Logistics Management An Overview

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Logistics - Overview
What is Logistics ? The process of planning,implementing and controlling the efficient, cost 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 requirement. Logistics involves the integration of Information, Transportation, Inventory, Warehousing,Material Handling & Packaging Responsible for the geographical positioning of Raw materials,Work in Process & Finished Goods inventory where required at the lowest cost possible. Logistics facilitates the flow of products through marketing channels to consumers
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Perspectives of Logistics
Sl.No 1
2

Perspective Inventory
Customer (eight R of logistics)

Definition Management of materials in motion & at rest

Right product, At the right time, In the right quantities, In the right condition, At the right place To the right customer At the right cost Right documentation The branch of military science concerning processing,maintaining & transporting materials, personnel & facilities The art & science of management, engineering & technical activities concerned with requirements, design & supplying and maintaining resources to support objectives, plans & operations. Providing Time & place utility / value of materials & products in support of organizational objectives.
3

Dictionary

International Society of Logistics Utility / value

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Perspectives of Logistics
Sl.No Perspective
6 Council of Logistics Management

Definition
That part of the supply chain which plans,implements & controls the efficient & effective flow & storage of goods, services & related information from point of origin to point of consumption in order to meet customer requirements. Supply management for the plant (inbound logistics) and distribution management for the firms customer (outbound logistics) Determination of material requirement,purchasing,transportation, inventory management, warehousing, material handling, industrial purchasing,facility location analysis, distribution,return goods handling, information management, customer service,and all other activities concerned with supporting the internal customer (manufacturing) with materials and the external customer (retailer) with finished products. Handling the details of an activity

Component support Functional Management

Common Culture
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Components of Logistics Management

INPUTS
Natural resources like land, building, machinery & equipment) Human resources Logistics Management Information resources Raw Materials In-process inventory Finished Goods

Management Functions
Planning Implementation Control

Outputs of Logistics
Marketing Orientation Time & Place utility Efficient distribution Proprietary asset

Logistics Activities

1.Customer service 2. Demand forecasting 3.Plant & warehouse site selection 4. Procurement 5.Inventory control 6.Material Handling 7. Order processing 8.Packaging 9. Distribution communications 10. Return goods handling 11. Salvage & scrap disposal 12. Traffic & transportation 13.Warehousing & storage 14. Parts & service support
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Interface with Marketing & Production

Logistics
Production
Demand mgt, Customer service & logistics quality Demand mgt, Customer service & logistics quality

Marketing

Supply mgt Channel distribution & total cost minimization

Supply mgt Channel distribution & total cost minimization

CUSTOMERS
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Interface with Marketing & Production

Companies need to be close to customers to fulfill the needs Creating value to customers can happen only when logistics works closely with production & marketing to plan, coordinate & integrate its activities. Logistics quality is measured as the ability to deliver products & services without defects & errors to meet customer expectations where customers include both internal & external customers. Production depends on logistics service for timely supply of raw materials & semi finished components to avoid work stoppage. Logistics plays a role in various decision areas like Product design, Plant location, choice of markets / sources, Production structure, distribution /dealer network design,location of warehouses, plant layout, allocation decision & production planning.
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Logistics Costs Transportation costs Inventory costs Packaging costs Warehousing costs Administrative costs like taxes, duties & insurance

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Logistics costs
Comparison of Logistics of Refrigerators & Sponge Iron

Refrigerator
(Rs / unit)

Sponge Iron
(Rs. / tonne)

Selling price Cost of delivered Product Value added Controllable portion of Value added Total logistics cost Logistics cost / value added Logistics cost /controllable portion of value added Logistics cost / selling 5/23/2012 price

7000 4600 4700 2300 480 10.2 % 20.9 %

4200 3400 2700 1900 1360 50 % 70 %

6.9 %

33.0 %

Models in Logistics Management

Various quantitative models are used for logistical information requirements needed to take the optimum decisions. Forecasting model: Prediction of demand by location, SKU & time period for the purpose of planning logistics operations. Generally based on past data Mathematical programming models:

Location models: used for planning optimal solution for locating plants or warehouses based on inbound / outbound transportation costs & infrastructure costs at different locations Allocation models: used to find optimal allocation for commodities from sources to destinations in a multisource, multi-destination environment.
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Models in Logistics Management Distribution network design model: Used to optimize total distribution costs including transportation, warehousing, handling & inventory. Usually used to provide optimum solution for multi-stage distribution network, location of warehouses and may provide for choice of transportation mode. Inventory model: Inventory decisions are high risk & high impact from logistics operations. Economic Order Quantity, Economic batch Quantity & other lot sizing models are generally used. Routing model: used for arriving at optimum routing solutions on a transportation network. Scheduling models: used to evaluate appropriate rules for allocation depending on the configuration of resources. Alternate analysis: identifies best choice amongst alternatives.

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Key Players in Logistics Management

Customers Shippers Suppliers of logistics services Transport providers Transport infrastructure operators & providers Government regulator of logistics

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Integrated Logistics Management

The fundamental paradigm of logistics is the belief that Integrated performance will produce superior results over loosely managed individual functions. The Logistical Mission Mission of logistics is satisfaction of customer requirements by seeking to achieve an agreed level of Quality of customer service through operating competency both in manufacturing & marketing operations The challenge for the logistics manager is to balance service expectations and cost expenditures in a manner that achieves business objectives.
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Integrated Logistics Management

Logistical Service Logistical service is the balance of service priority and cost. In most situations, cost benefit impact of logistical failure is directly related to the importance of service performance to the customer involved. Example : Non availability of a specific material may force a production line to shut down leading to penalty to the suppliers and loss of a good customer Logistical Service has as its metrics three elements a) Availability b) Operational performance c) Service reliability

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Integrated Logistics Management

Total Cost Perspective This includes all expenditures necessary to perform a logistical requirement considering the interrelationships between the different logistical activities

Network Design The network forms the basic structure for processing of Customer orders, Maintaining inventory Material handling
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Integrated Logistics Management

Network design determines the information & transportation capabilities of the organization. In supply demand relationship, facility location and transportation cost differentials are not equal among competitors Organizations typically have a number of logistics facilities in order to minimize costs and improve customer service. Network design is used to determine How many of each type of facility are required Their geographical locations The work to be performed at each location What inventory and How much to stock at each facility. Where to assign customer orders for shipment
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Integrated Logistics Management

Network design is the primary responsibility of Logistics management to Provide value to customers.In today's dynamic & competitive environment, product assortments, customer supplies and manufacturing requirements are constantly changing. As these changes take place demand & supply infrastructures, organizations have to continuously modify the facility network including relocation of logistics facilities.

