06/01/2023

V G Venkatesh, PhD, CSCP

Associate Professor
EM Normandie Business School, France.

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Disclaimer

Emphasis on Global Business (A new perspective) - Inputs beyond the borders

”ANALYTICS”- A domain to deal with caution

Techno-commercial course – different from others (HR and Marketing)

You will have to build on readings (long term)

Key learning outcomes of this course
A Placement Oriented Course – But…J
How are we going to sail together ?
100 percent Practice-based - Need to have patience (it may look heavy, sometimes)

Jargons – but inevitable J -it tastes “bad now”, but sooner or later you realize the
importance.

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Need to be grounded in concepts – A Pathway to Supply chain

the successful Strategy
and
Communication/Marketing/Networking skills
cannot be the…
Operations ?
How do you view
(A true B-School Challenge) this ?

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It is all about business

Your turn:

In groups:

• Map the supply chain of this Vending machine

(Be as specific as possible)

• Draw as much as layers J

• Dissect the layers

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Do you agree this

complexity?

• Making stuff? That’s easy.

• Managing Operations and Supply

Chaining, now that’s hard”
- Tom Friedman: The World is
Flat If you are a Supply Chain Manager of a FMCG brand…

• Why ? What would be your prime objectives ??

• Can you share your experience ?

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Lead time Service level

Management

Variance Cost
Reduction Minimization

Bottle Neck Inventory

management Management

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Other areas…

• Supply Chain Design

Global
• Product functional knowledge
• International rules
concepts
• Outsourcing and offshoring decisions
• Technology

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SCM
Select three different (product/service) companies

SCM = Logistics Do a quick survey

in groups
Your View & Importance in work
Imperativeness?? “Order winning” attributes (15 mins)
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Global Trends

Complex … Yet
Interdependent
Supply Chains

• What did we learn from :

• Current Pandemic situation
• Other major supply chain issues ??
(Techno pack analysis, 2013)

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Paradigm shifts are…

Hyper local initiatives
India / China – are
the key forces Including SKU
profiling

SMED to SMCP – Democratized data

Single Minute Digital
Change of Plans transformation
Remote audits and

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How do you differentiate them ? Supply chain Environments…

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Flows in a Supply Chain Business Sync

Information
Product
Supplier Customer
Funds

What could be the additional flows ?

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Procurement Manufacturing Sales & Distribution

(Material) (Capacity) (Demand)

C
U
S
T
O
M
E
R

Optimize to Optimize to Optimize to

Mfg. objectives Logistics obj Sales & Mktg obj

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Enterprise characters?
(Supply chain perspective)

Decoupling
Point
Multiple Integrated Push Pull

dysfunction Enterprise

Semi Extended Procurement Manufacturing Customer

Cycle Cycle Order Cycle
functional Enterprise
enterprise
Supplier Manufacturer Distributor Customer

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Triple A approach

Matching
Agility Supply
Chains
with
Products
Alignment Adaptability

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Demand Management

Forecasting
Demand
Management

Demand
management
The art of prophecy is very
difficult – especially wit
respect to future Order
CRM
management
Mark Twain

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We are living in the ERA of DEMAND

DRIVEN SUPPLY CHAINS
What are the internal and external factors
that impact “demand figure” of any
organization ?

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FORECASTING FUNDEMANTAL
Key supply chain Issues
PRINCIPLES
Material flow from suppliers through distribution

Customer lead time requirements

are rarely 100 should include an are more accurate are more accurate
Deployment and use of resources percent accurate estimate of error for product groups for nearer periods
over time and families of time
Relationship with suppliers and customers

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Selection of Forecasting Models

Managing the Forecast 4 1
Use aggregate forecast
and then assemble-to-
High Use statistical order; collaborate with
forecasting techniques customer on demand
demand
planning

Volume
3 2

High risk of obsolete

Aggregate forecast and
Low inventory if feasible;
inventory; check
demand profitability; consider
consider
0 make-to-order CV = 1.0
PEOPLE AND FORECAST HORIZON SELECTION OF FORECASTING Low Variance make-to-order
High Varianceonly
ACCOUNTABILITY AND INTERVAL FORECASTING MODELS PROCESS
0 CV =
Low 1.0 High variance
variance
standard deviation of period demand
Coefficient of variation (CV) =
average period demand

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Forecasting Process Independent Versus Dependent

1. Data gathering
and preparation
7. Volume and mix
reconciliation #3
Demand

6. Decision making
2. Forecast
generation
8. Documenting
assumptions
and Only independent demand needs to be forecasted.
authorization

Dependent demand should not be forecasted; it should be

3. Volume and mix 5. Volume and mix
reconciliation #1 reconciliation #2 calculated.
4. Applying
judgment

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Observed demand (O) = Systematic component (S) + Random component (R)

