage and
retailing of chilled and frozen foods. Control of the cold chain is vital to
preserve the safety and quality of refrigerated foods and comply with
legislative directives and industry ‘codes of practice’. Unique to fresh
produce cargoes, the cold chain requires to additionally maintain produce
specific environment parameters which include air quality levels (carbon
dioxide, oxygen, humidity and others), which makes this the most
complicated cold chain to operate.
! !422
COLD CHAIN MANAGEMENT
Food safety and quality are drivers: Two issues that continue to drive
best practices for managing the cold chain are food safety and food quality.
Carriers, likewise, are also responsible for the quality and the condition of
the trailers and equipment that are used during the transportation of food
products.
The receiving party, too, has equally rigorous requirements and SOPs
(standard operating processes) for inspection of food shipments. For
produce deliveries, that could include physical inspection of the product as
well as the boxes and cartons. Wet or weakened packaging may indicate
that there was a breach in temperature during transportation. It is also
increasingly common for the receiving party to rely on temperature
recording devices that have been installed on the trailer, which can alert
them to any deviations from the required temperature range.
! !423
COLD CHAIN MANAGEMENT
!
Figure 11.9: A Typical Cold Chain
! !424
COLD CHAIN MANAGEMENT
Activity L
Why is the food cold chain considered to be the “most complicated” chain
to operate?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
! !425
COLD CHAIN MANAGEMENT
The primary function of food packaging is to protect the food from external
hazards. Similarly, the package itself should not affect the food in any
way, as indicated by European Directives on food contact materials,
including migration limits.
Package barrier properties protect the food from ingress of gas, light, and
water vapour, each of which can result in deterioration of colors, oxidation
of lipids and unsaturated fats, denaturation of proteins and a general loss
of characteristic sensory qualities. Ventilation allows cooling and product
respiration. Similarly, barrier properties protect against the loss of moisture
from the food to the external environment thereby eliminating dehydration
and weight loss.
! !426
COLD CHAIN MANAGEMENT
Activity M
11.15 Summary
The major items of cold chain equipment are refrigerators, freezers and
transport boxes. Temperature monitors are essential during storage and
transportation, and alarms are fitted to storage equipment to alert users
should the temperature deviate from the acceptable range. There are many
other cold chain devices and accessories such as standby generators and
voltage regulators.
! !427
COLD CHAIN MANAGEMENT
6. “The last mile deliveries are the most challenging.” Explain why?
11.How can the packaging used during the transportation of drugs ensure
the temperature uniformity within the container?
! !428
COLD CHAIN MANAGEMENT
A B
4. The processes that might impact the safety, efficacy and quality of the
drug must be __________.
(a) Validated
(b) Mitigated
(c) Formulated
(d) Distributed
! !429
COLD CHAIN MANAGEMENT
Answers: 1. (d), 2. (a, b and d), 3. (i) (c), (ii) (d), (iii) (a), (iv) (b), 4.
(a), 5. (b). It is Radio Frequency Identification
! !430
COLD CHAIN MANAGEMENT
REFERENCE MATERIAL
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! !431
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Chapter 12
Relationship Development And
Management
Objectives
Structure
12.8 Summary
! !432
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Introduction
! !433
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Logistical Organization
!
Figure 12.1: Traditional Organizations of Logistically Related Functions
! !434
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
The first step towards integration is grouping the logistical activities within
the original function. The overall organizational structure and hierarchy do
not change significantly. Typical aggregations in this phase are for
example:
! !435
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
These are the organizations of the future, but some companies (for
example, Dell) already apply this structure. Logistics operations are
dispersed to different functions or processes under the coordination of a
CLO. Advanced IT systems provide coordination through common database
and information sharing, making optimization possible not only in company
level but across companies in the supply chain. Performing operations
locally provides the best competencies and flexibility.
! !436
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
!
Figure 12.2: Illustration of High Functional Aggregation in Logistics
Organization
Activity A
Measuring the outputs of any business can be done only if these can be in
terms of customer satisfaction achieved at a profit. These outputs can be
realized only when there is coordination and cooperation horizontally
across the organization. The materials and information flows, which
! !437
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
!
Figure 12.3
! !438
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Process Structure
! !439
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
• All skills necessary to complete the work must be available to the process
owner
• Critical skills not shared can disrupt workflow and create “bottlenecks”
Activity B
! !440
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
!
Figure 12.4: The Great Divide Reflects an Organizational Gap in
Achieving End-to-end Integration
! !441
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Activity C
! !442
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
! !443
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
! !444
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
both the supplier and the company, and dedicate resources to oversee
the execution of the joint program. Supplier relationship management
can reduce overall costs, increase the assurance of supply, and improve
overall quality. This type of approach can aid companies in reducing the
impacts of resource availability for major capital projects if market
conditions tighten.
!
Figure 12.5: The Value Chain
Activity D
! !445
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Risk
! !446
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Organizations of all sizes have recognized the need to put strategies and
capabilities in place to identify, prioritize, and manage risks and
opportunities across their entire supply chains and within and across their
internal supply chain processes.
Power
! !447
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
The extent of product brand power along the total supply chain will depend
on the type of power the dominant player exerts. The degree to which
participants strategically collaborate with its partners and the extent of
collaborative management of the intra-and inter-organizational processes
will depend on the collaborative or coercive use of power by dominant
players.
Leadership
Activity E
! !448
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
You are looking at the range of dependency in the supply chain relationship
which goes from limited to extensive.
!
Figure 12.6: Dependency in the Supply Chain
Contracting
Outsourcing
! !449
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Administered
Enterprise Extension
Activity F
! !450
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Framework Constructs
!
Figure 12.7: Integrative Framework Showing Supply Chain Flows,
Competencies and Context
A job or basic work, such as order picking or truck driving, is the most
visible part of the logistical operations. Jobs are often industry or firm-
specific in content; however, they are usually grouped into organizational
units to facilitate control. For example, all the jobs related to warehousing
are often grouped. Another common grouping is to organize all jobs related
to transport into a transportation department.
! !451
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
• Technology and the World Wide Web will be key enablers of innovative
supply chain strategy.
There are five essential steps to connect supply chain strategy and
segmentation with the Centers of Excellence (COE), and functional
execution capabilities and processes. This five-step flow will enhance
supply management value:
! !452
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
! !453
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
!
Figure 12.8: 5 Steps to Align Business Strategy with Supply Chain
Activity G
! !454
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Activity H
! !455
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Activity I
! !456
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
It is clear that trust has more than one dimension. While several types of
trust exist, a meaningful way to understand trust in supply chain
collaboration is to distinguish between reliability-based trust and character-
based trust.
! !457
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
12.8 Summary
The second key requirement for building trust is full and frank sharing of all
information necessary for the effective functioning of the relationship. In
fact, information sharing and communication have been stressed
throughout this text as the foundation for effective collaboration.
