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7/30/2019 Logistics ManagementShahid Chavakkad
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Presented in Elijah Institute of
Management studies, Thrissur
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The practical organisation that is needed tomake a complicated plan successful when a lot of
people & equipment is needed
e.g. 1. Logistic support in the army
2. Organising famine relief presents huge
problems
i.e. Moving Right People & Right Equipment tothe Right Place at the Right Time through theRight Methods.
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To have competitive edge over others
Marketing mix (By McCarthy): Product, Price,
Promotion, Place (4 Ps)
Past Place was a dark continent in marketing
(Peter Drucker, 1992)
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In the past, Distribution was not important.Because of manufacturers monopoly
E.g. 10 years waiting for Padmini Cars.
6 years waiting for Bajaj Scooters Shift from Sellers Market to Buyers Market
Consumers are now Bosses
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Now, any product is available, that too oninstallment
No monopoly now
Business has become more Complex &Dynamic now
Vibrant market (Market is time & price
sensitive)
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Everyday, everybody is thinking about new
market plans
Survival of the fittest theory
Saying People have your money in their
pocket & You have their goods on your
shelves
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Push is important than Pull now
Question is how you push?
To give the best products & services thanothers
To win customers loyalty & goodwill
A satisfied customer will remain loyal
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Your weakness is your competitors
advantage
More business competition & rivalry now
E.g. Fuel efficiency claim by Hero Honda
(Now Bajaj claims 102 kmpl)
Fuel efficiency & Economy: by Maruti Cars
(Tatas are now coming with mini Nano)
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Due to rapid technology transfer
Rivals not only copy, they add more features
& give more value for your money
Now, lower pricestrategy doesnt work.
(Because consumers have enough money)
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Now, Promotionalso doesnt work (Because
too much advertisements will make the
consumers confused and fed up)
Hence Place (out of the 4 Ps) is important
now
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Complicated business scenario
Rapid economic boom
Globalisation
Liberalisation
Intelligent consumers
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Heavy Industrialisation
Scientific innovations
Hence for more customer satisfaction now
To be customer focused
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Quick delivery & after sales service (24 hrs)
Hence the need of Logistics Management
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Logistics from Greek word Logisticos meaning
science of computing and calculating
First used in military sense (Logistical Support)
(World War II & other wars)
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Webster (1963) defines Logistics as:
The procurement, maintenance & transportation
of military materials, facilities & personnel
US Airforce (1981) defines:
The science of planning out the movement &
maintenance of forces
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CLM(Council of Logistics Management (1991)defines:
Logistics is the process of planning,
implementing & controlling of efficient,effective flow & storage of goods, services andrelated information from the point of origin tothe point of consumption for the purpose ofconforming to the customer expectations
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Corporate vision & objectives To turn itinto winning edges over others
Strategic logistics analysis
(i.e. finding alternatives, evaluation,selection etc.)
Logistics planning & evaluation
Managing change
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Firm to dominate
4 Ps Place more important
Highest level of customer satisfaction tomaximize productivity & profitability at
lower cost
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Five ways for gaining it
Low cost (To enhance Profitability)
Superior customer service
Value added services (e.g. training to customers)
Flexibility
Regeneration (i.e. to be innovative)
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Product Design
E.g.
Plastic moulded water tanks
Fully assembled automobiles Transportation of huge machinery
(H & R Johnson)
Containers capacity and storage
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Plant Location
Choice of sources/ markets
Production structure & planning
Distribution/ Dealer network design
Warehouse location/ operations
Plant layout
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Allocation decisions
Inventory management/ stock levels
Transportation models/ Routing/ Capacity
E.g. Cement Transportation (wagonshortage) change in packaging (Jute, plastic)
Packaging
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Material Handling
Storage problems in monsoons
Plant/ warehouse near port/ Airport
Nearness of dealers to factory/ warehouses
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Shippers
Suppliers
Carriers (Rail, Road, Air etc)
Warehouse providers/ Freight forwarders Terminal operators (port, stevedores)
Government (Regulations & logistics)
Role CST, local sales tax, excise, octroi, modvat,
road tax on vehicles
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Inbound Logistics (Raw Materials)
Outbound Logistics (Finished Products)
Single v/s Multiple plants
Nature of the products
e.g. various dimensions
- Bulk, perishable, non-perishable, refrigerated,non-durable, industrial v/s consumer products,
packaged products (Fruits/ Vegetable exports)
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Includes goods transportation & storage
Material handling & Information structure
We do mostly by road & rail
Pipeline is growing
Waterways unexplored
Air for emergency only
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In India, a lot to improve
Government to take initiative
Suppliers to be cost conscious Communication technology to improve
Suppliers & shippers are to be cost
conscious
In short, the whole industry is unorganized
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Like any other organisational Mission
Customer relationship to be closer
Goods to be faster & cheaper
Need for integrated Logistics Management
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Organisational rigidity is a barrier(Both structural & personal)
Because Managers ego & territories
In conventional companies, even inbound &
outbound transportation is differentiated
Too much paperwork & Red Tapism
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Papers move even slower than the movement ofcargo
A conventional company, shows multifaces to
customers.
