market logistics & supply chain management
TRANSCRIPT
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