LOGISTICS MANAGEMENT

• The term logistics comes from the Greek logos (λόγος), meaning "speech, reason, ratio, rationality, language, phrase", and more specifically from the Greek word logistiki (λογιστική), meaning accounting and financial organization. Logistics is considered to have originated in the military's need to supply themselves with arms, ammunition and rations as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, military officers with the title Logistikas were responsible for financial and supply distribution matters

MAJOR DIFFERENCE BTW SCM & LOGISTICS MGT Logistics mgt is mainly concerned with the integration/co- ordination of 3 aspects viz; Procurement, manufacturing & physical distribution that take place within the org thatz a part of the scm.Where as SCM includes the integration of the entire components with in the SC starting right from the suppliers operational function to the ultimate customers & the information flow that take place with in these components. logistics mgt inventory flow Consumer physical distribution manufacturing support scm

procurement

suppliers

information flow

INTEGRETED LOGISTICS SYSTEM

• Logistics mgt is the process of strategically managing the acquisition, movement & storage of materials, parts and finished inventory & the related information flow through an org and its marketing channels to fulfill orders most cost effectively. • LOGISTICAL COMPETENCY- it is achieved by co- coordinating the following factors: • Network design -it is to determine the # & location of all types of facilities required to perform logistics work. It is also necessary to determine what inventory & how much to stock at each facility & where to assign customer orders for shipment. The network of facilities forms a structure from which logistical operations are performed. Thus the network incorporates information & transportation capabilities Information – logistics is considered important under the following context:  Reducing response time  Redesigning the business process & their continuous improvements  Streamlining logistical activities across the SC to reduce costs & improved efficiency.  High valued SC relationships  Enhanced customer services for competitive advantage  Attainment of a global standard & access to world market.

Logistical Information Flow 1. Co-ordination information flow 2. Operational information flow

material handling & packaging OPERATING OBJECTIVES OF LOGISTICS MGT The operating objectives. shipment & arrival of goods.this is related to transportation cost. prepare transportation & shipping orders.of transportation refers to variations in time required to perform a specific movement over a # of shipments.  Distribution operation includes location of storage & ware house.  Inventory a sound inventory mgt policy is based on 5 aspects of selective deployment o Customer segmentation o Product requirements o Transport integration o Time based requirements o Competitive performance  Warehousing. which are the primary determinants of logistical performance includes: a) Rapid response -It is the firm’s ability to satisfy customer service requirements in a timely manner. inventory availability check.  Transportation 3 factors which are fundamental to transportation performance are  Cost (is the payment for movement btw 2 geographical locations & expenses related to administration & maintaining in transit inventory)  speed –is the time required to complete a specific movement.  Capacity plan it refers to determining of production.  Procurement. Coordination information flow includes the following:  Strategic plan involves achievement of marketing & financial objectives of manufacturing & distribution warehouses. speed & cost are directly related  Consistency. purchase order status.1. routing & consolidation of shipment etc. credit checking.sources study. 2. Operational information flow includes the following:   Order mgt which includes various factors like order entry. reserve inventory & their release etc.  Transportation & shipping carrier selection & capacity requirement.  Manufacturing plan this includes the details regarding MPS & MRP  Procurement plan this includes determining the schedules for release of raw materials. order acknowledgment etc…  Order processing includes raise invoice. d) Movement consolidation. b) Minimum variance – it is the unexpected events that take place with in the components of logistics They include: @ Delay in expected time of customers order receipt @ Unexpected disruptions in manufacturing @ Good arriving in damaged condition at a customer location @ Delivery to an incorrect location c) Minimum inventory the objective is to reduce inventory deployment to lowest level consistent with achieving customer service goals at the lowest overall logistical cost. transportation & warehousing capacity. Logistics plan logistical mission of offering the best possible customer service at least costs by making available products in tact & in time at the place of use. Transportation cost is directly related to . labour scheduling etc. document preparation. input need identification etc.

the objective is to seek continuous quality improvement. but logistical integration requires the mgr’s to view their specific functions as a part of a business process. FUNCTIONS OF LOGISTICAL MANAGEMENT 1. the existing applications act as barrier to process integration  Knowledge Transfer capability.transfer of knowledge tends to strengthen the functional orientation by developing a workforce composed of specialists. So systems are to be developed in such a way so as to transfer information for the purpose of sharing information.  Information Technology.  Measurement system. Procurement function (Inbound logistics) procurement performance cycle . Thus incapability to share knowledge becomes a barrier to integration. BARRIERS TO INTERNAL INTEGRATION WITH IN THE ORGANISATION  Org structure -traditional org structure are not capable of implementing any cross functional process.  Inventory maintaining adequate inventory with least cost.existing data a bases are limited to specific functions and are not easily assessed on cross functional basis. Each function has its own goal they try to attain their individual goals. Many traditional firms fail to develop procedures & systems for transferring cross functional knowledge.traditional measurement systems for mgr’s to view their functions as stand alone activities.*the type of the product * Size of shipment * Distance e) *Quality.

In other words this function . Logistics function ensures timely availability of semi processed materials & components inventory to support the production schedule . 3.Activities covered under procurement functions      Input needs Shipment & sources study Quality Negotiation &supply contracts Order placement 2. Interface with production (Production Function) this function of logistics deal with efficient & effective mgt of WIP inventory & its flow between the different stages of manufacturing. Logistics & Physical Distribution function (outbound logistics) PDF refers to the movement of finished goods from the last point of production to customers/end user.The production function includes the following:  Production schedule  Inventory mgt  Storage  Packaging  Material handling  Inputs This function is limited to movement within an enterprise and is placed with in procurement & physical distribution function.

