mod 4 indl dist chnl nd mktg

7/29/2019 Mod 4 Indl Dist Chnl Nd Mktg

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MARKETING LOGISTICS


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Logistics & its Objectives

Logistics is the process of planning, implementingand controlling the efficient, cost-effective flow and

storage of raw materials, in-process inventory,finished goods and related information from the

point of origin to the point of consumption for the

purpose of conforming to customer requirements at

the Lowest possible cost.


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Logistics & its Objectives

Supply chain Management on the other hand ismuch larger in scope and is concerned with and

encompasses the entire gamut of activities of theenterprise in bound logistics, various MM

functions such as sourcing, vendor development,

purchasing, and storing, conversion of inputs into

products, physical distribution of the finished

goods, and the channel functions of taking the

product to the ultimate consumers.


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Basic Concepts

Inward Transport Transport which is/are used to procureraw materials for the manufacture of goods and convert it

into finished products

Receiving Receiving goods can be either Raw Materials

for manufacture of goods . In this case, adequate care haveto be taken care in terms of order of quantity, status of

receipt, inspection note or report, and discrepancies ,if any.

Warehousing A safe place, as per qualitative

specifications, where goods are received and stored forsupply to either manufacturing plants or finished goods

stored ready for distribution.


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Basic Concepts

Stock Control Most important activity, where records aremaintained in the warehouse to ensure adequate stock

availability for immediate requirement as per company

norms.

Order Picking - Orders received for the company with thehelp of sales executives.

Materials Handling - Ensure that materials received are

handled as per the required protocols, effectively while

ensuing optimized usage. Outward Transport - Finished goods ready for dispatches

to Market // C&F agents or Super Distributors or various

agents to move the products to the market and the

customer.


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Basic Concepts

Recycling -- A concept by which wasted materials are onceagain collected back and used for recycling . The finished

goods may be raw goods used for various purposes as

defined before the process.

Returns and Waste Disposal -- Goods which are defective,damaged in transit either to packaging deficiency, rain,

manhandling or any other reason gets returned for analysis

and replacement. These goods are again recycled for fresh

produce or used as waste disposal as per the norms.


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Need for Logistics

1. Logistics supports Marketing Activities Ensures materials are available at the right point of time of

requirement

Ensure a wide mix of products at one place as per the

requirement, when required and where required is takencare.

2. It adds value by creating Time & Place Utility

Form Utility Right product Production dept.

Possession Utility Right communication and PriceMarketing dept.

Time Utility When it is required

Place Utility - Where it is required.


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The Role of Logistics

Logistics

Suppliers

Distribution

&

Sales

Trade

&

Consumers

Manufacturing


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3 Cs of Logistics Management

Company

Competitors

Customers


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LOGISTIC MIX AND ITS FUNCTION


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Logistics Management

Planning and co-ordinating activitiesnecessary to achieve superior levels of

service at lowest cost.

Logistics management optimises materialflow within the organisation, while supply

chain management extends material flow

integration upstream to suppliers anddownstream to customers.


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Marketing Logistics/Physical

Distribution

In business, logistics system has two major

product movement:

1. Physical Supply

2. Physical Distribution


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BUSINESS LOGISTIC SYSTEMPhysical supply Industrial Manufacturer Physical distribution

Raw materials

Components

SuppliesMaterial storage

Manufacturing

Finished Goods

storage

Industrial customers

Industrial

Distributors/Dealers

TASKS OF PHYSICAL


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TASKS OF PHYSICAL

DISTRIBUTIONSl No Tasks Brief Description

1 TRANSPORTATION

Key Elements -

It is the means of moving goods from production unit to

customer. It is the most important cost area in physical

distribution.

a. Mode & Carrier selection, b. Carrier routing and c.

Vehicle scheduling.

2 WAREHOUSING

Key Elements -

It provides storage space for products which are made

available to customer when needed. It can improve customer

service & transportation cost.

a. Space determination, b. Warehouse configuration and c.

Stock Layout and placement.

3 INVENTORYCONTROL / MGMT.

Key Element

Inventory is used to insure the products are available tocustomers in the right product mix, at the right location, &

at the right time.

A. Stock-level policies, b. Short-term sales forecasting, c.

Product mix by location and d. Stocking locations.

TASKS OF PHYSICAL


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TASKS OF PHYSICAL

DISTRIBUTIONSl No Tasks Brief Description

4 PACKAGING

Key Element

It provides protection to products & maintains product

identity when products arrive at the market place.

a. Design for handling b. Design for storage c. Design for

protection.