Components of an Observation
Dynamic

Stable

Level (current DE seasonalized demand)

Quantity
Trend (growth or decline in demand)
Average demand
Seasonality (predictable seasonal fluctuation)

• Systematic component: Expected value of demand

• Random component: The part of the forecast that deviates from the systematic component
Period
• Forecast error: difference between forecast and actual demand

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Demand Patterns: Trend Demand Patterns: Seasonal Demand

Increasing
Decreasing
Level
Demand

Demand
Quarters Quarters

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Demand Patterns: Random

5

Forecasting Demand
Demand

1 Forecasting
Techniques
Quarters

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Forecasting Techniques The Role of Judgment in Forecasting

Time series and
cause-and-effect
data
Quantitative techniques Qualitative techniques

Quantitative
Quantitative analysis Qualitative
Time Series Subjective or forecast forecast
Causal (extrinsic)
(intrinsic) judgmental

Simple average Regression Expert opinion Behavioral data

Moving average
Exponential smoothing
Time series decomposition
Multiple regression Management estimation
Pyramid forecasting
Focus group
Survey Qualitative
Panel consensus judgment
Delphi technique
Sales force composite
Product life cycle analysis

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Naive Forecasts – hunch

Types of Qualitative Techniques method

Qualitative
Uh, give me a minute....
We sold 250 wheels last
week.... Now, next week
Independent
Executive/
management Market research
Sales force
Historical analogy
we should sell....
judgment estimates
judgment

Expert opinion Management Focus group Panel consensus Product life cycle
estimation Survey Delphi technique analysis
Pyramid forecasting Sales force composite The forecast for any period
equals the previous period’s
actual value.

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Calculation of Bias
Tracking the Forecast Bias =
S (actual – forecast) *
number of periods

0
Bias: Products A and B = =0
10

275
Forecasts are rarely 100 percent correct Why track the forecast? Bias: Product C = = 27.5
10
over time.
To understand why demand differs from the forecast
To plan around error in the future
* S (actual – forecast) = cumulative sum of (period forecast) error
To improve forecasting methods

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Mean Absolute Deviation (MAD)

|A - F|
Tracking Signal =
MAD = 𝑅𝑢𝑛𝑛𝑖𝑛𝑔 𝑆𝑢𝑚 𝑜𝑓 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝐸𝑟𝑟𝑜𝑟𝑠⁄𝑀𝐴𝐷
n

Σ absolute errors – Accepted values are ±3

260
MAD = = = 22 units Tracking signal – Industry values are ±6
number of periods 12
– Why ?
– How is it useful ?

Key: S = sum; I I = absolute value

Other values are : MAPE, ME, MSE

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Hammer 3/2 economics

The Newsvendor Model:
The order quantity that maximizes
expected profit
• O’Neill sells each suit for p = $190
• O’Neill purchases each suit from its supplier for c = $110
per suit
• Discounted suits sell for v = $90
– This is also called the salvage value.
• O’Neill has the “too much/too little problem”:
– Order too much and inventory is left over at the end of the
season
– Order too little and sales are lost.

• Recall, our demand model is a normal distribution with

mean 3192 and standard deviation 1181.

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Balancing the risk and benefit of

“Too much” and “too little” costs ordering a unit
• Ordering one more unit increases the chance of overage …
• Co = overage cost – Expected loss on the Qth unit = Co x F(Q)
– The consequence of ordering one more unit than what you would have ordered had you known demand. – F(Q) = Distribution function of demand = Prob{Demand <= Q)
• Suppose you had left over inventory (you over ordered). Co is the increase in profit you would have • … but the benefit/gain of ordering one more unit is the reduction in the chance of underage:
enjoyed had you ordered one fewer unit. – Expected gain on the Qth unit = Cu x (1-F(Q))
– For the Hammer 3/2 Co = Cost – Salvage value = c – v = 110 – 90 = 20

• Cu = underage cost
– The consequence of ordering one fewer unit than what you would have ordered had you known demand.
• Suppose you had lost sales (you under ordered). Cu is the increase in profit you would have enjoyed
As more units are ordered, the expected
had you ordered one more unit.
benefit from ordering one unit decreases
– For the Hammer 3/2 Cu = Price – Cost = p – c = 190 – 110 = 80 while the expected loss of ordering one
more unit increases.

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Hammer 3/2’s expected profit

Maximize expected profit maximizing order quantity
• The critical ratio is 0.80
• Find the critical ratio inside the Standard Normal Distribution Function Table:
th th
• To maximize expected profit order Q units so that the expected loss on the Q unit equals the expected gain on the Q unit:

• Rearrange terms in the above equation ->

The ratio Cu / (Co + Cu ) is called the critical ratio.

