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TABLE OF CONTENT
Sr.No 1 2 3 4 5 6 7 8 9 10 11
TOPICS Overwiew of logistics Logistics management Commercial vehicle operation Containerisation Cross docking Distrubution JIT Logistics Automation Logistics for different field Concept of SCM 3 PL
Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.
1. Overwiew of Logistics
The word of logistics originates from the ancient Greek logos (λόγος), which means “ratio, word, calculation, reason, speech, oration”. Logistics as a concept is considered to evolve from the military's need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title ‘Logistikas’ who were responsible for financial and supply distribution matters. The Oxford English dictionary defines logistics as: “The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities.”Another dictionary definition is: "The time related positioning of resources." As such, logistics is commonly seen as a branch of engineering which creates "people systems" rather than "machine systems".
In military logistics, experts manage how and when to move resources to the places they are needed. In military science, maintaining one's supply lines while disrupting those of the enemy is a crucial—some would say the most
crucial—element of military strategy, since an armed force without food, fuel and ammunition is defenseless. The Iraq war was a dramatic example of the importance of logistics. It had become very necessary for the US and its allies to move huge amounts of men, materials and equipment over great distances. Led by Lieutenant General William Pagonis, Logistics was successfully used for this movement. The defeat of the British in the American War of Independence, and the defeat of Rommel in World War II, have been largely attributed to logistical failure. The historical leaders Hannibal Barca and Alexander the Great are considered to have been logistical geniuses.
Logistics Management is that part of the supply chain which plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.
Logistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined as having the right item in the right quantity at the right time for the right price and is the science of process and incorporates all industry sectors. The goal of logistic work is to manage the fruition of project life cycles, supply chains and resultant efficiencies. In business, logistics may have either internal focus(inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (see supply chain management). The main functions of a logistics manager include Inventory Management, purchasing, transport, warehousing, and the organizing and planning of these activities. Logistics managers combine a general knowledge of each of these functions so that there is a coordination of
resources in an organization. There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out some project. Logistics as a concept is considered to evolve from the military's need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title ‘Logistikas’ who were responsible for financial and supply distribution matters.
The term is used for describing logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right point in time. The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and eliminate non-value adding ones. Production logistics can be applied in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency
3.Commercial vehicle operation
Commercial Vehicle Operations is an application of Intelligent Transportation Systems for trucks. A typical system would be purchased by the managers of a trucking company. It would have a satellite navigation system, a small computer and a digital radio in each truck. Every fifteen minutes the computer transmits where the truck has been. The digital radio service forwards the data to the central office of the trucking company. A computer system in the central office manages the fleet in real time under control of a team of dispatchers. In this way, the central office knows where its trucks are. The company tracks individual loads by using barcoded containers and pallets to track loads combined into a larger container. To minimize handling-expense,
damage and waste of vehicle capacity, optimal-sized pallets are often constructed at distribution points to go to particular destinations. A good load-tracking system will help deliver more than 95% of its loads via truck, on planned schedules. If a truck gets off its route, or is delayed, the truck can be diverted to a better route, or urgent loads that are likely to be late can be diverted to air freight. This allows a trucking company to deliver a true premium service at only slightly higher cost. The best proprietary systems, such as the one operated by FedEx, achieve better than 99.999% on-time delivery. Load-tracking systems use queuing theory, linear programming and minimum spanning tree logic to predict and improve arrival times. The exact means of combining these are usually secret recipes deeply hidden in the software. The basic scheme is that hypothetical routes are constructed by combining road segments, and then poor ones are eliminated using linear programming. The controlled routes allow a truck to avoid heavy traffic caused by rushhour, accidents or road-work. Increasingly, governments are providing digital notification when roadways are known to have reduced capacity. A good system lets the computer, dispatcher and driver collaborate on finding a good route, or a method to move the load. One special value is that the computer can automatically eliminate routes over roads that cannot take the weight of the truck, or that have overhead obstructions. Usually, the drivers log into the system. The system helps remind a driver to rest. Rested drivers operate the truck more skillfully and safely. When these systems were first introduced, some drivers resisted them, viewing them as a way for management to spy on the driver. A well-managed intelligent transportation system provides drivers with huge amounts of help. It gives them a view of their own load and the network of roadways.
Components of CVO include:
Fleet Administration Freight Administration
• • • • • • • • • •
Electronic Clearance Commercial Vehicle Administrative Processes International Border Crossing Clearance Weigh-In-Motion (WIM)
Roadside CVO Safety
On-Board Safety Monitoring CVO Fleet Maintenance Hazardous Material Planning and Incident Response Freight In-Transit Monitoring Freight Terminal Management
Containerization is a system of intermodal freight transport cargo transport using standard ISO containers (known as Shipping Containers or Isotainers) that can be loaded and sealed intact onto container ships, railroad cars, planes, and trucks. Containerization is also the term given to the process of determining the best carton, box or pallet to be used to ship a single item or number of items.
ISO Container dimensions and payloads
There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft (13.7 m), 48-ft (14.6 m), and 53-ft (16.2 m). United States domestic standard containers are generally 48-ft and 53-ft (rail and truck). Container capacity is measured in twenty-foot equivalent units (TEU, or sometimes teu). A twenty-foot equivalent unit is a measure of containerized cargo capacity equal to one standard 20 ft (length) × 8 ft (width) × 8 ft 6 in (height) container. In metric units this is 6.10 m (length) × 2.44 m (width) × 2.59 m (height), or approximately 38.5 m³. These sell at about US$2,500 in China, the biggest manufacturer. Most containers today are of the 40-ft (12.2 m) variety and are known as 40foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers are also designated 2 TEU. Two TEU are equivalent to one forty-foot equivalent
unit (FEU). High cube containers have a height of 9 ft 6 in (2.9 m), while half-height containers, used for heavy loads, have a height of 4 ft 3 in (1.3 m). When converting containers to TEUs, the height of the containers typically is not considered. The use of US measurements to describe container size (TEU, FEU) despite the fact the rest of the world uses the metric system reflects the fact that US shipping companies played a major part in the development of containers. The overwhelming need to have a standard size for containers, in order that they fit all ships, cranes, and trucks, and the length of time that the current container sizes have been in use, makes changing to an even metric size impractical. The maximum gross mass for a 20-ft dry cargo container is 24,000 kg, and for a 40-ft, (inc. the 2.87 m (9 ft 5 in) high cube container), it is 30,480 kg. Allowing for the tare mass of the container, the maximum payload mass is there reduced to approx. 21,600 kg for 20-ft, and 26,500 kg for 40-ft containers.
Shipping Container History
A container ship being loaded by a portainer crane in Copenhagen Harbour.
Twistlocks which capture and constrain containers. Forklifts designed to handle containers have similar devices.
A container freight train in the UK.