5 MATERIAL

HANDLING

Key Element

It increases speed & minimizes costs of order- picking,

moving products between storage & transport carriers,

loading & unloading operations.

a. Equipment & personnel , b. Order picking proceedures

and c. Stock storage and retrieval.

6 ORDER

PROCESSING

Key Element

It starts the physical distribution process & directs various

activities which are necessary to deliver the products to

customers. Speed & accuracy of order processing affect

customer service & costs.

a. Sales order-inventory interface b. Order information

transmittal and c. Ordering rules.

TASKS OF PHYSICAL


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TASKS OF PHYSICAL

DISTRIBUTIONSl

No

Tasks Brief Description

6 COMMUNICATION Information is exchanged between the countries physicaldistribution or marketing logistic department & its

customer. It assist in performing various tasks.

7 FACTORY ANDWAREHOUSE

LOCATIONS

Key Elements

Right locations of manufacturing plants & warehouse

(or godowns) increase customer service & reduce

transportation (or freight) costs.

a. Space determination, b. Warehouse configuration

and c. Stock layout and placement.

8 CUSTOMERSERVICE

Key Elements

The result of physical distribution activities iscustomer service, it create customer value (or benefits)

that has impact companies market shares, total cost &

profitability.

a. Determine customer needs , b. Analyze customer

reponse to service and c. Set Customer service levels.


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Functions of Logistics Management

Right Place

Right

Quality

RightQuantity

Customer

Right

Time

Right

Relations

Right

Price

Rightservice


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Logistics Management Flow Chart

Material

Customer

DistributionProduction

Supplier

Flow of Inputs

Outbound

Logistics

Flow of output

Inbound

Logistics InplantLo istics

Flow of Input

& Output

L i ti S l M t i l


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Logistics = Supply + Materials

management + Distribution


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LOOKING BEYOND BASIC

LOGISTIC TODAY COVERS Responsiveness

Reliability

Rationalization

Relationship


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Key components of Logistics

Strategy

Customer

Service

Policies &

Procedures

Information

Systems

Organizatio

n & Change

Manageme

nt

Facilities &

Equipments

Transportatio

n

Management

Warehouse

Design &

Operations

Materials

Manageme

nt

ChannelDesign

NetworkStrategy

I M P L E M E N T A T I O N

F U N C T I O N A L

S T R U C T U R A L

S T R A T E G I C


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Logistics in the Firm The Micro Dimension

Logistical Activities ::

Materials Handling

Inventory control

Order fulfillment

Demand forecasting Procurement planning or purchasing planning

Purchasing

Customer service levels

Plant and warehouse site location Return goods handling

Parts and service support

Salvage and scrap disposal.


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Logistics in the Firm The Micro Dimension

A. Logistics Interfaces with Operations / Manufacturing

Length of production runs, Seasonal demand, supply-sideinterfaces, protective package, foreign and third-party

alternatives.

B. Logistics Interfaces with Marketing -- Marketing Mix,

Carrier Pricing, matching schedules, volume relationships,consumer packaging, push vs pull promotional strategy,

channel competition, Logistics impact, Wholesalers vs

Retailers, Customer service.

Logistical Activities :: Traffic & Transportation

Warehousing & Storage (Inventory planning MRP / JIT)

Industrial packaging


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Approaches to Analyzing Logistics Systems

Materials Mgmt. Vs Physical Distribution Materials Mgmt. Inward bound logistics

Involves inward transport, procurement /purchasing,

receiving goods on time and in right quantity as per the

order, GRN / MRN, Storing the goods in a safe place forproduct manufacturing.

Also ensures adequate stock availability, stock control,

Balanced system (flow balance of inbound and outbound

sides of logistics) Experiences sometimes heavy inbound and simple

outbound . For eg., car or bus or aircraft manufacturing.


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Approaches to Analyzing Logistics Systems

Reverse systems in order to ensure repairs, replacement,return for trade-in (buy back of materials), for salvage and

for disposal.

Importance of Communication in Logistics

Communication is essential to understand the changes inthe market place

It is necessary to ensure smooth flow of demand and

supply management.

Communication helps to reduce inventory and relatedcosts to a great extent.


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Communication in Logistics

Being interrelated, Logistics functions need IntegratedHandling.

Communication between marketing team and SCM is

essential to maintain equity between demand and supply

and ensure right product at the right place and at the righttime.

Communication links the departmental needs and fulfils all

the requirements of the dept. for its smooth functioning.

