Logistics is the management of the flow of goods, information and other resources in a repair cycle between the point of origin and the point of consumption in order to meet the requirements of customers. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and occasionally security. Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software. The term Logistics Management is that part of Supply Chain Management that 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. The commercial network takes care of the resources required for the efficient and effective operation of the logistical network. The logistical network is involved in the actual transportation of the goods and services from the place of manufacture to the place of consumption. In India, the logistics costs are higher than in the developed markets-estimated to be around 13%of the GDP against 9%of the GDP in the US. It also called the physical distribution function. Normally when logistics management is talked about, the entire supply chain is considered, from the raw material procurement stage to the delivery of finished goods to the customers. Logistics is the process of planning, implementing and controlling the efficient, cost effective flow and storage of:y y y y Raw materials in-process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements

warehoused. railways. Products are ordered. recycled and disposed. Products are traced. Cost reduction 4. errors etc) 7. Risk Taking . crated. 2. Transaction Efficiency 11. Products are shipped by air. imported. Credit Facilities 12. 4.OBJECTIVES OF LOGISTICS 1. Accumulating Bulk 9. packaged. Logistics customers service standards are set(time. 3. wrapped. Creating Assortments 10. Products are exported. packed. 5. sorted. availability. and braced. Service improvement FUNCTIONS OF LOGISTICS 1. Breaking Bulks 8. 6. Usually the logistics strategy brings together the components of the manufacturing and marketing strategies of the firm 3. Products are assembled and stored. tracked. Broad objectives of the logistics strategy are drawn from the distribution strategy which in turn forms part of the marketing strategy 2. displayed and crossdocked. pipelines. and containers. bundled. handled. unloaded. billed/invoiced. shelved. waterways. loaded. documented marked and consolidated. Capital reduction 5.

Outbound logistics usually absorbs significant resources of the firm both in terms of the financial resources as well as human resources.Altering the number and location of warehouses. and distribution a firm's goods to its customers. It includes the delivery of the finished goods and service to the customers from the manufacturer¶s end. It¶s a critical activity in any firm as it directly links the company to its consumer and comprises a ser of activities that complements the marketing function of the firm. Logistics cost vary from industry to industry. it is possible for a company to reduce the expenditure on logistics. COST REDUCTION ‡ It aimed at reducing the variable cost related to the movement and storage of goods. In FMCG sector almost 40%of the final cost that a customer pays is absorbed by logistical activities. ‡ The cost reduction is usually achieved by such tactics like.OUTBOUND LOGISTICS Movement of material associated with storing. LOGISTICS STRATEGY 1. With improved co-ordination and efficient planning. altering the mode of transport ‡ ‡ ‡ ‡ Route optimization for the transport function Optimizing the quantum of inventory Technology can also be used to reduce the variable cost of logistics Many FMCG companies are providing palmtops to their grassroots level sales people so that the order booking can be expedited to effect a reduction in the finished goods inventory . transporting. The service levels are usually not altered for the sake of cost reduction.

2. CAPITAL REDUCTION y It means working towards minimizing the level of investment in the logistical system (assets may be warehouses. SERVICE IMPROVEMENTS y It means in giving better service across the dimension of service without substantially increasing the cost of logistics y Although the costs increase rapidly with greater service levels. trucks.) y y The main aim is to maximize the return on investment Substantial capital reduction can be achieved by leasing and renting facilities without affecting the service output to the customers (company owning warehouses can reduce its capital outlay by selling these warehouses and leasing facilities else where) 3. service improvements can also be achieved in the context of greater anticipation of revenue by attracting more customers y The increase in logistics costs can thus be offset by the increase in revenue LOGISTICS PLANNING customer service transportati on decision logistical planning inventory planning decisions management . material handling equipment. soft-ware for order processing etc.

(b) Cross Docking. Also it serves as points of allocation (products received in bulk quantities are broken down into smaller quantities as ordered from the retailers). It is an extremely difficult strategy to implement especially when there is need for an extensive distribution network so as to give maximum spatial convenience to the customers. The number of locations to ship inventories is not high (less than 200). In this strategy. Inventory arrives at a state where it is immediately conveyable (c) Warehousing. Requires a high level of co-ordination between production and sales department. Is extensively adopted by Wal-Mart.According to Simchi-levi et al (2000). FACILITY DECISIONS.three generic types of outbound logistics strategies are possibley y y direct shipment warehousing cross-docking (a) Direct shipping. it is possible to pre-label the inventory).While warehouses do exist. the storage time is reduced to a minimum. Warehouses help in achieving greater economies of scale as it becomes possible to transport goods in large .1. goods spend very little time in storage often less than 12 hours. When the orders from the retailers or customers are mostly composite orders comprising an assortment of products. Is practicable and increasingly being adopted by companies like DELL the world over. items are distributed continuously from suppliers through warehouses to suppliers with the items lying in the warehouse for a just few hours. storage and allocation.The main function of a warehouse is to store inventory or perform the critical functions of accumulation. In a typical cross-docking system.Goods once manufactured are directly shipped to the point of sale without being stocked anywhere. The inventory destination is known when stocks are received customer is ready to receive inventory immediately.