• Hence, to maximize profit, choose Q such that the probability we satisfy all demand (i.e., demand is Q or lower) equals the
critical ratio.

• For the Hammer 3/2 the critical ratio is

– If the critical ratio falls between two values in the table, choose the greater z-statistic … this is called the
round-up rule.
– Choose z = 0.85
• Convert the z-statistic into an order quantity :

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Sourcing

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Knowledge requirement for any global sourcing

Current Challenges ?? professional?

Price

Quality

Delivery

Flexibility ( Product & Volume )

Pre & Post Service

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FOCUS ON THE ESSENTIAL FEW Strategic Sourcing Objectives

• Reliable sources, quality, and deliveries of materials

• Reduction in supply risks
• Smaller and more flexible and responsive supplier base
• Supplier input to product development and innovation
• Reduction in external spending
• Reduction in transaction costs

The law of the essential few and trivial many

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Sourcing Vs Purchase cycles Tricks of the trade – Agenda

Cultural and value

differences: It’s a
1. Analyze 2. 3. relationship
spend Complete Approve business
2. Analyze 7. Monitor requisitio requisitio
market & n n

Strategic
measure Supplier
1. Select Purchasing 4. Best practices Selection
3. sourcing 6. Contract and bonuses
goods or cycle Place Strategy
Develo cycle Implemen Management services order
p t Strategy
Strateg
y 5. Award 6. Verify & 5. Receive
4. Negotiate
with bidders business pay invoice goods or
services
Quality control: Negotiations: You
The Never- get what you pay
ending Story for
Value Generation Value Capture

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Benchmarking
• Competitive Benchmarking
– Own industry comparison Identifying the right supplier from a
– Competitive position target low cost source
• Best –in – class Benchmarking
– Looks to the best from Anywhere
• Process Benchmarking
– against a checklist of world class process
descriptions

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First cast a wide net J then go for

deep sea fishing There are many sources of supply market and supplier
information
Trade Journals & Company Annual Internet Colleagues and
Periodicals Reports & 10-Ks Fellow Team
Members

Consultants Industry Headlines Research Providers

Associations

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Short-listing of Potential Sources

List of List of List of Short- Selected

Universe Feasible Qualified list of Suppliers
of Suppliers Suppliers Supplier
Suppliers s

1st level screening
• Basic Requirements
•Supplier size
•Ability to develop custom
solutions
•Geographical coverage
•Technological capability
•Quality product/service
offering
Collect
additiona
l data?
2nd level evaluation
•Selection criteria
developed with the
Role of Technical
category strategy as and Social
a guiding principle
compliance ???

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Industry Heuristics on Bids

• SOW/ Buyer’s samples

What is the fundamental difference
between Bid and Tender ?
• Offer to Sell Vs Offer to buy
– We should solicit the offer to Sell
• Informal bids/ Quotations - Problems / Impacts
Electronic solicitation (RFxs)
•
• Restricted Competition
• Sealed Bids
• Two Step bidding process and
• Prequalified Bidding

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Identification of Potential Sources PO Contents ??

• Prices and quantities with all taxes
• Right of Inspection and rejection
• Warranty period if not specifically agreed upon with the supplier
• Issuing an RFx Platform • Right to make specification and /or design changes
– RFI/RFP/RFB or RFQ • Indemnification, against injuries or damages caused by the supplier’s
actions and other legal considerations
• The supplier’s right to assign the contract to third parties or to
generate publicity
– Each of the RFx types has a different primary
• Instructions regarding shipping an deliveries
goal.

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Some of the best Practices Unethical acts in Global Procurement

• Misrepresentation of facts
• Improprieties of Bids
• Personal requirements and Rework
• Price Disclosure charges
Purchasing
Target
• Unearned discounts (Cheque) • Unnecessary transport charges
Portfolio &Cancellation of orders
Costing • Discrepancies in Consignment
approach
• Thrusting decisions on the supplier
• Abuse of rate vs quantity
• Samples and Estimates
• Supplier’s credit facility
• Cost of Product Development • Discourteous behavior to Visitors
Nominated Lead time
Sourcing management

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Quality Control in Sourcing

Any questions

Different types of samples

Inspection dynamics
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AQL strategy
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One of the most expensive assets

of many companies representing
as much as 50% of total invested
capital
Inventory Management

Operations managers must

balance inventory investment and
customer service
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Type of Inventory Components of Inventory

