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CHAPTER 2, 3, 4INTRODUCTION TO LOGISTICS

DEFINITION OF LOGISTICS

According to the Council of Logistics Management (CLM) Logistics is the process of planning,

implementing and controlling the efficient and effective flow of goods, services and relatedinformation from point of origin to point of consumption in order to meet customer

requirements.

OPERATING OBJECTIVES OF LOGISTICS (Nov. 03, 06)

1. Rapid Response: Rapid response is concerned with a firms ability to satisfy customersrequirement in a timely manner. Instead of stocking the goods and supplying on demand,orders are executed on shipment-to-shipment basis. Here IT helps to postpone thelogistical operations to the latest possible time and then execute rapid delivery as whenneeded by customer.

2.

Minimum Variance: Variance is any unexpected event that disrupts system. Logisticaloperations are disrupted by events like delays in order receipt, disruption inmanufacturing, goods damaged at customers location and delivery to an incorrectlocation etc. Traditional solution to deal with variance was to keep safety stock or usehigh cost transportation. Such practices were expensive and risky and thus have beenreplaced by information technology to achieve positive logistics control.

3. Minimum Inventory: The objective of minimum inventory involves asset commitmentand inventory turnover. Asset commitment is the financial value of inventory developedthroughout the logical system and inventory turnover is the rate of inventory usage overtime. The objective is to reduce the inventory without sacrificing customer satisfaction.

4. Movement Consolidation: One of the most significant logistical costs is transportation.Transportation cost depends on type of product, size of shipment and distance. Movementconsolidation means grouping small shipments together in order to reduce transportationcost.

5. Quality Improvement: Logistics is a prime part of developing and maintainingcontinuous TQM improvement. If the quality of product fails, logistics will have to shipthe product out of customers premises and repeat the logistical function again. This adds

to cost and customer dissatisfaction.6. Life-Cycle Support: Life cycle support is also called cradle-to-cradle logistical support. It

means going beyond reverse logistics and recycling to include the possibility of after saleservices, product recalls and product disposal. This means that firms must consider howto make a product and its package (cradle) and the how to remake and reuse them (tocradle). E.g. Cold drink industries use their glass bottle again and again whereas the cansare reused in making pf paper dishes.

TYPES OF LOGISTICS

1. Reverse Logistics (May 06,07)


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Reverse logistics is also known as Product Recall. It may be defined as a process of movinggoods from their place of use, back to their place of manufacture for re-processing, refilling,repair, and recycling or waste disposal.

Reasons for Reverse Logistics

1. Rigid quality standards- it is critical in case of contaminated products, which can causeenvironmental hazard.

2. Rigid laws prohibiting unscientific disposal of items3. Rigid laws making recycling mandatory4. Transit damagee.g. leaking containers containing hazardous material.5. Product expiration.6. Erroneous order processing by supplier7. Exchange of new product for the old ones.8. Return for repair or refill.

Drivers in Reverse Logistics(Nov. 03, May 04)

The success of reverse logistics depends upon the efficiency of following subsystems:

1. Product Location: For product recall it is necessary to identify the product location in thephysical distribution system of the firm. It is difficult in case of consumer goods buteasier in case of industrial goods.

2. Product Collection System: After the product location is identified, product collection isto be done through companys field force or third party.

3. Recycling / Disposal Centers: This may be companys plant, warehouse or any otherlocation. Called back products must be inspected before recycling or disposal etc.

4.

Documentation System: Proper documents should be maintained at each level, this wouldhelp in tracing the product location.

2. Inbound Logistics (Nov. 06)

All the activities related to the material movement till the dispatch of the products out ofthe factory gate are called as inbound logistics activities.

Creation of value in the products depends upon availability of inputs on time. Makingavailable these inputs on time at minimum cost is the essence of Inbound Logistics.

Activities of a procurement performance cycle come under the scope of InboundLogistics. They are transportation during procurement operation, storage, handling andoverall management of inventory of inputs.

3. Outbound Logistics (Nov. 06)

All the activities in which the value added goods are to be made available in the marketfor customers are called as outbound logistics activities.


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Success of the firm depends upon the supply of products to the customer on time.Supplying the products of firm at marketplace at minimum cost is the essence ofOutbound Logistics.

Activities of distribution performance cycle come under the scope of Outbound Logistics.They are order management, transportation, warehousing, packaging, handling etc.

4. Third-Party Logistics (3PL)

In order to keep the costs of inbound and outbound logistics activities under control, an outsideagency appointed to perform these logistics functions is called Third Party Logistics.

5. Forth-Party Logistics (4PL) (Nov. 06)

Forth Party Logistics is a complete outsourcing of manufacturing and logistics functionsincluding selection of Third Party service provider.

Need for 4PL:

1. Ever-increasing customer requirements.2. Competitive and complex market scenario3. Rising globalisation, liberalization and privatisation.4. Rising accessibility of supply chain technology.5. Inclination of companies to enter into higher margin business.

Services provided by 4PL

1. Procurement and storage of materials.2.

Manufacturing of products.3. Selection of 3PL companies

4. Transportation and warehousing management5. Collection of payment and cash flow management6. Risk management and insurance.7. Sharing of information, IT solution.

LOGISTICS MANAGEMENT IN INDIA IN TODAYS

CONTEXT (Nov. 01)

Logistics in Indian Business Environment(May 04)

Liberalization opens our door to competition. Global business has long supply & distribution lines. Changing Indian customer, aware, demanding and less brand loyal Competition ensures that product differentiation in terms of quality is difficult. Product life cycles are shrinking Our markets are shifting from sellers to buyers


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Many consumer products are moving into commodities market In India, large distances separate production and consumption centers. Essential

commodities have to travel from Food Corporation Warehouses to consumers throughPDS.

Still Logistics performance in India has not been impressiveFruits and vegetables aregrown at various places but do not enjoy access to market.

LOGISTICS IN THE GLOBALISATION

Logistics functions are same domestically and globally but differ in four Ds i.e. distance,documents, diversity in culture and demand of customer. In the global logistics distances arelonger, documentation is more extensive, customer demand varies to satisfy cultural differenceswithin both, countries and regions. Developing strategies to respond to the 4 D environment isthe global challenge for logistics management.

There are some factors that facilitate globalisation and necessitate global logistics and also somebarriers that continue to impede global logistics. Logistics management must balance the cost ofovercoming these barriers with the potential benefits of going global.

Forces Driving Globalisation of Logistics

1. Economic Growth: After WWII there was a growth in industrial sector of developedcountries and their manufacturing and logistics productivity increased. This forces thefirm to expand their marketing into developing nations. Such expansion requires theintegration of global manufacturing with marketing through logistics.

2. Supply Chain Perspective: Firms traditionally sought logistical control as many essentialactivities as possible internally, which resulted in private warehouses and transportation.Such privatisation increased the capital and assets to support logistics operations resultingin decline of Return on Investment and hence the concept of outsourcing and supplychain emerged during 1980s.