Containers produced a huge reduction in port handling costs, contributing significantly to lower freight charges and, in turn, boosting trade flows. Almost every manufactured product humans consume spends some time in a container. Containerization is an important element of the innovations in logistics that revolutionized freight handling in the 20th century. Efforts to ship cargo in containers date to the 19th century. By the 1920s, railroads on several continents were carrying containers that could be transferred to trucks or ships, but these containers were invariably small by today's standards. From 1926 to 1947, the Chicago North Shore and Milwaukee Railway carried motor carrier vehicles and shippers' vehicles loaded on flatcars between Milwaukee, Wisconsin and Chicago, Illinois. Beginning in 1929, Seatrain Lines carried railroad boxcars on its sea vessels to transport goods between New York and Cuba. In the mid-1930s, the Chicago Great Western Railway and then the New Haven Railroad began "piggy-back" service (transporting highway freight trailers on flatcars) limited to their own railroads. By 1953, the CB&Q, the Chicago and Eastern Illinois and the Southern Pacific railroads had joined the innovation. Most cars were surplus flatcars equipped with new decks. By 1955, an additional 25 railroads had begun some form of piggy-back trailer service. The first vessels purpose-built to carry containers began operation in Denmark in 1951. Ships began carrying containers between Seattle and Alaska in 1951. The worlds first truly intermodal container system used purpose-built container ship the Clifford J. Rodgers built in Montreal in 1955 and owned by the White Pass and Yukon Route. Its first trip carried
600 containers between North Vancouver, British Columbia and Skagway, Alaska on November 26, 1955; in Skagway, the containers were unloaded to purpose-built railroad cars for transport north to the Yukon, in the first intermodal service using trucks, ships and railroad cars. Southbound containers were loaded by shippers in the Yukon, moved by truck, rail, ship and truck to their consignees, without opening. This first intermodal system operated from November 1955 for many years. The U.S. container shipping industry dates to 1956, when trucking entrepreneur Malcom McLean put 58 containers aboard a refitted tanker ship, the "Ideal-X," and sailed them from Newark to Houston. What was new about McLean's innovation was the idea of using large containers that were never opened in transit between shipper and consignee and that were transferable on an intermodal basis, among trucks, ships and railroad cars. McLean had initially favored the construction of "trailerships" - taking trailers from large trucks and stowing them in a ship’s cargo hold. This method of stowage, referred to as roll-on/roll-off, was not adopted because of the large waste in potential cargo space onboard the vessel, known as broken stowage. Instead, he modified his original concept into loading just the containers, not the chassis, onto the ships, hence the designation container ship or "box" ship.See also pantechnicon van and trolley and lift van. During the first twenty years of growth containerization meant using completely different, and incompatible, container sizes and corner fittings from one country to another. There were dozens of incompatible container systems in the U.S. alone. Among the biggest operators, the Matson Navigation Company had a fleet of 24-foot containers while Sea-Land Service, Inc used 35-foot containers. The standard sizes and fitting and reinforcement norms that exist now evolved out of a series of compromises between international shipping companies, European railroads, U.S. railroads, and U.S. trucking companies. The bulk of the discussions occurred in the late 1960s and the first draft of the resulting ISO standards were prepared for publication in 1970. A social cost arises as a result of the high cost of trasporting the empty containers back to the original shipping point by agents. This cost, often greater than that of containers themselves, results in large areas in ports and warehouses to be occupied by empty containers left when at the destination. In 2004 in the US this has ironically generated a contest addressed to those
that present the best project for alternative use of these abandoned containers. In the United States, at first, containerization grew despite the unfavorable regulatory structure of the 1960s. But the United States' present fully integrated systems became possible only after the Interstate Commerce Commission's regulatory oversight was cut back (and later abolished in 1995), trucking and rail were deregulated in the 1970s and maritime rates were deregulated in 1984. Containerization has revolutionized cargo shipping. Today, approximately 90% of non-bulk cargo worldwide moves by containers stacked on transport ships; 26% of all containers originate from China. As of 2005, some 18 million total containers make over 200 million trips per year. There are ships that can carry over 14,500 TEU ("Emma Mærsk", 396 m long, launched August 2006). It has even been predicted that, at some point, container ships will be constrained in size only by the Straits of Malacca—one of the world's busiest shipping lanes—linking the Indian Ocean to the Pacific Ocean. This so-called Malaccamax size constrains a ship to dimensions of 470 m in length and 60 m wide (1542 feet * 197 feet). However, few initially foresaw the extent of the influence containerization would bring to the shipping industry. In the 1950s, Harvard University economist Benjamin Chinitz predicted that containerization would benefit New York by allowing it to ship industrial goods produced there more cheaply to the Southern United States than other areas, but did not anticipate that containerization might make it cheaper to import such goods from abroad. Most economic studies of containerization merely assumed that shipping companies would begin to replace older forms of transportation with containerization, but did not predict that the process of containerization itself would have some influence on producers and the extent of trading.
A converted container used as an office at a building site.
The widespread use of ISO standard containers has driven modifications in other freight-moving standards, gradually forcing removable truck bodies or swap bodies into the standard sizes and shapes (though without the strength needed to be stacked), and changing completely the worldwide use of freight pallets that fit into ISO containers or into commercial vehicles. Improved cargo security is also an important benefit of containerization. The cargo is not visible to the casual viewer and thus is less likely to be stolen and the doors of the containers are generally sealed so that tampering is more evident. This has reduced the "falling off the truck" syndrome that long plagued the shipping industry. Use of the same basic sizes of containers across the globe has lessened the problems caused by incompatible rail gauge sizes in different countries. The majority of the rail networks in the world operate on a 1,435 mm (4 ft 8½ in) gauge track known as standard gauge but many countries like Russia, Finland and Spain use broader gauges while other many countries in Africa and South America use narrower gauges on their networks. The use of container trains in all these countries makes trans-shipment between different gauge trains easier, with automatic or semi-automatic equipment. Some of the largest global companies containerizing containers today are Patrick Global Shipping, Bowen Exports and Theiler & Sons Goods, LLC.
Loss at sea of ISO Containers
Containers occasionally fall from the ships that carry them, something that occurs an estimated 2,000 to 10,000 times each year. For instance, on
November 30, 2006, a container washed ashore on the Outer Banks of North Carolina, along with thousands of bags of its cargo of tortilla chips. Containers lost at sea do not necessarily sink, but seldom float very high out of the water, making them a shipping hazard that is difficult to detect. Freight from lost containers has provided oceanographers with unexpected opportunities to track global ocean currents.
Part of a United States double-stack container train loaded with 53 ft (16.2 m) containers.
A railroad car with a 20' tank container and a conventional 20' container.
Most flatcars cannot carry more than one standard 40 foot container, but if the rail line has been built with sufficient vertical clearance, a well car can accept a container and still leave enough clearance for another container on top. This usually precludes operation of double-stacked wagons on lines with overhead electric wiring (exception: Betuweroute). Double stacking has been used in North America since American President Lines introduced this "double stack" principle under the name of "Stacktrain" rail service in 1984. It saved shippers money and now accounts for almost 70 percent of intermodal
freight transport shipments in the United States, in part due to the generous vertical clearances used by US railroads.
ISO Container types
Various container types are available for different needs: general purpose dry van for boxes, cartons, cases, sacks, bales, pallets, drums in standard, high or half height High cube palletwide containers for europallet compatibility Temperature controlled from -25°c to +25°c reefer Open top bulktainers for bulk minerals, heavy machinery Open side for loading oversize pallet Flushfolding flat-rack containers for heavy and bulky semi-finished goods, out of gauge cargo Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo, machinery, and processed timber Ventilated containers for organic products requiring ventilation Tank containers for bulk liquids and dangerous goods Rolling floor for difficult to handle cargo
Biggest ISO container companies
Top 10 container shipping companies in order of TEU capacity, first January 2006 Company TEU capacity Market Share 18.2% Number of ships 549
A.P. Moller-Maersk Group 1,665,272
Mediterranean Shipping Company S.A. CMA CGM Evergreen Marine Corporation Hapag-Lloyd
865,890 507,954 477,911 412,344
8.6% 5.6% 5.2% 4.5% 3.8% 3.6% 3.6% 3.5% 3.3%
299 256 153 140 111 99 145 118 105
China Shipping Container 346,493 Lines American President Lines 331,437 Hanjin-Senator COSCO NYK Line 328,794 322,326 302,213
Other container systems
Haus-zu-Haus (Germany) RACE (container) (Australia)
Determining the best carton, box or pallet While the creation of the best container for shipping of newly created product is called "Containerization", the term also applies to determining the right box and the best placement inside that box in order fulfillment. This may be planned by software modules in a warehouse management system. This optimization software calculates the best spatial position of each item withing such constraints as stackability and crush resistance.
Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or rail car and loading these materials in outbound trailers or rail cars, with little or no storage in between. This may be done to change type of conveyance, or to sort material intended for different destinations, or to combine material from different origins. In purest form this is done directly, with minimal or no warehousing. In practice many "cross-docking" operations require large staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to ship. If the staging takes hours or a day the operation is usually referred to as a "cross-dock" distribution center. If it takes several days or even weeks the operation is usually considered a warehouse. Crossdocking is used to decrease inventory storage by streamlining the flow between the supplier and the manufacturer.
"Hub and spoke" arrangements, where materials are brought in to one central location and then sorted for delivery to a variety of destinations Consolidation arrangements, where a variety of smaller shipments are combined into one larger shipment for economy of transport Deconsolidation arrangements, where large shipments (e.g. railcar lots) are broken down into smaller lots for ease of delivery.