‘turn over’ as well as how well fixed assets generate return on investment 4) Quality – this aspect includes: stock out. and cost of recovery from defective delivery. Physical distribution function of logistics ensures zero-defect service & prohibits stock outs by making the product available regularly with the minimum inventory level. These measures enable the mgt to locate the existing gaps & identify deviations in the actual performance to logistical services In order to meet current & future requirement.this typically represents factors that are not typically included in the concept of productivity.  Protective packaging (containerization) . damage. effectiveness. According to Bower sox there are 5 broad categories of logistic performance measures 1) Cost.of logistics facilitates marketing & sales performance of the enterprise by means of timely & economical product availability . The function is also called “Marketing Logistics” FEATURES OF LOGISTICS MGT 1.(customer Satisfaction. warehousing. It should have the ability to meet customer expectations & requirements 3. # of customer returns. protective packaging. Best possible customer service with least possible cost 5. Smooth flow of all types of goods 2. Total logistical cost includes the cost of material handling. An integration of various managerial functions for optimization of resources 6.the measurement of logistics cost is in terms of total rupees.  Transport. There are 3 basic types of productivity measures:  Static productivity.inventory.The PDF function includes :  Output inventory. defective delivery. procurement. Delivery of quality product 4. quality. transportation. It offers cost-efficient value added customer service & makes a difference in the market place. It deals with movement & storage of goods in appropriate quantity 7.the output & input comparison confines to one particular period say: o Out put1994/input1994  Dynamic productivity measure-comparison of output/input of one particular period to that of another period say:  output ’94/input’94  output’90/input’90  Surrogate productivity. # of credit claims. It enhances productivity & profitability MEASURES OF LOGISTICS PERFORMANCE There are 3 major performance measurement dimensions: 1-Internal performance measurement 2-External performance measurement 3-Comprehensive S C performance measurement 1.  Distribution warehousing.) profits. efficiency etc . Internal Performance Measurement is a comparison of the present level of logistical function goal with the previous operations goals. as % of sales or as a cost per unit of volume. cost of return goods. inconsistency & reliability of services.  Customer order processing. but are highly correlated with it. 5) Productivity -is a relationship btw the output (goods/services) produced & the quantities of inputs utilized by the system to produce that output. 2) Customer Service -consistency & reliability 3) Asset mgt -measures focus on how fast liquid assets such as inventory. order processing etc.

current actual output divided by output achievable in a twenty four hour. External Performance Measurement It involves visualizing the performance of logistics from the customers & competition point of view. ii. v.to survive in a highly competitive market. The leading edge company conducts customer perception & satisfaction surveys on a regular basis. When an enterprise eyes for integration an enterprise incorporates four types of matrices viz: i. *production plan achievement.the avg actual frequency of production schedule achievement. Comprehensive supply chain performance measure –here the focus is on an integrated scm mgt.  Manufacturing. consistency (consistent & reliable cycle time). it is essential to measure the firm’s logistics performance with the competitors’ performance. Key aspects covered under asset diagnostics are: forecast accuracy -the historical measure using the most recent 3 month period of avg absolute accuracy of product forecasting  Inventory obsolescence -the expenses incurred due to inventory write downs expressed as a percentage of avg gross inventory value  capacity utilization -the percentage of total available capacity currently utilized calculated as the.  Logistics Audit & Control . Costs ( cost components) this covers a vast # of components of which the broader category of costs includes:  Order fulfillment costs. Customer satisfaction/quality. iii.2. Warranty costs 3. It also facilitates in benchmarking the best points of the competitor’s logistics system in the firms system as well as identifying opportunities & threats. Assets -It refers to maximization of return on assets deployed in the over all supply chain process in terms of inventory. facilities. This external performance measurement helps firm to innovate new tools & techniques of logistics activities to enjoy the overwhelming contribution of logistics as a differentiator. labor inventory over head costs.  Total inventory carrying costs iv. Time -this metric measure the firm’s ability to respond to customer demand ie.& equipments. So as to achieve this objective.  Materials acquisition costs. Customer performance measurement. Competitive Performance Measurement – The co’s use logistics & scm to bring competitive advantage in the market place in the long run.  Logistics related –finance & mgt information costs. Delivery on original committed date 2. b. Key elements to be considered are * Make cycle time -the cumulative external & internal lead time to build a shippable product *SC Response Time the theoretical time to recognize a major shift in market place demand. replan demand & increase production by required percentage.key points to be noted wrt to these aspects are: 1. It involves two major aspects a. internalize that finding. seven day operation. c. it is essential to take in to account the perception of customers regarding logistical performance. so that improvements can be made in performance. Customer inquiry response & resolution time.

Thus it assists the logistics by revealing the link btw performing particular activities and the demand those activities makes on an org resource. Each of them applies to service providers as well as to manufacturers. With ABC. They are: • customer . and measuring the value of implemented solutions. The Logistics Audit has 6 dimensions. variable.The logistics audit provides a foundation for understanding an activity. inventory and warehouse are being adequately managed. Activity Based Costing. fixed & overhead costs are assigned directly to each product using the activities required to produce the product. ABC consists of 2 stages for assigning cost to a cost object: #1 focuses on determining the costs of activities within the org (resource drivers) #2traces theses activity costs to the products consuming that respective resource (activity drivers) . -Activity Based Costing. There are 2 basic tools viz.Employee relationships • long-range planning • cross-functional planning • information support • continuous improvement • Measurement Within your logistics or supply chain processes.supplier . for identifying opportunities for further improvement of the logistics processes or as a supporting tool to redesign manufacturing and logistics strategies. we determine whether customer service. Traditional accounting system often fails to accurately reflect resource consumption. Supply chain /logistics management audit examines: • Protection in variations in supply • Forecasting demand • Making allowances for uncertainty • Ordering regimes from suppliers • Information systems and organizational communications for logistics decisions • Training of people responsible for inventory management • • • • • • • Managing different stock categories for various types and facilities Monitoring stock performance including understanding of stock turnover and slow stock movers Appreciation of individual stock behaviors Use and need of safety stock Determining what and how much stock to carry Supplier performance Data integrity and validity LOGISTICS AUDIT TOOLS Mgt is always interested in locating tools & technique to improve overall logistical performance so that resources can be optimally utilized and service capabilities can be improved. analyzing feasible solutions. & -Benchmarking 1. Our goal with the supply chain logistics management audit is to obtain reasonable assurance that records are complete and accurate for decision-making purposes. This logistics audit can be used as a pure assessment tool for Benchmarking.