Companies that hoard information or fail to disclose vital facts are not
likely to be trusted.
! !458
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
1. What are the challenges the logistics official faces while developing
logistic functions?
! !459
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
A B
! !460
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Answers: 1. (b), 2. (c), 3. (i) (d), (ii) (c), (iii) (a), (iv) (b), 4. (d), 5. (b)
Second key requirement for building trust between SC partners is “vital”
information.
! !461
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
REFERENCE MATERIAL
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! !462
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Chapter 13
Operational, Financial And Social
Performance
Objectives
Structure
13.9 Summary
! !463
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Introduction
Activity A
! !464
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity B
! !465
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Balanced Scorecard
!
Figure 13.1
! !466
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity C
! !467
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
of learning where the employees constantly learn and share the knowledge
to facilitate growth. The on-the-job training and mentoring is also an
essential component of the perspective.
Activity D
The two types of measures developed are activity based and process
based. Activity based measures measure performance at individual
activity level. These activities are small tasks performed to execute
customer orders. Activity based performance measures indicate efficiency
and effectiveness of first level efforts in the process of customer
satisfaction.
It should be pointed out that measures such as those listed in Table 13.1
are supplemental rather than substitutes for the more traditional five
categories of measuring logistics performance that are discussed later in
this chapter. In combination, metrics related to both functional and process
! !468
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity E
! !469
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
! !470
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Functional Perspectives
! !471
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity F
Productivity Measures
! !472
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Surrogate Measures take into account such factors not normally included
in productivity calculations but correlated with the concept. For example,
customer satisfaction, profit, effectiveness, quality, efficiency etc. Some of
the surrogate logistics productivity measures commonly used are: Units
shipped per employee, Units per labour dollar, Orders per sales
representative, Comparison to historical standards, Goal programs, and
Productivity Index.
Activity G
•What are the five internal performance measures? Elaborate on any one.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
Asset Management
! !473
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
f. Is generally applied when dealing with finished goods (which are time-
sensitive) and
Activity H
Quality
! !474
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity I
The Supply Chain Council defines perfect order fulfillment as, ‘the
percentage of orders meeting delivery performance with complete and
accurate documentation and no delivery damage. Components include all
items and quantities on-time using the customer’s definition of on-time,
and documentation – packing slips, bills of lading, invoices, etc.’
! !475
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
1. The first hierarchy relates the sales order to the actual shipment and
ultimate receipt by the customer.
3. The third hierarchy relates the customer purchase order (primarily price,
quantity, date, and terms) to the customer payment of the invoice.
The hierarchies provide a robust way to define, measure, and analyze the
customer facing attribute of ‘delivery reliability’. This helps an organization
provide more flexibility for business units to define the metric in line with
how their customers measure them. Below are two metric examples under
the delivery category from two business units within the same company
serving two different markets:
! !476
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
1. The level of logistics costs in absolute terms and relative to other costs;
! !477
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Processes and roles in the supply chain need to be mapped to key metrics
to determine performance. There must also be a mechanism in place to
periodically review actual supply chain performance and redefine
performance measures in the changing business context. Specific
measures to consider are cash-to-cash conversion time, supply chain
inventory days of supply, dwell time, on-shelf in-stock percentage, total
supply chain cost, and supply chain response time.
Cash-to-Cash Conversion
Dwell Time
! !478
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity J
+ + + +
Raw Material ! Manufactured Components ! Manufacturer! Distributor
! Retailer Source
Grouping these costs into these categories will help us understand the
source of these costs, but also provide an understanding of how to
measure them and how to optimize them to make the supply chain more
efficient and cost-effective. In doing so, though one must use caution, as a
single-minded focus on cost alone may not be the most optimal supply
chain strategy. Since supply chains must address the twin objectives of
cost and flexibility (or responsiveness), supply chain performance must be
measured using metrics that allow capturing both of these aspects.
! !479
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity K
•What care must be taken while calculating total costs in a supply chain?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
! !480
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity L
! !481
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
! !482
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity M
! !483
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
! !484
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Activity N
Activity based costing identifies cost drivers (activities that cause costs)
that were not previously accounted for by the costing system. A cost driver
refers to any activity that causes a cost. It can be anything from machine
hours, labor hours, or number of machine setups, to the number of parts in
a product. Once known, the production managers can control costs by
! !485
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
In case of logistics, the key event is a customer order and related activities
and relevant costs that reflect the work required to fulfill the order. In other
words, logistical activity based costing must provide managers the insights
needed to determine if a specific customer, product, order, or service is
profitable. This requires matching specific revenue with specific costs. The
guiding criteria for effective logistical activity based costing are relevancy
and consistency. Relevancy is important in the sense that the costs
assignment helps managers to better understand the major factors
affecting logistics expenses. Consistency is important in terms of
comparing related activities over time. In the final analysis, a logistical
costing system has to make sense only to the managers who are using it
as a guide to decision-making.
Activity O
! !486
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
13.9 Summary
2. How does the balanced scorecard concept help guide logistics managers
in the development of a performance measurement system?
6. What are the cost drivers associated with Activity Based Costing?
! !487
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
A B
(i) Customer satisfaction (a) Total SCM expenditure
4. The guiding criteria for effective logistical activity based costing are
___________ and ___________
(a) Timely pick-up and deliveries
(b) Relevancy and consistency
(c) Customer service and tariffs
(d) Balance scorecard and financial budgets
! !488
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Answers: 1. (b), 2. (d), 3. (i) (c), (ii) (d), (iii) (a), (iv) (b), 5. (b)
Obtained directly from the customer
! !489
OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
REFERENCE MATERIAL
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! !490
IT IN LOGISTICS
Chapter 14
IT In Logistics
Objectives
Structure
! !491
IT IN LOGISTICS
Introduction
! !492
IT IN LOGISTICS
The emergence of new technologies is a crucial factor that has changed the
scope of logistics. Logistics these days usually entails purchasing,
distribution, inventory management, packaging manufacturing and
customer services. Above all, the Internet and information and
communication technologies (ICTs) are incontrovertible enablers for
logistics innovation by sharing information among all parties in a supply
chain and connecting them. Those technologies facilitate information flows
and communication among partners, enabling global logistics processes.
On the other hand, the advent of the Internet has led to the growth of e-
commerce and the emergence of diverse business models. As a
consequence, such new business operations require different logistics
activities and strategies. For instance, with the growth of e-commerce,
global logistics firms such as FedEx and United Parcel Service (UPS) could
become full-service logistics by securing the technological capability to
coordinate the flow of goods and information within supply chains.
