Logistics and supply chain management

Unit-3
SCM includes everything from the production of products to the development of information systems
to keep track of everything. The chain has 3 main components from start to finish which simplifies
the process a little. These components are Purchasing, Manufacturing, and most importantly
Transportation.

Transportation is the metal link that holds the supply chain together. Every step of the process is
connected together through transportation, since raw materials are moved from the dealers or where
they are purchased from, to the place where they are manufactured, and finally to the end
customer.

✓ The roles of transportation in a supply chain.

▪ Reduce Costs
▪ Enhanced Customer Service
▪ Segmenting Shipments Based on Priority
▪ Using a Transportation Management System
▪ Various Modes of Transportation
▪ Transportation to Dissolve Geographical Limitations
▪ Helping Better the Economy

✓ Core components of transportation in supply chain

 ✓ Factors affecting transportation decisions

▪ Shipper (party that requires the movement of the product between two points in
the SC)
▪ Transportation cost
▪ Inventory cost
▪ Facility cost
▪ Carrier (party that moves or transports the product)
▪ Vehicle-related cost
▪ Fixed operating cost
▪ Trip-related cost

✓ Factors Affecting Transportation in Logistics

▪ Terminal Facilities
▪ Vehicles
▪ Prime Movers
▪ Routes And Sectional Capacity
▪ Transit Time
▪ Weigh Bridge
▪ Distribution Pattern
▪ Nature of Product

✓ Design Options for a Supply Chain 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:

1. Should transportation be direct or through an intermediate site?

2. Should the intermediate site stock product or only serve as a cross-docking
location?
3. Should each delivery route supply a single destination or multiple
destinations?
Based on the answers to these questions, the supply chain ends up with a variety of
transportation networks. We discuss these options and their strengths and weaknesses
in the context of a buyer with multiple locations sourcing from several suppliers.

Following are the options for transportation networks:

1. Direct Shipment Network to Single Destination
With the direct shipment network to a single destination option, the buyer structures the
transportation network so that all shipments come directly from each supplier to each
buyer location, as shown in Figure 14-2. 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.

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.

2. 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, as shown in
Figure 14-3. 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. When using this option, a supply chain manager has to
decide on the routing of each milk run.

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.

3. 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, as
shown in Figure 14-4. 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.
4. All Shipments via intermediate Transit Point with Cross-Docking
Under this option, suppliers send their shipments to an intermediate transit point (which
could be a DC), where they are cross-docked and sent to buyer locations without
storing them. The product flow is similar to that shown in Figure 14-4 except that there
is no storage at the intermediate facility. When a DC cross-docks product, each inbound
truck contains product from suppliers for several buyer locations, whereas each
outbound truck contains product for one buyer location from several suppliers. Major
benefits of cross-docking are that little inventory needs to be held and product flows
faster in the supply chain. Cross-docking also saves on handling cost because product
does not have to be moved into and out of storage. Cross-docking is appropriate when
economies of scale in transportation can be achieved on both the inbound and
outbound sides and both inbound and outbound shipments can be coordinated.

5. Shipping via DC Using Milk Runs

As shown in Figure 14-5, 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.

6. Tailored Network
The tailored network option is a suitable combination of previous options that reduces
the cost and improves the responsiveness of the supply chain. Here, transportation
uses a combination of cross-docking, milk runs, and TL and LTL carriers, along with
package carriers in some cases. The goal is to use the appropriate option in each
situation. High-demand products may be shipped directly to high-demand retail outlets,
whereas low-demand products or shipments to low- demand retail outlets are
consolidated to and from the DC. The complexity of managing this transportation
network is high because different shipping procedures are used for each product and
retail outlet. Operating a tailored network requires significant investment in information
infrastructure to facilitate the coordination. Such a network, however, allows for the
selective use of a shipment method to minimize the transportation as well as inventory
costs.

Tailored transportation is nothing but customised transportation of products by using

various types of transportation network and modes based on the product and the
customer characteristics. Tailored transportation is a tool in the hands of supply chain
managers to helps reduce the total costs to the firm.
With the help of tailored transportation, a firm is able manage each of its customers cost
effectively and with suitable responsiveness, some of the things to be kept in mind while
adopting tailored transportation are –

• Customer density and distance – Firms consider tailored transportation on the

basis of customer density and distance from the warehouse while designing the
transportation networks.
• Size of the customer – Firms must consider tailored transportation by size of
the customer while designing transportation networks. Large customers can be
supplied using a truck load carrier, whereas the smaller customers will require a
less than truck load carrier or Milk Runs.
• Product value and demand – Firms must consider tailored transportation by
product value and demand. The level of inventory aggregation and the modes of
transportation used in a supply chain network should vary with the demand and
value of the product. High value products within high demand must be subject to
disaggregate cycle inventory and aggregate safety inventory.