Factors influencing the use of cross-docks
Customer and supplier geography -- particularly when a single corporate customer has many multiple branches or using points
Freight costs for the commodities being transported Cost of inventory in transit Complexity of loads Handling methods Logistics software integration between supplier(s), vendor, and shipper Tracking of inventory in transit
Distribution is one of the four aspects of marketing. A distributor is the middleman between the manufacturer and retailer. After a product is manufactured it is typically shipped (and usually sold) to a distributor. The distributor then sells the product to retailers or customers. The other three parts of the marketing mix are product management, pricing, and promotion. Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as: Should the product be sold through a retailer? Should the product be distributed through wholesale? Should multi-level marketing channels be used? How long should the channel be (how many members)? Where should the product or service be available? When should the product or service be available? Should distribution be exclusive, selective or extensive? Who should control the channel (referred to as the channel captain)?
Should channel relationships be informal or contractual? Should channel members share advertising (referred to as co-op ads)? Should electronic methods of distribution be used? Are there physical distribution and logistical issues to deal with? What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)?
The distribution channel
Frequently there may be a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
A number of alternate 'channels' of distribution may be available: Selling direct, such as via mail order, Internet and telephone sales Agent, who typically sells direct on behalf of the producer Distributor (also called wholesaler), who sells to retailers Retailer (also called dealer), who sells to end customers Advertisement typically used for consumption goods Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through
travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc. There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas..
Distribution channels can thus have a number of levels. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the 'zero-level' channel. The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels. In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighbourhood retailers. In Japan the chain of distribution is often complex and further levels are used, even for the simplest of
To the various `levels' of distribution, which they refer to as the `channel length', Lancaster and Massingham also added another structural element, the relationship between its members: 'Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men' passing the goods on to the end-user.
Single transaction - A temporary `channel' may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique. Vertical marketing system (VMS) - In this form, the elements of distribution are integrated.
The internal market
Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each subsidiary's, or each department's, 'internal' customers. In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price'. To all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyerseller relationship. Less obvious, but just as practical, is the use of `marketing' by service and administrative departments; to optimize their contribution to their `customers' (the rest of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in dealing with their clients, offer a very useful parallel.
Product (or service)<>Cost<>Consumer location
The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. In
practice, if the producer is large enough, the use of intermediaries (particularly at the agent and wholesaler level) can sometimes cost more than going direct. Many of the theoretical arguments about channels therefore revolve around cost. On the other hand, most of the practical decisions are concerned with control of the consumer. The small company has no alternative but to use intermediaries, often several layers of them, but large companies 'do' have the choice. However, many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if he has any aspirations to be market-oriented, his job should really be extended to managing, albeit very indirectly, all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier: Channel membership Channel motivation Monitoring and managing channels
Intensive distribution - Where the majority of resellers stock the `product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where `suitable' resellers stock the product. Exclusive distribution - Only specially selected resellers (typically only one per geographical area) are allowed to sell the `product'.
It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the
independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `bribery': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they are tempted to push the product. At the other end of the spectrum is the almost symbiotic relationship that the all too rare supplier in the computer field develops with its agents; where the agent's personnel, support as well as sales, are trained to almost the same standard as the supplier's own staff.
Monitoring and managing channels
In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain. In practice, of course, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and prospects.
This relatively recent development integrates the channel with the original supplier - producer, wholesalers and retailers working in one unified system. This may arise because one member of the chain owns the other elements (often called `corporate systems integration'); a supplier owning its own retail outlets, this being 'forward' integration. It is perhaps more likely that a retailer will own its own suppliers, this being 'backward' integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald's hamburgers and Benetton clothes) or simple cooperation (in the way that Marks & Spencer co-operates with its suppliers). Alternative approaches are `contractual systems', often led by a wholesale or retail co-operative, and `administered marketing systems' where one (dominant) member of the distribution chain uses its position to co-ordinate the other members' activities. This has traditionally been the form led by manufacturers.
The intention of vertical marketing is to give all those involved (and particularly the supplier at one end, and the retailer at the other) 'control' over the distribution chain. This removes one set of variables from the marketing equations. Other research indicates that vertical integration is a strategy which is best pursued at the mature stage of the market (or product). At earlier stages it can actually reduce profits. It is arguable that it also diverts attention from the real business of the organization. Suppliers rarely excel in retail operations and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities ( Marks & Spencer, for example, very deliberately provides considerable amounts of technical assistance to its suppliers, but does not own them).
A rather less frequent example of new approaches to channels is where two or more non-competing organizations agree on a joint venture - a joint marketing operation - because it is beyond the capacity of each individual organization alone. In general, this is less likely to revolve around marketing synergy.
LOGISTICS IN FOOD DISTRIBUTION
Food distribution, a method of distributing (or transporting) food from one place to another, is a very important factor in public nutrition. Where it breaks down, famine, malnutrition or illness can occur. During some periods of Ancient Rome, food distribution occurred with the policy of giving free bread to its citizens under the provision of a common good. There are three main components of food distribution: Transport infrastructure, such as roads, vehicles, rail transport, airports, and ports. Food handling technology and regulation, such as refrigeration, and storage, warehousing.
Adequate source and supply logistics, based on demand and need.
In general, it is exactly logistics of information. The field of information logistics aims at developing concepts, technologies and applications for need-oriented information supply. Information-ondemand services are a typical application area for information logistics, as they have to fulfil user needs with respect to content, location, time and quality Information Logistics consists of two words - information and logistics. Information can mean a lot of things, but usually is text (syntax with a semantic meaning) and logistics which is the transportation of sth from point A to point B. In a simplified sense is a newsletter information logistics, also an e-mail or even the ordinary mail you receive. Information logistics is concerned with the supply of information to individuals and aims to optimize it by targeted delivery in accordance with requirements in such a way that the substantively correct and actually necessary information is available where and when it is needed. This information should be transformed in line with users' needs, depending on the communication media and users' preferences, in order to aid custom processing of it. Information is created throughout the entire product creation process. The goal of information logistics is to optimize the content and format of the information, reduce throughput times and achieve a high degree of parallel processing. Our approach is such that information can be created and reused in a structured manner all along the value creation chain. This requires the use of an information model, an overall product tree and a graphic design concept. The deployed system must meet these requirements optimally.
The result is automated configuration of fully scalable information for a wide variety of target group perspectives (e.g. by sector or area of application). The customer can simply navigate through the information. The information and documentation creation process is made easier, safer and more efficient.
7.JUST IN TIME CONCEPT
Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. The process is driven by a series of signals, or Kanban , that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical demand. If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted a trailing 13 week average as a better predictor than most forecastors could provide.
A related term is Kaizen which is an approach to productivity improvement literally meaning "continuous impr
History of JIT
The technique was first used by the Ford Motor Company This describes the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. The concept needed an effective freight management system (FMS); Ford's Today and Tomorrow (1926) describes one. The technique was subsequently adopted and publicised by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS). Japanese corporations cannot afford large amounts of land to warehouse finished products and parts. Before the 1950s, this was thought to be a disadvantage because it reduced the economic lot size. (An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.) The undesirable result was poor return on investment for a factory. The chief engineer at Toyota in the 1950s, Taiichi Ohno, examined accounting assumptions and realized that another method was possible. The factory could be made more flexible, reducing the overhead costs of retooling and reducing the economic lot size to the available warehouse space. Over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the first to apply flexible robotic systems for these tasks. Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases, identical subassemblies could be used in several models. Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body parts. These were adjusted by hand, using crowbars and wrenches. It sometimes took as long as several days to install a large (multiton) die set and adjust it for acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line was down for several weeks. Toyota implemented a strategy called Single Minute Exchange of Die (SMED), developed by Shigeo Shingo. With very simple fixtures, measurements were substituted for adjustments. Almost immediately, die change times fell to about half an hour. At the same time, quality of the
stampings became controlled by a written recipe, reducing the skill required for the change. Analysis showed that the remaining time was used to search for hand tools and move dies. Procedural changes (such as moving the new die in place with the line in operation) and dedicated tool-racks reduced the die-change times to as little as 40 seconds. Dies were changed in a ripple through the factory as a new product began flowing. After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants. Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a signal to produce or order a replacement.