! !493
IT IN LOGISTICS
Companies today are under pressure to better manage the supply chain
and to improve efficiency and logistics operations while remaining
responsive to changing market conditions and customer demands. As a
result, organizations need to adopt IT to support their supply chains and
increase their efficiency by achieving tighter cooperation over the supply
chain.
Importers and exporters need to know where their product is. Lenders
need to know when and how to pay for it. Innovative companies have
sprung up to harness the power of the IT, making it easier than ever for
logistics managers to track and manage international shipments, and to
serve their changing needs as they reach ever further across the globe to
source goods. Companies such as Home Depot, Xerox and Sears already
use on-demand, web-based data hubs to identify where their goods are in
real time, and if delays along the way should be corrected to avoid broader
supply chain disruptions and expensive recovery work.
! !494
IT IN LOGISTICS
Activity A
! !495
IT IN LOGISTICS
!
Figure 14.1: Type of IT Use for Optimizing SCM
! !496
IT IN LOGISTICS
Case Study
! !497
IT IN LOGISTICS
Business Benefits
• Reduced order lead time from 2.5 days to 4.5 hours, driving down
inventory costs
Activity B
! !498
IT IN LOGISTICS
! !499
IT IN LOGISTICS
Cost Reductions
In these uncertain times, with many economic challenges ahead, the need
to contain costs across the business is as strong as ever. There still
remains one last major opportunity to take out costs – not from inside the
business per se but rather from the interfaces with other partners in the
supply chain. The rationale behind this assertion is that for most of their
existence firms have focused on seeking internal efficiency improvements
and have often failed to recognize the significant layer of cost that exists at
supply chain interfaces – a cost that is there because those interfaces have
not been well managed in the past.
There are three key drivers of costs, albeit related, at most supply chain
interfaces – all of which can be eliminated, by collaborative working. These
costs might be labeled:
1. Transaction costs
2. Process costs
3. Uncertainty costs
! !500
IT IN LOGISTICS
! !501
IT IN LOGISTICS
Activity C
14.6 STRATEGY-STRUCTURE-PROCESS-PERFORMANCE
! !502
IT IN LOGISTICS
Activity D
Advanced information system is vital to ensure that the managers have the
timely information necessary to cope with growing changes in the
processes and product design to fulfill the customer requirements and
manage these tasks effectively. The special benefit of advanced information
technology is to make real-time data extensively available through such
tools as Enterprise Resource Planning (ERP), Electronic Data Interchange
(EDI) and customer relationship management and the ability to link one
activity with another. These tools not only improve the business processes
! !503
IT IN LOGISTICS
Activity E
EDI reduces the number of human work steps. A fixed structure for the
transmitted data is laid down by the system. The prepared data are
presented to a human user only after an application system has integrated
! !504
IT IN LOGISTICS
The term “EDI” is used only when at least two different partners are
involved in the process – data interchange. Enterprise Application
Integration (EAI). Once different partners become involved within the
framework of EDI, a contractual arrangement becomes necessary. Among
other factors, the contract’s complexity is related to the number of contract
parties – such as external IT companies – and the different characteristics
among the participating companies.
! !505
IT IN LOGISTICS
!
Figure 14.2: Enterprise Operations Modules Support Day-to-day Supply
Chain Operations
! !506
IT IN LOGISTICS
Activity F
! !507
IT IN LOGISTICS
! !508
IT IN LOGISTICS
Bar Coding
Bar Coding is a series of parallel vertical lines (bars and space), that can be
read by bar code scanners. It is used worldwide as part of product
packages, as price tags, carton labels, on invoices even in credit card bills.
It facilitates unique product identification through using international
symbologies/numbering system, promotes brand image and enables timely
and accurate capture of product information. This results in wide-ranging
benefits including lowering of inventory costs, lower overall supply chain
costs and hence reduced costs for products, increasing efficiency of
industry and adherence to stringent quality assurance norms through
product traceability.
RFID
! !509
IT IN LOGISTICS
• Its brains are a tiny embedded digital memory chip, currently about the
size of a pinhead.
• One of its most promising attributes is its ability to have the data in its
memory change as it moves along the supply chain from manufacturer to
end consumer.
• Current developments that will see the light of day in the next few years
are likely to drastically reduce the production price, allowing for far
greater commercial penetration of RFID technology.
RFID tags allow you to scan and keep track of items from the factory to the
consumer; identify merchandise authenticity; trace items of inventory;
help to prevent theft and piracy; and act to monitor product environmental
conditions.
! !510
IT IN LOGISTICS
2. Decreased Cycle Time and Taking Costs Out: RFID scanning is not a
serial process, like traditional Barcode scanning, so the business can
perform identical tasks much more quickly. This means processes
moving goods through a supply chain are more efficient leading to a
reduction in the need for larger inventories.
! !511
IT IN LOGISTICS
Uses systems such as GPS to track and communicate with mobile and/or
remote vehicles. GPS satellite tracking is made possible through a network
of high-tech devices including satellites, receivers, transmitters, cellular
networks, computers and people to track time and location information. By
tracking this information as often as every 5 seconds, a wealth of
information can be extrapolated. Many vehicle GPS satellite tracking
systems are capable of also tapping into on board computer systems to
allow the user access to vehicle information and even provide some remote
controls over the vehicle.
! !512
IT IN LOGISTICS
In this model on single route, there are multiple drivers handling one truck
or vehicle. A driver never drives a particular vehicle for more than a day.
The driver is able to return his family on the same day itself within 24
hours. (May be driving the return truck, not sure though.) This improves
the quality of life of drivers and also the moral of driver remains good. If
we compare this to other logistics companies, drivers generally spend 25 to
30 days away from family driving single vehicle. This reduces the
efficiency.
With this model, they are able to complete the Delhi to Chennai distance in
just two days, unlike other logistics companies which takes 8 days.
Good driving is at the core of making logistics successful. This means that
every minute of driving across the network has to be monitored and
analysed. The Big Data from past and present must be constantly
evaluated to determine and predict the driver’s behaviour. This needs to be
done in real time to know how a driver is driving to take immediate
corrective actions. Is the driver in control of the vehicle? Is the driver
driving cautiously? These are just some of the questions that need to be
answered to create a qualitative system via a quantitative model.
! !513
IT IN LOGISTICS
Case Study
Activity G
•How has the “Relay” model considered being a boon for truck drivers?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
! !514
IT IN LOGISTICS
14.12 Summary
! !515
IT IN LOGISTICS
1. How 3PL providers with advanced IT are integrating the supply chain?
3. Where precisely do these cost reduction opportunities lie and how can
they be exploited?
9. In what way has the “Relay” technology helped Amazon smoothen its
warehouse management?
! !516
IT IN LOGISTICS
1. The proper use of technology can enhance the core function of logistics
through __________.