The performance measures can be used to track product returns. . 2. services and practices against the co’s toughest competitors or those companies renowned as the industry leaders. The linkage btw the performance measures & the activity provides a relatively direct means for computing the cost of poor /improved performance  ABC provides a frame work for continues process improvement by identifying places for incremental improvements at the activity level so that overall performance of the enterprise can be improved.  Performance measures appear a logistical sequence In an ABC system. claims or data entry errors. or sc members impact profitability by more accurately tracing costs & determine areas generating the greatest profit/loss  Activity based costing ensures greater accuracy by using multiple cost drivers rather than traditional costing techniques. customers. BENCHMARKING According to C Camp benchmarking is the continuous process of measuring products.The major benefits of ABC are:  It improves overall mgt of OH by determining factors/activities that actually result in the requirement of the resources.  It also provides greater visibility of how different products. damages. This practice helps the co to identify the best practice & modify the actual knowledge for achievement of superior performance concerning customer service activities & asset utilization.

whether negative.  LACK OF COMPREHENSIVE MGT SKILL. Based on the benchmarking findings a union/end point picture of the operation can be developed *revise performance goals #4 Action -specific action w r t specific implementation action.  LACK OF REQUSITE COST DATA -it is very difficult to have an appropriate cost data about individual elements of logistical costs required for the performance measurement purpose. logistics. periodic measurement & assessments of achievements should be put in place.logistics & sc mgt always work as an integrated system. For example. For e.  . these provide an objective basis on which to act & to determine how to achieve a performance edge #3 Integration *report progress -progress should be reported to all the employees who need to know.BENCHMARKING FUNDAMENTALS &PROCESS While going 4 benchmarking activities mgr’s require the following 3 fundamentals: -know your operations -know industry leaders & competitors -incorporate the best and gain superiority The steps followed in benchmarking: There are 11 steps that are grouped in to 5 essential phases viz: #1 Planning *what to benchmark *what companies to benchmark? *Data sources & collection.: all payments for salaries come under the head salary account whether they apply to production marketing.gap btw internal business process & external organization as the baseline for analyzing best practices *Projecting gap.-unfortunately there is a lack of formal education & training about the integration mgt with external vendors & the ultimate consumers resulting in to a gap in professional skills required &available. including several subsystem such as transportation. IMPEDIMENTS TO IMPROVED PERFORMANCE FAILURE TO ADOPT CUTOMER EXPECTATION one of the biggest defect in logistics mgt & supply chain performance improvement is the mgr’s failure to recognize customers’ expectation regarding logistical services. -assign responsibility -people who actually perform the work should be responsible for implementing the benchmarking -finding continuous improvement the company should stay current with the ongoing industry changes by continuously benchmarking & updating work practices #5 Maturity *institutionalizing-maturity is achieved when the best practices are incorporated in all the business process & the benchmarking approach is institutionalized.g. finance etc. positive or parity. customer services. #2 Analysis *Measuring gap. order processing. warehousing.  FAILURE TO THINK AS A SYSTEM. lack of information regarding order status & shipment schedule for the customers.

controller & stock locations. information & communication. The purpose of the status report is to provide line mgrs with relevant information to fulfill their responsibility in the overall logistical system. should be well defined in terms of customer service capability.given a current anticipated problem a report outlining alternative courses of action & probable consequences is often desirable Policy reports. Armed with this information. which limit the scope for further improvement. A report of this type is used by department heads to review the overall inventory situation. Their content almost always involves areas of activity beyond logistics.are used by administrators at levels of control higher than the line mgr.  LACK OF INFRASTURCTURAL FACILITIES -in terms of transportation network & quality of vehicle. PRODUCTION FUNCTION 1) MATERIAL HANDLING .which provides detail on a specific phase of operations Position paper. There are basically 3 types of Adhoc reports • • • Diagnostic report –. a policy report was discussed in which the marketing department requested that customer service objectives be substantially upgraded . The data contained in a daily inventory summary are developed as a by product of the stock status report printed for inventory controllers. others are financial in nature. they are developed to provide detail on specific areas of performance. public warehousing. real time responsiveness. failure in this aspect leads the company towards rigidity & logistical performance cannot be improved. it is essential to have a major cultural change in the mindset of the people of the org that customer service & satisfaction are essential to remain in the market place actively. Further more. Most often.Policy reports are always directed to or initiated from the CEO of a firm.inventory mgt. so that the competitive effectiveness can be gained . If desired adhoc reports can be requested that will provide further detail to analyze a possible trend • Ad hoc reports -this reports are created at any level of logistical administration & for a variety of reasons. but these are treated as individual functions in the enterprise. LACK OF TRANSFORMATION IN CORPORATE VISSION & CULTURE -in order to encounter intense global competition there is the need for transformation in the corporate vision & overall org culture towards logistical system. the department head is in a position to review the current situation & take corrective action. For survival the org.  CHARACTERISTICS OF AN IDEAL MEASUREMENT SYSTEM  COST/SERVICE RECONCILIATION  DYNAMIC KNOWLEDGE BASED REPORTING(LIS)  EXCEPTION BASED REPORTIN REPORT STRUCTURES • Status reports. It provides an inventory recap of all items.can be saved developed for all the logistical activity centers.for example . • Trend reports. technological networks etc for speedier movement of goods & related information. Some relate to individual unit/transaction control. Thus mgt processes a quick recap of the total system and can evaluate overall all performance.