Just-in-time (JIT) inventory systems are not just a simple method that a company has to buy in to; it has a whole philosophy that the company must follow. The ideas in this philosophy come from many different disciplines including; statistics, industrial engineering, production management and behavioral science. In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT. Inventory is seen as incurring costs instead of adding value, contrary to traditional thinking. Under the philosophy, businesses are encouraged to eliminate inventory that doesn’t add value to the product. Secondly, it sees inventory as a sign of sub par management as it is simply there to hide problems within the production system. These problems include backups at work centres, lack of flexibility for employees and equipment, and inadequate capacity among other things. In short, the just-in-time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount.”
Some of the results at Toyota were unexpected. A huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out
and sold. This by itself generated tremendous enthusiasm in upper management. Another surprising effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay. Also, many vehicles began to be built to order, completely eliminating the risk they would not be sold. This dramatically improved the company's return on equity by eliminating a major source of risk. Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. The result was a severe quality assurance crisis, and a dramatic improvement in product quality. Eventually, Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful statistical controls. (See Total Quality Management). Toyota had to test and train suppliers of parts in order to assure quality and delivery. In some cases, the company eliminated multiple suppliers. When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed or even stopped. No inventory meant that a line could not operate from in-process inventory while a production problem was fixed. Many people in Toyota confidently predicted that the initiative would be abandoned for this reason. In the first week, line stops occurred almost hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell-pull, that permitted any worker on the production line to order a line stop for a process or quality problem. Even with this, line stops fell to a few per week. The result was a factory that became the envy of the industrialized world, and has since been widely emulated. The Just in Time philosophy was also applied to other segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment.
As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are listed below. Set up times are significantly reduced in the warehouse. Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement. The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand. Employees who possess multiple skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product. Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers don’t have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day. Increased emphasis on supplier relationships. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public. Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting
deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay.
Within a JIT System
The major problem with Just In Time operation is that it leaves the supplier and downstream consumers open to supply shocks. In part, this was seen as a feature rather than a bug by Ohno, who used the analogy of lowering the level of water in a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. Once the barriers were exposed, they could be removed; since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area. Just In Time is a means to improving performance of the system, not an end. With shipments coming in sometimes several times per day, Toyota is especially susceptible to an interruption in the flow. For that reason, Toyota is careful to use two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk by the 1997 Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Thus, a strong, long-term relationship with a few suppliers is preferred to short-term, price-based relationships with competing suppliers.
Within a raw material stream
As noted by Liker (2003) and Womack and Jones (2003), it would ultimately be desirable to introduce flow and JIT all the way back through the supply stream. However, none of them followed this logically all the way back through the processes to the raw materials. With present technology, for example, an ear of corn cannot be grown and delivered to order . The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery.
It has been frequently charged that the oil industry has been influenced by JIT (see here (2004), here (1996), and here (1996)). The argument is presented as follows: The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004. As a result, the industry is susceptible to supply shocks, which cause spikes in prices and subsequently reduction in domestic manufacturing output. The effects of hurricanes Katrina and Rita are given as an example: in 2005, Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large number of oil production and transfer facilities, resulting in the loss of 20% of the US domestic refinery output. Rita subsequently shut down refineries in Texas, further reducing output. The GDP figures for the third and fourth quarters showed a slowdown from 3.5% to 1.2% growth. Similar arguments were made in earlier crises. Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT, JIT students and even oil & gas industry analysts question whether JIT as it has been developed by Ohno, Goldratt, and others is used by the petroleum industry. Companies routinely shut down facilities for reasons other than the application of JIT. One of those reasons may be economic rationalization: when the benefits of operating no longer outweigh the costs, including opportunity costs, the plant may be economically inefficient. JIT has never subscribed to such considerations directly; following Waddel and Bodek (2005), this ROI-based thinking conforms more to Brown-style accounting and Sloan management. Further, and more significantly, JIT calls for a reduction in inventory capacity, not production capacity. From 1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only 8.5% from 228,331 to 222,903 bbls to 208,986 (Energy Information Administration data). Stocks fluctuate seasonally by as much as 20,000 bbls. During the 2005 hurricane season, stocks never fell below 194,000 thousand bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls in 1997. This shows that while industry storage capacity has decreased in the last 30 years, it hasn't been drastically reduced as JIT practitioners would prefer.
Finally, as shown in a pair of articles in the Oil & Gas Journal, JIT does not seem to have been a goal of the industry. In Waguespack and Cantor (1996), the authors point out that JIT would require a significant change in the supplier/refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies. Specifically, the relationships remain cost-driven among many competing suppliers rather than qualitybased among a select few long-term relationships. They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America. In the follow-up editorial, the Oil & Gas Journal claimed that "casually adopting popular business terminology that doesn't apply" had provided a "rhetorical bogey" to industry critics. Confessing that they had been as guilty as other media sources, they confirmed that "It also happens not to be accurate."
Consider a (highly) simplified mathematical model of the ordering process. Let: K = the incremental cost of placing an order kc = the annual cost of carrying one unit of inventory D = annual demand in units Q = optimal order size in units TC = total cost over the year We want to know Q. We assume that demand is constant and that the company runs down the stock to zero and then places an order, which arrives instantly. Hence the average stock held (the average of zero and Q, assuming constant usage) is Q / 2. Also, the annual number of orders placed is D / Q. TC consists of two components. The first is the cost of carrying inventory, which is given by Q * kc / 2, i.e. the average inventory times the carrying cost per unit. The second cost is the cost of placing orders, given by D * K / Q, the annual number of orders, D / Q. times the cost per order, K. Thus total annual cost is
. We differentiate TC with respect to Q and set it equal to 0 to find the Q for minimum total cost, giving
which is known as the Economic Order Quantity or EOQ formula. The key Japanese breakthrough was to reduce K to a very low level and to resupply frequently instead of holding excess stocks. In practice JIT works well for many businesses, but it is not appropriate if K is not small. The theory above can be fairly easily adapted to take into account realistic features such as delays in delivery times and fluctuations in demand. Both of these are usually modelled by normal distributions. The delay in delivery, in particular, means that additional 'safety stocks' need to be held if a stockout is to be rendered very unlikely.
Logistics automation is the application of computer software and / or automated machinery to improve the efficiency of logistics operations. Typically this refers to operations within a warehouse or distribution center, with broader tasks undertaken by supply chain management systems and enterprise resource planning systems.
Logistics automation systems can powerfully complement the facilities provided by these higher level computer systems. The focus on an individual node within a wider logistics network allows systems to be highly tailored to the requirements of that node.
Logistics automation systems comprise a variety of hardware and software components:
Automated cranes (also called automated storage and retrieval systems): provide the ability to input and store a container of goods for later retrieval. Typically cranes serve a rack of locations, allowing many levels of stock to be stacked vertically, and allowing far high storage densities and better space utilisation than alternatives.
Conveyors: automated conveyors allow the input of containers in one area
of the warehouse, and either through hard coded rules or data input allow destination selection. The container will later appear at the selected destination.
Sortation systems: similar to conveyors but typically have higher
capacity and can divert containers more quickly. Typically used to distribute high volumes of small cartons to a large set of locations. Industrial Robots: four to six axis industrial robots, e.g. palletizing robots, are used for palletizing, depalletizing, packaging, comissioning and order picking. Typically all of these will automatically identify and track containers based upon barcodes, or increasingly, RFID tags
Mobile technology Radio data terminals: these are hand held or truck mounted terminals
which connect wirelessly to logistics automation software and provide instructions to operators moving throughout the warehouse. Many also have in-built barcode scanners to allow identification of containers.
Integration software: this provides overall control of the automation machinery and for instance allows cranes to be connected up to conveyors for seamless stock movements. Operational control software: provides low-level decision making, such as where to store incoming containers, and where to retrieve them when requested. Business Control software: provides higher level functionality, such as identification of incoming deliveries / stock and scheduling order fulfilment, assignment of stock to outgoing trailers.
