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Role of Logistics in SCM

Mayuresh Unde
25th August, 2011

What is Logistics & its Management?


Logistics is the art and science of obtaining, producing and
distributing material and product in the proper place and in
proper quantities.
APICS

Logistics Management The Planning and coordination of


the physical movement aspects of a firms operations such
that a flow of raw materials, parts and finished goods is
achieved in a manner that minimizes total costs for the
levels of service desired
APICS

Supply Chain Logistics System


S
U
P
P
L
I
E
R

MANUFACTURER

Physical
Supply

Manufacturing
Planning &
Control

DISTRIBUTION
SYSTEM

Physical
Distribution

Dominant Flow of Products and Services


Dominant Flow of Demand Information

C
U
S
T
O
M
E
R

Fundamental Utility Creation in the Economy


Economic Utility Value addition to a product or service
Place Utility
Time Utility
Quantity Utility

Possession Utility

Marketing

Logistics

Production

Form Utility

Scope of Logistics
Major Activities

1. Transportation
2. Storage
a. Warehousing
b. Inventory
3. Packaging
4. Material Handling
5. Inventory Control (levels &
accuracy)
6. Order Fulfillment (Lead Time)
7. Production Planning
8. Procurement
9. Customer Service

Interfaces

1. Manufacturing /
Operations
2. Marketing (4Ps)
1. Price
2. Product
(Dimensions,
Packaging design &
quality
3. Promotion
4. Place
3. Finance
ROA = ( Revenue Expenses)

Total Assets

Factors affecting Cost Competitive Relationships

Units of Inventory

Required Inventory Vs Order Cycle Length

Order Cycle (days)


Order Transmission + Order receipt + Mfg/assembly + picking + packing + shipping = Order Cycle

Factors affecting Cost - Competitive Relationships


Cost of Lost Sales Vs Inventory Costs
Substitutability

TC
INV

Logistics Cost

Marginal savings
from reducing
lost sales cost =
Marginal cost of
carrying
additional
inventory
COLS
TC = Total Cost
INV = Inventory Cost
COLS = Cost of Lost Sales

Factors affecting Cost - Competitive Relationships


TC
Cost of Lost Sales Vs Transportation Costs
Substitutability

TR

Logistics Cost

Marginal savings
from reducing lost
sales cost = Marginal
increment with
increased
transportation cost

COLS
TC = Total Cost
TR = Transportation Cost
COLS = Cost of Lost Sales

Factors affecting Cost Product Relationships


INV

Value

Logistics Cost

TR

PKG

Value of the product


INV = Inventory Cost (Including Storage
TR = Transportation Cost
PKG = Packaging Cost

Factors affecting Cost Product Relationships

Logistics Cost

Density (Weight
/Space Ratio)

TR
INV
WH

Weight Density of the product


INV = Inventory Cost (Including Storage)
TR = Transportation Cost
WH = Warehousing Cost

Factors affecting Cost Product Relationships


PKG
Susceptibility to
loss & damage
TR

Logistics Cost

WH

Susceptibility to loss and damage


PKG = Packaging Cost
TR = Transportation Cost
WH = Warehousing Cost

Factors affecting Cost Spatial Relationships


Production Costs Vs Transportation Costs

0.75
0.40
M

PC = 8.50 A
1.15

B PC = 7
3.50
0.60

0.50

Supplier
Manufacturer
Market

Techniques of Logistics System Analysis


Short Run / Static Analysis: This method
analyses costs associated with logistics
systems various components at one point of
time or one output level
Long Run / Dynamic Analysis: This method
examines system over a long time period or
range of outputs
Total Cost = Fixed Cost + (Variable Cost * Number of Units)

Dynamic Analysis
y = mx + c (Equation of Straight Line)

Logistics Cost

System 2

Trade-off Point
M1*x + C1 = M2*x + C2

System 1

Trade-off Output
Kilograms of Output

Total Cost = Fixed Cost + (Variable Cost * Number of Units)

Approach to analyzing Logistics Systems


Inbound & Outbound Logistics
Balanced System
Heavy Inbound
Heavy Outbound
Reverse Systems

Cost Center balancing


Node & Links
Logistics Channels (Simple, Multi-echelon,
Complex

Simple / Complex Logistics Channel


Supplier

Manufacturer

Distribution Distributor
Centre

Retailer

Consumer

Simple

Complex

Levels of Optimality

Environment

Customers

Suppliers
Marketing
Social

Finance

LOGISTICS

Other
Functions

Production
Level 1 Organization
Level 2
Supply Chain
Level 3
Environment
Economic

Political

Logistics in India

Logistics in India
Logistics Activities

Road

Rail
Logistics

Sea

Air

A fragmented sector with a number


of small players
Transportation is nearly 40 % in the
logistics activities
Coal, Cement, textiles, metals and
consumer goods are the main
contributors of revenue to the logistics
industry

Framework of Segment Users


Factors
/Segment

Bulk

Industrial

Consumer
Durables

Consumer
Goods

Value Addition
(VA)

Low

Medium

High

High

Consumer Type

Intermediary

Intermediary

Final
Consumer

Final
Consumer

% of Logistics
Costs as
Proportion to
VA

High
(70%)
(Price
sensitive)

Customer
Sensitivity to
Availability

Low

Low
(10%)
(Service
sensitive)
Low

High

High

Value Addition (VA) refers to the difference in selling price of the output and the
cost price of material inputs

Role of Government in Logistics


Taxes & Regulations
Central Sales Tax & Local Sales Tax
Excise Duties
Octroi and Entry Tax
Use of Packaging Material
VAT (Value added Tax)

Status & Trends - Railways


Railways
The Indian Railways boasts of being the worlds 2nd largest
rail network over 85,000 km and covering around 7000
stations
The freight segment accounts for roughly two thirds of
railway's revenue
Transformation from Meter gauge to Broad gauge
Mainly used for Bulk and Industrial segment
Coal, Cement, ores, fertilizers, food grains & petroleum
products share maximum traffic
Major Benefits Greater load carrying capacities, cheaper
option
Major issues Wagon allocation, longer lead times,

Status & Trends - Roads


Road
India has one of the largest road
network in the world
National Highways / State
Highways (2 % Four lane, 34 % two
lane, 64 % single lane)
Road network carries nearly 65% of
freight & 85 % passenger traffic
Major Roads Golden Quadrilateral
and NS-EW Corridors
Major Benefits Availability,
connectivity,
Major issues Congestion, poor
road conditions, delays

Status & Trends - Sea


Sea
India has an extensive coastline of
around 6000 kms with 12 major
and 150 minor ports
Largest shipping fleet amongst the
developing countries, ranks 17th in
the world for shipping tonnage
Petroleum products, ores, coal are
major revenue contributors
Privatization & de-regulation trend
(TISCO-Haldia, JNPT)
Major Benefits For imports &
exports,
Major issues - Berthing delays,
Access issues to smaller ports

Status & Trends - Others


Air
Aviation holds a small share in
Indias freight market
Growth mainly due to private
airlines (Jet, Kingfisher) and other
private couriers (DHL)
Mainly used for express and small
package market & perishables
(consumer)
International cargo BA & Cathay
Pacific
Major Benefits Efficient and
speedy
Major issues Costly for bulk
transport

Pipeline
-Mainly for petroleum (crude
oil and gas), iron ore pellets,
apart from water and sewage
- Government players - IOCL
- Currently in-adequate but
slowly growing with more
and more private companies
in fray (Reliance)

Thank You!

Q&A