• Raw material
– Purchased but not processed
• Decoupling Inventory /Buffer Stock
• Work-in-process
– Undergone some change but not completed
• Transportation Inventory
– A function of cycle time for a product • Anticipation Stock
• Maintenance/repair/operating (MRO) • Hedging Stock
– (For the Inventory build up/anticipating the event
– Necessary to keep machinery and processes
that it may not actually come about)
productive
– Pending labor strikes/ Price increases/Political
• Finished goods instability/ Long lead times
– Completed product awaiting shipment
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Lot size Decision Rule Determining Order Quantities

Lot-for-lot Order exactly what is needed

• Lot-for-lot (L4L)
Fixed-order Specifies the number of units to order
• Fixed order quantity quantity whenever an order is placed
• Periods of supply Min-max Places a replenishment order when the
system on-hand inventory falls below the
• Dynamic order quantities predetermined minimum level.
Order n Order quantity is determined by total
periods demand for the item for the next n
periods
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Lot for Lot Rule
• Order exactly what is needed
• Changes as requirements change
• Requires time-phased information
– MRP or Master Schedule
• No unused inventory
• Most often used with ‘A’ items
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Fixed Order Quantity
• Order the same amount each time
• Easy to understand
• Does not minimize costs
• Min-max system
– Order when you go below the minimum
– Order up to the max
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Periods of Supply Quantity Discount - Example continued

• There is a savings in purchase cost

• Order enough to cover a demand over a
$250,000 - 245,000 = $5,000
certain period of time
• Carrying cost increases
• Days of supply $980 - 500 = $480
• Period Order Quantity • Ordering cost decreases
$500 - 250 = $250
Good Idea?
Total cost decreases
$251,000 - 246,230 = $4,770

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Item Cost Includes price paid for the item plus other
direct costs associated with the purchase

Holding Include the variable expenses incurred by

Costs in Inventory Costs the plant related to the volume of
inventory held (15-25%)
Capital The higher of the cost of capital or the
Costs opportunity cost for the company

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Holding, Ordering, and Setup Costs
• Holding costs - the costs of holding or
“carrying” inventory over time
• Ordering costs - the costs of placing an
order and receiving goods
• Setup costs - cost to prepare a machine or
process for manufacturing an order
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Holding Costs
•Housing costs (including rent or depreciation,
operating costs, taxes, insurance)
•Material handling costs (equipment lease or
depreciation, power, operating cost)
•Labor cost
•Investment costs (borrowing costs, taxes, and
insurance on inventory)
•Pilferage, space, and obsolescence
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Inventory Models for Independent Basic EOQ Model

Demand
Need to determine when and how much
to order
• Basic economic order quantity
• Production order quantity
• Quantity discount model
Important assumptions
1. Demand is known, constant, and independent
2. Lead time is known and constant
3. Receipt of inventory is instantaneous and
complete
4. Quantity discounts are not possible
5. Only variable costs are setup and holding
6. Stockouts can be completely avoided

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When not to use EOQ

• Make-to-order when customer sets the Average inventory = order quantity

quantity needed 2
• Shelf life is short
• There are other limitations
– Tool life is limited Number of orders / yr = annual demand
– Raw material batch size has limitations order quantity

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Development of the EOQ Formula - Development of the EOQ Formula -

Example Example

• Order Quantity (Q) = 200 units

• Usage = 100 units per week

Average inventory = Q = 200 = 100 units

2 2
Number of orders per year = annual demand
order quantity
= 100 x 52
200
= 26 times per year
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Example Problem D
The EOQ Model Annual setup cost = S
Q

Q = Number of pieces per order

Q* = Optimal number of pieces per order (EOQ)
Annual demand = 10,075 units per year D = Annual demand in units for the Inventory item
S = Setup or ordering cost for each order
Order quantity = 650 units H = Holding or carrying cost per unit per year

Annual setup cost = (Number of orders placed per year)

Average inventory = Q/2 = 650/2 = 325 units x (Setup or order cost per order)

Annual demand Setup or order

=
Number of orders per year Number of units in each order cost per order

= A/Q = 10,075/650 =15.5 orders per year D

=
Q (S)
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The EOQ Model Annual setup cost = S

D
Q
The EOQ Model Annual setup cost = S
D
Q
Q Q
Annual holding cost = H Annual holding cost = H
Q = Number of pieces per order 2 Q = Number of pieces per order 2
Q* = Optimal number of pieces per order (EOQ) Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the Inventory item D = Annual demand in units for the Inventory item
S = Setup or ordering cost for each order S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year H = Holding or carrying cost per unit per year (IC)

Annual holding cost = (Average inventory level) Optimal order quantity is found when annual setup cost equals
x (Holding cost per unit per year) annual holding cost

D Q
Order quantity S = H
= (Holding cost per unit per year) Q 2
2
Solving for Q*
2DS = Q2H
Q (H) Q2 = 2DS/H
2 Q* = 2DS/H

