What is Logistics Management?

‡ The objective is to plan and coordinate all the activities necessary to achieve desired level of delivered service and quality at lowest possible cost. ‡ The scope of logistics include the entire gamut of activities starting from the procurement and management of raw materials through to delivery of final product to the customer. ‡ The ultimate purpose of any logistics system is to satisfy the customer by establishing linkages of people at all levels in the organization directly or indirectly to the market place.

‡ As it is getting increasingly difficult to maintain a competitive edge through product alone, customer service has started to provide the distinctive difference between one company¶s offer and that of its competitors. ‡ The underlying concept is ³ The process of strategically managing the procurement, movement and storage of materials, parts and finished inventory and the related information flows through the organization and its marketing channels in such a way that the current and future profitability are maximized through the cost effective fulfillment of orders.´

Competitive Advantage
Customers seeking benefits at acceptable cost

Company A (Asset utilization)

Cost differential

Company B (Asset utilization)

Source of Competitive Advantage
‡ Competitive advantage is the ability of an organization to differentiate itself in the eyes of the customer, from its competition, and to operate at a lower cost and hence greater profit. ‡ Competitive advantage helps organizations to achieve commercial success which mainly depends upon two factors ± cost advantage and value advantage. 4

Commercial success

Cost advantage

Value advantage


‡ Cost advantage or Productivity advantage - Characterized by low cost of production due to greater sales volume, economies of scale enabling fixed costs to be spread over a greater volume and the impact of the µexperience curve¶. ‡ Value advantage is in terms of product offering a differential µplus¶ over competitive offerings. - Based on marketing concept that customers that µcustomers don't buy products, they buy benefits¶. - Benefits may be intangibles and may not relate to specific product features. - It can be an image or reputation or even some functional aspects. 6

‡ Service helps in developing relationship with the customers through provision of an augmented offer.‡ Adding value through differentiation is extremely powerful is extremely powerful means of achieving competitive edge in the market. after-sales services. technical support etc. financial packages. ‡ One of the significant method of adding value is service. ‡ Augmentation takes many forms such as delivery services. 7 .

Productivity and Value Matrix V a l u e A d v Service Leader (3) Cost and Service Leader (4) Cost Leader (2) Commodity Market (1) Productivity Advantage 8 .

9 . ‡ Another route to achieving cost advantage is through logistics management.‡ For companies in quadrant (1). As logistics constitutes a major proportion of total costs. the market is uncomfortable place as their products cannot be differentiated from their competitors¶ offerings as they do not have any cost advantage. these are based on economies of scale gained through volume. Traditionally. adopt cost leadership strategies. reengineering logistics processes results into substantial cost reduction. These are commodity markets. ‡ Companies in quadrant (2).

‡ Services strategies can be developed through enhanced logistics management. 10 . just-in-time delivery. ‡ Companies in quadrant (4) are distinctive in value they deliver and are also cost competitive. and various other value added services. reduced lead times. seek differentiation through service excellence since markets are becoming more and more service sensitive. ‡ Competitors find it hard to attack these companies which try to excel in all the value chain activities. ‡ Customers expect greater responsiveness and reliability from the suppliers.‡ Companies in quadrant (3).

ValueValue Chain Activities Chain Activities Primary Activities ‡Inbound Logistics ‡Operations ‡Outbound Logistics ‡Marketing & Sales ‡Service Secondary Activities ‡Infrastructure ‡Human Resource Management ‡Technology Development ‡Procurement 11 .

‡ Primary activities represent the functional areas like arranging inputs for transforming them into output. and managing distribution. ‡ The companies can achieve competitive advantage and create differentiation by organizing and performing these activities more efficiently or in a unique manner than their competitors. 12 . and services. sales. ‡ The secondary activities facilitate the integration of all the functions across the entire organization. marketing.

Factors affecting value and productivity advantage A.Responsiveness.Capacity utilization .Inventory reduction . B.Asset utilization . Value advantage . Productivity advantage . 13 .Reliability .Integration with the suppliers.Customized services .

Underlying Philosophy Behind Logistics Concept Materials Flow Suppliers Procurement Operation Distribution Customers Information Flow 14 .

‡ The objective of logistics is to link the market place. distribution network. ‡ Scope of logistics management encompasses management of raw materials and other inputs through the delivery of the final product. the manufacturing process and procurement activity. so as to provide higher levels of services to the consumers yet at a lower cost. 15 .

16 . manufacturing and marketing have been considered as separate activities each having different priorities.How do we define logistics management? ‡ A process of satisfying customer needs through coordination of materials and information flows that extend from the market through the firm¶s operation and beyond that to the suppliers. ‡ Traditionally. ‡ A shift to an integrated orientation from the conventional manufacturing or marketing orientation.

minimized set ups and changeovers. and product standardization. high service levels. laying sustained emphasis on quality and integrating supply side issues in strategic plans. ‡ Marketing priorities and objectives are concerned with achieving competitive advantage based on varieties. practicing inventory management policies based on manufacturing requirement planning and just-in-time inventory policy. and frequent product changes.‡ Manufacturing priorities and objectives are concerned with achieving operating efficiencies based on long production runs. ‡ Customer orientation and cost competitiveness has been integrated by introducing flexible manufacturing systems. 17 .

Customers Retailers Shirt Manufacturer Weavers of Fabrics Yarn/Fibre mfrers Downstream Upstream 18 . both upstream and downstream in different processes and activities that produce and deliver value in the form of products and services in the hands of ultimate consumer.How do we define supply chain? ‡ A network of organizations that are having linkages.

and downstream though distributors and retailers to the final consumers. 19 .‡ A shirt manufacturer is a part of supply chain that extends upstream through the weavers of fabrics to the spinners and the manufacturers of fibres. ‡ Though each of these organizations are dependent on each other yet traditionally do not closely cooperate with one another.

Is Supply chain management same as vertical integration? ‡ SCM is not the same as vertical integration.e. ‡ Vertical integration implies ownership of upstream suppliers and downstream customers. ‡ Earlier. ‡ Everything else is outsourced. the activities that they do really well and where they have a differential advantage. vertical integration used to be the desirable strategy but increasingly the companies are focusing on their core business i. 20 .

‡ Transferring costs upstream or downstream leads to logistics myopia as all costs ultimately will make way to the final market place to be reflected in the price paid by the end user. ‡ The prime objective of SCM is to reduce or eliminate the buffers of inventory that exists between the organizations in a chain through sharing of information on demand and current stock levels. 21 . and similarly managing the distribution of the finished product by way of multitude intermediaries.Implementation of SCM through Logistics Management ‡ SCM raises the challenge of integrating and coordinating the flow of materials from multitude of suppliers. including offshore.

‡ Logistics is essentially a framework that creates a single plan for flow of products and information through a business.e. ‡ Supply chain management deals with integration of all partners in the value chain. and organization itself.How does Logistics differ from SCM? ‡ Logistics management is primarily concerned with optimizing flows within the organization. 22 . suppliers and customers. ‡ Supply chain builds upon this framework and seeks to achieve linkage and coordination between processes of other entities in the pipeline i.

Impact of Logistics and Customer Service on Marketing ‡ Traditionally. ‡ The impact of both strong consumer franchise and customer franchise can be enhanced or diminished by effectiveness of suppliers¶ logistics system. companies are realizing to develop strong relations with such intermediaries like large retail outlets to create a customer franchise as well as consumer franchise. marketing has focused on endcustomer or consumer. seeking to promote brand values and to generate a µdemand pull¶ in the market place for company¶s products. ‡ Due to shift in power in marketing channels. 23 .

Consumer Franchise ‡Brand values ‡Corporate image ‡Availability Customer Franchise ‡Customer Services ‡Partnership ‡Quick Response Supply Chain Efficiency ‡Flexibility ‡Reduced Inventory ‡Low cost supplier Marketing Effectiveness ‡Market Share ‡Customer Retention ‡Superior ROI 24 .

‡ This illustrates the competitive conditions a firm experiences during the different phases of product life cycle.Product Life Cycle Versus Logistics Planning Framework ‡ Logistics can be positioned to provide far more than the passive support for marketing. 25 . ‡ The need for viewing logistical requirements across market life of a product becomes significant to design framework of logistics.

26 . Saturation-maturity. (a) Introduction ‡ During the introduction stage of a new product. high product availability and logistical flexibility are required. and Obsolescence-decline. Changing nature of logistical requirements across the life cycle. Growth.‡ (a) (b) (c) (d)   The four stages of PLC are: Introduction.

‡ As no historical records are available and forecasts are at best projections. ‡ The logistical support for new products must also enable a firm to provide rapid and consistent replenishment. ‡ Typically.‡ Since the primary objective at introductory stage is to gain a market foothold. having inventory available to customers is critical. a high degree of advertising and promotion is required during the introductory stage as potential customers are informed of a product¶s attributes and persuaded to make initial purchases. 27 . it would mean replenishment plans need to be contingency based.

‡ If the product gain customer acceptance. ‡ Inventory shortages or erratic delivery during this critical time could dilute the marketing strategy. rapid inventory replenishment will be required. a retail chain may agree to stock a new product on a trial basis only if it is accompanied by a trade promotional discount or a slotting allowance. ‡ If the product fails to gain customer acceptance. 28 .  For instance. there is a high probability that this will occur during product introduction.

logistical systems have to be designed to accommodate a wider variation in product lines and associated stocking unit. ‡ As a result of the above characteristics the logistical costs typical of introductory service are high.  Impact of new-product development on logistics ‡ As the businesses are laying more emphasis on new product development.‡ Since. 29 . logistics plays a significant role in the integrated marketing. ‡ Thus. shipment sizes tend to be small and order frequency erratic. at introductory stage the market position is not secure.

or rail tankers. 30 .‡ Special handling. and packaging requirements will increase as the product lines expands. ‡ If the expanded product lines require special equipment such as refrigerated trucks. ‡ As markets expand. the task of logistics becomes even more complex. ‡ Another consideration at introductory stage is to serve different markets through multiple channels. products are sold to typically smaller group of customers and through multiple channels. transportation.

resulting in less opportunity to consolidate logistical volumes for cost control. ‡ To increase the probability of success. ‡ From logistical view point. a strong logistical support needs to be provided during introduction. ‡ The third consideration in the introductory stage is that more than half of all new products do not enjoy sufficient longevity in the market place to recover their development costs. 31 .‡ This results into fragmentation of product volume across theses expanded channels. it is difficult to project which products will be winners and which will lose.

new product logistics is a balancing act between providing sufficient logistical support and avoiding too much support or commitment during new-product introduction. (b) Growth ‡ At growth stage of life cycle.‡ Also. the product achieves a reasonable degree of market acceptance and sales become somewhat predictable.  Thus. 32 . inventory stockpiling and providing logistical support in anticipation of sales that may never materialize can be expensive.

‡ Logistical emphasis shifts from a need to service at any cost to a balanced service/ cost performance. 33 . ‡ The key is to achieve break-even volume as soon as possible and then expand market coverage. the potential exists to achieve a high-level of profitable transactions during the growth stage. ‡ Market penetration expands at an increasing rate. ‡ Since products gain increased customer acceptance.

34 . a firm¶s basic customer service commitment to support a product is formulated.‡ The retail outlets sell the products at an increasing volume offering maximum opportunity for achieving logistical economies of scale. (c) Saturation-Maturity ‡ This stage is characterized by intense competition. ‡ In this stage of prosperity of PLC. ‡ A successful product typically generates competition from a variety of substitutes.

‡ Logistical performance during saturation stage typically becomes highly selective. management is balancing the alternatives of product closeout or restricted distribution. ‡ Companies update their service commitments and offer unique value added services in an effort to create loyalty among major customers. ‡ Increased expenditures may be allocated to logistical performance to ensure exceptional service to key customers. (d) Obsolescence-decline ‡ When the product is dying. ‡ Logistical performance must be positioned to support on going business without taking excessive risk in the event that a product is required to be eliminated. 35 .

 Summary 1. 36 ‡ . New product introductions require high levels of logistical performance and flexibility to accommodate rapid changes in volume projections.Thus. At the obsolescence-decline stage a firm needs to position logistics to minimize the risk. 3. 4. 2. minimum risk becomes a more important goal than achieving the lowest per-unit cost of logistics. A logistics system must be designed to maintain flexibility and be capable of adjusting to counter a competitive activity at any specific point in time. This emphasis shifts towards service/cost rationalization during the growth and saturationmaturity stages of life cycle.

Inventory . .Network design .Warehousing.Transportation .Information . material handling and packaging.Activities Included in Logistics ‡ Logistics competency is achieved by coordinating the following functional areas. 37 .

38 .Network Design ‡ Network design is the prime responsibility of logistics managers since a firm¶ facilities and structure is used to provide products and materials to the customers. ‡ Determining the number and type of facility required. ‡ Logistics facilities typically include manufacturing plants. ‡ In certain situations. cross-dock operations. their geographic locations. some of the facility operations may be outsourced to service specialists. and the work to be performed at each is an important part of network design. and retail stores. warehouses.

‡ Network of facilities also includes information and transportation as a part of entire structure from where logistical operations such as processing of customer orders. maintaining inventory and material handling are performed. ‡ The network design must consider geographical variations. and the assigning of customer orders for shipment.‡ Network design determines the type of the inventory and the quantity to be stocked at each facility. 39 .

The first step towards achieving competitive advantage lies in superior network design. Manufacturing requirements.‡ (a) (b) (c) (d) ‡ The factors influencing modifications of network design are: Change in demand and supply Product assortments Changes in suppliers¶ source of supplies. as the real competition is not between two companies but between efficiency and effectiveness in managing their supply chain network. 40 .

Information Deficiencies in the quality of information Incorrect information with respect to trends may cause ‡Inventory shortage ‡Over commitment Incorrect information relating to a specific customer¶s requirements leads to ‡Processing of incorrect orders creating additional costs. ‡Reduced sales 41 .

