Logistic ManagementLogistic Management

An Supply Chain ImperativeAn Supply Chain Imperative

ByBy

Subhash Raje Subhash Raje

Asstt. Prof.Asstt. Prof.

Academy of e-learning solutions Pvt. Academy of e-learning solutions Pvt. Ltd Ltd sraje10@gmail.com

9028007445,94050303009028007445,9405030300

LOGISTICSLOGISTICS

DefinedDefined

Planning implementing and controlling Planning implementing and controlling the physical flow of material and the physical flow of material and

finished goods from point of origin to finished goods from point of origin to point of use to meet customer`s need at point of use to meet customer`s need at

a profita profit

By “Philip Kotler”By “Philip Kotler”

It is essentially a planning process and It is essentially a planning process and an information activityan information activity

So A integrative process that optimizes So A integrative process that optimizes the flow of material and supplies the flow of material and supplies through the organization and its through the organization and its

operations to the customeroperations to the customer

The word logistic has originated from The word logistic has originated from Greek word ‘Logistikos’ and the Latin Greek word ‘Logistikos’ and the Latin

word ‘Logisticus’ which means science of word ‘Logisticus’ which means science of computing & calculatingcomputing & calculating

In ancient times it was used more in In ancient times it was used more in connection with moving armies, the connection with moving armies, the

supplies of food & armaments to the war supplies of food & armaments to the war front.front.

During World War II logistics gained During World War II logistics gained importance in army operations covering importance in army operations covering

the movement of supplies , men & the movement of supplies , men & equipment across the borderequipment across the border

Today Today

It has acquired the wider meaning and is It has acquired the wider meaning and is used in the business for the movement used in the business for the movement

of material from suppliers to the of material from suppliers to the manufacturer and finally the finished manufacturer and finally the finished

goods to the consumersgoods to the consumers

Scope of LogisticScope of Logistic

It is of critical importance to the organization how It is of critical importance to the organization how it delivers products & services to the customer , it delivers products & services to the customer , whether the product is tangible or intangible. whether the product is tangible or intangible.

Effective & efficient Physical movement of the Effective & efficient Physical movement of the tangible product will speak of intangible services tangible product will speak of intangible services associated with the product and the organization associated with the product and the organization

which is delivering it. which is delivering it.

In Case of intangible product , the delivery of In Case of intangible product , the delivery of tangibles at the right place & right time will speak tangibles at the right place & right time will speak

about its quality.about its quality.

On the macro level infrastructure such as Various On the macro level infrastructure such as Various modes of transport , transportation equip., storage modes of transport , transportation equip., storage

facilities, connectivity & information processing facilities, connectivity & information processing are contributing to a larg3e extent in the physical are contributing to a larg3e extent in the physical movement of goods produced in manufacturing , movement of goods produced in manufacturing ,

mining & agriculture Sectors.mining & agriculture Sectors.

Scope of logisticsScope of logisticsThis speed & reliability in distribution of This speed & reliability in distribution of products & services contribute to a great products & services contribute to a great

extent in the growth of a country`s extent in the growth of a country`s domestic & international trade . Logistic domestic & international trade . Logistic cost as a percentage of GDP across the cost as a percentage of GDP across the world is shown in the following table world is shown in the following table

CountryCountry Logistic cost as a percentage Logistic cost as a percentage of GDPof GDPKoreaKorea 1616

ChinaChina 1515

JapanJapan 1414

IndiaIndia 1313

FranceFrance 1212

UKUK 1111

USAUSA 1010

Scope of logisticsScope of logisticsIndia spent nearly $ 50 billion to move India spent nearly $ 50 billion to move

material from one use to another.material from one use to another.So the “ Public distribution system in the So the “ Public distribution system in the

country needs logistical support for country needs logistical support for delivering goods at right place on time and delivering goods at right place on time and

the lowest cost.the lowest cost.

At Micro Level logistic plays a critical role in At Micro Level logistic plays a critical role in the value delivery system of business the value delivery system of business

organization to provide superior customer organization to provide superior customer service i.e. to achieve a desired level of service i.e. to achieve a desired level of

delivered services and quality at the lowest delivered services and quality at the lowest possible cost. possible cost.

In a nutshell any productivity improvement In a nutshell any productivity improvement that could be achieved in any part of logistic that could be achieved in any part of logistic

system,at the micro or macro level would system,at the micro or macro level would help in cost reduction and proper help in cost reduction and proper

deployment of scare national resources to deployment of scare national resources to the productive purposesthe productive purposes..