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Integrated Logistics Management Network Elements 1. Information: Most important element of the logistics network.Todays technology is capable of handling most demanding requirements on a real-time basis.Deficiencies in the quality of information can create operational problems.

2.

Transportation: Operational area of logistics that geographically positions inventory.Facility selection establishes a network structure that creates the framework of transportations requirements. Typical metrics of transportation are cost, speed & consistency

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Integrated Logistics Management

3. Inventory: This depends on the network structure and the desired level of customer service. Typical objectives would be to achieve the desired customer service with the minimum inventory commitment. Inventory policy would be based on the following Customer segmentation Product requirements Transport integration Time based requirements Competitive performance Warehousing, material handling & packaging

4.

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Integrated Logistics Management

Performance Cycles The primary unit of analysis for logistics is the performance cycle and generally spans the overall supply chain and link the participating firms Reflects the input/output requirements. The input to a performance cycle is an order that specifies requirements for a product or material. System output is the level of performance expected from the logistical operation

Material source

Component parts plant

Assembly Plant

Distribution warehouse

Customer

Procurement cycle

Manufacturing cycle

Physical distribution cycle

Simple Performance Cycle

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Integrated Logistics Management

Integrated Logistics is defined as the process of anticipating customer needs and wants, acquiring the

capital,
materials, people, technologies and information necessary to meet those needs, optimizing the goods or service producing a network to fulfill customer requests and utilizing the network to fulfill customer requirements in a timely way.
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Integrated Logistics Management Integrated Logistics Integrated logistics integrates the activities of Physical distribution Materials management Logistics engineering Business logistics Logistics management Distribution management Supply chain management Integrated logistics is a service oriented process which help movement of the product from the source of raw material to the final customer. In doing so it supports marketing & Production in selling & producing the products.

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Integrated Logistics Management

Inventory Flow

Customers

Physical distribution

Manufacturi ng support

Procurement

Suppliers

Information Flow

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Integrated Logistics Management Inventory Flow: The movement and storage of materials and finished products are concerned with the operational management of logistics. The starting point of logistical operations is the initial shipment of a material or component part from a supplier and the logistical operation ends when the manufactured or processed product is delivered to the customer. Logistical process adds value by moving inventory when and where needed.

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Integrated Logistics Management

Physical Distribution: This concerns movement of a finished product to a customer who is the final destination of the marketing channel. Typical steps include Order processing Order Transmission Order selection Order transportation Customer delivery

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Integrated Logistics Management Manufacturing Support Manufacturing support focuses on managing work-in-process inventory as it flows through the stages of manufacturing.It also concentrates on the orderly & economic flow of materials through the manufacturing cycle. Procurement Concerned with purchasing and arranging inbound movement of materials & parts from suppliers to manufacturing / assembly plants.Typical activities Include Sourcing, order placement, transportation & receiving
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Integrated Logistics Management

Information Flow Information flow identifies specific locations within a logistical system that have requirements of information. It also integrates the three operating areas Physical distribution Manufacturing support Procurement Primary objective is to plan and execute logistical operation

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Integrated Logistics Management Integrated Logistics Support This is a management function that provides planning, funding and functional controls that help to assure that the system meets the performance requirements at a reasonable price and can be supported throughout its life cycle. Mainly concerned with. Maintenance planning Supply support Support & test equipment Manpower & personnel Training & support Technical data Computer resources support Facilities Packaging,handling,storage & transportation Design interface.
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Integrated Logistics Management Operating Objectives There are several objectives that must be simultaneously achieved in a well designed logistical system.They include Rapid response Minimum variance Minimum inventory Movement consolidation Quality Lifecycle support

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Integrated Logistics Management Rapid Response: Is concerned with a firms ability to satisfy customer requirements in a timely manner.The ability to respond rapidly results in reducing the inventory levels.RR shifts the focus from dependence on forecasting and stocking to increased operational efficiencies. Minimum Variance: Variance is due to unplanned events that disrupts system performance. Traditional solutions to overcome variance was to establish safety stock or use high cost premium transportation. Logistical productivity improves as variances are minimized. Minimum Inventory: The objective of logistical operations is to reduce inventory deployment to the lowest level consistent with customer service goals to achieve lowest total logistics costs.
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Integrated Logistics Management Movement Consolidation: Transportation cost, which is one of the major logistical costs can be optimized through movement consolidation. The larger the overall shipment and longer the distance, the lower is the transportation cost per unit.Innovative ways to consolidate movement by grouping small shipments through overall supply chain integration can lower transportation costs significantly. Quality: Total Quality Management or TQM has become a major commitment and one of the major forces contributing to the emergence of Logistics as an important function of the firm.The value provided by logistics is keeping service promises and ensuring products do not become defective.Aim is to achieve Zero-defect Performance.
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Integrated Logistics Management Lifecycle Support: Majority of the products sold today comes with some guarantee on Performance over a specified period (life of the product) Some times value added inventory flow towards customers may have to be reversed. Also return logistics requirements results from the laws prohibiting disposal and encouraging recycling. Examples would be beverage containers and packaging materials. For firms marketing consumer durables or industrial equipment, commitment to life-cycle support constitutes a versatile and demanding operational requirement.

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Integrated Logistics Management

Information System in Integrated Logistics

Computer & information technology are seen as the key factors that will affect the growth and development of logistics. In integrated logistics system,information flow is one of the two interrelated efforts, the other being inventory flow.To move the right goods to the right place at the right time in the right condition and with the right documents, there is a need to find out the right answers to the following questions. Where should the truck driver pick up the particular shipment ? Who should receive the particular package ? How much inventory of an item is in stock ? How much should be produced ? Where is the shipment now ?
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Integrated Logistics Management

Integrated Logistics Information System (ILIS)

The involvement of people , equipment and procedures required to gather, sort, analyze, evaluate and then distribute needed information to the appropriate decision maker in a timely and accurate manner so that they can make quality logistics decisions.