3. Regionalisation: Traditionally trade and transportation across the political borders ofcountries requires political formalities, which adds to the logistics cost without any valueaddition to the consumer. Regionalisation in the form of trade associations such as EU,NAFTA and SAARC etc. removed such barriers and facilitates global logistics.

4. Technology: Mass communication and information technology exposed internationalconsumers to foreign products, thus stimulating convergence of global needs andpreferences. This promotes global marketing and global logistics.

5. Transportation Deregulation: Initially there have been restrictions for internationaltransportation ownership and operating rights e.g. foreign carriers could not operatedomestically, steamship lines could not own land based transport like motor or railcarriers etc. but such restrictions have been removed in most of the countries.

Barriers to Global Logistics


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1. Marketing Barriers: This includes (i) entry restrictions by placing legal or physicalbarriers on importing (ii) poor information regarding market size, demographics andcompetition (iii) pricing fluctuation and tariff barriers.

2. Competition: Different rules in different countries concerning competitivegovernance also serve as global logistics barriers.

3.

Financial Barriers: This includes (i) difficulties in forecasting in the global environment(ii) institutional infrastructure barriers result from differences in services offered bybanks, insurance firms, legal counselors etc.

4. Distribution Channels: Lack of infrastructural standardisation such as differences intransportation and material handling equipment, warehouse and port facilities,communication system etc. also serves as global logistics barriers.

Importance of Logistics Decisions in improving the profitability of organisation (May 05)

CHAPTER 5OVERVIEW OF LOGISTICS FUNCTION

MRP 1 (Nov. 01, May 05)

Material Requirement Planning is an integrated approach to the inventory management, takinginto the account purchase and production programme. This is software that converts the MasterSchedule to the requirement of raw material, components, subassemblies, etc.

Structure of MRP1

- Three types of information are fed to the computer.

1. Master ScheduleThis is made up from sales forecast by marketing department and theactual orders already received by the company. It indicates which product is required to

be delivered to the customer and when.2. Bill of MaterialThis is prepared from product design documents3. Inventory detailsof each item

- The MRP software processes the data and releases the output for ready use of the managementin the following way:

1. For purchase components it releases Purchase Request, Purchase Order etc in the form ofsoft copy

2. For in-house manufactured components it releases Production Order3. It prepares different types of reports for the use of management as required

Benefits of MRP1

1. All the documents like purchase order, production order get ready as per required time.2. All information is ready on the screen at any time, which is duly updated.3. Making changes manually in Master Schedule is difficult task; this is done by MRP

easily and accurately.4. It prepares the reports related to inventory status, production outputs, latest sales figures.


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5. MRP calculates and maintains an optimum-manufacturing plan, which will reduce cashflow and increase profitability.

6. Reduced inventory levels7. Reduced shortage of components8. Reduced overtime on shop floor and offices9.

Improved shipping schedule10.Improved production schedule

11.Improved calculation of material requirements12.Better manpower planning on shop floor13.Reduction in lead time14.Less scrap and rework

Closed-Loop MRP: When MRP extended to include feedback from vendors and productionoperations it is called Closed-loop MRP

MRP II (Manufacturing Resource Planning): When closed-loop MRP extended to include

financial accounting, personnel, engineering and marketing information, it is called MRP II

DRP (Nov. 01 03, May 05)

Distribution Resource Planning is concerned with the distribution of material, warehouses, andtransport arrangements. It is logically evolved from MRP and hence it is more recent concept.DRP needs demand forecasts for each warehouse and their current inventory level. MRP isconcerned with inbound logistics whereas DRP is concerned with outbound logistics activities.

Benefits of DRP

1. Reduce distribution center freight costs resulting from coordinated shipments.2. Reduce inventory level.3. Coordinate inventory with organisational functions.4. Decrease warehouse space requirements because of inventory reduction.5. Improve service level by on time deliveries.

MRP DRPGuided by production schedules Guided by customer demandUnder control of the firm Not under control of the firmOperates in dependant demand situation Operates in independent demand situationCoordinates scheduling and integration of

materials into finished goods

Coordinates demand between outlets and supply

sourcesControls inventory until manufacturing andassembly is complete.

Controls inventory after manufacturing andassembly of finished goods

CHAPTER 6LOGISTICS STRATEGY AND PLANNING


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Why has logistics recently been receiving more attention as a strategic function of theorganisation? (May 2006) [61 of reference book]

CHAPTER 7CUSTOMER SERVICE (CS)

Definition:Customer Service is defined as a process of providing significant value addedbenefits to the supply chain in a cost-effective way.

ELEMENTS OF CUSTOMER SERVICE (Nov. 01, 03, May 05, 06)

A] Availability *(Nov. 06)

Availability is the capacity to have inventory when it is desired by a customer. The mostcommon practice to achieve availability is to stock inventory in anticipation of customer order.Availability is based on following three performance measures:

1.

1. Stockout Frequency: Stockout frequency is a measure of how many times demandsfor a product exceed its availability. The aggregation of stock outs of all productsindicates how well a firm is able to provide basic service commitments.

2. 2. *Fill Rate: Fill rate measures the magnitude of stockouts over time. E.g. if a customerorders 50 units and only 47 units are available, the order fill rate is 94 % (47/50). Justbecause a product is out of stock does not mean that a customer requirement is goingunsatisfied. Before a stockout affects service performance it is necessary to forecastcustomer requirements then to identify the product unavailability and to determine howmany units customer wanted. Stockout frequency and fill rate are inversely relatedthrough order quantity. i.e. if a firm places larger order the stockout frequency will beless and the expected fill rate will be higher.

3.

3. Orders Shipped Complete: It is a measure of time when a firm received the entireinventory ordered by a customer. It indicates the potential times that customers willreceive perfect orders.

B] Operational Performance

1. Operational Speed: Performance speed is the interval between placement of order andshipment arrival. Depending upon the logistical system design, the speed can be as shortas a few hours or as long as several weeks. In critical situation service can be performedin a few hours by special delivery or on overnight basis. But every customer does notneed maximum speed if it results in increase in logistics cost.

2.

Operational Consistency: Consistency refers to a firms ability to perform at theexpected delivery time. When a form fails to be consistent it forces customers to carryextra safety stock to protect against possible late delivery.

3. Operational Flexibility: Flexibility refers to a firms ability to handle extraordinarycustomer service requests. The events that requires flexibility are:

- Modifications in basic service arrangements


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- Product modification

- Product introduction

- Product phaseout

- Product recall

- Disruption in supply

C] Reliability

Reliability refers to logistics quality i.e. ability of firm to comply with levels of plannedinventory availability and operational performance. Reliability also includes firms capability toprovide accurate customer information regarding logistical operations and order status.

OBJECTIVES / IMPORTANCE OF CUSTOMER SERVICE (May 06)

1. Maintaining customer loyalty and level of satisfaction.

1. Receiving repeat orders from customers.2. To win new customers and keep existing customers3. An edge over competition

CUSTOMER RETENTION

Once a customer is own by a company, it must be retained such that customer keep coming again

and again. This depends on the Customer Service. For that the company has to motivateemployees and to reinforce the service concepts with top management.