✓ Routing and scheduling in transportation

Scheduling is the process of planning out time windows for when deliveries will be
made and who will make them.

Routing is the process of mapping specific routes that drivers will take to make these
deliveries.

Route planning is the process of taking your schedule and mapping out precise (and
optimal) routes for delivery drivers or service professionals. Route planning is used
to optimize routes by taking factors like vehicle capacity constraints, travel time,
and transportation costs into account, while scheduling is used to optimize
workloads and workforce availability.

Route scheduling is the practice of scheduling a driver’s servicing, delivery, and

arrival times for their routes. Route scheduling not only maximizes service
appointments in a given work day, it also ensures that customers get serviced in an
accurate and timely manner.

✓ Some of the benefits you can get from perfecting your scheduling and route
planning processes:-
 ▪ Increased revenue
▪ Increased efficiency
▪ Increased productivity
▪ Ability to scale your business

The procedure for routing and sequencing of vehicles consists of the following steps:

1. Assign seed points for each route.

2. Evaluate insertion cost for each customer.

3. Assign customers to routes.

4. Sequence customers within routes.

✓ Warehousing and the supply chain

Warehousing is an integral piece of the broader supply chain for physical products.
Warehouses do not only serve as intermediary storage facilities — they also
provide the ability for supply chain managers to reduce costs by optimizing
inventory purchases, saving shipping costs and speeding up delivery times.

Why is warehousing important?

▪ Fulfill your orders efficiently

▪ Add value to your operation

▪ Reduces the risk to your products

What processes fall under warehousing?

Every warehousing operation has 5 key processes in common. They are:

1. Receiving

2. Putaway

3. Picking

4. Packing

5. Shipping

✓ Warehousing strategies in supply chain management

1. Use Sales Forecasts

One of the most impactful warehousing strategies to include in your planning is to use
sales data to coordinate your team. Look at both past and future projections to get a
sense of how many orders will come in at any given time.
This allows you to schedule your employees more efficiently throughout the week.
Doing this in advance of each quarter gives you time to see potential setbacks before
they happen and formulate a plan. If you have a warehouse with heavy volume, this
strategy is a must to keep your team on track and ready to respond to potential
problems.

2. Estimate Your Expenses

It’s possible to increase your bottom line by simply reducing expenses. But without
taking a long, hard look at what you need month-to-month, you won’t be able to be
proactive about your warehousing strategies.
For example, if past sales activity shows there’s a lull in dock activity the last week of
every month, this is an opportunity to reduce costs in labor and equipment.

3. Automate

Automation is one of the best warehousing strategies you can use to make your team
more efficient. The type of automation you use is based on where you need operations
or analytics support to make sure the information you’re acting from is accurate.
Bad data entry and reporting waste companies time and money each year. Make sure
the technology you choose includes the features that make sense for the needs of your
day-to-day operations.
Too much technology can actually be a distraction for your team. Find that balance
between state of the art features and simplicity so your team makes an easy transition
into using the new system.

4. Choose the Right Location

Labor is the driving force of many warehouses. Make sure you choose a location that
gives you access to the best available talent for your warehousing needs.
It’s unlikely that hourly staff will commute across long distances for jobs they can get
closer to home. A competitive employer finds a location in reasonable proximity to its
workforce when feasible but not directly in the area of other businesses that might take
away your talent.

5. Evict Old Inventory

Unless you’re selling long term storage space, inventory that doesn’t sell is costing you
money. Space is a premium in any warehouse and should be treated like gold.
Get rid of inventory that takes too long to move or doesn’t move at all. The space the
inventory takes up is an opportunity for additional profit for your company.

6. Centralizing Warehouses

A popular warehousing strategy, this is a change from the smaller, regional approach to
warehousing. Instead of many small decentralized warehouses, companies are seeing
the value of a larger facility that serves the same customer base. Why? Well, if you
consider what goes into warehouse facilities — transportation, staffing, security, climate
control, lighting, etc. — it is often less expensive to maintain a single large facility than
many smaller ones.
The result of this warehousing strategy is more affordable warehousing. In turn, this
means more cost-efficient logistics for customers. We operate one warehouse, centrally
located for your convenience.

