Logistics System Design and Administration

Module 3

Sulbha Nigam

2009 PESIT MBA 2

Logistical Positioning

Logistics Environmental Assessment Time-based Logistics Alternative Logistics Strategies Strategic Integration and Logistics Time-based control techniques

2009 PESIT MBA 3

What is Logistics Positioning?

(Or “Strategic”) Logistics Positioning is the process to provide policies and deploy facilities, equipment and operating system to achieve performance goals at the lowest cost.

The plan provides guidelines concerning How many, what type and where warehouses will be located What inventory assortment will be stocked at each facility Philosophy and practice of purchasing How transportation will be performed and integrated into other areas Which methods of material handling will be utilized Methods of order processing And so forth...

2009 PESIT MBA 4

Logistics Environmental Assessment External factors limit the flexibility of logistics performance

and therefore it is important to assess them. They are

Industry competitive assessment Geo-market differentials Technology assessment Material energy assessment Channel structure Economic social projection Service industry trends Regulatory structure

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Time-based Logistics

Focus is on reducing time from order receipt to order delivery

Highly responsive Logistics add value and reduce costs

Time based Logistics builds on two conceptsPostponementConsolidation

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Time-based Logistics: Postponement It offers the strategy to reduce the anticipatory risk

of Logistics Risk is reduced to the degree to which commitment

to final manufacturing or distribution of the product can be postponed until receipt of customer order

There are two critical types of postponement Manufacturing or Form postponement Logistical or Geographic postponement

2009 PESIT MBA 7

Time-based Logistics: Postponement Manufacturing or Form postponement :In this postponement , the

standard or base product is manufactured to achieve economies of scale while deferring finalization of features until customer commitments are received.

Plantor central

warehouse

Production plant Optional levelsof distribution

warehouses

Retailer/customer

Finalwarehouse

level

Ret a il e r/cust omer o rde r po intMa nu fac t u r ing processInv entoryMat e r i a l s f l o w

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Time-based Logistics: Postponement Logistical or Geographic postponement: Such a setup maintains

full manufacturing economies of scale while meeting customer requirements using direct shipment capabilities. Focuses on time by stocking differentiated products at a central location and responding rapidly when a customer order is received.

Plantor central

warehouse

Production plant Retailer/customer

Ret a i le r / cu stom er o rd er po i n tM an uf a c t u r i ng p r oc e s sI nven t or yM at e r i a l s f l o w

2009 PESIT MBA 9

Time-based Logistics: Postponement

Manufacturing Postponement

Logistics Postponement

Production Costs Mid – High Low

Inventory Costs Mid – High Low - Mid

Distribution Cost Low High

Customer Service Mid – High Low - Mid

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Time-based Logistics: Consolidation Retention of transportation economies associated

with large size shipments. To get maximum transportation consolidation

advantage and minimize the effects of unpredictable demand, managers use the following consolidation ways Market area Scheduled delivery Pooled delivery

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Time-based Logistics: Consolidation Market area: Small shipments of different customers

are combined based on the delivery area or region. Drawback is that there may not be sufficient daily volume for a particular area.

Scheduled delivery: Limiting shipments for markets based on predefined delivery schedule. The delivery is guaranteed based on this schedule.

Pooled delivery: Freight Forwarder, Public warehouse, Transportation company – Together arrange consolidation for multiple shipper

2009 PESIT MBA 12

Alternative Logistics Strategies There is no single best way that can service all

customersStructural separation

Marketing and Logistics Separation in practice

Logistical Operating arrangements Echelon Structure Direct Systems Flexible Systems

Emergency Flexible Structure Routine flexible Structure

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Distribution Channel: Logistical and Marketing Separation

Factory warehouse

Local delivery

Company truck

Regionalwarehouse

Common carrier

Public warehouse

(1) (2)(7)

(6)(5)(4)(3)

consumer

General sales office

Direct sales office Distributor Retailer

(1) (3)(2) (4)

(5)

Manufacturer - operated

Operated by other channel members

Marketing channel

Logistical channel

2009 PESIT MBA 14

Distribution Channel: Echeloned and Direct Structured Logistics

supplier

Direct plan delivery(DPD)

IndustrialDistribution orConsolidation

warehouse

Manufacturer Wholesalers or

Distributioncenter

Retailers customer

supplierIndustrial

Distribution orConsolidation

warehouse

Manufacturer Wholesalers or

Distributioncenter

Retailers customer

Direct store delivery(DSD)

2009 PESIT MBA 15

Distribution Channel: Complex Alternative Logistics Structure

Flow through

Service supplier arrangements

Direct plant delivery(DPD)

supplierIndustrial

Distribution orConsolidation

warehouse

Manufacturer Wholesalers or

Distributioncenter

Retailers customer

Direct store delivery(DSD)

Flow through

Service supplier arrangements

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Strategic Integration and Logistics

Integration of Logistics function with material and suppliers is important to achieve maximum synergy

End result is a series of synchronized capabilities that implement time-based principles in a resource efficient format based on customer-focused requirements