Advantage:

1. Retaining more customers result in higher profit.2. The cost of retaining customers is much less than to acquire them.3. It helps in strengthening and expanding customer base.4. If a regular customer were lost, then it would cost very heavily to generate new customer.

Methods:

1. Offer only quality services and products2. Demonstrate the use of product or services3. Provide responsive customer service4. Share testimonials of customers with other potential customers5. Educate the customer about the market and value of the business6. Invite customers opinion and feedback on products or services


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CHAPTER 8TRANSPORTATION AND INFRASTRUCTURE

INTRODUCTION

Transportation is an essential and major sub function of logistics that creates time and placeutility in goods. Transportation management covers the area of Shipment Scheduling / Routing,

Frei1ht Cost, Carrier Selection, Shipment Tracking and Parcel Management. It helps us to makethe best use of available resources and keeps informed on all transportation process.

COST STRUCTURE *(Nov. 01, 02)

Basically there are two cost contents involved in transportation process: (Diagram 79)

1. Fixed CostFixed cost is the expenses related to the procedural part like cost of documents, salaries ofpersonnel, rent of the office etc. As per the product needs and the environments, loading and

unloading charges are included in fixed cost.

1. Variable CostAmong all logistic factors variable cost consumes main expenses. It concentrates on the productrelated and market related aspects:

i) * Product related aspects are the physical attributes of products, like:

- Densitye.g. density of sand is more than Cotton

- Size / ShapeTransportation cost per unit weight decreases with the size of the consignment.

- Space filling capacitye.g. space-filling capacity of iron flat is more than that of chairs ortables.

- Difficulties in handlinge.g. product like electronic items like TV are difficult to handle sincethey are easily get damaged.

ii) * Market related aspects are:

- Distance to be traveled to customerThe cost decreases with increase in the distance.

- Government regulations, Octroy, Road Taxes, Tolls, etc.

- Intra-mode / Inter-mode

- Freight Traffic

- Domestic / International Transport


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- Season Effect

FUNCTIONS OF TRANSPORTATION (Nov. 06)

1. Product Movement: Transportation facilitates the movement of raw material, semi-finished items, WIP, finished goods, packaging material, rejected material.2. Product Storage: Transportation provides temporary storage in stationary vehicles orVehicles kept moving on a circuitous route. Though the product storage is expensive in atransport vehicle, but this is adopted in case of:

1. when unloading and loading is more expensive than storage.2. when storage space is limited.

SELECTION OF CARRIERS / MODAL CHARACTERISTICS(Nov. 04, May 07)

In selection of a transportation mode, the transportation

managers consider the following criteria.1. Cost: It includes freight charges, warehousing, buffer stick, broker fees, custom charges

octroy etc. Generally cost per mile is considered which is should be economical.2. Transit Time: It is the time from the shipment of goods to the receipt of goods at the

destination. It should be as less as possible.3. Speed: Methods of working for the delivery of goods to the customers place should

ensure the on time delivery.4. Safety: Safety of goods at every level from start to the end of delivery should be ensured.

Proper packaging should be done to avoid any damage to quality or quantity of goods.5. Claims Record: Claims against damages, pilferage or theft of goods should be available.

Though the supplier gets money back but the customer remains unsatisfied in such cases.6. Responsiveness: Transporter has to respond the changing needs of the supplier and heshould be able to handle various products.

7. Capability: Transporter should be in a position to deliver the goods at any remote areas.He should have large number of geographic service points.

8. Accessibility: Transporter should be easily accessible by providing door-to-door pick upand delivery.

9. Reliability: It is the meeting of schedule on time as per requirement of the customer.Faster the mode reliability increases, but it has to be weighed against cost.

MODES OF TRANSPORTATION(May 06)

1. Airlines

Air transport is mainly used for international transport and in emergency rather than in normaltimes.

Advantages:


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1. It is the fastest mode of transportation.2. Fixed costs are lower than rail or road or pipeline.3. It brings distant markets closer.4. It overcomes the hassle and cost of setting up depots and service centers overseas.5. Full potential of peak seasonal demand can be exploited.6.

Makes test marketing easyProducts can be shipped directly from the factory

Disadvantages:

1. Most expensiveOperating costs are highest.2. Generally used to transport small volume items.3. Certain categories of items are not allowed4. Require secondary mode of transport to deliver to ultimate customer

2. Water Transport

This mode of transportation is the link between countries separated by water. Water transport isclassified into deep-water transportation and inland water transportation on lakes, rivers orcanals.

Advantages:

1. Water transport has low capital costs and low operating costs.2. Heavy and bulk goods of large quantities are transported by this mode.3. Private or for hire shippers available in water transport.

Disadvantages:

1. Water transport is limited due to availability of harbor.2. Water transport is the slowest mode of transportation.3. Require secondary mode of transport to deliver to ultimate customer.4. Deep-water ships designed for ocean and lakes are limited to shallow-water ports.5. Shallow water vessels like diesel-towed barges are flexible but are limited by their range

of operations and speed.

3. Railways

Advantages:1. Railways is comparatively fastest mode of transport2. Railways is an inexpensive mode of transportation3. Railways are suitable for large quantities.4. Railways provide door deliveries for industries.

Disadvantages:


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1. Unreliable mode especially for high value goods and directly usable consumer goods.2. Railways lack flexibility of high-speed delivery.3. Railways require modal combination alongwith roadways.4. Rail network needs a high capital investment due to right of way, switching yards,

terminals.

4. Roadways

Advantages:

1. SpeedyDeliver the goods directly to the consignee very fast.2. Highly flexiblehandling different types of goods3. Ultimate modeconsignment reaches the doorsteps of the customer.4. Low capital cost as compared to railways.5. Private or for hire shippers available.

Disadvantages:

1. Higher operating costsdue to fuel requirement and higher labor requirement.2. Occasional fuel shortagesleads to delay in delivery.3. Strikes of carriersdue to disputes with government making the transportation idle.4. Limited availability of trucks poses a constraint.5. Octroiposts are notorious for delays and harassment of carriers.6. Restrictive permits for licensesimposed by the government all over the country.

Pipeline

(Nov. 01)Pipeline mode of transportation facilitates the movement of liquids like oils; crude petroleumproducts and water etc. In India more than 5,000 km of pipeline exists for crude and petroleumproducts. Slurries, gases, vapors and solids in powder form are also transported in pipelines.

Advantages:

1. Pipelines are reliable modepilferage and loss of product is not possible.2. Pipelines have low energy consumption.3. Pipelines being under ground, space occupation is minimal.4.

Pipelines operate all the time except when it is shut down for maintenance.5. No need to bring back empty container or wagon.

Disadvantages

1. Highest fixed costsdue to lying of pipeline but lowest operating costs.1. Pipelines are fixedso the accessibility of product is limited on the rout.


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2. Only liquid commodity can be transported.INTERMODAL

TRANSPORTATION (Nov.