They shunt them from table to table, department to
department
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Organisation to be horizontal
Organisation to be market facing/ market
driven (Output focused)
Organisation to work together
Organisation to have cross functional teams
This is Flat Organisation system
To have customer order fulfillment system
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By eliminating non-value added items e.g.
delays in paperwork, idle times intransportation, storage, checking etc.
Better management of order fulfillment groups
like sales office people, accounting, Cr. control,
transport department etc.
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Reaching Right Quantity
with the Right Quality
at the Right Priceat the Right Place
at the Right Time
to the Right People
with the Right Mode (of transportation)
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(Quote from M S Banga, Chairman, HLL
(FMCG) AGM 2004 Speech)
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To touch customers in multiple ways
To create brand messages & to experience our
brands
To offer tailored solutions to customers nowNow shopping is a new experience
E.g. Family and children taking leisure time
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Now consumers are well informed throughadvertisements
(Average 350 to 400 Ads/ week)
Redistribution partners are important to HLL
HLL has 25000 outlets in key cities in India
They do superior display of HLL products
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HLL introduced self service stores in Indiae.g. HLL in Hyderabad
Reliance Super Stores
Advantage is consumers can Touch & FeelHLL Sunsilk shampoo wash in stores
The key factor is product availability
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There are 600,000 villages in India in the mostremotest places
HLL creates win-win partnership with consumers
e.g. Surf Ad
HLLs plan is to reach to 100,000 villages = 100
million people (rural)
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New self help women group sell HLL productsdirectly to the rural people
They also spread the message of health & hygiene
e.g. Lifebuoy for health
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Now doing direct selling, generating Rs. 2300/-Crores & growing at 20% pa
Also provides customised offerings covering 11
categories in Home & personal care & foods
HLL has network of over 1500 towns in India
covering 80% of urban population, with 250,000
consultants
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Direct selling enables personalised communication& customized solutions, through demonstrations &
product trials & brand experience
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Eating outside in European style
Now in India, due to busy family life and nucleus
family
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HLL adopts 3 ways
Product availability
Brand Communication
Brand experience
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HLL re-inventing their distribution network
HLL distribution creates new employments
HLL has 7000 stockists, 6000 sub-stockists, employs
60,000 people
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Interface means ConnectionsMarketing is the management of 4Ps (Product,
Price, Promotion, Place)
Right product, .Right Place etc. The competitive edge to be customer service
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Customer awareness of RightsCustomers are too much demanding Customers
know what is in the market
No brand image will work out. Neither the price,
nor the quality
E.g. Computer market
Now it is product availability & service (Product
Sector)
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Service in non-manufacturing is equally importantnow (Service Industry)
Service is an added value now
Financial loss due to out-of-stock scenario
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Marketing is inter-related with Logistics &Customer Service
The concept of Customer Retention
i.e. A satisfactory customer will remain loyal
Will also get references
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To sell & to service a loyal customer is less costly
A loyal customer may not think of substitutes
This is Relationship Marketing
To create & sustain & strengthen customer loyalty &
relationship
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First, to design customer needs and then theservices
Then, design a suitable logistics system
Less inventory but faster mode of transport for
reaching the goods
Customer Servicing through better & faster
logistics
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Procurement & manufacturing management have to
be market oriented, need oriented.
