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DEFINITION OF LOGISTICS
According to the Council of Logistics Management (CLM) Logistics is the
process of planning, implementing and controlling the efficient and effective
flow of goods, services and related information from point of origin to point
of consumption in order to meet customer requirements.
OPERATING OBJECTIVES OF LOGISTICS
03, 06)
(Nov.
All the activities related to the material movement till the dispatch of
the products out of the factory gate are called as inbound logistics
activities.
All the activities in which the value added goods are to be made
available in the market for customers are called as outbound logistics
activities.
In order to keep the costs of inbound and outbound logistics activities under
control, an outside agency appointed to perform these logistics functions is
called Third Party Logistics.
5. Forth-Party Logistics (4PL) (Nov. 06)
Forth Party Logistics is a complete outsourcing of manufacturing and logistics
functions including selection of Third Party service provider.
Need for 4PL:
1. Ever-increasing customer requirements.
2. Competitive and complex market scenario
3. Rising globalisation, liberalization and privatisation.
4. Rising accessibility of supply chain technology.
5. Inclination of companies to enter into higher margin business.
Services provided by 4PL
1. Procurement and storage of materials.
2. Manufacturing of products.
3. Selection of 3PL companies
4. Transportation and warehousing management
5. Collection of payment and cash flow management
6. Risk management and insurance.
7. Sharing of information, IT solution.
LOGISTICS
MANAGEMENT
IN
INDIA
TODAYS CONTEXT
(Nov. 01)
Logistics in Indian Business Environment (May 04)
IN
Still Logistics performance in India has not been impressive Fruits and
vegetables are grown at various places but do not enjoy access to
market.
11.
12.
13.
14.
4. Decrease warehouse
reduction.
space
requirements
because
of
inventory
CHAPTER 6
PLANNING
LOGISTICS
STRATEGY
AND
2. 2. *Fill Rate: Fill rate measures the magnitude of stockouts over time.
E.g. if a customer orders 50 units and only 47 units are available, the
order fill rate is 94 % (47/50). Just because a product is out of stock
does not mean that a customer requirement is going unsatisfied.
Before a stockout affects service performance it is necessary to
forecast customer requirements then to identify the product
unavailability and to determine how many units customer wanted.
Stockout frequency and fill rate are inversely related through order
quantity. i.e. if a firm places larger order the stockout frequency will be
less and the expected fill rate will be higher.
3. 3. Orders Shipped Complete: It is a measure of time when a firm
received the entire inventory ordered by a customer. It indicates the
potential times that customers will receive perfect orders.
B] Operational Performance
1. Operational Speed: Performance speed is the interval between
placement of order and shipment arrival. Depending upon the logistical
system design, the speed can be as short as a few hours or as long as
several weeks. In critical situation service can be performed in a few
hours by special delivery or on overnight basis. But every customer
does not need maximum speed if it results in increase in logistics cost.
2. Operational Consistency: Consistency refers to a firms ability to
perform at the expected delivery time. When a form fails to be
consistent it forces customers to carry extra safety stock to protect
against possible late delivery.
3. Operational Flexibility: Flexibility refers to a firms ability to handle
extraordinary customer service requests. The events that requires
flexibility are:
-
Product modification
Product introduction
Product phaseout
Product recall
Disruption in supply
C] Reliability
Reliability refers to logistics quality i.e. ability of firm to comply with levels of
planned inventory availability and operational performance. Reliability also
includes firms capability to provide accurate customer information regarding
logistical operations and order status.
OBJECTIVES / IMPORTANCE OF CUSTOMER SERVICE (May 06)
1.
Maintaining customer loyalty and level
of satisfaction.
1. Receiving repeat orders from customers.
2. To win new customers and keep existing customers
3. An edge over competition
CUSTOMER RETENTION
Once a customer is own by a company, it must be retained such that
customer keep coming again and again. This depends on the Customer
Service. For that the company has to motivate employees and to reinforce
the service concepts with top management.