(a) Forecasting enables to decide on positioning of inventory to satisfy anticipated customer requirements.External customers are those that consume the product or service. (b) Order management involves handling of specific customer¶s requirements. 42 . or trading partners that purchase the products or services for resale.‡ Forecasting and order management are the two areas of logistical work that depend on information. . both external as well internal.

Receipt of an initial order .Collection. 43 . and . thus quality and timeliness are the key issues in logistical operations. (c)The process of order management involves .. ‡ Incorrect information and delays in order processing can cripple the logistics performance.Internal customers are organizational units within a firm that require logistical support to perform their designated work.Delivery.Invoicing .

44 ‡ .Transportation Transportation is the operational area of logistics that geographically positions the inventory i. (c) The service of different transport companies may be engaged on an individual shipment basis. (b) Contracts may be entered into with transport companies. ‡ Companies accomplish transportation in three different ways: (a) A private fleet of vehicles may be operated. provides for place utility.e.

Factors affecting transportation performance Transportation performance Cost Speed Consistency 45 .

.The payment for movement between two geographical locations and expenses related to administration and and maintaining in-transit inventory. shorter is the time interval during which the inventory is in transit and unvailable.Transport firms capable of providing faster services normally charge higher rate. Speed of transportation .A. 46 . B.The time required to complete a specific movement. . Cost of transportation .The faster the transportation services.

Consistency of transportation . 47 . .Inconsistency in transportation leads to inventory safety stocks required to protect against unpredictable service breakdowns.C. jSpeed and consistency combine to create quality aspect of transportation.Consistency is a measure of dependability of transportation. .Refers to variations in time required to perform a specific movement over a number of shipments.

Inventory ‡ The objective is to achieve the desired customer service with minimum inventory commitment. consistent with lowest total cost. ‡ Excessive inventories may be helpful in compensating for deficiencies in network design but ultimately result into higher total logistics cost. 48 . ‡ The best practice of inventory management is to achieve maximum turnover while satisfying customer commitments.

sequencing. 49 . ‡ The logistical activities carried out in warehouse are sorting. transport consolidation and sometimes product modification and assembly. Material Handling. transport vehicles material handling for efficient loading and unloading and goods are most efficiently handled when packaged together into shipping cartons or other type of containers. And Packaging ‡ Merchandise needs to be warehoused at selected times. order selection.Warehousing.

bottles or boxes are handled more efficiently when combined into larger units such as Master Cartons. 50 . products must be received. and assembled to meet customer order requirements and for these activities material handling becomes significant. moved.‡ Within the warehouse. sorted. ‡ Products packed in cans. ‡ Master units can further be consolidated into large units such as pallets. containers etc.

Integrated Logistics Inventory Flow Customers Physical distribution Manufacturing support Procurement Suppliers Information Flow 51 .

forecasts and orders. ‡ The materials are then procured. the retailing and wholesaling firms link physical distribution and purchasing since manufacturing is not required.value addition takes place along with the inventory flow ultimately resulting into transfer of ownership of finished products to the customers. 52 . ‡ The process of integration is not restricted to manufacturing companies alone. ‡ Information is then translated into manufacturing and purchasing plans.‡ Information from and about customers flows through the enterprise in the form of sales activity.

Information flow Inventory Flow Physical distribution Manufacturing support Procurement 53 .Inventory flow. and . .‡ The entire process of integration can be viewed in terms of two interrelated activities.

Physical Distribution ‡ Establishes linkage of marketing channel with its customers facilitating the movement of a finished product to the final destination of a marketing channel. ‡ Fulfills objective of implementation of time and space dimension of customer service as an integral part of marketing.-Outbound logistics. 54 . ‡ Would need a proper marketing effort resulting into desired assortment being delivered when and where needed.

Manufacturing Support ‡ Concerned with managing work-in-process inventory as it flows between the stages of manufacturing. 55 . and work-in-process inventory. ‡ Is not concerned with µhow¶ production occurs but rather µwhat. ‡ Formulates a master production schedule that subsequently facilitates arranging for timely availability of materials. component parts. µwhere¶ products will be manufactured.¶ µwhen¶.

Difference between Physical distribution and Manufacturing Support ‡ Physical distribution attempts to serve the desires of the customers and therefore must accommodate the uncertainties of consumer and industrial demand. ‡ Manufacturing support involves movement requirements that are under the contol of manufacturing enterprise. 56 .

parts. or retail stores thereby ensuring availability of materials/ assortments where and when needed. ‡ In a given marketing situation. warehouses. and/or finished inventory from suppliers to manufacturing or assembly plants . -Inbound logistics. manufacturers¶ physical distribution is same as retailers¶ procurement operations.Procurement ‡ Concerned with purchasing and arranging inbound movement of materials. 57 .

Logistical Performance Cycles ‡ The logistical integration through performance cycles provides interface and link the suppliers. the firm and its customers by means of communication and transportation. Performance Cycle Transaction creating activities Advertising & Selling Physical fulfillment activities Physical distribution 58 .

Physical distribution performance cycle Order processing Order transmission Customer order Order selection Order transportation Order delivery to the customer 59 .

60 . By doing so. it helps create marketing and manufacturing initiatives into an integrated efforts.As marketing is dedicated to delighting customers. .Significance of physical distribution performance cycle ‡ As it links a firm with its customers. it would like to maintain broad product line with high inventory regardless of each product¶s profit potential. no matter how small or large would be satisfied. any customer's requirement. ‡ It resolves conflicting interface between marketing & manufacturing.

Continuous manufacturing processes maintain economies of scale and reduce per unit cost. Therefore. .Traditional mindset in manufacturing is to control cost. which is achieved by long production runs. .Inventories are kept to resolve the inherent conflict between these two philosophies.The above is achieved by forward deployment of inventory throughout the logistical system in anticipation of future sales on the basis of forecasted information.. 61 . a narrow line of products is mass produced.

62 and . ‡ Have responsive and flexible cycle.How to reduce physical distribution operational variance ‡ Improve accuracy of forecast ‡ Improve order management coordination with the customers.

and semi-finished parts and components between enterprise facilities represent the responsibility of manufacturing support logistics. ‡ Basically. it implies selection of assortment of inventory to be moved to the next level of value chain. materials. supports what. 63 .Manufacture Support Performance Cycle ‡ It provides production logistics being positioned between the physical distribution and procurement operations of a firm. ‡ Movement and storage of product. where and when of the production and not how. ‡ In context of wholesale & retail trade.

‡ Operations are restricted to dock-to-dock movement within the firm and where intermediate storage is required. ‡ After completion of manufacturing cycle the finished goods inventory is allocated and deployed either directly to the customers or to distribution warehouses for further customer shipment. ‡ Initiates provision of materials and externally manufactured components at a place and time needed.Features of manufacturing support performance cycle. 64 .

Procurement Performance Cycles Sourcing Order placement and Expediting S U P P L I E R S Receiving Transportation 65 .

trains and multiple truckloads for transportation. ocean going vessels. ‡ As the cost of maintaining inventory in the pipeline is less per day than the cost of maintaining finished inventory. 66 . there is no benefit for paying higher freight rates for faster inbound transport.‡ The procurement operations are identified as inbound logistics. ‡ International procurement often requires large shipments necessitating the use of barges. ‡ The lower value of materials and components as compared to finished product implies greater tradeoff between higher cost of maintaining inventory in transit and the use of low cost modes of transport.

‡ A critical issue in procurement is uncertainty in respect of price change. and/or supply discontinuity.‡ Procurement performance cycles are invariably longer excepting in those cases where the value of material or component may justify paying higher freight rates for faster inbound transport. 67 .

68 .Reducing performance cycle uncertainties ‡ ‡ ‡ ‡ Use of electronic data interchange Monitoring daily changes in workloads Human resource availability Availability of specialized unloading and loading handling equipments ‡ Establishing safety stock/ buffer inventory to cover variances so as to avoid delays.

+ S. ‡ Minimum Inventory Level= S. ‡ Safety stock= Average usage during the extension of lead time.A few terms used in Inventory Management ‡ Buffer stock= {Average lead time}x{Average usage rate}. ‡ Re-order level= B. Inventory Level= {Minimum Level} + {Order 69 quantity} .S.+R.S. ‡ Reserve stock= Excess usage requirement during the average lead time.S.S.+ R. ‡ Max.S.

level)/ 2 ‡ In case of periodic review the buffer stock will be modified to {Average consumption rate}x{Average lead time+Review period} 70 . level+Max.‡ Average Inventory Level= (Min.

product would move with less handling requirements from warehouses to customers. 71 . in real life situations. the thrust is on reducing inventory and maintain proper customer service and optimal inventory levels. if the forecast is done accurately. there will not be any need for an inventory. ‡ However.Inventory Planning ‡ Ideally. ‡ Most warehousing would vanish.

‡ As the significance percentage of assets are inventory related. ‡ Overstocks increase cost and reduce profitability through added warehousing. marketing may find that sales are lost and customer satisfaction declining. deterioration. insurance. a reduction of firm¶s inventory by a few percentage points can lead to dramatic improvement in profits. ‡ ROI= (Profit/ Fixed assets +Current assets) 72 .Inventory decisions-High risk & high cost ‡ Without the proper inventory assortment. working capital requirements. and obsolescence.

‡ Consequently. ‡ Poor inventory management may lead to stock outs and hence cancellation of customers orders. 73 . overstocking leading to insufficient storage space and increase in the number and rupee value of obsolete products. ‡ Investments blocked in inventory cannot be used to obtain other goods or assets that could improve the enterprise performance.‡ Substantial improvement in the productivity of inventory can be achieved by re-engineering supply chain processes. inventory management has a large financial impact on the firm.

and ends with finished goods. Manufacturer¶s inventory commitment is relatively 74 deep and has long duration. including workin-process. - - . Manufacturer needs to transfer the finished goods inventory to warehouses in closer proximity to wholesalers and retailers.Types of Inventory ‡ (a) Broadly there are three types of inventory Manufacturing inventory Wholesale inventory Retail inventory Manufacturing inventory Manufacturer¶s inventory commitment starts with raw material and component parts.

Thus wholesaler risk exposure is narrower but deeper and of longer duration than that of retailers.Wholesaler purchases large quantities from manufacturers and sells small quantities to retailers in order to provide retail customers with assorted merchandise from different manufacturers in smaller quantities. 75 .The current trend of expansion of product lines has increased the width of inventory risk. .(b) Wholesale inventory . . . thus increasing the depth and duration of risk. the wholesaler is forced to commit inventory. far in advance of selling.In case of seasonal goods.

000 SKUs and a full line department store may have as many as 50.For instance.Inventory velocity is measured by inventory turnover.The risk is undertaken on variety of products but for a given product the risk is not deep relatively.000 SKUs. a general merchandise and food store may carry around 25. . . The exception is specialty retailer where the depth and duration will be longer as they handle narrower lines. .The emphasis is more on inventory velocity. .000 SKUs.Retailer inventory risk is wide but not deep. retailers¶ risk is spread across more than 10.(c) Retail inventory . 76 .

materials.Functions underlying inventory commitments A.For instance. manufacturing facilities are located at a considerable distance from the major markets.It allows for geographical specialization for individual operating units. power. The production facilities for each of the these are traditionally located near the source of 77 materials to minimize transportation cost. . . batteries. transmission equipments and springs for an automobile assembly.The need for geographical specialization arises because various factors of production viz. water. Geographical Specialization . tyres. labour. .

P&G uses distribution centres to combine products from its laundry.Economies gained through geographical specialization invariably offset increased inventory and transportation cost. .Thus. and healthcare divisions to offer the customer a single integrated shipment. ..This will also involve internal inventory transfer to completely integrate various components into final assembly. food. manufactured goods from various locations are collected at a single warehouse and then combined as a consolidated/ assorted shipment.This strategy leads to specialization of manufacturing each automobile component and hence economically. . 78 . .

DRP etc have reduced the economic benefits of decoupling considerably. .However. JIT. . . 79 .Decoupling increases the operating efficiency at a single location while geographical specialization includes multiple locations.Decoupling permits products manufactured over a period of time to be sold as an assortment. Decoupling . .Decoupling enables manufacturing and distribution of economic lot sizes in anticipation of sales thus ensuring large sized shipments with minimum freight cost.B.Provides for increasing operating efficiency within a single manufacturing facility by stockpiling work-inprocess inventory between production operations.

.Balancing is concerned with elapsed time between consumption and manufacturing as balancing inventory reconciles supply availability with demand. manufacturers.In case of sort selling season.Balancing seasonal production and year round consumption such as orange juice or year round production and seasonal consumption of blankets or knitting wool. . 80 . . Balancing Supply and Demand .C. wholesalers and retailers are forced to take an inventory position far in advance of peak selling season.Particularly useful in linking variations of consumption with manufacturing in case of seasonal products.

Safety stock protects against two types of uncertainties: . an inventory position is planned six months prior to the peak selling period. .The main function of balancing supply and demand is to ensure that investment in stocks is liquidated completely within the season. Buffer Uncertainties . For instance. or transportation. . delay in order receipt. D. customers¶ request of more or less units than planned. 81 - .Delays in the performance-cycle length itself.(a) Demand in excess of forecast during the performance cycle. For instance.From retailers¶ perspective. order processing.

(b) Consider inventory interdependence across distribution sites by managing inventory centrally.Inventory Management Strategy ‡ Companies can postpone positioning of inventory by maintaining stock at the plants or they may decide to place more products in local distribution centres to have it closer to the market. (a) Manage inventory at each distribution centre independently. 82 . (c) Ensure more coordination and communication in case of centralized inventory management.

