Chapter 15

Market Logistics & Supply

Chain Management

Prepared By:

Mr. Nishant Agrawal

Logistics Defined

• Logistics means having the right thing, at the right place, at the right

time

• Before 1970: function were garmented as transport, warehouse

management, material management and inventory control

• 1970: Logistics came into practice in two broad areas of material

management and physical distribution

• 1980: logistics started getting inbound, conversions and outbound

• 1990: Supply Chain Management and integrating operations with suppliers

and customers started getting focus.

Logistics

• Functions: planning, procurement, transportation,

supply and maintenance

• Science of planning, design and support of business

operations of procurement, purchasing, inventory,

warehousing, distribution, transportation, customer

support, financial and human resources

Scope of Logistics

• Choice of markets

• Procurement

• Plant location and layout

• Inventory management

• Location and management of warehouses

• Choices of carriers, mode of transport

• Packaging decisions

• Relevant to all enterprises: manufacturing, Government, Institutions,

service organisations

•Natural Resources

(land, facilitiesEquipment)

•HR•Finance

•Information

•Marketing Orientation

(competitive Advantage)•Time and Place utility

•Efficient moveto customer

Customer serviceDemand forecasting

DistributionCommunicationsInventory control

Materials handlingOrder processing

Parts and service supportPlants and warehouse selection

ProcurementPackaging

Return goods handlingSalvage and scrap disposalTraffic and transportationWarehouse and storage

Input OutputLogistics Activities

Logistics and SCM

• Logistics tends to focus on transportation and distribution,

• SCM focuses on purchasing and procurement, production planning,

demand management, from point of origin to point of consumption

• Supply chain management also logistics functions plus purchasing,

sourcing, procurement, manufacturing operations, location planning,

• All activities and flows from point of origin to point of consumption of

a materials

Links and Flows

Customer’scustomer

Supplier’ssupplierSupplierLead FirmCustomer

General cash flow

Information flow

Information flow

General material flow/ service flow

Inbound / Upstream logisticsOutbound / Downstream logistics

Source: ICFAI

The Value Chain

Company Infrastructure

Organisation, people, methods

Systems & technology

Procurement

Inboundlogistics Operations Outbound

logisticsMarketing

& salesService

Primary activities

SUPPPORT

margin

margin

Source: Michael Porter

Inbound and outbound logistics

• Inbound logistics

• Receiving storing issuing inputs and taking care of

materials handling, inventory control, scheduling for

production,

• Interface with company’s suppliers, vendors and other

service providers

Continue….

• Outbound logistics

• Distributing finished goods to dealers/

stockiest/customers

• Interface with company's customers

Logistics Focus Areas

Customer service related Operations related

Packaging Order processingSpare parts and service supportAfter sales Customer service supportDemand forecastingDistribution communicationsReturn goods handling

Plant and warehouse site locationProcurement Inventory controlMaterials handlingScrap disposalTraffic and transportationWarehousing and storage

Logistics may be confined to the company whereas SCM extends beyond

Supply Chain Management

• Business context:

– Globalization of the market place

– Advances in technology

– Increasingly demanding, informed customer base

– Purchase decisions on dimensions of quality, price and time

• Innovative supply chain:

– To meet customer driven challenges

– To reduce costs

– Improve service levels

– Enhance speed to market

IntegratedSupply ChainManagement

Manufacturing/Re-manufacturing/

Assembly

Demand & Lead Time Management

Storage & Transportation

Materials Management

Inventory Management and control

Customer Analysis

Purchasing/Supplier Partnering

Order Fulfillment

Supply Chain Integration

Inventory management…

Why Carry Inventory?

• Support production requirements

• Support operational requirements

• Maximize customer service – ensure availability when needed –

protect against uncertainty

• enclose against marketplace uncertainty

• Take advantage of order quantity discounts

Factors Which Drive Inventory

• Target service level parameters

• Lot sizing practices

• Safety stock and safety time conventions

• Volume discounts and purchase arrangements

• Seasonal build up needs

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 – also called cycle stock

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

• Maintenance, repair and operating supplies (MRO) – to support

M and O – spare parts, lubricants, consumables etc

Performance Measures

• Inventory turns = Annual cost of goods sold /average

inventory in value

• Days of sales = inventory on hand / average daily

sales

Types of Classification

• ABC category – most common for all

• HML - high, medium, low - similar

• FSND – fast moving, slow moving, non-moving, dead –

spare parts / FG

ABC Inventory Analysis

• Based on Pareto’s law:

– A – 20% items worth 80% of value

– B – 30% items worth 15% of value

– C – about 50% items account for 5% of the usage

• Classify items based on the above criteria

Inventory Related Costs

• Unit costs – basic value of the item carried

• Ordering costs – generating and sending a material release,

transport, any other acquisition costs

• Carrying costs – capital, storage, obsolescence

• Stock-out costs

Approaches for Controlling Inventory

• Continuous review:

– Safety stocks and forecasting methods

– Excess and out of date inventory

• Part simplification and re-design

• On-site supplier managed inventory

• Use of supply chain inventory management systems, Materials Requirement

Planning, Distribution Requirement Planning etc

• Automated inventory tracking systems

• Supplier – buyer cycle-time reduction

Warehouse management…

FunctionsWarehouses

Material handling

Storage function

Customer service

Information transfer

Temporary Permanent Receive goodsIdentify goods

Sort goodsDespatch to storage

Hold inventoryRecall, select goods

Marshal the shipmentDespatch the shipmentPrepare records and

advices

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

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

Distribution Warehousing

• The objective is to set up a network of warehouses closest to

the customer locations to service markets better and

minimize cost

• Could be C&FA s, or distribution centers

• Macro location strategies:

– Market positioned

– Production positioned

– Intermediately positioned

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….

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….

Reverse Logistics

• Movement of goods from the market or customer back

to the company

• The need:

– Increased awareness of the environment

– For some it is part of the business

– Profitability of dealing with scrap, surplus

Advantages of Rail

• Economy – more so for goods over long distances

• Efficiency of energy

• Reliability – not affected by weather conditions

Disadvantages

• Uneconomical for small shipments and short distances

• Not suitable for remote stations

• Costly terminal handling facilities

• Inflexible time schedules

Road Freight Advantages

• Through movement – direct from consignor to consignee, no

transshipment

• Flexibility – routes and loading routines can be easily altered, operate

day and night

• Less capital costs – for own fleet + immunity from industrial action

• Fast turn-around – if articulated units like tractors and trailers are used

• Minimum delays

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….

Air Transport Advantages

• Faster mode

• Cost particularly inventory

• Increasing capabilities

• Disadvantages:

– High cost

– Weather affects flight conditions

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

End of Session