7. Outsourcing To Third Parties

We’re a third-party logistics provider, so we understand this warehousing strategy
particularly well! Companies who had previously warehoused their own inventory are
outsourcing to reputable companies like our own, as a lower-cost alternative that
doesn’t sacrifice on quality.
Ours is a public warehouse, attractive to companies wanting to outsource by renting
space for their needs, like emergency storage or temporary storage. It’s also great for
smaller businesses with less inventory, or companies that need seasonal warehousing.
When organizations outsource to third parties like us, other logistics services follow.
These include freight transport, rail shipping and receiving, container delivery
and, import export logistics. This works well for clients who want full-service logistics on
an as-needed basis at an affordable rate.

8. Electronic Monitoring Systems

Gone are the days of relying on security patrols to ensure that warehoused inventory is
safe. While security staff continues to play an important role in warehousing, today’s
warehousing strategies focus on technological solutions.
This type of system deters theft, internal and external. It reduces the number of people
who need to have access to assets, while also protecting them from damage. An
electronic monitoring system is ideal for theft prevention, but it also works well to
monitor for fire, flooding, and other natural disasters.
This means two things for you as the customer. First, you can rest assured that your
products are safe in our public warehouse. Second, there’s no need to pay more for
security staff nor to pay artificially inflated prices thanks to the loss of products. Labor
costs will always add to overall expenses, and in this case, it’s a cost easily controlled
through tech. We provide secure, safe warehousing at an affordable price.

9. Lean Warehouse Operations

Overall, all of these warehousing strategies point to one main practice, which is lean
operations. By optimizing the resources at our fingertips, we reduce the time it takes to:
• handle inventory
• coordinate for effective supply chain management
• look for stock,
• load and unload onto transport
We manage customer specifications and needs so that we can reduce the time and
expense required to get your products where they need to go. We base everything we
do on a lean, flexible model and we can adapt to your needs, responding quickly with an
affordable solution. Our aim is always efficiency.
10. Working with Quality Warehouse & Distribution

Not every one of the best warehousing strategies requires you to upgrade equipment or
make a heavy investment in new software. Much of strategizing is thinking and planning
ahead based on the information you have available. Your profits rest on your ability to
keep your employees working efficiently while maximizing your space.

✓ Inventory management in supply chain

Inventory management, a critical element of the supply chain, is the tracking of

inventory from manufacturers to warehouses and from these facilities to a point of
sale. The goal of inventory management is to have the right products in the right place
at the right time. This requires inventory visibility — knowing when to order, how much
to order and where to store stock. The basic steps of inventory management include:

1. Purchasing inventory: Ready-to-sell goods are purchased and delivered to the

warehouse or directly to the point of sale.
2. Storing inventory: Inventory is stored until needed. Goods or materials are
transferred across your fulfillment network until ready for shipment.
3. Profiting from inventory: The amount of product for sale is controlled. Finished
goods are pulled to fulfill orders. Products are shipped to customers.

What are the types of inventory management?

▪ Periodic inventory management

The periodic inventory system is a method of inventory valuation for financial reporting
purposes in which a physical count of the inventory is performed at specific intervals.
This accounting method takes inventory at the beginning of a period, adds new
inventory purchases during the period and deducts ending inventory to derive the cost
of goods sold (COGS).
▪ Barcode inventory management
Businesses use barcode inventory management systems to assign a number to each
product they sell. They can associate several data points to the number, including the
supplier, product dimensions, weight, and even variable data, such as how many are in
stock.
▪ RFID (Radio Frequency Identification) inventory management
RFID or radio frequency identification is a system that wirelessly transmits the identity of
a product in the form of a unique serial number to track items and provide detailed
product information. The warehouse management system based on RFID can improve
efficiency, increase inventory visibility and ensure the rapid self-recording of receiving
and delivery.

✓ Key features of effective inventory management

▪ Inventory tracking
Know exactly where inventory is across the supply chain.
▪ Order management
Customize pricing, send quotes, track orders and manage returns.
▪ Transfer management
Move product to where it's most valuable.
▪ Reporting and analytics
Evaluate patterns in processes to forecast future demand and sales.
▪ Purchasing
Create and manage purchase orders.
▪ Shipping capabilities
Automate shipping to reduce errors such as late deliveries or delivering incorrect
packages.