2009 PESIT MBA 17

Logistics Time Based Control Techniques Supply Driven Techniques

Just in Time (JIT) (Kanban) Requirements Planning (RP)

Material Requirement Planning (MRP) Distribution Requirement Planning (DRP)

Demand Driven Techniques Rules Based Reorder Point (ROP) Quick Response (QR) Continuous Replenishment (CR) ( or Vendor Managed

Inventory (VMI) ) Automatic Replenishment (AR)

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Logistics Administration

Organization Planning, Costing and Pricing Performance Measurement and Reporting

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Logistical Organizational Development Cycle

Fragmented Functional Structures

Stage 2Functional groupings

Stage 3Functional groupings

Stage 4Process Functional Integ

Stage 5Process Infor-mation Integ

Stage 1Functional groupings

Fragmented Functional Aggregation Process Integration

PREVAILING PARADIGM

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Traditional Organization of Logistically Related Functions

Chief executive

Finance Manufacturing Marketing

Inventory control

Order processing

Credit authorization

Management information

system

Facility planning

Material requirement planning

Purchasing

Raw material warehousing

Finished goodsFactory warehousing

Transportation

Industrial engineering

Production scheduling

Forecasting

Customer salesOrder service

Finished goods Field warehousing

2009 PESIT MBA 21

Chief executive

Finance manufacturer Marketing

Inventory control

Order processing

Credit authorization

Management information

system

Facility planningMaterial requirement

planning

Purchasing

Raw material warehousing

Finished goodsFactory warehousing

Transportation

Industrial engineering

Production scheduling

Forecasting

Customer salesOrder service

Finished goods Field warehousing

Stages of Functional Aggregation:Stage 1 Organization

Materials management

Physical distribution

Finished goods Inventory control

Order processing

2009 PESIT MBA 22

Chief executive

Finance Manufacturing Marketing

Inventory control

Order processing

Credit authorization

Management information

system

Facility planning

Material requirement planning

Purchasing

Raw material warehousing

Transportation Industrial

engineering

Production scheduling

Forecasting

Customer salesOrder service

Finished goods Field warehousing

Materials management

Physical distribution

Finished goods Inventory control

Order processing

Raw material Inventory control

Finished goods Factory warehousing

Credit authorization

Distribution system planning

Stage 2 Organization

2009 PESIT MBA 23

Chief executive

Logistic executive

Planning Controlling

Logistical support

Logistical resource planning

Packaging

Material handling engineering

Warehousing

Inventory control

Transport and traffic

Product marketforecasting

Order processing

Requirement planning

Functional planning Logistical operations

PurchasingManufacturing

supportPhysical

distribution

Production scheduling

Capacity planning

Material requirement

planning

Stage 3 Organization

2009 PESIT MBA 24

Stage 4 Organization: A shift in Emphasis from function to process

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Stage 4 A shift in Emphasis from function to process

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Stage 5 Beyond Structure: Virtuality and Organizational Transparency

Trend has been to evolve from Functional Aggregation to Process Aggregation (Stage 4)

Process Aggregation has limited the control of Functional owners over complex global logistics

Solution may be a “virtual” organization where IT brings together process organizations to execute logistical functions and removes the need of Organizational hierarchies creating bureaucracy.

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Virtual Organization

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Concepts having Logistical Significance

Structural Compression Centralization/Decentralization Line and Staff distinction Matrix to Horizontal Structure

Empowerment Teaming Learning

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Planning

Operations Planning Performance Goals Budgeting

Fixed Budgeting Flexible Budgeting Zero Level Budgeting (or Target Budgeting) Capital Budgeting

Final Operating Plans Operating Plan Modification

2009 PESIT MBA 30

Costing

Total Cost Analysis Logistics Activity Based Costing

Cost Identification Cost Time Frame Cost Formatting Total Cost Presentation

Outsource Considerations Cost Revenue Analysis

2009 PESIT MBA 31

Pricing

Pricing Methods F.O.B. Pricing Delivered Pricing

Single Zone PricingMultiple Zone PricingBasing Point Pricing

2009 PESIT MBA 32

Various Pricing Issues

Potential Discrimination Quantity Discounts Pick up allowances Promotional Pricing EDLP

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Logistical Performance Measure Dimensions of Performance measurement

Objectives Monitoring Controlling Directing

Perspective Internal Performance Measurement

Cost Customer Service Productivity Asset Management Quality

2009 PESIT MBA 34

Logistical Performance Measure

External Performance MeasurementCustomer perception measurementBest practice benchmarking

Comprehensive Supply Chain MeasurementCustomer Satisfaction / QualityTimeCostsAssets

2009 PESIT MBA 35

Levels of Measurement and Information Flow

Operation Databank

Degree

Of

Information

Selectivity

Policy

Decision

Variation

Direction

Chief Executive Officer

Vice President

Department heads

Line managers

2009 PESIT MBA 36

Reporting

Report Structures:Status ReportsTrend ReportsAd-hoc Reports

Thank you