Module 4

Logistics and Supply Chain Management

What is Logistics
• Logistics is that part of supply chain management that plans, implements and
controls the efficient, effective flow and storage of goods, services and related
information from the point of origin to the point of consumption in order to meet
customers’ requirements.
• It is about getting the right product, to the right customer, in the right quantity, in
the right condition, at the right place, at the right time, and at the right cost.
7 R’s in logistics
• Right Product
• Right Customer
• Right Price
• Right Quantity
• Right Condition
• Right Time
• Right Place
Right Product
• While designing/manufacturing/selecting a product, the organization should look
into potential issues that can arise during transportation.
• Special packaging requirements, for example, can arise from the product’s weight
or bulk, its shape or its fragility and distance of transportation.
• Product when designed properly will greatly facilitate logistics if they ensure a
certain level of standardization in the product’s measurements during the design
will make packaging, warehousing, product handling and transport considerably
easier.
• The best strategy is to choose a product that is in demand and that can guarantee
profits. Having right knowledge and using the right product will facilitate in
efficaciously managing the time and resources.
Right Customer
• Customers are the core component of supply chain processes. The right customer
is about finding the customer and creating an awareness about our product and
services.
• The greatest challenge involved in this would be to identify the customer to be
targeted. The solution to finding the right customer would be to do a market
research. Managers must have knowledge about their target market. If the products
are sold in the right market then the company gains more leads and they get the
right customers that can stay with them life-long.
• A market research would give an insight into whom we are supposed to target.
Then as per the budget one would choose which marketing strategies to employ so
that the right people know about our product and how to access the product.
Right Price
• Pricing is imperative for the businesses as it is the factor that decides whether it
has incurred profit or loss.
• The supply chain manager should research market trends and set competitive
prices for the goods and services.
• They must have an appropriate price value in order to track the company income
and expenses. A good system for storing and updating the right prices ensures
success in logistics management services.
Right Quantity
• Sending right amount of products is also important in logistics.
• It is the task of the supply chain managers to find the right quantity of deliverables
and to coordinate with the manufacturing and delivery team to get the right
quantity of products delivered to the customers.
• If we do not meet the demand of product, we will ultimately loose some chance of
making money.
• Also if we have excess quantity our warehousing expenses and other associated
expenses will increase. So the production must be in a balance to cater the demand
and must not make huge inventory cost.
Right Condition
• The right condition in logistics is about the safe delivery of the proposed product.
• The quality of the products should be maintained till the time it reaches the end
user or the customer.
• The distribution strategy should be such that it is preserving the quality of the
product without increasing the overhead costs.
• It is the duty of the supply team to ensure that the goods are stored properly and
delivered to the customers in the right condition.
Right Time
• Time is a crucial factor in logistics. Even if everything else in the process is done
accurately the entire process can fail if the timing is not right.
• You must have the products on the shelves or in stock at the right time to cater to
the demand if the product demand is not met at the right time it might be lost to
competition.
• Customer’s satisfaction and long-term relationship are only possible if the
products are delivered to the customers at the right time.
• It is the task of managers to develop a tracking system and coordinate with the
delivery team to get the items delivered before the deadline.
Right Place
• The managers can develop a robust delivery system with location tracking so that both the
customers and the providers can track the exact location of the product and get it delivered to the
right place.
• The demand for your product may vary depending on geography and demography and other
factors.
• It is necessary to understand from doing extensive market research the exact place that needs to be
targeted, as certain areas might have demand for the product whereas the other areas might not care
about the product at all.
• It is important that the right product be sent to the right place. The supply chain managers should
ensure that they have efficient and experienced delivery staff so that the product is delivered to the
right place.
• After choosing the place it is important to choose a distribution strategy that would satisfy the
demand without oversupplying or under-supplying the product at any given point.
Transportation
• Transportation refers to the movement of product from one location to another as
it makes its way from the beginning of a supply chain to the customer.
• Transportation is an important supply chain driver because products are rarely
produced and consumed in the same location.
• The shipper is the party that requires the movement of the product between two
points in the supply chain. The carrier is the party that moves or transports the
product.
MODES OF TRANSPORTATION
Supply chains use a combination of the following modes of transportation:
• Air
• Truck
• Rail
• Water
• Pipeline
• Package carriers
• Intermodal
DESIGN OPTIONS FOR A TRANSPORTATION
NETWORK
• The design of a transportation network affects the performance of a supply chain
by establishing the infrastructure within which operational transportation decisions
regarding scheduling and routing are made.
• A well-designed transportation network allows a supply chain to achieve the
desired degree of responsiveness at a low cost.
• Three basic questions need to be considered when designing a transportation
network between two stages of a supply chain:
• Should transportation be direct or through an intermediate site?
• Should the intermediate site stock product or only serve as a cross-docking location?
• Should each delivery route supply a single destination or multiple destinations (milk
run, discussed later)
Direct Shipment Network to Single
Destination
• With a direct shipment network, the routing of each shipment is specified, and the
supply chain manager needs to decide only the quantity to ship and the mode of
transportation to use.
• This decision involves a trade-off between transportation and inventory costs.
• The major advantage of a direct shipment transportation network is the
elimination of intermediate warehouses and its simplicity of operation and
coordination. The shipment decision is completely local, and the decision made
for one shipment does not influence others. The transportation time from supplier
to buyer location is short because each shipment goes direct.
Direct Shipping with Milk Runs
• A milk run is a route on which a truck either delivers product from a single supplier to
multiple retailers or goes from multiple suppliers to a single buyer location.
• In direct shipping with milk runs, a supplier delivers directly to multiple buyer locations
on a truck or a truck picks up deliveries destined for the same buyer location from many
suppliers.
• Direct shipping provides the benefit of eliminating intermediate warehouses, whereas
milk runs lower transportation cost by consolidating shipments to multiple locations on a
single truck.
• Milk runs make sense when the quantity destined for each location is too small to fill a
truck but multiple locations are close enough to each other such that their combined
quantity fills the truck.
All Shipments via Intermediate Distribution
Center with Storage
• Under this option, product is shipped from suppliers to a central distribution center, where
it is stored until needed by buyers when it is shipped to each buyer location
• Storing product at an intermediate location is justified if transportation economies require
large shipments on the inbound side or shipments on the outbound side cannot be
coordinated.
• In such a situation, product comes in large quantities into a DC, where it is held in
inventory and sent to buyer locations in smaller replenishment lots when needed.
• The presence of a DC allows a supply chain to achieve economies of scale for inbound
transportation to a point close to the final destination, because each supplier sends a large
shipment to the DC that contains product for all locations the DC serves. Because DCs
serve locations nearby, the outbound transportation cost is not very large.
Shipping via DC Using Milk Runs
• Milk runs can be used from a DC if lot sizes to be delivered to each buyer location are small.
• Milk runs reduce outbound transportation costs by consolidating small shipments. For example,
Seven-Eleven Japan cross-docks deliveries from its fresh-food suppliers at its DCs and sends out
milk runs to the retail outlets because the total shipment to a store from all suppliers does not fill a
truck.
• The use of cross-docking and milk runs allows Seven-Eleven Japan to lower its transportation cost
while sending small replenishment lots to each store. The use of cross-docking with milk runs
requires a significant degree of coordination and suitable routing and scheduling.
• The online grocer Peapod uses milk runs from DCs when making customer deliveries to help
reduce transportation costs for small shipments to be delivered to homes.