✓ Supply Chain Process View

A supply chain is a sequence of processes and flows that take place within
and between different stages and combine to fill a customer need for a
product. Two ways to view the processes performed in a supply chain

• Cycles view and

• Push/pull view

Cycle view

It defines the processes involved and the owners of each process. Process in
a supply chain is divided into a series of cycles. Cycles are performed at the
interface between two successive stages of a supply chain

Supply chain process can be broken down into four process cycles such as

• Customer order cycle

• Replenishment cycle
• Manufacturing cycle
• Procurement cycle
Each cycles occurs at the interface between two successive stages of the
supply chain. A cycle view of the supply chain is very useful when
considering operational decisions. It clearly specifies the roles and
responsibilities of each member of the supply chain. It helps the designer to
consider the infrastructure required to support the processes.

Push/Pull View

Categorizes processes in a supply chain based on whether they are initiated

in response to a customer order (pull) or in anticipation of a customer order
(push). Categorization is based on the timing of process execution relative to
end customer demand.

At the time of execution of a pull process customer demand is known with

certainty. In case of push process at the time of execution of a process
demand is not known and must be forecasted.

Hence,
 • Pull process – reactive process
• Push process – speculative process

Push/pull boundary in a supply chain separates push process from pull

process. Very useful when considering strategic decisions relating to supply
chain. Forces more global consideration of supply chain processes as they
relate to a customer order. More the pull process betters the supply chain.

Unit-4

✓ Distribution Resource Planning

Distribution resource planning (DRP) is a method used in business

administration for planning orders within a supply chain. DRP enables the user to set
certain inventory control parameters (like a safety stock) and calculate the time-phased
inventory requirements. This process is also commonly referred to as distribution
requirements planning.

Distribution Requirements Planning (DRP) is the

process of determining the right quality of finished goods to be sent to each
distribution center or warehouse in order to meet customer demand. During
DRP, customer and forecasted demand are translated into purchase orders. This
process depends on actual demand signals such as customer orders as those
orders are used to plan the gross requirements of the supply source.

The goal of DRP is to ensure that the right quantity of goods are produced in the
manufacturing facilities and sent to various warehouses to fulfill customer orders.

✓ Benefits
▪ Faster Decision Making
▪ Utilization of Demand Forecasting
▪ Planning Initiation Accuracy
▪ Cost Awareness
▪ Customer Service Enhancement
▪ Push or Pull Method
The DRP process can either use a push or pull method. First, the pull method involves
demands for finished goods shifting upward throughout the system to fulfil customer
orders. The push method is the opposite of the pull method - instead, goods are sent
downward through the system.
✓ Materials Requirement Planning (MRP 1)

MRP stands for materials requirement planning. This concept requires creating material
plans and production schedules based on the lead times of a supply chain. MRP
answers three questions: what is needed, how much is needed, and when is it needed.

An MRP system is made up of:

• A master production schedule: This plan includes orders, forecasts, and capacity.
• Bill of materials (BOM): A list of the materials and any inputs required to
manufacture the final product.
• Inventory status file: A record of the actual inventory level of each item and part,
as well as data such as lead times.
 Material requirements planning (MRP 1) is a strategy by which a manufacturer
optimizes the acquisition, storage and deployment of materials needed in its
production runs. MRP 1 keeps track of a manufacturer's inventory of incoming
raw materials and supplied components.

✓ Manufacturing Resource Planning (MRP 2)

Manufacturing Resource Planning (MRP II) is an integrated information system
used by businesses. Manufacturing Resource Planning (MRP II) evolved from
early Materials Requirement Planning (MRP) systems by including the integration
of additional data, such as employee and financial needs.
It is a computer based system that can create detailed production schedules
using real time data to coordinate the arrival of component materials with
machine and labor availability.

✓ Benefits of manufacturing resource planning

▪ Minimizes inventory footprint.

▪ Reduces inventory management costs.
▪ Reduces spoilage and material waste.
▪ Minimizes production line idle time.
▪ Lowers production costs.
▪ Improves on-time delivery.

