International Logistics

Management
Chapter 1
The Evolution and Role of
Logistics in Business

The word logistics has its origin from Greek logistike which means the
art of calculating.

The term logistics has evolved into the art and science of determining
eminently concrete aspects of business management, from
transportation and packaging to warehousing and inventory
management.

 The term is much broader and includes not only all

the activities related to the physical movements of
the goods, both upstream (procurement activities)
and down stream (sales) activities but also the
management of relationships with suppliers and
customers. Earlier in this century, functions now
grouped under the term logistics were part of
marketing.
In 1950s marketers tend to focus on product
promotion and development, neglecting areas of
warehousing, transport and inventory control. The
realisation that storage and distribution costs were
absorbing an increasing percentage of sales
revenue sparked a renewed interest in this area in
late 70s

Demand Forecasting
Purchasing
Requirements Planning
Production Planning

Materials Management

Manufacturing Inventory
Warehousing

Logistics (1990)

Materials Handling
Industrial Packaging
Finished Goods Inventory

Supply Chain (2000)

Distribution Planning
Order Processing
Transportation

Physical Distribution

Customer Service
Strategic Planning
Information Technology-----------------------------------------------------------------------Marketing-----------------------------------------------------------------------------------------Sales--------------------------------------------------------------------------------------------------

Definition
International logistics is the process of
planning, implementing and controlling the
flow and storage of goods, services and
related information from a point of origin
to a point of consumption located in a
different country. In ordinary language the
same can be defined as right product, at
right place, in right time, and in right
condition, involving more than one nation.

Role of logistics in business

Logistics adds value when inventory is correctly positioned
to facilitate consumption.
Creating logistics value is costly. Logistics expenditure
typically range from 5 to 35% of sales depending upon the
type of business, geographical area of operation, and
weight/value rates of products and materials.
Logistics accounts for one of the highest cost of doing
business. So, logistics though vital to business success, is
also expensive. In spite of the fact of cost, most firms are
interested in achieving logistical competency, to gain
competitive advantage.
Logistically sophisticated firms are highly attractive suppliers
and ideal business partners. The overall effect is that the
goal of logistics is to achieve a targeted level of customer
service at the lowest possible total cost.

Business profitability
Business profitability can be
increased by getting Competitive
advantage.

What is Competitive advantage?

Activity centres in logistics

Transportation (inbound, /out bound)

Warehousing
Inventory
Unitization (packing and packaging)
Material handling
Communications
The whole activity can also be divided
into
1. Inventory flow
2. Information flow. (Paper based, electronic
based)

Characteristics of an organization with effective logistical competency

1. Alternative logistical capabilities

2. Flexibility according to the need and
demand
3. Time based performance
4. Operational control
5. Postponement capabilities
6. Commitment to perfect service.

Logistical service is measured in terms of

Availability (inventory according to

customer requirement)
Operational capability and
performance (order delivery speed,
consistency accommodating unusual
and unexpected customer requests)
Service reliability. (Continuous
improvement in service for customer
delight)

Logistics activity profiling

Logistical
Sub-systems
Operations

Procurement
(suppliers)

Manufacturing
(plants)

Distribution
(depot/warehouse)

Physical

Preparation for the

flow to plant
Packaging
Direct or Indirect
delivery to plant
Pre-manufacturing
Reception
Open-checking
Replace
in
inventory
Repair

Interworkshop flow
Preparation
delivery
to
depot
or
immediate
delivery
to
customer
Reception
Open-checking
Repair

Storeroom
organization
Preparation order
Packaging
Approach
transport and final
transport
Postmanufacturing
Reception
Checking returned
items
Tests
Put in inventory
Destruction
Checking
Packaging

After-sale

Installation
Preparation
order spare part
change
Packaging
Delivery
Request/tests
Repair
Dispatch
to
repair centres

Logistics activity profiling Conti

Information

Planning and
management

Data entry, update, database, packaging products, customers,

Place of delivery
Data entry order
Data entry inventory in and out
Monitoring pre-and post manufacturing operations
Shipment documents
Data entry and monitoring level of service
Information from key indicators
Procurement
planning

Plant planning
Order
procurement

Analysis key indicators

Forecasting
Monitoring of
orders
Transport and
delivery loop
Order
procurement

Forecasting
Monitoring orders
spare parts
Delivery planning
Order procurement

Cost and value measures

As an item of cost, logistics often represents the highest

single operating expenditure for the industrial
manufacturer. So, it deserves careful managerial attention.

To prevent unnecessary or excessive expenditure.
To recognise the fact that any saving in the logistics area adds
directly adds to the bottom-line profits for the firm.

The impact of the profit leverage afforded by logistical cost

reduction can be seen by equating such savings to the
amount of effort in increased sales that would required to
generate the same profit. The overall objective of logistics
management is to perform the functions assigned to
logistics in the most cost effective way.

Costs that are involved in the logistics operation of a firm

1. Costs of planning and managing the logistics

system
2. Transportation of supplies to the plant
3. Transportation of finished goods throughout
the distribution system
4. Receiving, inspecting and putting supplies in
the storage
5. Maintaining inventories
6. Processing customers orders
7. Packaging
8. Maintaining warehouses
9. Providing customer service.

