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Logistics

Planning, implementing, and controlling the effective flow and storage of goods and materials from the point of origin to the point of consumption Transportation Warehousing (and more generally, location) Packaging Material handling Logistics information systems Logistics service providers (And some would put inventory here as well!)

Why the Increasing Interest?


Deregulation Globalization Technological breakthroughs Environmental concerns Performance impact

Deregulation
Transportation providers
Elimination of artificial barriers Unrestricted markets Multi-modal solutions Price, schedule, and terms flexibility

Buyers have greater freedom


Negotiate prices, terms, and conditions Ownership issues

BUT

Deregulation (continued)
With greater freedom comes new responsibilities Key point Logistics has evolved from being a tactical area to a strategic one

Technological Breakthroughs
Information Systems
Global positioning systems Bar-coding applications RFID on the horizon as replacement Real-time simulation and optimization Precise coordination of multi-modal solutions

Transportation Systems
Standardized containers for ease of transfer Roadrailers, etc. Multi-modal solutions Ship Truck Train Truck ?

Environmental Concerns & Performance Impact


Even while certain aspects of logistics have been deregulated, other areas are being controlled more stringently Fuel efficiency Pollution Recovery, recycling, and reuse of packaging, containers, and products

Customer touch points


Delivery reliability Delivery speed Delivery tracking Quality Ford is hiring UPS

Strategic Disconnect
Org n t a izaion St t g rae y

M rk t g a ein St t g rae y

Op raion e t s St t g rae y

Fin n l a cia St t g rae y

Strategic Disconnect Tr n or tion a sp ta D cision e s In e tor vn y D cision e s Loca tion D cision e s In m tion for a Sy m ste s

Who Owns Logistics?


Org n t a izaion St t g rae y

M rk t g a ein St t g rae y

Log ics ist St t g rae y

Op raion e t s St t g rae y

Fin n l a cia St t g rae y

Ex cu e v l of r p e n tion e tiv -le e e r se ta D ifficu g l of fu ction l in g a lt oa n a te r tion O g n tion l q e r a iza a u stion W or a ow s log : h e lly n istics? Tr n or tion a sp ta ? Mr e g a k tin ? O e a s? p r tion

Logistics Decision Areas


Transportation
Modes Formats Pricing

Warehousing
Consolidation Cross Docking and Break-Bulk Hub and Spoke Inventory

Major Transportation Modes


Highway (truck) Water Rail Air Pipeline

Highway Mode
Strengths
Flexibility to pick up and deliver where and when needed Often the best balance between cost/flexibility and delivery reliability/speed Can be available 24/7

Weaknesses
Not the fastest Not the cheapest Regional Infrastructural Development

Water Mode
Strengths
Highly cost effective for bulky items Most effective when linked into multimodal system

Weaknesses
Limited locations Relatively poor delivery reliability/speed Often limited operating hours at docks

Rail Mode
Strengths
Highly cost effective for bulky items Can be most effective when linked into multimodal system

Weaknesses
Limited locations, but better than for water. Better delivery reliability/speed than water

Air Mode
Strengths
Quickest delivery over longer distances Can be very flexible when linked to highway mode

Weaknesses
Often the most expensive, particularly on a per unit basis

Transportation Formats
Common carriers
Published rates and schedules Nondiscriminatory pricing Increased flexibility to partner

Contract carriers
Service for select customers Unlimited number of customers

Private carriers

Pricing Transportation Services


Economic factors
Pricing versus distance Price/Rupees versus density Stowability, handling, and liability Market factors

Ratings
Goods classification Class index

Economic Factors I
Price
why the tapering principle?

Distance

Price

Density

Ratings (a simplified view)


Goods classification
Perishability, stowability, handling, etc.

Class index?
average product = 100 Based on expected transportation costs

Determining Transportation Rates


Rate Determination
By weight (Less-than-truckload shipment) By distance (truckload shipments) Minimum charges and surcharges

Exceptions to the rule


Seasonal commodities FAK (freight of all kinds)

Key Points
Choosing a mode
Five choices Speed? Cost? Flexibility?