(i) RFID
(ii) Data Loggers
(iii) Bar Coding
(iv) Mobile Computer
(a) (i), (ii) and (iv)
(b) (ii), (iii) and (iv)
(c) None of the above
(d) All of the above
! !517
IT IN LOGISTICS
! !518
IT IN LOGISTICS
REFERENCE MATERIAL
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chapter
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PPT
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Video Lecture
! !519
CONTAINERIZATION
Chapter 15
Containerization
Objectives
Structure
15.1 Definition
15.9 Summary
! !520
CONTAINERIZATION
Introduction
After the World War II, the economies of developed countries were marked
by the progress of mass production and mass consumption centering on
consumer goods. Shipping lines were faced with an expansion of world
trade together with bottlenecks at ports. A system was required to
accommodate the needs of physical distribution, from manufacturer to final
destination, eliminating costly and complicated transshipment operations at
ports. As a result of this, containerization was developed, a new concept,
which involved a combined transport operation to and from the port,
involving highway and rail services. In this new system, there was less
physical handling, breakage and pilfering of cargo. The basic difference of
containerization was the movement of goods under continuous supervision
ensuring an integrated transport process between the consignor and
consignee. A container could be moved on the basis of one or several
unimodal transport contracts or on the basis of a multimodal transport
contract.
15.1 Definition
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CONTAINERIZATION
Activity A
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CONTAINERIZATION
! !523
CONTAINERIZATION
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CONTAINERIZATION
Activity B
Essentially, there are five main lengths of containers; they are: 20 ft, 40 ft,
45 ft, 48 ft and 53 ft.
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CONTAINERIZATION
Most containers today are of the 40-ft (12.2 m) variety and are known as
40-foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers
are also designated 2 TEU. Two TEUs are equivalent to one forty-foot
equivalent unit (FEU). The 20 ft, 40 ft and 45 ft containers are common in
trade throughout the world, with the first two being the most common.
General Cargo Container: This container is packed with all general type
of cargo that does not require any specific temperature control. Today,
most of the containers that are in use are overwhelmingly the general
cargo type.
1. Refrigerated containers meant for food items that require cold storage
facility, e.g., meat, fish etc.
2. Insulated containers for fruits, vegetables etc. Here, dry ice is used as
cooling medium.
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CONTAINERIZATION
Bulk Containers: These are basically large sized containers, which have
manholes in them. Manholes are openings or holes at the top of the
container similar to what we see in petrol or water tankers. Such manholes
facilitate the loading of bulk cargo using gravity.
Gas Containers: These are specialized containers that have fixture fittings
which help to fill or empty liquefied gas, e.g., Liquid Oxygen. They have
thick walls and are made of high quality stainless steel. This is required for
safe transport of liquid gas.
! !527
CONTAINERIZATION
Warehousing. The container limits damage risks for the goods it carries
because it is resistant to shocks and weather conditions. The packaging of
goods it contains is therefore simpler, less expensive and can occupy less
volume. This reduces insurance costs since cargo is less prone to be
damaged during transport. Besides, containers fit together permitting
stacking on ships, trains (double stacking) and on the ground. It is possible
to superimpose three loaded and six empty containers on the ground. The
container is consequently its own warehouse.
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CONTAINERIZATION
Activity C
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CONTAINERIZATION
Thefts and losses. While many theft issues have been addressed because
of the freight anonymity a container confers, it remains an issue for
movements outside terminals where the contents of the container can be
assessed based upon its final destination. It is estimated that about 10,000
containers per year (27 per day) are lost at sea when they fall overboard
containerships. Rough weather is the major cause, but improper container
stacking also plays a role (distribution of heavy containers). Yet, the loss
rate remains very low since 5 to 6 million containers are being transported
at any given time.
Activity D
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CONTAINERIZATION
15.9 Summary
1. What is Containerization?
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CONTAINERIZATION
A B
(i) General Cargo Container (a) Allows circulation of air through openings
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CONTAINERIZATION
Answers: 1. (d), 2. (b), 3. (i) (d), (ii) (c), (iii) (a), (iv) (b), 4. (c), 5.
(b). The ID number helps to ensure the Container is carried by an
authorised agent.
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CONTAINERIZATION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !534
REVERSE LOGISTICS AND E-COMMERCE
Chapter 16
Reverse Logistics And E-Commerce
Objectives
Structure
16.1 Definition
16.2 Reverse Logistics Vital to Supply Chain Efficiency
16.3 Reasons for Reverse Logistics
16.4 Building a Strong Reverse Logistics Strategy
16.5 Tapping into 3rd Party Logistics Benefits
16.6 Tackling the Returns Challenge
16.7 Four Key Steps in the Returns Process
16.8 Drivers in Reverse Logistics
16.9 Best Practices in Reverse
16.10 E-Commerce
16.11 Challenges in E-Commerce
16.12 Cross-border Transactions and Concerns
16.13 Drones in Logistics
16.14 Managing Cash on Deliveries and Prepaid Shipments
16.15 Summary
16.16 Self Assessment Questions
16.17 Multiple Choice Questions
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REVERSE LOGISTICS AND E-COMMERCE
Introduction
A key factor firms need to focus resources on the reverse logistics process
is that it can have a dramatic monetary impact on the bottom line of the
organization. It is estimated that approximately 4.5% of all logistics costs
within the United States stem from reverse logistics activities.
16.1 Definition
Activity A
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REVERSE LOGISTICS AND E-COMMERCE
Quality and distance traveled determine the backward path of the product
and its final form and destination. The longer a product stays in the
system, the less valuable it becomes. And, of course, already damaged
goods and packages will get worse being transported again. A time-
sensitive category of products, like those with technology components, lose
market value with each passing week. It is best practice to minimize the
time items spend within the system to ensure maximum reclaimed value.
Returns can affect every channel member from consumers, retailers and
wholesalers to manufacturers. Returns are caused for different reasons
depending on who initiates them – end consumer, wholesaler or retailer
and manufacturer – and on the nature of the materials involved –
packaging or products. Reusable packaging is becoming more and more
common, especially in Europe where manufacturers are required to take
back packaging materials.
Businesses know that if they are unable to get products to market they will
be unable to complete sales. Most distribution networks are designed to
quickly move merchandise from factories or suppliers to the customer.
However, products sometimes need to be removed from shelves and
warehouses.
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REVERSE LOGISTICS AND E-COMMERCE
!
Figure 16.1
Activity B
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REVERSE LOGISTICS AND E-COMMERCE
Case Studies
1. H&M is one of the few companies which uses reverse logistic for used
clothes. H&M accepts used clothing at all of their stores worldwide. The
clothes can be in any condition or of any brand, and H&M will use the
clothing they have collected to create an all-recycled clothing line. This
type of reverse logistics chain allows all types of consumers to get
involved with the brand, even if they did not purchase their garment
from H&M. Since H&M launched garment collecting initiative in 2013,
they have gathered more than 55,000 tonnes of garments to give them
a new life – that is more fabric than in 270 million T-shirts!
