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LOGISTICS MANAGEMENT

Facilitator

Dr Pramod Shetty

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Logistics Management• The Process of strategically managing the movement and

storage of material, parts and finished goods from suppliers,through the firm to the customers.

.....Council of Logistics Management

•• A planning, implementing and controlling the physical flows

of materials and finished goods from point of origin to point of use to meet the customers need at profit

.....Philip Kotler

Logistics involves the integration of information, transportation, inventory, warehousing, materials handling and packaging

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Forces Shaping Perspective ofLOGISTICS

• •Concept of supply chain

Cost pressure

Speed to market

Customer delight

•Movement toward globalization

Time –space utility

•‘Hollowing out’ of industry

Outsourcing

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Pervasiveness of Logistics

24 Hours ATM

•Dabbawalas of Mumbai

•Laundry Service in a Five Star Hotel

•Indian Postal Service

•Gulf war in 1991

•Public Distribution System (FCI)

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• Molded plastic water tanks – product design

• Cement industry – packaging

• Two wheelers – network design

• Sponge iron – mode of transport

• Pharmaceutical – production planning, transportation

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Source of Competitive Advantage

• Competitive advantage is the ability of an organization to differentiate itself in the eyes of the customer, from its competition, and to operate at a lower cost and hence greater profit.

• Competitive advantage helps organizations to achieve commercial success which mainly depends upon two factors – cost advantage and value advantage.

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Commercial success

Cost advantage Value advantage

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Cost advantage or Productivity advantage- Characterized by low cost of production due to

greater sales volume, economies of scale enabling fixed costs to be spread over a greater volume and the impact of the ‘experience curve’.

Value advantage is in terms of product offering a differential ‘plus’ over competitive offerings.

- Based on marketing concept that customers that ‘customers don't buy products, they buy benefits’.

- Benefits may be intangibles and may not relate to specific product features.

- It can be an image or reputation or even some functional aspects.

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• Adding value through differentiation is extremely powerful is extremely powerful means of achieving competitive edge in the market.

• One of the significant method of adding value is service.

• Service helps in developing relationship with the customers through provision of an augmented offer.

• Augmentation takes many forms such as delivery services, after-sales services, financial packages, technical support etc.

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Productivity and Value Matrix

Commodity Market(1)

Cost Leader(2)

Service Leader(3)

Cost and ServiceLeader

(4)

Productivity Advantage

Value

Adv

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• For companies in quadrant (1), the market is uncomfortable place as their products cannot be differentiated from their competitors’ offerings as they do not have any cost advantage. These are commodity markets.

• Companies in quadrant (2), adopt cost leadership strategies. Traditionally, these are based on economies of scale gained through volume.

• Another route to achieving cost advantage is through logistics management. As logistics constitutes a major proportion of total costs, reengineering logistics processes results into substantial cost reduction.

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• Companies in quadrant (3), seek differentiation through service excellence since markets are becoming more and more service sensitive.

• Customers expect greater responsiveness and reliability from the suppliers, reduced lead times, just-in-time delivery, and various other value added services.

• Services strategies can be developed through enhanced logistics management.

• Companies in quadrant (4) are distinctive in value they deliver and are also cost competitive.

• Competitors find it hard to attack these companies which try to excel in all the value chain activities.

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Value Chain Activities

Value Chain Activities

Primary Activities•Inbound Logistics

•Operations•Outbound Logistics•Marketing & Sales

•Service

Secondary Activities•Infrastructure

•Human Resource Management•Technology Development

•Procurement

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• Primary activities represent the functional areas like arranging inputs for transforming them into output, and managing distribution, marketing, sales, and services.

• The secondary activities facilitate the integration of all the functions across the entire organization.

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Factors affecting value and productivity advantage

A. Productivity advantage- Capacity utilization- Asset utilization- Inventory reduction- Integration with the suppliers.

B. Value advantage- Customized services- Reliability- Responsiveness.

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Underlying Philosophy Behind Logistics Concept

Suppliers Procurement Operation Distribution Customers

Materials Flow

Information Flow

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How do we define supply chain?• A network of organizations that are having

linkages, both upstream and downstream in different processes and activities that produce and deliver value in the form of products and services in the hands of ultimate consumer.

Customers Retailers Shirt ManufacturerWeavers

of FabricsYarn/Fibre

mfrers

Downstream Upstream

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• A shirt manufacturer is a part of supply chain that extends upstream through the weavers of fabrics to the spinners and the manufacturers of fibres, and downstream though distributors and retailers to the final consumers.

• Though each of these organizations are dependent on each other yet traditionally do not closely cooperate with one another.

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Is Supply chain management same as vertical integration?

• SCM is not the same as vertical integration.• Vertical integration implies ownership of upstream

suppliers and downstream customers.• Earlier, vertical integration used to be the desirable

strategy but increasingly the companies are focusing on their core business i.e. the activities that they do really well and where they have a differential advantage.

• Everything else is outsourced.

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Implementation of SCM through Logistics Management

• Transferring costs upstream or downstream leads to logistics myopia as all costs ultimately will make way to the final market place to be reflected in the price paid by the end user.

• The prime objective of SCM is to reduce or eliminate the buffers of inventory that exists between the organizations in a chain through sharing of information on demand and current stock levels.

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How does Logistics differ from SCM?

• Logistics management is primarily concerned with optimizing flows within the organization.

• Supply chain management deals with integration of all partners in the value chain.

• Logistics is essentially a framework that creates a single plan for flow of products and information through a business.

• Supply chain builds upon this framework and seeks to achieve linkage and coordination between processes of other entities in the pipeline i.e. suppliers and customers, and organization itself.

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Objectives of LogisticsManagement

• Inventory reduction

• Reliable and consistent delivery performance

• Freight economy

• Minimum product damages

• Quick response

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Logistics- Macro Level Growth Variables

• Country's economic growth

• Government policies for trade development

• Regulatory environment

• Transportation Infrastructure

• Warehousing and cold chain network

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