FactFactIn a manufacturing org. the business process In a manufacturing org. the business process

starts with the flow of material from the starts with the flow of material from the suppliers, progress to the plant, then to the suppliers, progress to the plant, then to the

customer through the distribution channel the customer through the distribution channel the department may excel in their respective department may excel in their respective

function but org. as a whole their performance function but org. as a whole their performance may be dismal.may be dismal.

ReasonReason Lack of Co ordination in their activitiesLack of Co ordination in their activitiesThey have different goal to cherishThey have different goal to cherishThere is no single agency that coordinates There is no single agency that coordinates their functions and homogenizes them.their functions and homogenizes them.

How to overcome ? How to overcome ?

Use of Logistic as a systemUse of Logistic as a system

Logistic –A system approachLogistic –A system approachLogistic recognizes that all the activities of Logistic recognizes that all the activities of

material movement across the business material movement across the business process are interdependent and needs close process are interdependent and needs close coordination and these are to be maintained coordination and these are to be maintained

as a system and not the functional Silos.as a system and not the functional Silos.

System is shown as logistic Mix including System is shown as logistic Mix including following functional Areasfollowing functional Areas

Order ProcessingOrder ProcessingInformation FlowInformation Flow

WarehousingWarehousingInventory controlInventory control

PackagingPackagingTransportationTransportation

Order ProcessingOrder Processing

Involve following activitiesInvolve following activitiesOrder checking for any deviation in agreed on Order checking for any deviation in agreed on negotiated termnegotiated termTechnical details;price;delivery period;payment Technical details;price;delivery period;payment terms;taxes etcterms;taxes etcChecking the availability of material in stock Checking the availability of material in stock (material requisition)(material requisition)Production & material scheduling for shortageProduction & material scheduling for shortageAcknowledging the order, indicating deviation if Acknowledging the order, indicating deviation if anyany

It is routine operation but require great deal of It is routine operation but require great deal of planning training of people involved and planning training of people involved and

investment to bring about efficiency & accuracyinvestment to bring about efficiency & accuracy

In a large organization a system capable of In a large organization a system capable of handling thousands of voluminous orders with handling thousands of voluminous orders with

minimum human involvement or without human minimum human involvement or without human involvement is a must involving shortened order involvement is a must involving shortened order

fulfillment cycle to have edge over rivalsfulfillment cycle to have edge over rivals

Information FlowInformation Flow

It is basically information based activity of It is basically information based activity of inventory movement across the supply chain. inventory movement across the supply chain. Hence role of information system plays a vital Hence role of information system plays a vital role in delivering superior customer servicerole in delivering superior customer service

This function is required to facilitate the This function is required to facilitate the following information needsfollowing information needs

Order RegistrationOrder RegistrationOrder checking & editingOrder checking & editingOrder processingOrder processingCoordination means to integrate the total Coordination means to integrate the total supply chain of the company with informational supply chain of the company with informational needs as to time ,quantity, value e.g Lead time, needs as to time ,quantity, value e.g Lead time, rate of consumption , delivery schedule & price rate of consumption , delivery schedule & price of the material , Transportation time & cost etc.of the material , Transportation time & cost etc.

WarehousingWarehousingA storage place wherein finished goods are A storage place wherein finished goods are stored till they are sold.Effectiveness of an stored till they are sold.Effectiveness of an

organization`s marketing strategy depends on organization`s marketing strategy depends on making the right decision regarding making the right decision regarding

warehouse.warehouse.

Nowadays Nowadays

Warehouse are treated as switching Warehouse are treated as switching facilities rather than storage place.It is a facilities rather than storage place.It is a

major cost center, many customer problem major cost center, many customer problem are the direct result of improper are the direct result of improper

warehousing management.warehousing management.

Major decision of ware house are as Major decision of ware house are as follows:-follows:-

Location ,Size & Number of warehousing facilitiesLocation ,Size & Number of warehousing facilitiesWarehouse layoutWarehouse layoutDesign of buildingDesign of buildingOwnership of the warehouseOwnership of the warehouse

Inventory managementInventory managementPoint order problemPoint order problem

That is That is

How much to order How much to order When When to orderto order

For this we requireFor this we require

Dependable IMSDependable IMS Independent Independent IMSIMS

Purchase Control Stores control Purchase Control Stores control Issue Issue

managementmanagement

ABC AnalysisABC Analysis

VED Analysis Level VED Analysis Level ManagementManagement

EOQ & EBQ AnalysisEOQ & EBQ Analysis MRP SystemMRP System

Perpetual inventory system Perpetual inventory system JIT System JIT System

PackagingPackaging

It is also a critical element in It is also a critical element in physical distribution of the physical distribution of the

product , which influences the product , which influences the efficiency of the logistic system efficiency of the logistic system

this is done with the view of this is done with the view of following :-following :-

Foe handling and damage Foe handling and damage preventionpreventionFor communicationsFor communicationsFor inter modal transportationFor inter modal transportationStorage space economyStorage space economy

Thus to reduce packaging costThus to reduce packaging cost

TransportationTransportationFoe the movement of goods from supplier Foe the movement of goods from supplier

to buyer , transportation is the most to buyer , transportation is the most fundamental and important component of fundamental and important component of

logistic.logistic.