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REVERSE LOGISTICS AND E-COMMERCE
Warranty Claims
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REVERSE LOGISTICS AND E-COMMERCE
Retail Overstock
Once a product has reached the end of its life cycle, many manufacturers
want to get it out of the retailers’ shelves as soon as possible to prevent
sales cannibalization of the new version. This means that the old products
have to be disposed of. Manufacturers either have to take the stock back,
based upon the conditions agreed with the retailers, or the latter need to
dump the old version quickly.
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REVERSE LOGISTICS AND E-COMMERCE
Seasonal Products
Other Complications
Electronic Commerce
The emergence of selling via the Internet has led to many companies
focusing on their reverse logistics capability. With the rise of electronic
business channels, there has been a significant increase in consumer
returns. Some electronic retailers estimate that up to 50% of their goods
sold on the Internet are returned. E-commerce has propelled the amount
of returned products to levels which demand every executive’s attention.
Product life cycles of many products, especially in the electronics and high
technology industry, have reduced drastically. This has led to advanced
supply chains to move product out to customers with minimal stock,
because obsolescence rates are high and the value of finished goods
inventory of computer equipment loses up to 12 per cent per month.
Equally important, therefore, are the speed and cycle time with which
returned products can be turned around.
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REVERSE LOGISTICS AND E-COMMERCE
Activity C
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REVERSE LOGISTICS AND E-COMMERCE
Activity D
Many companies outsource reverse logistics because they do not have the
expertise within their management ranks to run the area, or they would
rather put their resources toward manufacturing or customer service.
Manufacturers want their top talent running manufacturing plants, working
with customers, managing imports, parts or just about anything other than
focusing on returns. With a 3PL provider, manufacturers receive the focus,
motivation, experience, existing technology, capital resources and staff to
hit the ground running.
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REVERSE LOGISTICS AND E-COMMERCE
implement new reverse logistics operations within six months, while most
internally-implemented programs will take at least twice that long.
Companies also outsource to cap and control other risks and liabilities such
as inventory shrinkage, workers compensation expenses, medical benefit
costs and other “non-controllable” expenses. Companies protect
themselves by either negotiating a fixed fee arrangement for multiple years
or with some form of variable pricing. This enables companies to limit risks
by negotiating cost caps as a part of their outsourcing agreement.
• Can they help improve the product flow upstream so companies can
process more efficiently and maximize the value of the returned assets
downstream?
Activity E
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REVERSE LOGISTICS AND E-COMMERCE
The volume and the method of processing returns drive the total cost of
returns. Companies can reduce the costs associated with returns
considerably through a number of different ways and even use their
capabilities as a competitive weapon. The average return rate on sales is
8% but the return rate within subcategories can range from 4% to 15%.
This equates to $14 billion in annual returns, and many of these products
are not defective at all. Years of testing returned consumer electronics
have established that the non-defective rate for consumer electronics
hovers around 65% of total goods returned, meaning only 35% are
actually defective.
Products returned for repairs are often treated as inbound shipments, but
they are not the same as receiving raw materials or components. Repairs
often go into a completely separate workflow, requiring parts, personnel
and processes that differ from new products.
The most important levers an organization can use to make their returns
work best are outlined below. Companies can change the way they are
organized to manage returns, alter the way they process returns, use
advanced technology to process more efficiently and to prevent returns or
ultimately outsource their entire returns supply chain.
Activity F
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REVERSE LOGISTICS AND E-COMMERCE
Local Screening
Collection
There are many different ways to collect the products that are destined to
enter the reverse supply chain. Retailers often have to send their return
products back to their suppliers’ different warehouses throughout the
country. Different processes need to be set up to facilitate timely
processing of these returns. This can often be very complicated and
confusing for both retailers and manufacturers as they are dealing with
multiple parties, many of whom are concentrating on getting products out
to the customer, rather than back to the source.
Sorting
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REVERSE LOGISTICS AND E-COMMERCE
Disposal
1. Sell as-is,
2. Repair or reuse (part of it) and
3. Ultimately dispose of the product.
1. Sell as-is-where-is:
• Resale (as new)
• Sell via outlet or discount store
• e-auction
• Sell to secondary market
2. Repair or reuse:
• Repair
• Refurbish or remanufacture
• Modify and recycle
3. Dispose:
• Scrap
• Donate (to charity)
• Dispose in secure manner (for example, certain drugs)
Some companies have gone as far as to create profit centers around their
returns process. This focuses the organization on maximizing the prices
they will get for the goods by exploring innovative ways to sell their
returned goods. Manufacturers refurbish the product and auction it through
the Internet or redeploy it to, say, outlet stores.
! !548
REVERSE LOGISTICS AND E-COMMERCE
e-auction
To obtain the highest prices for returned items, some service providers
have set up capabilities to coordinate returns and help manufacturers
recoup some of their costs by reselling returned goods on Internet auction
sites. One example is ReturnBuy.com, a Virginia-based company in the US
that serves the high technology and computer industries. The company
uses an Internet-based yield optimization technology to resell goods
online. It claims it enables its customers to obtain a much higher price for
the goods than through the average liquidator.
Activity G
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REVERSE LOGISTICS AND E-COMMERCE
Activity H
•What are the challenges Companies can face during reverse logistics?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
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REVERSE LOGISTICS AND E-COMMERCE
16.10 E-Commerce
There are four main types of e-commerce models that can describe almost
every transaction that takes place between consumers and businesses.
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REVERSE LOGISTICS AND E-COMMERCE
Activity I
•What would you consider delivery of food as: selling of service or goods?
Why?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
Case Study
Craftsvilla is one of the leading Indian marketplaces that sell unique Indian
products online. Known for selling handmade, vintage, ethnic, organic and
natural products from India, Craftsvilla connects local artisans and
designers directly to global consumers.
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REVERSE LOGISTICS AND E-COMMERCE
Today, consumers are powered with loads of choices for selection of the
product they are looking for. They are actually able to compare the
products, look for availability of the product, get detailed information about
the product, check prices at various online websites selling the specific
product and also look for attractive offers. Consumers get their choice of
goods as well get satisfied with the price they pay. Now, from e-retailers’
perspective, above are the must have in order to be competitive and
increase sales. But for e-retailers to survive, they also need to maintain
healthy profitability month on month by creating awareness among
customers to visit their website and convert visits into sales. There are
some of the major challenges which e-retailers face in India to be
competitive in their business.