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Determine optimal number of needles to order

D = 1,000 units An EOQ Example
S = $10 per order Determine optimal number of needles to order
H = $.50 per unit per year (IC) D = 1,000 units Q* = 200 units
= Inventory cost X Cost of the Product S = $10 per order
H = $.50 per unit per year (IC)
2DS
Q* = Expected Demand D
number of = N = =
IC or H orders Order quantity Q*

2(1,000)(10) 1,000
Q* = = 40,000 = 200 units N= = 5 orders per year
0.50
200

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When to Place an Order

• Not ordered soon enough
Independent Demand Ordering – potential stockout
– loss in customer service
Systems • Order too early
– excess inventory

• Need to balance the cost of extra inventory

with the cost of a stockout
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Order Point System

When to Place an Order

• 3 basic systems

Units on hand
Order Point

– Order Point System

Safety Stock
– Periodic Review System
– MRP (for dependent demand systems) Lead
Time
Time

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An is order placed when the on-hand inventory

reaches a predetermined level (order point) Demand is 200 units per week, the lead time is
Often used with the EOQ model three weeks, and the safety stock is 300 units.
Must allow enough stock to satisfy demand during Calculate the order point.
the lead time (DDLT)
OP = DDLT + SS
= 200/wk x 3 weeks + 300
Order point = demand during lead time + safety = 900 units
stock Order when the inventory falls below 900 units

OP = DDLT + SS

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Order Point Average Inventory - Example Problem

Points to Remember The order quantity is 1,000 units and the safety
– Order quantities are usually fixed stock is 300 units. What is the average
– Order intervals may vary inventory?
– If the demand or the lead time changes the order
point must be changed (or the safety stock will
change) Average inventory = Q + safety stock
2
Average inventory = order quantity + safety stock = 1,000 + 300
2 2
= 800 units
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Determining Safety Stock Determining Safety Stock

• Protection against uncertainty • Amount of Safety Stock Depends on:
– in supply
– in demand – Variability of demand (during the lead time)
• Safety Stock – Order frequency
– covers uncertainty in quantity – Desired service level
• Safety Lead Time – Lead time
– covers uncertainty in timing (late) delivery • the longer the lead time the more safety stock
• keep the lead time to a minimum
• Both increase inventory
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Demand Variation About the Average

Week Item A Item B
1 1200 400 Period Actual Demand Average Actual - Average (Act - Avg)2
1 1200 1000 200 40,000
2 1000 600
2 1000 1000 0 0
3 800 1600
3 800 1000 -200 40,000
4 900 1300
4 900 1000 -100 10,000
5 1400 200
5 1400 1000 400 160,000
6 1100 1100 6 1100 1000 100 10,000
7 1100 1500 7 1100 1000 -100 10,000
8 700 800 8 700 1000 -300 90,000
9 1000 1400 9 1000 1000 0 0
10 800 1100 10 800 1000 -200 40,000
Total Demand 10,000 10,000 800 10,000 400,000
Average Demand 1000 1000
sigma = √400,000/10 = √40,000 = 200
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The service level is directly related to the number of

Example Problem Continued standard deviations needed and is called the safety
factor
Period Actual Demand If σ = 200 we should expect: The safety factor is found on the following table from the
corresponding desired service level
1 1200
2 1000 68% of the demands to be
3 800 between 800 -1200 units
4 900
5 1400
6 1100 98% of the demands to be
7 1100 between 600 -1400 units
8 700
9 1000 99.88% of the demands to be
10 800 between 400 - 1600 units
10,000

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If the standard deviation is 200 units, what safety stock

should be carried to provide a service level of 90%? If the
expected demand during the lead time is 1500 units, Suppose mangement stated that it could only tolerate one
what is the order point? stockout per year for a specific item.
For this particular item, the annual demand is 52,000 units, it is
Safety factor for 90% service level = 1.28 (from table) ordered in quantities of 2600, and the standard deviation of
Safety stock = sigma x safety factor demand during lead time is 100 units. The lead time is one week.
= 200 x 1.28 Calculate:
= 256 units a. Number of orders per year.
Order point = DDLT + SS b. Service level.
= 1500 + 256 c. Safety stock.
= 1756 units d. Order point.

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a. Number of orders per year = annual demand c. From the table of safety factors
order quantity Safety factor (95%) = 1.65
= 52,000
2600 Safety Stock = safety factor x sigma
= 20 orders per year = 1.65 x 100 = 165 units

b. Since one stockout per year is allowed, there must be no d. DDLT = (52,000 / 52 weeks per yr) = 1000 units
stockouts (20 - 1) = 19 times per year.
Order point = DDLT + SS
Service level = 20 - 1= 95% = 1000 + 165
20 = 1165 units

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Periodic Review System

Warehouse Management

Periodic review system: units in stock versus time

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Warehousing has shifted from

passive storage to strategic assortment

Warehouse Vs Distribution Centers

Cost center or Profit Center
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Is it a Joke or Reality?