Origin purchase consideration 2. Transportation cost. the buyer assumes full risk on inventory at the time of shipment. transit inventory would be a part of enterprise's average inventory and therefore subject to an appropriate charge. (c) Depending on the payment terms. (b) Depending on the delivery terms. .Inventory Cost Consideration 1. (d) Transportation cost must be added to purchase price to obtain an accurate assessment of the value 83 of goods tied up in inventory. (a) Origin purchase means the buyer is responsible for freight cost and product risk when the product is in transit.

84 . the amount invested in the product must be increased by transportation expenses.‡ After the inventory is received. ‡ Thus. inventory carrying cost should be assessed on the combined cost of the product plus transportation.

Inventory Control Procedures Perpetual Review Periodic Review 85 .

Perpetual Review ‡ Inventory status is reviewed to determine replenishment needs. jROP= D x T + SS. ‡ Implemented through a reorder point and order quantity. 86 . where ‡ ROP= reorder point in units ‡ D= average daily demand in units ‡ T= average performance-cycle length in days ‡ SS=safety or buffer stock in units.

. 87 . inventory control process will initiate another replenishment order. .If on-hand plus on-order quantity is less than or equal to the established reorder point.‡ The following are considered in perpetual review: .On hand inventory represents quantity that is physically present in the particular distribution facility.On-order inventory represents quantities that have been ordered from suppliers.

and . this can be stated as If I+q e ROP then order Q. will be placed when the reorder point is reached and there is a continuous 88 monitoring of inventory system. Average inventory level for a perpetual review system is calculated as (a) I = Q/2 + SS.O.Q= order quantity in units.(a) (b) (c) (d) ‡ Mathematically. where . .I= average inventory in units .SS= safety stock in units ‡ The assumption is that P. where I= inventory on hand q= inventory on order from suppliers ROP = re-order point in units Q= order quantity in units.

SS= safety stock .D=average daily demand . where .ROP= re-order point .T= average performance cycle length .Periodic Review ‡ The inventory status is reviewed at regular intervals such as weekly or monthly. ‡ The re-order point is adjusted to consider the extended intervals between reviews. ‡ The formula for calculating the periodic review reorder point is jROP= D( T + P/2) +SS.P=review period in days 89 .

.I= average inventory in units .D= average daily demand . ‡ Because of the time interval introduced by periodic review. periodic control systems generally require larger average inventories than perpetual system.‡ Average inventory for periodic review is represented as I= Q/2 + (P x D)/2 + SS.P= review period in days . 90 .SS= safety stock.Q= order quantity in units .

Inventory Planning Methods Fair Share allocation Distribution Requirement Planning 91 .

Fair Share Allocation Plant Warehouse Inventory.600 units Distribution Centre-1 Inventory= 50 units Daily use= 10 units Distribution Centre-2 Inventory= 100 units Daily use= 50 units Distribution Centre-3 Inventory= 75 units Daily use= 15 units 92 .

‡ Fair share allocation provides each distribution facility with an equitable or fair share of available inventory from a common source such as a plant warehouse. 500 units are available for allocation. 93 . ‡ First we need to determine the number of days¶ supply. ‡ Assuming that from a total inventory units of 600 it is desirable to retain 100 units at plant warehouse.

67 days 94 . .A= inventory units to be allocated from the warehouse .Ij= inventory in units for distribution centre j. where .DS= no.Dj = daily demand for distribution centre j jIn the above example. ‡ DS = {500 + ( 50+100+75)} / (10+50+ 15) ‡ DS= {500 + 225} /75 =725/75 = 9. of days supply for distribution centre inventories. .jDS = (A +7 Ij ) / 7 Dj .

67x 10= 95 46.Aj = amount allocated to distribution centre j .Dj= daily demand for distribution centre j .67 days stock. where .‡ Thus. ‡ The amount to be allocated to each distribution centre is determined as under: jAj = (DS ± Ij /Dj ) x Dj.Thus. fair share allocation means that each distribution centre should be brought up to 9.DS= number of days supply that each distribution centre is brought upto. .67.50/10) x 10 = (9.7 or 47 units. .Ij = inventory in units for distribution centre j .67. the amount allocated to distribution centre 1 will be jA1= (9.5) x 10= 4.

67-75/15)x15=(9. does not consider site specific factors. ‡ However.5 or 384.00)x50=383.Difference in performance cycle. . .00 jA3= (9.Safety stock requirements.67-5. 96 . .Economic order quantity.00)x15=70 units.jA2= (9.67-100/50)x50=(9.67-2.

‡ Operates in an independent environment where uncertain customer demand determines inventory requirements. ‡ Requires forecast for each distribution centre and SKU as well as adequate lead-time to allow product movement. . ‡ Requires consistent and reliable performance cycles 97 for movement between distribution facilities. ‡ Errors may creep in because of prediction of demand at wrong location or at wrong time.Distribution Requirement Planning ‡ Logical extension of manufacturing requirement planning (MRP).

C USTOMERS Distribution centre Distribution centre Distribution centre Distribution Distribution centre centre Distrib ution centre Regional warehouse Regional warehouse 98 Plant Warehouse .

Plant Warehouse Final Assembly (Manufacturing) Sub-assembly A Part A Sub assembly B Sub assembly C Part C Part D Part E Part B Raw Materials Warehouse 99 .

‡ For each planning period.replenishment shipments planned for arrival at the distribution centre. .Gross requirements reflecting demand from customers being catered to by different distribution facilities. . 100 .‡ DRP/MRP system integrates finished goods. work-inprocess.Projected on-hand inventory i. ‡ DRP provides a schedule for each SKU and each distribution facility.e. the schedule will report the following: . . and materials planning. prior week¶s on-hand inventory.current week¶s gross requirement + scheduled receipts.Scheduled receipts i.e.Anticipated week ending total deliveries.

‡ Reduced warehousing space requirements because of inventory reductions. 101 .Benefits of DRP ‡ Improved service levels by increasing on ±time deliveries and decreasing customer complaints. ‡ Improved inventory visibility and coordination between logistics and manufacturing. ‡ Improved ability to anticipate shortages so that marketing efforts are not expended on products with low stock. ‡ Reduced distribution centre freight costs resulting from coordinated shipments. ‡ Better planning of new product launches.

‡ For instance. ‡ Decisions are based on trade-off between the cost of using a particular mode of transport with the cost of inventory associated with that mode. 102 . and warrant less safety stocks. they are expensive whereas shipping by sea or rail may be much cheaper but they necessitate holding relatively large amount of inventory to protect against the inherent uncertainty associated with them.Transportation ‡ Transportation decisions are more strategic ones closely linked with inventory decisions. reliable . air shipments may be fast.

e. ‡ Transportation is one of the most visible elements in the logistics operation. ‡ Shipment sizes i. consolidated bulk shipments versus smaller lot sizes. routing and scheduling of vehicles become important part of company¶s transport strategy. 103 . ‡ Transportation accounts for roughly 30% of the logistics costs and therefore operating efficiencies become important aspects .‡ Customer service levels and geographic locations are important aspects in transportation decisions.

Transportation Functionality Product Movement Product Storage 104 .

financial and environmental resources. (a) Uses temporal resources because the product is inaccessible while in transit.A. . the movement of materials should take place only when it enhances the product value.Due to JIT strategies transit inventories are becoming more significant thereby reducing manufacturing and distribution centre inventories. (b) Expenses incurred internally for private fleet of vehicles or externally for commercial or public transportation constitute financial resources. Product Movement . 105 .Primary function is the movement up and down the value chain. .As transportation uses temporal.

Meet customer demand regarding delivery and shipment information availability 106 . financial and environmental Costs.(c) Transportation consumes fuel and oil and also creates environmental expenses through congestion. air pollution and noise pollution. Objectives of Transportation Move product from original location to prescribed destination while minimizing temporal. Minimize expenses incurred due to loss and damage.

. utilizing transportation vehicles 107 becomes a viable option.Sometimes temporary storage becomes advantageous as the cost of unloading and reloading the product in a warehouse may exceed the daily charge of storage in transportation vehicles.B. . .Many times where the warehouse space is limited.Temporary storage through vehicles becomes expensive as in-transit storage is required to be moved again in a short duration of time. Product Storage .

as the transit time would be greater as compared to direct route.For instance. 108 .‡ The options available to a transporter in case of warehouse space constraints are (a) Instruct driver to take a circuitous or indirect route to its destination. temporary storage is achieved through diversion. say.e. product that is. (b) Change the shipment destination i. scheduled initially from Mumbai to Hyderabad gets diverted mid way to Vishakapatnam (Vizag) as Vizag warehouse may be in greater need of product and has the storage capacity. Thus transport vehicle is used as temporary storage option. .

it can be justified from a total cost perspective when loading.Though product storage in vehicles can be costly. unloading costs. 109 .or capacity constraints are considered..Traditionally. the telephone was used to direct diversion but nowadays satellite communications between headquarters and vehicle handle such tasks more efficiently. .

Principles of Transportation Economies of Scale Economies of Distance 110 .

e. Economies of Scale ‡ Transportation cost per unit of weight decreases when the size of the shipment increases i. ‡ Fixed costs in transportation include administrative costs of taking transportation order. . ‡ It costs as much to administer a shipment of 1 111 kg as it does to administer a 1000 kg shipment. invoicing and equipment cost.A. time to position the vehicle for loading or unloading. shipments that utilize the entire vehicle¶s capacity like truck load (TL) cost less per kg than less than truck load (LTL) shipments.

B. Also called ³Tapering Principle´ ‡ For instance. Economies of Distance ‡ Transportation cost per unit of distance increases at a decreasing rate as distance increases. a shipment covering a distance of 800 kilometers will cost less than two shipments of same combined weight covering 400 kms. ‡ Fixed expenses incurred to load and unload the vehicle get spread over more kilometers resulting in lower overall per kilometer charges. 112 .

Tapering Principle C O S T Distance 113 .

Participants in Transportation decisions Public Government Shipper Carrier Consignee 114 .

‡ Specified pick up and delivery times. zero loss and damage. 115 . predictable transit time. accurate and timely exchange of information and invoicing.Role and Perspective of each party A. Shippers and Consignees¶ Expectations ‡ Move the goods from origin to destination within a prescribed time at the lowest cost.

‡ Product availability throughout the country at a reasonable cost. ‡ Development of transport infrastructure to have goods from global sources. C. The Public concerns ‡ Accessibility. ‡ Providing right-of-way such as road or railways or air traffic control system. The Government Role ‡ Stable and efficient transportation environment to sustain economic growth. 116 .B. cost effectiveness and protection of environmental and safety standards.

Features of Different Modes of Transportation Modes of Transportation Rail Highway Water Pipeline Air 117 .

. . right of way. . .Variable cost per kg/km has been consierably reduced by electrification. switching yards.Can improve effectiveness of transportation by having alliances with other modes. 118 .A.High fixed costs because of expensive equipment.Bulk industries and heavy manufacturing use railways more frequently. and terminals.Capability to transport large shipments economically with more frequency. Rail .

. 119 . Highway .Variable cost per kilometer is high because a separate driver and cleaner are required for each vehicle.Compared to railways.Labour cost is also high because of the need for substantial dock labour.B. .Growth of motor carrier industry has resulted into door-to-door operating flexibility and speed of inter-city movement. motor carriers have relatively small fixed investments in terminal facilities and operate on publicly maintained highways. .

120 .Cost Structure in respect of Motor Transport Fixed costs such as overheads and vehicle cost are low relative to railway Variable costs such as driver. tyres and repairs are high relative To railways. fuel.

motor transport has captured almost all freight moving from wholesalers or warehouses to retail stores. short distances and high value products. higher wages to driver and other dock labour.‡ Motor carriers are best suited to handle small shipments moving short distances. ‡ Higher cost in replacing equipment. ‡ Favour light manufacturing and distributive traders. ‡ Because of delivery flexibility. ‡ Have captured significant market share of railways in medium and light manufacturing industries. 121 .

. and certain selected agricultural products are transported by ocean going vessel.Though water carriers have to develop and operate their own terminals. .Fixed costs are somewhere between rail and motor carriers. . cement. resulting into moderate fixed costs compared to rail and highways.Low variable cost makes this an attractive mode when low freight rates are desired and speed is secondary consideration. the right-of-way is developed and maintained by the government. 122 . Water . chemicals. .Capacity to move extremely large shipments.C.Typically bulk commodities such as mining .

- Unless the point of origin and point of destination are adjacent to a waterway, it needs to be supplemented by rail or trucks. D. Pipelines - Used for transporting natural gas, manufactured chemicals, pulverized dry bulk materials such as cement and flour via hydraulic suspensions, sewage and water within the cities and municipalities. - Operate on 24x7 basis are limited only by commodity changeover and maintenance. - No empty container or vehicle that must be returned. - Highest fixed cost an lowest variable cost. - High fixed costs due to right-of-way, construction and requirements for control station and pumping 123 capacity. -

- As pipelines are not labour intensive, variable operating cost is extremely low once the pipeline is constructed. - Inflexible and limited to products in the form of gas, liquid or slurry. E. Air - Significant advantage lies in the speed with which a shipment can be transported. - Though the freight cost is very high, the same may be trade-off with reduced warehousing or inventory. - Characterized by load size constraints and aircraft availability. - Fixed cost associated with aircraft purchase and requirements for specialized handling systems is low 124 as compared to rail, water and pipeline. -


(a) (b) (c) (d)

Airways and airports are generally developed and maintained with public funds. Airfreight variable cost is extremely high as a result of fuel,maintenance and intensity of in-flight and ground crew. Airfreight is justified in following situations: High value products Perishables Limited marketing period. Emergency.

Nature of Traffic versus Mode of Transportation
Mode Rail Highway Water Pipeline Air Nature of Traffic Extracting industries, agricultural commodities heavy manufacturing,

Medium and light manufacturing, distribution between wholesalers and retailers. Mining and basic bulk commodities, chemicals, cement, agro-based products. Petroleum, gases, slurry. Emergency, perishables, limited marketing period, high value premium products.