03, May 05, 06)Intermodal transportation is the use of more than one mode of transport to move a shipment to itsdestination. Intermodal movements combine the cost and service advantages of two or moremodes in a single product movement. Benefits of long haul, short time & flexibility areoptimized for achieving overall cost reduction

Depending upon the type and amount of goods, time of delivery, and prices following threeIntermodal combinations are available:

1. Piggyback: It is coordination between railways and road transport. It is also called asTOFC (Trailer on Flatcar) or COFC (Container on Flatcar). In piggyback the motorcarrier trailer placed on rail flatcar, which moves the trailer by rail for a long distance.Then the motor carrier moves the trailer for short distance for deliveries. Here theplacement of trailer on a railcar can lead to damages.

2. Fishyback: It is coordination between waterways and road transport. In fishyback thetruck or trailer rides on the ship for small portion of its journey. This service is providedin coastal waters between Atlantic and Gulf ports.

3. Birdyback: It is coordination between airways and road transport. In birdyback the majorportion of journey is covered by airways then the cargo is transported by trucks ortrailers.

4. Others: Water and railways, air and railways, air and waterways, pipeline and water,pipeline and roadways etc.

INALND CONTAINER DEPOTS (ICDs)

ICDs are dry ports at a distance far away from the shoreline and handle all the import exportformalities. This a large warehouse where exporter books his cargo and completes all exportformalities. Then ICD moves the containers to natural seaport. The customs department,shipping companies, handling agencies, banks, customs house agents and clearing andforwarding agents are all based at the ICDs.

Advantages / Uses

1. Connect major ports to hinterland i.e. land deprived of natural deep-water ports becauseof geography.

2. Handle containers from road and rail to a container yard.3. Performing activities like weighing, inspection of scales, damages and safety stickers.4. Facilitate customs clearance and export import formalities.5. Increase the export potential of industries in the hinterland and also simplifies import of

goods by hinterland.


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6. Decongest major ports.JNPT is directly connected to the following ICDs:

Ludhiana Kerala Nagpur

Wadibunder Chinchwad Bangalore

Chennai Jaipur Jodhpur

Baroda Mirage Kandla

Mulund Delhi Sabarmati

Hyderabad Pune Visakhapatnam

Muradabad Kolkata Pitampur

TRANSPORTATION NETWORK OPTIONS

1. 1. Direct ShippingFrom shipper directly to retailers.2. 2. Direct Shipping using Milk RunsSingle supplier to a number of retailers, deliver

like a milkman.3. 3. All Shipping via CDC Suppliers send the supplies to Central Distribution centers

and distribution center caters the needs of retailers.4. 4. All Shipping via CDC Using Milk RunsSuppliers send the supplies to CDC and

from CDC to large number of suppliers.

5.

5. Tailored Network - Tailor made network as per the company needs. One model forsome logistical mission and another model for some other mission.

Milk Run

Milk Run is a transportation network, in which Suppliers send the supplies to CDC and fromCDC to large number of suppliers. Milk Run reduces out bound transportation costs byconsolidating small shipments.

CROSS DOCKING (Nov. 02)

Cross Docking is a new logistics technique used in the retail and trucking industries whichmeans receiving goods at one door and shipping to the other door almost immediately withoutputting them into storage.

Advantages / Objectives

1. It helps to reduce operating costs by eliminating handling and storage of products.2. It helps to reduce inventory level by direct shipment to the customers.


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3. It helps to increase sales by providing on time delivery to the customers.4. It encourages the electronic communication between the supplier and retailers.

TERMINAL DELAYS

Delays which take place at terminals due to documentation problems, congestion, poor unloadingfacilities etc. Influence vehicle turnaround time. Adds cost to transportation, as vehicle isunutilized. E.g. at sea port or airport cargos can get stuck.

Hidden Cost of Transportation(May 05)

CHAPTER 9TRANSPORTATION TO WAREHOUSES

Unbalance Transportation Problem (May 05)

A transportation problem is balanced if the rim requirements are same, i.e. the sum total of the

plant capacities is equal to the sum total of the market requirements. But in most of the practicallife problem both are not same, i.e. it is unbalanced transportation problem. In this situation, theunbalanced problem is to be balanced for solution purpose by introducing a dummy plant or adummy market as the case may be.

CHAPTER 10LOGISTIC INFORMATION SYSTEM (LIS)

Definition of LIS

LIS is an interacting structure of people, equipment and procedures that together make relevantinformation available to the logistics manager. LIS is a part of Management Information System.

Objectives of LIS

1. Obtaining correct and prompt information.2. Maintaining and updating the information collected.3. Communicating the information to all the concerned as and when required.4. Taking proper decisions at all levels in the organisation.5. Supporting planning function.

Importance of LIS

1. LIS is a key element to develop logistical competence.2. LIS integrates various activities of logistics.3. LIS is one of the three pipelines managed by logistical management.4. LIS is important to customer service.5. LIS underwent revolutionary change due to changes in technology.

Primary Activities of LIS


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1. Receiving, analysing, processing and storing related information within organisation.2. Communication of data to the decision makers.3. Communication of information to the supplier, service providers and customers.4. Receipt of feedback from external sources (supplier, service providers and customers)

Information Functionality

The organisation has different functional levels. Each level has different needs of information.

1. Operating levelIt is the lowest level. Generally data gets generated here which istransferred to further level to take decision in the form of information.

2. Control levelHere the efforts are to be taken to improve efficiency of the operatinglevel by analysing the information.

3. Decision levelHere the manager has to evaluate the information to see the operationsand customer needs are equalised

4. Policy levelManager has to decide the policy on the basis of factors warehouse,transportation system etc.

Electronic Data Interchange (EDI)(Nov. 06)

EDI is the electronic, computer-to-computer transfer of standard business documents betweenorganisations. EDI is extensively used in ILIS (Integrated Logistics Information System) toenhance the speed, timeliness and accuracy of the information. EDI has replaced the traditionaltransmission of documents such as mail, fax etc.

Benefits of EDI

1. Greater accuracy due to reduction in manual processing.2. Faster speed in order processing.3. Reduced clerical efforts in data entry, filing, mailing and related tasks.4. Reduced inventory due to reduced order cycle time.5. Increased productivity though faster information transmission.6. Improved channel relationships by reducing number of individuals involved in data entry.7. Decreased operating cost by reduction of labour and material cost associated with paper

work and telephone fax expenses.8. Increased ability to compete internationally

Strategic Role of IT in Logistics Management(Nov. 04, May 07)

CHAPTER 11LOGISTIC PLANNING PROCESS

Role of Planning in Logistics Management (Nov. 02)

Role of planning is central to logistics management Mission of logistics management is to plan and coordinate all those activities necessary to

achieve desired levels of service and quality at lowest possible cost.


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Logistics is fundamentally a planning concept that seeks to create a framework throughwhich needs of the marketplace can be translated into a manufacturing strategy and plan.

To match the changing environment in the logistics due to the changes in the markets,competitors, suppliers and technology, there is a need for a systematic planning.

