Logistics main

04/12/23 1

Elements of Logistics Management

What is Logistics?¶ Can you visualize the production function of a business process?¶ What is the most accessible of all production functions you can visualize?¶ Now what activities make production happen?* Procurement• Sourcing• Moving or Transportation• Handling• Storage

04/12/23 2

Elements of Logistics Management - continued

*Conversion* Distribution• Transportation• Warehousing

04/12/23 3

Logistical Management Making inputs and outputs available when they are needed, where they are needed and in the quantities they are needed * Inputs from market [domestic or import] are needed for production* Out puts of production process [Industrial products, engineering, chemical & pharmaceutical products are needed in the market [domestic or export]* Battle fronts need troops* Troops need supplies*People need agricultural products* Agriculture needs fertilizers * PDS needs food grains

04/12/23 4

Logistical Management - continued

• Without logistics no value adding process can run• Logistics is a facilitator of trade & business • Age old practice• Modern logistics is scientific• Logistics is a planning function• Genesis of logistics is in military planning• Origin of many OR techniques like Value analysis, PERT, CPM etc.. is the crucible of war

04/12/23 5

Logistical History of India• India was a maritime power since about 300 BC• Goods Made in India, steel, textiles etc.• Trade and prosperity• Gradual degenerationSome logistical feats in history:• Berlin Air Lift – A study in logistics• Indians in the Gulf countries - 1991• Operation Overlord, II World War-1945• 1962 war with China • 1776 American war of Independence [4th July1776]

04/12/23 6

What causes bad logistics?

• Infrastructure: bad roads, inefficient railways, poor communication lines, congestion in ports• Taxation: e.g. Octroi• Information: Inadequate information, bad communication • Management: Bad management decisions [carrier selection, out sourcing etc.]

04/12/23 7

Receiving stores

V1 V2

Operation

Finished Goods Stores

W1 W2 W3

R1 R2 R3 R4 R5

V3

V5 V4

R6

Market

Procurement

InboundLogistics

Outbound Logistics

04/12/23 8

Importance of Logistics

Why should we learn logistics? Why is logistics important for management students?• Logistics is the bed rock of trade and business• Leads to customer satisfaction, D&F expectations of customers• Integrates logistical activities• Competitive edge in a commodities market• Logistics wins or loses wars• Supports critical functions like operations and marketing to be JUST IN TIME by providing Interface with marketing

04/12/23 9

Importance of Logistics - continued

• Logistical costs are 5% to 35% of sales depending on type of business, geographical areas of operation etc.• Crucial to survival and prosperity in global business• logistics experts are moving up in corporate ladder• leads to the concept of supply chain management• Indian market is changing- shift from seller’s market to buyer’s market• changing customer• expanding business, global trade• competition, internal & external• concept of lean management

04/12/23 10

Operating Objectives Of Logistics

1.Rapid response• F- Objective: Ability to respond rapidly to customer’s order• Role of Information Technology • Concept of SMED and Kanban2. Minimum variance• D-Objective as OTD• Any event that disturbs the supply chain is variance• Problems in information flow, traffic snarls, acts of god, wrong dispatches, transit damage• Traditional approach Vs costs

04/12/23 11

Operating Objectives Of Logistics -continued

3. Minimum inventory

• Concept of Inventory Turns

• Increase these turns without

sacrificing customer satisfaction• Single piece flow as practiced by

JIT companies

4. Movement consolidation• Integrating interests of several

players in the supply chain. • Planning several small shipments

together [of different types of

shipments]

04/12/23 12


5. Quality

• Quality of logistics performance -

complete fulfillment of order

6. Life cycle support [cradle to

cradle logistical support]

• After sales service

• Reverse logistics

# Rigid quality standards

# transit damage

# product expiration dating

# law against unscientific disposal

04/12/23 13


# law making recycling mandatory

# erroneous order processing by

supplier

04/12/23 14

Logistical Functions

LOGISTICSFUNCTIONS

WAREHOUSINGStorage,Handling,Packing &Distribution

INFORMATIONSYSTEMSInternal &ExternalInformation flow

INVENTORYWhen to order?How much toorder? Just InTime

TRANSPORTATIONWater, Road, Rail,Pipeline & Air

NETWORKDESIGN

04/12/23 15

Logistical Functions

components of logistics or elements of logistics

• Information management* Role of technology, fast & accurate information* Real time logistics in competitive business * Notification to customer* Role of information in logistical forecasting & logistical operations, order processing and order management* Erroneous information will result into product recall and reshipment