E.g. for low unit value products the E.g. for low unit value products the transportation cost component is 20% of transportation cost component is 20% of

the product cost.the product cost.

In logistic cost its share varies up to 65-70% In logistic cost its share varies up to 65-70% in case of mass consumed very low unit in case of mass consumed very low unit

price products.price products.Mode of transportation ( Cost & time Mode of transportation ( Cost & time factor)factor)Own fleet or OutsourcingOwn fleet or OutsourcingRoute PlanningRoute PlanningVehicle schedulingVehicle scheduling

Are the few decision which are involved in Are the few decision which are involved in transportationtransportation

Three ForcesThree ForcesWhich have Which have changechange the perspective of the perspective of

logisticslogistics

GlobalizationGlobalization

Focus on Supply chain Focus on Supply chain ManagementManagement

Outsourcing of Non Core Outsourcing of Non Core Competency Functional Competency Functional

AreaArea

GlobalizationGlobalizationThe entire world has become a The entire world has become a

global village for marketers because global village for marketers because of the liberalization of economics of of the liberalization of economics of most countries and the emergence most countries and the emergence

of WTO which is forcing business of WTO which is forcing business organizations to supply products organizations to supply products beyond the national boundaries beyond the national boundaries

wherever there is a market wherever there is a market opportunity. opportunity.

In such conditions the role of In such conditions the role of

LOGISTICSLOGISTICSWill be to provide time and place Will be to provide time and place

time and place utility of the product time and place utility of the product to the customerto the customer

Focus on Supply Chain ManagementFocus on Supply Chain Management

Business the world over are striving for Business the world over are striving for competitiveness. In their struggle for competitiveness. In their struggle for survival their focus has shifted to the survival their focus has shifted to the

supply chain supply chain

I.e. I.e.

Integrating the process of Procurement , Integrating the process of Procurement , processing & distributing to deliver value processing & distributing to deliver value

for money to the customerfor money to the customer

Two key roles logistics planning & supportTwo key roles logistics planning & support

areare

Value delivery processValue delivery process success of success of supply chain supply chain managementmanagement

Outsourcing of Non Core Competency Outsourcing of Non Core Competency functional Areafunctional Area

Outsourcing is a acceptable trend in Outsourcing is a acceptable trend in business.business.

Corporation have realized that doing Corporation have realized that doing everything by themselves does not result in everything by themselves does not result in effective & efficient use of scare resources effective & efficient use of scare resources

available to them.available to them.

It is better to outsource functional area to It is better to outsource functional area to experts who can do job at the lowest cost experts who can do job at the lowest cost

and that to efficiently & Effectively.and that to efficiently & Effectively.

LOGISTICSLOGISTICS

Is one such area where most of business Is one such area where most of business org. do not have enough expertise thus org. do not have enough expertise thus

needs to be outsourcedneeds to be outsourced

Thus Logistics have shaped into different Thus Logistics have shaped into different service industry offering complete & service industry offering complete &

customized logistics solutionscustomized logistics solutions

Value ChainValue ChainIt is understood now that an It is understood now that an

organization`s competitive Success organization`s competitive Success could only come through either cost could only come through either cost leadership or offering differentiated leadership or offering differentiated

product and services product and services

LOGISTIC MANAGEMENTLOGISTIC MANAGEMENT Can provide both the benefits Can provide both the benefits

simultaneouslysimultaneously

Through its value chain activitiesThrough its value chain activities

Which can be categorized into different Which can be categorized into different typestypes

Inbound logisticsInbound logisticsoperationsoperations

Out bound logisticsOut bound logisticsSupport activates e.g HR, Accounts & Support activates e.g HR, Accounts &

finace, IT & MIS etc.finace, IT & MIS etc.

