LOGISTICS and SUPPLY CHAIN MANAGEMENT

FACULTY
Prof. M.H.Varma
B.E.(Mech.), DMS, PGDMM, MBA (SCM)

Logistics & Supply Chain Management Learning Objectives

Purchasing in Supply Chain Management Outsourcing / Make-or-Buy Decisions Supplier Relationships Management Logistics Management An Overview Materials Handling 20 Principles Third Party / Fourth Party Logistics (3PL / 4PL) Returns Management / Reverse Logistics Value Analysis / Value Engineering Strategic Role Performance Measurement & Evaluation Purchasing / Stores / Logistics Logistics & Supply Chain Management The Road Ahead

Logistics & Supply Chain Management Learning Outcomes

Appreciate the strategic importance of Supply Chain Management in the overall strategy formulation / implementation context
Apply the concepts of Supply Chain Management in practice Understand and assimilate the importance of integration with the Suppliers in Supply Chain Management Demonstrate an ability to diagnose and analyze Supply Chain issues Design and Audit Performance Criteria in Supply Chain Practices

Customer Retention - Key Issues

A Recent Survey says

More than 90 % of unsatisfied

customers do not complain

It costs 5 times more to get a new

customer than it does to keep a current customer

Customer Expectations / Desire

What do Customers look for in
Any Product or Service?

Right Price (affordability factor) Right Quality (reliability factor) Right Delivery (service factor)

Dawn of a New Era ..

Old Perceptions New Realities

Price : Sellers Cost plus Profit

Price : What customer is willing to pay

Quality : Standards determined by the customer

Quality : Standards determined by the Seller

Marketing : A distinct Functional Activity

Marketing : Is Everything / The whole Business is Marketing

Dawn of a New Era (contd.)

Old Perceptions New Realities

Focus on What is good for the company

Focus on What is good for the customer

Customers freedom of choice limited

Customers freedom of choice unlimited

Customer doesnt know a thing

Customer is the King

Logistics Management An Overview

What is Logistics?
Logistics is the . . . process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.

Logistics Functions
Purchasing / Procurement Inventory Control

Facility Location / Network Design

Transportation Customer Service

Warehousing
Materials Handling

Order Processing

A view of business logistics in a company

Raw materials supply points Raw materials supply Manufacturing M/T LOGISTICS PLANT 1 Finished goods storage M/T* WAREHOUSE

Markets
A

M/T

LOGISTICS

PLANT 2

WAREHOUSE

LOGISTICS

PLANT
3

WAREHOUSE

M/T* = Movement / Transportation

INBOUND LOGISTICS

PHYSICAL SUPPLY MATERIALS MGNT

OUTBOUND LOGISTICS

PHYSICAL DISTRIBUTION

Inbound Logistics System

Supplier Supplier Supplier Supplier Warehouse Volume Shipment Plant

Outbound Logistics System

Plant Plant Plant Volume Shipment Warehouse Market Warehouse Market

Basics of Logistics

Is basically an integrative process that optimises the flow of materials and supplies through the organisation and its operation to the customer. Is essentially a planning process and an information based activity. Supports corporate goals by delivering products to the customer at a time and place of his / her choice. Spans three functional areas of a business enterprise Procurement / Manufacturing / Distribution

Objectives of Logistics Management

The primary objective of logistics system is to effectively and efficiently move the inventory in the supply chain so as to extend the desired level of customer service at the least cost Reduction in Inventories Freight Economy Reliable and consistent delivery performance Minimum Product damages Quick Response

Elements of Logistics Management

Logistics Management deals with the Handling , Movement and Storage activities within the supply chain beginning with Suppliers and ending with the Customers. Customer order Processing Filling up the order form Deciding the product specification Delivery schedule / location of Delivery Cost of order Processing EDI / ERP / CPFR Techniques

Traffic and Transportation Mode of Transportation Speed of Transportation Cost of Transportation Containerised service Multi modal system Milk Runs / Cross Docking 3PL / 4PL

Warehousing and storage Location of the warehouse Inventory levels Centralised Vs. decentralised systems Cold chains Packing and repacking facilities Storage requirement of the product.(Nature / Size / Volume) Third Party Logistics Industrial Packaging Primary Packaging Secondary Packaging

 Cost of Packaging Customer requirement for packaging Transportation requirement for packaging Reverse logistics for packaging Recyclability of packaging material
Site location Analysis Availability and type of land Government Regulations & Statutory provisions Cost of transportation Availability of skilled labour Infrastructural facilities

Materials Handling Type of materials to be handled Handling requirements (fragile / inflammable etc.) Requisite Handling Equipments Cost of materials handling Pilferage / Breakage Safety of materials & personnel Inventory Control Inventory Analysis Leadtime Analysis Communication with the supply points Proper / appropriate inventory control system

