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Learning Objectives
• Principles of materials management, logistics and supply chain
management
• Logistics interface with other functions
Materials Management
• Materials forms the largest single cost item in most manufacturing
companies – needs to be carefully managed
• Materials management function includes planning and control,
purchasing and stores and inventory control
• Materials management is the precursor to logistics and supply chain
management
Logistics……
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Logistics Defined
• Logistics means having the right thing, at the right place, at the
right time
• The procurement, maintenance, distribution and replacement of
personnel and materials – Webster’s Dictionary
• The science of planning, organizing and managing activities that
provide goods or services – Logistics World, 1997
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Logistics
• Functions: planning, procurement, transportation, supply and
maintenance
• Processes: requirements determination, acquisition, distribution and
conservation
• Business: science of planning, design and support of business
operations of procurement, purchasing, inventory, warehousing,
distribution, transportation, customer support, financial and human
resources
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Scope of Logistics
• Choice of markets
• Procurement
• Inventory management
• Packaging decisions
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Information flow
Information flow
Customer’s Supplier’s
Customer Lead Firm Supplier
customer supplier
Source: ICFAI
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Order Processing
• Primary contact between the firm and its customer.
• Getting the order, preparing the invoice, picking and packing the
goods and despatch
• Quality, speed and accuracy of the order processing function
determines the ‘value’ of the logistics function
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Benefits
• Some of the benefits of a good order processing system are:
– Order cycle times get reduced
– Order execution accuracy is 100%
– Timely invoicing and accounting
– Order review and follow up costs get eliminated
– Improved customer service
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Materials Handling
• Function of managing inventory along with storage and transfer
of information. Includes:
– Receiving, storing and despatch of goods
– Order picking and packing
– Sorting of goods
– Re-packing in case of damages
– Arranging transport and loading of the goods on the carrier
vehicle
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margin
Primary activities
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Logistics Strategy
• Corporate strategy defines the business the company wants to be
in
• The marketing strategy decides the products and markets to be
focused on
• The distribution strategy decides how the company will ‘reach’ its
customers/markets
• The distribution strategy includes the physical distribution and
channel management
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Strategic Operational
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Benefits of a Lean SC
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SC Agility – Factors
• Collaboration between supply chain partners
• Regular and accurate flow of information within the supply chain
• Use of technologies to improve agility
• Continuous monitoring of the environment and the supply chain
response
• Enhanced competence of all users of the system
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Benefits of a 6 Sigma Supply
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Chain
• Total inventory reduction – carrying costs come down
• Reduced inventory obsolescence
• 3P storage can be minimized
• Saves administrative costs like: order management, purchasing,
labour, process cycle time
• Reduced cost of poor quality
• Overall improvement in SC efficiency
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Information Technology in Supply
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Chain
• Software to provide:
– Solutions in supply chain optmization
– Materials management systems
– Material requirement planning solutions
– Warehouse management solutions
– Transportation management solutions
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Leading Vendors for SCM
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Solutions
• SAP
• Oracle
• JDA software
• Manhattan Associates
• Epicor
• IBM
• Descartes Systems
• Infor
• Highjump software
• GT Nexus
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Q R Codes
• Machine readable code using black and white squares which store
URLs or any other information
• Can be read by a camera in a smartphone
• Compared to bar codes, QR codes can store more data and can be
read faster
• Uses: item identification, product tracking, time tracking,
documentation management
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Functions of Inventory
• Inventory serves as a buffer between:
– Supply and demand
– Customer demand and finished goods
– Material requirements for an operation and the output from the
previous operation
– Parts and materials to begin an operation and the suppliers of
these materials
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Categories of Inventory
• Anticipation – built in anticipation of future demand – peak season,
strike, promotion
• Fluctuation (safety) – to cover random, unpredictable fluctuations in
supply and demand and lead time – to prevent disruption in
operations, deliveries etc
• Lot-size – to take advantage of quantity discounts, reduce shipping,
set up and clerical costs – also called cycle stock
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Categories of Inventory
• Transportation – pipeline or movement inventories – to cover the
time needed to move from one point to another – factory to
distribution point for example
• Hedge – for materials where prices are volatile
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Types of Inventory
• Obvious….
– Raw materials
– Work-in-process
– Finished goods – of primary concern to marketing
– Maintenance, repair and operating (MRO) supplies
– In-transit, pipeline
Performance measures…
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Performance Measures
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Types of Classification
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Warehouse management…
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Functions
Warehouses
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Purpose of Warehousing
• To provide desired level of customer service at the lowest
possible total cost
• It is that part of the firm’s logistics system that stores products (RM,
Packing Materials, WIP, FG) at and between point of origin and
point of consumption and provides info to management on the
status, condition and disposition of items being stored
• Distribution warehousing relates mainly to FG
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Warehouses
• Support manufacturing
• Mix products from multiple facilities for shipment to a single
customer
• Break-bulk
• Aggregate
• Used more as a ‘flow-thru’ point than as a ‘hoarding’ point
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Distribution Warehousing
• The objective is to set up a network of warehouses closest to the
customer locations to service markets better and minimise cost
• Could be C&FA s, depots or distribution centers
• Macro location strategies:
– Market positioned
– Production positioned
– Intermediately positioned
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Distribution Center
• Warehouse designed to speed the flow of goods and avoid
unnecessary costs
• Speeds bulk-breaking to avoid inventory carrying costs
• Helps to centralise control and co-ordination of logistics activities
• Products can also be cross-docked (one vehicle to another)
Market positioned..