Communication helps to maintain regular supply andensure inventory levels at a pre-determined level.


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Advent of Technology MRP software, SCM software,SAP, ERP etc., ensures a consolidated and holistic

approach to the whole concept of Logistics and Inventory

management.


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Logistics Information Systems

Decision SupportSystem

Leading-EdgeApplicationSoftware

Reengineered LogisticsProcesses

Timely & Accurate Data Capture


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Logistic strategy

When a company creates a logistics strategyit is defining the service levels at which its

logistics organization is at its most cost

effective. Because supply chains are constantly

changing and evolving

a company may develop a number oflogistics strategies for specific product lines,

specific countries or specific customers.


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Strategic Logistics Planning

Process Steep 1: Visioning

Corporate Strategy

Customer Requirements

External Control Logistics Vision Sessions

CustomerService

Requirements

ExternalFocus

StrategicDirection &

Requirementsfor Logistics

StrategicAlternatives &

Focus

Final LogisticsPlan


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Process Step 2: Logistics Strategy Analysis

Customer Service

Channel Design

Network Analysis Warehousing

Transportation

Materials Management Organization

Systems


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Process Step 3: Logistic Planning

Mission & Goals

Programs

Activities Timetable

Responsibility

Measures


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Process Step 4: Managing Change

Visible Plan

A champion in the management ranks

Training & coaching


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WAREHOUSE

FUCTIONS CONSOLIDATION

BREAK-UP

CROSS DOCKING

SITE SELECTION IS VERYIMPORTANT

Transportation Mode


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Transportation Mode

Selection

.

Ship Intermodal Rail Truckload LTL Parcel Air Premium

Shipment SizeLarger Shipments Smaller Shipments

SpeedSlower Faster

Transportation CostLess Expensive More Expensive

Service CostSlower Faster

Inventory CostMore Expensive Less Expensive


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MATERIAL MANAGEMENT


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Implementation

I M P L E M E N T A T I O N

Information

Systems

Policies &

Procedures

Facilities &

Equipments

Organizatio

n & Change

Manageme

nt


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Implementation Level

Information system is used to supportlogistics vital.

Policies & procedures to guide day-to-day

logistics operations Installation & maintenance of facilities &

equipment

Organization & people issuesvital.


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Warehouse & its Objectives

Number of Warehouses

Depends on inventory level requirement as it affects theprofitability of the company to a great extent.

4 factors considered while deciding about the no. of w/h.They are

i. Cost of Lost Sales.

ii. Inventory Cost

iii. Warehousing costs.

iv. Transportation costs.


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Need for an Inventory

1, Improves Customer Service

2, Smoothens the Operations of the Logistics system.

3, Reduces Costs

Objectives of Inventory Management ::

A. Fill Rate Expression Fill Rate is defined as the ratio ofthe no. of orders completely serviced to the total no. of

orders received during a particular time period.

Line Fill Rate (LFR) = Total no. of units received

----------------------------------- Total no. of units ordered


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Inventory Planning Order Fill Rate = Total SKU categories for which 100% of

units ordered were received

----------------------------------------------

Total no. of SKU categories ordered

Costs Associated with Inventory:

Costs associated with inventory can be broadly classified

into three types

i. Inventory procurement costs, ii. Inventory carrying costs and

iii. Stock out costs. These costs are in conflicting tones witheach other and hence should be traded off appropriately in

the inventory system.


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Components of Inv. Carrying costs

Inventory

carrying costs

Inventorycarrying costs

Storage space

costs

Inventory

service costs

Capital costs

Relocation costs

Shrinkage

Damage andpilferage

Obsolescence

Warehouse rent ,

maintenancecharges

Insurance and

taxes

Inventory

Investments


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Warehousing - Its Main Functions

Inventory Procurement costs -- Ordering costs for theinventory. These are fixed costs which have to be incurredin setting up the machinery, procurement of related

materials, transportation, order processing, etc. Hence

when the order quantity is large, the procurement costs will

come down.

Inventory Carrying Costs Involved in the distributionof finished goods. Carries more importance as it involves

the efficiency of the logistics system. Can be classified into

4 basic categories i. Capital costs ii. Inventory service

costs (Insurance and taxes) iii. Storage space costs(w/h

rent, maintenance charges etc. andiv. Inventory Risk

Costs

M i D i i i W h i


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Main Decisions in Warehousing Location of the w/h

Supply point for the entire market. Proper location - greater customer need fulfillment at a

lesser cost.