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Integrated Logistics Information System (ILIS)

Logistics Manager Functions Analysis Planning Implementation

Development of Information Assessing Information Needs Order Processing System Research & Intelligence System

Logistics Management Environment Corporate / General Business Functional Interface Logistics Management Logistics Activities

Distributing Information

Decision Support System

Organization
Control

Reports & Output Systems

Logistics Decision & Communication

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Barriers to Internal Integration

Organization Structure: Integrated logistics is a cross functional process. Most organization are structured based on functional work. Each department is concerned with achieving its own functional goals. Since the goal of integration is cooperation among functional areas, formal organizational structure hinders success. Measurement System: Most measurement systems are based on organization structure. To successfully facilitate integration of logistics functions, the system has to be modified and a new system has to be developed. Inventory Ownership: Inventory helps to improve availability of products for sales. A cost benefit analysis and assessment of the risks involved of the organization as a whole has to be the basis for inventory ownership and deployment, to minimize the barriers to integration.
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Barriers to Internal Integration

Information Technology: IT is often used to provide for applications designed along functional lines. Many data bases are not easily accessed on cross functional basis. Schemes to share / transfer information can reduce barriers. Knowledge Transfer Capability: Reluctance to share experience can be serious barrier. Many view knowledge as power and the functional orientation encourages this perception. The firm requires to develop procedures and systems for transferring cross functional Knowledge.

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The Warehousing Network

A warehouse is typically viewed as a place to store inventory. In modern logistical system design, the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility. Warehouses are the nodes of the supply chain network that extend the operational reach of the firm and provide a strategic thrust to its objectives A warehouse is a static unit in the material & product pipeline, necessary to match products in a timing sense with consumers, for storage of products. Typically a warehouse is a godown or storage space where a firm holds raw materials, semi-finished or finished goods for different periods of time. A warehouse receives merchandise by railroad or truck. The items are moved to a storage area within the warehouse and piled in stacks. When customer orders are received, the products are handpicked for placement on wagons and transported to the shipping area where the merchandise is loaded on to delivery trucks.

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The Warehousing Network

Economic Benefits A warehousing function is meant to improve the time and place capability of the overall logistical system both in terms of economic benefits and service. The cost of adding a warehouse should get offset by the benefits of increase in market share, revenue and gross margins .No warehouse should be included unless backed up by a cost benefit analysis.Economic benefits of warehousing can be quantified by the return on investment in the direct cost to cost tradeoff. If adding a warehouse to a logistical system reduces the overall transportation costs by an amount exceeding the fixed and variable cost of the warehouse, then the warehouse is economically justified. This means that the total costs have been reduced. Typically cost reductions are attainable through the following four basic steps. (1) Consolidation (2) Break bulk and cross-dock (3) Processing / postponement (4) Stockpiling

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The Warehousing Network Consolidation: Shipment consolidation is when a warehouse receives and consolidates materials from a number of mfg plants destined to a specific customer on a single transportation shipment.Prime benefits are the realization of the lowest transportation rates.

Plant A Plant B Plant C Consolidation Warehouse A B C

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The Warehousing Network Break bulk:A break bulk operation receives combined customer orders from manufacturers, sorts or splits individual orders and delivers them to individual customers. Long distance transportation is Customer 1 consolidated to lower costs. Customer 2 Break bulk Manufacturer warehouse Customer 3 Customer 4

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The Warehousing Network

Cross Dock: is similar to break bulk except that it involves multiple manufacturers. Here truckloads of product arrive from multiple manufacturers. The products are Received, sorted customer wise,moved across the dock to be loaded into the trucks destined for the appropriate customers. Retail chains make extensive use of crossdock operations to replenish fast moving store inventories. Cross docking provides cost savings as full trucks move from manufacturers end to the warehouse and from the warehouse to retailers

Company/Plant 1 Company/Plant 1 Company/Plant 1 Distribution center

Customer 1 Customer 2 Customer 3

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The Warehousing Network

Processing / Postponement: Warehouses are used for postponing production. A warehouse with packaging & labeling capability allows postponement of final production until actual demand is known. Once a specific customer order is received, the warehouse can complete the final processing and finalize the packaging. Generally processing / postponement provides two economic benefits. 1. Risk is minimized because final packaging is not completed until the order is received. 2. Total inventory is reduced by using the basic product for a variety of labeling and packaging configurations. Stockpiling: Usually stockpiling is used for seasonal products such as agricultural commodities that are harvested at specific times but consumed throughout the year . Products such as sarees that are manufactured throughout the year but sold mainly during festivals require warehouse stockpiling.
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The Warehousing Network Service Benefits:Warehousing enhances the time and place capability of the overall logistical system.There are 5 basic benefits achieved through warehousing from the service point of view. 1. Spot stocking: When a selected amount of a firms product line is placed or spot stocked in a warehouse to fill customer orders during a critical marketing period. Allows manufacturers with limited or highly seasonal product lines substantially reduce delivery times to strategic markets. 2. Assortment:Used to stock product combinations in anticipation of customer orders. Usually used in Just In Time systems to offer products to customer as and when required. 3. Mixing:Warehouse mixing is similar to consolidation process.Full truckloads of products are shipped from manufacturers to warehouses. The mixing warehouse selects the desired combination of each products for each customer and ships the same.Results in better customer service.
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The Warehousing Network

4. Production Support : Meets actual requirements of raw materials, parts , subassemblies and assemblies required for production in an efficient manner.It takes care of safety stocks to protect against long lead times or significant variations in usage. 5. Market Presence :Major advantage of local warehouse is that they can be more responsive to customer needs and offer quicker delivery than other distant warehouses. As a result this increases speed of delivery. In many cases, especially for FMCG products, this can result in increased market share and therefore increased profitability.
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The Warehousing Network

Warehousing Costs

Ownership Costs

Operating Costs
Handling & transfer costs Direct labor costs Working capital costs Insurance costs Administrative costs Overheads Product obsolescence costs

Cost of storage space Cost of material handling systems Direct / indirect facility cost Interest component of investments

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The Warehousing Network

Logistics Cost

Transport costs No of locations Geographical location Speed of delivery desired Size of the average order Cost per unit of the local delivery

Inventory costs Depends on sales forecast of demand Volumes expected for a given period Utilization / consumption rate Manufacturing lead times Manufacturing capacities

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The Warehousing Network

Components of Inventory Costs Capital cost: Also called as interest or opportunity cost. This cost focuses on what costs a company incurs by having capital tied up in its inventory. Storage Space cost: This includes handling costs associated with moving products into & out of inventory as well as costs such as rent, heating & lighting etc. Storage costs increase or decrease as inventory levels rise or fall Inventory Service cost: This refers to insurance & taxes. Depending on the product value & types, the risk of loss or damage may require high insurance premiums. Inventory Risk cost: This costs reflects the very real possibility that inventory rupee value may decline for reasons largely beyond corporate control. Examples include product obsolescence damage, pilferage, theft & other risks to inventoried products.