This is Logistics Pipeline Management
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Not to produce at any cost
Inventory tied up is money tied up
To produce the right product
Production schedule through better planning
management
Production to be market oriented
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Procurement of raw materials requires planning,lead time, mode of transportation, time, cost
Co-ordination between production and other
departmentsi.e. Logistics the whole concept
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These are Quantitative models from operationsresearch
1.Forecasting Models
Demand and Supply based on past data
2. Mathematical Programme Model
a) Location Model i.e. planning optimal & ideal location of plant &
warehouses, both for inbound and outbound
To minimize Transportation cost
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b) Allocation Models i.e. optimal allocation of commodities from sourcesto
destinations with a vast & multidimensional network
e.g. a company with 15 plants & 30 warehouses
c) Distribution Network Design Model Involves location of warehouses & break bulk points,
choice of transportation modes
Distribution costs include transportation, ware housing,
handling, inventory
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3. Inventory Models Costs on buffer stock keeping for uncertainties
Shipment & inventories of Finished products, its
warehousing & retailing
Pipeline inventory4. Routing Models
i.e. routing of transportation network to
destinations
The simplest model is called the shortest pathproblem
e.g. Critical path method in Operations Research
Can be done by using geographical maps
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JIT (Just In Time) is a Japanese philosophyi.e. nothing is produced/ moved until the need arises
Produces against advance firm order (Pull)
Push is in anticipation of the demand
In pull, product flow is based on demand
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ROP (Reorder point)
At ROP, the new order is placed
The quantity to be ordered is based on EOQ
EOQ = (2AS) i
A = Annual usage
S = Set up ordering cost
i = Inventory carrying cost
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EOQ = (2 x 1000 x 100) = 141 40 x 25 %
A = Annual usage
(e.g. 1000 units)
S = Set up ordering cost
(Rs 100/- per unit)
i = Inventory carrying cost
(e.g. 25% of unit cost = Rs. 40/-)
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Another way to keep inventory management is aperiodic review of stock/ replenishment levels
Push & pull may lead to higher/ lower stocks
EOQ may create more carrying costs in the initial
stages, then it gets decreased till the next EOQ
ordered
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JIT due to space shortage (especially in Japan) JIT encourages small lot batches/ Quantities but
often (To avoid stock out at manufacturers side)
This is against conventional system of massproduction & storage
JIT requires strictest planning discipline
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JIT requires firm orders from customers JIT advocates for consolidated delivery
Consolidation can be done by 3rd parties. They
collect, segregate for onward despatches JIT requires a good co-ordination & communication
between supplier & customer
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JITs philosophy is Quick Response Logistics(QR)
P & G uses QR. Their retailer Walmart gives
them quick and fast sales dataQR leads to
less inventory
less safety stock
less pipeline inventory less lead time
less forecasting errors
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Developed a technique Industrial Dynamics
Developed a special computer stimulated language
known as Dynamo
Built 3 models of inventory Retailer Inventory
Distributors Inventory
Factory Inventory
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Each of these models were connected throughinformation flows & goods flows
Information flows like order processing time,
factory lead time, shipping delivery time etc.
Sometimes, a surge/ a jolt is created during
promotional activities i.e.
retailers wholesaler manufacturers
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It becomes a pressure in the chainThis surge can be minimized through better
information exchanges in the chain
Dell & Hewlett Packard does the final assembly onlyafter getting customers actual requirements
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Mass customization can be done with CAD/ CAMi.e. Computer Order Design
E.g. Customer Foot shoe Co.
No inventory.
They take measurements make-to-order 3 weeks delivery time
Toyotas Strategy make 80% of the total demand
based on forecasting 20% on firm orders
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What is distribution?
Right goods, Right Place etc
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a) Industrial Products Company Customer
b) Automobile
Company Dealer Customer
c) FMCG & Pharma
Company C&F Stockists Retailers Customers
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d) FMCG Company Distributors Wholesalers Retailers
Customers
e) FMCG
Company Depot Stockists Retailers
Customers
f) Consumer durables
Company
Own Retail Outlet
Franchised showroom Customers
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g) Food grain, garments Company CA Wholesalers Retailers
Customers
Note:- To have warehouse or not?
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i.e. Company
Consumers(No Intermediary)
e.g. Industrial products & services sectors, where
the unit value of the product is very high, producttechnicality & product complexity
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To have its
Own sales force
Own retail outlets
Direct Mailing
Telemarketing
Websites
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Personal Selling
To have trained sales force
Sales force locates customers
E.g. Insurance sector, Eureka Forbes
Telemarketing
Through Telephone calls
Positive is, reduced selling costs
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Direct Mailing
Sending detailed brochures to prospective customers
Is a silent sales
Negative is, poor response
Firms to have the right & vast data bank
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One-tier Distribution system
i.e. Company Distributors Customers (only 1
intermediary)
positive is, minimum distribution costs, maximumcontrol
e.g. Maruti Sitaram Customer
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Two-tier Distribution system
E.g. Company Wholesaler Retailer Customer
Multi-tier Distribution system
E.g. FMCG Firms
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i.e. by adopting more than one channel system toreach to customers
e.g. Auto component Manufacturers & HLL
Company Customers Company Wholesalers Customers
Company Retailers Customers
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Manufacturing firms prefer MCS for greatermarketing coverage & penetration
Drawback: Rivalry & competition among agents in
MCS resulting into unethical selling & loosingCorporate image
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MCS is complex & expensive, but effective &profitable if managed well
Channel conflict may lead to loosing business
opportunities
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To look into the following 6 areas
1) Distribution Objectives
Manufacturers to know firms overall
marketing objectives & strategies
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Objectives include:-
Greater market coverage, dominance,
penetration
Higher growth, long term business plans
Sustainable competitive advantage
Control on channel relationships Social care
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2) Distribution system alternatives - To decide whether to have DDS (one-tier etc)
3) Determining intensity of distribution
- i.e. how many channel numbers, length, width,
etc.