Cost Structure for Each Mode of Transportation
Mode Rail Fixed Cost High- equipment terminals, tracks etc. Variable Cost Low Medium- fuel, maintenance. Low-capability to transport large amount of tonnage. Lowest-no labour cost of any significance. High-fuel, labour and maintenance.

Highway Low-highways provided by public funds Water Pipeline Air Medium- ships and equipment Highest-rights-of-way, construction, control stations, pumping capacity. Low-aircraft and cargo handling system.

Transport Economies
‡ ‡ ‡ ‡ ‡ ‡ ‡ Distance Volume Density Stow ability Handling Liability Market factors

A. Distance - Cost curve increases at a decreasing rate as a function of distance and is known as tapering principle. - Cost curve does not begin at the origin because of the fixed costs associated with shipment pick up and delivery regardless of distance. - Tapering effect comes into existence, as the longer movements tend to have a higher percentage of intercity rather than urban kilometers. - Frequent intermediate stops, typical of urban kilometers, and additional loading and unloading add to the costs. - Inter-city miles are less expensive since more distance is covered with same fuel as a result of 129 higher speed.

B. Volume - Transport cost per unit of weight decreases as load volume increases. - Fixed costs of pick up and delivery as well as administrative costs get spread over additional volumes. - Smaller loads must be consolidated into larger loads. C. Density - Transportation cost per unit declines as product density increases. - In terms of weight and space, an individual vehicle is constrained more by space than by weight. Once is the vehicle is full, it is not possible to increase the amount carried even if the product is lightweight.

- Higher density products allow fixed costs to be spread across additional weight, as a result the products are assessed at a lower transport cost per unit. - Attempts are made to increase product density so that more can be loaded in a vehicle to utilize its capacity. D. Stow ability - Refers to product dimensions and impact of the same on vehicle utilization. - Odd sizes and shapes as well as excessive weights and lengths do not stow well and typically waste space. - Though density and stow ability are similar, products may have same density that stow differently.

- Items with regular shapes are easier to stow than odd shaped items. - While the steel blocks and rods have the same density, rods are more difficult to stow because of their length and shape. E. Handling - Special handling equipments may be required for loading or unloading trucks, trains, or ships and the unitization/ palletization affects the handling cost. F. Liability - Product characteristics such as susceptibility to damage, perishability, susceptibility to to theft, susceptibility to explosion affect the risks and hence claims.

G. Market factors (a) Back-haul i.e. vehicle returning back to the point of origin with load. (b) Dead head to be avoided because empty returns incur labour, fuel, and maintenance costs. (c) Thus design of logistics system must add back-haul movement wherever possible.


‡ For instance. transferring them onto rails for a journey across China to Shanghai. then ship to Rotterdam. back into rails to cross Europe.Multimodal Transport System ‡ Multimodal or Intermodal transport refers to journeys that involve two or more different modes of transport. if materials are moved from Lanchow in central China to Warsaw in Poland goods may be loaded on to trucks. then truck for local delivery. 134 .

‡ For Logistics managers intermodal services become necessary because of their characteristics and costs. limited accessibility of air transport requires coordination with a land carrier to make the pick ups and deliveries. water and pipeline but not to the motor which has a definite advantage here. ‡ Similarly. inaccessibility applies to rail. ‡ The intermodal services maximizes the primary advantages inherent in the combined modes and minimize their disadvantages. ‡ The combined services will have both good and bad aspects of the utilized modes. ‡ For example. 135 .

combined system transit time will be lower than all water movement but higher than all-rail. combining the low cost of shipping with flexibility of the road. 136 . like.‡ For instance. ‡ Likewise. ‡ The aim of intermodal transport is to combine the benefits of several separate modes but avoid the disadvantages of each. coordinate of rail and water will have a lower total cost than an all-rail movement but higher cost than that of all-water. ‡ The decision to use multi-modal system must consider the effect on total logistics costs. or getting the speed of air with the cost of road.

‡ Intermodal transport works well when transfer can be done efficiently. 137 . each transfer between modes causes delays and adds costs of extra handling.‡ However. ‡ Transfer of motor carrier trailer to another transport mode is facilitated through containerization.

heavy items would be shipped by ocean going vessels. expensive items raise inventory costs and thus encourage faster modes. operations that respond quickly to changes cannot wait for critical supplies using slower transport.Value of materials.Bulkiness of the materials. .Choice of Mode ‡ Factors influencing the choice of mode are as under: .Susceptibility to market changes.Criticality of materials. 138 . . even low unit value items that hold up the operations need fast and reliable transport. .Reliability with consistent delivery is important. .

Special facilities available Limitations of Multimodal system Sometimes carriers are reluctant to participate. Susceptibility to loss. Willingness to coordinate in respect of moving the product is higher when any one carrier is incapable to transport in its entirety. Reputation and stability of carrier. theft and pilferage Schedule and frequency of delivery.‡ - Cost and flexibility to negotiate rates. 139 .

the carrier handles the container. theft. ‡ The shipper can transfer the container from one mode to another. ‡ After initial loading. pilferage and the time required to complete the 140 modal transfer. the commodities themselves are not rehandled until they are unloaded at their final destinations.Containerization ‡ Container is large rectangular box into which a firm places commodities to be shipped. eliminating the need to handle the commodities each time thus reducing handling costs. damage costs. . not the commodities. ‡ Throughout the movement.

‡ Many firms that modify their material handling systems to include cranes. heavy containers have found containerization to be desirable avenues for increasing productivity and controlling material handling costs. the best way to achieve same is to use modular or unitized loads. forklift trucks. especially in periods of continually increasing labour costs. ‡ As the objective of intermodal transport system is to provide virtually seamless journey. 141 . and other equipment capable of handling large.

which moves the trailer by rail for long distance. low cost advantage of rail with accessibility of motor. ‡ Carrier places motor carrier trailer on a rail flatcar. ‡ This service combines the long-haul. ‡ Piggyback services mostly move under contract. ‡ A motor carrier then moves the trailer for short distance pickups and deliveries.Piggyback ±Trailer on Flat Car ‡ TOFC is a specialized form of containerization in which rail and motor transport coordinate. 142 .

Shipping 143 .Material Handling ‡ The primary material handling objective is to efficiently move large quantities of inventory into and specific customers orders out of the warehouse. ‡ Handling is divided into . and .Receiving . ‡ The functions performed in a warehouse are classified as movement or Handling and storage.In storage handling . ‡ Movement or handling is emphasized and storage is secondary.

.‡ An extremely important aspect of logistics is the productivity potential that can be realized from capital investment in material-handling equipment. ‡ The guidelines suggested in designing the material handling systems are: (a) Equipment for handling and storage should be as standardized as possible. (c) Investment should be made in handling rather 144 than stationery equipment. the system should provide maximum continuous flow. or gaseous materials. (b) When in motion. fluids. ‡ Specialized handling equipment is required for unloading bulk materials such as for solids.

gravity flow should be incorporated in the system design. and . (f) Whenever possible.Information directed. (e) In selecting handling equipment.Mechanized . ‡ The handling systems can be classified as under: . 145 . the ratio of deadweight to payload should be minimized.Automated.Semi automated .(d) Handling equipment should be utilized to the maximum extent possible.

‡ A pallet or slip sheet forms a platform upon which master cartons are stacked. ‡ A slip sheet is a thin sheet of solid fibre or corrugated paper and are used for situations when product is handled only a few times. ‡ A forklift truck normally transports a maximum of two unit loads i.e. two pallets at a time 146 .Mechanized Systems A. Forklift Trucks ‡ Forklift trucks can move loads of master cartons both horizontally and vertically.

‡ Most effectively utilized in shipping and receiving and placing merchandise in a predetermined storage space. ‡ Forklift trucks are not economical for long distance horizontal movements because of high ratio of labour per unit of transfer. ‡ The significance of narrow-aisle forklift trucks has increased as warehouses seek to increase rack storage density and overall storage capacity. 147 . ‡ Even trucks capable of operating in aisles as narrow as 56 inches ar also found in warehouses. ‡ Common sources of power are propane gas and electricity.‡ High stacking trucks are capable of up to 40 feet of vertical movement.

workers receive their assignments through either handheld or vehicle ±mounted RF terminals. 148 .‡ Many forklift operations are utilizing radio frequency data communication to speed up load put away and retrieval assignments.it allows fork lift operators to receive and update item status inquiry. material orders and movement and inventory adjustments. and when combined with bar code scanning of cartons and pallets. ‡ RF technology provides real-time communication capability to central data processing systems. ‡ Under the above system.

000 to 8. ‡ Popular in grocery warehouses. 149 .000 lbs. order selection and shuttling over longer distances throughout the warehouse. effective method of material handling. ‡ Highly versatile low-lift pallet and/or skid handlers with load capabilities from 3. ‡ Typical applications include loading and unloading. Walkie-Rider Pallet Trucks ‡ Low cost.B. ‡ Electricity is the power source.

‡ Portable gravity style roller conveyors are often used for loading and unloading. ‡ Most common application is for order selection within the warehouse. Towlines ‡ Either in-floor or overhead mounted drag devices.C. D. ‡ The major advantage is the continuous movement but lacks flexibility of forklift trucks. gravity or roller/belt movement. which is then towed to the shipping dock. Conveyors ‡ Conveyors are classified according to power. . Order selectors place merchandise on a four wheel trailer. ‡ In some cases these are transported on the over-the150 road trailers to assist in unloading at the destination.

A. ‡ The essential difference is that an AGVS does not require an operator and is automatically routed and positioned at destination with intervention of the 151 operator. j Semi automated warehouse is a mixture of mechanized and automated handling. Automated-Guided Vehicle Systems ‡ Performs similar kind of handling function as a mechanized tow tractor with a trailer. .Semi automated Handling j Semi automated system supplements a mechanized system by automating a specific handling requirements.

152 . and the equipment is guide by a light beam that focuses on the guide path. ‡ In the optical application. ‡ The primary advantage is the elimination of a driver and newer AGVS use video and information technology to follow paths without the need for fixed tracks. ‡ A magnetic AGVS follows an energized wire installed in the floor. tape is placed on the warehouse floor.‡ Typical AGVS equipment relies on an optical or magnetic guidance system.

‡ Master cartons have a distinguishing code. and 153 (b) Increase in speed and accuracy. they are sorted as per specific specific shipment docks and taken onto the conveyors for moving out. . Sortations ‡ Typically used in combination with conveyors. these are read by optical scanning devices and automatically routed to the desired locations. ‡ The benefits are (a) Reduction in labour. ‡ The rate of flow is customized to meet changing requirements.B. ‡ The products are selected in the warehouse.

robots are used to build unit loads.C. ‡ Robots are use in warehouses to break down and build unit loads to accommodate exact merchandise requirements of a customer¶s orders. ‡ In break down process. Robotics ‡ Humanlike machine that can be programmed by microprocessors to perform various activities. ‡ Similarly. the robot is programmed to recognize stocking pattern and place products in the desired position on a conveyor belt. 154 .

‡ The capability to incorporate artificial intelligence in addition to speed.‡ Robots are used effectively in warehouses where prevailing environments make it difficult for humans to work such as high noise areas and extreme temperatures like cold storage freezers. and accuracy makes robotics an attractive alternative to traditional manual handling systems. dependability. 155 .

‡ Though operates faster and more accurately. 156 . requires high degree of capital investment and complex to operate. ‡ Automated handling concentrates on order selection system at the master carton level as well as on high rise storage and retrieval system.Automated Handling ‡ Substitutes capital investment in equipment for labour required in mechanized handling systems. ‡ Most automated systems are custom deigned and constructed for each application.

‡ Such systems use an integrated network of power and gravity conveyors linking the storage. Order Selection System ‡ The handling of fast moving products in master cartons is fully automated from the point of merchandise receipt to placement in over-the-road trailers.A. 157 . merchandise is unitized to vehicle size and schedules made for selection. ‡ Upon arrival. ‡ System is controlled by computer coupled with inventory and order processing systems of warehouse. ‡ Upon order receipt. merchandise is automatically routed to storage position and inventory records are updated.

storage and retrieval equipment and control systems. B. all merchandise is selected in loading sequence and automatically transported by conveyor to th loading dock. Automatic Storage and Retrieval System (ASRS) ‡ High rise handling systems are fully automated from receiving to shipping. ‡ The only manual handling of merchandise occurs while stacking into transport vehicle. ‡ The high rise are the vertical storage racks up to the height of 120 feet.‡ At an appropriate time. 158 . ‡ The components of this system are storage racks.

(3) To ensure merchandise flowing from production is automatically stacked to create a unit load. 159 ‡ . jFunctions of storage & retrieval equipment (1) To reach the desired position rapidly. (4) To transport the unit load to the high rise storage area by power conveyor. (2) To deposit or retract a load of merchandise.The storage and retrieval machine travels back and forth with the primary objective of moving products in and out of storage.

C. Information-directed Systems ‡ All material handling movements are directed and monitored by the command of microprocessors. ‡ To begin with all required handling movements are fed into the computer for analysis and equipment assignment. ‡ Analysis of handling requirements and equipment assignment is done in such a way that direct movements are emphasized and deadhead movements are minimized. ‡ Work assignments are provided to individual forklifts by terminals located on the truck. 160

‡ Communication between the computer and the truck uses radio frequency (RF) waves with antennae located on the forklifts and high up in the warehouse. ‡ Information-directed systems can increase productivity by tracking material handler performance and allowing compensation to be based on activity level. ‡ A single handling equipment may be involved in loading or unloading several vehicles, selecting many orders, and completing several handling assignments, thus increasing the complexity of work direction.

‡ Packaging can be categorized into two types viz. (a) Consumer packaging, which has a marketing emphasis, and (b) Industrial packaging, which has more of logistics emphasis. A. Consumer Packaging (Marketing Emphasis) - Consumer packaging design focuses on customer convenience, market appeal, retail shelf utilization, and product protection. - Large containers and odd sizes may increase the consumer visibility but make poor logistical 162 packaging.