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The Warehousing Network Transportation costs vs. Inventory costs

Total costs

Cost of transportation service

C o s t
Inventory costs

Rail

Truck

Air

Transportation service
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The Warehousing Network

Base stock level within a logistical system is determined by manufacturing & transportation lot sizes There is no impact on the base stock by adding warehouse in the system. However it affects the transit inventory. By adding warehouses the performance cycle days are reduced Net effect of adding a warehouse will be an increase in the average system inventory Average inventory

Average safety stock

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Inventory

Average transit inventory

Locations

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The Warehousing Network

Total-cost network

T o t a l c o s t s

Total Inventory Costs

Total Transportation Cost

No of locations
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The Warehousing Network Warehouse

Owner operated warehouse

Private Warehouse

Operated by the firm owning the product Facility may be own or leased Better control & flexibility Lower costs as compared to private warehouses

Fee is charged based on handling & storage Handling charge is based on weight,no of cases etc

Lower flexibility & control

Operators profit is marked-up leading to higher costs

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The Warehousing Network Types of Warehouse 1. General Merchandise warehouse

2.

Refrigerated warehouse

Store goods that are readily handled & packaged Does not require controlled environment Specialized warehouse to handle & maintain products that are perishable food, medical drugs & other chemicals Needs to follow environmental regulations

3. 4.

Special commodity warehouse Bonded warehouse.

Used for handling bulk materials like rice,wheat,jute,fertilizers etc

These are licensed by government to store goods prior to payment of taxes / duties Generally imported goods are stored to defer the payment of duties/taxes

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The Warehousing Network

Public Warehousing

Food corporation of India (F C I)

Central Warehousing Corporations (C W C)

State Warehousing Corporations (S W C)

Warehousing Act: The CWC was set up in 1957 under the Agriculture Produce Development & Warehousing Corporations Act, 1956

1.
2. 3. 4.

Acquire & build godowns & warehouses at suitable places in India

Run warehouses for storage of agriculture produce, seeds, manures, fertilizers etc Arrange facilities for transport of agriculture produce etc to and from warehouses Subscribe to share capital of State Warehousing Corporations

5.
6.

Act as agent of government for the purpose of purchase,sale,storage and distribution of agriculture produce etc
Carry out such functions as may be prescribed.
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The Warehousing Network

Warehouse Design Principles Product Movement major criteria's include

No of stories in the facility Height utilization Product flow (straight flow of products through the facility)

Handling Technology
Focuses on efficiency & effectiveness of material handling technology To ensure movement continuity & scale economy

Storage Plan
Considers product characteristics like weight & volume.

Future expansion
Should be designed for expansion whenever required.

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The Warehousing Network Warehousing Strategies Strategies are based on the following. 1. Level of availability of products & services to the customer 2. Level of availability & support for manufacturing 3. Degree of customer service to be offered / desired 4. Minimization of total distribution costs. Broadly based on the above, warehousing strategies could be Market positioned Manufacturing positioned Intermediately positioned Strategies could also be based on Owner operated Private

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The Warehousing Network Qualitative factors are also likely to influence the strategic decision
Owner Operated Presence Synergies Private Operated

Industry Synergies

Operating Flexibility

Location Flexibility

Scale Economics

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The Warehousing Network Centralized Warehouse Decentralized Warehouse Strengths Strengths

Average inventory is small as compared to decentralized facility Maximizes market coverage

Centralized control of inventory. Safety Maximization of customer service stock can be reduced due to storing of creates high level of loyalty & goodwill goods at one/few locations
Demand variations in different market segments can be met at a short notice More amenable to capital investment in mechanized or automated equipment and information technology which can reduce variable cost Weakness Distant market demand cannot be met at short notice as transportation cost may be excessive Loss of customer service Poor market coverage & control
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Transportation cost will be lower in case of part load shipment directly from plant Better control over market & better coverage

Weakness Larger inventory investment

High warehousing investment Demand variations in different market 58 segments can result in higher warehousing costs

Transportation
Transportation management is the backbone of the entire supply chain because it makes it possible to achieve the well known seven Rs Guiding Principles of Transport Management Mode of transport Economy of scale Economy of distance

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Transportation
Road Railways Water Pipeline Air Animal drawn vehicles

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Transportation
Truck

Rail
Water

Freight rate
Distance
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Transportation
Shipper Consignee Carrier

Public Government Shipper Carrier Consignee

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Transportation
Transactions are influenced by 5 parties 1. Shipper originating party 2. Consignee destination party or the receiver 3. Carrier responsible for movement of goods 4. Government 5. Public

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Transportation
Shipper & consignee share a common objective of moving goods within a prescribed time and at the lowest cost Carriers want to charge the maximum rate that the shipper or consignee are willing to pay and minimize the cost of fuel, labor & vehicle costs Government is the largest investor in infrastructure and has the highest impact on the economy by providing roadways, ports,airports and traffic control systems. Also responsible for regulations & promotions
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Transportation
The final participant - Public is concerned with the transportation accessibility, expense & effectiveness as well as environmental and safety standards.Public determines the need for transportation by demanding goods & Services. Development of air freight industry shows that consumers may find cost less important than speed.
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Transportation
Transport Economics: There are 7 factors that influences economics 1. Distance 2. Volume 3. Density 4. Stowability 5. Handling 6. Liability 7. Market factors
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Transportation
Distance

Price
Distance
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Transportation
Volume
Transport cost decreases as load volume increases

Price
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Weight of load

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Transportation
Density : Product weight is a function of density & volume.Vehicles are limited by both space & weight considerations. Higher density products are assessed for lower transport cost per unit of weight. Stowability : This refers to space utilization and is a function of product dimensions. Odd sizes & shapes as well as excessive weight or length do not stow well and hence result in wastage of space. Products with good stowability attract 5/23/2012 69 lower transportation costs.