4) Intensive distribution
To dump products everywhere
(When products are inexpensive)
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5) Exclusive distribution - i.e. whether to give exclusive dealership or not,
for a designated area
e.g. readymades
6) Selective distribution
i.e. to select high potential channel intermediaries
(i.e. agents/ sellers)
To bring maximum turnover & profits
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Storage Warehouse For keeping for a long time
E.g. Raw materials, components etc for production
Closer to factories
Warehouse
For keeping finished products
Storage time varies
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Module III
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Distribution Centre i.e. full service warehouse
It emphasizes on movement, then storage
Situated near to market
Warehouse is a value added process now, than a
necessary evil(if managed well)
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Warehouse to be meant as a Switching/ Transitfacility
To store goods scientifically & systematically to
retain its value & originality
Requires a good information system
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1) Ownership Based2) Private warehouses (company owned) + points
3) Public warehouses (e.g. By government or byorganisation)
4) Bonded Warehouses Either private or government owned
Under customs/ Excise control
(Goods removal after paying duty)
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5) Cold Storage
6) Export & Import warehouse
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I. Economic Functions (i.e. logistical costs)
If more warehouse is added, Transportation cost
can be reduced
Consolidation
a single warehouse receives goods from many plants
e.g. A,B,C, etc.
But despatches to one customer
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Break Bulk Entire lot is stored
Then despatched to different customers
Stock - Piling i.e. seasonal storage of goods e.g. Garments
Value added services Packaging & labeling is done in the warehouse
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II. Operational Functions
E.g. receiving goods, storing, Record keeping,
forwarding etc.
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Based on demand pattern
Based on buying behaviour
Competitors warehousing strategies
Nature of the products
The cost
Availability of goods
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Warehousing facilities required for the product
Now decide
Whether to have warehouse or not
If owned, to centralize or not.(Centralised means very few, decentrailised means
many)
Location, cost
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a) Geographical location
b) Production centre v/s location
c) Transportation infrastructure facilities
d) Nature, quality, quantity of goods to be stored
e) Management philosophy
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Land/ Space cost (Capital)
Handling/ Transportation costs
Administrative costs
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Quantity based, product characteristics, shapes,sizes, weight
Warehouse design to be flexible & futuristic
Good material handling system
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1. Purpose
2. Layout
3. Warehouse space requirement & aisle layout
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Layout for material handling Roof plan, floor plan for smooth material flow
Windows, aisles, platforms, pillars, lighting,
elevators, cranes, forklifts, trucks (loading
platform) etc, palletized keeping, water,
communication, road.
Vast courtyard for parking
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Space for office, security, compound wall For keeping damaged goods, refrigerated area
Bonded space
Computer usage
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Improved customer service
Accurate inventory records
Better use of storage capacity & equipmentutilizations
To know stock costs
Material availability
Visibility of inventory
Routine record keeping for verification
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Is necessary for consumer products
Branding e.g. Glucose biscuit, Toothpaste(Colgate)
Design package
Usually squares (To save space)
Pencil like package (Lipstick) for utility purpose,
easy to carry in handbags
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Packaging for protection
Packaging for economy
Package for convenience
Packaging for promotional activities
Sometimes 5 Ps ( Price, product, place promotion,
&Packaging)
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For self services (it is self explanatory)
Consumer affluence
Company & Brand image
For cost efficiency (due to innovational
packaging)
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For
Product protection
Containment
Attractiveness
Identification
Convenience
Effective sales tool
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Easy display
Advertisement
Easy storage & transport
Easy to identify
Good memory & identification/ recognition
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Earthenware China Jars
Wooden/ hard boxes
Straw baskets
Gunny/ Plastic bags
Glass bottles
Tin containers
Clothes, etc.