‡ For example, shipping products fully assembled such as motorcycles results in substantial reduction in density. ‡ A low density package would mean higher transportation costs and greater warehousing requirements. B. Industrial Packaging (Industrial emphasis) - Individual products or parts are normally grouped into cartons, bags, bins, or barrels for handling efficiency. - These containers are used to group individual products and are referred to as master cartons. 163

‡ When master cartons are grouped into larger units for handling, the combination is referred to as containerization or unitization. ‡ The master carton and the unitized load provide the basic handling unit in the logistics channel. ‡ The weight, volume, and fragility of the master carton in an overall product line determines transportation and material handing requirements. ‡ If the package is not designed for efficient logistical processing, overall performance of the system would suffer. 164


Standardization of master carton facilitates material handling and transportation. ‡ Standardization of master carton is beneficial even in context of retail backend operations. (a) For instance, in case of shoe store as the contents of each master carton are known, it is not necessary to search through many cartons for a particular style or size of shoe. (b) Allows master cartons to be more efficiently stacked, resulting in to less backroom congestion. (c) Complete identification of master carton contents facilitates completion of retail inventory and merchandise reorder.

‡ These different sizes of master cartons should result into modular compatibility. 166 . extreme care should be taken to arrive at an assortment of compatible units. when master cartons of more than one size are required. ‡ In situations. ‡ The end result of standardized master carton usage is substantial reduction in total cost combined with an effective material handling system at both warehouse and the retail store.‡ Standardized cartons are selected to achieve maximum conformity in increasing the density in the trailer thereby eliminating dead space in stacking.

‡ The ideal package for material handling and transportation would be a perfect cube having equal length. 167 .How to design an Ideal Package? ‡ Invariably. logistical requirements should be evaluated along with manufacturing. and product design considerations when standardizing master cartons. and width with maximum possible density but such a package does not exist in practice. ‡ Thus. depth. logistical considerations alone cannot fully dominate package design. marketing.

‡ The package design and material should combine to achieve the desired level of protection without incurring the expense of overprotection. 168 .‡ Another critical issue to be considered in package design is to determine the degree of protection required to cope with the anticipated physical and climatic environments.Damage protection. Utility/ efficiency. and Communication. ‡ Three broad functions of packaging are . ‡ In most cases the cost of absolute protection will be prohibitive and therefore the package construction should be a proper blend of design and material.

A. higher the value. then the cost of absolute protection can be significant. 169 . ‡ The determining factors are the value and fragility of the product. ‡ If the product is fragile and has high value. the greater is the justification for nearly absolute protection. ‡ Achieving desired degree of protection involves tailoring the package to the product and selecting proper material for package construction.Damage Protection ‡ A major function of the master carton is to protect products from damage while moving and being stored in the logistical system. ‡ Master carton also serve as a deterrent to pilferage.

L o s S B y D a m a g e Cost of Packaging 170 .

‡ Product fragility can be measured by product/package testing by means of shock and vibration equipment. ‡ The end result is the determination of the exact packaging required to protect the product. alternative product designs can be evaluated utilizing the same testing equipment.‡ The susceptibility to damage of a given package is directly related to the environment in which it moves and is stored. ‡ If packaging requirements and cost are prohibitive. 171 .

buckling and cracking.‡ During the logistical process. 172 . ‡ Typical methods of securing the packages are strapping.puncture. ‡ The potential physical damage of poor stacking ranges from surface scuffing and marring to complete product crushing. and compression. common causes of product damage are vibrations. impact. tie-downs. ‡ Stacking failure can also result in damage while the product is in storage. and use of various dunnage materials that limit vibrations and shock.

from truck loading and warehouse picking productivity to transportation and storage space utilization. ‡ Material handling efficiency is also strongly influenced by the unitization of packages.e. ‡ Logistical activity output can be described in terms of packages. Efficiency/ Utilization ‡ Logistical operations are affected by packaging utility i. number of cartons picked per hour in a warehouse or distribution centre. such as number of cartons loaded per hour into a trailer. 173 .B.

‡ Concept of containerization includes all forms of unitization. 174 . from taping two master cartons together to the use of specialized transpotation equipment. ‡ Unitization describes the physical grouping of master cartons into one restrained load for material handling or transport. ‡ All types of containerization have the basic objective of increasing material handling efficiency.‡ An important part of packaging relating to storage and material handling is the concept of unitization.

Unloading time and congestion at destination is minimized. . . 175 .All above factors lead to reduction in logistical cost.Damage in transit can be reduced by unit load shipping and specialized transportation equipment. .Products shipped in unit load quantities facilitate material handling and inventory can be positioned rapidly for order selection.jBenefits of Unit Loads .

176 . wrapping.A unit load can increase damage potential if it is not properly restrained during handling or transport.both shrink wrap as well as stretch wrap. Communication ‡ Critical to content identification. adhesives.. tracking.Standard method of imparting stability to unit load include rope ties. C. . and handling as the these are becoming necessary to total channel success. steel strapping.

. type of container i. . order selection. 177 .A very obvious communication role is identifying package contents for all channel members.Visibility is the major consideration. count and product code number. and material handlers should be able to see the label from reasonable distances in all directions.High value products often have small labels to minimize the temptation of theft.e.(a) Content Identification . and shipment verification.The carton information is used to identify product for receiving. . . can or bottle.The typical information includes manufacturer. product.

stored. . 178 .(b) Tracking . retrieved. . and shipped.A good control on movement reduces product loss and pilferage and is useful for monitoring employee productivity. and codification increases the tracking capabilities and effectiveness.Low cost scanning equipment.A well controlled material handling system tracks product as it is received.

or potential environments concerns. the packaging should provide instructions for ealing with spills and 179 container damage. temperature restrictions. .Final role of logistics package is to provide handling and damage instructions. .The information should be provided about any special product handling considerations such as glass containers. such as an explosive chemical .(c) Handling Instructions . . stacking considerations.If the product is dangerous.

‡ For instance. as all three areas influence each other. ‡ This type of integration is commonly found in 180 physical distribution. inventory policy and packaging communication into customer¶s logistical system leads to minimum handling during the exchange of merchandise. warehousing. . which in turn provide the opportunity to containerize individual products. ‡ The integration between material handling capability. and Material handling represent integral parts of the logistical operating system.Channel Integration-PCM ‡ Packaging. transportation. automated handling cannot be efficiently designed without a high degree of master carton standardization. Containerization.

‡ Warehousing is becoming significant to achieve the following objectives: .To increase customer service 181 .To reduced labour costs . ‡ Warehousing can be viewed as a place to store inventory as well as a facility for switching the inventory.To increase inventory accuracy. .To reduce inventory .To increase storage capacity .Warehousing ‡ The primary purpose of a warehouse management is to control the movement and storage of materials within an operation.

though different products were stored in the same warehouse it was difficult to identify the merchandise with respect to a particular order. products were handpicked and placed on the wagons and these wagons were pushed out of shipping area.‡ Typically. ‡ Due to above. ‡ On the receipt of the customer orders. 182 . the warehouses received merchandise by rail or road and the materials were moved manually to a storage area within the warehouse and piled up on the floor in stacks manually.

or material handling. ‡ The overall need to store materials to support manufacturing has been reduced. ‡ With the improved techniques of forecasting and production scheduling the need to build up inventory was considerably reduced. delays during manufacturing process reduced as the production became more coordinated. ‡ Also. work methods. human resources were used extensively and no consideration was given to efficiency utilization. ‡ Seasonal products continue to require warehousing.‡ As the labour was inexpensive. ‡ Inspite of poor efficiency. 183 . warehouses continued to provide a necessary bridge between production and marketing.

‡ At wholesale level. the department stores face the necessity of stocking an increased variety of products and are unable to order in sufficient quantities from a single supplier to enjoy the benefits of consolidated shipment.‡ In context of retailing. ‡ Direct ordering from manufacturers becomes prohibitively expensive due to high cost of transporting small shipments. 184 . ‡ This necessitates the need for warehousing to provide timely and economical inventory assortments. the warehouse becomes a support unit for retailing.

efficient warehousing becomes a method for reducing material and parts storage and handling costs while optimizing production. ‡ For implementing JIT and stockless production strategies warehousing becomes an integral part of entire value chain. 185 . companies producing products at multiple locations.‡ In context of manufacturing. ‡ As the basic objective of JIT is to reduce work-in-process inventory. manufacturing needs to supported by highly dependable delivery.

‡ A fully integrated warehouse is a vital extension of manufacturing. materials are purchased and transported to the supply warehouse and then distributed to manufacturing plants as and when needed. 186 .‡ In a country as large as India. this is possible only by having strategically located warehouses. ‡ Using consolidated shipments. ‡ The stocks can be held at a central warehouse thereby reducing the need to maintain inventory at each assembly plant.

‡ Recently. namely. (a) Reduced logistical cost because the full product assortment can be delivered while taking the advantage of benefits obtained through consolidated transportation. warehouses have been able to increase productivity due to effective use of Information Technology. 187 . ‡ The direct assorted shipments have two advantages.‡ In context of outbound logistics. (b) More competitive advantage for the manufacturers due to speedier shipments and mixed lots. warehouses have made possible the direct shipment of mixed/ assorted products to the customers thereby enhancing the service capabilities.

‡ Acting as a switching facility ‡ Provision of economic and service benefits.Role of Warehousing in Logistical System ‡ Provision of strategic storage. 188 . though an effective distribution system should not have the necessity of inventory for an excessive length of time. sometimes storage becomes inevitable.

Economic Benefits Consolidation Break-bulk Cross-docking Postponing Stock piling 189 .

Consolidation Plant A Customers Plant B Consolidation warehouse A B C Plant C 190 .

. .191 .Realization of lowest possible transportation rate.‡ The benefits and features are . .A single firm may use consolidation warehousing or a number of firms may join together and hire the consolidation service. .Reduction of congestion at a customer¶s receiving dock.Manufacturing plants can use warehouse as a forward stock location or as sorting and assembly facility.Combines the logistical flow of small shipments to a specific market area.

Break-bulk Customer A Plant A Break-bulk warehouse Customer B Customer C 192 .

‡ Cross-dock facility is similar to break-bulk except that it involves multiple manufacturers. ‡ Break-bulk warehouse splits individual orders and arranges for local delivery. ‡ In transit-mixing and release as well as manufacturing support are also included in cross dock facility. 193 .‡ Break-bulk operations receive combined orders from manufactures and ships them to individual customers.

Cross-docking Company A or Plant A Customer A Company B or Plant B Distribution centre Customer B Company C or Plant C Customer C 194 .

In Transit mixing and release Customer X Plant A Warehousing Transit mixing point Customer Y Plant B Customer Z Plant C Product D Customer W 195 .

Manufacturing Support Vendor A Vendor B Manufacturing warehouse Assembly plant Vendor C 196 .

The product is then moved across the dock to be loaded onto the trucks destined for appropriate customer.The full trailer loads of product arrive from multiple manufacturers and as the product is received it is sorted and allocated to customers.The trucks are then transported to retail outlets once the same have been filled with the mixed product from multiple manufacturer. 197 . .‡ The features and benefits of cross-dock facilities are: . .

the warehouse can complete final processing by adding label and finalizing the packaging.No pre-attached labels means the product does not have to be committed to a specific customer. jFor example. 198 .Processing/Postponement ‡ Warehouses can also be used to postpone. or delay production by performing processing and light manufacturing activities. ‡ A warehouse with packaging and labelling capability allows postponement of final production until actual demand is known.Once a specific customer order is received. vegetables can be processed and canned at the manufacturer¶s end without pre-attached labels.

. 199 .Agricultural products are harvested at specific times with subsequent consumption throughout the year. stockpiling becomes necessary to support the marketing efforts. ‡ Stockpiling provides for a buffer inventory allowing for a balance between the availability of materials and the market demand. ‡ In both the above situations.Stockpiling ‡ Useful for seasonal storage such as: .Blankets and Knitting wool are produced year round and primarily sold during a very short marketing period.

Service Benefits Spot Stock Assortment Mixing Production support Market presence 200 .

‡ Spot stocking allows inventories to be placed in a variety of markets adjacent to key customers just prior to a peak selling period of season. the remaining inventory is withdrawn to central warehouse.Spot Stock ‡ Used often in physical distribution particularly in case of seasonal products. ‡ For examples. suppliers of agricultural products to farmers often use spot stocking to position their products closer to market during growing season and once the sales season is over. 201 . ‡ Selected amount of firm¶s product line is placed or spot stocked in a warehouse to fill customer orders during a critical market period.

202 . ‡ Assortment represents multiple products from different manufacturers or special assortments as specified by the customers. jWholesalers would create a specific uniform for the team including shirts. jFor instance. pants. and shoes. a wholesaler of athletic clothing would stock products from number of clothing suppliers so that the customers can be offered assortments.Assortment ‡ Assortment warehouse stocks product combinations in anticipation of customer orders.

The combined assortments allow large shipment quantities leading to reduced transportation costs. .Improves services by reducing the number of suppliers that customer must deal with.‡ Advantages of Assortment warehouses . 203 .

204 . Quite similar to break-bulk process. ‡ An effective service benefit because inventory is sorted to precise customer specification.Mixing ‡ Several shipments from different manufacturers are involved. factory shipments are unloaded and desired combination of each product for each customer is selected. ‡ Upon arrival at the mixing warehouse. ‡ Truckloads of products are shipped from manufacturing plants to warehouses and each large shipment enjoys lowest possible transportation cost.

Production Support ‡ Production support warehouses provides a steady supply of components and materials to assembly plants. and subassemblies into assembly plant in an economic and timely manner. ‡ Production support warehousing is used to supply processed materials. components. ‡ The safety stocks of items purchased from outside vendors are justified because of long lead time or variation in usage. 205 .