Benefits of logistics automation
A typical warehouse or distribution center will receive stock of a variety of products from suppliers and store these until the receipt of orders from customers, whether individual buyers (e.g. mail order), retail branches (e.g. chain stores), or other companies (e.g. wholesalers). A logistics automation system may provide the following: Automated goods in processes: Incoming goods can be marked with barcodes and the automation system notified of the expected stock. On arrival, the goods can be scanned and thereby identified, and taken via conveyors, sortation systems, and automated cranes into an automatically assigned storage location. Automated Goods Retrieval for Orders: On receipt of orders, the automation system is able to immediately locate goods and retrieve them to a pickface location. Automated despatch processing: Combining knowledge of all orders placed at the warehouse the automation system can assign picked goods into despatch units and then into outbound loads. Sortation systems and conveyors can then move these onto the outgoing trailers.
A complete warehouse automation system can drastically reduce the workforce required to run a facility, with human input required only for a few tasks, such as picking units of product from a bulk packed case. Even here, assistance can be provided with equipment such as pick-to-light units. Smaller systems may only be required to handle part of the process. Examples include automated storage and retrieval systems, which simply use cranes to store and retrieve identified cases or pallets, typically into a highbay storage system which would be unfeasible to access using fork-lift trucks or any other means.
9.LOGISTICS FOR DIFFERENT FIELDS. LIQUID LOGISTICS
Liquid Logistics is a special category of logistics that relates to liquid products, and is utilized extensively in the "Supply Chain for Liquids" discipline. Standard logistics techniques are generally used for discrete or unit products. Liquid products have logistics characteristics that distinguish them from discrete products. Some of the major characteristics of liquid products that impact their logistics handling are: Liquids flowing from a higher level to a lower level provide the ability to move the liquids without mechanical propulsion or manual intervention Liquids’ adaptation to the shape of the container they are in provides a great deal of flexibility in the design of storage systems and the use of “dead” space for storage The level of a liquid as it has settled in a tank may be used to automatically and continuously know the quantity of liquid in the tank Liquids provide indications through changes in their characteristics that may be sensed and translated into measures of the quality of the liquid
Many security and safety risks are significantly reduced or eliminated utilizing liquid logistics techniques Liquids may in some cases be “processed” well downstream from the original production facility and thus offer the opportunity for improved efficiencies throughout the supply stream together with more flexibility as to the nature of the product at the point of final usage. Each of these points represents a differentiation of liquid logistics from logistics techniques used for discrete items. When properly planned for and handled these points of differentiation may lead to business advantages for companies that produce, process, move, or use liquid products.
Medical logistics is the logistics of pharmaceuticals, medical and surgical supplies, medical devices and equipment, and other products needed to support doctors, nurses, and other health and dental care providers. Because its final customers are responsible for the lives and health of their patients, medical logistics is unique in that it seeks to optimize effectiveness rather than efficiency. Medical logistics functions comprise an important part of the health care system: after staff costs, medical supplies are the single most expensive component of health care. To drive costs out of the health-care sector, medical logistics providers are adopting supply chain management theories.
Reverse logistics is the logistics process of removing new or used products from their initial point in a supply chain, such as returns from consumers, over stocked inventory, or outdated merchandise and redistributing them using disposition management rules that will result in maximized value at
the end of the items original useful life. A reverse logistics operation is considerably different from forward logistics. It must establish convenient collection points to receive the used goods from the final customer or remove assets from the supply chain so that more efficient use of inventory / material overall can be achieved. It requires packaging and storage systems that will ensure that most of the value still remaining in the used good is not lost due to careless handling. It often requires the development of a transportation mode that is compatible with existing forward logistic system. Disposition can include returning assets into inventory pools or warehouses for storage, returning goods to the original manufacturer for reimbursement, selling goods on a secondary market, recycling assets, or a combination that will yield maximum value for the assets in question. Simply, "reverse logistics" is all activity associated with a product/service after the point of sale, the ultimate goal to optimize or make more efficient aftermarket activity, thus saving money. Types of activity common with reverse logistics includes: logistics, warehousing, repair, refurbishment, recycling, e-waste, after market call center support, reverse fulfillment, field service and many others. An example of Reverse Logistics: T-Shirts, which are often sold at second sales where those with minor flaws like improper logo print of the manufacturer or unnoticeable stitching flaws are exhibited to be sold at discounted prices. The collection of the flawed clothes from the various stores and reselling them at the Second Sales shop is an example of reverse logistics.
10.CONCEPT OF SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, workin-process inventory, and finished goods from point-of-origin to point-ofconsumption. The term supply chain management was coined by consultant Keith Oliver, of strategy consulting firm Booz Allen Hamilton in 1982.
The definition one America professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned. Some experts distinguish supply chain management and logistics, while others consider the terms to be interchangeable. Supply chain management is also a category of software products.
Supply chain management problems
Supply chain management must address the following problems: Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers. Distribution Strategy: Centralized versus decentralized, direct shipment, Cross docking, pull or push strategies, third party logistics. Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation etc. Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods. Supply chain execution is managing and coordinating the movement of materials information and funds across the supply chain. The flow is bidirectional.
Supply chain management is a cross-functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end-consumer. As corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.
Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply-Chain Management Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels of activities.
Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities. Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management Information Technology infrastructure, to support supply chain operations. There to make and what to make or buy decisions Align overall organizational strategy with supply strategy
Sourcing contracts and other purchasing decisions. Production decisions, including contracting, locations, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments
Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities. distribution centers, and other customers. Performance tracking of all activities.
Supply Chain Management
Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy.In Peter Drucker's (1998) management's new paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. During the past decades, globalization, outsourcing and information technology have enabled many organizations such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organizational supply network can be acknowledged as a new form of organization. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a system's point of view, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of internal management control structure is known to impact local firm performance (Mintzberg, 1979). In the 21st century, there have been few changes in business environment that have contributed to the development of supply chain networks. First, as an outcome of globalization and proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships were found to be significant success factors, following the earlier "Just-In-Time", "Lean Management" and "Agile Manufacturing" practices. Second, technological changes, particularly the dramatic fall in information communication costs, a paramount component of transaction costs, has led to changes in coordination among the members of the supply chain network (Coase, 1998). Many researchers have recognized these kinds of supply network structure as a new organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", Global Production Network", and "Next Generation Manufacturing System". In general, such a structure can be defined as "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans, 2001).
Supply Chain Business Process Integration
Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers, and attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000) operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) are:
Customer relationship management
Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management One could suggest other key critical supply business processes combining these processes stated by Lambert such as:
Customer service Management Procurement Product development and Commercialization Manufacturing flow management/support Physical Distribution Outsourcing/ Partnerships Performance Measurement
a) Customer service management process
Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations.
b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development is achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers. This requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage and handling and quality assurance. Also, includes the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research to new sources or programmes.
c) Product development and commercialization
Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must: coordinate with customer relationship management to identify customerarticulated needs; select materials and suppliers in conjunction with procurement, and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.
d) Manufacturing flow management process
The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.
e) Physical Distribution
This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an
integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers).
This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided inhouse. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.
g) Performance Measurement
Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm including Cost Customer Service Productivity measures Asset measurement, and
Quality. External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) Customer perception measurement, and 2) Best practice benchmarking. Components of Supply Chain Management are 1. Standardisation 2. Postponement 3. Customisation
Supply Chain Management Components Integration
The management components of SCM The SCM management components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering, buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are: Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure
Risk and reward structure Culture and attitude However, a more careful examination of the existing literature will lead us to a more comprehensive structure of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is what kind of relationship the components may have that are related with suppliers and customers accordingly. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996). A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized), is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are supporting the primary ones. Also, third level channel participants and components may be included, that will support the primary level channel participants, and which are the fundamental branches of the secondary level components. Consequently, Lambert and Cooper's framework of supply chain components, does not lead us to the conclusion about what are the primary or secondary (specialized) level supply chain components ( see Bowersox and Closs, 1996, p.g. 93), that is what supply chain components should be viewed as primary or secondary, and how should these components be structured in order to have a more comprehensive supply chain structure and to examine the supply chain as an integrative one . For Customer Service Management: Includes the primary level component of customer relationship management, and secondary level components such as benchmarking and order fulfillment. For Product Development and Commercialization: Includes the primary level component of Product Data Management (PDM), and secondary level components such as market share, customer satisfaction, profit margins, and returns to stakeholders. For Physical Distribution, Manufacturing support and Procurement: Includes the primary level component of Enterprise Resource Planning
(ERP), with secondary level components such as warehouse management, material management, manufacturing planning, personnel management, and postponement (order management). For Performance Measurement: This includes the primary level component of logistics performance measurement, which is correlated with the information flow facility structure within the organization. Secondary level components may include four types of measurement such as: variation, direction, decision and policy measurements. More specifically, in accordance with these secondary level components total cost analysis (TCA), customer profitability analysis (CPA), and Asset management could be concerned as well. In general, information flow facility structure is regarded by two important requirements, which are a) planning and Coordination flows, and b)operational requirements.
