LOGISTICS MANAGEMENT

Recommended Book Strategic Logistics Management

By James R. Stock & Douglas Lambert

COURSE OBJECTIVES1. To identify how logistics affects the performance of

organizations2. To understand how logistics contribute to value

creation3. To understand the concept of systems approach as it

relates to logistics & marketing, the total cost concept & profitability

4. To show how to implement the integrated logistics management concept using total cost analysis

5. To show how to recognize areas in which logistics performance can be improved

LOGISTICS – ROLE IN THE ORGANIZATION

Business logistics Channel Management & Distribution Industrial Logistics Materials Management Quick-response Systems Logistic Management

Logistics Management is that part of the supply chain management that

plans, implements & controls the effective flow of the goods, services

and related information from the “point of origin” to the “point of consumption”

in order to meet customers’ requirements

DEFINITION OF LOGISTICS MANAGEMENT

Natural Resources

Human Resources

Financial Resources

Informational resources

Inputs into Logistics

Management ActionsPlanning Implementati

on Control

Competitive advantage

Time & Place Utility

Efficient Movement

to customer

Propriety Asset

Outputs of Logistics

Logistics Activities•Customer service•Demand Forecasting•Inventory Management•Logistics Communication•Material Handling•Packaging•Order processing

•Parts and service support•Procurement•Plant and warehouse site selection•Reverse Logistics•Traffic and transportation•Warehousing and storage

Logistics ManagementSupplier

sCustomers

RM WIP FG

SYSTEMS APPROACH/INTEGRATION

All functions or activities need to be understood in terms of how they affect and

are affected by other elements and activities with which they interact

The sum or outcome of series of activities are greater than the individual parts

LOGISTICS’ ROLE IN THE ORGANIZATION

Key element in improving both the “profitability” and the

“competitive performance” of the firms

Customer Satisfaction

•Suppliers•Intermediate customers•Final Customers

Integrated effort• Product•Price•Promotion•Place (distribution)

Company Profit•Maximize long-term profitability•Lowest total costs given an acceptable level of customer service

1. Logistics leads to competitive advantage

2. Logistics adds Time & Place Utility

Place utility is the value created or added to a product by making it available for purchase or consumption in the right place

Time utility is the value created by making something available at the right time

3. Logistics allows efficient movement to the customer

Five rights of a logistics system Supplying the right product at the right

time at the right place in the right condition for the right cost to the customers consuming the product

Logistics competency cannot be readily duplicated Can gain market share by providing products at low

cost at the right place Should be shown as an intangible asset

4. Logistics is a proprietary asset

KEY LOGISTICS ACTIVITIES

1. Customer ServiceCustomer oriented philosophy that integrates and

manages all elements of the customer interface within a predetermined optimum cost-service mix

It involves successful implementation of the “integrated logistics management” concept in order to provide the necessary level of customer satisfaction at the lowest possible total cost

2. Demand ForecastingInvolves determining the amount of product and

accompanying service that customers will require at some point in the future

3. Inventory ManagementInvolves trading off the level of inventory held to achieve high customer service levels, with the cost

of holding inventory, including capital tied up in inventory, warehouse costs and obsolescence

4. Logistics CommunicationEffective communication is necessary1. The organization, it’s suppliers and its customers2. The major functions within the organization3. The various aspects of each logistics activity such

as coordinating warehousing Raw Material, Work In Process and Finished Goods

5. Material Handling• Eliminate handling wherever possible• Minimize travel distance• Minimize work-in-progress• Provide uniform free flow of bottle necks• Minimize losses from waste, breakage, spoilage and

theft

• Note: Cost is incurred every time an item is handled.

6. Order Processing1. Operational Elements such as order entry/editing,

scheduling, order shipping, set preparation and invoicing

2. Communication Elements such as order modification, order status inquiries, tracing and expediting, error correction and product information requests

3. Credit & Collection Elements including credit checking and accounts receivable processing/collecting

7. PackagingTwo basic functions:a. Marketing:

Form of promotion & advertisement. Size, weight, color and printed information attracts customers and convey relevant information

b. Logistics Protects the product from damage Makes it easy to store and move thereby reducing

material handling costs

8. Parts & Service SupportConcerned with activities involved in the repair and servicing of the products e.g. providing replacement parts when product breaks down or malfunction.