Helps to achieve lesser lead times and lower transportation

cost. According to Lambert (1998), the macro perspective

examines the issue of locating the w/h within a broad

geographic area and location issues whether near the

plant or near the market // customers.

The Micro perspective attempts to have a more precise

approach to this issue and pinpoint locations using

optimization techniques.


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Push Vs Pull Inventory System

Is based on the way, the companys production system ismanaged.

Push method inventory management is considered to be

appropriate where the production quantities exceed the

short-term requirements of the inventories. Not preferred asit is not adaptable quickly as per the changes in the market.

Pull system of inventory planning - Is a typical bottom

approach, where the inventory levels are decided in a

decentralized manner with the wrehouses and other

storage points.

Based on inventory requirements from different storage

points as per the customers demand rather than forecast.


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Optimizing Inventory

Based on Pareto principle (Vital few Trivial many) 80 : 20

rule.a. ABC Analysis ::

High value A, Medium value B and low value C

b. Determining Inventory Levels ::

Goal of Inv. Planning is to provide desired customer service

at the lest total cost in physical distribution.

To obtain the lowest overall cost, managers must strike abalance between order processing costs and inventory

carrying costs

Factors Influencing the Choice of a


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Public Warehouse

Intermediate Positioned Warehouses ::INVENTORY ::

Act as a buffer against supply and demand uncertainities.

Inventory Carrying Cost (ICC) Determined as a

percentage of total Inventory Value.

Inventory costs should include only those costs that vary with

the level of inventory and can be grouped into four basic

categories : i. Inventory acquisition costs , ii. Inventory service

costs, such as property taxes and insurance ,

iii. Storage space costs and iv. Inventory risk costs, including

damage, pilferage, obsolescence, and relocation costs.


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Warehousing & Inventory

Cost of Restocking - i. cost of transmitting and processing

inventory transfer ii. Cost of handling at the shipping and

receiving points, iii. Transportation costs, and iv. The cost of

associated documentation.

The EOQ model ---

The cost trade-offs involved in determining the most

economical order quantity.

THE EOQ model understands to run the feasibility between

Ordering costs, Inventory carrying cost and total cost.

EOQ = 2PD ( Where P = ordering cost (INR per order)

D = Annual Demand (No. of

units)

C = Annual Inventory carrying cost , V = aveg. Cost

cv

Cost Trade offs required to determine the most


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Cost Trade-offs required to determine the most

Economic Order Quantity (EOQ)

Size of Order

Annual Cost

In INR

Lowest Total Cost

(EOQ)

Total Cost

Inventory Carrying cost

Ordering Cost


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EOQ model has received widespread attentionand is broadly used in industry. But it is applied

under conditions of uncertain demand and is

restricted by its underlying conditions ::

i. Rate of demand is continuous, constant andknown

ii. Lead time is a constant or known.

iii. Price is constant and is independent of order

quantity or time.


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iv. All orders are filled (no stock outs are permitted)

v. There is no inventory in transit

vi. There is no interaction between different items

in inventory

vii. The planning horizon is infinite

viii. Capital funds are unlimited.


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Fixed Order Quantity Model

Fixed Order Quantity Model :: Order cycle and transit time is generally inconsistent, given the

environmental adversity and seasonal trends.

Helps to ensure avoid stock outs through determining order

point, based on lead delivery time ( on receipt of order) andminimum and maximum inventory levels.

Computer Simulation ::

Automated Inventory management program.

IMPACT Inv. Mgmt program & control technique

Helps mgmt. to forecast demand, determine minimum qty.

reqd. as safety stock, determine order qty. and time to reorder,

consider the effect of freights rates and qty. discounts, and

determine expected results of the inventory plan.


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Order Processing from stock checking to ordering andshipment of material -- credit check, providing sales credit to

the sales person, getting finance approval, contacting w/h for

shipment, updating master inventory tracking, translating

shipping documents into an invoice and a permanent salesrecord.

Materials Handling Cost effectiveness based on volume, labor

costs, minimizing idle time, breakdowns, breakage, errors,

using mechanized handling equipment like forklifts, handtrucks,

conveyors, retrieval equipment effectively to minimize the cost

to the company.


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Digital Communication in Logistics

Albert Einstein said :

Its has become appallingly obvious that our technology

has exceeded our humanity.

Technology helps to play a major role in operational

effectiveness and increase efficiency of various functionalareas.

IT has become a great boon for information process and

analysis

Adoption process initially slow in India picked up rapidlythanks to liberalisation process, opening up of economy,

advent of foreign competitors in indian markets


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Digital Communication in Logistics

Latest technology in the logistics are in the areas of :

a. Automatic Identification b. Communication c. Materials

handling and d. Facility Design.