11.CONCEPT OF 3PL
For Outsourcing: This includes the primary level component of management methods and the company's cutting-edge strategy and its vital strategic objectives that the company will identify and adopt for particular strategic initiatives in key the areas of technology information, operations, manufacturing capabilities, and logistics (secondary level components). A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to companies for part or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.
Types of 3PL providers
Hertz, and Alfredsson (2003) describe four categories of 3PL providers: Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and
distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity. Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks. The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small. The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.
Non Asset-based Logistics Providers
This 3PL performs duties such as quoting, booking, routing, and auditing, but doesn't need to own warehousing facilities, vehicles, or aircraft. These are often leased on terms equalling those of the 3PL contract minimising liability to capital expenditure. To be useful, this type of provider must show its customers a benefit in financial and operational terms by leveraging exceptional expertise and ability in the areas of operations, negotiations, and customer service in a way that complements its customers' preexisting physical assets.
India Logistics Industry: $125 Billion Goldmine (DATAMONITOR REPORT)
India's third-party logistics (3PL) market is all set to experience a period of explosive organic growth, judging by independent market analyst Data monitor’s latest research. The Data monitor report, "India Logistics Outlook 2007," predicts high double-digit growth rates for both outsourced and contract logistics in India. With India's gross domestic profit (GDP) growing at over 9% per year and the manufacturing sector enjoying double digit growth rates, the Indian logistics industry is at an inflection point, and is expected to reach a market size of over $125 billion in year 2010. "Strong growth enablers exist in India today in the form of over $300 billion worth of infrastructure investments, phased introduction of value-added-tax (VAT), and development of organized retail and agri-processing industries", say Praveen Ojha, Logistics analyst, Data monitor and author of the study. "In addition, strong foreign direct investment inflows (FDI) in automotive, capital goods, electronics, retail, and telecom will lead to increased market opportunities for providers of 3PL in India." However, as a result of the under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13% of GDP, compared to less than 10% of GDP in almost the entire Western Europe and North America. "As leading manufacturers realign their global portfolios of manufacturing locations, India will have to work on such systemic inefficiencies, in order to attract and retain long-term real investments," added Praveen Ojha. Consumer markets to lead growth in outsourced logistics 3PL/outsourced logistics is the outsourcing of a company's logistics operations to a specialized firm, which provides multiple tactical logistics services for use by customers as opposed to the respective company having a business unit in-house to oversee its supply chain and transportation of goods. With increased geographical distribution of incomes in India, the consumer markets are extending beyond the five metros of Mumbai, Delhi, Bangalore, Chennai and Hyderabad. However, rather than being pre-emptive, the companies are only following with new distribution outlets. As such, the increased competition across industry verticals is forcing firms to focus on
product distribution, and logistics outsourcing is gaining further momentum with this. According to Data monitor, outsourced logistics, at just above one-quarter of the entire $90 billion Indian logistics market, is slated to grow at a compound annual growth rate (CAGR) of over 16% from 2007-10. The fragmented industry structure: Opportunity for 3PL integrators The Indian logistics industry is characterized by dominance of a disorganized market. Transporters with fleets smaller than five trucks account for over two-thirds of the total trucks owned and operated in India and make up 80% of revenues. The freight forwarding segment is also represented by thousands of small customs brokers and clearing & forwarding agents, who cater to local cargo requirements. In order to reduce logistics costs and focus on core competencies, Indian companies across verticals are now increasingly seeking and using the services of third-party logistics service providers (3PLs). Realizing the potential in the contract logistics market, 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw materials. Trucking and courier companies are now leveraging their network to provide express distribution and warehousing. Similarly, freight forwarders are moving towards owning assets in the form of Container Freight Stations (CFS), Inland Container Depots (ICD) and container trains. Furthermore, 3PLs are also increasing investments to become end-to-end integrated players. As per the investment plans of the leading 3PLs in India, the logistics industry's capital expenditure is progressively increasing to almost match its revenue growth, a strong indicator of both 3PLs desiring to become integrated service providers and the industry enjoying investmentdriven growth. Infrastructure congestion: the key challenge According to Data monitor, the logistics industry in India is currently hampered due to poor infrastructure such as roads (over 70 % of freight transportation in India is via roads), communication, ports and complex regulatory structures.
The National Highways (NH) form only 2% of the entire road network in India, but handle over 40% of the national road freight traffic, putting enormous pressure on the highway infrastructure. Also, on an average a commercial vehicle in India runs at a speed of 20 miles per hour (mph) compared to over 60 mph in the mature logistics markets of Western Europe and the USA. In addition, the twelve major ports of India handle volumes higher than their full capacity, resulting in pre-berthing delays and longer ship turn-around time compared to even the East Asian counterparts like China and South Korea. Phased introduction of VAT - A supply chain boon The amount of time spent in complying with inter state tax requirements and at transport check points affects the cost and competitiveness of both 3PL providers as well as their customers. VAT, which is expected to replace a plethora of state and central government taxes, is likely to enhance the efficiency of the logistics industry in India. Given the current thrust on infrastructure investments in India, the implementation of VAT is likely to boost the efficiency for these stakeholders by lowering transit times and the associated paper work.
Praveen Ojha concluded: "With the collective economic interaction of growing per capita disposable incomes, fast growing manufacturing and organized retailing sectors, increasing external merchandise trade, infrastructure investments by the government and 3PL capex plans, both India's logistics industry and the 3PL sector of this market are set to witness explosive growth in the next five years."
DEFENCE LOGISTICS AGENCY
The Defense Logistics Agency (DLA) is the largest agency in the United States Department of Defense, with about 22,000 civilian and military personnel throughout the world. The agency provides supplies to the military services and supports their acquisition of weapons and other materiel.
Since its founding in 1961, DLA has been an integral part of the nation's military defense. It has been a full partner with the military services in helping to fuel the Cold War. It has also provided crucial relief to victims of natural disasters and humanitarian aid to those in need.