9. Plant & Warehouse Site SelectionAssist firms in improving customer service levelsAllow lower volume-related transportation rates

Site should : Be near target market Have abundant labor force Have proper infrastructure, transport system and

utilities available Have minimum legal concerns Have low land costs

10. ProcurementProcess of acquiring materials and services to ensure operating effectiveness of the firms’ manufacturing

and logistics processesThis function includes: Selection of supply source locations Determination of the form in which material is to be

acquired Timing of the purchases

11. Reverse LogisticsAn important part of logistics concerned with

Handling of return goods Salvage & scrap disposal Removal and disposal of waste materials from the

production, distribution and packaging processes Effectively and efficiently handle the by-product

12. Traffic and TransportationInvolves managing the movement of products

Includes selecting the method of shipment (road, rail or air) Choosing the specific path (routing) Complying with various local, state and federal

transportation regulations Being aware of both domestic and international

shipping requirements

13. Warehousing & StorageInvolves the management of the space needed to hold or maintain inventories

Includes: Deciding whether the storage facility should be owned,

leased or rented Layout and design of the storage facility Product mix considerations Safety and maintenance procedures Personnel training Productivity measurement

WHY SHOULD LOGISTICS ACTIVITIES BE INTEGRATED?

Supplier

Supplier

Supplier

Manufacturing Site

Distribution Centre

Distribution Centre

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Carrier

Carrier

Carrier

Carrier

Carrier

Carrier

Benefits of Integration:1. Improves the flow of inventory2. Improves transport and warehouse assets

utilization3. Eliminates the duplication of efforts4. Achieve economies of scale working with

high volumes5. Forces cost trade offs to be made

between and among logistic activities

TOTAL COST CONCEPT

Aim should be to reduce overall costs of logistics activities

Order processing & Information Costs• Order processing

• Logistics communication• Demand

Forecasting/planning

Inventory Carrying Costs• Inventory Management

• Packaging• Inventory of retuned goods

Lot Quantity costs• Materials handling

• Procurement• Production setup costs

Place/customer service levels

• Cost of lost sale/ future sales• Parts & service support• Return goods handling

Transportation costs• Mode

• Inbound/Outbound• Weight, Dimension etc

Warehousing costs• Warehousing & Storage• Plant and warehouse site

selection

RELATIONSHIP OF LOGISTICS ACTIVITIES TO LOGISTICS COSTS

1. Customer Service Levels Key trade-off associated with varying levels of

customer service is the “cost of lost sales”. Customer service costs include:

Order fulfillment costs Costs of parts and support services Cost associated with return goods handling

Cost of lost sale includes not only the lost contribution of current sales but also future potential sales due to negative word of mouth

2. Transportation CostCosts can be categorized by customer, product

line, by type ofchannel, by carrier, by direction and so on.Costs vary with volume, weight, points of origin &

destination and mode of transportation chosen

3. Warehousing CostThese are created from warehousing & storage activities and by the plant & warehouse site selection

4. Order Processing/Information System Costs

These costs are related to Processing customer orders Distribution communication Demand forecasting

5. Lot Quantity CostsThese are production- or purchase- related costs that vary with changes in production lot size or order size or frequency. They include:

Production setup costs Capacity lost due to downtime during changeover of line or

changeover to a new supplier Materials handling, scheduling and expediting Price differentials due to buying in different quantities

6. Inventory Carrying Costs Capital cost

Inventory service cost

Storage space cost

Inventory risk cost

FUTURE CHALLENGES & AREAS FOR LOGISTICS PERFORMANCE IMPROVEMENT

Significant challenges will occur in the following areas: Strategic Planning Total Quality Management Just In Time Quick Response Efficient Consumer Response Increasing skill requirements Outsourcing Reverse logistics

Quick Response (QR)This is a retail sector strategy that combines a number of tactics to improve inventory management and efficiency while speeding inventory flows.

QR applies JIT principles through out entire supply chain.The concept works by combining electronic data interchange with bar coding technology

Cross-docking: A process that involves unloading inbound product, sorting products for individual stores and reloading shipments onto trucks destined for a particular store

SCHEDULING

WHY SCHEDULING? Scheduling determines what would

be shipped next where and when. Specifies the time each job starts

and is completed on each machine, as well as on any additional resources needed for the production.

