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Information flow
Information flow
Customer’s Supplier’s
Customer Lead Firm Supplier
customer supplier
margin
Strategic Operational
Receive goods
Identify goods Temporary Permanent
Sort goods
Despatch to storage
Hold inventory
Recall, select goods
Marshal the shipment
Despatch the shipment
Prepare records and
advices
SDM – Ch 15 Tata McGraw Hill Publishing 30
Purpose of Warehousing
• To provide desired level of customer
service at the lowest possible total cost
• It is that part of the firm’s logistics system that
stores products (RM, Packing Materials, WIP,
FG) at and between point of origin and point
of consumption and provides info to
management on the status, condition and
disposition of items being stored
• Distribution warehousing relates mainly to FG
SDM – Ch 15 Tata McGraw Hill Publishing 31
Reasons for Warehousing
Service related Cost related
Maintain source of supply Achieve production economies
Support customer service Achieve transportation
policies economies
Meet changing market Take advantage of Quantity
conditions Purchase discounts and forward
Overcome time and space buys
differentials Least Logistics cost for a desired
Support JIT programs of level of customer service
suppliers and customers
Provide customers with the right
mix of products at all times
Temporary storage of materials
to be disposed or re-cycled
Production Positioned
• Warehouses located close to the production
facilities or supply sources
• Not the same level of customer service as the
earlier one
• Serve as points of aggregation / collection for
products made in a number of plants
• Factors influencing are:
– Perishability of raw materials
– Number of products in the product mix
– Assortments ordered by customers
– Transport consolidation rates ex; FTL
SDM – Ch 15 Tata McGraw Hill Publishing 37
Intermediate Positioned
• Mid point locations between the final
customer and the producer
• High customer service levels possible even if
products made in number of units
Reverse Logistics
• Movement of goods from the market or
customer back to the company
• The need:
– Increased awareness of the environment
– Stringent legislation
– For some it is part of the business
– Profitability of dealing with scrap, surplus
• Surplus, obsolescence can result due to:
– Over optimistic sales forecasts, change in product
specs, errors in estimating material usage, losses
in processing or overbuying based on incentives
SDM – Ch 15 Tata McGraw Hill Publishing 44
Advantages of Rail
• Economy – more so for goods over
long distances
• Efficiency of energy
• Reliability – not affected by weather
conditions
Road transport…..
Air transport….
Pipeline….
SDM – Ch 15 Tata McGraw Hill Publishing 50
Pipeline Movement
• Advantages:
– Reliable, continuous, all weather transport
– Low energy consumption – hence low cost
– Low maintenance and operating costs
– Underground, no space problem
– Can traverse difficult terrain
– Minimal transit losses
– Operation round the clock, safe
– Economies of scale – double the throughput for
only 30% additional cost
• Disadvantage is in the investment cost
Ropeways….
SDM – Ch 15 Tata McGraw Hill Publishing 51
Ropeways
• Advantages:
– In hilly or inaccessible areas
– Long and circuitous routes with streams / deep
valleys
– For commodities capable of movement in ropeway
buckets
– Short haulages of less than 50 kms
– Areas where other carriers are uneconomical
• Disadvantages:
– Heavy investments
– Limitations on size and quantity of haul
How to decide on the right carrier?
SDM – Ch 15 Tata McGraw Hill Publishing 52
Carrier Selection
Traffic Related Shipper related Service related
Length of haul Size of firm Speed (transit time)
Consignment weight Investment priorities Reliability
Dimensions Marketing strategy Cost
Value Network of Customer relationship
Urgency production and Geographical coverage
Regularity of distribution Accessibility
shipment Availability of rail Availability of special
Fragility sidings vehicles / equipment
Toxicity Stockholding policy Monitoring of goods
Perishability Management Unitisation
structure
Type of packing Ancillary services – bulk
System of carrier breaking, storage
Special handling evaluation
required
SDM – Ch 15 Tata McGraw Hill Publishing 53
Chart of Relative Merits
Parameter Weight Rail Road Air Water Pipe Rope
age line way
Speed 30 5 6 8 4 3 3
Versatility 10 6 8 5 6 3 2
Reliability 20 6 8 5 5 7 4
Availability 10 7 8 5 6 3 2
Continuity of 10 6 7 5 5 8 3
service
Distribution cost 20 4 5 6 6 7 8
Total score 10 5.4 6.7 5.1 5.1 5.1 4.0
Overall ranking 10 2 1 4 5 5 6