CHAPTER 12FACILITIES LOCATION DECISIONS

Factors for Selection of Location:

1. Availability of Land2. Manufacturing Facility3. Taxation and Regional Concession4. Access to Transport5. Power, Fuel, Water6. Climate7. Availability of Workforce8. Union Activities9. Political Pressure10.Bank and Finance Facilities11.Raw Material12.Safety and Social Security13.Supporting Industries14.Market Site15.People Culture and Site

CHAPTER 13INVENTORY CONCEPT

DEFINITION OF INVENTORYInventory may be defined as usable but idle resource. Inventory management is the job basicallydone for maintaining the stock.

NEEDS OF INVENTORY

1. Smoothing out irregularities in supply: Inventory of raw materials provide a buffer toovercome the problems of uncertainties in supplies such as delayed deliveries and supply

of short quantities by vendors.2. Dealing with uncertainty of demand: The customer demand may increase suddenly, insuch case an inventory of finished goods will act as a buffer against the uncertainties indemand.

3. Buying or producing in batches: When the demand for a good does not require itscontinued production, it is produced in batches. Thus during the period when the good isnot being produced, demands are met from the inventory which is accumulated from thebatch production.


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4. To meet seasonal demand: When the demand is seasonal it may become economical tohave inventory during period of low demand to ease the strain of peak period demand.

5. To take quantity discount: Inventories may also be built up take advantage of pricediscounts, as hedge against anticipative price rise in the future.

6. To maintain continuity in production process: It is necessary to maintain in-processinventories or pipeline inventories at different stages in a manufacturing process tocontinue production process smoothly without any work stoppage and delay.

7. Stock built up for Scale of economy: Inventories may also be maintained to get theeconomy of scale so that total cost due to ordering, carrying and backlogging areminimized.

TYPES OF INVENTORY

1. Raw Material I nventory

Raw Material ITR = Annual use of RM

Average RM

2. Work-in-Process Inventory

Work in Process ITR = Cost of Manufacture

Average WIP

3. F inished Goods Inventory

Finished Goods ITR = Cost of Product Sold Yearly

Average Inventory of Product at Cost

4. Spares and Other Indirect Materials

PIPELINE INVENTORY (Nov. 01)

In any manufacturing organization the material undergoes different stages of processing from thesupplier place to the buyers place. These stages are called pipeline. There is no problem when

material moves from one department to another, but material waiting anywhere is not good.

Indian industries have longer pipeline, as the organization is more sophisticated. Longer thepipeline, longer the time material waits. The value is added on the material only at stages whereit is being processed, but no value is added where it waits. So it is referred as waste.

Storage of material at any stage, inspection of any kind, packing, rejection, rework and lead-timeetc. are the operations to be eliminated. That is exactly done in the process of JIT. Theseactivities add to the cost of product and not to the value of the product. The customer is notwilling to pay for these.


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In the pipeline there are two types of periods involved:

1. Period in which the material is under the process on machine. Value addition activity.2. Total period when material is kept in any form / place in the organization.

The ratio of B to A should be 1, which is ideal, but it may be difficult.

LEAD TIME (Nov. 04, May 06)

Lead Time is an interval between placement of order and delivery of material. It is a measure oflogistical performance. Logistic manager should ensure minimum lead-time so that the materialarrived as soon as possible. Local supplier needs the shortest lead time while the out of townsupplier requires much longer lead time. Lead-time also varies from supplier to supplier andeven same supplier will have different lead times for a given item at different times. Variationsin lead are one of the most difficult logistical problems.

RE-RODER LEVEL (ROL) (Nov. 06)

ROL is that inventory level at which an order should be placed to replenish the inventory.

ROL = Lead Time x Average Usage

If safety stock is present then reorder level becomes:

ROL = Safety stock + lead time consumption

SAFETY STOCK(May 07)

Safety Stock is a component of average inventory that takes care of short-term fluctuations inlead-time and consumption.

Factors Affecting Level of Safety Stock:

1. Value of Item: Safety stock for high value items need be low.2. Criticality of Item: Safety stock for critical items that affect the business need be high.3. Lead Time: Longer the lead-time more is the chances of fluctuation and hence more is

the requirement of safety stock.4. Number of Suppliers: If more number of suppliers is available for an item, there is no

need to keep high level of safety stock, as it can be procured from any alternate source.5. Availability of substitutes: Lesser safety stock can be kept for items where substitutes areeasily available.

6. Risk of Deterioration: It is better to have low safety stock where the cost of deteriorationis more then the cost of stock out.

Role of Finished Goods Inventories in Physical Distribution System (May 07)


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Inventory Functionality and Principles (May 04, Nov. 04)

CHAPTER 14ANALYSIS OF INVENTORY

SELECTIVE INVENTORY CONTROL

Each item of inventory has its own criteria of importance, thus depending upon the type andimportance of the inventory there will be variations in the controls employed. This is theselective control of inventories.

Methods of Selective Inventory Control(Nov. 04, May 06)

1. ABC Analysis2. VED Analysis3. FSN Analysis4. P&Q System

ABC ANALYSIS (Nov. 02)

Principle: The basic principle of ABC Analysis is 10 percent of items hold 70 percent of value.

Under ABC Analysis:

A category items account for 10% of item & 70% of the value. B category items account for 20% of item & 20% of the value. C category items account for 70% of item & 10% of the value.

Mechanism: The steps involved in ABC Analysis are as follows

1. Calculate the Annual Consumption Value (ACV) for each item by multiplying thenumber of units with the unit price of the item.

2. Arrange all the items in the order of descending sequence of ACV.3. Calculate the cumulative ACV for each item.4. Calculate the cumulative percentage ACV for each item.5. Locate the items in the list for which cumulative ACV is 70%. Categories all the

previously listed items upto this item as A category item.6. Locate the items in the list for which cumulative ACV is 90%. Categories the items listed

after A category item upto this item as B category item.

7. Categories the remaining items as C category item.Advantages: (Application in Inventory Management) (Nov. 03)

1. It helps to have a selective inventory control.2. Safety stocks are kept low for the high value items to reduce total inventory costs.3. Safety stock is kept much higher for low value items to prevent stock-outs.


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Disadvantages:

1. It should be reviewed periodically so that changes in prices and consumption are takeninto account.

2. Importance is given only to the annual consumption value of items and not its criticalityfor the production.3. It does not apply to the dependent demand inventory, which is controlled by MaterialRequirement Planning (MRP).

VED ANALYSIS

Principle: VED Analysis classify items into three categories depending upon the consequencesof material stock out when demanded.

Under VED Analysis:

Vital items are the most critical which can cause stoppage of the production, if notavailable, hence should be available in stock at large.

Essential items are quite critical whose non-availability may not adversely affectproduction; hence a low stock of essential items should be available.

Desirable items do not have very serious consequences if not available but can bestocked.

FSN ANALYSIS

Principle: FSN Analysis classify items into three categories depending upon the past

consumption pattern. Inventory policies and models for these three categories have to bedifferent.