✓ Extended Producer Responsibility (EPR)

▪ Extended Producer Responsibility (EPR) describes the comprehensive obligation that
businesses have to reduce the environmental impact of their products and
packaging.
▪ Under the EPR model of cradle-to-grave product management, a producer’s
responsibility spans the entire product management lifecycle, because that
responsibility is extended to the post-consumer phase.
▪ This obligation encompasses waste reduction, recovery, recycling and reuse, and in
many cases businesses are solely and fully responsible for designing, operating and
financing the associated diversion program.
 ▪ EPR requires total producer responsibility, physical and financial, for products and
packaging supplied into the marketplace. It shifts responsibility upstream, away from
municipalities and regional waste authorities to the companies that put the products
(along with their packaging and marketing material) into the marketplace.
▪ Extended Producer Responsibility (EPR) is a policy approach under which producers
are given a significant responsibility – financial and/or physical – for the treatment or
disposal of post-consumer products.

✓ Computer Aided Logistics Support (CALS)

CALS is a business strategy that enables more efficient product development,
business transactions, and business management by using digital data to
comprehensively carry out the reform and standardization of business
processes and application of international standards to the business
processes.
 The objectives are to:

• Reduce data space, weight, and storage requirements

• Increase opportunities for automated processes

• Improve the process to reduce Life Cycle Costs

• Modernize the infrastructure

• Improve information quality

• Acquire data digitally

✓ Reverse Logistics

Reverse logistics is a type of supply chain management that moves

goods from customers back to the sellers or manufacturers. Once a
customer receives a product, processes such as returns or recycling
require reverse logistics.

Reverse logistics start at the end consumer, moving backward through

the supply chain to the distributor or from the distributor to the
manufacturer. Reverse logistics can also include processes where the
end consumer is responsible for the final disposal of the product,
including recycling, refurbishing or resale.
When Is Reverse Logistics Used?
Organizations use reverse logistics when goods move from their destination back
through the supply chain to the seller and potentially back to the suppliers.

5 Steps to Good Reverse Logistics

1. Process the Return

The return process starts when the consumer signals they want to return a
product. This step should include return authorization and identify the product’s
condition. This process also involves scheduling return shipments, approving
refunds and replacing faulty goods.

2. Deal with Returns

Once a returned product arrives at your location or centralized processing center,

inspect it and determine its return category. (Note: If you have optimized reverse
logistics, you should know where the product should go before it arrives.) Sort
products into the disposition options: fix, resell as new, resell as a return, recycle,
scrap or refurbish.

3. Keep Returns Moving

Reduce your daily waste by sending repairable items to the repair department.

4. Repair
After reviewing the returned item/equipment and determining whether it can be
repaired, move it to the repair area. If not possible, sell any sellable parts.
5. Recycle
Any parts or products that you cannot fix, reuse or resell should be sent to the
area for recycling.

✓ Supply chain challenges in 2021

▪ Material scarcity.
▪ Increasing freight prices.
▪ Difficult demand forecasting.
▪ Port congestion.
▪ Changing consumer attitudes.
▪ Digital transformation.
✓ 5 tips to overcome supply chain issues

➢ Keep liquidity in your business

➢ Diversify sourcing in your supply chain strategy

➢ Work with a freight forwarder

➢ Identify alternative shipping ports

➢ Improve demand forecasting

➢ Looking forward: Post-pandemic supply chain management

✓ Bullwhip Effect

It simply says that small fluctuation at one end of the supply chain can lead to
large fluctuation at the other end.
Bullwhip effect explains how small fluctuations in demand at the retail level can
cause progressively larger fluctuations in demand at the wholesaler, distributer,
manufacturer and supplier levels.
ie a change in any link along the supply chain can have a profound effect on the
rest of the supply chain.

Causes of bullwhip effect

▪ Lead time issue
▪ Lack of communication
▪ Incorrect demand forecast
▪ Too many discounts and promotions
▪ Price fluctuations
▪ Under and over deliveries

How to avoid bullwhip effect

o Use warehouse inventory management software

o Limit promotions and sales
o Stream line the supply chain
o Improve order planning
o Optimize minimum order quantity.
✓ Integrated Logistics

Integrated logistics is a business management model that is increasingly used to

accelerate product delivery and improve customer service.

In this model, all departments, processes and resources are aligned to work in
perfect sync and operate as one cohesive unit. This results in seamless
operations and ensures that customer orders are dispatched quickly.

As logistics involves several departments, the integrated model emphasizes the

need for teamwork to optimize performance.
It involves the process of anticipating customer needs and demands, acquiring,
storing and dispatching raw material and coordinating deliveries.

✓ Activities related to Integrated logistics.

▪ Physical distribution.
▪ Materials management.
▪ Logistics engineering.
▪ Business logistics.
▪ Logistics management.
▪ Integrated logistics management.
▪ Distribution management.
▪ Supply chain management.