Advantage:
1. Retaining more customers result in higher profit.
2. The cost of retaining customers is much less than to acquire them.
3. It helps in strengthening and expanding customer base.
4. If a regular customer were lost, then it would cost very heavily to
generate new customer.
Methods:
1. Offer only quality services and products
2. Demonstrate the use of product or services
3. Provide responsive customer service
4. Share testimonials of customers with other potential customers
5. Educate the customer about the market and value of the business
INTRODUCTION
Transportation is an essential and major sub function of logistics that creates
time and place utility in goods. Transportation management covers the area
of Shipment Scheduling / Routing, Frei1ht Cost, Carrier Selection, Shipment
Tracking and Parcel Management. It helps us to make the best use of
available resources and keeps informed on all transportation process.
COST STRUCTURE *(Nov. 01, 02)
Basically there are two cost contents involved in transportation process:
(Diagram 79)
1. Fixed Cost
Fixed cost is the expenses related to the procedural part like cost of
documents, salaries of personnel, rent of the office etc. As per the product
needs and the environments, loading and unloading charges are included in
fixed cost.
1. Variable Cost
Among all logistic factors variable cost consumes main expenses. It
concentrates on the product related and market related aspects:
i) * Product related aspects are the physical attributes of products, like:
- Density e.g. density of sand is more than Cotton
- Size / Shape Transportation cost per unit weight decreases with the size of
the consignment.
- Space filling capacity e.g. space-filling capacity of iron flat is more than
that of chairs or tables.
- Difficulties in handling e.g. product like electronic items like TV are
difficult to handle since they are easily get damaged.
ii) * Market related aspects are:
- Distance to be traveled to customer The cost decreases with increase in
the distance.
4. Safety: Safety of goods at every level from start to the end of delivery
should be ensured. Proper packaging should be done to avoid any
damage to quality or quantity of goods.
5. Claims Record: Claims against damages, pilferage or theft of goods
should be available. Though the supplier gets money back but the
customer remains unsatisfied in such cases.
6. Responsiveness: Transporter has to respond the changing needs of
the supplier and he should be able to handle various products.
7. Capability: Transporter should be in a position to deliver the goods at
any remote areas. He should have large number of geographic service
points.
8. Accessibility: Transporter should be easily accessible by providing
door-to-door pick up and delivery.
9. Reliability: It is the meeting of schedule on time as per requirement
of the customer. Faster the mode reliability increases, but it has to be
weighed against cost.
MODES OF TRANSPORTATION (May 06)
1. Airlines
Air transport is mainly used for international transport and in emergency
rather than in normal times.
Advantages:
1. It is the fastest mode of transportation.
2. Fixed costs are lower than rail or road or pipeline.
3. It brings distant markets closer.
4. It overcomes the hassle and cost of setting up depots and service
centers overseas.
5. Full potential of peak seasonal demand can be exploited.
6. Makes test marketing easy Products can be shipped directly from the
factory
Disadvantages:
2. Water Transport
This mode of transportation is the link between countries separated by
water. Water transport is classified into deep-water transportation and inland
water transportation on lakes, rivers or canals.
Advantages:
1. Water transport has low capital costs and low operating costs.
2. Heavy and bulk goods of large quantities are transported by this mode.
3. Private or for hire shippers available in water transport.
Disadvantages:
1. Water transport is limited due to availability of harbor.
2. Water transport is the slowest mode of transportation.
3. Require secondary mode of transport to deliver to ultimate customer.
4. Deep-water ships designed for ocean and lakes are limited to shallowwater ports.
5. Shallow water vessels like diesel-towed barges are flexible but are
limited by their range of operations and speed.
3. Railways
Advantages:
1. Railways is comparatively fastest mode of transport
2. Railways is an inexpensive mode of transportation
3. Railways are suitable for large quantities.
Pipeline
(Nov. 01)
Pipeline mode of transportation facilitates the movement of liquids like oils;
crude petroleum products and water etc. In India more than 5,000 km of
pipeline exists for crude and petroleum products. Slurries, gases, vapors and
solids in powder form are also transported in pipelines.
Advantages:
1. Pipelines are reliable mode pilferage and loss of product is not
possible.