Origins of DLA The origins of the Defense Logistics Agency (DLA) date back to World War II when America’s huge military buildup required the rapid procurement of vast amounts of munitions and supplies. During the war, the military services began to coordinate more extensively when it came to procurement, particularly procurement of petroleum products, medical supplies, clothing, and other commodities. The main offices of the Army and Navy for each commodity were collocated. After the war, the call grew louder for more complete coordination throughout the whole field of supply - including storage, distribution, transportation, and other aspects of supply. In 1947, there were seven supply systems in the Army, plus an Air Technical Service Command, and 18 systems in the Navy, including the quartermaster of the Marine Corps. Passage of the National Security Act of 1947 prompted new efforts to eliminate duplication and overlap among the services in the supply area and laid the foundation for the eventual creation of a single integrated supply agency. The act created the Munitions Board, which began to reorganize these major supply categories into joint procurement agencies. Meanwhile, in 1949, the Commission on the Organization of the Executive Branch of the Government (Hoover Commission), a presidential commission headed by former President Herbert Hoover, recommended that the National Security Act be specifically amended so as to strengthen the authority of the Secretary of Defense so that he could integrate the organization and procedures of the various phases of supply in the military services. The Munitions Board was not as successful as hoped in eliminating duplication among the services in the supply area. Congress became disenchanted with the board, and in the Defense Cataloging and Standardization Act of 1952, transferred the board’s functions to a new Defense Supply Management Agency. The Eisenhower Reorganization Plan Number 6 (1953) abolished both this agency and the Munitions Board, replacing them with a single executive, an Assistant Secretary of Defense for
Supply and Logistics. Meanwhile, the Korean War led to several investigations by Congress of military supply management, which threatened to impose a common supply service on the military services from the outside. Integrated management of supplies and services began in 1952 with the establishment of a joint Army-Navy-Air Force Support Center to control identification of supply items. For the first time, all the military services bought, stored, and issued items using a common nomenclature. The Defense Department and the services defined the materiel that would be managed on an integrated basis as "consumables," meaning supplies that are not repairable or are consumed in normal use. Consumable items, also called commodities were assigned to one military service to manage for all the services. Early History, 1941-1961 The pressure for consolidation continued. In July 1955, the second Hoover Commission recommended centralizing management of common military logistics support and introducing uniform financial management practices. It also recommended that a separate and completely civilian-managed agency be created with the Defense Department to administer all military common supply and service activities. The military services feared that such an agency would be less responsive to military requirements and jeopardize the success of military operations. Congress, however, remained concerned about the Hoover Commission’s indictment of waste and inefficiencies in the military services. To avoid having Congress take the matter away from the military entirely, DoD reversed its position. The solution proposed and approved by the Secretary of Defense was to appoint "single managers" for a selected group of common supply and service activities. Under a Defense directive approved by the Assistant Secretary of Defense for Supply and Logistics, the Secretary of Defense would formally appoint one of the three service secretaries as single manager for selected group of commodities or common service activities. The Army managed food and clothing; the Navy managed medical supplies, petroleum, and industrial parts; and the Air Force managed electronic items. In each category, the single manager was able to reduce his investment by centralizing wholesale stocks, and to simplify the supply process by persuading the services to adopt the same standard items. Over a six-year period, the single manager
agencies reduced their item assignments by about 9,000, or 20 percent, and their inventories by about $800 million, or 30 percent. Proposals were soon made to extend this concept to other commodities. The single manager concept was the most significant advance toward integrated supply management within DoD or the military services since World War II. The Defense Cataloging and Standardization Act led to the creation of the first Federal Catalog, completed in 1956. The federal catalog system provided an organized and systematic approach for describing an item of supply, assigning and recording a unique identifying number, and providing information on the item to the system’s users. The initial catalog, containing about 3.5 million items, was a rough draft, full of duplications and errors, but it effectively highlighted the areas where standardization was feasible and necessary. Defense Supply Agency, 1961-1977 When Secretary of Defense Robert S. McNamara assumed office in the spring of 1961, the first-generation of single managers were handling roughly 39,000 items by procedures with which the Services had become familiar. Yet, it was clear that the single manager concept, though successful, did not provide the uniform procedures that the Hoover Commission had recommended. Each single manager operated under the procedures of its parent service, and customers had to use as many sets of procedures as there were commodity managers. Secretary McNamara was convinced that the problem required some kind of an organizational arrangement to "manage the managers." On March 23, 1961, he convened a panel of high ranking Defense officials, and directed them to study alternative plans for improving DOD-wide organization for integrated supply management, a task designated as "Project 100." The committee’s report highlighted the principle weaknesses of the multiple single manager supply system. After much debate among the service chiefs and secretaries, on August 31, 1961, Secretary McNamara announced the establishment of a separate common supply and service agency known as the Defense Supply Agency (DSA). The new agency was formally established on October 1, 1961, under the command of Lieutenant General Andrew T. McNamara. McNamara, an energetic and experienced Army logistician who had served as Quartermaster General, rapidly pulled together a small staff and set up operations in the worn Munitions Building in Washington, D.C. A short time
later, he moved his staff into more suitable facilities at Cameron Station in Alexandria, Virginia. When the agency formally began operations on January 1, 1962, it controlled six commodity-type and two service-type single managers: Defense Clothing & Textile Supply Center, (fomerly the Philadelphia Quartermster Depot); Defense Construction Supply Center, Columbus, Ohio; Defense General Supply Center, Richmond, Virginia; Defense Medical Supply Center, Brooklyn, New York; Defense Petroleum Supply Center, Washington, D.C.; Defense Subsistence Supply Center, Chicago, Illinois; Defense Traffic Management Service, Washington, D.C.; and Defense Logistics Services Center, Washington, D.C. Officials estimated that the consolidation of these functions under DSA and subsequent unified operations would allow them to reduce the workforce by 3,300 people and save more than $30 million each year. The results far exceeded these expectations. The agency, made up primarily of civilians but with military from all the services, would administer the Federal Catalog Program, the Defense Standardization Program, the Defense Utilization Program, and the Surplus Personal Property Disposal Program. During the first six months, two additional single managers - the Defense Industrial Supply Center in Philadelphia and the Defense Automotive Supply Center in Detroit, Michigan - came under DSA control, as did the Defense Electronic Supply Center, Dayton, Ohio. By July 1, 1962, the agency included 11 field organizations, employed 16,500 people, and managed 45 facilities. The Defense Industrial Plant Equipment Center, a new activity, was established under the agency in March 1963 to handle storage, repair, and redistribution of idle equipment. By late June 1963 the agency was managing over one million different items in nine supply centers with an estimated inventory of $2.5 billion. On July 1, 1965, the Defense Subsistence Supply Center, Defense Clothing Supply Center, and Defense Medical Supply Center were merged to form the Defense Personnel Support Center, Philadelphia. The Defense Supply Agency was tested almost immediately with the Cuban missile crisis and the military buildup in Vietnam. Supporting U.S. forces in Vietnam was the most severe, extensive test of the supply system in the young agency’s history. The agency launched an accelerated procurement program to meet the extra demand created by the military buildup in Southeast Asia. The agency’s supply centers responded in record time to
orders for everything from boots and lightweight tropical uniforms to food, sandbags, construction materials, and petroleum products. Between 1965 and 1969 over 22 million short tons of dry cargo and over 14 million short tons of bulk petroleum were transported to Vietnam. As a result of support to the operations in Vietnam, DSA’s total procurement soared to $4 billion in fiscal year 1966 and $6.2 billion in fiscal year 1967. Until the mid-1960s, the demand for food was largely for non-perishables, both canned and dehydrated. But in 1966, thousands of portable walk-in, refrigerated storage boxes filled with perishable beef, eggs, fresh fruits and vegetables began arriving in Vietnam, a logistics miracle. As the buildup continued in Southeast Asia, on 1 January 1963, the agency acquired Army general depots at Columbus, Ohio, and Tracy, California, and the Navy depot at Mechanicsburg, Pennsylvania. Acquisition of Army depots at Memphis, Tennessee, and Ogden, Utah, on January 1, 1964, completed the DSA depot network. In addition to the depot mission, the agency became responsible for administering most Defense contracts - both those awarded by DSA and by the military services. In 1965, the Defense Department consolidated most of the contract administration activities of the military services to avoid duplication of effort and provide uniform procedures in administering contracts. Officials established the Defense Contract Administration Services (DCAS) within DSA to manage the consolidated functions. The agency’s new contract administration mission gave it responsibility for the performance of most defense contractors, including some new weapon systems and their components. Yet, the services retained contract administration of state-of-the-art weapon systems. The expanded contract administration mission significantly altered the shape of DSA. The agency that had begun operations three years earlier with more than 90 percent of its resources devoted to supply operations had evolved to one almost evenly divided between supply support and logistics services. As part of a streamlining effort, in 1975, the eleven DCAS regions were reduced to nine. The following year, officials reorganized the DCAS field structure to eliminate the intermediate command supervisory levels known as DCAS districts. As the move to consolidate Defense contracting progressed, a congressional report in 1972 recommended centralizing the disposal of DOD property for
better accountability. In response, on September 12, 1972, DSA established the Defense Property Disposal Service (later renamed the Defense Reutilization and Marketing Service) in Battle Creek, Michigan, as a primary-level field activity. During 1972 and 1973, the agency’s responsibilities extended overseas when it assumed responsibility for defense overseas property disposal operations and worldwide procurement, management, and distribution of coal and bulk petroleum products (1972), and worldwide management of food items for troop feeding and in support of commissaries (1973). One dramatic example of the agency’s overseas support role was during the Middle East crisis in October 1973 when it was called upon to deliver, on an urgent basis, a wide range of vitally needed military equipment. Responsibilities for subsistence management were expanded in 1976 and 1977 with improvements required in the current wholesale management system and the assumption of major responsibilities in the DOD Food Service Program. By 1977, the agency had expanded from an agency that administered a handful of single manager supply agencies to one that had a dominant role in logistics functions throughout the Defense Department. Defense Logistics Agency, 1977-1990 In recognition of 16 years of growth and greatly expanded responsibilities, on January 1, 1977, officials changed the name of the Defense Supply Agency to the Defense Logistics Agency (DLA). The next decade was a period of continued change and expanded missions. Officials published a revised agency charter in June 1978. Major revisions included a change in reporting channels directed by the Secretary of Defense which placed the agency under the management, direction, and control of the Assistant Secretary of Defense for Manpower, Reserve Affairs, and Logistics. As part of various organizational changes during this period, officials eliminated depot operations at the Defense Electronics Supply Center in 1979 and began stocking electronic material at depots closer to the using military activities. The Defense Industrial Plant Equipment Center was phased out in the late 1980s when responsibility for managing the Defense Department’s reserve of industrial plant equipment was transferred to the Defense General Supply Center in Richmond, Virginia.