04/12/23 16

Logistical Functions - continued

* Inventory control* Neither stock-out nor stockpiling

* Inventory policies* Inventory models* Inventory systems• Transportation * the most visible of all elements* High contributor to costs logistics- Movement costs, Preservation costs, Cost of idle asset, Administration costs* Transportation is accomplished in three ways- Private carriage, contract carriage, common carriage

04/12/23 17

Logistical Functions - continued* Expectations from carrier- minimum cost, speed of transport, consistency in speed

• Warehousing* Switching facility rather than a storage facility* Ownership can be private, public or third party contract.*Economic benefits - Consolidation, Break bulk, Cross Dock, processing postponement, stock piling[seasonal storage]* Service benefits - spot stocking, Assortment, mixing, production support, market presence

04/12/23 18


• Material handling * Receiving, moving, storing, dispatching activities* Impact on cost [capital as well as running], Quality and safety* One of the principles of material handling is minimum movement* Commonly used material handling equipment- forklifts, EOT Cranes, hoists, pulley blocks, trolleys, railroad cars, conveyers, ropes, slings, carousels, sortations, robotics• Packaging* Types of packaging- consumer packaging and industrial packaging

04/12/23 19

Logistical Functions - continued*Consumer packaging°Attracts attention° single most important factor in purchasing decisions made at point of sale* Industrial packaging - makes logistical activities of handling storage moving easy* Sales functions of packaging° Display - attraction, easy identification, communication of recipe, hazard, special care° Ease of opening° Convenience - flexi tubes, sprays° Dispensing - spouts, taps, spays, tubes

04/12/23 20


* Functions of packaging # Protection - physical damage, bubble pack, corrugated sheet cartons, mangos in crates# Cube minimization - flattened cans, square shaped whisky bottles, soft drink concentrates, furniture in knocked down condition# Weight minimization - plastic bottles, plastic crates, milkbags# Facilitating handling & using - fruity packs, flexible tubes, aerosol pacs# Facilitating storage & reuse - corrugated boxes

04/12/23 21

Logistical Functions - continued# Grouping goods into convenient unit for distribution - mango boxes, cola bottles, cotton bales, wire rope coils# Pilfer proofing - bisleri caps, cola caps# Handling - pallets, straps

• Net work design [Location analysis] - to minimize overall system cost of delivering value to the customer # Number of facilities - production facilities, warehouses# What is to be performed in these facilities?

04/12/23 22


# Their location - to minimize overall system cost# Who operates these facilities? - outsourcing decisions # Communication between these facilities - are some of the salient features of net work design.

04/12/23 23

Some important concepts# Logistics and supply chain management Logistics and Supply Chain Management by G.Raghuram, N.Rangaraj. Page #15, The Management of Business Logistics by Coyle, Bardi, Langlely Page # 31 ]

• Focus on costs and benefits in

physically moving the goods to

customers - post war1950s.

• Idea of total system cost

• Trade off situations between costs

of several activities

04/12/23 24

Some important concepts - continued

• Selection of modes of transport

• 1960s - Emergence of Physical

distribution management

- integration of activities of outbound

logistics

- Electronic era, information as an

element of Physical distribution

management

• 1970 - some aspects of financial

subsystem integrated & focus on

activities of inbound logistics until

considered to be vendors’ concern

04/12/23 25


• 1980s - Concept of Logistics as a

management function, internally

integrating all activities of inbound

and out bound logistics - Focus on logistical operations, application of TQM, TPM & JIT

• 1990 - Gradually concept is

encompassing entire value chain as

Supply Chain Management

• Henry Ford’s [early 1990s] idea of

control on supply chain

• No firm can be self sufficient

04/12/23 26


• Scope - Source of raw materials to

end user - all upstream &

downstream organizations & linkages

• How is this created in business? -

external integration

• Concept of supply chain as a pipe

line

• Main objective - Supply chain

profitability by value creation

• Focus - end user

04/12/23 27


• Origin - extension of scope of

logistics management

• Definition - Management of

upstream and down stream

relationships with suppliers and

customers to deliver superior

customer value at less cost to the

supply chain as a whole

• breaking the organizational barriers

to deliver value

04/12/23 28


* Sharing of sales information in

real time

- reduces inventories by

reducing uncertainties

- compresses value

chain by slashing lead-times thereby

quickening cash flow

04/12/23 29

vendors

Incoming materialsstores

Conversion process[WIP]

Warehouses

Customers

FG stores

M/M

O/M

Physicaldistrib.

Mgt[outboundlogistics]

Inboundlogistics

SupplyChainMagt

Logisticsmanagementnetwork

30 04/12/23

particulars Logisticsmanagement

Supply chainmanagement

Scope Inbound logistics,in processinventory,outbound logistics

All players in thesupply chain fromraw material sourceto finished productconsumer, vendors,their vendors,supplierorganization[shipper],Warehouses,service providers,customers, theircustomers

How this is createdin business?