2. Pipelines have low energy consumption.
3. Pipelines being under ground, space occupation is minimal.
4. Pipelines operate all the time except when it is shut down for
maintenance.
5. No need to bring back empty container or wagon.
Disadvantages
1. Highest fixed costs due to lying of pipeline but lowest operating
costs.
1. Pipelines are fixed so the accessibility of product is limited on the
rout.
2. Only liquid commodity can be transported.
INTERMODAL
TRANSPORTATION
(Nov. 03, May 05, 06)
Intermodal transportation is the use of more than one mode of transport to
move a shipment to its destination. Intermodal movements combine the cost
and service advantages of two or more modes in a single product movement.
Benefits of long haul, short time & flexibility are optimized for achieving
overall cost reduction
Depending upon the type and amount of goods, time of delivery, and prices
following three Intermodal combinations are available:
1. Piggyback: It is coordination between railways and road transport. It
is also called as TOFC (Trailer on Flatcar) or COFC (Container on
Flatcar). In piggyback the motor carrier trailer placed on rail flatcar,
which moves the trailer by rail for a long distance. Then the motor
carrier moves the trailer for short distance for deliveries. Here the
placement of trailer on a railcar can lead to damages.
2. Fishyback: It is coordination between waterways and road transport.
In fishyback the truck or trailer rides on the ship for small portion of its
journey. This service is provided in coastal waters between Atlantic and
Gulf ports.
3. Birdyback: It is coordination between airways and road transport. In
birdyback the major portion of journey is covered by airways then the
cargo is transported by trucks or trailers.
4. Others: Water and railways, air and railways, air and waterways,
pipeline and water, pipeline and roadways etc.
INALND CONTAINER DEPOTS (ICDs)
ICDs are dry ports at a distance far away from the shoreline and handle all
the import export formalities. This a large warehouse where exporter books
his cargo and completes all export formalities. Then ICD moves the
containers to natural seaport. The customs department, shipping companies,
handling agencies, banks, customs house agents and clearing and
forwarding agents are all based at the ICDs.
Advantages / Uses
1. Connect major ports to hinterland i.e. land deprived of natural deepwater ports because of geography.
2. Handle containers from road and rail to a container yard.
3. Performing activities like weighing, inspection of scales, damages and
safety stickers.
4. Facilitate customs clearance and export import formalities.
5. Increase the export potential of industries in the hinterland and also
simplifies import of goods by hinterland.
Kerala
Nagpur
Wadibunder Chinchwad
Chennai Jaipur
Jodhpur
Baroda
Mulund
Bangalore
Mirage
Delhi
Kandla
Sabarmati
Hyderabad
Pune
Visakhapatnam
Muradabad
Kolkata Pitampur
Milk Run
Milk Run is a transportation network, in which Suppliers send the supplies to
CDC and from CDC to large number of suppliers. Milk Run reduces out bound
transportation costs by consolidating small shipments.
CROSS DOCKING (Nov. 02)
Cross Docking is a new logistics technique used in the retail and trucking
industries which means receiving goods at one door and shipping to the
other door almost immediately without putting them into storage.
Advantages / Objectives
1. It helps to reduce operating costs by eliminating handling and storage
of products.
2. It helps to reduce inventory level by direct shipment to the customers.
3. It helps to increase sales by providing on time delivery to the
customers.
4. It encourages the electronic communication between the supplier and
retailers.
TERMINAL DELAYS
Delays which take place at terminals due to documentation problems,
congestion, poor unloading facilities etc. Influence vehicle turnaround time.
Adds cost to transportation, as vehicle is unutilized. E.g. at sea port or airport
cargos can get stuck.
Hidden Cost of Transportation (May 05)
CHAPTER
9
WAREHOUSES
TRANSPORTATION
TO
Objectives of LIS
1. Obtaining correct and prompt information.
2. Maintaining and updating the information collected.
3. Communicating the information to all the concerned as and when
required.