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VAS

Responsibilities of Warehouse
From Western world Experience
Other than Storage & Retrieval ??
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Order Recording and Processing /

Square root rule
Standards to be adhered

Yard Management • Helps in consolidating the inventory

InDC Logistics

Quantity and Space Management • From the Current total inventory from X 1 (old) to X2 (new)
• From locations to n1 (old) and n2 (new )locations
Replenishment Management
• How much inventory (total) - N1 and N2 Should have ?
Order Management
o s
ic r
M t io n Conveyor science/Destination • X2= X1 √ (N2/N1)
era a management – N1 = No of existing facilities
Op Are – N2 = No of future facilities
Packaging Science
– X1 = Total inventory in existing facilities
Shipment Planning
– X2 = Total inventory in future facilities

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N1= 8 facilities (existing) and

N2= 2 future facilities

X1 = 40000 total units of product in the 8 facilities

Warehouse Layout
X2 = total units of product in the 2 future facilities

X2 = 40000 √(2/8)
= 40000 (0.5) = 20,000 Units (on total)
= 10000 units each ( at new locations)
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PO
Company’s dept

Received by Dept
Delivery Schedule

Delivery Challan

RR / LR

From Suppliers Bill of Entry

Receiving Procedure GRN

Cash Memo

Raised by Dept
Packign List/ Slip
Discrepancy Note

Material Rejection
Note

Daily Material Receipt

Report (DMRR)

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KINDS OF DAMAGES IN INTERNATIONAL LOGISTICS

International Packaging & Physical Climatic Biological

Containerization Storage Stowage

Atmospheric
Pollution
Atmospheric
Pressure
Railfall
Water
Solar Radiation
Heat & Cold
Pest & Fungi, Moulds
infestation & Bacteria

Vibration Chemical Wetting

RRP
Compression Compression Photo Effects Invasion Invasion
Impacts Reaction Expansion Condensation

Collapse Destruction Color Fading Decay

Breakage Abrasion Melting Destruction Contamination
Corrosion or Contamination Contamination
Distortation Breakage Bursting Corrosion Decomposition Spoilage

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Packaging Requirements

ISPM -15
(International Standards For Phytosanitary
Measures No. 15)

Pack your cargo with cardboard, plywood, veneer etc only. Don’t HT is the code for heat treatment to a minimum of 56 °C (133 °F)
use wood in your packing at all. Use plastic shipping supplies too. for a minimum of 30 minutes

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Recommended Pallet Conditions Wrong Practices

Overhang cartons Pyramid Stacking
Interlocking Coloumn Wise Packing

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Not Recommended Recommended

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Flute Science

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POLY BAG SCIENCE

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Numb
Acronym Name
er

1 PETE or PET Polyethylene terephthalate

2 HDPE High density polyethylene

3 PVC or V Polyvinyl chloride
4 LDPE Low density polyethylene
5 PP Polypropylene
6 PS Polystyrene

7 OTHER or O Acrylic, Fiberglass, Nylon…etc

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When will you become the full fledged

logistics and SCM Professional ??

????
Transaction

Documentation Distribution
channel channel

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Intermediaries
• Freight forwarders
• Non Vessel Operating Common Carriers
• Consolidators
• Customs House Brokers
• Export Management companies /Trading Cos
• Shipping associations
• Ship Brokers & Agents
• Export Packing Companies

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Containerization and Transportation Bulk Cargo (MT)

concerned with not only individual functions relating to

sea transportation, but also an effective logistics flow as a
systematic entity of LIS
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Break Bulk Specialized vessels (neo- bulk carrier)

•
•

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• XYZ is a company which tries to send a Product in the

Emergence of ISO containers
standard carton sizes 17 X 12 x 7 inches has to be
dispatched to Seattle at USA. The total order quantity of
the order is 1500000 pcs. The total number of pces in the
carton is 25 pcs. The rate for the East coast is FCL is US$
3400 and West Coast is US$ 3800 and Company trying to
take the maximum goods in FCL, that too only in 45’HC
and remaining will go as LCL. The company has allocated
the budget of US$70000 for this shipment and LCL rates
for west coast is INR 600 /CBM and east coast is INR
525/CBM Rate for conversion is US$1 = INR 72

• Find out the number of containers needed for the

shipments
• Evaluate the allocated budget.
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Pallet wide containers

Packing conditions

Example of an ISO 6346 conform container number

U for all freight containers
J for detachable freight container-related equipment
Z for trailers and chassis
R for reefer containers (cooling containers, mostly with their
own refrigeration system)
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ICD

CFS

role in IL ?
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• Loading Sequence / Container Manifest

• SOP of handling the containers –

Lead Cartons

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Over height cargo crushed due to discrepancy

in bill of lading – who is responsible..??