By internalintegration oflogistics functionshandled by variousmanagementfunctions withinorganization

By externalintegration of rolesof various playersin the supply chain.

Main objective Logistics costreduction byintegratingresources acrossthe pipeline

Supply chainprofitability byvalue creation.

31 04/12/23

focus L/M tries to take theproduct to theconsumer atminimum logisticalcost. Hence it issupply driven.

SCM focuses onvalue creation in thesupply chain. Hencethis is customerfocused or demanddriven.

definition Logistics is theprocess ofstrategicallymanagingprocurement andstorage of material ,part and finishedinventory [andrelated informationflow] throughorganization and itsmarketingchannels in such away that currentand future profitsare maximizedthrough costeffective fulfillmentof order

Management ofupstream and downstream relationshipswith suppliers andcustomers to deliversuperior customervalue at less cost tothe supply chain asa whole.

Origin A very old conceptin military planning.

As a logicalextension of logisticsmanagement

04/12/23 32


*Business functions of logistics

management ……[physical distribution

management by K.K.Khanna – page # 13, The

Management of Business Logistics by Coyle,

Bardi, Langlely Page # 39]

• military origin, military functions &

post war march into business• procuring, moving and storing of

R/M and industrial F/G• making inputs available for value

addition to a conversion process• facilitation of relevant

manufacturing and marketing

04/12/23 33


- making finished goods available to the customers in the market

• procuring, moving and storing of agricultural products

• Food Corporation of India

• importance of logistics function in commodities market

* Event logistics - The net work of activities, facilities and personnel required to organize, schedule and deploy the resources for an event to take place and to efficiently withdraw after the event

04/12/23 34


* Service logistics - the acquisition,

scheduling and management of the

facilities/assets, personnel and

materials to support and sustain a

service operation

* Military logistics - design and

integration of all aspects of support

for the operational capability of the

military forces [deployed or in

garrison] and their equipment to

ensure readiness, reliability and

efficiency

04/12/23 35


*Logistical mission ………[Logistics &

SCM by Martin Christopher, Page # 13, L/M by

Bowersox Page #9]

• Achievement of business objectives

at minimum logistical cost

[delivering- QCD expectations of

customers at minimum logistical

costs, i.e. creating customer value at

minimum cost

• set of goals to be achieved at a

particular type of market responsive

to competition

04/12/23 36


• mission focus Vs individual

function

• Mission of logistics is providing a

means by which customer satisfaction

is achieved

04/12/23 37


*Inbound logistics Procurement operations in procurement cycle

• potential avenues for reducing

systems costs

• value of inventory is low

• trade off between cost of

maintaining inventory in transit and

low cost transport exists

• Delivery time, size of shipment,

mode of transport are different from

O/B logistics

04/12/23 38

Inbound logistics - continued

SourcingOrderplacement& expediting

Supplier

TransportationReceiving

04/12/23 39


*Outbound Logistics

• Value added goods are to be made

available in the market distributed

through the network of warehouses

and retailers’ shops

• Value of the inventory is very high

as during conversion value is added

• Delivery time, size of shipment,

mode of transport are different from

I/B logistics

04/12/23 40

Outbound Logistics - continued

Customerorder

Ordertransmission

Orderprocessing

Orderselection

Ordertransportation

Customerdelivery

Activities in distribution performance cycle

04/12/23 41


*Total cost analysisConventional approach• No information on the impact of cost of an individual function on the system• Apportionment of Logistics costs• Costs get submerged • Competitive edge is lost by the organization.• Incremental cost to the system - on account of changes to the system like introduction of a warehouse and the impact on the system • Impact of decisions at various levels on the system

04/12/23 42


• Cost information is biased, cost elements tend to get hidden out of fear that they expose functional weakness• Costs in no man’s land are never owned - like tube lights on passages, cost of returned vehicle• Cost cutting is fragmented so doesn’t reduce system cost• Focus is on input function. Hence attempt is to reduce function cost in isolation • Customer dissatisfaction* Total cost approach• Modern approach to logistical costing

04/12/23 43


• Focus on reduction of cost of output of the system• Provides competitive edge to the company• Several trade off points in the system, further areas of improvement

04/12/23 44


*Mission based costing [or budgeting] in logistics• input focused costing• output focused costing• mission goals and costs are set • functional inputs are worked out to meet the system deliverables