4. Taking proper decisions at all levels in the organisation.
5. Supporting planning function.
Importance of LIS
1. LIS is a key element to develop logistical competence.
2. LIS integrates various activities of logistics.
3. LIS is one of the three pipelines managed by logistical management.
4. LIS is important to customer service.
5. LIS underwent revolutionary change due to changes in technology.
Primary Activities of LIS
1. Receiving, analysing, processing and storing related information within
organisation.
2. Communication of data to the decision makers.
3. Communication of information to the supplier, service providers and
customers.
4. Receipt of feedback from external sources (supplier, service providers
and customers)
Information Functionality
The organisation has different functional levels. Each level has different
needs of information.
CHAPTER
12
DECISIONS
FACILITIES
11.
Raw Material
12.
LOCATION
13.
Supporting Industries
14.
Market Site
15.
DEFINITION OF INVENTORY
Inventory may be defined as usable but idle resource.
management is the job basically done for maintaining the stock.
Inventory
NEEDS OF INVENTORY
1. Smoothing out irregularities in supply: Inventory of raw materials
provide a buffer to overcome the problems of uncertainties in supplies
such as delayed deliveries and supply of short quantities by vendors.
2. Dealing with uncertainty of demand: The customer demand may
increase suddenly, in such case an inventory of finished goods will act
as a buffer against the uncertainties in demand.
3. Buying or producing in batches: When the demand for a good does
not require its continued production, it is produced in batches. Thus
during the period when the good is not being produced, demands are
met from the inventory which is accumulated from the batch
production.
4. To meet seasonal demand: When the demand is seasonal it may
become economical to have inventory during period of low demand to
ease the strain of peak period demand.
5. To take quantity discount: Inventories may also be built up take
advantage of price discounts, as hedge against anticipative price rise
in the future.
6. To maintain continuity in production process: It is necessary to
maintain in-process inventories or pipeline inventories at different
stages in a manufacturing process to continue production process
smoothly without any work stoppage and delay.
Annual use of RM
Average RM
2. Work-in-Process Inventory
Work in Process ITR = Cost of Manufacture
Average WIP
3. Finished Goods Inventory
Finished Goods ITR =
A category items account for 10% of item & 70% of the value.
B category items account for 20% of item & 20% of the value.
C category items account for 70% of item & 10% of the value.
VED ANALYSIS
Principle: VED Analysis classify items into three categories depending upon
the consequences of material stock out when demanded.
Vital items are the most critical which can cause stoppage of the
production, if not available, hence should be available in stock at large.
FSN ANALYSIS
Principle: FSN Analysis classify items into three categories depending upon
the past consumption pattern. Inventory policies and models for these three
categories have to be different.
Under FSN Analysis:
Fast moving items are those which drawn frequently from stores.
Slow moving items are those which drawn only once or twice a year
from stores.
Non-moving items are those which not at all drawn for the past two
years from stores.
Q = _2BA_
PC
Q = Order quantity
A = Annual consumption
B = Order Cost
P = Price per unit
C = Carrying cost percent
T = Total ordering cost
Assumptions of EOQ (Nov. 02)
Following assumptions are implied in the calculation of EOQ
1. Demand of the material occurs uniformly over the period at a known
rate.
2. Delivery of the materials is instantaneous.
3. Price per unit is fixed and is independent of order size.
4. Ordering cost is fixed and does not vary with the order size.
5. Carrying cost varies directly and linearly with the order size and
expressed as percentage of average inventory cost.
6. Lead-time i.e. interval between placing order and receiving inventory is
zero.
7. Materials can be procured in any desired quantity; there is no any
restriction of quantity.
8. Materials have fairly long shelf life; there is no fear of deterioration or
spoilage.
Limitations
(Nov. 02)
of
EOQ
1. The assumptions of EOQ may not true in real life, thus limiting the use
of EOQ model.
CHAPTER
METHODS
16
INVENTORY
CONTROL
JUST IN TIME
JIT is an organized approach to introduce in manufacturing cycle timelines,
quality, productivity, flexibility, and work simplification and waste reduction.
This is a technique from TQM activity. Basically this is waste control method;
it is not the inventory control technique.