‡ Local warehouse may enhance market share and potentially increase the profitability. ‡ Local warehouses and hence local inventory can be more responsive to customer needs and offer quicker delivery than more distnt warehouses.Market Presence ‡ Perceived by marketing managers as an advantage of local warehouses. 206 .

2.Warehouse Design ‡ 1. 3. and Product flow 207 . A. (a) (b) (c) Principles to be considered in warehousing designing are: Design criteria Handling technology Storage plan Design criteria Factors to be considered are: Number of storeys in the facility Height utilization.

(a) Number of storeys in the facility ‡ Ideally. the warehouse design should be limited to a single storey so that the product is not required to be moved up and down. warehouses should be limited to a single storey unless it is situated in Central Business District where land is restricted or expensive. ‡ Use of elevators to move product from one floor to the next requires time and energy and hence cost. 208 . ‡ Elevators can also become bottlenecks in product flow since many material handlers usually compete for a limited number of elevators. as far as possible. ‡ Hence.

(b) Height utilization ‡ Maximum usage of available space by allowing for the optimum utilization of height on each floor ‡ Maximum effective warehouse height is limited by safe lifting capabilities of material-handling equipment such as forklifts and fire safety regulations. product should be received at one end of the building. 209 . (c) Product flow ‡ Design should allow for straight product flow i. stored in the middle.e. and then shipped from the other end.

Design of a typical warehouse Receiving area Bulk storage area Order picking area Packaging or unitizing area Stacking area Finished product flow 210 Rack storage area .

211 .B. individual. and . Handling Technology ‡ Focuses on effectiveness and efficiency of material handling technology and primarily takes into account the following: . .Exchanging the product between handlers or moving it from one equipment to another wastes time and increases the potential for damage. short length moves.It is better for a material handler or a handling equipment to make a longer move than to have a number of handlers make numerous.Movement continuity. (a) Movement continuity .Economies of scale in movement.

.(b) Economies of scale in movement.Warehousing activities should be designed to move a group of cases such as master cartons or containers. C. ‡ Low sales volume or slow moving product can be assigned locations that are distant from the centre or higher up in the storage rack. 212 . ‡ The objective is to minimize the travel distance and also the need for extended lifting. as grouping or batching reduces the number of activities and hence the cost. Storage plan ‡ High sales volume or fast moving products should be stored in a location that minimizes the distance it is moved such as low height storage racks.

Storage plan based on product movement Storage space for low volume products Storage space for low volume products Storage space for low volume products Storage Space For High Volume products Storage space for low volume products Storage space for low volume products Storage space for low volume products 213 Primary gangway .

Warehousing strategies Private Public Contract 214 .

215 . ‡ Firms with specialized customers or products often develop their own warehouse. facility may either be owned or leased.e.Private Warehouses ‡ Operated by the firm owning the product i. ‡ Generally efficient warehouse should be planned around a material handling system in order to encourage maximum efficiency of product flow. ‡ Quite often the warehouses requiring specific material handling activities designed to fit exact needs of the firm may not be available on hire.

Public Warehouses Classified on the basis of range of specialized operations performed. and textile fabrics. paper. (c) Bulk commodities requiring specialized material handling systems such as liquid chemicals. (b) Refrigeration facilities to preserve food products. tres. 216 ‡ .g. pharmaceutical medicines and certain chemicals requiring specific ambient temperature. as under (a) General merchandise e. small home appliances and household maintenance goods.

(f) Provide greater flexibility in operations since warehousing becomes the core business. (h) Transportation economies are leveraged by delivery of loads representing various 217 customers..(d) Bonded. fixed costs get spread over and justify more efficient handling operations.licensed by the government to store goods prior to payment of custom duties. (e) Furniture requiring special handling systems. (g) Due to high volume operations. . taxes etc.

(j) When economies of scale are nt posible in a private warehouse. public warehousing may be a low cost alternative.(i) Public warehouses charge a client a basic fee for handling and storage based on number of cases or the weight handled. 218 .

and Returns Assume total responsibility for enterprises that desire only to manufacture and market.Contract Warehouses ‡ (1) (2) (3) (4) (5) ‡ Contract warehouses provide all logistics activities such as Transportation Inventory control Order processing Customer services. 219 .

‡ Public facilities are used to handle peak season. while in other cases public warehousing may be the least cost option.How firm utilize warehousing facilities? ‡ A private or contract facility may be used to cover regular year round requirements. private facility may be more efficient. ‡ A firm may find private warehousing to be more justified at certain locations on the basis of distribution volume. while market or field warehouse are public warehouse. ‡ In many cases central warehouse may be private. 220 . ‡ Where the warehouse space is fully utilized at least 7580% of the time.

jThe benefit is the reduced transportation cost due to joint use of same public warehouse allowing for frequent delivery of consolidated loads from multiple suppliers. jFor example. 221 . while a public warehouse may be appropriate for others. private or contract facility may be useful.‡ Some customer groups may be served better from a private warehouse. firms in grocery business share public warehousing facilities with other suppliers serving the same industry. ‡ Public and contract warehousing increases the potential for industry synergy. ‡ Where the customers can be served better by local presence of the products.

order processing. local warehouse become unnecessary.For example. as they are able to design operations and facilities to meet higher volumes of multiple clients.‡ Public and contract warehouses demonstrate more responsiveness as they offer location flexibility. After growing season. ‡ Contract warehousing facilities can provide complete logistical support such as transportation. ‡ Public and contract warehouses generally offer better economies of scale. in-season demand for agricultural chemicals require warehouses to be located near markets to serve customers better. inventory control. 222 . storage and other administrative assistance in an integrated manner.

Warehouse Functions Movement Storage Receiving In-storage handling Shipping Planned storage Extended storage 223 .

limited automated and mechanized methods have been developed that are suitable to varying product characteristics.In Indian context. which in most cases is done manually. . In-storage handling and shipping. (a) Receiving-Activities involved are .A.The product is hand-stacked on pallets to form unit load for movement efficiency. 224 . Movement: Receiving. .Unloading the transportation vehicle.

The entire operation helps in selection process for grouping materials. . .Checking is important at a point when merchandise 225 changes ownership as a result of shipment. .Involves checking and loading orders onto transportation vehicles. and products into customers¶ orders.(b) In-storage handling . the merchandise is transferred within the warehouse to position for storage or order selection. (c) Shipping . parts. the required products are accumulated and transported to a shipping area.On receipt of the product. . .On receipt of order.Shipping in unit loads leads to considerable saving of time in loading the vehicle.

Erratic demand.Storage: can be either planned or extended. (a) Planned storage .Storage for basic inventory replenishment is referred to as a planned storage.Sometimes storage may be required for several months prior to customer shipment. . product conditioning.B. .Duration varies depending on the performance cycle length. 226 . (b) Extended storage . .Seasonal items require storage to wait for demand or to spread supply across time. speculative purchases and discounts call for extended storage.

‡ While this may be the case in for some industries such as food where the warehouses must deliver the products to customers in a timely manner. there are 227 alternatives to building warehouses. sales were key drivers in influencing warehouse site selection. . ‡ Many companies still believe that in order to succeed in certain markets.they must have a warehouse presence. ‡ Companies satisfied the needs of their sales force by building warehouses with the hope to increase market presence and hence revenue.Warehouse Site Selection Process ‡ Traditionally.

‡ Before making a site selection companies must closely examine the current distribution network and the impact of adding . transportation requirements and costs. These are: . 228 . tangible and relatively easy to define. consumption pattern. (b) Demand potential and trends. subtracting or consolidating facilities for the entire organization. ‡ Many factors come into play when analyzing the impact a new warehouse will have on the company¶s distribution network. labou costs. facility costs and utility cost.Quantitative variables (a) Cost drivers.

(b) Customer service levels and top management preferences. ‡ Once all the data is collected.Qualitative variables (a) More difficult to understand and to measure. the actual analysis is done depending on the number of alternative location strategies. ‡ The company should be able to select the best site according to cost. and expected customer service levels. ‡ The idea is to ensure the greatest return on 229 investment. operating factors. ..

230 .´ ‡ The significance of The square Root Law is that a firm currently operating out of five warehouses which centralizes to one warehouse can theoretically reduce inventory carried in stock by 55 percent.The Square Root Law ‡ The square root law states that ³The total inventory in a system is proportional to the Square Root of the Number of Locations at which a product is stocked. ‡ This will of course result in large savings in inventory carrying cost which will be slightly offset by more rapid transport to meet current delivery service levels.

‡ While the reduction of inventory and number of locations for keeping finished products are desired. the companies must do so without reducing service to customers. 231 . ‡ The square root law determines the extent to which inventory reduces by reducing the number of locations. ‡ An important assumption is the total customer demand remains same.‡ It is recognized that the inventory tends to increase as the number of locations increase.

‡ The Square Root Law states that the total inventory in a future number of warehouses is determined by multiplying the total inventory at the existing warehouses by the square root of number of future warehouses divided by number of existing warehouses. Mathematically. where ‡ L= Total inventory in future warehouses ‡ L1= Total inventory in existing warehouses ‡ W1= Number of existing warehouses 232 ‡ W2 = Number of future warehouses. it is represented as under: ‡ L = [(L1) x {˜ (W2÷ W1) }]. .

inventory will consist of 1.00.00. ‡ L1= 2.00.000 units.00.‡ For example. the total inventory will increase. ‡ Conversely. If the number of warehouses are reduced to 10 what will be impact on total inventory.000 ‡ Thus. if the number of warehouses are increased.000 ‡ W1= 40 ‡ W2= 10 @L= [(2.233 . In a company there are 40 warehouses and the existing inventory is 2.00.000) x {˜ (10÷ 40 )}] = 1.000 units giving a reduction of 50%.

(2) Lead time does not vary. 234 .‡ Assumptions are (1) Inventory transfer from one warehouse to other is not done. (3) Customer service level does not change from any warehouse. (4) Demand level is well distributed from all warehouse.

Warehouses as Distribution Centres  Distribution strategies can be of following types ‡ Cross docking ‡ Milk runs ‡ Direct shipping ‡ Hub and spoke model ‡ Pool distribution 235 .

Cross-docking co-ordinates the supply and delivery so that the goods arrive at the receiving area and transferred straight away to the loading area. . where they are put into delivery vehicles. .A. . .Cross docking is a flow-through concept as it is not desirable to interrupt flow of products anywhere. brick and mortar is getting very expensive these days. Cross Docking .The stock coming into cross docking centre has already been pre-allocated against a replenishment order generated by a retailer in the supply chain.Cross docking shifts the focus from ³supply chain´ to demand chain´.Cross docking encourages electronic communications 236 between retailers and their suppliers. because space. .

(2) Flow though Cross Dock ‡ In this case. these packages are opened and broken into smaller quantities. when the materials arrive and they are in large packages. consolidated and transferred to vehicles for delivering to different customers. sorted. ‡ This form of cross docking does not need a warehouse and a simple transfer point is enough. 237 ..There are two forms of cross docking (1) Basic cross Dock ‡ In this form packages are moved directly from the arriving vehicles to the departing ones.

Nowadays. where they do not keep the stock themselves..Cross docking can be developed into a phase where nothing actually moves through a warehouse. but coordinate the movement of goods from the upstream suppliers to the downstream buyers. . wholesalers use the method of dropshipping. 238 .The stock kept within the vehicles are referred to as ³stock on wheels´. .

How Cross Docking Works? Shipping Sorting Receiving 239 .

‡ A second team of workers sort the goods into shipping lanes from which a final team loads them into outbound trailers. ‡ Helps to reduce the cost as the labour is removed from the job of storage as well as by eliminating warehousing/storage. 240 .‡ On receiving the goods workers put them in lanes corresponding to the receiving doors.  Benefits of Cross Docking ‡ Helps to improve the speed of flow of the products from the supplier to the stores.

‡ Appropriate for products with large.  Constraints of Cross Docking ‡ Requires a strong IT base and real time information sharing facilities e. 241 .‡ Helps to reduce the amount of finished goods inventory that is required to be maintained as safety stock. and predictable demands.g. Bar codes on cartons. ‡ Requires that distribution centres should be set up such that the benefits of economies of scale in transportation can be achieved on both the inbound and outbound side.

in turn. relies on better information and planning. 242 . Milk Runs ‡ A milk run is a route in which a truck either delivers product from a single to multiple retailers or goes from multiple suppliers to a single retailer. ‡ Product availability. B.‡ Requires a great degree of coordination and synchronization between the incoming and outgoing shipments which. a supplier delivers directly to multiple retail stores on a truck or a truck picks up deliveries for many suppliers of the same retail store. accuracy and quality aspects are critical. ‡ In other words.

Milk runs from single supplier to multiple retailers Retail Store 1 Supplier Retail Store 2 Retail Store 3 Retail Store 4 Retail Store 5 Retail Store 6 243 .

Milk runs from multiple suppliers to single retailer. S1 Retail Store S2 S3 S4 S5 S6 244 .

resulting in a better utilization of the truck and somewhat lower costs. ‡ Helps to reduce the amount of inventory to be kept as a safety stock in the warehouses. small deliveries are needed on a regular basis and either a set of suppliers or a set of retailers is in geographic proximity. 245 . ‡ High degree of coordination and synchronization required among the members of supply chain. ‡ Milk runs allow deliveries to multiple stores to be consolidated on a single truck. Benefits/ Limitations of Milk Runs ‡ Milk runs help to reduce the the transportation costs by consolidating shipments to multiple stores on a single truck . ‡ The use of milk run is helpful if very frequent.

‡ In this case. ‡ Goods that are generally distributed through the method of direct shipping are certain perishable items. 246 . high volume goods. Direct Shipping ‡ Direct shipping refer to the method of distribution in which goods come directly from the suppliers to the retail stores.C. high bulk items and specialty products. routing of each shipment is specified and the supply chain manager needs to decide on the quantity to ship and the mode of transportation to use. ‡ This system eliminates the need for the intermediates facilities such as warehouses and distribution centres.

