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Logistic Management
An Supply Chain Imperative
By
Rajeev Sharma
Asstt. Prof.
Center of Business Management
Bimtech
[email protected]
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LOGISTICS
Defined
Planning implementing and controlling the physical flow of
material and finished goods from point of origin to point of use to
meet customer`s need at a profit
By Philip Kotler
It is essentially a planning process and an information
activity
So A integrative process that optimizes the flow of material and
supplies through the organization and its operations to the
customer
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The word logistic has originated from Greek word Logistikos and
the Latin word Logisticus which means science of computing &
calculating
In ancient times it was used more in connection with moving
armies, the supplies of food & armaments to the war front.
During World War II logistics gained importance in army
operations covering the movement of supplies , men & equipment
across the border
Today
It has acquired the wider meaning and is used in the business
for the movement of material from suppliers to the manufacturer and
finally the finished goods to the consumers
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Scope of Logistic
It is of critical importance to the organization how it delivers
products & services to the customer , whether the product is
tangible or intangible.
Effective & efficient Physical movement of the tangible
product will speak of intangible services associated with the
product and the organization which is delivering it.
In Case of intangible product , the delivery of tangibles at the
right place & right time will speak about its quality.
On the macro level infrastructure such as Various modes of
transport , transportation equip., storage facilities, connectivity
& information processing are contributing to a larg3e extent in
the physical movement of goods produced in manufacturing , mining
& agriculture Sectors.
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Scope of logistics
This speed & reliability in distribution of products &
services contribute to a great extent in the growth of a country`s
domestic & international trade . Logistic cost as a percentage
of GDP across the world is shown in the following table
CountryLogistic cost as a percentage of GDP
Korea16
China15
Japan14
India13
France12
UK11
USA10
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Scope of logistics
India spent nearly $ 50 billion to move material from one use to
another.
So the Public distribution system in the country needs
logistical support for delivering goods at right place on time and
the lowest cost.
At Micro Level logistic plays a critical role in the value
delivery system of business organization to provide superior
customer service i.e. to achieve a desired level of delivered
services and quality at the lowest possible cost.
In a nutshell any productivity improvement that could be
achieved in any part of logistic system,at the micro or macro level
would help in cost reduction and proper deployment of scare
national resources to the productive purposes.
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Fact
In a manufacturing org. the business process starts with the
flow of material from the suppliers, progress to the plant, then to
the customer through the distribution channel the department may
excel in their respective function but org. as a whole their
performance may be dismal.
Reason
Lack of Co ordination in their activitiesThey have different goal
to cherishThere is no single agency that coordinates their
functions and homogenizes them.
How to overcome ?
Use of Logistic as a system
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Logistic A system approach
Logistic recognizes that all the activities of material movement
across the business process are interdependent and needs close
coordination and these are to be maintained as a system and not the
functional Silos.
System is shown as logistic Mix including following functional
Areas
Order ProcessingInformation FlowWarehousingInventory
controlPackagingTransportation
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Order Processing
Involve following activities
Order checking for any deviation in agreed on negotiated
termTechnical details;price;delivery period;payment terms;taxes
etcChecking the availability of material in stock (material
requisition)Production & material scheduling for
shortageAcknowledging the order, indicating deviation if any
It is routine operation but require great deal of planning
training of people involved and investment to bring about
efficiency & accuracy
In a large organization a system capable of handling thousands
of voluminous orders with minimum human involvement or without
human involvement is a must involving shortened order fulfillment
cycle to have edge over rivals
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Information Flow
It is basically information based activity of inventory movement
across the supply chain. Hence role of information system plays a
vital role in delivering superior customer service
This function is required to facilitate the following
information needs
Order RegistrationOrder checking & editingOrder
processingCoordination means to integrate the total supply chain of
the company with informational needs as to time ,quantity, value
e.g Lead time, rate of consumption , delivery schedule & price
of the material , Transportation time & cost etc.
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Warehousing
A storage place wherein finished goods are stored till they are
sold.Effectiveness of an organization`s marketing strategy depends
on making the right decision regarding warehouse.
Nowadays
Warehouse are treated as switching facilities rather than
storage place.It is a major cost center, many customer problem are
the direct result of improper warehousing management.
Major decision of ware house are as follows:-
Location ,Size & Number of warehousing facilitiesWarehouse
layoutDesign of buildingOwnership of the warehouse
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Inventory management
Point order problem
That is
How much to order When to order
For this we require
Dependable IMS Independent IMS
Purchase Control Stores control Issue management
ABC Analysis
VED Analysis Level Management
EOQ & EBQ Analysis MRP System
Perpetual inventory system JIT System
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Packaging
It is also a critical element in physical distribution of the
product , which influences the efficiency of the logistic system
this is done with the view of following :-
Foe handling and damage preventionFor communicationsFor inter modal
transportationStorage space economy
Thus to reduce packaging cost
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Transportation
Foe the movement of goods from supplier to buyer ,
transportation is the most fundamental and important component of
logistic.