TECHNIQUES USED IN JIT
1. Kanban An Integrated JIT System
Kanban stands for Kan-card, Ban-signal. Kanban concept suggest that a
supplier or the warehouse should only deliver components to the production
line as and when needed, so that there is no storage in the production area.
In this system, workstations located along production lines only produce or
deliver desired components when they receive a card and empty container.
Advantages of Kanban Process:
1. It is a simple and understandable process.
2. Provides quick and precise information.
What procedures does the supplier have for assuring on-time delivery?
2. Price:
What procedures does the supplier have for quality control and quality
assurance?
How much advance notification does the supplier give when changes
are made in products or services?
5. Flexibility:
7. Location:
2. Technical Capabilities:
4. Availability:
5. After-Sales Services:
6. Sales Assistance:
OUTSOURCING
Outsourcing is the contracting companys business process to outside service
providers for increasing firms profitability by primarily reducing overall
operating cost and focusing on core competencies.
Objectives of Outsourcing
In the late 1970s When the Japanese competitors Canon and Mitsubishi etc.
entered into US market, the Xerox company pioneered the process of
benchmarking its manufacturing costs against these competitors. This
concept has become widely accepted in the late 1980s.
Steps in Benchmarking
(May 07)
and
define
them
4. Layout Warehouses
5. Number of Warehouses
TYPES
WAREHOUSE
OF
(May 06, 07)
1. Private Warehouse
These are the warehouses owned by the company for their exclusive use of
storing the goods manufactured or traded by them for onward selling in the
market.
Advantages:
1. Better control over storage and movement of goods
2. Less chance of errors in handling the goods
3. Customised design and flexibility in operations
4. Cost effective and economic
Disadvantages:
1. Lack of geographical flexibility
2. Requires stable demand and high product throughput
3. Requires initial larger financial investment
4. Has permanent liability
2.
Warehouses
Public
These are the warehouses hired from other agencies for storing the goods for
a specific period of time by paying agreed rent. E.g. Central Warehousing
Corporation (CWC)
LOCATION OF WAREHOUSE
The primary considerations while locating the warehouse are:
1. Cost Warehouse may be located near production plant to reduce
operating cost.
2. Customer Service Warehouse may be located near market to serve
the customer well.
Steps in Site Selection of Warehouse (Nov. 02)
While deciding the location of warehouse following factors are to be
considered:
1. Desired level of customer service
2. Nature of product i.e. seasonal, perishable etc.
3. Presence of Competitors warehouse
4. Marketing oriented closer to market
5. Production oriented closer to plant
6. Cost of distribution to market area
7. Availability of transportation facilities and its cost
8. Availability and cost of basic infrastructure i.e. power, water, gas,
sewerage etc.
9. Availability and cost of labour supply
10.
11.
12.
NUMBER OF WAREHOUSES
Factors Deciding Number of Warehouse (May 04, 05, Nov. 04)
1. Desired level of customer service
2. Nature of the products
3. Presence of Competitors warehouse
4. Size of the market
5. Number of customer and their buying habits
6. Current and potential demand
7. Total operating cost of warehouse
SQUARE ROOT LAW (Nov. 03, May 04)
Square Root Law states that the total inventory in a system is proportional to
the square root of the number of warehouses.
Law: The law determines the extent to which inventory reduces by reducing
the number warehouses. Provided that the total customer demand remains
constant.
L = L1 _W2_
W1
L = Total inventory in future warehouses
Warehouses
belong
to
organisation
Warehouses stores all products
SCOPES
MHS
(May 06)
Activities performed during materials handling are as follows:
A] During Receipt of Materials:
1. Receipt of vehicle at nominated area
2. Unloading the consignment from vehicles.
3. Weighing, sampling and inspection of materials.
4. Moving the materials to assigned storage space.
5. Documentation of materials received and sold.
6. Management Information System
B] During Dispatch of Finished Goods:
1. Receipt of vehicle at nominated area
2. Weighing, counting and packing of goods to be dispatched
3. Movement of goods to the exit point
4. Loading the products to transport vehicles
5. Documentation of goods dispatched
6. Management Information System
OF
CLASSIFICATION OF MHS
1. Manual System
Manual handling of materials is done when the weight of materials is low and
distance to be traveled is less. It is the cheapest option for material handling.