Optimize the best utilization of resources of organization

WHY SCHEDULING IS IMPORTANT??

“ The two basic goals schedules are : Meeting customers delivery on time Meeting first objective with minimum

required resources

SCHEDULING & INTEGRATED LOGISTICS As we know that integrated logistics interface

with all department for getting maximum efficiency and minimizing cost.

Before production, during production and after production the role of integrated logistic is most important; Coming Material form Vendors / Supplier Movement of material between production facility to

warehouses Movement of finish products form production to

warehouses, distribution centre etc

“Integrated logistics needs to work with operation to produce goods”

WAREHOUSE MANAGEMENT

WAREHOUSE

“The warehouse is where the supply chain holds or stores the goods.”

‘A bounded wall area where receiving, storage and shipping

takes place.”

WAREHOUSES VS DISTRIBUTION CENTERS

The purpose of warehouse is to store products until customers require them. Mostly used for Raw, Packing,

work in process materials and finished products. Storage life of product may be as long as required by company.

The purpose of distribution center is product through-put, storage. Bulk shipments come into a distribution center, are

broken down into smaller shipments, and then are transported further in the supply chain.

IMPORTANCE OF WAREHOUSE MANAGEMENT

Better Inventory Control

Better utilization of Space

Reduce loss sales and Damages

Improved Customer Service

Great Visibility into supply Chain

Improve safe working Environment

THE ROLE OF WAREHOUSE Serve as a transportation consolidation facility.

Plays vital role in backup seasonal product availability.

Smooth production depends on warehouses space.

Customer service, faster order fulfillment, timely receiving and dispatching.

Value Added activities and products support and safety

BUSINESS PRESSURE AND WAREHOUSE ROLE

· How can I improve the speed of warehouse operation?

· How do I integrate operation to reduce order processing time?

· How can I improve order promise accuracy?

· How do I create a global view of inventory.

Work Quality Improvement

Check and Control

Improvement

Just in time Delivery Guaranteed Availability

Inbound Internal Processing Outbound

One Size Fits One Lowest Total Cost

· Where can I reduce inventory while maintaining high fill rates?

· How do I improve labor efficiency

· How can I manage SKU ?

· How do I ensure labeling compliance?

Space ManagementImprove Productivity in all areas

KEY FUNCTION

The basic function of a warehouse include movement, storage, and information transfer. It takes place in four distinct areas:

1. Receiving inbound goods from the transportation carriers and performing quality and quantity checks.

2. Transferring goods from the receiving docks and moving them to specific storage, locations throughout the warehouse.

3. Order selecting the products for filling customer orders including checking, packing, and transporting to the outbound dock.

4. Shipping the goods outbound to customers.

TYPES AND NUMBERS OF WAREHOUSE IS A STRATEGIC DECISION ??

The type & number of warehouses is a strategic decision for the management considering the following points: Location and Coverage Cost & Volumes Safety and Quality Check and Controls Current & Required Customer Service Level No of Customers, their location, and buying habits

TYPES OF WAREHOUSE Private Warehousing

Public Warehousing

Contract Warehousing

WAREHOUSE DESIGN / LAYOUT The five interrelated variables should be

considered;

Land and Building Management and Staff Storage and handling requirement Computers and Software Operating methods and procedures

WAREHOUSE PRODUCTIVITY The warehouse effects profit of the organization and

approximately 7 to 10 percent of sales value amount. The efficiency and performance need to measure with certain KPI.

Productivity Safety Cost

“The KPI always best to determine and find the actual result vs targeted. Improving KPI mean positive

contribution in maximization of Profit.”

PRIME IMPORTANCE FOR EFFICIENCY Improving forecasting accuracy. Reducing or eliminating labor bottlenecks.

Smoothing out the variance in product flow in the warehouse.

Decreasing the distances traveled in the warehouse. Increasing the size of the units handled.

MATERIAL HANDLING & PACKAGING

MATERIAL HANDLING The art & science of material movement with in plant and

finished goods with in facility and out side.

A properly installed material handling system can reduce costs and labor, increase safety, increase productivity, reduce waste, increase capacity, and improve service.

Materials handling refers to the total management of all materials and processes involved in the entire manufacturing procedure.