Direct entry of data or indormation into computer without

operating a keyboard.

Includes Bar Coding, RFID (Radio frequency Identification

Technology), data communication, magnetic strip and voice

recognition.

It can be used for tracking rail cars, a carton moving on aconveyor belt etc.,

A t ti Id tifi ti T h l


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Automatic Identification Technology ----Bar Coding

Used for identification, handling, retrieval, storage ofgoods.

Individual inventory items, cartons etc., are all fixed with

bar coding.

They are sequence of parallel lines of different thicknessand with spaces in between.

These barcodes can be read by a barcode scannerattached to an online computer.

Helps in showing an inventory identity during storage,

retrieval and dispatch.

Automatic Identification Technology


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Automatic Identification Technology --RFID

Used by accounts dept. / w/h in preparation of bills. These bars have items have info. In a codified form, which

needs to be decodified for reading using the help of

scanner.

Radio Frequency Identification It Is automated identification and data capture technology

It is most preferred these days and helps in communication

between objects and systems.

It consists of 2 main elements - a tag and a reader thatcommunications through radio transmission.



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Automatic Identification TechnologyRFID

The tag contains a small chip and an antennae and can beplaced on any object.

Info. Stored on the tag can be transmitted to an RAD

reader over a distance of few metres.

Info. Stores may be product type, product item,

manufacturer, date expiry, etc.,

RFID is been used in passports.



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Automatic Identification TechnologyRFID

Simultaneous reading as compared to individual reading inBar coding technology

Automated and low labor costs in RFID as compared to

Bar coding.

Large info. Memory as compared to limited info. Memory in

Bar coding technology.

Difficult to replicate as compared to Bar coding, where

replication for criminals is easry.


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GPS -- Global Positioning System.

It is a space based global navigation system that providesreliable location of objects.

Used in logistics for tracking the locations of trucks carrying

goods.

GPS system has a voice-over facility for driver to speak

and hear instructions

A GPS receiver needs to be mounted on the truck

Its also has LCD supported by a key board to transmit and

receive text messages.

GPS is used in India extensively - even in cabs for

communication and tracking areas or locations.


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GPS -- Global Positioning System

GPS info. Would be in latitudes and longitudes. Automated Material Handling -- Automation for loading,

unloading, storing of goods in warehouses.

It would reduce intensity of labor in these activities.

Automation will be more useful where handling ofhazardous materials takes place.

AGVS or Automated Guided Vehicle System ::

This system makes use of magnetic or optical guidance

system.

Its mobile robot that follows markers or wires in the floor


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AGVS or Automated Guided Vehicle System

These robots can be programmed by built-inmicro-processors for performing various tasks in

warehouses.

Performs without any human involvement.


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Need for Distribution Channels

As defined by Stern and El Ansary (1992),Distribution channels are sets of

interdependent organizations involved in the

process of making a product or serviceavailable for us or consumption.

It is a process of exchange exchange of

his services with a reward of service chargesor product commission as per the mutual

agreement or MOU.

M k ti


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Marketing

Channel/Distributi

on Channel/TradeChannel

A set of interdependent

organizations that make a

product or service

available to customers foruse.

Marketing

Logistics/Physi

cal Distribution

Consists of delivering

the completed products

to customers and

channel intermediaries.


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Pit et all (1999) -- Intermediaries exists to

perform 3 vital functions as follows ::

i. to adjust the discrepancy of assortment

through the process of sorting,accumulation, allocation, and assorting.

ii. To minimize the distribution costs through

routinising, and standardizing transactions,which makes the exchange more efficient

and effective and


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iii. The intermediaries facilitate thesearching process of both buyers and sellers

by structuring the information network

essential to both the parties as well as

providing a place and opportunity for both

parties to meet each other, and reduce

uncertainty.

Discrepancy between manu and


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p y

consumer

Manufacturer produces a large quantityonly with a limited variety of goods.