Under FSN Analysis:

Fast moving items are those which drawn frequently from stores. Slow moving items are those which drawn only once or twice a year from stores. Non-moving items are those which not at all drawn for the past two years from stores.

INVENTORY CONTROL SYTEM (May 06)

1. Fixed Order Quantity System (Q-System)

Here the quantity to be ordered is worked out as the EOQ and the minimum stock level is alsoworked out. When the stock in hand reaches this level, an order is placed for q quantity equal tothe EOQ.

Features of Q-System


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1. Reorder quantity is always the same, which is equal to the EOQ2. Time interval between the orders varies.3. Reordering is done when the stock in hand is equal to safety stock plus the lead-time

consumption.4. Minimum inventory will be equal to the safety stock.5.

Maximum inventory will be equal to the safety stock plus order quantity.6. This system is used for low value items where orders are placed infrequently.

2. Fixed Order Period (P-System)

Here the stock in hand is reviewed at periodic intervals and an order is placed which varies withlevel of stock in hand. It is also known as Periodic Review System and Order CyclingSystem.

Features of P-System

1. Review period is decided to minimize the sum of annual procurement cost and annualinventory carrying cost.

2. Quantity ordered is decided depending upon the stock in hand, so that it will take care ofthe requirement till the next review period.

3. The interval between two orders is fixed.4. This system is used for high value items needing a strict control.

CHAPTER 15ECONOMIC ORDER QUANTITY

ECONOMIC ORDER QUANITY (Nov. 02, 04)

EOQ is the technique, which solves the problem of the inventory management. It is the order size

at which the total cost; comprising ordering cost plus carrying cost, is the least.

The cost of carrying inventories is called Inventory Carrying Cost and the cost of purchasingand processing the order is called Ordering Cost. One of the most important goals in materialsdepartment is to strike the most economic balance between ICC and OC in determining orderquantity.

The graph shows the relation of the ICC and OC. As the order quantity increases the orderingcost reduces. While the ICC goes on increasing with increase in the order quantity. But at acertain stage it is equal to the OC. This is shown by the crossing two lines, this is known asEconomic Order Quantity (EOQ).

Formula

Q = _2BA_

PC

Q = Order quantity


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A = Annual consumption

B = Order Cost

P = Price per unit

C = Carrying cost percent

T = Total ordering cost

Assumptions of EOQ(Nov. 02)

Following assumptions are implied in the calculation of EOQ

1. Demand of the material occurs uniformly over the period at a known rate.2. Delivery of the materials is instantaneous.3.

Price per unit is fixed and is independent of order size.4. Ordering cost is fixed and does not vary with the order size.

5. Carrying cost varies directly and linearly with the order size and expressed as percentageof average inventory cost.

6. Lead-time i.e. interval between placing order and receiving inventory is zero.7. Materials can be procured in any desired quantity; there is no any restriction of quantity.8. Materials have fairly long shelf life; there is no fear of deterioration or spoilage.

Limitations of EOQ (Nov. 02)

1. The assumptions of EOQ may not true in real life, thus limiting the use of EOQ model.2. Price of material may not remain same throughout the year.3. There can be delays in real time situation in placing orders.4. Formula presumes that the usage of materials is both predictable and evenly distributed.

Which may not be possible.5. Ordering cost varies from commodity to commodity and the carrying cost can vary with

the companys opportunity cost of capital.6. Often inventory carrying cost and ordering cost cannot be identified accurately and

sometimes cannot be even identified.7. Calculation of EOQ is time consuming and expensive. In many cases, the cost of

calculating EOQ exceeds the savings made by buying that quantity

EOQ V/S JIT (May 05)

CHAPTER 16INVENTORY CONTROL METHODS

JUST IN TIME


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JIT is an organized approach to introduce in manufacturing cycle timelines, quality, productivity,flexibility, and work simplification and waste reduction. This is a technique from TQM activity.Basically this is waste control method; it is not the inventory control technique.

TECHNIQUES USED IN JIT

1. KanbanAn Integrated JIT System

Kanban stands for Kan-card, Ban-signal. Kanban concept suggest that a supplier or thewarehouse should only deliver components to the production line as and when needed, so thatthere is no storage in the production area. In this system, workstations located along productionlines only produce or deliver desired components when they receive a card and empty container.

Advantages of Kanban Process:

1. It is a simple and understandable process.2.

Provides quick and precise information.3. Provides quick response to changes.

4. Low costs associated with the transfer of information.5. Avoids over production.6. Minimize waste.7. Delegates responsibility to line workers.

2. Group Technology (GT)

GT is a modular manufacturing system, which involves organizing machineries so that relatedproducts can be manufactured in a continuous flow. Here, products flow smoothly from start to

finish, parts do not wait for move. This can be contrasted to a typical production system, wheremachines are grouped by function and products move from one function to another and backagain. This results in long waiting times between procedures.

Benefits of GT

1. Reduction in work in process2. Reduction in over all stocks of material3. Reduction in overdue orders4. Increase in out put per employee5. Simplification of material flow system.6. Improvement of production and planning control7. Improvement in material handling

3. SMED (Single Digit Minute Exchange Die)

SMED is a technique for performing setup operations in number of minutes expressed in a singledigit. Mr. Shingo revolutionized the SMED method since 1950 in Japan. E.g. Bottling industriessometimes spend more than 20% of their planned production time on changeovers. These setup


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and changeover times can be reduced significantly when the changeover SMED system isapplied.

4. JIDOKA (Automation)

JIDOKA is the concept of adding an element of human judgment to automated equipment. Sothat the equipment can identify unacceptable items and the automated process becomes morereliable. JIDOKA means not allowing problems to pass from one workstation to the next. Suchthat the production of a defective part is detected immediately and machine responds by stoppingand requesting help. E.g. In Toyota power loom the shuttlecocks would stick and create defectsin the cloth being produced. The Toyota loom incorporated a simple stopper that was activatedby a sticking shuttlecock. The operator could stop machine when the shuttle would stick.

Objective of JIDOKA

1. Ensuring 100% quality.2. Preventing equipment breakdowns.3. Using manpower efficiently.

5. Total Productive Maintenance (TPM)

In any factory it is necessary to run all the equipments on continuous basis to get maximum output. It is found that generally that does not happen. There is loss if any tool or machine is not inuse. Due to any reason like material not available or the machine is not working. In order toavoid such losses TPM is implemented. For this purpose following steps should be taken.

1. All the reason for the loss of equipment should be avoided.2. Preventive Maintenance program is to be made.3. Operator should be given training to maintain his equipment when required.4. Autonomous maintenance by the operator is to be done.

6. Pokayoke (Mistake Proofing)

Pokayoke invented by Shigeo Shingo in the 1960s. The term Pokayoke comes from the

Japanese words poka(mistake) and yoke (prevent). Pokayoke suggest that people are humanand cannot be expected to do everything like a machine, exactly the same each time. The basicprinciples of Pokayoke advocate developing tools, techniques and processes such that it isimpossible or very difficult for people to make mistakes. E.g. a plate that must be screwed downin one orientation only could have the screw holes in non-symmetrical positions so that it canonly be screwed in the right orientation.