Transportation
Handling : Special handling equipment may be required for loading / unloading trucks,railway wagons or ships.Proper packaging - grouping together of products by taping, boxing and palletizing products for transport & storage handling costs can be reduced.

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Transportation
Liability : This includes Susceptibility to damage Property damage to freight Perishability Susceptibility to theft Spontaneous combustion / explosion Value per Kg Carriers insure their cargoes to protect against claims. Shippers reduce the risk by improved protective Packaging.
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Transportation
Market Factors : Since transportation vehicles & drivers must return to their origin,they must either find a load to bring back (back-haul) or return empty ( deadhead). When deadhead movements occur, labor, fuel & maintenance costs must be charged to he shipper. Balanced moves where volumes are equal for both directions is rarely possible due to factors such as demand imbalances in manufacturing & consumption.

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Transportation
Total Transportation Costs 1. Transit time costs reflects the temporal cost of transportation cost of inventory in transit. The longer the transit time means that the inventory is inaccessible to the user. This adds to safety stocks and therefore requirement of working capital. If inventory is available after a longer period of time, it will result in higher total cost.

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Transportation
Obsolescence & Deterioration Costs Certain category of goods are perishable and delicate in nature. Their physical attributes deteriorate over Time gradually resulting in devaluation of the product. Examples : Any delay in transport of vegetables such as tomatoes may force marketers to sell them at a less than desired price. Such costs are classified as obsolescence and deterioration costs.

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Transportation
Protective Packaging Costs : Products may require special packaging. This cost is also a part of the total transport cost. Products shipped in a container generally requires less protective packaging for safe shipment as compared to transportation by truck

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Transportation
Insurance Costs :Insurance covers goods against loss or damage while in transit or under storage during a journey.If goods are transported by sea, then a marine insurance has to be taken out. This also includes the transit of cargo over land at each end of the voyage. A goods in transit policy protects operators from theft, loss & damages

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Transportation
Insurance does not protect you if the goods are inferior,below standard or damaged through inappropriate packaging.There are generally two types of insurance covers 1. New for old items are replaced at their current market value 2. Indemnity cover takes into account general depreciation
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Transportation
Incoterms :These are standard trade codes used for international contracts. They delineate the risk & cost obligation for both the importer and the Exporter and therefore which party needs to take out the insurance cover. Joint Costs : are expenses unavoidably created by the decision to provide a particular service. For example, when a carrier transports a truckload from point A to point B, there is an implicit decision to incur a joint cost for the back-haul from point B to point A. Either the cost must be covered by the original shipper or a back-haul shipper must be found.

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Transportation
Other costs : Common costs such as terminal or management expenses are often allocated to a shipper according to a level of activity like the number of shipments handled.local taxes, octroi & toll taxes can also be a part of other costs. Class Rates : In transportation terminology, the price per Kg to move a specific product between two locations is referred to as the rate or tariff.The classification does not define the price charged for movement of a product.It refers to a product transportation characteristics in comparison to other commodities.

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Transportation
Classification of individual products is based on a relative percentage index of 100. Class 100 is considered for an average product, while other classes run as high as 500 and as low as 35. Each product is assigned an item number for listing purposes and then given a classification rating.The higher the class rating ,the higher the transportation cost. Products are also assigned different ratings on the basis of packaging. Glass has a different rating when shipped loose,in crates or in boxes than when shipped in wrapped protective packaging

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Transportation
Transportation Infrastructure Hardware consisting of physical assets that comprise terminals,storage facility, right of way for movement & vehicles / equipments Software which is essentially the service structure comprising of maintenance, operations & value added services.
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Transportation
Infrastructure also largely depends on the mode of transport. Mode selection depends on criteria's such as speed, volume, cost etc. Road Network : Advantage of transporting cargo on a point to point basis without stopovers Generally classified as Highways,Urban roads, project roads & rural roads National highways are the main arterial roads connecting ports,state capitals,industrial & tourist centers and sometimes even neighboring countries.

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Transportation
Railways : 1. Capability of transporting large shipments economically with more frequency 2. Has high fixed costs because of expensive equipments,right of way,switching yards & terminals 3. Low variable operating costs 4. Replacement of steam engines by diesel engines has considerably reduced the variable cost per kg/km and electrification has further minimized costs 5. Bulk industries & heavy mfg use railways more often 6. Railways improve effectiveness by having alliances with other modes.

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Transportation
Ports 1. Main infrastructure - waterway is naturally available 2. Predominant commodities handled through this mode are bulk materials like iron ore,coal,food grains,fertilizers,petroleum products Inland River Transport : Comprises of rivers, canals,creeks,backwaters etc Currently 3 waterways have been designated as National Waterways NW1 - Ganga-Bhagirathi-Hoogly system from Allahabad to Haldia NW2 Brahmaputra system in Assam NW3 West coast canal system in Kerala
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Transportation
Pipelines 1. Unique mode of transport for moving large quantities of certain type of commodities, mainly fluids over large distances at a relatively low cost. 2. They can be laid on a wide variety of terrains without much difficulty 3. They operate on a round the clock basis 24 X 7 4. Unidirectional traffic 5. Operating costs are low 6. Capital costs are high 7. Environmentally friendly 8. Highest fixed cost & lowest variable cost

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Conventional or Energy Pipelines 1. To transport water, oil, natural gas etc. where the technology is well known 2. Since they primarily transport energy they are known as energy pipelines Slurry Pipeline 1. Solids are first ground to fine grain size and made into slurry with a liquid medium 2. Slurry is then pumped to the desired destination through pipes 3. Examples include iron ores for pelletization, coal for firing thermal stations, limestone for cement industry & wood chips for paper industry
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Transportation
Airports 1. Newest but least utilized mode of transport 2. Great advantage of speed 3. High cost 4. Ideally suited for products like perishable goods, high value goods requiring low inventory costs & emergency like life saving drugs 5. High growth potential mode of transport Animal-drawn Transport Mainly restricted to rural transport where motorable roads does not exist

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Mode & Nature of Traffic
Mode Rail Road Water Pipeline Air Nature of Traffic Extracting industries, heavy mfg & agricultural commodities Medium & light mfg, distribution between wholesalers & retailers Mining and basic bulk commodities, chemicals, cement & some agricultural products Petroleum, Natural gas,coal slurry etc Emergency,perishable goods,limited marketing period & high value premium products