 Cycle Counting / Stock Taking Obsolescence Factor Inventory Carrying cost

Customer service Parts and service support Field Service and Maintenance Value added Services Reverse Logistics Returned goods handling Clear policy with Customers / Transporters Salvage & Scrap Disposal Clearcut policy Periodic Review Socially responsible Disposal systems

Logistics cost / GDP

20.00
18.0%

16.00

In percentage

13.0%
9.9% 10.0% 11.4%

12.00 8.00

4.00
0.00 India China USA Europe Japan

Countries

Materials Handling

Goals of Material Handling

The primary goal is to reduce unit costs of production

Maintain or improve product quality, reduce damage of materials Promote safety and improve working conditions Promote productivity

material should flow in a straight line use gravity! It is free power move more material at one time mechanize material handling automate material handling

Goals of Material Handling(contd.)

Promote increased use of facilities Reduce tare weight (dead weight) Control inventory

Materials Handling

Cost of Materials Handling

Equipment Operations & depreciation, 20% Freight, 35% Floor Space, 10% Packaging, 20% Handling Labour, 15%

Broad classification of costs

Capital cost / operation cost

Principles of Materials Handling (Continuous flow / Gravity/ Standardization / Unit size / Safety/ Obsolescence /Space utilisation / Planning / Capacity utilisation /Flexibility /Equipment selection /Mechanisation / Motion/ Maintenance /Obsolescence /Simplification/ Dead weight /Idle time)

Overview of Material Handling Equipment

Material handling equipment includes:
Transport

Equipment: industrial trucks, Automated Guided vehicles (AGVs), monorails, conveyors, cranes and hoists. Storage Systems: bulk storage, rack systems, shelving and bins, drawer storage, automated storage systems. Unitizing Equipment: palletizers Identification and Tracking systems

Purchasing in Supply Chain Management

Purchasing Interface

MARKETING
FINANCE OPERATIONS INFO.

PURCHASING

TECHNOLOGY

RESEARCH & DEV. SUPPLIERS WAREHOUSING

Purchasing Strategy:
Answering Questions of Future

Question 1:
What do you need?

Question 2:
Will you buy it from someone else or make it yourself?

30

Purchasing Strategy(contd.)
Question 3: Who is going to supply your need?

How many suppliers will you work with?

31

Purchasing Strategy(contd.)

Question 4: How much and what time are you going to buy?

32

Purchasing - Objectives

Supply Continuity To do so with minimum investment Maintaining standards in Quality based on Suitability for use Avoiding duplication, waste and obsolescence Developing good & reliable suppliers maintaining Excellent Vendor Relationships Close Integration with all Functions / Departments. In Summary Meeting all the Rights Related to Materials Procurement

Essentials of Purchasing 6Rs

Right Quality Right Quantity

Right Price
Right Delivery Right Source Right Person

The Purchasing Cycle -Traditional

Origin of Need & Authorization of Need Quality of Materials (Specification) Quantity of Materials ( determination / precise Del.Schedules) Supply Sources Enquiry Procedures Receipt / Tabulation of Quotations

Price Other Terms & Conditions

Negotiations, if any
Select the Supplier (or Suppliers)

Issue a Purchase Order

Receive Order Acknowledgement / Acceptance from the Vendor

Cancellation / Amendments, if any

Follow-up / Expediting on supplies

Receipt of Materials ( counting etc)

Inspection (Quality Aspects)

Rejection, if any (Collection / Replenishment by the Vendor) Final Acceptance of Materials Processing Supplier Bills & Payment to Vendor Disposal of Scrap / Surplus Materials

Vendor Development /

Supplier Relationship Management

Overview of Vendor Selection Criteria

Quality Technical Specifications Chemical/ Physical (Test Facilities) Design Product Life Maintenance Capability Production Capability Technical Capability Management Operating controls Labor Relations

Additional Desirable Factors

Vendor location Vendor attitude Training Aids

Reliability Timely Delivery Performance History Warranty/ Guarantee Financial

Price Financial Stability Market Credibility

Vendor Development and Management

Vendor Assessment / Selection Vendor Rationalization Alternate source Development Single Vs. Multiple Vendors Local / National / Foreign Vendors Standardised Costing Practices Vendor Credit and Payment Terms Vendor Development Value Drivers Partnerships / Alliances Quality Initiatives / Defect Management Quality Performance / Self- certification / D.O.L

Supply Chain optimization Volume consolidation Third Party / Fourth Party Logistics Delivery Performance / Vendor Rating Systems Vendor Meets Vendor Reward Scheme Vendor Satisfaction Survey

Buyer- Seller Relationships

The vendor -

Is not a whipping boy Is not a helpless spectator Is not a cheap source to avoid labour trouble
Is not a Donor-Recipient relationship Is a Parent - Child relationship