which tell production when to make the next part. JUST IN TIME INVENTORY (JIT) Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. Movement function. 2. the order is picked and packed to be shipped after selecting the mode of transport. goods can be stored for a reasonably long period either to offset the seasonal demand or on the basis of speculation or forward buying. At the initial stage of the logistical system design. Once the order is received. inspection of damage. Implemented correctly. Transferring-involves the shipment received to locations within the warehouse specifically meant for the storage of that category of inventory to enable easy access whenever required. they can be stored safely for a longer period. Just In Time production method is also called the Toyota Production System. the process relies on signals or Kanban between different points in the process. JIT can improve a . after adjusting the inventory records. To meet JIT objectives. verification of the merchandise count against the orders and shipping records.Warehouses also protect the inventory from damage and pilferage so that in case of slow-moving items. the nature of storage in warehouse is decided.quantities after clubbing orders from retailer¶s . updating of the inventory records. FUNCTIONS 1.May be performed on a temporary or a semi-permanent basis. Goods can be stored in a warehouse temporarily awaiting an order from the downstream intermediary or for seasonal products. Kanban are usually 'tickets' but can be simple visual signals.This refers to receiving-unloading of the goods. Order picking/selection-takes place whenever the warehouse gets an order from the downstream recipient for the goods stored. Storage function. such as the presence or absence of a part on a shelf.

Involves accurate forecasting of the requirements on a day to day or even on an hourly basis as well as synchronizing the ordering and delivery of products with extremely high levels of precision. The suppliers are given deep insights into the buyer¶s production schedule. Quick notice that stock depletion requires personnel to order new stock is critical to the inventory reduction at the center of JIT. From a distribution point of view. Aims at reducing the raw material inventory to virtually zero levels so that the raw material reaches the production site just when it is required for use. It was pioneered by Japanese auto manufacturers like Toyota. However. This saves warehouse space and costs. IMPORTANCE OF INVENTORIES 1) Improves customer service 2) Smoothens the operations of the logistics system 3) Reduces costs 4) Objectives of inventory management 5) Fill rate expression . and efficiency.manufacturing organization's return on investment. JIT practices require a µpull¶ system of manufacturing where the production takes place entirely on the basis of demand generated. the complete mechanism for making this work is often misunderstood. Requires extensive planning and coordination among the vendors and the production plant. Under JIT. ability to deliver products on a JIT basis can be used as a major differentiator by companies (Jindal vidyanagar steel )which offers all its customers delivery only when they exactly want it. close and frequent communication between buyers and sellers is required. Reduces costs by focusing on identification and elimination of waste found in the manufacturing system.the company has employed a fleet of Volvo trucks with a capacity of 60 tons that are routed in a highly optimized traveling pattern so that travel time is reduced to the minimum. To facilitate this . quality.

It is in reality an indication of the system¶s ability to anticipate the demand from the retailers or customer downstream. Exact level of demand cannot be accurately predicted in the short term however production facilities are programmed in advance. which may lead to un-economical decisions like using costly transportation alternatives.Both the measures are used to denote the extent to which the warehouse or the inventory management system has been able to fulfill the orders placed in the expected lead time. 2. Highly inefficient system will have a lengthier lead time Inventory enables the smooth functioning of the logistical system as otherwise there will be immense pressure on the logistics system to cut the lead time. 1. Every logistics system will have a lead time between the order transmission and the order receipt.Demand is normally very stochastic in the short term. FILL RATE EXPESSION . OBJECTIVES OF INVENTORY MANAGEMENT ‡ Inventory management aims to achieve the perfect balance between achieving customer service targets and reducing inventory costs ‡ ‡ ‡ The customer service demands are expressed in terms of product availability The term used to express the service level is fill rate (FR) Fill Rate is defined as the ratio of the number of orders completely serviced to the total number of orders received during a particular time period. These expressions are more relevant in case of a system that handles several items or SKUs (stock keeping units). Inventory is required to service the possible increase in demand that might occur defying the forecasts. Costs associated with inventory (a) inventory procurement costs (b) inventory carrying costs (c) stockout costs .

Research estimates that. Capital cost. this constitutes about 80%of the entire inventory carrying costs. Inventory service costs.setting up the machinery. . If the investment on inventory is from debts.(d) These costs are considered to be in conflict or should be traded off appropriately in the inventory system A.Are the ordering costs for the inventory. Usually it is calculated based on the cubic footage of inventory stored in the warehouse. the procurement costs will come down. When the order quantity is large. accidents during transportation etc E. Transportation. Insurance has to be paid to protect the inventory against such contingencies as fire.Consist of mostly insurance and taxes. B. Storage space costs. on an average.Relate to the charges for the warehouse including the rent. then the debt-servicing costs can be used but when the inventory investment is from internal sources then the opportunity costs have to be calculated. procurement of related materials. theft. These are fixed costs which have to be incurred in. Inventory carrying cost1) Capital costs 2) Inventory service costs 3) Storage space costs 4) Inventory risk costs C. D. The charges would also often include the maintenance cost of the warehouse. maintenance charges etc.To build up inventory. Inventory procurement cost. sufficient capital has to be tied up for a considerable length of time. order processing.

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