Energy principle 11. Unit load principle. Maintenance principle 23. Integrated system principle -all activities covered under the material handling aspect should be viewed as one single system & not separate functions 4. The requirement principle 3. Ergonomics principle. Simplification principle 16. in the right position in the right qty. Safety principle.a smooth flow of materials by using the material handling equipments should be prevailing in the whole system. OBJECTIVES OF MATERIAL HANDLING • Reduction in wastage of machine & order picking time • Reduction in overall replenishment cycle time by quick marshalling & movement of goods • Uninterrupted production & distribution schedules for avoidance of bottlenecks such as loading & unloading • Protection of goods from breakages/damages during movements • Offering safety to workers & provide safer working conditions • Ensure better customer services & satisfaction • Enhance productivity & efficiency by reducing handling cost PRICIPLES OF MATERIAL HANDLING 1.utilize gravity to move materials wherever practical 17. Cost principle 22.provide suitable methods & equipments for safe handling 18.to install such manufacturing & material handling equipments that protect workers from performing difficult & repetitive functions that ultimately doesn’t results in injuries or disabilities 10. at the right time. Automation principle 14. 20. Systems flow principle . Orientation principle 2. Flexibility principle 15. Just in time principle 6. Standardization principle 5.Tompkins & white defined materials handling as a system which uses the right method to provide the right amount of the right material at the right place. Computerization principle 19. in the right sequence. Ecology principle 12. Lay out principle 21. Obsolescence principle 24. Mechanization principle. Minimum travel principle 8. Space utilization principle 9. Gravity principle.the load taking capacity of the equipment should be higher (per unit load) 7.pre programmed/self controlled machines 13. The team solution principle MATERIAL HANDLING EQUIPMENTS: MECHANISED HANDLING SYSTEM  Forklift trucks  Walkie rider pallet trucks .

• They can be horizontal or vertical and rotate in either one or both directions. Although both • Unidirectional (one-way rotating) or bidirectional (two-way rotating) carousels are encountered in practice. books. • Carousels are highly versatile. repair parts of boilers for space heating. such as • Health and beauty products. parts of vacuum cleaners ands ewing machines. shoes and many other goods.latest AGVS use video & information technology to follow paths with out the need of fixed paths Sortation. which are linked together and are rotating in a closed loop. Repairs & maintenance cost. labor cost SOME OF THE GUIDELINES PUTFORTH BY Bowersox & Closs to assist mgt in the design of material handling system are: -equipment for handling & storage should be as standardized as possible -when in motion. insurance costs. the bidirectional types are the most common (as well as being the most eficient) SEMI AUTOMATED HANDLING SYSYTEM Automated guided vehicle system (AGVS)-they mainly rely on magnetic guidance system . rolling ladder & carts. • In e-commerce companies use carousel to store small items and manage small individual orders.& hand hooks for grabbing & lifting  Towlines  Tow tractors  Conveyors are widely used in shipping & receiving operations. sizes. • Carousels are widely used for storage and retrieval of small and medium-sized items.this is mainly used in combination with conveyors to sort the product in the warehouse & move it to the desired destination it helps in reduction in labor& and a significant increase in speed & accuracy Robotics-it uses expert systems. and types.  Carousels rather than requiring the order selector to go to the inventory storage location the carousel moves inventory to the order selector • A carousel is an automated storage and retrieval system. • It consists of a number of shelves or drawers. • It is operated by a picker (human or robotic) that has a fixed position in front of the carousel.hand pallet trucks. the system should be designed to provide maximum continuous product flow -handling equipment should be utilized to maximum extent possible . widely used in modern warehouses. and come in a huge variety of configurations. primary use of this is to build & break down unit loads AUTOMATED HANDLING SYSYTEM Automatic storage/retrieval (AS/R) System INFORMATION DIRECTED SYSTEM -RF (Radio frequency) controlled handling equipment -Pick to light system BASIC MATERIALS HANDLING CONSIDERATIONS  Types of products to be handled  Types of production system  Types of building  Material handling cost the three cost involved are  Equipment costs which include-cost of material handling device usable life of device  Resale/scrap value  Operating cost includes: fuel cost. rolling cages & load buggies .  Cranes Hand powered equipment includes hand truck.

3. gravity flow should be incorporated in the system design ie gravitational force incorporated technology should be applied for smooth flow of goods. use or transformation. • In process inventories • Finished goods inventories BASED ON USES OF MATERIALS 1. the inventory could be classified in to following:  Working stock  Safety stock  Anticipation stock  Pipeline stock  Decoupling stock  Psychic stock  FUNCTIONS OF INVENTORY Situation sometimes goods are stocked but cannot be consumed due to sudden decline in consumption rate goods are stocked to meet the bulk demand at a particular Point of time/season Goods are stocked & waiting for availability of transport 4 Goods are stocked to meet the Nature of inventory function inevitable 1 2 3 welcome essential . the ratio of dead weight to pay load should be minimized ie only the weight that is been allowed to be carried on the equipment should loaded. In the context of logistics & SCM & its utility. Speculative inventory. transaction of finished saleable products/raw material 2. 2) INVENTORY In logistics & supply chain perspective. Transaction inventory -basically needed for transaction eg. TYPES OF INVENTORIES BASED ON NATURE OF MATERIALS: • Production inventories • MRO inventories. inventory is any idle material resource of an enterprise awaiting future sales. Precautionary inventory -The stocking of certain materials to prevent the break down of the production process/to meet any unexpected demand.stocking of materials as a measure of speculation so as to get more price for goods in future.maintenance.-in handling equipment selection. repairs & operation inventories. -when ever practical.