OOG- Out of Gauge

Air Freights

Why ??

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Air Transportation
• Warsaw Convention
– ICAO

• Types of Players
• Air Freighter
• Charter Airplane
• Integrators
• Combi Aircrafts

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• Barcelona in Spain with airport code BCN • Guaranteed Capacity agreement

Barcelona in Venezuela with airport code BLA – Refundable

• Santa Rosa, CA in USA - STS • Capacity Purchasing agreement

Santa Rosa in Bolivia - SRB
– Non- Refundable
Santa Rosa in Brazil - SRA
Santa Rosa in Argentina - RSA – Block space agreement or allotment
Santa Rosa, Copan in Honduras - SDH – General trend is two year CPA

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• PPD Vs Air Collect
• Different cost components along with the Freight rate/kg to
the destination – incl Terminal Handling Charges (THC), X- ray
& Scanning charges, Fuel surcharges (FSC) – etc.,
• Different Sector Analysis on both Domestic and Intl’ routes.
• Advantage to have the knowledge about hubs for air cargos
for each airlines – and the to the international airlines, which
does not have operation in any airports, need to identify the
carrier which is supplying to the nearby Cargo hub of that
particular airline – eg.
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} Air lines has a cut off period & special packaging
requirements along with equipment used.
} Generally – for all the airlines 24 to 48 hours is the
cooling period before the cargo is palletized and
loaded into the aircraft.
} Knowledge about documentation involved in Air
Freights – such as Airway Bill (AWB), Customs
invoice, Insurance, Packing List is an advantage.
} Should know about Airfreight volume calculation
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Freight Calculation on Air shipments:

Air freight is charged on a weight basis (kg), either by volume weight
or actual weight of the freight. In most cases, both volume and
actual weight are evaluated and the air freight will be charged based
on the weight, whichever is greater.
Volume weight in Kgs can be calculated by = (LX W X H in cms)/6000
or LX W XH (inches)/366 in Kgs (166 in lbs)
DIM Weight, volumetric weight, Cubed Weight, etc
Prices (airfreight rates) are always quoted per kg/6 dm³. It
can also be called the volume ratio 1 : 6 or 1 m3 = 167 kg.
That means you either pay for the weight or the space
necessary for the transport of your consignment.

Type of transport Volume calculation

Actual weight = Weight of the carton in Kgs Air freight 1 m³ = 167 kg
for Eg : Actual Weight of the Carton of Size L = 50 cm ; w= 60 cm ; Truck 1 m³ = 333 kg
H= 40 cm is 16 kgs
Volumetric weight of a carton = (50 x 60 x 40)/6000 = 20 Kgs Sea freight 1 m³ = 1,000 kg

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LD 3
• AKE Containers

• Volume : 4.2 m3

• Gross Wt. : 1588 kgs

• Wide bodies

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LD 9 – AAP
Export and Import
4,898 kgs
Flowchart

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Submission of Bill of Entry

Shipping Bill And Shipping Notation of
Shipping Bill and Assessing
Customs And Documents Importer/ Documents Customs Bill of Entry
Exporter/CHA Documents Officer Appraisal
House Export CHA House Section
Dept

Bill of Lading Assessment of Delivery of

And Other Value and Imported Assessment of
Documents Computation of Duty Cargo Value and
Computation of Duty

Cargo on Board Shed Payment of

Physical Customs Assistant/
Shipping The Ship Preventive Appraiser’s Shed Duty
Examination Shed Examination Deputy
Out of
Line Officer Appraiser Appraiser Commissioner
Let Ship Let Export Charge on
For Verification
Order B/E

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International payments
Trade finance

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Cash in advance not very common

Four basic Documentary credit (Letter Provides the greatest security for seller but
of credit)
Cash in not for buyer
terms of
advance The buyer simply prepays the seller prior to
payment Documentary collection shipment of the goods and risks that seller will
not comply with all the terms of contract.

Buyer has to have a high level of confidence in

Open Account the ability and willingness of the seller to
deliver the goods as ordered.

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HOW: Bank draft or check, wire

payment to the bank account
Questions for the buyer
• Are cash in advance terms the only option available?
• Will the seller comply with the terms and ship the goods
as promised?
WHEN: Unique, high-demand • What recourse is available if the goods are not shipped
Cash in products, orders from unknown as ordered?
Are there economic, political, or social instabilities in the
buyers in unstable countries •
advance Questions seller´s country that may increase the likelihood that the
seller cannot ship as promised?