Consumers usually desire only a limited

quantity with a wide variety of goods. This discrepancy is smoothened by the

advent of intermediaries Super distributor

OR Wholesaler OR Retailer

Discrepancy that a channel


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Discrepancy that a channel

experiences

The general discrepancies that exist can bebroadly classified into four

1. Spatial discrepancy

2. Temporal discrepancy

3. Need to break the bulk

4. Need to provide assortment


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F t Aff ti th N t f


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Factors Affecting the Nature of

Industrial Channels

Geographic Distribution

Channel Size

Characteristics of Intermediaries

Mixed System

Structure of Industrial Channel


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Direct Channel The manufacturers perform

all the functions

Approach is viable when: The value of each

transaction is large

Indirect Channel

The manufacturer and the

intermediaries share the

tasks between them. Approach is appropriate

when:



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Direct Channel The selling includes

extensive technical and

commercial negotiations atvarious levels

The buying process lengthy

The industrial buyers insist on

buying directly from themanufacturers

Indirect Channel

The value of transactions or

sales are low

The manufacturer haslimited resources

The industrial buyers

purchase many product

items in one transaction

Why Industrial Marketers use


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Why Industrial Marketers use

Intermediaries?

Buying * Promotion and Selling

Assorting * Financing

Warehousing * Grading

Transportation * Information

Risk taking * Technical Service

Wh I d t i l C t B f


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Why Industrial Customers Buy from

Distributors?

Dependable Delivery

Information

Variety Liberal Credit

T f I d t i l


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Types of Industrial

Middlemen/Intermediaries

Manufacturers Representatives

Industrial Distributors(Dealers)

Responsibilities

Main Categories

Brokers

Commission Merchants

Value-added Resellers(VARs)

Channel Design Framework


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Channel Design FrameworkChannel

Objectives

ChannelAlternatives

Evaluation ofAlternatives

Selection of

Channel

Channel

Constraints

Channel

Tasks

Channel Design Contd.


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g

Developing Channel Objectives Analyzing Channel Constraints:

External Environment

Competition

Company

Product Characteristics

Customer

Analyzing Channel Tasks



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gIdentifying Channel Alternatives

Involves 4 major issues:

1. Types of intermediaries:

Value Added Resellers

Industrial Distributors or Dealers

Manufacturers representative or Agents

Brokers

Commission Merchants



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gIdentifying Channel Alternatives

Involves 4 major issues:

2. Number of Intermediaries:

Selective Distribution

Intensive Distribution

Exclusive Distribution

3. Number of Channels

4. Terms and Responsibilities of Channel Members

Ch l D i C td


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Evaluating the Channel Alternatives:Economic Performance

Degree of Control

Adaptability to changing market situations

Selection of Channel

CHANNEL ALTERNATIVE


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Total SellingCost (Rs.)

Break Even Point

Agent / Manufacturer's

Channel

Sales Revenue (Rs.)

Company's Sales-Force

Channel

The Framework of Channel


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Management

Distribution Channel Strategy

Channel Objective

Activity Finalization

Organizing the activities

Developing policy guidelines

Designing channel

structure

Establishing the

Channel

Motivating channel

members

Resolving conflicts

among channel

members

Ex-ante

phase

Ex poste

phase

Managing Channel Members


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Managing Channel Members

Selecting Intermediaries Motivating Middlemen

Partnership Concept

Vendor (or Supplier) Managed InventorySystem (VMI)

Reasonable Discounts and Commission

Distributor Councils

Other Motivational Practices

Controlling Channel Conflicts


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g

Sources of Channel Conflicts

Differences in Objectives

Dealings with Customers Differences in Interests

Differences in Perceptions

Compensation

Unclear Territory boundaries

Evaluating Channel Members


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Evaluating Channel Members

Sl

No

Evaluation Factors Weightage Evaluation Middlemen

Score

1 Sales Achieved vs Sales

Quota

0.40 8 3.20

2 Customer Delivery Service 0.20 6 1.20

3 Customer Complaints 0.15 6 0.90

4 Market Feedback 0.10 5 0.50

5 New Customers Generated 0.15 4 0.60

Min Total Score = 6.0 6.40

Supply Chain Management:


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OBJECTIVES:

a) Reduce cost per unit for

end customer

FUNCTIONS:

a) Purchase

b) Product Design

c) Production Planningd) Production

A network of connected and interdependent organisations

mutually and cooperatively working together to control,manage and improve the flow of materials and information

from suppliers to end users



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OBJECTIVES:

b) Minimize order to

delivery cycle timec) Reduce waste and

duplication

d) Ensure superior delivery

service

FUNCTIONS:

a) Processing Customer

Ordersb) Inventory Control

c) Warehousing

d) Material Handling

e) Customer Service

Supply Chain Management Framework


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Suppliers

of raw

materials

andcompone

nts

Planni

ng

and

foreca

sting

Purcha

se

Product

ion or

Operati

on

Distribu

tion

and

logistic

s

Custom

er

Service

Perfor

mance

and

evalua

tion

Business

Custome

rs or endusers

Information Flow

Cash Flow

Product Flow

Total Cost Approach


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Focuses on balancing two important elements:1. Total Distribution Costs = Freight +

Warehouse Cost + Inventory Cost + Cost of Lost

Sales due to delayed delivery

2. The level of service provided to customers

(a) customers service need.