Cost of transporatation. transit insurance. cost of goods receiving. Cost of order processing from the intending stage to accounts & finally to purchase.handling.load capacity of transport 5 Good s are in journey for final use must integral TOO MUCH & TOO LOW INVENTORY LEVEL & THEIR IMPACT TOO MUCH High High High Low Low Low Easily Huge Decreases with the passage of time due to Obsolescence FACTORS total distribution cost volume of sale inventory carrying cost procurement cost stock out cost profitability availability working capital need TOO LOW low low low high high low short supply least value of product middle man get advantage of shortage adverse Adverse long run effect Elements of inventory cost . breakages in handling e) Cost of deterioration due to passing of time & change in whether f) Cost of obsolescence of goods/ depreciation . protective packaging etc. cost of final feeding of data in the logistics information system  Carrying Cost . Cost of invoice pricing. book entries. including the cost of postage & follow up msgs d. & payment procedures. approval. including checking. cost of staff & the executives time spent on order processing c. including freight. f. b.It includes a) Space rent for the storage of goods b) Cost of working capital locked in the inventory c) Cost of insurance of goods d) Cost of spoilage in the quality of goods in storage. e. octoroi.It consist of  Procurement cost –it includes the following a. cost of transmission of an order from the purchase dept to the supplier. It involves use of stationary & services.inspecting & entry in the stock register/computer g.

An external shortage occurs when a customer order is not filled. -the qty of material ordered is received immediately I.Lot sizes/EOQ  Order points -when to place the orders. It is also called ( re order point) Different levels of inventories maintained in a manu concern are as follows: Minimum level indicates the lowest inventory balance which has to be maintained in hand at all times to ensure that there is no stoppage in production due to non availability of inventory Minimum level = re order level – (avg rate of consumption *avg delivery period) Maximum level -it is the maximum level of inventory to be held in stock at any time maximum level = re order level =re order qty – (minimum consumption * minimum reorder period) Re order level it is the level at which fresh orders should be placed for replenishment of stock ROL=maximum consumption * maximum re order period Avg stock level= maximum level+ minimum level 2 Danger level= avg consumption * lead time for emergency purchases DETERMINING EOQ -The assumptions to be followed while determining EOQ are -the order cost per order & carrying cost per unit per annum should be known -anticipated usage of materials should be known -cost per unit of material is constant & is known as well.e lead time is zero EOQ = 2CO I C= Annual consumption O = ordering cost per order I =annual carrying cost per unit # of orders to be placed during an year consumption EOQ EOQ is that size were ‘o’ and’ I’ are at the same level & the total cost of purchase is minimum ABC ANALYSIS (ALWAYS BETTER CONTROL) It offers a basis for grouping of items on certain basis of ‘annual monthly consumption value’ -Most valued items are classified as A category items few .Stock out cost -The stock out cost is the economic consequence of either an external /internal shortage. where as internal shortage occurs when an order of a group/department with in the org is filled. material cost INVENTORY MGT-The two aspects that are to be covered are:  order qty -how much to order of each material with either outside suppliers/production dept with in org .

grouped in category B moderate # of items -least cost items are grouped in C – this category requires the least attention number of items are the most in this categories VED ANALYSIS VED analysis emphasizes on classification of items on the basis of their criticality of use.should be purchased/produced in each . Category of items on the basis of mgt Criticality of use V (vital) significant corporate image E (essential) special dislocation of production schedule consequence in the case of stock out degree of inventory bring production to a halt/loss of D (desirable) considerable temporary additional cost due to arrangement of a substitute ABC-VED MATRIX CONSUMPTION VALUE OF ITEM A( BEST ) B (BETTER) C (GOOD ) CRITICALITY OF ITEM V (SIGNIFICANT) AV BV CV E( SPECIFIC) AE BE CE D (CONSIDERABLE) AD BD CD (MRP ) Material Requirement Planning is a computer based inventory control system that determines how much of each material .This inventory comes in btw category A and B moderately costly ..any inventory item with a unique part #.

& timing of deliveries of raw materials to production there by reducing considerably the inventory costs.by the following ways -reduced # of stock outs & delivery delays.time period to support the master production schedule. inputs Orders/ Forecast of service parts Inventory status file Master production Schedule BOM Elements of MRP outputs inventory transaction data changes to planned order planned order schedule MRP System planning reports performance reports exception reports .in process inventories necessary to meet the production schedules for finished goods ensure availability of materials . -Enhancing operating efficiency.MRP brings in better control of quality. quantity. -Reduce inventory costs.components &products for planned production & customer delivery maintain minimum levels of dependent demand items Major Objectives of MRP -improve customer satisfaction improves timely delivery time of goods to customers as per delivery commitment and also it brings down the replenishment cycle time down with the proper implementation of information system. MRP is by necessity a computer based system which is designed to Release production & purchase orders to regulate the flow of raw materials . resulting in to more production without increase in the number of employees & machines -reduction of sub standard products due to use of quality ensured inputs & -efficient movement of goods leads to decreased idle time & confusion.