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1. Consumer Package e.g. Toothpaste
2. Family Package
3. Reuse Package e.g. glass jar
4. Multiple Package e.g. Make-up set, Baby care
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To protect contents
To be attractive
To identify
For convenience
To identify
For convenience
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To occupy less space
Image of the brand
To have a clean look
Proud to possess
Status (e.g. Damas packs)
Minimises sellers job
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To resist soiling
Labels pasted
Eye-catching
Simple in design
Easy to handle
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Module III
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Movement of one product from one locationto another location
i.e. Distribution of products to various
locations
because products are not consumed in one
place
An important factor in Supply Chain
especially, transportation cost
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It is 6% of the GDP in USA
E.g. Home delivery etc.
So manage transportation effectively
E.g Pooling in Metropolitan cities
So, aggregation of product to different
customers while delivering
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Walmart uses cross docking system i.e.exchanging products based on where
shortages & surpluses occur
To establish the cost effectiveness of thetransport mode
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1) Vehicle related costs i.e. purchase, lease,charter costs
Fixed costs even if vehicle is not used
2) Fixed Operating Costs: E.g. Vehicle
parking, trucking facility, terminal facility
for aircrafts, hangers, drivers salary, etc.
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3) Trip-related Costs: Labour, Fuel. Labour cost/ Day or fixed salary.
4) Quantity-related Costs: For loading unloading
5) Overhead costs: i.e. Costs involved in
information technology used in transportationnetwork
E.g. Truck Drivers with Walky Talky Wireless
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Air Land (Road, Rail)
Sea
Pipeline
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Carrying Passenger & Carg, incur high fixedcosts in infrastructure and equipment
Labour and Fuel costs
Hence, Airline to maximize the daily flyingtime
Hence, airline to maximize seating capacitywith different priced classes
Fast but expensive
Carry costly airfreight items
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E.g. FEDEX, UPS, DHL
They use Air, Truck, Rail transportation systems
(Intermodal)
Expensive mode of despatch Can carry fairly small consignments
Have their own aircrafts, trucks etc.
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Rates according to distances
More expensive than rail
Delivery door-to-door
Shorter delivery time
More reliable
Less pilferage and theft
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More economical
Bilk Carriers
For long distances
Could be delayed due to shunting of bogies
Ideal for heavy, low value shipments
More pilferage and theft
Less reliable
E.g. to carry coal, rice, wheat, cement
Uncertain deliveries
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Few Famous lines: Maersk, American President
Lines (APL), Scindia Steam Navigation Company,Shipping Corporation of India (SCI)
For large bulk to carry
Slow & delay
Carries cars, grains, iron and steel etc.
Cheapest mode
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For transporting crude petroleum, natural gas
etc
E.g. India-Pakistan-Iran Gas Pipeline (underconsideration)
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By using more than one mode of transportation E.g. Rail + Road (To carry containers)
E.g. Sea + Rail + Road (To carry containers)
High network is required for information
passing
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There are five factors Company Characteristics and Philosophy
(Airline, DHL, L& T, etc)
Market Structure (e.g. Geographical/Territorial) e.g. Russia with no sea port
Product Characteristics (weight, height, size,
shape, shelf-life etc)
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Customer Characteristics (DeliverySpecifications)
Environmental Issues (Govt. policies, at times
subsidized transportation etc)
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i.e. Inter-Company computer-to-computercommunication
No Human Intervention is required
This is an automation facility It is inter-organisational
Consists of standardized Electronic Message
Formats
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Can Communicate from one company to
another through computer
Becomes paperless communication
Can prepare and send invoices, purchaseorders etc. (computer-to-computer)
Best for inventory management
E.g. Dells marketing with customers (Direct
ordering via Internet)
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Intranet is a means of distributinginformation.
Establishes complete network flow of
information from department to department,to warehouse, to shop-floor etc.
In intranet, the access is restricted to
outsidersWhen access is given to outsiders (e.g.
suppliers and customers), it becomes extranet
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Data mining is exploring data stored already, fortransforming it to useful and meaningful information
(e.g. for forecasting purposes)
Data warehouse is a store house, built to contain
enterprise-wide information, collected from multipleoperational sources
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i.e. Electronic commerce or paperlessoffice
Everybody will transact businesselectronically (e.g. Zurich in Dubai)
It is a wide business
Reduces time, money, and speed up supply& service
E.g. By Internet we can reach anywhere
S h t i