(b) competitors service level.

(c) companys profitable objective.

Determining customer service


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g

levels

Set the goals of customer services levels for each

of the important service elements.

Measure the actual performance for each serviceelement.

Analyze the variance between actual service

performance and the goal.

Take corrective actions to minimise the variances.

Elements of Customer Service


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Customer service

Presale service

Advising Service

Technical Service

Ordering easePatronage Awards

During- Sale service

Keeping Adequate stocks

Speed and accuracy of

deliveryProduct substitution

Post-sale service

Product warranty

Maintenance contract

Repair service

Installation serviceCustomer training

Customer service


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Customer service Pre-transaction phase order status information

customer complaints, returns

customer education and training

Transaction phasedelivery of goods order convenience

product substitute

Post-transaction phase after sale serviceCustomer education and training

Channel Design and Network


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g

strategy

ManufacturerCustomer ManufacturerRetailerCustomer

ManufacturerWholesaler Retailer

Customer ManufacturerAgentWholesaler

RetailerCustomer ---- > ex: ITC

Customer Service Audit


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Customer Service Audit

Helps to acquire both Quantitative and Qualitativeinformation on target markets perceptions and desires for

service.

Provides a viable means of assessing, and provides

transparent information on both healthy and unhealthy practices

that impacts the customers performance.

IDENTIFYING COST CENTRES ::

Objective is to provide a desired logistical service at lowest

possible cost.

Total-cost analysis begins with identification of relevant cost

centres (i.e. transportation, warehousing inventory, materials

handling and order processing)

IDENTIFYING COST CENTRES


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Objective of Total cost analysis :i. Identify the costs by activity center.

ii. Evaluate these costs in terms of a desired level of customer

service.

iii. Seek trade-offs between and among the various activitycenters so that a possible cost increase in one activity centers

cost is managed by offsetting method.

A, Cost Trade-Offs :::

Trade offs - is quite simple - within a single activity center eg.,Transportation by choosing alternatives like rail over motor

carrier or vice versa. Finding trade-offs within that mode is

possible.



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Objective of Total cost analysis :

Trade-offs between and among centers is quite difficult. Hencetotal cost analysis begins with the identification of relevant cost

centers.

Transportation ::

Speed, Dependability, Availability, Product movement, Propertime management, Delivery on time etc., is vital for ensuring

right product at the right place at the right time, when the

customer requires the same.

a.Airfreight :: Very high speed of movement of goods, shorter duration, but

very costly. Used only in emergency and in life saving and high

value items.

Transportation


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Transportation Truck : Most commonly used. Very beneficial

to move goods from one town to another or

between road connected neighbouring cities.

Train : Railroads specialize in transporting

raw materials, metallic ores, coal, gravel,

unprocessed agricultural products, scrap

and automobiles.

Pipeline : Limitations seen. Only liquid itemsand gasoline items like petrol, gas can be

transported.

Transportation


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Transportation Intermodal Transportation :

Used in overseas transportation and in large

distances (for eg., sea and road, rail and

road, air and road, etc.,)

Freight Forwarders :

Helps to consolidate shipments to get lower

rates for their customers, and are considered

transportation middlemen. Usually cheap

than truckload lots (LTL) but little costlier

than TL or CL shipments.



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g y

Is a place where work-in-progress goods, or usable goods as

safety stock is stored for future usage by the productiondepartment.

Location of the warehouse plays a very crucial role on a

firms sales volume and distribution costs.

Private or Public Facilities :: Warehouse space may be owned, rented, or leased.

When owned or leased it is called as private w/h

When rented it is called as public w/h.