Cost tradeoffs

Sometimes it takes an emergency to prompt

distribution managers to consider alternative
logistics methods and their cost impact on the
total system.
A cost trade off occurs when a change in the
distribution system causes some costs to
increase and other costs to decrease.
Evaluation of cost tradeoffs helps to identify
the least cost method of operation among
alternatives that provide a given level of
performance

Value measures

Following factors can be treated as value measures in logistics

activity.
Ability to meet quoted delivery date.
Prompt and comprehensible quotation
Provision of technical advice for problem solving
Discount structure on list prices.
Technical after sales service.
easy of contact with person in authority
Replacement guarantee.
Wide range of services.
Extended credit facilities
Order cycle time
Order cycle consistency
Order accuracy
Order completeness
_ Order condition

Logistical performance

The business marketer has a

substantial role to play in optimizing
logistics performance by interacting
with distribution channel
intermediaries, customers,
manufacturers and other areas of the
firm to facilitate tradeoffs that will
bring cost and efficiency benefits to
the firm

Order conditions
By smoothening order patterns and preventing congestion in
the logistics system customer service can be maintained at a
high level more economically.
Institution of minimum order sizes helps to ensure that the
costs of small orders are avoided.
Using minimum reorder periods is another way of reducing
small orders.
When technological or style obsolescence and perishability is
avoided maximum reorder quantities may be instituted.
delivery to individual customers on designated specific
dates, and days can improve transportation efficiency
Customer cooperation can be won by agreeing on minimum
lead times for ordering.
Incentive price discounts can encourage customers to order
truck load and full container load quantities.
By consolidating cargo small customers can be satisfied

Product adjustments

The physical characteristics of industrial marketers products have considerable impact

on the firms logistics.

High volume, low weight products fully utilize the space parameters of the
logistics system before the weight parameters.
Low volume and high weight products use up the logistics systems weight
parameters first, leaving excess volume available and unused.
For lowest cost and highest efficiency, the business marketers objective is to
maximize utilization of both capacity parameters,
Such logistics thinking has led to the wide spread change in packaging from
glass to plastic containers to reduce weight. This is an example of product
adjustment, where a change is made to the product to improve its logistical
characteristics.
Many products are shipped and stored in knocked down condition to make a
compact package that is reassembled at the point of usage.
Product redesign for nesting or stacking is another product adjustment that can
also achieve logistics economies.
When dense products are involved, excess metal may be trimmed and holes
punched to eliminate unnecessary metal and reduce weight. (Ex:Farmer,asian
paint, Maruthi)

Chapter 2 - Customer Service and

Order Processing
Customer service refers to a group of
utilities or benefits the customer
expects from the supplier. In logistics
terminology it is termed as right
product at the right place and in right
time and also in right shape. Level of
customer service is measured in
terms of his batting average that is
number of times or occasions the
customer service target is met.


Elements of customer service

Customer service means different things to each customer. From

research it was found that most buyers identify the following
parameters as being important while dealing with suppliers.

1. Order cycle time

The time taken between placing the order and receipt of delivery
2. Order cycle consistency
The extent to which order cycle time varies.

3. Order accuracy

The degree to which items shipped meet order specifications.

Elements of customer service

Continued
4. Order completeness
The extent the items ordered are
totally filled when the order is
assembled for shipment.
5. Order condition
Damage level at the time of receipt

 One should admit that it is difficult to generate a universally applicable

list of customer service elements. Still, to the extent possible we may
have to look assiduously the following dimensions
1. Patronage
Patronage can be defined as the state of being a regular customer.
Customer service is an important determinant of patronage. Research
shows that a slip of 5%dip in customer service results in a sales
decrease of 20%.
2. Segmentation
One has to understand while providing service that customer service
elements varies among industries, market segments and individual
customers. So an intelligent service provider recognises that markets
can be segmented on the basis of differences in customer service
elements.
3. Customer perception
It is noteworthy that the customer perceptions form the basis for setting
customer service policies. For example if the industry norm says the
expected delivery of service is 72 hours and if the service provider gives
delivery within 48 hours may be spending money needlessly on a higher
level of service than his customer perceives or desire.

4. Profit impact
It is mandatory that customer service levels should not be established without
considering their impact on costs and revenues. A company can determine the
customer service level only after studying specific conditions in its field. The nature of
product, geographic location and circumstances, transport characteristics, and all other
factors that effect optimum service point.
5. Competitive advantage
Customer service it self can form a competitive advantage and make a service provider
to have a differential edge over his nearest challengers and in due course it can become
his unique selling proposition.
6. Location
Location can also become an important aspect in giving efficient customer service.
Customers who have adopted zero inventory approach require delivery of zero defect
product supply to feed their productions without disrupting their production schedules.
So they may require deliveries many times a day or in a week. So it is a fact that most
of the suppliers are planning their plant locations closer to the manufacturing units.
7. Warehouse location
Number of warehouses in the vicinity of logistics system is a function of the
transportation cost savings .Customer service usually can be improved by
decentralising supplier inventories to provide faster replenishment of customer
inventories, thus facilitating customers to reduce their inventories. So the service
provider must analyse the tradeoffs between the achievement of least cost warehouse
and maximum service warehouse configurations.

Thank you