Animaldrawn
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Rural distribution

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Transportation
Cost Characteristics of different modes of transport Mode Fixed Cost Variable Cost

Rail
Highway Water Pipeline

High
Low Medium High due to right of way, construction & control station costs Low

Low
Medium fuel,maintenance & wages Low large unit capacities Low

Air

High

Animaldrawn
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Low

Low

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Services - Information Logistics Information is a critical component of the integration process. Timely and accurate information is also critical for 3 reasons
1. Information on order status, product availability, delivery schedule & invoices is perceived by customers as a necessary element of total customer service 2. Information can reduce inventory by minimizing demand uncertainty 3. Information increases flexibility with regard to how, when & where resources may be utilized for strategic advantage.
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Development of capabilities Scanning for opportunities Customer service analysis

Strategic Planning
Vehicle routing & scheduling Inventory levels & mgt Network facility location planning

Decision Analysis

Customer service measurement Quality measurement Exception reporting

Management Control

Transaction Systems Order entry,Inventory assignment, order selection, shipping, pricing, invoicing, Customer response / service
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Information Functionality

Services - Information
Information integrates logistics activities by building on 4 levels of functionality 1. Transaction 2. Management Control 3. Decision analysis 4. Strategic planning systems

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Transaction : Includes Order entry Inventory assignment Order selection Shipping Pricing Invoicing Customer inquiry Customer order performance cycle starts with an entry transaction on the receipt of customer order.This initiates the next transaction i.e. assigning of inventory to the order.
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A third transaction is then generated to direct the material handlers to select the order. This is followed by a transaction directing the movement, loading and delivery of the order. The final transaction prints or transmits the Invoice for payment. Thus the customer order cycle is performed by a series of information system transactions.

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Management control Intermediate term focus Evaluates past performance Identifies alternatives Tactical Some of the measures used for control are 1. Transportation & warehousing cost per kg 2. Inventory turnover 3. Order fill rate 4. Cases per labor hour 5. Customer perception & satisfaction Logistics information system (LIS) should be proactive and capable of predicting future issues that need mgt attention. Should be capable of measuring competitive capability and potential improvement areas.

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Decision Analysis Identifies, evaluates and compares logistics strategy and tactical alternatives for managerial decisions Some of the analytical tools include vehicle routing & scheduling, inventory management, facility location and cost-benefit analysis of operational tradeoffs and arrangements Decision analysis LIS emphasis deals more with effectiveness rather than efficiency Strategic Planning Focus is on information that supports the ability of the organization to develop & refine logistics strategy. Generally has long term focus Are less structured than the other functionalities Examples: restructuring networks, exploiting firm capabilities and market opportunities, strategic alliances and major customer service improvements.
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Services - Information Principles of Logistics Information

There are six key principles to meet management information needs and adequately support enterprise planning & operations

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Availability Accuracy Timeliness Exception based LIS Flexibility Appropriate format

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Availability : Logistics information like order & inventory status must be readily available. Rapid availability is necessary to respond to customers & improve management decisions. As logistics is mostly decentralized, the need for accessing / updating information from anywhere in the country / World is very important. Availability of information reduces operating & planning uncertainty.

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Accuracy : Accuracy reflects the degree to which LIS reports physical counts / status The standard of accuracy that is acceptable today should be better than 99%. Increased information accuracy reduces uncertainty & costs as it reduces the buffers or safety inventory requirements. Timeliness : This refers to the delay between when an activity occurs and when an activity is visible in the information system. Information needs to be timely to provide quick feedback to management so that there is no delay in recognizing actual demand. Delay reduces planning effectiveness & increases inventory. Timeliness increases decision accuracy & customer service capability.
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Exception based LIS : LIS need s to be exception based to highlight problems & opportunities. This helps management to focus on situations that require the most attention. Managements need to continuously be aware of whether action has to be taken for product / replenishment orders What type of action that should be taken Exception reports also highlights Very large order inflows Products with little / no inventory Delayed shipments Declining productivity 5/23/2012 100

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Flexibility : Flexible to meet the needs of users , customers & suppliers Provide data which is tailored to specific customer requirement Must be easily upgradeable to meet future business needs with minimum investment costs Appropriate formats : Logistics screens should be appropriately formatted - contain the right information in the right structure& sequence Good formats will enable a manager or customer to find all relevant information on a single screen with both past & future information with graphical presentation 5/23/2012 101

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Information Architecture The nature of information provided by an LIS is determined by Information System Architecture.It includes information base to Maintain the data warehouse & the execution components of information. There are two type of activities of an LIS 1. Planning & coordination activities 2. Operating activities
Inventory deployment & inventory management are the interfaces between planning / coordination and operations.

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Planning-coordination
Strategic Plan Capacity plan Logistics plan Manufacturin g plan Procurement plan

Inventory deployment Forecast

Inventory management

Order mgt

Order processing

Distribution operations

Transportation & shipping

Procurement

Operating activities
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Planning Coordination This is the information system backbone for manufacturers & merchandisers. Reflects the activities necessary to produce & deploy inventory These components define the core activities that guide enterprise resource allocation & performance from procurement to product delivery Includes planning activities both within the enterprise & between distribution channel members. Key components are Strategic planning Demand planning Supply planning

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Strategic Planning Demand Planning Supply Planning Strategic Supply Chain Design Forecasting & Lifecycle Planning Safety Stock Planning Supply Network Planning & Outsourcing Promotional Planning Distribution Planning Strategic Sourcing Consensus Demand Planning Customer Collaboration Supplier Collaboration

Procurement Manufacturin g Warehousing Order Fulfillment Transportati on Visibility 5/23/2012

Purchase Order Processing

Receipt confirmation

Invoice Verification

Production Planning & Detailed Scheduling Inbound Processing Outbound Processing Cross Docking

Manufacturing Execution Warehousing & storage Physical Inventory Billing Freight Costing Supply Chain Analytics 105

Sales Order Processing Transportation Planning Procurement Visibility Manufacturin g Visibility

Logistics Coordination Transportation Execution Fulfillment Visibility Transportati on Visibility

Services - Information
Strategic Planning Primary information drivers for many enterprises are their strategic objectives. Marketings strategic objectives define the following. Target markets Products Marketing mix plans Logistics goals & performance targets includes service availability, Capability, & the quality elements which the firm must develop into a plan and communicate in a manner detailed enough to be made operational.