Public Warehouse


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Public Warehouse

1. Review reasons for your requirement.2. Develop a list of w/h you want to survey for suitability

3. Make a personal visit with proper appointment. Consider

these factors for decision making .

a. Housekeeping Neatness, hygiene, sanitation, ventilationb. Equipment Status of the equipment.

c. Operations control. Study the procedures that the w/h

uses to control costs and improve efficiency.

d. Facilities Basic facilities, like well maintained status,locking facility and safety aspect.

e. Management clerical procedures control on IM, CS,

claims, shipment logs, etc.,


Public Warehouse


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Public Warehouse

f. Insurance Status and need based approach. Existingwhether covered or not.

g. Proximity to rail yard / road connectivity or Transportation

access

4. Obtain outside references and cross check thoroughly onevery aspect w.r.t. warehouse

5. W/h financial status and overall health of the warehouse.

Market Positioned warehouse ::

Production Positioned warehouse :


Public Warehouse


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Public Warehouse

Intermediate Positioned Warehouses ::INVENTORY ::

Act as a buffer against supply and demand uncertainities.

Inventory Carrying Cost (ICC) Determined as a

percentage of total Inventory Value.Inventory costs should include only those costs that vary with

the level of inventory and can be grouped into four basic

categories : i. Inventory acquisition costs , ii. Inventory service

costs, such as property taxes and insurance , iii. Storage space costs and iv. Inventory risk costs, including

damage, pilferage, obsolescence, and relocation costs.

Optimizing Inventory


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p g y

Based on Pareto principle (Vital few Trivial many) 80 : 20

rule.a. ABC Analysis ::

High value A, Medium value B and low value C

b. Determining Inventory Levels ::Goal of Inv. Planning is to provide desired customer service

at the lest total cost in physical distribution.

To obtain the lowest overall cost, managers must strike a

balance between order processing costs and inventory

carrying costs



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Cost of Restocking - i. cost of transmitting and processing

inventory transfer ii. Cost of handling at the shipping andreceiving points, iii. Transportation costs, and iv. The cost of

associated documentation.

The EOQ model ---

The cost trade-offs involved in determining the mosteconomical order quantity.

THE EOQ model understands to run the feasibility between

Ordering costs, Inventory carrying cost and total cost.

EOQ = 2PD ( Where P = ordering cost (INR per order)

D = Annual Demand (No. of

units)

C = Annual Inventory carrying cost , V = aveg. Cost

cv

Cost Trade-offs required to determine the most



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Size of Order

Annual Cost

In INR

Lowest Total Cost

(EOQ)

Total Cost

Inventory Carrying cost

Ordering Cost



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EOQ model has received widespread

attention and is broadly used in industry. Butit is applied under conditions of uncertain

demand and is restricted by its underlying

conditions :: i. Rate of demand is continuous, constant

and known

ii. Lead time is a constant or known. iii. Price is constant and is independent of

order quantity or time.



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iv. All orders are filled (no stock outs are

permitted)

v. There is no inventory in transit

vi. There is no interaction between different

items in inventory

vii. The planning horizon is infinite

viii. Capital funds are unlimited.

Fixed Order Quantity Model


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Fixed Order Quantity Model :: Order cycle and transit time is generally inconsistent, given the

environmental adversity and seasonal trends.

Helps to ensure avoid stock outs through determining order

point, based on lead delivery time ( on receipt of order) andminimum and maximum inventory levels.

Computer Simulation ::

Automated Inventory management program.

IMPACT Inv. Mgmt program & control technique Helps mgmt. to forecast demand, determine minimum qty.

reqd. as safety stock, determine order qty. and time to reorder,

consider the effect of freights rates and qty. discounts, and

determine expected results of the inventory plan.



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Order Processing from stock checking to ordering andshipment of material -- credit check, providing sales credit to

the sales person, getting finance approval, contacting w/h for

shipment, updating master inventory tracking, translating

shipping documents into an invoice and a permanent sales

record.

Materials Handling Cost effectiveness based on volume, labor

costs, minimizing idle time, breakdowns, breakage, errors,

using mechanized handling equipment like forklifts, handtrucks,

conveyors, retrieval equipment effectively to minimize the costto the company.

Impact of Marketing Logistics on

Intermediaries


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Intermediaries

The industrial marketer can improve the performance of

physical distribution in the entire channel system by taking the

following steps:

1.Develop computerized information system that will link

individual channel members to the manufacturers

system. This will provide realistic sales and inventory

of the channel members to the manufacturer.

Impact of Marketing Logistics on

Intermediaries


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Intermediaries

2. Standardize packaging and material handling at all

channel members to assist in efficient operations

3. The manufacturer and the channel members should

improve the performance of their respective tasks or

services. Thus the physical distribution must be

integrated with channel members to improvemarketing effectiveness.

Role of Marketing Logistics


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Should be considered as a long termstrategic issue.

Considered as a source of creating a unique

competitive advantage.

Important role in future due to global

competition, world wide sourcing, JIT system

and TQM.


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