ServicesIn bound logistics

Operations

Out bond Logistics

operations

S & MCustomer Value

HR M&MTechnology

A&F

Infrastructure

Supply ChainSupply Chain

Procurement

Stores Stores

Vendor

Operations

Warehouse

Customer

Inbound Logistics

Out Bound Logistics

Supply ChainSupply Chain

Vendor

Purchase

StoresRM

Customer

Warehousing

StoresFG

Inbound Logistics Out bound logistics

OPERATIONSProcurement

Distribution

Material flow Material flow

Information flow

Logistics for Business ExcellenceLogistics for Business ExcellenceFor Business Excellence logistics operation For Business Excellence logistics operation need to be integrated on the following two need to be integrated on the following two

frontsfronts integration of logistic into businessintegration of logistic into business

Integration of components of logisticsIntegration of components of logistics

To achieve the objective of making To achieve the objective of making available right product at the right place available right product at the right place and at a right time at low cost , every and at a right time at low cost , every business is required to integrate logistics business is required to integrate logistics into the business process.into the business process.

For logistic operation to run smoothly, For logistic operation to run smoothly, proper integration amongst the proper integration amongst the component of logistic process is a must.component of logistic process is a must.

LogisticLogisticHR A/Cs FinanceUtilitiesMarketingPPC QC Mat. Mng. IT Others

Organizational Functions

Suppliers Procurement Processing Distribution Customer

Logistic System Component

Order Processing

Inventory Mang.

Warehousing

Transportation Material Handling & StorageLogistical Packaging

Information

In Bound Log. Out Bound Logistic

In process Log.

LOGISTIC FUNCTION

Objectives of Logistic managementObjectives of Logistic management

Inventory ReductionInventory Reduction

Reliable and consistent delivery Reliable and consistent delivery performanceperformance

Freight economyFreight economyMinimum product damageMinimum product damage

quick Responsequick Response

NOTE:NOTE:Amongst most of the Indian Amongst most of the Indian

companies logistics outsourcing companies logistics outsourcing

Has now become an accepted trend Has now become an accepted trend for the following reasons:for the following reasons:

Cost Saving Cost Saving

Focus on core BusinessFocus on core Business

Paucity of fundsPaucity of funds

Reduction in liabilitiesReduction in liabilities

Wider Geographical coverageWider Geographical coverage

Cross pollination of better available Cross pollination of better available practicepractice

WarehousingWarehousing

Nowadays warehousing is used as a Nowadays warehousing is used as a switching facility rather than as a long switching facility rather than as a long

term storage house.term storage house.

Attention is paid to Attention is paid to

HigherHigher lower lower shortershorter

inventory turnover operating inventory turnover operating cost cycle timecost cycle time

And in light of these warehouse`s And in light of these warehouse`s performance is judged by its productivity performance is judged by its productivity

and cost performance while trying to and cost performance while trying to achieve 2 polemic goals.achieve 2 polemic goals.

Customer`s satisfactionCustomer`s satisfaction lower cost of lower cost of operationoperation

1 2 3

1 2

We have to decide on 2 factorsWe have to decide on 2 factors

Whether to have Whether to have

Centralized Centralized decentralized warehousedecentralized warehouse

warehouse warehouse

It ensures tight controlIt ensures tight control multiple multiple distribution distribution

On inventories and canOn inventories and can centers centers

Operate on EOSOperate on EOS

location of location of sitessites

ObjectiveObjective

MainMain

better customer service low better customer service low operating costoperating cost

Ancillary objectiveAncillary objective

Maximum utilization of storage spaceMaximum utilization of storage space

Higher labour productivityHigher labour productivity

Maximum Asset utilization Maximum Asset utilization

Reduction in material handlingReduction in material handling

Increase in inventory turnoverIncrease in inventory turnover

Reduce order filing timeReduce order filing time

Warehousing FunctionWarehousing Function

3 Functions3 Functions

Material Storage Function Material Storage Function

Material Handling FunctionMaterial Handling Function

Information Handling FunctionInformation Handling Function

Material Storage functionMaterial Storage function

Due to non synchronization of Due to non synchronization of Manufacturing cycle with that of the Manufacturing cycle with that of the consumption cycle of the material , consumption cycle of the material ,

storage of the material remains a big storage of the material remains a big hurdle hurdle

So material storage is required to So material storage is required to accommodate the following functions:accommodate the following functions:

HoldingHolding

ConsolidationConsolidation

PostponementPostponement

Break Bulk Break Bulk

packing packing

Cross DockingCross Docking

MixingMixing

Material Handling functionMaterial Handling function

This involves three functionThis involves three function

1.1. Loading & unloadingLoading & unloading

2.2. Material MovementMaterial Movement

3.3. Order filingOrder filing

Information handling functionInformation handling function

For this following information is For this following information is requiredrequired

Goods inwardGoods inwardInspection & auditingInspection & auditing

Goods outwardGoods outwardExcess Stock Excess Stock

InvoicingInvoicingWarehouse expensesWarehouse expenses

Transit damage & BreakageTransit damage & BreakageConsignment trackingConsignment tracking

This all information facilitate quick This all information facilitate quick decisiondecision