Equipments required are manual trolleys, racks, drawers, lockers etc.
2. Mechanical System
Mechanical handling of materials is done when the weight of materials is
high and distance to be traveled is more. It is the safest option for material
handling.
Material Handling Equipments
(Nov. 01, 05)
1. 1. Forklift Trucks: They are lifting devices, can move loads both
horizontally and vertically.
2. 2. Cranes: They are drag devices, either floor mounted or overhead
mounted.
3. 3. Conveyors: They eliminate re-handling before and after each
function.
4. 4. Carousels: several bins on an oval track keep rotating. The operator
can choose required bin to pick from. The system saves space and
reduces walking time and distances.
3. Automated System
Automated handling of materials is done when the weight of materials is
very high and distance to be traveled is more as well as the warehouse
space is limited. It is the best and efficient option for material handling.
Material Handling Equipments
(Nov. 01, 05)
PRINCIPLES OF MHS
1. Planning: All material handling should be as a result of a deliberate
planning.
2. Work Principle: Avoid unnecessary movement the products.
3. Ergonomic Principle: Human capacities and limitations must be
recognized.
Materials
handling
equipments
PACKAGING
Packaging though an integral part of logistics, also affect marketing and
production function. Packaging helps in promotion of products and size,
shape, material of the package affects production labour efficiency.
Logistical Functions of Packaging (May 06, Nov. 06)
How packaging helps reducing overall costs and value addition?
1. Containment: Packaging provides containment for products.
2. Protection: Protection
handling and moving.
from
environment,
pilferage,
shocks
of
3. Facilitating handling & using: fruit juices in tetra packs, handling and
consumption by users
4. Convenience: Facilitating handling, storage & reuse. E.g. ink
cartridges for printers, reusable corrugated boxes, bottles and refill
packs.
5. Communication:
1. Content Identification Product, manufacturer, universal code
etc.
2. Tracking: Bar codes and scanners.
3. Handling Instructions: Fragile, This side up, temperature
restrictions, environment concerns, potential dangers etc
Consumer Oriented Packaging V/S Logistics Oriented Packaging (May
07)
1. Consumer Oriented Packaging: Focuses on consumer convenience and
appeal, marketing consideration and display.
2. Logistics Oriented Packaging: Focuses on handling convenience and
protection during transpiration, material handling and storage.
Unit
load
is
placed
in
rigid
container
for
Types of Pallets
1. Wooden pallets used commonly but break and disintegrate.
2. Pressed wood fiber pallet
3. Plastic pallets light and recyclable
4. Solid molded plastic pallets
5. Corrugated fiberboard slip sheet provide cushion effect to the unit
load
6. Refrigerated pallets- for refrigerated materials
Contenerisation
1.
It eliminates need for intermediate
handling at terminals.
1. Standardized containers helps in saving on packaging materials and
labour for packaging.
2. Less risk of damage and pilferage.
3. Facilitates intermodal transportation without intermediate reloading.
Types of Containers:
1. General Cargo Containers for general cargo like garments metals etc.
2. Refrigerated Containers for food items that require cold storage like
fish, meat.
3. Insulated Containers for items that require airtight space like fruits
and vegetables.
4. Ventilated Containers for items that require fresh air like coffee
seeds, tea leaves.
5. Flat Containers They have only flat base with no walls, used when
cargo the cargo is of odd size or very heavy like trucks.
6. Liquid Containers They have main holes for loading and unloading of
liquid cargo like milk, oil.
7. Gas Containers They have fixtures to fill or empty liquefied gas. E.g.
Liquid oxygen.
Polarisation
(Nov. 04, May 05)
CHAPTER 22 SUPPLY CHAIN MANAGEMENT
CONCEPT OF SCM
organisations.
It is a part of supply chain It is an extension of logistics
management
management
The concept of logistics is relatively old The concept of SCM is relatively new
It is a narrow concept
It is a broader concept