Choosing a format
Flexibility versus control

Controllable factors affecting cost


Density, stowability, packaging, and containerization

Warehousing
Any operation that stores, repackages, stages, sorts, or centralizes goods or materials New Concept Warehousing a key piece of logistics strategy
FMCG Products

More than just storage


Warehousing Distribution Centers

Warehousing Benefits
Economic benefits:
Accrue directly to company Must consider total system costs

Service benefits:
Support customer service needs May or may not reduce costs

Consolidation
Small shipments in ...

Warehouse

Large economical shipments out ...

Example 1
Customer Drawing Papers Printer Furniture Shipment 100 boxes 100 PC printers 10 dining room sets Weight 3,000 Kgs. 3,000 Kgs. 4,000 Kgs.

Dedicated truck from Delhi to Mumbai: Rs.2,000 Cost to run consolidation warehouse: Rs.9 per hundred-weight Local delivery in Mumbai: Rs.200 per customer

Cost Benefits of Consolidated Warehousing


Warehousing costs Cost of one truck to Mumbai Delivery to final 3 customers Rs.200 = customer How does this compare to the cost of separate dedicated shipments? What about truck utilization (assume trucks hold 60,000 Kgs.)
10,000 Kgs Rs.9/100 Kgs =

Rs.900
Rs.2,000 Rs.600

Cross-Docking
Large economical shipments in ...

Warehouse

Small shipments out ...

What about supply / demand mismatches?

Break-Bulk
Like break-bulk, but usually refers to a single source

Plant A
Warehouse

Customer Delivery

Example 2
Manufacturer Customers 500 Kg. average order size Direct shipments: Rs.7.28 per hundred-wt. Rs.7.28 5 = Rs.36.40 > 20,000 Kgs: Rs.2.40 per hundred-wt. Local delivery: Rs.1.35 per hundred-wt.

Insight:
If we can run a warehouse for less than:
5 (Rs.7.28 Rs.2.40 Rs.1.35) = Rs.17.65/500 Kgs. Or Rs.17.65 / 5 = Rs.3.53 per hundred-weight

we should do it.

Hub and Spoke Systems

Processing and Postponement


Cold Drinks Processing and Bulk food products, Postponement paints, etc.
Packaging high volumes Labeling, etc. Customer A Customer B Customer C

containers

Minimizes risk Minimizes inventory

Spot Stock & Assortment


Spot Stock : attempt to position seasonal goods close to the market place Region 1 Region 2 Region 3

Manufacturer or Centralized Source

Warehouse

Time sensitive, seasonal items Often temporary, public storage

Assortment
Broad product line and good inventory control key to success : Array of goods is held close to the source of demand in order to assure short customer lead time
Supplier E Supplier F Supplier G Supplier H Customer A

Assortment Warehouse

Customer B Customer C Customer D

Logistics Information Systems


Strategic decision making

DSS SRM
applications

CRM
applications

Network design

Tactical planning

Routine decision making

Warehouse & transportation planning

ERP
applications

Execution and transaction processing Suppliers Internal supply chain Customers

Warehouse management & transportation execution

Logistics

Packaging Implications
Transportation
Class segmentation Damage protection

Material handling and warehousing


Storage requirements Container recycling Ease of handling

Logistics Strategy
Owning versus Outsourcing
Does the firm have the volume needed to justify a private logistics system? Would owning the logistics system limits the firm ability to respond to changes in the marketplace or supply chain ? Is logistics a core competency for the firm?- common , contract, Third party logistic carrier

Measuring Logistics Performance


Perfect Order Delivery Time , Shipped complete, invoice
correctly, undamaged in transit Landed Cost Freight Forwarder, Customer Broker Weighted Center of Gravity Method * Optimisation Models- Assignment Problem

Weighted Center of Gravity Method *

Economic Factors II
Stowability, handling, and liability

versus