Another major mission came in July 1988 when, by presidential order, the agency assumed management of the nation’s stockpile of strategic materials from the General Services Administration. Soon after, DLA established the Defense National Stockpile Center as a primary-level field activity. In 1989, the military services were directed to transfer one million consumable items to DLA for management. The 1980s brought other changes as well. On October 1, 1986, the Goldwater-Nichols Reorganization Act identified DLA as a combat support agency and required that the selection the DLA Director be approved by the Chairman of the Joint Chiefs of Staff. The act also directed the Office of the Secretary of Defense to study the functions and organizational structure of DLA to determine the most effective and economical means of providing required services to its customers. It helped the agency’s mission evolve from functional concerns (e.g. inventory management, contract administration) to operational concerns (e.g. enhancement of materiel readiness and sustainability of the military services and the unified and specified commands). Further implementation of reorganization recommendations, especially from the Goldwater-Nichols Act, resulted from Secretary of Defense Richard Cheney’s Defense Management Review report to the President in July 1989. The report emphasized improving management efficiencies in the Defense Department by "cutting excess infrastructure, eliminating redundant functions and initiating common business practices." After the implementation of the Defense Management Review decisions, DLA assumed some of the military services’ responsibilities, such as inventory management and distribution functions. A Defense Management Review-directed study recommended the consolidation of DoD contract management. Although DLA had received responsibility for administering most defense contracts in 1965, the military services had retained responsibility for administering most major weapons systems and overseas contracts. On February 6, 1990, DOD directed that virtually all contract administration functions be consolidated within DLA. In response, the agency established the Defense Contract Management Command (DCMC), absorbing its Defense Contract Administration Services into the new command. The military services retained responsibility for contracts covering shipbuilding and ammunition plants. In June, however, the services’ responsibility (5,400 personnel and 100,000 contracts valued at
$400 million) for managing the majority of weapons systems contracts was transferred to the Defense Contract Management Command. Reorganizing for the 1990s During the 1990s, the agency’s role in supporting military contingencies and humanitarian assistance operations grew dramatically. Operation Desert Shield began in August 1990 in response to an Iraqi invasion of Kuwait. Soon after President George Bush announced the involvement of the U.S. military, the agency was at the center of the effort to support the deployment to the Middle East and later the war. In those first critical months, most of the supplies transported to Saudi Arabia - from bread to boots, from nerve gas antidote to jet fuel - came from DLA stock. During this operation and the subsequent Operation Desert Storm, the agency provided the military services with over $3 billion of food, clothing, textiles, medical supplies, and weapons system repair parts in response to over 2 million requisitions. The mission execution included providing supply support, contract management, and technical and logistics services to all military services, unified commands, and several allied nations. The quality of supply support that DLA provided American combat forces during these operations earned it the Joint Meritorious Service Award in 1991. DLA support continued in the Middle East long after most U.S. forces had redeployed. As part of Operation Provide Comfort, in April 1991 the agency provided over $68 million of food, clothing, textiles, and medical supplies to support a major land and air relief operation designed to aid refugees-mostly Kurds in Iraq. DLA supported other contingency operations as well. In October 1994 DLA deployed an initial element to support operations in Haiti and established its first Contingency Support Team. In December 1995, the first element of a DLA Contingency Support Team deployed to Hungary to coordinate the delivery of needed agency supplies and services to U.S. military units deployed in Bosnia and other NATO forces. Closer to home, the agency supported relief efforts after Hurricane Andrew in Florida (1991) and Hurricane Marilyn in the U.S. Virgin Islands (1995). An even more dominant theme for the 1990s was the agency’s efforts to reorganize so that it could support the war fighter more effectively and efficiently. In August 1990, Defense Contract Management Regions Atlanta,
Boston, Chicago, Los Angeles, and Philadelphia were re-designated as Defense Contract Management Districts South, Northeast, North Central, West, and Mid Atlantic respectively. Defense Contract Management Regions Cleveland, Dallas, New York, and St. Louis were disestablished. Defense Contract Management Districts Mid Atlantic and North Central were disestablished in May 1994. Throughout the 1990s the agency continued its effort to eliminate managerial and stockage duplication, reducing overhead costs. In April 1990 Secretary Cheney directed that all the distribution depots of the military services and DLA be consolidated into a single, unified materiel distribution system to reduce overhead and costs and designated DLA to manage it. The consolidation began in October 1990 and was completed March 16, 1992. The system consisted of 30 depots at 32 sites with 62 storage locations, which stored over 8.7 million spare parts, subsistence, and other consumable items worth $127 billion in 788 million square feet (73 km²) of storage. Until September 1997, two regional offices - Defense Distribution Region East in New Cumberland, Pennsylvania, and Defense Distribution Region West in Stockton, California, managed a vast network of distribution depots within their respective geographic boundaries. They later merged into the Defense Distribution Center, New Cumberland. The Base Realignment and Closure (BRAC) process, instituted in 1993, significantly affected the way the agency organized for its contract administration and supply distribution missions. As a result of BRAC 1993, officials merged, realigned, or closed several DLA primary-level field activities. Specifically, they closed two of the five contract management districts and the Defense Electronics Supply Center. The Defense Distribution Depot Charleston, Defense Distribution Depot Oakland, and the Tooele Facility, Defense Distribution Depot Ogden, Utah were disestablished. The Defense General Supply Center became the Defense Supply Center, Richmond. In response to BRAC 1993, in 1996 officials merged the former Defense Construction Supply Center Columbus and the former Defense Electronic Supply Center Dayton to form the Defense Supply Center Columbus. Meanwhile, DLA headquarters underwent a major reorganization. In March 1993, the agency re-engineered its headquarters to form integrated business units for Supply Management, Distribution, and Contract Management. As a result, only 6 organizations, rather than 42, would report directly to the
Director. In 1995 the DLA headquarters and the Defense Fuel Supply Center (renamed Defense Energy Support Center in January 1998) moved from Cameron Station to Fort Belvoir, Virginia. In October 1996, Defense Printing Services, renamed the Defense Automated Printing Service, transferred to DLA. In late December 1997 and early January 1998, the headquarters was again realigned, and the agency’s Defense Material Management Directorate became the Defense Logistics Support Command under Rear Admiral David P. Keller. In November 1995, DLA launched a $1 billion project to replace the Defense Department’s cache of aging procurement programs with a DODwide standard automated procurement system that supported electronic commerce. In 1996 the agency received a Joint Meritorious Service Award for saving DOD and the taxpayer $6.3 billion. Since its establishment in 1961, the agency has successfully standardized, procured, managed, and distributed DOD consumable items throughout the military services, thus eliminating much wasteful duplication. The agency assumed a major logistics role previously performed by the military services. The reorganization, move to electronic commerce, and other changes in the 1990s better positioned the agency to support the war fighter in the next century.