Direct Shipment Network S1 R1 R2 S2 R3 S3 R4 R5 S4 R6 247 .

‡ As goods move directly from the supplier to the retailer there is less handling of the products as a result there is less product damage. the invoice match receiving records resulting into ease of maintaining store records. ‡ Saves a lot of time as the time required for distribution of goods from the supplier to the retail store would be short because each shipment goes direct. 248 . Benefits/Limitations of Direct Shipment ‡ The major advantage of direct shipment network is the elimination of intermediate warehouses and the simplicity of its operation and coordination. ‡ Since the distribution is direct.

‡ Direct shipment from the supplier to the retailer poses a lot of hassles for the store personnel e. transit damage make it necessary to maintain safety stock. ‡ Due to uncertainties of shipments from suppliers such as delay in transportation. more deliveries.g. wrong goods supplied.‡ The direct shipment network is justified if the retail stores are large enough because with the small size of retail stores the direct shipment network tends to have high costs. 249 . loading and unloading etc. paperwork.

the distribution hub is the location that holds inventory for a large region. 250 . Hub and Spoke model is restricted to fulfilling the just-in-time needs of heavy manufacturing industries. with each spoke leading to smaller distribution centre. which houses inventory for a smaller region. Hub and Spoke Model ‡ In this model.D. with the goal being to supply to a maximum numbers of customers in minimum time. ‡ The main driver of the hub and spoke model is the proximity to the customer. ‡ Currently.

stores. company that expands is the hub and suppliers are its spokes. ‡ The type of product to be distributed largely necessitates a hub and spoke operation.customers. stop points within a particular geographic region. ‡ The products that cannot be air freighted are mostly distributed through hub and spoke model. Pool Distribution ‡ Pool distribution is the distribution of product to numerous destination points. its suppliers may move to nearby areas so as to supply it more efficiently. 251 . In this case. E.‡ If a company expands its operations.

‡ Pool distribution represents an excellent cost effective alternative to the higher cost of individual LTL shipments. then segregated and sorted by delivery point then reloaded on local delivery trucks for delivery to the individual destinations. ‡ Instead of LTL direct. 252 .‡ Pool distribution is is useful when high frequency regular shipments in LTL quantities are involved. ‡ There it is offloaded. product is shipped to regional terminals in truckload quantities.

Normal LTL and pool distribution S1 R1 R2 R3 R4 253 .

R1 R2 S1 W1 R3 R4 254 .

255 . ‡ Less handling than normal LTL service and hence reduced claims. ‡ Meet customer delivery requirements. pool distribution is simple cost effective alternative to LTL.Handle peaks in business effectively. ‡ Merchandise reaches retail stores speedily. Benefits ‡ When you have multiple shipments bound for specific region.

Storehouse Operations Storage Systems The Receipt System Physical Upkeep and Maintenance System Issue system 256 .

issues and disposals. accounting. but also must take care of the future growth potential an demands. handling.‡ System design should not only permit matching of present requirements with the existing supplies. 257 . storage. upkeep. ‡ Stores must act as a buffer between procurement and various other consuming departments to ensure timely receipts. ‡ Primarily stores must render effective services to all internal customers.

. make actual issues for disposals and account for them. ‡ To approve the accepted materials. and complete the formalities for bill payment.Regular Activities of Stores ‡ To receive the materials. ‡ To keep the purchasing people well informed through 258 systematic indents and other reports. prepare the rejection notes. check them for quantity. ‡ To prepare issue vouchers. store them in respective locations as predetermined. ‡ To take into stock the accepted materials. coordinate for inspection and quality checks and prepare the goods receipt note.

minimum pilferage. proper identification. and quick retreival with minimum waste of time and efforts. physical verification. . and ensure proper accounting. 259 ‡ To supervise for smooth functioning. ‡ To establish. ‡ To highlight abnormal consumption. ‡ To analyze the consumption and issues from stock records and establishing norms. maintain and update rationalized system of codification.‡ To keep the storage place clean for facilitating handling movements and observe all safety measures and security regulations. ‡ To ensure easy storage. obsolescence and surpluses. accumulation. ‡ To arrange for periodic review.

The basic systems of storage are: ‡ Fixed location ‡ Random location ‡ Zoned location  Fixed location means that stock can be found immediately without a complex system of recording but there can be a considerable waste of space.Choosing the most suitable storage system  Any storage system is a compromise between the use of space and the use of time. 260 .

 Zonal location means that goods of a particular group are stored in a given area. and medium and slow moving items. but accurate and elaborate records have to be kept about where the materials are. . Random location means space is better utilized.   Fast moving materials are usually positioned near the input and output end of a store with the objective of reducing travel time and thus speeding the process 261 throughout. They may be either randomly stored in a zoned location or stored according to fixed location.   A large mechanized stores is characterized by grouping together the fast moving or high turnover goods.

‡ Centralization makes it difficult to provide service to various work centres scattered in different locations. effect better control. ‡ Decentralization on the other hand is advantageous to workshops lying scattered in wide areas so that the various stores may be 262 kept near production shop floors. .Centralization and Decentralization of Stores ‡ Centralization helps to ensure economy. reduce manpower needs and is suitable for small installations.

Customer and replenishment orders . . unreliable. and error-prone information transfer thereby increasing operating cost and decreasing customer 263 satisfaction.Principals of Logistics Information ‡ Information flow is a key element of logistics information.Transportation documentation .Warehouse work orders .Invoices.Inventory requirements . ‡ Traditional paper-based information flow results in slow. ‡ The common forms of logistics information are: .

artificial intelligence. ‡ The specific technologies include electronic data interchange (EDI). wireless communications.bar coding and scanning. 264 .‡ As technology costs are declining and usage is easier. personal computers. logistics managers are managing information electronically at reduced logistics expenses with increased coordination resulting in enhanced services by offering better information to customers.

‡ For effective logistics information. delivery schedule and invoices is necessary element of total customer service. (1) Customers perceive that information about order status. timely and accurate information flow is critical because of the following three reasons. (3) Information facilitates allocation of resources for achieving strategic advantage. 265 . (2) Information can reduce inventory by minimizing demand uncertainty. product availability.

Transaction system Management control Decision analysis Strategic planning 266 1.Information Functionality ‡ Logistics information system links logistics activities into an integrated process that is built on the following four levels of functionality. 4. 2. . 3.

 Transaction system: ‡ Initiates and records the individual logistics activities in a sequence as given under: 1. Invoicing 7. Shipping 5. Inventory assignment 3. Order selection 4. Order entry 2. Customer inquiry 267 . Pricing 6.

Customer order receipt Inventory assigned to the order Directing material handlers to select the order Printing of invoice for payment Movement. loading and delivery of order 268 .

Productivity 4. Customer service 3. Financial 2.Cost measure (b) Inventory turnover-Asset measure 269 . Management control ‡ Focuses on performance measurement and reporting. Quality ‡ A few examples are: (a) Transportation and warehousing cost per kg.The common performance measures include: 1.

270 .g. vertical integration versus third party outsourcing.  Decision analysis ‡ Vehicle routing and scheduling ‡ Inventory management ‡ Facility location ‡ Operational trade-offs and arrangements e.(c) Case fill rate-Customer service measure (d) Cases per labour hour-Productivity measure (e) Customer perception-Quality measure.

 Strategic planning ‡ Strategic alliances with various value chain members. ‡ Development of firm capabilities and scanning market opportunities. ‡ Customer responsiveness to improved services.


Principles of designing LIS applications
‡ 1. 2. 3. 4. 5. 6. The principles underlying the designing of logistics information systems applications are: Availability Accuracy Timeliness Exception-based LIS Flexibility Appropriate format

1. Availability - Rapid availability of information is extremely necessary to respond to customers and improve management decisions. - Customers frequently need quick access to inventory and order status information regardless of managerial, customer, or product order location. - Many times it warrants the need for decentralized logistics operations so that information system is capable of being accessed and information updated from anywhere in the country or even the world. - Information availability reduces substantially the operating and planning uncertainty.

2. Accuracy - Logistics information must accurately reflect both current status and periodic activity for customer orders and inventory levels. - µAccuracy¶ is the degree to which LIS reports match actual physical counts or status. - In case of low consistency between physical and information system inventory levels, buffer stock becomes necessary to accommodate the uncertainty. - Increased information accuracy reduces inventory requirements.

3. Timeliness - Timeliness refers to the delay between the occurrence of an activity and the recognition of that activity in the information system. - Logistics information must be timely to provide quick management feedback. - Timely information reduces uncertainty and identifies problems, thus reducing inventory requirements and increases decision accuracy. - When a continuous physical product flow may exist such as ³work in process´ to ³finished goods´, information system providing inventory status may be updated on an hourly, shift, or daily basis. - Real time or immediate updates are timelier but result in increased record-keeping efforts. 275

4. Exception-based LIS - LIS should be strongly exception oriented and utilized to identify decisions that require management attention, particularly in respect of very large orders, products with little or no inventory, delayed shipments, and declining operating productivity. 5. Flexibility - LIS must be able to provide data tailored to meet the requirements of a specific customer. - For example, some customers may want invoices aggregated across certain geographic boundaries or divisions or retailer. - Retailer µA¶ may want individual invoices for each store, while Retailer µB¶ may desire an aggregated invoice that totals all stores. 276

6. Appropriate Format .Logistics reports and screens must contain right information in the right structure and sequence. a review and comparison of five computer screens is required. (b) This implies that if there are five distribution centres. 277 . . LIS showing a distribution centre inventory status with one product and one distribution centre listed per screen. (a) This format will require customer service executive check inventory status at each distribution centre when attempting to locate inventory to satisfy a specific customer order.For example.

An effective format should integrate past and future information regarding on hand inventory. (e) This can be considered as an appropriate format as one single screen or report contains and effectively presents all relevant information for a decision maker. . and planned receipts for each single tem at a distribution centre. 278 . demand forecast. (d) The combined screen makes it much easier for a customer service executive to identify the best source for the product.(c) Appropriate format would provide a single screen with inventory status for all fve-distribution centres.

Logistics Information Systems Operating Flows Planning & Coordination Flows -Capacity Plan -Logistics Plan -Manufacturing Plan -Procurement Plan -Order management -Order processing -Distribution operations -Transport & shipping -Procurement 279 .

‡ For each product. Planning & Coordination Flows . and movement. capacity plans determine the ³where´. ‡ Capacity problems can be resolved either by resource acquisition or alliances i. ‡ Estimating production capacity requirements through prior scheduling or contract manufacturing helps in managing capacity constraints. ³when´ and ³how much´ for production.A. warehousing.Capacity Plan ‡ Developed keeping in mind the internal and external manufacturing .e. 280 . and transportation resources. contract manufacturing or facility leasing. storage.

e. by delaying production and shipment until specific requirements are known and capacity can be allocated is another method of solving such problems. ‡ Capacity constraints have a major influence on monthly or weekly production for each manufacturing location.‡ Postponement of production or delivery i. it may become necessary to offer customer incentives such as discounts or allowances in order to postpone delivery. 281 . ‡ Sometimes.

‡ Customer orders include current orders. historical trends) + Customers orders(current orders. customer orders and sales promotions. 282 . and contracts. logistics requirements can be computed as  Forecasts(sales/marketing inputs. future committed orders. advertising)= Period demand ± Inventory on handPlanned receipts = Period logistics requirements.Logistics plan ‡ The future logistics requirements are based on forecasts. ‡ The forecasts are based on sales and marketing inputs in conjunction with historical activity levels. future committed orders. ‡ Mathematically. contracts)+ Promotions(sales promotion..

‡ Primarily. ‡ Manufacturing requirements determine the master production schedule (MPS).‡ Logistics requirements must be integrated with both capacity constraints and manufacturing requirements to achieve the best performance. . manufacturing requirement plan and consequently material requirement plan(MRP-I/II).Manufacturing Plan ‡ Facilitate scheduling of production resources and resolve day-to-day capacity bottlenecks within the materials management system. bottlenecks may result from raw materials shortages or daily capacity limitations. 283 .

and receipts. whereas MRP coordinates the purchase and arrival of materials and components to support the manufacturing plan. .‡ MPS defines weekly or daily production and machine schedules. 284 . shipments.Procurement Plan ‡ Procurement plan schedules material releases. ‡ The requirement schedule is used for purchase negotiations and contracting. ‡ Both logistics requirements and manufacturing requirements must operate in parallel.

process. Transportation and shipping 5. These include: 1. and ship customers orders and to coordinate the receipt of purchase orders. Order processing 3.B. Procurement 285 . Order management 2. Distribution operations 4. Operating Flows  Operating flows include the information activities required to receive.

or EDI. phone.. ‡ Offers information regarding inventory availability and delivery dates to establish and confirm customer expectations. fax. 286 .Order management ‡ Involves entry and maintenance of customer orders using communication technologies such as mail. ‡ Order management in combination with customer service representatives form the basic interface between the customer and enterprise LIS.

‡ Allocation may take place on a real time basis or batch mode. ‡ Order processing also includes selection of order from distribution centre or warehouse and pack it for shipment. 287 .Order processing ‡ Involves assigning and allocating available inventory to customer and replenishment orders.. ‡ Order processing also includes selection of order from distribution centres or warehouses and pack it for shipment. ‡ Batch mode means orders are grouped for periodic processing. such as day or shift.

‡ LIS in distribution operation would include product receipt. ‡ In a batch environment. pallets etc in the warehouse. 288 .. the technologies like bar coding. material movement.Distribution operations ‡ Distribution operations must have synergy with inventory control and warehousing systems. automated handling equipment are used to reduce time elapsed between the decision and action. ‡ In a real-time time environments. LIS guides tasks done by each material handler handling forklifts. and storage and order selection.