This includes sourcing, delivery, movement, protection and storage of product. Significant savings in time, labor and

materials result from effective materials handling achieved through a series of well-coordinated and inter-related procedures

MATERIAL HANDLING“Material is the most valuable assets in the integrated logistics management. Logistics takes the ownership for

safe, efficient and timely movement during Inbound, Conversion and Outbound. Value Chain increase the value

of material as it move through the supply chain”.

“Materials Handling procedures, systems and equipments are not fixed and same for all. It vary from industry to industry

and depends on product Type, Size, and Shape not only physical but also consider chemical properties of products.”

OBJECTIVE OF MATERIAL HANDLING

“A good logistics system seeks to create a mechanism to move equipment and

supplies in a time-bound manner, as and when needed, to the place where needed, at an economic cost. Since this movement

is not always from Point A to Point B but often involves storage as inventory at one or more intermediate points along the way, the efficiency of management comes into

play.”

OBJECTIVE CONTINUE … The main objectives of material

handling are as follows: It should be able to determine appropriate distance to be

covered. Facilitate the reduction in material damage as to

improve quality. Reducing overall manufacturing time by designing

efficient material movement Improve material flow control and tracking, status etc … Creation and encouragement of safe and hazard-free

work condition Improve productivity and efficiency Better utilization of time and equipment

METHODOLOGY OF MATERIAL HANDLING

In the current competitive and globalized environment, it is important to control cost and reduce time in material handling. An efficient material handling process promotes:

Design of proper facility layout.

Promotes development of method which improves and simplifies the work process.

It improves overall production activity.

TYPES OF MATERIAL HANDLING & EQUIPMENT Three Types of Material Handling

Manual Mechanized Automated

Selection of Equipment depends :

What + Where +When = Equipment Specification

What refer to the type of material being handled, Characteristics, size and shape etc.

TYPES OF MATERIAL HANDLING & EQUIPMENT

Where refer to the everything involved in the routing the material throughout the facility. This component includes:

Type of Movement – Length of movement – Limitation of movement – Building limitation – Transfer Requirement The Associated in-transit operation

When means the material must be in the right place at the right time

TYPES OF MATERIAL HANDLING & EQUIPMENT Manual Material Handling systems tend to be labor –

intensive. Typical type of equipment would be hand dollies, drawers, low

racks andpallet jack

Manual material handling system yield low output because of a lack of handling speed. Also, they use cubic space poorly.

Mechanized Material is the most common type. Its replace some manual handling with mechanical movement. The forklift is the backbone of the mechanized materials handling system. Others equipment includes in this system includes Pallets, cranes, storage rack systems and wheel conveyors etc ..

TYPES OF MATERIAL HANDLING & EQUIPMENT Automated Material Handling System is the most

sophisticated. Its uses automatic storage and retrieval system (A system typically consists of high-rise shelving, multi-level conveyors etc.), item picking equipment, optical scanners and robots.

It can fully utilize the available cubic space in the facility, fast / speedy, high productivity, accurate and easy to control.

But at the same time Its seems superior but costly. May require special types and sizes of facilities May be high risky when the system fail In case of low production very high fixed cost etc

PRINCIPLES OF MATERIAL HANDLING

Material handling principles are as follows:

Orientation Principle: It encourages study of all available system relationships before moving towards preliminary planning. The study includes looking at existing methods, problems, etc.

Planning Principle: It establishes a plan which includes basic requirements, desirable alternates and planning for contingency.

Space Utilization Principle: Encourage effective utilization of all the space available

PRINCIPLES OF MATERIAL HANDLING

Energy Principle: It considers consumption of energy during material handling.

Ecology Principle: It encourages minimum impact upon the environment during material handling.

Mechanization Principle: It encourages mechanization of handling process wherever possible as to encourage efficiency.

Flexibility Principle: Encourages of methods and equipment which are possible to utilize in all types of condition.

PRINCIPLES OF MATERIAL HANDLING

Standardization Principle: It encourages standardization of handling methods and equipment.

Safety Principle: Encourages provision for safe handling equipment according to safety rules and regulation

Computerization Principle: Encourages of computerization of material handling and storage systems

PRINCIPLES OF MATERIAL HANDLING System Flow

Principle: Encourages integration of data flow with physical material flow

Cost Principle: Encourages cost benefit analysis of all solutions available

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