E.g. for low unit value products the transportation cost
component is 20% of the product cost.
In logistic cost its share varies up to 65-70% in case of mass
consumed very low unit price products.
Mode of transportation ( Cost & time factor)Own fleet or
OutsourcingRoute PlanningVehicle scheduling
Are the few decision which are involved in transportation
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Three Forces
Which have change the perspective of logistics
Globalization
Focus on Supply chain Management
Outsourcing of Non Core Competency Functional Area
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Globalization
The entire world has become a global village for marketers
because of the liberalization of economics of most countries and
the emergence of WTO which is forcing business organizations to
supply products beyond the national boundaries wherever there is a
market opportunity.
In such conditions the role of
LOGISTICS
Will be to provide time and place time and place utility of the
product to the customer
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Focus on Supply Chain Management
Business the world over are striving for competitiveness. In
their struggle for survival their focus has shifted to the supply
chain
I.e.
Integrating the process of Procurement , processing &
distributing to deliver value for money to the customer
Two key roles logistics planning & support
are
Value delivery processsuccess of supply chain management
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Outsourcing of Non Core Competency functional Area
Outsourcing is a acceptable trend in business.
Corporation have realized that doing everything by themselves
does not result in effective & efficient use of scare resources
available to them.
It is better to outsource functional area to experts who can do
job at the lowest cost and that to efficiently &
Effectively.
LOGISTICS
Is one such area where most of business org. do not have enough
expertise thus needs to be outsourced
Thus Logistics have shaped into different service industry
offering complete & customized logistics solutions
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Value Chain
It is understood now that an organization`s competitive Success
could only come through either cost leadership or offering
differentiated product and services
LOGISTIC MANAGEMENT
Can provide both the benefits simultaneously
Through its value chain activities
Which can be categorized into different types
Inbound logisticsoperationsOut bound logisticsSupport activates e.g
HR, Accounts & finace, IT & MIS etc.
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Services
In bound logistics
Operations
Out bond Logistics
operations
S & M
Customer Value
HR
M&M
Technology
A&F
Infrastructure
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Supply Chain
Procurement
Stores
Stores
Vendor
Operations
Warehouse
Customer
Inbound Logistics
Out Bound Logistics
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Supply Chain
Vendor
Purchase
Stores
RM
Customer
Warehousing
Stores
FG
Inbound Logistics
Out bound logistics
OPERATIONS
Procurement
Distribution
Material flow
Material flow
Information flow
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Logistics for Business Excellence
For Business Excellence logistics operation need to be
integrated on the following two fronts
integration of logistic into businessIntegration of components of
logistics
To achieve the objective of making available right product at
the right place and at a right time at low cost , every business is
required to integrate logistics into the business process.
For logistic operation to run smoothly, proper integration
amongst the component of logistic process is a must.
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Logistic
HR
A/Cs
Finance
Utilities
Marketing
PPC
QC
Mat. Mng.
IT
Others
Organizational Functions
Suppliers
Procurement
Processing
Distribution
Customer
Logistic System Component
Order Processing
Inventory Mang.
Warehousing
Transportation
Material Handling & Storage
Logistical Packaging
Information
In Bound Log.
Out Bound Logistic
In process Log.
LOGISTIC FUNCTION
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Objectives of Logistic management
Inventory ReductionReliable and consistent delivery
performanceFreight economyMinimum product damage quick
Response
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NOTE:
Amongst most of the Indian companies logistics outsourcing
Has now become an accepted trend for the following reasons:
Cost Saving
Focus on core Business
Paucity of funds
Reduction in liabilities
Wider Geographical coverage
Cross pollination of better available practice
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Warehousing
Nowadays warehousing is used as a switching facility rather than
as a long term storage house.
Attention is paid to
Higher lowershorter
inventory turnover operating cost cycle time
And in light of these warehouse`s performance is judged by its
productivity and cost performance while trying to achieve 2 polemic
goals.
Customer`s satisfaction lower cost of operation
1
2
3
1
2
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We have to decide on 2 factors
Whether to have
Centralized decentralized warehouse warehouse
It ensures tight controlmultiple distribution
On inventories and can centers
Operate on EOS
location of sites
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Objective
Main
better customer service low operating cost
Ancillary objective
Maximum utilization of storage space
Higher labour productivity
Maximum Asset utilization
Reduction in material handling
Increase in inventory turnover
Reduce order filing time
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Warehousing Function
3 Functions
Material Storage Function
Material Handling Function
Information Handling Function
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Material Storage function
Due to non synchronization of Manufacturing cycle with that of
the consumption cycle of the material , storage of the material
remains a big hurdle
So material storage is required to accommodate the following
functions:
Holding
Consolidation
Postponement
Break Bulk
packing
Cross Docking
Mixing
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Material Handling function
This involves three function
Loading & unloadingMaterial MovementOrder filing
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Information handling function
For this following information is required
Goods inwardInspection & auditingGoods outwardExcess Stock
InvoicingWarehouse expensesTransit damage & BreakageConsignment
tracking
This all information facilitate quick decision