1. Margins
2. Availability of products
! !553
REVERSE LOGISTICS AND E-COMMERCE
such cases, they keep only limited stock of high value items, or in some
cases, no stock and tie up with distributors/vendors to have stock, so that
if high value item orders are placed it can be fulfilled on time. The
challenge arises when the regular distributors or supplier does not have the
stock, and it has to be arranged from other distributors. There must be
forecasting done for each of the products. Based on this, e-retailers can
have at least minimum stock maintained at distributors to avoid stock-out
situation.
There are orders from metro cities and also from far-off places. Increase in
supply of products and lack of logistics in far-off places can be a challenge
for e-retailers. Few e-retailers have their own logistics network for intra-
city and rely on third party services for inter-city. Others depend totally
upon Third Party Service Providers (TPSP). Having warehouse at all places
is also not cost-effective solution. TPSP mostly use surface network to
deliver the goods as this is the choice provided by e-retailers to keep their
distribution cost low. Utilizing air network for delivery would be more
costly. The challenge for e-retailer is to provide timely delivery at far-off
places. Each TPSP have their own strength based on their delivery network
and serviceable locations. Some pin codes can only be serviced by few
TPSP.
It would make sense for the e-retailer to tie up with three or four service
providers based on his serviceable location pin code. E-retailers can carry
out a one-to-one mapping for pin code and service providers, which would
be unique. Hence, when the customer places the orders, based on his
address pin code, automatically a delivery request will be directed to the
concerned TPSP. Customer could eventually track their orders in third party
service provider’s website by providing the Way Bill number or Order
number.
When a visitor visits an e-commerce website and signs up, the portal is
unaware of the customer except for the information he/she entered. The
customer is genuine or not is questionable. This creates huge revenue
losses for a company when a customer makes a Cash on Delivery (COD)
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REVERSE LOGISTICS AND E-COMMERCE
purchase and the information entered like phone number, the address is
invalid or fake.
Return and refund are also part of great customer services. Therefore, it
will be the big mistake to underestimate them. The best thing you can do
is build a strong returns policy.
Activity J
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REVERSE LOGISTICS AND E-COMMERCE
2. The retailer packs the goods and keeps it ready to be picked up:
The challenge here, is to assure that the right product is packed and
packed properly. The delivery fleet of the e-com company that goes to
pick up the order has to check all these things. It is a challenge again as
most of the times, e-com companies have third party logistics service
provider. So, you can clearly imagine the challenge.
! !556
REVERSE LOGISTICS AND E-COMMERCE
remain barriers to the free cross-border flow. The lack of delivery of goods
to a distant place or a relatively long time and high cost of providing the
purchased product hinders further development of e-commerce.
Activity K
•What steps are to be ensured by the retailer before his goods reach the
customer?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
……………………………………………………………………………………………….……………………
! !557
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!
Figure 16.2: Drones in Warehouse
Warehouses are filled with all sorts of good stuff that people want to steal.
Drones provide the flexibility that stationary cameras do not and can keep
an eye on the whole warehouse floor at all times.
! !558
REVERSE LOGISTICS AND E-COMMERCE
Transport
Airborne Drones offers a few options, including the FALCON, which can
carry light loads for up to 50 minutes. Microdrones build unmanned aircraft
that are used today for carrying urgent medicines and other goods to hard-
to-reach and remote areas. DHL has used the “Parcelcopter” in a test
flight.
!
Figure 16.3: DHL “Parcelcopter”
Inventory
Drones that can check on inventory may be the most common application
for drones in logistics. Warehouse drones help companies with a significant
amount of inventory to improve the overall efficiency of their checking
process.
Surveillance
Surveillance drones are essentially just unmanned aircraft with a camera. A
drone with a thermal camera allows you to see a lot more than you would
with a standard camera.
! !559
REVERSE LOGISTICS AND E-COMMERCE
Activity L
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REVERSE LOGISTICS AND E-COMMERCE
! !561
REVERSE LOGISTICS AND E-COMMERCE
!
Figure 16.4: Cross-border Trade
Activity M
What is COD?
! !562
REVERSE LOGISTICS AND E-COMMERCE
! !563
REVERSE LOGISTICS AND E-COMMERCE
Case Study
Amazon may be testing drones to drop off packages, but in India, the
world’s biggest e-commerce company is looking to try out something
decidedly low-tech that could give it an unbeatable edge on deliveries.
Its secret weapon? The Postman. Amazon already sends packages by India
Post, but now it wants to use the channel to collect payments from
recipients as well, using the cash on delivery model. Amazon has started a
pilot with India Post to test this system, which could help it reach deep into
India’s hinterland, according to two people familiar with the matter.
Amazon would gain reach while India Post would benefit from the
company’s aggressive growth plans. India Post has more than 150,000
post offices in India, out of which 89 per cent are in rural areas. "We are
trying to add capabilities like cash on delivery service with Amazon,” said a
senior India Post official.
India Post has applied to the Reserve Bank of India for a banking licence,
seeking to leverage its wide reach. The central bank is expected to
announce the grant of bank licences in January. The Amazon plan, if it goes
through, will fit in nicely with the postal department’s plans. India Post
aims to spend about Rs. 100 crore in the next few years to set up
warehouses for e-commerce packages.
According to Ernst & Young (E&Y), COD accounts for 50 to 80 per cent of
online transactions in India. For the larger e-retailers, this payment
mechanism is available in 600 cities and towns, and has helped them
acquire first-time customers rapidly.
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REVERSE LOGISTICS AND E-COMMERCE
COD has helped e-commerce grow, but it does have pitfalls. It can be
expensive for the seller if the buyer returns a product, as the company
pays two-way courier charges.
There are also working capital issues. The report notes that COD adds a
layer to the supply chain, because of cash handling. This can increase the
settlement period of online retailers and courier companies to as much as
three weeks. This stretches the online retailers’ cash collection cycle.
Activity N
16.15 Summary
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REVERSE LOGISTICS AND E-COMMERCE
Your employees will feel safer and more protected and will be better able to
perform their core competencies.
Good customer service includes protecting your clients and their money.
Services should deter criminal activity by reducing cash on hand and
visually assuring customers of your commitment to their safety.
3. What are the reasons when you have a spike (sudden increase) in
returns?
7. What are the terms and conditions for both customer returns and
recalls?
11.What are the areas of concern for e-Retailers while selling online?
12.Describe the online order cycle from receipt of order to delivery to the
final customer.
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REVERSE LOGISTICS AND E-COMMERCE
A B
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REVERSE LOGISTICS AND E-COMMERCE
Answers: 1. (b), 2. (d), 3. (i) (d), (ii) (c), (iii) (a), (iv) (b), 4. (b), 5.