A material record includes on hand balance. Inventory status file An inventory status file is a computerized file containing a complete record of each material held in inventory . -Secondary outputs *Exception reports -reports regarding flag items which require mgt’s special attention in order to provide right qty of materials in each time periods Typical exceptions noted are reporting errors . *Changes in planned orders modification of previous planned orders .both used for ordering frm suppliers & ordering for in house production schedule.late orders & excessive scraps *performance reports. The outputs produced by MRP -Primary outputs *Planned order schedule.A BOM is a computerized file containing a complete list of materials along with their qty & specifications required in the production of one unit of a finished product. lot sizes. . open orders. planned orders& order releases.safety stock.how well the total system is operating so that it includes -inventory turns . scrapped materials. disbursements.Therefore each material such as assemblies sub assemblies parts raw material has a BOM which is regularly updated if there is any redesign of the product. BOM (Bill Of Material).& customer order for a particular item.Master Production Schedule MPS ( what we plan) ( What we have) INENTORY STATUS FILE BOM ( what we require ) MRP ( What we need) Purchasing manufacturing MPS System Master Production Schedule (MPS)-it is a schedule of the number & timing of all end items to be produced in a manufacturing plant over a specific planning horizon. It is devised either to replenish finished good inventories or to fill customer orders. orders can be cancelled.quantities of orders can be changed. lead times . or orders can be delayed or advanced to different time periods through the updating process. These record are kept up to date by inventory transactions such as receipts. It represents a plan of qty of each material to be ordered in each time period .

47 units 2DISTRIBUTION REQUIREMENT PLANNING(DRP) DRP is guided by customer demand. DISTINCTION BTW DRP& MRP DRP MRP 1)It deals with finished inventory 1) it deals with dependent demand items for . MRP coordinates the scheduling & integration of material in to finished products. which is not controllable by enterprise & operates in an independent environment where uncertain customer demand determines inventory requirements. Plant Ware house inventory 600 units DC 1 inventory 50 units daily use 10 DC 2 inventory 100 units daily use 50 DC 3 inventory 75 units daily units 15 units 100 retained in the plant . purchase commitment reports.67 – 50/10) * 10=46.7. long range MRP Thus to conclude MRP IS A VALUBLE TOOL for the following activities -inventory control -scheduling for setting of priorities -determining MPS capacity flexibility Inventory Planning Methods 1 Fair share Allocation 2 Distribution Requirement Planning 1 Fair share allocation Is a simplified inventory mgt planning method that provides each DC with an equitable /fair share of available inventory from a common source such as a plant ware house. DRP takes over the responsibility of coordination once the finished products are received in the plant warehouse. Examples of such planning includes inventory forecasts. The formulae applied is to find the # of days supply DS =A +I/D DS =no of days supply for dc inventories A =inventory units to be allocated frm the warehouse I =inventory in units for dc D = daily demand for DC there fore DS =(500+ 50+100+75)/10+50+15=9. traces to find out demand sources.-% of delivery promises kept -stock out incidences *planning reports -reports to be used in future inventory planning activities.rest allocated for distribution amg the DC’s.67 days rounded to 10 days supply The formulae to find out the qty to be allocated A =(DS-I/D)* D A qty allocated to DC DS =days’ supply that each DC is brought up to I =inventory in units for DC D = daily demand for DC There fore the qty allocated to dc 1 will be A =( 9.

2) operates in a demand situation which is defined &controlled by the enterprise 3)BOD is used in DRP 4)DRP is an impulsion process – from the Lowest level of distribution network to the central distribution network 3)BOM is used in MRP 4)MRP is an explosion process from the master production schedule to the detailed schedule component replenishment . -Gross requirements from the customers -Scheduled receipts.production of finished goods 2)It operates in an independent environment of uncertain consumer demand which is beyond The control of the enterprise.  Enhanced ability to offer customers a coordinated inventory mgt service -Logistics benefits  Reduced DC freight cost resulting from well coordinated shipment  Reduced inventory level since DRP can accurately determine what product is needed & when  Decreased warehouse space requirements because of inventory reductions  reduced customer freight cost as a result of fewer back orders     .are replenishment shipments planned for arrival at the DC -Projected on hand delivery at the end of each period of DC= prior weeks on hand inventory-current weeks gross requirements+ scheduled receipt BENEFITS OF DRP -Marketing benefits Improve service level. offering on time delivery & decrease customer complaints improved & more effective promotional & new product introduction plans improved ability to anticipate shortages in various networks improved inventory co ordination with other enterprise function since DRP planning takes in to consideration various other connected activities of the enterprise. Schedule Report Consist of the following.DRP provides for a schedule for each SKU /DC. WIP and material planning . Features DRP/MRP system integrates finished goods. Schedules for the same SKU are integrated to determine the overall requirement for replenishing inventory at the plant level.

JIT eliminates waste by providing the environment to perfect and simplify the processes. The American Production and Inventory Control Society (APICS) has the following definition of JIT: "a philosophy of manufacturing based on planned elimination of all waste and continuous improvement of productivity. JIT is a collection of techniques used to improve operations It can also be a new production system that is used to produce goods or services. Increase innovativeness  DC RW DC part e JIT is not about automation. -The entire system of DRP is effected due to a change in the scheduled plan like delivery delay . DRP CUSTOMERS/end user DC DC DC DC RW Plant Final assembly manu subassembly C part c sub assembly b Subassembly A part c part d part a part b RM MRP Just-In-Time Manufacturing: The technique was first used by the Ford Motor Company as described explicitly by Henry Ford's My Life and Work (1923): The technique was subsequently adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota Production System JIT is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and removed for the purposes of:  Reducing Cost  Improving Quality  Improving Performance  Improving Delivery . production break down etc will adversely effect the entire system. improved inventory visibility & coordination btw logistics & manufacturing Constraints of DRP -Since DRP system revolves around the customer /retailer demand the forecast abt the customer demand should be accurate. It encompasses the successful execution of all manufacturing activities required to produce a final product.Adding Flexibility . from design engineering to delivery and including all stages of conversion from raw material  .