Vendor Managed Inventory (May 07)

Management of inventory is passed on vendor. Purchase order is redundant. Strong mutual stakein each others business is a basic requirement. It is beneficial to both customer and supplier.


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Methods for Improving Inventory Management Performance (Nov. 06)

CHAPTER 17PURCHANING AND PRODUCT SCHEDULING DECISIONS

PRINCIPLES OF PURCHASE (7-R RULE)

The supply chain management is controlled by the purchase function. The purchase function isassuming the following seven principles known as 7Rs.

The Rule of seven Rs means, buying the material

1. at right price2. of right quality3. in right quantity4. at the right time5. from the right source6. at right place7. with right mode of transport

- This is basic factor in logistics management.

- It is the link between the production unit and the customer directly or through the warehouses.

- Logistic cost based mainly on customer service. Better service and supplies provides economicadvantage to the customer.

- The suppliers logistic manager has to balance the high service level that the customer desiresand the belief that the supplier may gain from possible increased sales against the cost of

providing that services.

ORDER PROCESSING CYCLE (May 07)

1. Getting Requisition from User Departments: The department in need of a materialpresents a completed requisition form. Such requisition form includes details likedepartment name, requisition reference number, description of the material, quantityrequired, suggested supplier, purpose and the approximate date when the material will berequired, followed by the name and signature of the person preparing and authorizing therequisition form.

2. Sending Enquiries for Quotations: Purchase department invite suppliers to quote therates materials. For this purpose a standard format is used which is similar to a purchaseorder, except that words such as this is only a request for quotation or this is a not apurchase order are printed so as to ensure that the supplier does not construe the request

for quotation as a firm order.3. Negotiating with Vendors to Fix the Price: If the presented cost does not match the

companys budget, the purchasing department can negotiate with the seller price andterms are met with. Another method that can be adopted here is competitive bid method.


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This method is widely used by governmental purchasing departments because ofstatutory requirements but also applied by industrial purchasing department.

4. Preparation of Purchase Order and Placing the Order: Having selected the supplierand the rates agreed, the buyer places the purchase order; expressing terms andconditions. All orders should be in writing and should be on the buyers purchase order to

avoid possibility of level difficulties. When order is placed by telephone it is the practiceto confirm the order by sending the supplier a regular order.5. Follow Up with Vendor: After the order has been placed, the purchasing department has

the responsibility of following-up of the order. Follow-up essentially holds the supplier tohis promise of delivery. A follow-up procedure is must when the costs or risks resultingfrom delayed deliveries or non-deliveries are greater than the cost of follow-upprocedures.

6. Receipt of Material, Inspection and Storing the Material: The material should beinspected properly, checked for its quality as well as quantity. In addition to this, itshould be reserved in a proper room in a disciplined manner, so it is easy to recover it atany point of time.

7.

Maintenance of Records: Purchase orders requisition and similar other legal contractsand documents should be preserved. Since they constitute the authority on which thepurchasing department had taken its actions to a given item.

SUPPLIER SELECTION (May 05)

While selecting the suppliers, the following factors must be taken into account:

1. Lead times and on-time delivery:

What lead-time the supplier can provide.

What procedures does the supplier have for assuring on-time delivery? What procedures does the supplier have for correcting delivery problems?2. Price:

Are prices given reasonable? Is the supplier willing to negotiate prices? Is the supplier willing to engage in a joint effort to reduce costs by value analysis?

3. Qualities and Quality Assurance:

What procedures does the supplier have for quality control and quality assurance? Problems and corrective actions for quality are considered or not.

4. Product or Service Changes:

How much advance notification does the supplier give when changes are made inproducts or services?

To what extent does the buyer have inputs regarding changes?


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5. Flexibility:

How flexible is the supplier in handling changes in quantity, delivery schedules andproduct or services design changes.

6. Reputations and Financial Stability:

What is the reputation of supplier? How financially stable is the supplier

7. Location:

Is the supplier located nearby?SUPPLIER EVALUATION (May 05)

For rating the suppliers, following factors should be considered:

1. Reliability in all Fields:

Is the supplier reputable, stable and financially strong? Is the supplier going alongwith product development? Is the suppliers competitive strength proved by past experience?

2. Technical Capabilities:

Can he provide assistance as to the application engineering?

Can he provide assistance as to the analytical engineering? Can he provide design assistance?

3. Convenience to deal with:

Can he help to reduce the acquisition cost? Is he qualified to help in solving difficult problems? Does he pack his product conveniently?

4. Availability:

Does he assure delivery in time?

Are his stocks locally available at short time? Can he plan his supply to minimise the inventory.

5. After-Sales Services:

Does the supplier have a service organisation? Is an emergency service available?


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Are parts available when needed?6. Sales Assistance:

Can the supplier help in building mutual market.

Will he recommend our products? Does his products enhance the appearance of our products.

OUTSOURCING

Outsourcing is the contracting companys business process to outside service providers for

increasing firms profitability by primarily reducing overall operating cost and focusing on corecompetencies.

Objectives of Outsourcing

1. To reduce operating costs.2. To focus on core competent functions.3. To acquire new skills.4. To avoid labour problems.5. To avoid financial risks6. To improve flexibility in functions.7. To enhance market credibility.8. To improve overall market performance.

Process of Outsourcing (May 07)

CHAPTER 18

LOGISTICS ORGANISATION

Logistics Interface with Marketing (Nov. 01)

Outbound logistics plays an important role in selling the product of the company through thedistribution system. Relation of logistics with 4Ps of marketing can be explained as follows:

1. Price: Logistics enables marketing to quote a competitive price by providing discountopportunities on account of transportation cost savings. Logistics Management has tobalance inventories to tackle anticipated price-triggered sales.

2. Product: Size and shape of the product are quite important for logistics. Weight/volumeratio plays very important role in deciding economics of logistics.3. Promotion: Logistics Manager and Marketing Manager need to work closely in decidingpromotional strategies for the product in order to manage inventory needed to match salestriggered by promotional activities in the market.

4. Place: Marketing decision to distribute the product directly to retailers or throughwholesalers has a great impact on logistical operations. Retailers demand often requirestime sensitive transportation methods, which are expensive.


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RESPONSIVE ORGANISATION (Nov. 06)

The competitive scenario at marketplace necessitated the logistics organisation to be responsive.It seeks to put customer at the center of business and design new systems and procedure toimprove the response. Logistics organisation should change its systems:

1. From function to process: emphasis on managing processes rather than managingresources.

2. From profit to performance: emphasis on efficient performance, profit will follow.3. From products to customers: emphasis on customer value and not on brand value.4. Form transaction to relationship: emphasis on long-term relationships with customer and

supplier rather than just having business transactions.