(b) Most of the e-shops allow returns
! !568
REVERSE LOGISTICS AND E-COMMERCE
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !569
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Chapter 17
International Logistics And Intermodal
Transportation
Objectives
Structure
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Introduction
Logistics functions are same domestically and globally but differ in four Ds,
i.e., distance, documents, diversity in culture and demand of customer. In
international logistics, distances are longer, documentation is more
extensive, and customer demand varies to satisfy cultural differences
within both countries and regions. Developing strategies to respond to the
4D environment is the global challenge for logistics management.
Firstly, the fundamental concepts are functions are the same, however:
! !571
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
! !572
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
1. Part of international logistics systems where the flow of network ties one
nation to another. The differences in this system can be classified as
basic differences, which include:
(a) Physical distance
(b) Currency variation and exchange rate differences
(c) Border-crossing regulations and documentation
(d) Transportation modes
Activity A
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Data integration and big data is another key area impacting logistics. The
sheer amount and spread of data that organizations are expected to
capture, interpret, hold, and represent and make available to customers is
a major impact.The cloud, the internet, machine-to-machine stuff, impacts
how companies do things and manage logistics. Along with this
requirement, shipment reliability is becoming a key area. With the need for
increased productivity and increased flexibility, it has become a more
important approach to drive solutions that are end to end.
! !574
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
3. International Trade
• Intra-firm trading
6. Differences in Infrastructure:
! !575
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity B
• The logistics systems have had the effect of shrinking the world,
empowering competitive trade.
• The longer the supply chain, the more cooperation and coordination is
required between production, marketing, purchasing and the logistics
management.
• Product life cycles shorten, sometimes to less than one year (cars 5, PCs
3, Clothing 1 season).
! !576
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity C
The most obvious reason why global logistics is now getting attention is a
four-letter word: cost. Logistics costs now represent a larger percentage of
sales. In fact, they now eat more than 10% of sales revenues for most
companies. Consequently, logistics costs are beginning to erode, or at least
counterbalance many of the economic advantages of global sourcing. These
costs are driven by both internal and external factors. Internally, the
increasing tendency toward global sourcing has resulted in a great deal of
network complexity. The extremely rapid nature of this transition has
forced logistics networks and distribution centers to assimilate loads and
variables that they were never designed to manage.
External costs are also continuing to rise. Inputs such as fuel, labor and
real estate show no signs of falling in price. Supply and demand curves,
tight schedules and capacity levels for ocean shipping place upward
pressure on costs. Given the impact of these internal and external factors,
it just makes sense to develop an overall strategic approach to leverage
economies of scale, improve import decision support and increase lane
densities.
! !577
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
While it was easier to create and operate unique regional strategies, the
resulting duplication often resulted in loss of economies of scale and poor
asset utilization. While regionalization remains viable for some firms, those
desiring to grow and prosper must face the challenges of designing and
operating a globally integrated enterprise. Strategic business initiatives
must change as a firm and its supply chain become progressively more
global.
Activity D
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
!
Figure 17.1: Goods (Trading) and Transport Channels in Parallel
• The elements that match buyers and sellers and mediate the transactions
among them.
• Working with intermediaries can be rewarding but there are also some
things to be careful about.
! !579
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
!
Figure 17.2: Parallel Goods and Transport Channels with Intermediaries
• Production
• Product logistics
• Support logistics
• Customer contact
• Transaction processing
• Local knowledge
• Cheap labour
• Risk management
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
3. Offers the firm more than it can achieve on its own through the
intermediaries: contacts, experience, specialization and scale of
operation.
• They play a strategic role for new and established players enter into
global market.
! !581
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity E
! !582
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
!
Figure 17.3: Relationship between Trading and Logistics Channels
Including Classes of Functions
! !583
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
The four classes of task primarily performed for the shippers are:
(Figure 17.3):
1. Transport services
2. Logistics centre services (warehouse design, outsourcing, etc.)
3. Information processing services
4. Professional advice and support
The three classes of task performed for the carriers are: (Figure
17.3):
1. Marketing services
2. Asset holding
3. Assortment and volume convenience
! !584
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity F
“The movement of goods (containers) in one and the same loading unit or
vehicle which uses successively several modes of transport without
handling of the goods themselves in changing modes of transport.”
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity G
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Advantages
Intermodal freight transportation gives you flexibility with how you want to
move your freight. Additionally, you have the opportunity to be creative in
finding the most efficient way to move your freight. Generally, this process
involves at least two modes of transportation. The more efficiently you
plan, the more money you will save.
Disadvantages
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity H
17.9 TOFC/COFC
The best known and most widely used intermodal systems are the trailer
on a flatcar (TOFC) and container on a flatcar (COFC). Containers are the
boxes utilized for intermodal product storage and movement between
motor freight, railroads, and water transportation. Containers are typically
8 feet wide, 8 feet high, and 20 or 40 feet long, and do not have highway
wheels. Trailers, on the other hand, are of similar width and height but can
be as long as 53 feet and have highway wheels. As the name implies, a
trailer or container is placed on a railroad flatcar for some portion of the
intercity line-haul and pulled by a truck at origin and to the final
destination. Line-haul cost is the expense to move railcars or trucks
between cities. Since the original development of TOFC, various
combinations of trailer or container on flatcar — double-stack, for instance
— have increased significantly. (Figure 17.4).
!
Figure 17.4
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
While the TOFC concept facilitates direct transfer between rail and motor
carriage, it also has several technical limitations. The placement of a trailer
with highway wheels attached, transferred to a railcar, can lead to wind
resistance, damage, and weight problems. The use of containers reduces
these potential problems, as they can be double stacked and are easily
transferred to water carriers. They require special equipment for over-the-
road delivery or pickup.
17.10 Containership
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Figure 17.5: Containerships are Oldest Form of Intermodal Transport
A variant of this intermodal option is the land bridge concept that moves
containers in a combination of sea and rail transport. The land bridge is
commonly used for containers moving between Europe and the Pacific
Rim* to reduce the time and expense of all-water transport. For example,
containers are shipped to the West Coast of North America from the Pacific
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Rim, loaded onto railcars for movement to the East Coast, and then
reloaded onto ships for movement to Europe. The land bridge concept is
based on the benefit of ocean and rail combinations that utilize a single
tariff, which is lower than the combined total cost of two separate rates.
*The Pacific Rim is made up of the countries that ring the Pacific Ocean,
from Oceania and Asia to the Americas. All of these countries, due to their
location, have undergone huge economic changes, and there are numerous
imports between the states of the Pacific Rim. Four Pacific Rim countries
have been coined "economic tigers" because of their economic policies –-
Hong Kong, Singapore, Taiwan and South Korea. Together, the four
countries have challenged Japan as the dominant force in the Asian
economy.
Customers will also have more access to information through the use of
information communications capabilities only dreamt of in the past, and
that information will drive higher expectations of performance as well as
provide the foundation for alternatives, options, and continued change.