The relationship The relationship

Causes of Strained Relationships

Delivery Failure: Raw Materials / Labour unrest / Power failure / Transport Poor Quality: Tough specifications / Process failure / Inspection methodology Reciprocal buying An odd incident / issue Irrational pricing policy Back-door-selling Poor credit policy & compliance Poor communications Cultural differences Mutual distrust

Buyer Seller Relationships

Three Types of Supplier Relationships

Transactional Relationships Collaborative Relationships

Supply Alliances

Outsourcing / Make-or-Buy Decisions

Strategic Reasons for Outsourcing

Reduced cost
Drive Organisational change Increase Market share
Strategic Drivers

Improve Productivity
Increase Flexibility

Strengthen Company Performance

Improve Customer Satisfaction

Competitive Edge

Outsourcing core issues

Definition of Outsourcing

An Arrangement where one company provides services to Outsourcing is the transference to third-parties, the

another company that would otherwise have been implemented in-house performance of functions once administered in-house

Sub-contracting work to another company

Occurs when one company hires another company to
manage, maintain and run some portion of its business

Role of Outsourcing in a Supply Chain

Strategic Reasons for Outsourcing

Tactical Reasons for Outsourcing

Concentration on core competencies Access to world class capabilities Shared Risk Accelerate Re-engineering benefits
Onetime application Controlling operating costs Making resources available for core business activities Injecting additional cash into the business Securing resources not available internally

Transformational Reasons for Outsourcing Bringing faster and newer solutions to customers Responding to shorter product life cycles Redefining relationships with suppliers and business partners Tackling competitors Reducing Risk when entering new markets

Issues in Outsourcing

Involvement of the Suppliers Supplier Base Single Vs. Multiple Sourcing Local / National and International Sourcing

Areas of Outsourcing
Transportation Warehousing Inventory Management Information Systems Packaging Other Non-core Activities

Disadvantages of Outsourcing
Loss of Expertise (In-house) Loss of control Policy / Procedures (to suit outsourced practices) Staff morale

Loss of client focus

Outsourcing Benefits

To focus on core competencies

Resource constraints
Cost savings due to better Management of Supply Chain Cross pollination of better available practices Wider geographical coverage Provides operational flexibilities to meet the changing needs of customers Human Resource Requirement is also minimised and limited to the extent of coordinating and monitoring the service providers activities

Making in ones own Company

Cost Studies indicate it is cheaper to make Excess plant capacity available to absorb overheads The item may be a specialised one may require extensive investment.

The items demand relatively large & stable

The Quantity required may be too small- to interest a supplier

The Item may call for critical quality parameters The item may be too large in size - logistics / transport issues.

Only one single outside source available - may not be very

reliable

Confidentiality issues such as design features / specification / specialised processes etc.

Buying / Outsourcing

Cost studies indicate it is cheaper to buy / outsource. Space / Equipments current capacity inadequate large investments called for

Existing Equipments / Machinery outdated not able to meet current customers demand.

The current Facilities capable of being used more profitably for

making alternate items/components.

The Skills available within the company-not in tandem with current requirements

Demand for the item Seasonal or temporary A wide selection available from a large no. of Sources.

Third Party / Fourth Party Logistics (3PL / 4PL)

Third Party Logistics (3PL)

Strategic Partnership called Third Party Service Providers Firms are external to the company Wholesaler extends only one type of service in which they have an expertise (Warehousing / Transportation / Inventory Management / Packaging) Integrator one who provides entire logistics services / solutions

Company objectives while going in for 3PL services

Reduction in risk and liability Value added services to customers Source of process improvement Wider market coverage

Indian 3PL Service Providers

AFL Limited Dynamic Logistics Fed Ex Limited Gati Corporation Limited Geologistics India Limited Logistix Limited Miebach Logistics Limited Patel Roadways Limited Safeexpress Pvt. Limited Transport Corporation of India Ltd TNT Global Express Western Arya Logistics Ltd

Fourth Party Logistics (4PL)

A new trend wherein the IT firms are providing Logistics solutions built around domain knowledge provided by Third Party Logistics Companies 4PL A term coined by Accenture Consulting Company
The genesis of 4PL lies in forming collaborative relationships among various logistics service providers based on an IT backbone It covers the entire supply chain of the customer

The Integrators Alliances are led by IT based and not asset based service providers

The arrangement is flexible

Not a kind of 3PL + service provider 4PL must have exhaustive skills in investing and maintaining the infrastructure and resources that makes it the manager of multiple 3PL service providers

Returns Management / Reverse Logistics

Returns Management

Concept of

Reverse Logistics

Packaging Return and Reuse Product Recall

Returns Management
Returns can be categorised in the following manner

Close Outs Buy Outs Seasonal Items Surplus Defectives Salvage

Needs of Returns Management

Returns Management is practised by Cos for these Reasons

Legal Factors Economic Factors Competitive Factors

Challenges in Returns Management Retailer Manufacturer Conflict Lack of Information Not Understanding the Importance of Returns
Management

Diposition Options Direct Reuse Return to Supplier Sell as New Sell through outlet or discount stores Sell in secondary markets

Product Recovery Management

Repair involves mending or replacing the defective parts.