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Market Positioned
• Warehouses located nearest to the final customer
• Factors influencing are:
– Order cycle time
– Transportation costs
– Sensitivity of the product
– Order size
– Levels of customer service offered
Production positioned….
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In between…
Production Positioned
• Warehouses located close to the production facilities or supply
sources
• Not the same level of customer service as the earlier one
• Serve as points of aggregation / collection for products made in
a number of plants
• Factors influencing are:
– Perishability of raw materials
– Number of products in the product mix
– Assortments ordered by customers
– Transport consolidation rates ex; FTL
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Intermediate Positioned
• Mid point locations between the final customer and the producer
• High customer service levels possible even if products made in
number of units
Transportation management….
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Transportation
• Very important in the Logistics function:
– Movement across space or distance adds value to products
– Transportation provides time and place utility
• Role of transportation includes:
– Provides opportunity for growth under competitive
conditions
– Deeper penetration into markets
– Wider distribution means greater demand
– Can influence product prices favourably
Principles….
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Transportation Principles
• Continuous flow
• Optimise unit of cargo - stackability
• Maximum vehicle unit – capacity utilization
• Adaptation of vehicle unit to volume and nature of traffic
• Standardisation
• Compatibility of unit load equipment
• Minimum of dead weight to total weight
• Maximum utilization of capital, equipment and personnel
Process….
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Cost Factors
• Can be product related or market related.
• Product related: density, stowability, ease or difficulty of handling
and liability
• Market related: competition, location of markets, Government
regulations, traffic in and out of the market, seasonality of
movements and impact on customer service
• Five prominent modes: (including intermodal)
– Road, rail, air, water and pipeline.
– Sixth one is use of Ropeways
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Reverse logistics…
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Comparison of modes……
Reverse Logistics
• Movement of goods from the market or customer back to the
company
• The need:
– Increased awareness of the environment
– Stringent legislation
– For some it is part of the business
– Profitability of dealing with scrap, surplus
• Surplus, obsolescence can result due to:
– Over optimistic sales forecasts, change in product specs, errors
in estimating material usage, losses in processing or overbuying
based on incentives
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Advantages of Rail
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Disadvantages
Road transport…..
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Disadvantages
• Susceptibility to weather and road conditions – in spite of the best
protection
• Unsuitability for heavy loads – rail transport more economical for
bulk loads
• Unsuitability for long distances – again the rail telescopic rates are
more favourable
Air transport….
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Water transport…..
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Water Transport
• Advantages:
– Mass movement of bulk
– Lowest freight cost
– Preferred for long haul of low value commodities
• Disadvantages:
– Not for quick transit
– Suitable for certain types on commodities only
Pipeline….
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Pipeline Movement
• Advantages:
– Reliable, continuous, all weather transport
– Low energy consumption – hence low cost
– Low maintenance and operating costs
– Underground, no space problem
– Can traverse difficult terrain
– Minimal transit losses
– Operation round the clock, safe
– Economies of scale – double the throughput for only 30% additional cost
Ropeways
• Advantages:
– In hilly or inaccessible areas
– Long and circuitous routes with streams / deep valleys
– For commodities capable of movement in ropeway buckets
– Short haulages of less than 50 kms
– Areas where other carriers are uneconomical
• Disadvantages:
– Heavy investments
– Limitations on size and quantity of haul
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Key Learnings
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Key Learnings
• Support to customer service has evolved from materials
management to logistics and to supply chain management
• Production and marketing are the two internal customers of
Logistics
• Logistics also has a direct impact on the financials of a company
• Three important functions of logistics are inventory management,
warehousing and transportation
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Key Learnings
• Inventory directly supports customer service but also adds to the
cost and has to be managed carefully
• Warehousing provides the place utility and works as a balance
between production and meeting customer needs
• Transportation supports the place and time utility and uses
different modes to reach the products to the consumer
• Modern day supply chains integrate the operations of a firm, its
suppliers and customers
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Key Learnings
• Order processing relates to the primary contact between the
company and its customers
• A good order processing system creates the benefits of reduction
in lead times, higher order accuracy and improved customer
service
• Materials handling is the function of managing inventory along
with storage and transfer of information
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Key Learnings
• Logistics strategy is based on: markets, processes and channels
in use.
• Some of the IT systems in use for effective management of the
supply chain are:
– Electronic data interchange (EDI)
– Supplier and customer relationship management systems
– Bar codes and QR Codes
– Radio frequency identification (RFID)
– Data warehousing
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