Finally, customers and supply chain operators will want all of this done
more cheaply, or in a more appropriate perspective, more profitably.
Therefore, evaluating the life cycle cost of prospective technology
applications is essential.
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
But from wherever the future impetus for intermodalism comes, additional
insights need to be gained through measuring it in its broader definition
and not just the historical containerized context. An increased awareness of
the scope and magnitude of broadly defined and measured intermodalism
will heighten the need for intermodal education and training for those being
asked to manage and execute both new intermodal technologies and
information communications systems and the increasingly constrained
infrastructure of intermodalism.
Activity I
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
17.12 Summary
Global operations are becoming more of the norm for logistics and supply
chain executives. Decisions regarding global sourcing and marketing
require more complex trade-off analyses than traditionally required for
domestic logistics. Both the quantitative and qualitative factors are more
complex. While transportation, inventory, and warehousing costs are very
substantial for global operations, other cost components, including taxes,
tariffs, duties, and documentation, and import restrictions, can also have a
substantial impact on true total cost. However, in addition to the
quantitative considerations, international operations introduce a number of
other variables that are much more difficult to quantify. Many of these
variables relate directly to logistics operations. The major qualitative
considerations include relationship management, infrastructure
consistency, production and transit reliability, and security. With increased
global marketing and manufacturing operations, logistics management
needs to be more involved in developing and implementing global
strategies.
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
A B
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Answers: 1.(a), 2. (d), 3. (i) (c), (ii) (d), (iii) (a), (iv) (b), 4. (c), 5. (a)
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INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !597
INCOTERMS
Chapter 18
Incoterms
Objectives
Structure
18.4 Summary
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INCOTERMS
Introduction
• Incoterms can be modified as long as the Buyer and Seller agree and it is
documented
• Effective date of January 1st, 2011 does not invalidate older versions;
they can still be used as long as the Buyer and Seller agree on the
version used
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INCOTERMS
• Container arrival costs (i.e., THC and other destination charges) are not
expressed
• DAT is the only term that specifically tasks the seller with unloading
Incoterms do not...
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INCOTERMS
1. Ex W
"Ex works" means the seller's only responsibility is to make the goods
available at the seller's premises, i.e., the works or factory. The seller is not
responsible for loading the goods on the vehicle provided by the buyer
unless otherwise agreed. The buyer bears the full costs and risk involved in
bringing the goods from there to the desired destination, e.g., works
represents the minimum obligation of the seller.
3. F.O.R or F.O.T
"F.O.R." and "F.O.T." mean "free on rail" or "free on truck." Both refer to
goods being carried by rail and should only be used when the goods are
carried by rail. The risk of loss or damage is transferred when the goods
are loaded onto the rail.
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INCOTERMS
4. F.A.S.
"F.A.S." or "free alongside ship" requires the seller to deliver the goods
alongside the ship on the quay. From that point on, the buyer bears all
costs and risks of loss and damage to the goods. Unlike F.O.B., F.A.S.
requires the buyer to clear the goods for export and pay the cost of loading
the goods.
5. F.O.B.
Under "F.O.B." or "free on board," the goods are placed on board the ship
by the seller at a port of shipment named in the sales agreement. The risk
of loss of or damage to the goods is transferred to the buyer when the
goods pass the ship's rail (i.e., off the dock and placed on the ship). The
seller pays the cost of loading the goods.
6. F.O.B. Airport
This term is very similar to the ordinary F.O.B. term. The seller fulfills its
obligation by delivering the goods to the air carrier at the airport of
departure. The risk of loss is transferred from the seller to the buyer at
such time.
7. C & F
"C & F" or "cost and freight" (also abbreviated CFR) requires the seller to
pay the costs and freight necessary to bring the goods to the named
destination, but the risk of loss or damage to the goods, as well as any
cost increases, are transferred from the seller to the buyer when the goods
pass the ship's rail in the port of shipment. Insurance is the buyer's
responsibility.
8. CI.F.
"C.I.F." meaning "cost, insurance, and freight" – is C & F with the additional
requirement that the seller procure transport insurance against the risk of
loss or damage to goods. The seller must contract with the insurer and pay
the insurance premium. Insurance is generally more important in
international shipping than domestic shipping, because U S laws generally
hold a common carrier to be liable for lost or damaged goods.
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INCOTERMS
been delivered to the custody of the first carrier, and not at the ship's rail.
Accordingly, "freight/carriage paid to" can be used for all modes of
transportation, including container or roll-on roll-off traffic by trailers and
ferries. When the seller is required to furnish a bill of lading, waybill, or
carrier receipt, the seller duly fulfills its obligation by presenting such a
document issued by the person contracted with for carriage to the main
destination.
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INCOTERMS
The term cost transfer refers to the time when the buyer assumes the
financial cost of carriage, insurance, and customs formalities on
importation or exportation (duties and taxes).
The term risk transfer refers to the transfer of responsibility for the
goods from the seller to the buyer. This transfer implies that the
consequences for any loss or damage of the goods will be assumed by the
buyer.
• it is thus important to specify the time when the risk transfer occurs in
order to know who will be responsible for the financial consequences in
the case of damage.
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Figure 18.1: Transfer of Risks
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INCOTERMS
Each Incoterm sets a degree of participation in terms of risk and cost that
is more or less advantageous for the seller or the buyer:
• Group F (FAS, FCA, FOB) – the seller transfers the responsibility for
the goods in terms of risks and costs at the time they are handed over to
the transporter previously designated by the buyer. The seller does not
bear all the risks and costs linked to the main carriage
• Group C (CFR, CIF, CPT, CIP) – the seller organizes the main carriage
and assumes the costs but not the risks: it is responsible for the cost of
main carriage, including any cost of transport insurance, but the buyer
will be responsible for the goods in the case of any damage
The table below shows the breakdown of costs between the seller and
buyer depending on the Incoterm chosen:
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INCOTERMS
!
Figure 18.2: Incoterms: Obligations & Charges To Be Borne By Buyer or
Seller.
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INCOTERMS
18.4 Summary
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INCOTERMS
A B
(i) C.I.F (a) Requires the seller to deliver the goods alongside the ship on
the quay
(ii) F.O.R (b) Risks of loss or damage are transferred from the seller to the
buyer
(iv) F.A.S (d) The seller must pay the insurance premium
4. The term risk transfer refers to the transfer of responsibility for the
goods from the __________.
(a) Buyer to the Seller
(b) Seller to the Buyer
(c) Insurance Company to the Insurer
(d) Insurer to the Insurance Company
5. Incoterms do not include all the duties of the Buyer and the Seller in a
transaction.
(a) True
(b) False
Answers: 1. (b), 2. (b), 3. (i) (d), (ii) (c), (iii) (b), (iv) (a), 4. (b), 5. (a)
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INCOTERMS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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