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logistics
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Mayuresh Unde
25th August, 2011
Role of Logistics in SCM
What is Logistics & its Management?
“Logistics is the art and science of obtaining, producing and distributing material and product in the proper place and in
proper quantities. ”
Logistics Management – The Planning and coordination of the physical movement aspects of a firm’s operations such that a flow of raw materials, parts and finished goods is achieved in a manner that minimizes total costs for the levels of service desired
…APICS
…APICS
Supply Chain – Logistics System
SUPPLIER
MANUFACTURERDISTRIBUTION SYSTEM
CUSTOMER
Physical Supply
Manufacturing Planning &
Control
Physical Distribution
Dominant Flow of Products and Services
Dominant Flow of Demand Information
Fundamental Utility Creation in the Economy
Logistics
Production
Marketing
Possession Utility
Form Utility
Place UtilityTime UtilityQuantity Utility
Economic Utility Value addition to a product or service
Scope of Logistics
1. Transportation2. Storage
a. Warehousing b. Inventory
3. Packaging4. Material Handling5. Inventory Control (levels &
accuracy)6. Order Fulfillment (Lead Time)7. Production Planning8. Procurement9. Customer Service
1. Manufacturing / Operations
2. Marketing (4Ps)1. Price2. Product
(Dimensions, Packaging design & quality
3. Promotion4. Place
3. Finance
Major Activities Interfaces
ROA = ( Revenue – Expenses)
Total Assets
Factors affecting Cost – Competitive Relationships
Un
its
of
Inve
nto
ry
Order Cycle (days)
Required Inventory Vs Order Cycle Length
Order Transmission + Order receipt + Mfg/assembly + picking + packing + shipping = Order Cycle
Factors affecting Cost - Competitive Relationships
Logi
stic
s C
ost
TC = Total CostINV = Inventory CostCOLS = Cost of Lost Sales
Cost of Lost Sales Vs Inventory Costs
COLS
INV
TC
Substitutability
Marginal savings from reducing lost sales cost = Marginal cost of carrying additional inventory
Factors affecting Cost - Competitive Relationships
Logi
stic
s C
ost
TC = Total CostTR = Transportation CostCOLS = Cost of Lost Sales
Cost of Lost Sales Vs Transportation Costs
COLS
TR
TC
Substitutability
Marginal savings from reducing lost sales cost = Marginal increment with increased transportation cost
Factors affecting Cost – Product Relationships
Logi
stic
s C
ost
INV = Inventory Cost (Including StorageTR = Transportation CostPKG = Packaging Cost
Value INV
TR
PKG
Value of the product
Factors affecting Cost – Product Relationships
Logi
stic
s C
ost
INV = Inventory Cost (Including Storage)TR = Transportation CostWH = Warehousing Cost
Density (Weight /Space Ratio)
Weight Density of the product
TR
INV
WH
Factors affecting Cost – Product Relationships
Logi
stic
s C
ost
PKG = Packaging Cost TR = Transportation CostWH = Warehousing Cost
Susceptibility to loss & damage
Susceptibility to loss and damage
WH
TR
PKG
Factors affecting Cost – Spatial Relationships
A BM
PC = 8.50 PC = 7
1.15 3.50
0.75
0.60
0.40
0.50
Supplier
Manufacturer
Market
Production Costs Vs Transportation Costs
Techniques of Logistics System Analysis
• Short Run / Static Analysis: This method analyses costs associated with logistics system’s various components at one point of time or one output level
• Long Run / Dynamic Analysis: This method examines system over a long time period or range of outputs
Total Cost = Fixed Cost + (Variable Cost * Number of Units)
Dynamic Analysis
Logi
stic
s C
ost
Kilograms of Output
System 2
System 1
Total Cost = Fixed Cost + (Variable Cost * Number of Units)
y = mx + c (Equation of Straight Line)
Trade-off PointM1*x + C1 = M2*x + C2
Trade-off Output
Approach to analyzing Logistics Systems
• Inbound & Outbound Logistics– Balanced System
– Heavy Inbound
– Heavy Outbound
– Reverse Systems
• Cost Center balancing
• Node & Links
• Logistics Channels (Simple, Multi-echelon, Complex
Simple / Complex Logistics Channel
Supplier RetailerDistribution Centre
Manufacturer ConsumerDistributor
Complex
Simple
Levels of Optimality
Finance
Marketing
LOGISTICSOther Functions
Production
Suppliers Customers
Environment
Economic
PoliticalSocial
Level 1 Organization
Level 2 Supply Chain
Level 3 Environment
Logistics in India
Logistics in India
Road
Rail
Sea
Air
Logistics
Logistics Activities
• A fragmented sector – with a number of small players• Transportation is nearly 40 % in the logistics activities• Coal, Cement, textiles, metals and consumer goods are the main contributors of revenue to the logistics industry
Framework of Segment Users
Factors /Segment
Bulk Industrial ConsumerDurables
Consumer Goods
Value Addition (VA)
Low Medium High High
Consumer Type Intermediary Intermediary Final Consumer
Final Consumer
% of Logistics Costs as Proportion to VA
High(70%)(Pricesensitive)
Low(10%)(Service sensitive)
Customer Sensitivity to Availability
Low Low High High
Value Addition (VA) refers to the difference in selling price of the output and the cost price of material inputs
Role of Government in Logistics
Taxes & Regulations
• Central Sales Tax & Local Sales Tax
• Excise Duties
• Octroi and Entry Tax
• Use of Packaging Material
• VAT (Value added Tax)
• …
Status & Trends - Railways
• Railways– The Indian Railways boasts of being the world’s 2nd largest
rail network over 85,000 km and covering around 7000 stations
– The freight segment accounts for roughly two thirds of railway's revenue
– Transformation from Meter gauge to Broad gauge– Mainly used for Bulk and Industrial segment– Coal, Cement, ores, fertilizers, food grains & petroleum
products share maximum traffic– Major Benefits – Greater load carrying capacities, cheaper
option – Major issues – Wagon allocation, longer lead times,
Status & Trends - Roads
• Road– India has one of the largest road
network in the world– National Highways / State
Highways (2 % Four lane, 34 % two lane, 64 % single lane)
– Road network carries nearly 65% of freight & 85 % passenger traffic
– Major Roads – Golden Quadrilateral and NS-EW Corridors
– Major Benefits – Availability, connectivity,
– Major issues – Congestion, poor road conditions, delays
Status & Trends - Sea
• Sea– India has an extensive coastline of
around 6000 kms with 12 major and 150 minor ports
– Largest shipping fleet amongst the developing countries, ranks 17th in the world for shipping tonnage
– Petroleum products, ores, coal are major revenue contributors
– Privatization & de-regulation trend (TISCO-Haldia, JNPT)
– Major Benefits – For imports & exports,
– Major issues - Berthing delays, Access issues to smaller ports
Status & Trends - Others
• Air– Aviation holds a small share in
India’s freight market– Growth mainly due to private
airlines (Jet, Kingfisher) and other private couriers (DHL)
– Mainly used for express and small package market & perishables (consumer)
– International cargo – BA & Cathay Pacific
– Major Benefits – Efficient and speedy
– Major issues – Costly for bulk transport
• Pipeline-Mainly for petroleum (crude oil and gas), iron ore pellets, apart from water and sewage- Government players - IOCL- Currently in-adequate but slowly growing with more and more private companies in fray (Reliance)
Thank You!
Q & A