290MissionA

MissionB

MissionC

Customer servicegoals [QCD]At market type A

Customer servicegoals [QCD]At market type B

Customer servicegoals [QCD]At market type C

Purchasing

Production

Sales

Marketing

Transportation

Etc

04/12/23 45

Mission based costing - continued

Fig.8

15

45

10

5

35

10

MissionA

MissionB

MissionC

Customer servicegoals [QCD]At market type A

Customer servicegoals [QCD]At market type B

Customer servicegoals [QCD]At market type C

transportation

Ware housing

Functional Inputs to Logistical Management

5

20

10

C1=Rs. 25/-

C1=Rs. 100/-

C1=Rs. 30/-

Rs.155/-70 50 35

04/12/23 46

Interface with marketing

PRICE

PRODUCT

PROMOTION

PLACE

LOGISTICS

MARKETING

04/12/23 47


*Interface with marketing

• a common wall,surface or area with another body, concept or function - area of common interest or concern

• Four Ps of marketing and logistical interface

• Price - marketing can re offer the price to beat the competition with superior logistical support

• Product & Packaging- size shape & weight/volume ratio of the product has major impact on logistical cost.# Gillette story of floor displays

04/12/23 48

Some important concepts - continued, Interface with

marketing

Promotion - promotional strategies of marketing need to be decided by working closely with logistics# Push/Pull strategyPlace - whether to distribute through wholesalers or through retailers is a marketing decision with impact on logistics# wholesalers’ demand & retailers’ demandCustomer Service - another area of interface between marketing & logistics

04/12/23 49


Interface with operations

SHORT RUNS

SEASONAL DEMAND

SUPPLY SIDE INTERFACE

PACKAGING

LOGISTICS

OPERATIONS

04/12/23 50


Interface with operations * Short production runs• Very strong logistical support is needed to operate Just In Time• Short runs lead to inventory reduction* Seasonal demand• Inventory should be mutually accepted * Supply side interface• Prevent shortages* Packaging• Protective packaging• Third party alternatives

04/12/23 51


Role of planning in logistics management• Role of planning is central to logistics management Mission of logistics is to achieve desired levels of service and quality at lowest possible cost. Logistics makes one plan, that replaces traditional concept of planning in pockets

04/12/23 52


“C” customersLook for value[benefit] at lowestprice

“C” companyBy effectiveutilization of assets tries tocreate and offervalue to customers

“C” competitionBy effectiveutilization of assetstries to create andoffer value tocustomers

Value Value

Cost differentials

SERVICE LEADER

OK

SERVICE & COSTLEADER

HAPPY COMPANY

SAD

COST LEADER

OK

C O S T

SERVICE

Whomshall Ibuyfrom?

CUSTOMER

8. Importance of 3Cs

LOW

LOW

HIGH

HIGH

04/12/23 53


*Integrated logistics•Attributes of Logistics Department# Scope is wide spread- functions of logistics are spread across various stages of value chain in the organization# Provides interface between marketing and customers, marketing and operations, operations and supplier# Provides competitive edge to business in the current environment# Handles flow of information, materials & recovery cycle# Tackles cost reduction

04/12/23 54


• Logistical competency• What is logistical competency?• Definition: Logistical Competency is the relative assessment of a firm’s capability to provide competitively superior customer service at the lowest possible total cost. • It is a strategy to provide a superior service at a total cost below industry average. • Its aim is to view how logistics can be exploited as a core competency so that fits into a firm’s overall strategic positioning

04/12/23 55


Inventory flow

Physicaldistribution

Manufacturingsupport Procurement

Information flow

Customer Suppliers

•How can this be achieved?• By integrated performance of logistical functions# jigsaw puzzle# What is the big picture?• What are the parameters needed to achieve this integrated performance?# Information flow, Inventory flow, organization, customers and suppliers

04/12/23 56


• Concept of Integration in Logistics Operation• Internal & External Integration• Internal Integration# First Stage of Internal Integration - Materials management & Physical distribution Management # Second Stage of Internal Integration - Logistics Management• [ External Integration - Supply Chain Management]# functions in coordinated fashion# One operational command - Performance in isolation loses sight of overall picture.

04/12/23 57


# Picture before you to solve the jigsaw puzzle# Links the enterprise with customers and suppliers# Information flowing into the enterprise is converted into schedules and plans & value added products reach the customers# Integrated logistics is interrelated efforts of managing information flow & inventory flow

04/12/23 58


• Value added role of Logistics# form utility, place and time utility and possession utility add value to a product• Form Utility is given by Production• How logistics also adds form utility - processing postponement, mixing, unpacking• Place and Time Utility is given by logistics functions• Possession Utility: Marketing creates Possession Utility by promoting the product• But logistics makes finally possession by customer happen

04/12/23 59


* Logistical Information System.

• Primary activities of LIS• data flow from external sources• processing and storage of information within the firm• communication to the decision maker in the form of reports• communication to customers and suppliers and their feedback