the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. Problems with in a JIT system The major problem with just-in-time operation is that it leaves the supplier and downstream consumers open to supply shocks. workers don’t have to be working. components . JIT principles can be applied to all parts of an organization: order taking. etc. 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.  Set up times are significantly reduced in the factory. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction. . without the safety net of inventory When the JIT principles are implemented successfully. operations. 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. Employees who possess multiple skills are utilized more efficiently. 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 just-in-time inventory system. even though it may not be accessible /usable -Uncertainty about where a transport vehicle is located /when it is likely to arrive. Transit inventory is necessary to achieve order replenishment. promotion or even higher pay. It includes cycle/safety stock & in transit components -Cycle inventory/base stock. distribution.are required to cover short term variation in demand & replenishment -Transit inventory – stock that is either moving or awaiting movement in transportation vehicle.onward. The two complexity associated with transit inventory are -represents real assets & must be paid for. The primary elements include having only the required inventory when needed. significant competitive advantages are realized. 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. If there is no demand for a product at the time. and in the exact amount”. to reduce lead time . typically stocked in logistical facilities. Inventory Categorization -Average Inventory. Better consistency of scheduling and consistency of employee work hours. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. sales.consists of materials. to incrementally revise the operations themselves. at the right place. is all about having “the right material. and to accomplish these things at minimum cost In short. design. Supplies continue around the clock keeping workers productive and businesses focused on turnover.  The flows of goods from warehouse to shelves are improved. JIT usually identifies seven prominent types of waste to be eliminated  Benefits As most companies use an inventory system best suited for their company. accounting.work in process & finished products. The main benefits of JIT are listed below. to improve quality to zero defects. 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. queue lengths and lot sizes. purchasing. Increased emphasis on supplier relationships. at the right time.

On the other side a very low capacity won be able to meet high demand fluctuations. So to conclude the facility should have an adequate capacity level which can meet the demand & keep the cost at a reasonable rate. Or satisfy particular type of customer are stored together.They are fairly efficient wt to store product Job lot storage.very flexible but it costs money. quality of workers.methodology in which all the different types of products which are needed to perform a particular function. This type of warehouse require large storage space *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. -operations methodology. availability of infrastructure.. Cross-docking aims to decrease costs and improve customer service through continuous flow of items from origin to destination.3Facilities & services Facilities are the locations to or from which the inventory is transported.a basic trade off here is to whether centralize to gain economies of scale/decentralize to become more responsive to customers. Some of these methodologies include.facilities capacity to perform the desired function. with in a facility inventory is either processed/transformed in to another state (manufacturing) or it is stored before being shipped to the next stage (warehousing) Components of facilities decisions -location. proximity to customers. (SKU) Stock Keeping Unit –a traditional warehouse that stores all one type of product together . companies also should take in to consideration the issues related to local area in which the facility is been located they are -macro economic factors. facility performs any single function say only fabrication or only assembly of different products A product focused will result in more expertise abt a particular type of product& other one functional expertise the firm must decide which type expertise will best suit to meet customer demand. capacity. cost of facility. tax effects etc. or to sort material intended for different destinations. There are basically 2 types of operations methodology : Product focused –facility performs many different functions eg fabrication . Whereas in Functional focused. Advantages of Cross-Docking  Reduces handling costs. An excess capacity allow the firm to meet demand fluctuations . or to combine material from different origins.assembly in producing a single type of product. Here also a trade off should be brought in in the context of efficiency & responsiveness. operating costs. with little or no storage in between. no storage). This may be done to change type of conveyance.the companies must decide upon the operation methodology to be followed in the facility. They should also decide up on flexible Vs dedicated capacity as in flexible capacity can be used for manufacturing many types of products but is often less efficient while dedicated capacity used only for a limited # of products but it is more efficient.& & therefore can decrease efficiency. In short Cross-docking is the practice of receiving goods and quickly processing them for reshipment (minimum handling. efficiency will be high cost will be low. Warehousing Methodology As with manufacturing there are a variety of methodologies from which companies can choose when designing a ware house facility. and the storage of inventory  Products get to the distributor and consequently to the customer quicker  Cuts down or virtually eliminates warehousing costs  Helps to increase available sales space .