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Demand Planning Requires historical sales data or point of sales data for creating base statistical forecast using
enhanced forecasting techniques, Casual forecasting using timely events like advertising as well as non sales related events like competitors activities, market intelligence,economic trends

Consensus demand planning where each member of the supply chain observes the demand pattern of its customers and in turn produces a set of demands on its suppliers Demand planning is designed to

Enable exchange of planning information with business partners Restrict user access to authorized data & activities Support consensus planning process 5/23/2012 107 Support exception based management

Services - Information
Supply Planning This is characterized as a process that involves activities related to Material flow & processing Information flow along both directions of the value chain Main components of supply planning are Safety stock planning Supply network planning Distribution planning Transportation planning & vehicle scheduling

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Operations All activities necessary to Receive Process Ship Invoice customer orders The information activities required to achieve these objectives are listed under the following operational components. Order management & processing Distribution operations Transportation & shipping 5/23/2012 109 Procurement

Services - Information
Order Management & Processing 1. Entering order 2. Credit checking 3. Checking inventory availability 4. Acknowledging order 5. Editing / amending the order 6. Order pricing 7. Order status enquiry 8. Price & discount extensions 9. Promotion checking 10. Prioritization based on back orders 11. Raising invoice 12. Transportation & shipping documents 13. Reserving inventory / safety stock & their release 14. Reassigning order source 15. Verify shipment 16. Return processing
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Distribution Operations 1. Locating storage & warehousing 2. Planning inventory & lot control 3. Labor scheduling 4. Marshalling of goods on customer order 5. Receiving, Stock storage & retrieval 6. Tracking of storage locations 7. Measuring performance

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Transportation & Shipping 1. Carrier selection 2. Dispatch scheduling & dispatching 3. Document preparation 4. Freight payment 5. Routing & consolidation 6. Vehicle loading 7. Fleet management 8. Tracking of shipment

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Procurement 1. Purchase order entry, processing & placement 2. Purchase order status 3. Receipt schedule 4. Measurement of vendor performance Inventory deployment & management 1. Forms the interface between planning coordination & operations 2. Its role is to decide on when, where, & how much

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Role of Information Technology in Logistics Spread of manufacturing & services has necessitated the need for development of information technology in logistics decision making Effective logistics decision making requires efficient, reliable & timely data capture & data availability at various locations Evolution of LIS started with
Manual processing Standalone computers Information systems at the firm level Inter-firm integrated systems

Services - Information

Components of IT are
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Hardware includes processor, input/output devices Storage media LAN WAN Software includes System & application programs used for processing Transactions,management control,decision analysis & strategic planning. Based on the scope of application, IT applications can be classified based on the functionality. 1. Data capture,display & organization 2. Communication 3. Processing
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Impact of IT on Logistics are 1. Enables the move from centralized to de-centralized management without any loss of information 2. Improves speed / timely delivery, reliability, cost saving & security 3. Empowerment of individuals & teams resulting in a shift from functional management to team management 4. High level connectivity, information sharing & integration IT is increasing in both speed & capacity while there is a decline in cost Some specific technologies used in a widespread manner in logistics applications are Electronic data Interchange Bar coding & scanning RFID Satellite communication Expert systems
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Electronic data Interchange 1. The process involving the capability & practice of communicating information between two organizations via computer systems instead of traditional forms communication for managing distribution & procurement systems. 2. EDI has a highly structured message communication system, with tight,pre-decided formats of documents, which allows effective,speed & reliable communication between different locations. 3. It uses a service provider who transfers data & provides translators between different formats. 4. The service provider also handles EDI traffic between various sources & destinations. 117 5/23/2012

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Buyers System Purchasing System Transaction software Communicatio n software

Trading partner data

Mail Box

Trading partner data

Communication software

Transaction software

Order entry system Vendors System

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Benefits of EDI 1. Increased internal & external productivity through faster information transmission as well as reduced information entry redundancy 2. Reduced labor & material costs associated with printing,mailing & handling paper based transactions 3. Reduced telephone / fax & telex communications 4. Reduced clerical costs 5. Decreased operating costs 6. Enhanced supply chain relations 7. Improved response to customers

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Radio Frequency Identification (RFID) RFID is an automatic identification method relying on remotely retrieving data using devices called RFID tags or transponders RFID tag can be attached to a product,animal or person for the purpose of identification using radio waves There are two types of RFID tags Passive tags which require no internal power source Active tags which requires a power source Passive tags have a fine electrical current induced in the antenna by the incoming radio frequency signal which activates the integrated circuit in the tag to transmit a response Active tags have their own internal power source to 5/23/2012 120 generate the outgoing signal

Services - Information
Satellite Communication Satellite communication provides a fast and high volume channel for information movement around the globe similar to microwave dishes used for home TV outside the reach of cable Enhances logistics performance through real-time communication Offers more flexibility & responsiveness Improved services with fewer resources
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Customer Service
Organization's ideology Purpose or why are we here Values or what do we stand for Main purpose of any organization is to serve the customer Customer service is the central concerns of logistics academics & practitioners In logistics customer could be any delivery destination like
Consumers home Distributor / wholesaler channels Mfg. plants / warehouses Individual who takes ownership of the product / service being delivered

Logistics ensures that the customer requirements involved in timing & product location are satisfactorily performed
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Customer Service
Output of logistical performance are typically viewed as An activity Performance levels Management philosophy Traditional Measures
Inventory availability Order cycle times

Newer concept of supplier responsiveness is usually gauged by reports of customer which are perpetual or soft measures Soft measures are generally difficult to measure because they relate to the ability to respond to specific customer requests & feedback
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Customer Service
Ability to provide soft services begins with the understanding of what customers want This begins with the understanding that customers do not always know what they want or why they want Customer expectations keeps on changing Customer needs are more basic than products or services Products & services become more meaningful only when available & positioned from the customers perspective
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Customer Service
Product Life Cycle

Maturity Introduction
Volume
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Growth
Decline