Refurbish is the process of reconditioning the returned products to match the specified quality standards.
Remanufacture the process of upgrading the returned product to match the standards of a new product. Cannibalize only a few parts of the product are recovered. Recycle only the basic raw material in the returned product is reused when the parts / compnents cannot be repaired, refurbished or remanufactured .

Value Analysis / Value Engineering

Value Analysis

What is value? Types of value Economic / aesthetic / political / moral, etc) What is value analysis? Cost reduction vis--vis Cost Control V.A Historical background Value = (Worth to us / Price we pay) = (Function / Cost)

Function

Performance Reliability Appearance

Collectively called Function

Function is defined as that property which makes a product work or sell

Value Analysis
Causes of unnecessary costs

Lack of Information Lack of Ideas Wrong beliefs/ attitudes/ habits Changed Circumstances Resistance to Change
Perceptual blocks Cultural blocks Emotional blocks

Blocks to Creative Thinking

Value Analysis

Basic framework for Value Analysis Approach

Is the item / process required at all? What does it do? What does it cost? What else would do the job? How much would be the alternate cost? Orientation phase Information phase Function phase Creation phase Evaluation phase Investigation phase (use company / industrial standards. Consult vendors & specialists) Recommendation & Implementation phase

V.A. Technique / The Methodology

Value Analysis
Application of Value Analysis

Raw materials Packing materials Manufacturing processes Materials handling & transportation Capital goods Plant & Machinery Office systems & Procedures
Value Analysis Vs. Value Engineering

What is the difference? Where do you apply?

Value Analysis Application

Product Life-Cycle
Maturity

Value analysis makes

its contribution in the last stage of Product Life-cycle, viz, Maturity stage

Sales

Growth

R&D Stage

Time

Cost Reduction Techniques In A Nutshell

Imports / Imports Substitution Outsourcing / Subcontracting Vendor development / Alternate Sources Value Analysis / Value Engineering (Alternate Materials / Processes) Ask & You May Receive Aggregation Buyers Consortium Better Alternate Packing Methodology Specifications Rationalization Total elimination of wastage in Transportation / Storage Being alert on Obsolescence Stores Management : 5-S Technique Leveraging The Supply Chain thru lower Tiers

Performance Measurement

Logistics Criteria for Performance Measurement

Outbound Freight cost Order Fill Rate Inventory Stock Accuracy Inventory Turnover Ratio On-time Delivery Customer Complaints Stock-out situations Inbound Freight cost Back orders Inventory obsolescence Inventory carrying cost Non-moving / Deadstock items Disposal systems Logistics cost per unit Vs Budgeted Overall customer satisfaction

Purchasing Performance Evaluation

Objective of Evaluation Relates to the Control aspect of Management Managers Evaluate in order to determine if their organisations are moving towards the set Targets / Goals / Objectives.

Criteria for Evaluation

Savings Target Method (Against Budgeted Norms) Customer Service Level (The no. of occasions production got affected) Inventory turn Over Ratio Alternate Source Development Value Analysis / Value Engineering (Savings Achieved) Cost of Procurement Function (Benchmark against World Standards)

Warehousing / Stores Operations

Performance Evaluation

Least Glamorous of all the aspects of Materials Management Function.

Criteria for Evaluation

Good Housekeeping - A Place for Everything & Everything in its place. The Cost of running the Department Service Level rendered to the Customers (Internal / External) The extent of deterioration & loss due to improper storage & issues The extent of discrepancies / reconciliation in Stocktaking The Response Time for meeting customer demands. Compliance to Statutory Regulations and Safety Aspects. Occupancy Rate of Warehouse Space

Supply Chain Management The Road Ahead

Indian Supply Chain Management Practices Operating Philosophy

84% Push

16% Pull

Supply Chain Management The Road Ahead

Survival of the fastest-SPEED is the name of the game Collaborative Purchasing Working together to add value Green Purchasing - the universal compulsion 3 PL / 4PL - the growing relevance E-Procurement Greater emphasis Outsourcing New challenges (e.g. labour redeployment) Continuous learning and unlearning Vendor meets : Business Partners meet Supplier satisfaction survey A mandatory exercise Changing role of the Supply Manager the need of the hour

CSR

Learning

Technology

Customer Ecstacy Customer Delight Trust Customer Satisfaction Customer Requirements Innovation

Integrity

Continuous Improvement

Excellence