g. crossdocking reduces inventory carrying costs. & facility operations.   Ware housing. DC( Movement Function) -RECEIVING.  Retailers have the ability to streamline the supply chain from point of origin to point of sale through cross docking  Holding inventory. they were willing to develop alliances with global suppliers that could provide expertise & quality logistics service at a reasonable cost for activities such as international freight consolidating & forwarding . Logistics mgr’s found that they could reduce capital deployed by outsourcing the performance of a wide range of logistics activities.The product is hand stacked on pallets to form unit loads for movement efficiency   -IN STORAGE HANDLING on receipt of the material the it is kept I n an orderly manner for order selection for he purpose of transporting to the shipping area. Thus the extent of economic growth prevailing in a country helps the enterprises to go global there by facilitating global logistics.& products in to customers orders.cheking operations are required to be done when merchandise changes ownership as a result of shipment Warehouse Storage (storing function) PLANNED STORAGE.To promote regional trade & protect trading partners from outside competition. Global logistics is nothing but managing a global network of materials & information flows. The five driving forces which induces a global logistic are: -Economic growth: The industries in the country in which there is a good economic growth have a strong profitability & revenue base . fluctuating demand calls for extended storage. they were willing to develop cost effective operations to support global expansion.it represents the normal storage time of inventory until it is replenished again the normal demand for a product EXTENDED STORAGE-refers to inventory storage time in excess of that planned storage time.international transportation. diversity & documentation. This situation happens -some times storage may be required forseveral months prior to customer shipments -Seasonal items require storage according to demand -Speculation. . picking it. and sometimes losing it costs money. demand.: European communities (EC 92).wide spread adaptation of total supply chain perspective by manufacturers & large scale distributors. INTERNATIONAL LOGISTICS/GLOBAL LOGISTICS global operations must accommodate all domestic requirements & also deal with increased uncertainties associated with distance. While the firm attempts to develop cost effective operations to support global expansion. and costs associated with order fulfillment and material handling.material arrive at warehouse in . -SHIPPING this involves checking & loading orders on to transportation vehicle. counting it.Stock comes into the cross-docking center already pre-allocated to replenish an order placed by a retailer. Where as in domestic logistics focuses on performing value added services in a relatively controlled environment. moving it.This would in turn facilitate the enterprise to go global with their business in developed as well as developing countries. • Regionalization. bulk quantities the activities carried out at the receiving aspect includes  -unloading the transportation vehicle which is mostly done manually  -in Indian context limited automated & mechanized method are developed for material handling  . documentation. In storage handling mainly helps in for grouping materials. countries began to formalize partnerships through treaties e. transportation costs. parts. -SC Perspective.

developing common shipping documentation & supporting common transportation & handling systems.& demands of customers. -Technology & information -Deregulation of a number of key industries /products which was once Seen as the sole proprietary of govt has been deregulated as well as LPG of govt policy also paved /became fifth driving force towards a border less world. -2Information systems development & control 3inventory positioning LOCAL 1 customer service mgt 2 gathering market intelligence -3 warehouse mgt & local delivery .Intra regional trade is facilitated by reducing tariffs . Documents. rules & regulations of a particular country The general principles/factors to be considered while organizing for global logistics -strategic structuring & over all control of logistics flows must be centralized to achieve world wide optimization of costs -the control & mgt of customer service must be localized against the requirements of specifics markets to ensure that competitive advantage is gained & maintained As the trend towards outsourcing everything except core competencies increases then so does the need for global co ordination -a global logistics information system is the pre requisite for enabling the achievement of local services needs. Barriers to global logistics . 1Markets & competition -Entry -Information -Pricing -Competition 2Financial barriers -Forecasting -institution deficiency 3 Distribution channels -infrastructure -trade restrictions/restraints GLOBAL CHALLENGES Distance. Regionalized results in an industrialized trade with each part having relatively equal population & economic strength . while seeking global cost optimization.North American Free Trade Agreement (NAFTA) the countries in the near by geographic regions joined together to trade each other irrespective of the various barriers that stay along in between the countries. Diversity in culture.minimizing customs requirements. TRADE OFF BTW GLOBAL & LOCAL LOGISTICS MGT SHOULD BE ACHIEVED GLOBAL -1network structuring for production & transportation optimization.

competency by way of providing better customer service there by increasing the need of logistics. manufacturers. by the implementation of LIS which transforms corporate in to information based structure rater than traditional command & control org structure org activities will be coordinated& focused through information sharing which in turn increases the importance of logistics in future KEY ISSUES IN GLOBAL LOGISTICS • Movement of product • Movement of information • Time/service • Cost • Integration-with in own company.a good infrastructure will be in great demand as far as future logistics is been concerned. retailers. 8organisational structure will become more transparent.-4international transport mode & sourcing decisions -4 liaison with local sales & marketing mgt -5trade off analyses & supply chain cost control -5 HRM Future Logistics direction 1 Basic logistical function will increase –there will be higher demand for customized product which in turn leads the firms to recognize the importance of customer service thus the over all work loads of logistics is expected to increase at a rate equal to /greater than over all growth of the world economy 2Environmental factors/infrastructural factors become more restrictive. 6Trading relationship will become more demanding paving way for the growth of international logistics. in a non integrated system that is if they follow their own system . btw own & vendors • Cultural factors • The various resources available in each nation The model of global LSCM -functional integration -there should be an integration btw various functions within the logistics & again the integration of LSCM Function with the objectives & constraints of other functions which have an impact on flow design & mgt . 3Logistical solutions will become more sophisticated & more customized since the complexities of business is gone increase by way of high competition & other stimulating factors the firms will have to meet the challenge by developing a more sophisticated & customized system of logistics 4 Focus on process accountability -Accountability & evaluation of individual functional areas will be increasingly emphasized instead of monitoring the ultimate results.& end consumers.sectorial integration there should be an integration btw various sectors within the logistics viz vendors. between own & customers. This simply means that those individuals /departments that initiate high cost will be held fully accountable for their consequences 5competency -will be viewed as strategic resource . More firms will be recognizing the importance of & potential benefits associated with the formation of long term relationships & strategic alliances.

fourth party logistics (4PL) have been developed. Wage rate differentials. For better co operation between these various sectors techniques like third party logistics (3PL). & improved transportation facilities are breaking down the time/speed barriers btw countries. -Geographical integration its important within a global logistics to develop strategies that go beyond the geographical boundaries of one country. forcing LSCM functions to take on a global dimension. . hubs. expansion of foreign markets. at a lower inventory carrying cost. In short with the help of 3pl & 4pl allow companies to sent items over long distances in the shortest time possible.it leads to problems & inefficiencies for the other players in the total logistics system. Here also 3PL & 4PL play an important role in physical solutions such as planes. final deliveries & information solutions to trace & track flow from start to finish. collection systems.

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