Time
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Customer Service
Introduction Stage Product is new to the market Consumers have to be motivated to try & accept the product Product volumes are low Primary objective is to get a foothold in the market Requires high product availability High logistics flexibility No reliable movement history is available for logistics planning No forecasts are available & shipment size is small
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Customer Service
Growth Stage Product find market acceptance Market grows with increase in the number of first time users Added sales from repeat purchases & replacements Initially growth is exponential and then is linear Sales becomes more predictable Logistics emphasis shifts from need to service at any cost to a more balanced service/cost performance Effort is to break-even volumes and expand market coverage
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Customer Service
Maturity Stage Demand & quality of the product does not undergo much change Competition is very high Marketing channels become blurred & complex like retailers selling wholesale & wholesalers selling retail scrambled merchandising Scrambled merchandising repositions business relationships. Finished goods often move to a retailer through multiple logistics arrangements provided by wholesalers, distributors,assemblers and even direct from manufacturers
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Customer Service
Decline Stage Sales volume decreases due to introduction of new products Also caused by change in consumer interest Logistical performance must be positioned to support ongoing business without taking excessive risks

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Customer Service
Basic Customer Service Is the service rendering on which a firm builds its fundamental business relationships. All customers are treated equally with the objective to build & maintain overall customer loyalty. Value Added Services Represents an addition to basic customer services by providing customization with a view to building customer solidarity and enhancing established channel relationship. Some typical examples are price marking, special packaging, Vendor managed inventory& special shipments
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Customer Service
Value added services can be segregated into four primary areas. 1. Customer focused services 2. Promotion focused services 3. Manufacturing focused services 4. Time-focused services

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Customer Service
Customer focused services Collating promotional gifts into individual packs putting pads & pens into conference folders Insertion of client materials in the folders welcome letters, agendas, training notes etc Bundling into location specific packs Delivery to locations at set times & dates
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Customer Service
Promotion-Focused Services This involves the assembly of unique point-of-sale display modules coupled with a wide variety of other related services aimed at stimulating sales. Manufacturing-focused services Involves unique product assortment & delivery to support manufacturing. For example a third party logistics provider cuts & installs various lengths & sizes of pipes & fittings for different water pumping applications to suit individual customer specifications.

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Customer Service
Time-focused Services Involves using specialists to sort,mix & sequence inventory that add value to the product prior to delivery.Example is a JIT Warehousing. This eliminates unnecessary work & facilitate maximum speed of service. Service Capability Availability Performance Reliability
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Customer Service
Availability is the capacity to have inventory when it is desired by a customer. Availability is based on the following three measures. Stock-out frequency: is the probability that a stock-out will occur. Stock-outs occur when demand exceeds supply Fill rate: measures impact of stock-outs over time Orders shipped complete: is a measure of the times that a firm has the entire inventory ordered by a customer.
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Customer Service
Operational performance Generally measured in terms of 1. Speed 2. Consistency 3. Flexibility 4. Malfunction / recovery

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Customer Service
GAP Analysis of Customer Service Gap analysis measures the magnitude of discrepancy between expectations and offerings, facilitating managers to take corrective actions at the appropriate time to improve the quality of customer service.
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Global Logistics
There is a major change in how companies operated in the 1980s and how they operate today Logistics functions were handled in-house or by several domestic third party logistics providers Marketed which were earlier protected have begun to open up for global players Senior management have begun questioning the need to replicate every element of their organization in each market place Multinationals are increasingly focusing on mfg & marketing and are outsourcing logistics elements like warehousing,distribution & transportation
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Global Logistics
Domestic Logistics Distance is lower No currency risk Less regulatory issues and uniformity in domestic logistics Environmental issues are not a barrier Shipping regulations have a lesser impact Lesser & simple paperwork Global Logistics Distance is greater Currency exchange fluctuations affect global logistics Customs regulations vary from country to country and keep changing Compliance to environmental issues can be challenging Varying shipping regulations can have a huge impact Complex paperwork

Impact of cultural differences is lower Impact can be high

Language difference is a lesser barrier

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Major barrier as labels need to be printed in the language of the destination country
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Global Logistics
Globalization & Global Economy
World economy impacts the economic conditions in every country through international trade,global production & international finance Extent of business done on a global level in India is growing rapidly. Exports grew by 30% for the period 2005-2007 This trend reflects the current ability of business organizations to outsource from any part of the world that offers a cost advantage Global logistics supply chains have the ability to move goods to any part of the world, economically & quickly due to technological developments in the fields of information & transportation Logistics companies have been successful in using new technologies and combining them with new ways of doing business resulting in dramatic price reductions in moving goods & services from one part of the world to another

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Global Logistics
Wal-Mart a success story
Wal-mart does not make anything It draws products from from all over the world and gets them into stores at incredibly low prices New technologies & appropriate usage has enabled Wal-Mart to be a leader in this field Wal-Mart has created its supply chain that has been designed to the minutest detail for achieving a very high efficiency If an item is bought off the shelf in a small town in Alaska, another of that item will immediately be made in a remote town in China Perfect knowledge,effective inventory control & transparency exists throughout the supply chain
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Global Logistics
Porters Dynamic Diamond Theory Traditional theories of international trade propose that comparative advantage of country lies in the natural endowments like Skilled labor Natural resources Knowledge resources Capital resources Infrastructure Based on the study of 10 countries, Michael Porter came up with a Dynamic Diamond Theory that a countrys global competitive advantage is not just related to factor conditions but also other conditions as well According to Porter,competitive is related to the following 4 elements
Factor conditions Demand conditions Related & support industries Company strategy,structure & rivalry

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Global Logistics
FACTOR CONDITIONS

DEMAND CONDITIONS

RELATED & SUPPORTING INDUSTRIES

Strategy Structure & Rivalry

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Global Logistics
KEY DEVELOPMENTS which have impacted global logistics Trade Policies Global organizations
Global Transnational Multi-domestic

Inter-modal transport
Port-to-port Port-to-point Point-to-point

New breed of logistics organizations

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Global Logistics
Approach to globalization Global Transnational Multi-domestic
Logistics Strategy Technology Marketing Manufacturing Logistics

Global Diversity Political Cultural Economic

Supply Chain Strategy Multi-domestic SC Global network of supply & demand Flexible,interdependent & efficient

Strategy Processes Strategic fit Risk management Knowledge & technology mgt Development of orgnl. Capability Channel mgt & outsourcing decisions Information mgt

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Global Logistics
Logistics Issues Compliance to regulatory environment surrounding logistics process Currency fluctuations Visibility & tracking

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