Questions for the seller

Small sample orders, large buyer- • Is the product unique enough or in high enough demand
small seller-large order, new to get way with requiring cash in advance terms?
relationship, small transaction, avoid • Is the buyer willing to pay at least some proportion in
advance?
costs of documentary payments

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• most common
• Security and almost equal risk for both of the parties
• Added cost (for the handling of the documentary credit)
to buyer
Documentary • A bank’s commitment to pay the seller a specified
amount of money on behalf of the buyer under

credit •
precisely defined conditions
The buyer specifies certain documents (including a

(Letter of document of title) which the seller has to give to the

bank in order to receive the payment – must conform
precisely!
credit) • Payment after the goods is shipped and the bank is
provided by the documents (bill of lading)
• Disagreements regarding the order are handled
between B and S independently of the banks or of
payment!

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• most common
• Security and almost equal risk for both of the parties
• Added cost (for the handling of the documentary
credit) to buyer Questions for the buyer
• A bank’s commitment to pay the seller a specified
amount of money on behalf of the buyer under • Is my bank experienced in documentary credit transactions?
precisely defined conditions
Documentary credit • The buyer specifies certain documents (including a
• Am I prepared to amend or renegotiate terms of the credit with the seller?
• Am I certain of all the documents required for customs clearance?
(Letter of credit) document of title) which the seller has to give to the
bank in order to receive the payment – must conform
Questions for the seller
precisely!
• Will I take care to confirm the good standing of the buyer and the buyer´s bank?
• Payment after the goods is shipped and the bank is • Will we carefully review the credit to make sure its conditions can be met?
provided by the documents (bill of lading)
• Am I committed to properly prepare documentation for the credit?
• Disagreements regarding the order are handled • Can we comply with every detail of the credit?
between B and S independently of the banks or of
• Am I prepared to amend or renegotiate terms of the credit with the buyer?
payment!

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Types of LCs Documentary collection

Commercial Stand by letter
Revolving LC
Letter of Credit of credit
• Security and almost equal risk for both of the parties
• Less cost and easier to use than the Letter of credit
Block • An order by the seller to his bank to collect payment form the buyer in exchange for the
Red Clause LC LC/Master Back to Back LC transfer of documents that enable the holder to take position of the goods.
LC/Revolving LC • The seller ships goods to the buyer (to the agent, bank) and sends the documents (including a
document of title) through the bank with instructions to release them to the buyer only upon
payment. The bank can not transfer the documents to the buyer until the payment is made.
Deferred Once in possession of the documents the buyer may take the possession of the shipment.
Confirmed LC Sight LC
Payment LC – Document against payment (D/P)
– Document against acceptance (D/A)
• Bank involved in the transactions do not guarantee payment but act only as collectors of
payment.
Irrevocable LC

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• Risks for seller:

– Payment is not made until after the goods Questions for the buyer:
are shipped
• Do I trust that the seller will ship the quality and quantity of goods as
Documentary – Good can be destroyed during the transit or
storage
promised?
collection – Bank not guarantee the payment
Questions for the seller:
• Risks for buyer:
– The shipped good wont have the ordered • Do I know the buyer well enough to trust that he/she will pay for the
quality and quantity. documents?
• If the buyer refuses to pay for the documents, are the goods we are shipping
easily marketable to another client?
• Is our company committed to prepare documents correctly?

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Open Account • Used when:

• Less risk for the buyer and the greatest risks for the seller – Not much common in
that the buyer will not comply with the terms of the international trade
contract and pay as promised.
• The seller should always consider whether any other
alternatives are available before agreeing to open account
terms.
Open – goods are shipped to the foreign
branch or subsidiary of a
multinational company
• The buyer has to pay for the goods within a designated time
after the shipment, usually 30, 60, 90 days, no longer that
180 days.
Account – High degree of trust between the
persons
• Time to: receive the goods, check it, market them in his
domestic market, receive payment for it and make payment – The seller has significant faith in
to the seller. the buyer’s ability and willingness
• Made by: bank draft, check, wire payment to the bank to pay.
account specified by the seller
• If the buyer does not pay – the last chance is to take an legal
action on the basis of sales contract.

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Questions for the buyer:
• Can I convince the seller of my
ability and willingness to pay
on an open account terms?
• Is my marketing or distribution
strength and reputation in my
domestic market attractive
enough to the seller to justify
open account terms?
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Questions for the seller:
• Are open account terms the
only option available?
• Does the buyer have the
ability and willingness to make
payment?
• Will economic, political, and
social instability in the buyer’s
country hinder the buyer’s
ability to pay?
SCM
104