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7/28/2019 Module 6 Sdm
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Module 6
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Logistics
A network involved in the actual
transportation of goods and services from
the place of manufacturing to the place of
consumption.
Ensures the delivery of right product at the
right place at the right time in the right
quantity.
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In normal usage logistics in concerned
with entire supply chain, from raw material
procurement stage to the delivery of
finished goods.
designing and managing a system that
controls the flow of materials into, through,
and out of the organization
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Logistics
Process of planning, implementing and
controlling the efficient, cost effective flow
and storage of raw material, in-process
inventory, finished goods, and related
information from the point to origin to the
point of consumption for the purpose of
conforming to customer requirements.
Council of Logistics Management
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The process of managing and controlling
the flow of goods and services from the
source of production to the marketplace.
It involves the integration of
transportation,
inventory,
warehousing,
material handling,
packaging.
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In business, logistics may have
internal focus (inbound logistics),
external focus (outbound logistics)
An estimated 40% of the final cost that acustomer pays is absorbed by logistical
activities in FMCG sector.
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Logistics management
Conventionally defined as the process of
ensuring the delivery of the right product at
the right place at the right time in the right
quantities
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Objectives of logistics
Logistics strategy mainly has 3objectives
Cost Reduction
Minimize level of investment
Service improvement
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Key Logistical Activities
Better Customer Service
Facilitates Demand Forecasting
Inventory Control Materials Handling
Warehouse Site location
Procurement Packaging
Reverse Logistics
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Logistics Planning
The purpose is to balance the activitylevels of all the components of logistical
system.
So that they dont work at cross purpose inthe process of achieving their respective
objectives.Objective Reduce
inventoryWarehouse Frequent small
quantities
Transportation
Objective
Reduce cost Postpone
dispatch
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According to Simchi Levi, basic types of
outbound logistics strategies are:
Direct Shipment
Warehousing
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Customer
Service
Goals
Inventory
Management
Transportation
Decisions
Location Decision
Logistical Decision Making
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Warehousing Decisions
Logistical system needs some permanent
facility for storing and supplying goods to
the end consumer.
A warehouse is a commercial building for
storage of goods.
Warehouse are locations where the
inventory is received, stored and shipped
out according to the demand.
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Why Warehouse???
Support better customer service
Maintain source of supply without interruptions
Overcome time and space difference
Efficient recording which helps in detecting outof stock products.
Point of allocation (bulk breaking).
Prevent damage. Helps in achieving economies of scale in
transportation. (Large quantities can be shipped
at same time).
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Main function of Warehousing
MovementReceivingTransferring
Shipping
Storage
InformationTransferInventory level
Order fulfillment
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Warehousing Location
Strategies Market Positioned:
Located nearest to the final customer
Production Positioned
Located close to production facility
Intermediately Positioned:
Mid locations between final customer and
producer.
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Warehouse selection factors
Location of major markets
Nature of product
Potential for expansion Local tax structure
Cost of availability of utilities
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Major Decisions
Location of warehouse Proper location leads to better customer
service at less cost
Improperly located warehouse leads tohigher lead times and high transportation
cost.
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Number of Warehouses
Factors considered:
Cost of lost sales
Stock out cost when a customers order is
not fulfilled due to lack of availability of
stock within permissible waiting time.
Inventory cost
Cost incurred on procuring and holding
inventory
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Transportation Cost
Warehousing Cost Renting, Leasing or owning
Maintenance
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Transportation Decisions
An activity that moves products to markets
that are geographically disparate.
Provides time and place utility by taking
the products nearer to the point of
consumption.
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Transportation
The major decisions involve:
Mode selection
Vehicle routing and scheduling (Best path a
vehicle should travel through)
Shipment consolidation
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Mode Selection
Different modes: Air
Rail
Water Road (Major mode, nearly 65% in India)
Pipeline
Major factors considered are: Cost
Dependability
Possibility of loss and damage
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Inventory
Inventory-A physical resource that a firm
holds in stock with the intent of selling it or
transforming it into a more valuable state.
Inventory System- A set of policies and
controls that monitors levels of inventory
and determines what levels should be
maintained, when stock should be
replenished, and how large orders should
be
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Inventory pile up may lead to damage.
Not possible to reduce because:
It is difficult to precisely forecast demand. May lead to poor customer service.
Thus the focus remains on maintaining
optimum levels of inventory. Emergence of concepts like JIT, ECR
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Reducing amounts of raw materials andpurchased parts and subassemblies byhaving suppliers deliver them directly.
Reducing the amount of works-in processby using just-in-time production.
Reducing the amount of finished goods byshipping to markets as soon as possible.
Zero Inventory?
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Why Inventories?
Improves customer service. (demandfluctuations)
Reduces cost (discounts from
suppliers, reduce transportation cost). Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.)
Economies of Purchasing
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Cost associated with inventory
Inventory procurement costShipping
Handling
Inventory carrying cost Inventory service cost
Storage space cost
Inventory risk cost Stock out cost
Cost of lost sale
Back order cost( delayed purchase)
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Inventory level decisions
Push or Pull Strategy
Inventory Replenishment Point
Reorder Quantity (EOQ)Order Timing (Reorder Point)
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Push v/s Pull Inventory
Control
Push Strategy:
Inventory management is centralized.
Forecasting done at central level E.g. FMCG companies
Not capable enough of reacting to market
changes.
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Pull Strategy
Bottom up approach
Decentralized forecasting
Warehouses and other storage pointscalculate their inventory requirements.
Helps in reducing inventory.
Production coordinated with demandrather than forecast.
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Order Quantity Decisions
Quantity of reordering so that inventory is
replenished at most ideal rate.
Ideal stock is maintained when there is
neither stock out nor inventory pile up.
Calculated by Economic Order Quantity
(EOQ) formula
Major consideration of formula is to reduce
total cost of inventory.
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EOQ that minimizes TC is given by
Q = 2DS/IC
Where;
D= Demand
S= Ordering Cost IC = Inventory Carrying Cost
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Reorder Point
Quantity to which inventory is allowed to
drop before replenishment order is made
Need to order EOQ at the Reorder Point:
ROP = D X LTD = Demand rate per period
LT = lead time in periods