‡ Modern LIS in transportation and shipping lays more stress upon auditing. shipment consolidation. . transportation and shipping emphasizes generation of documentation and rate generation.Transport and shipping ‡ The activities include shipment planning. routing and scheduling. invoicing. and carrier management. ‡ Historically.. reporting and 289 performance monitoring. transport documentation generation. scheduling.

‡ Procurement LIS must be able to track and coordinate material receipt. vendor evaluation and vendor rating. release. facility capacity. inbound and outbound movements.. amendment. 290 . and performance measurement.Procurement ‡ Includes management of purchase order preparation.

Personal Computers 3. Communication technology 5. Bar coding and scanning 291 . Artificial intelligence 4.Application of Information Technology  The specific technologies that have widespread use in logistics are: 1. Electronic Data Interchange (EDI) 2.

production status. courier or even fax. ‡ Determines capability of communicating information between two organizations electronically instead of traditional mail. . Electronic Data Interchange ‡ Intercompany computer-to-computer exchange of business documents in standard formats. ‡ LIS would consist of real time data on inbound material flows. product inventories.1. customers¶ shipments and 292 incoming orders.

Internal perspective includes exchange of information on production schedule and control data. Better accuracy by reducing the number of times and individuals involved in data entry. external perspective and internal prospective. transport carriers. . 293 Increase ability to compete internationally.‡ (a) (b) ‡ (a) (b) (c) (d) Can be visualized in two different perspectives viz. External perspective includes need to communicate order shipment and billing information with vendors. Improved channel relationship. financial institutions. and customers. Benefits of EDI are: Increased internal productivity though faster information transmission as well as reduced information redundancy.

2.(e) Reduced labour cost associated with printing. Personal computers ‡ Low cost and high portability with a capability of bringing accurate and timely information to the decision maker whether in office. or on the road. . and handling paper-based transactions. at the warehouse. telephone and other clerical activities. mailing. ‡ Responsiveness and flexibility offered by decentralized PCs results in more focused 294 service capability.

‡ The decisions are invariably in respect of (a) Which markets to serve? (b) Which product to pick next in the warehouse? 295 ‡ .The use of LAN .provide shipment information to the customers when desired and also facilitate decisions regarding facility location. routing and scheduling. responsiveness and flexibility throughout the enterprise. WAN and Client/server architecture offers benefits of decentralization. ‡ The client/server network can globally track inventory in motion. inventory analysis.

Artificial Intelligence ‡ Aimed at making computers imitate human reasoning and are more concerned about rationalizing rather than numeric processing. 3. ‡ The applications are: (a) Carrier selection (b) International marketing & logistics (c) Inventory management 296 . (d) Reporting vehicle location (e) Identifying lowest-cost fuel stop.(c) Driver reporting and deliver information.

(a) Radio frequency: .Real-time communication with material handlers such as fork lift drivers and order 297 selectors. satellite communications.used within relatively smaller areas such as distribution centres to facilitate two-way information exchange .4. and image processing technologies can relate quickly to the product movement and decentralization. . Communication technology ‡ Application of radio frequency.

(b) Satellite communication .Provides up-to-date information regarding location and delivery and allows dispatchers to redirect trucks in response to need or traffic 298 congestion. . .Communication dishes on the top of vehicles allow communication between driver and shippers.Useful for providing a fast and high volume information around the globe.Updating instructions and priorities to fork lift drivers on real time basis. ..

Used in transmission of fright bill information .Used by the retail chains to transmit quickly daily sales to headquarters that helps in activating store replenishment and also to provided input to marketing regarding local sales pattern. (c) Image processing .Bills of lading..Relies upon fax and optical scanning technology.Proof of delivery receipt . supporting documents are sent to image processing locations where it is electronically scanned and logged onto the system. . 299 . ‡ As the consignment gets delivered to customers.

‡ Electronic images of documents are then transmitted to main data centre where they are stored on optical laser disk and customers can access the documents through computer linkages or phone call to the service representatives. ‡ As the customers experience the competitive benefits of real time information transfer. there will be increase demand for this communication technology. 300 .

Information sharing though geostationary satellite Geostationary satellite Retail store Head office Transport company 301 .

its transporters.‡ Geostationary satellite communication technology has facilitated real time information transmission and sharing amongst the company. 302 . and retail outlets.

containers and even railcars. the shippers and carriers are concerned with contents of pallets. ‡ It is important to include as much information as possible in the smallest area. 303 . containers or cartons. ‡ These bar codes distinguish package size and flavours and reduce errors when receiving. Bar Coding and Scanning ‡ Typical applications include tracking receipts at the warehouse and sales at the retail stores. cartons. ‡ Bar coding involves placement of readable codes on the items. ‡ While the requirements of retailers are individual item.5. handling. or shipping product.

receipts. however. ‡ The applications of bar code and scanning are: (a) Point-of-sales (POS) in retail stores. storage location.‡ The limitation. tracking of each stockkeeping unit (SKU) sold. and providing timely information beneficial to all channel members. accurate inventory control. is ³smaller and more compact codes increase the potential for scanning errors. shipments and 304 receipts.´ ‡ A scanner optically collects the bar code data and converts them to usable information. . replenishment. (b) Facilitating material handlers track product movement.

Impact of IT on Logistics Logistics + requirements Current Information Technology = Competitive edge Continuous interaction between the logistics requirements and the information technology accelerates integrating complete logistics activities in an organization and consequently giving company a competitive edge. 305 .

the issues and opportunities an organization faces will fall in one or more of three general categories (a) Tactical (b) Strategic. ‡ Typically.Outsourcing ‡ Organizations outsource to address specific business issues and opportunities. and (c) Transformational 306 .

.Tactical reasons for Short-term Outsourcing ‡ Reduce and control operating costs . 307 .Most important tactical reason for outsourcing is to reduce or control operating costs.Access to the outside provider¶s lower cost structure is one of the compelling short term benefits of outsourcing.Certain research studies have found companies reporting an average 9% reduction in costs due to outsourcing. .

This cash can be used in other parts of the operation.Equipments.Outsourcing reduces the need to invest capital funds in non-core business functions.Outsourcing sometimes involves the transfer of assets from the customer to the service provider. . funds are available for investment in core areas. and licenses used in current operations are sold to the service provider as a part of transaction resulting in cash payment. . vehicles. 308 . ‡ Cash infusion .Improves financial measurements of the firm by eliminating the need to show return on equity from capital investments in non-core areas. .‡ Freeing capital for investment . .Thus. facilities.

capital or intellectual.For instance. . 309 . especially into new geographic area.Introducing best in class management and business processes a service provider offers can be quick way to bring control to a situation. ‡ Functions difficult to manage or out of control . outsourcing is viable and important alternative to building the needed capability from the ground-up.‡ Unavailability of resources internally . if an organization is expanding its operations.Companies outsource because they do not have access to the required resources-human.

Partnering with an organization with world class capabilities can offer access to new technology.Strategic Reasons for Long-term Outsourcing ‡ Improve business focus . tools.Allows the company focus on broader business issues while having operational details assumed by an outside expert. 310 .and techniques that the organization may not currently possess. ‡ Provides access to world-class capabilities .

Outsourcing permits an organization to redirect its resources from non-core activities towards building knowledge base skills having long term pay back and impact on innovation.‡ Frees resource for other purpose . 311 .

procedures. 312 . . .Competitive advantage through expanded skills.More structured methodologies. more dynamic.Outsourcing is a powerful tool for Business Process Reengineering.Better career opportunities for personnel who switch to the outsourcing provider. and documentation.Companies can respond quickly to customers to resolve delivery and any other service related issue. ‡ Provides acceleration to reengineering efforts.When companies outsource they become more flexible. ‡ Shared risks & quick response . and better able to adapt to changing opportunities. .. . procedures.

Companies facing shortening of PLC are using outsourcing to concentrate their time and efforts to market.Transformational Reasons for Outsourcing ‡ Helps respond to shortening product life cycles .Outsourcing transforms the entire supply chain by shortening the chain and provides additional services transforming the customer experience. . ‡ Redefines relationships with suppliers and business partners. 313 .

Amazon. process orders. 314 . ‡ Helps to enter new markets with reduced risks . .com changed retailing due to new technology. and a cadre of outsourcing providers.Firms move into new markets or new opportunities with little experience. .Change was effected by partnering with the third party providers who could manage call centres. particularly in the areas of ecommerce.Service providers like IBM Global Services are helping brick and mortar firms create entirely new customer base on-line.‡ Helps in surpassing the competitors . and fulfill orders.

315 . compare and guide logistical performance. ‡ Secondly.Logistical Measurement  Dimensions of Performance Measurement ‡ The first step is to improve the quality of information that logistics managers must obtain to measure. the old reporting formats need to be redesigned to take advantage of the new computer-based control systems.

Objectives for developing & implementing performance measurement system Monitoring Controlling Directing 316 .

helps management to identify the cause and modify the packaging or loading process.Measures and tracks ongoing performance in order to bring it into compliance when it exceeds control standards. . ‡ Controlling .For instance. 317 . ³transportation damage tracking´ system by periodically reporting the product damage.Measures and tracks the historical logistics performance in respect of service levels and cost components.‡ Monitoring .

For instance. . they are given a bonus. consider the material handlers in the warehouse or delivery boys who are paid for eight hours of work based on standard production rate. .‡ Directing .Refers to the methods designed to motivate personnel. 318 .Includes ³pay for performance´ practice to encourage warehouse or transportation personnel to achieve higher levels of productivity. .When the material handlers/ delivery boys complete the assigned tasks in less than the allotted time. .If employees require more than the allotted time. they are not compensated for the additional time.

(c) Order selection time per order. cases received from suppliers.e. customer orders entered.e. ‡ The objective is to record the level of activity. and cases shipped to customers. number of cases . ‡ The typical logistics activity-based measures are (a) Order entry per order. and/ or level of productivity i. cases per labour hour. (b) Delivery time per order. i.Activity Based Measures ‡ Activity based measures emphasize the individual tasks required to process and ship orders such as. 319 .

Order selection time per product. Delivery time per product. Delivery time per customer. Order selection time per customer.‡ ‡ ‡ ‡ ‡ ‡ Inquiry time per order. Order entry time per customer. 320 .

‡ Thus.Process Based Measures ‡ The activity based performance measures record the level of activity/ productivity but do not measure the performance of overall process of satisfying the customers. the order takers may be rated high with respect to activity based measurement on the basis of number of calls per hour. process based measures refer to the customer satisfaction delivered by the entire supply chain. they may fare poorly in overall satisfaction process as they fail to listen carefully to customers. 321 . ‡ For instance.

322 . ‡ Measurement of these activities and comparison thereof with the standards is necessary to improve performance.Internal Performance Measurement ‡ Focuses on activities required to serve customers. ‡ Emphasizes on comparing activities and processes to previous process operations and/or objectives in terms of cost. customer services and productivity measures. motivate and reward employees.

(a) Cost. retailers etc. by business units like manufacturers. wholesalers. 323 . the actual cost incurred to accomplish a specific operating objective.Reflects in percentage. The typical cost performance measures are: ‡ Cost per unit ‡ Warehouse costs ‡ Inbound freight ‡ Order processing ‡ Cost as a percentage of sales ‡ Administrative costs ‡ Outbound freight ‡ Direct labour.

Focuses on the customer service provided by the manufacturers. . and retailers. 324 . these services include: ‡ Fill rate ‡ Stock outs ‡ Shipping errors ‡ On time delivery ‡ Back orders ‡ Cycle time ‡ Customer feedback ‡ Sales force feedback. Typically. wholesalers.The above measures examine a firm¶s ability to satisfy customers.(b) Customer service.

establishes a relationship between output produced and quantities of inputs utilized by the system to produce that output. wholesalers and retailers are: ‡ Units shipped per employee ‡ Units per labour (Rs) ‡ Order per sales representative ‡ Comparison with historical data ‡ Comparison with standards set. The typical productivity performance measures reported as used by manufacturers. ‡ Productivity index 325 .(c) Productivity measures.

  Productivity measures are hard to assess due to ‡ Difficulty in measuring outputs and inputs utilization. ‡ Constantly changing inputs and output mix ‡ Difficulty in obtaining/ non-availability of data. 326 .

wholesalers. of days supply) ‡ Obsolete inventory ‡ Return on net assets. reported as percentage. reported.Asset Measurement  The typical logistics asset management measures. and retailers are: ‡ Inventory turnover ‡ Inventory carrying costs ‡ Inventory levels (no. used by manufacturers. ‡ Return on investment 327 .

wholesalers.Quality Measurement  Refers to process orientation evaluation to determine the effectiveness of a series of activities rather than an individual activity.  The typical quality measures reported as percentage. and retailers are: ‡ Frequency of damage ‡ Damage reported in rupees ‡ Number of customer returns ‡ Cost of returned goods. 328 . used by manufacturers.

(2)Delivery as required by customers with oneday tolerance.Perfect Order ‡ Represents an ideal performance ‡ Measures order entry. credit clearance. accurate picking. payment without deductions. inventory availability. correct invoicing. on-time delivery. 329 . ‡ The perfect order represents the following standards: (1)Complete delivery of all items requested.

(3) Complete and accurate documentation supporting the order. (4) Faultless installation. ‡ Non-availability of ordered item ‡ Inability to meet shipment date. bills of lading. no damage. correct configuration.g.  Perfect Order Busters ‡ Order entry error ‡ Missing information e. invoices. 330 . including packing lists. product code. ‡ Picking error.

while most organizations report less than 20 per cent. 331 . ‡ Late shipment ‡ Late arrival ‡ Early arrival ‡ Damaged shipment ‡ Invoicing error/ overcharging/ deductions ‡ Error in payment processing   Best logistics organizations report achieving a 55 to 60 percent perfect order performance.‡ Inaccurate packing list/ documentation.

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