CHAPTER 19LOGISTICS COSTING AND PERFORMANCE AUDITING

TOTAL COST ANALYSIS (Nov. 02)

The expenses involved in logistics activities are:

1. Procurement Cost2. Inventory Cost3. Warehousing Cost4. Material Handling Cost5. Packaging Cost6. Transportation Cost7. Distribution Channel Cost8. Customer Service Cost9. Communication and Information Processing Cost

Activity Based Costing V/S Mission Based Costing (May 04)

Activity Based Costing (Nov. 02, May 06, 07)

Activity based costing is based on the concept that the expenses need to be assigned to the valueadding activities rather than to budget unit. It suggests that business activities are made up of aseries of activities that consumes costs.

Advantages(May 06)

1. It provides better operational performance.1. It provides information about cost drivers and the relationship of these drivers with

resource consumption.2. It gives more accurate picture of the expenses and helps managers to make strategic

decisions about costs.3. It identifies the activities to be improved in order to reduce the cost4. It simplifies the internal audit operations


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Mission Based Costing (Nov. 02, 03, 06)

Mission based costing seeks to identify unique costs that are generated as a result of specific logistic activities

with a mission to achieve certain objectives in a specific market. It is the logistic costing which can identify

the total costs of meeting a desired mission.

Stages of Implementing MBC

1. Define the customer service segment2. Identify the specific resource use to support that customer segment3. Identify the factors that produce variations in the cost of service.4. Attribute activity costs by customer segment.

LOGISTICS PERFORMANCE MEASUREMENT

Performance measurement is a process of monitoring and evaluating activities to determinestheir conformance to the requirements.

OBJECIVES (May 06, Nov. 02, 03, 06)

1. Monitoring Measures: To track historical logistics performance for reporting tomanagement and customers mainly on service level achieved and logistics costcomponents. It may be monitored daily, weekly, or monthly depending upon the volumeand criticality.

2. Controlling Measures: To track ongoing performance and refine a logistics process inorder to bring it into compliance when it exceeds control standards. To compares theactual performance with the set standards. E.g. transportation damages tracking. If asystem can periodically report the product damage, logistics management can identify the

cause and adjust the packaging and loading process as needed.3. Directing Measures: To motivate the warehouse or transportation personnel to enhance

their performance. E.g. pay for performance practices to encourage achieving higherlevels of productivity. When such directed measures are used, it is important that bothpositive and negative performance to be measured.

Internal Performance Measures (Nov. 03)

Internal performance measures focus on comparing activities and processes to previousoperations.

Elements (May 07)

A] Financial Measures:

1. 1. Operating Cost: It reflects the efficiency of effectiveness of the logistics system. It ismeasured in terms of percentage of sales value.


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1. Return on Investment: It indicates whether the investment made in logistical assets likewarehouse, material handling etc. is paying dividends.

B] Non Financial Measures:

1.

Customer Service: It examines firms capacity to satisfy customer. It is measured by fillrate, stock out, or cycle time etc.2. Productivity: It is a relationship between the goods and services produced and the amount

of input utilised by the system.3. Time: It indicates the systems efficiency in terms of response time, lead-time, on time

product shipment, etc.4. Quality: It determines the effectiveness of series of activities rather than an individual

activity.

External Performance Measures (May 04)

The main objective of external performance measures is to understand, maintain, and monitorcustomer perspective.

Elements (May 07)

1. Customers Perception: Customers feedback on delivery, reliability, and responsivenessof the company needs to be regularly obtained to achieve competitiveness in logisticaloperations.

2. Competitors Performance: Customers feedback provides the company a comparativeanalysis of service level and value added services offered by its competitors.

3. Benchmarking:BENCHMARKING ((May 04)

Benchmarking is a process of measuring organisations overall performance against the otherorganisation from the same industry or other industries. It is a part of external performancemeasurement.

History

In the late 1970s When the Japanese competitors Canon and Mitsubishi etc. entered into USmarket, the Xerox company pioneered the process of benchmarking its manufacturing costsagainst these competitors. This concept has become widely accepted in the late 1980s.

Steps in Benchmarking (May 07)

1. Identify the items to be benchmarkedand define them categorically i.e. never take broadsubject area.

2. Create a benchmarking teamand define rules and responsibilities of each member.3. Trace out the benchmark partners, who may be a world-class benchmark leader, articles

from magazines or newspapers, publications of consultancies, trade literatures.


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4. Identify the data collection processfrom different sources such as postal surveys, directinterviews, questionnaire, and research through Internet etc.

5. Finalise the benchmark study, after analyzing all the data discarding the irrelevant andinaccurate data. Compare your companys strength and weaknesses with those of

benchmarking partners. If you find any performance gap between yours and the

benchmarking partners, fill that gap.6. Implement the findings into the task force of predetermined operation, function orservice.

Steps in Performance Appraisal (Nov. 01)

Guidelines for Performance Measurement (May 04)

Factors Affecting Performance Measurement (Nov. 04)

CHAPTER 20WAREHOUSES

DEFINITION OF WAREHOUSING (Nov. 06)

Warehouse is a location provided with adequate facilities, where bulk shipments are receivedfrom production centers, which are then broken into small order size for shipment to thecustomers as per their requirement.

FUNCTIONS OF WAREHOUSING (Warehousing Operations) (Nov. 02)

1. Receiving finished goods from production centers2. Performing quality and quantity checks3. Sorting goods at specific locations4. Packing the products for executing customers order5. Shipping goods by selected mode of transport6. Preparing records and documents of stock.7. Information transfer to management

OBJECTIVES OF WAREHOUSING (May 04, 05, Nov. 04, 06)

1. To fulfill expected customer service level.2. To achieve transportation economies by moving higher volume of goods.3. To achieve economies of scale in production by accommodating additional quantity of

produced.

4. To maintain steady source of supplies by balancing supply and demand.5. To provide mixed products option to customers.6. To provide temporary storage of materials to be disposed off (reverse logistics)

WAREHOUSING DECISIONS (Nov. 03)

1. Type of Warehouses2. Location of Warehouses


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3. Size of Warehouses4. Layout Warehouses5. Number of Warehouses

TYPES OF

WAREHOUSE

(May 06, 07)

1. Private Warehouse

These are the warehouses owned by the company for their exclusive use of storing the goodsmanufactured or traded by them for onward selling in the market.

Advantages:

1. Better control over storage and movement of goods2. Less chance of errors in handling the goods3. Customised design and flexibility in operations4. Cost effective and economic

Disadvantages:

1. Lack of geographical flexibility2. Requires stable demand and high product throughput3. Requires initial larger financial investment4.

Has permanent liability

2. Public

Warehouses

These are the warehouses hired from other agencies for storing the goods for a specific period oftime by paying agreed rent. E.g. Central Warehousing Corporation (CWC)

Advantages:(Nov. 05)

1. Generally located near ports and market place and thus has fixed periodic operating cost2. Great flexibility in location changeover.3. No permanent liability.4. Adjustments as per season are possible.

Disadvantages:


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1. Lack of flexibility in operations2. Not suitable for specialised services.

3. Contract Warehouses

It is a specialised form of public warehouses managed by Third Party Logistics companies forproviding total warehousing services by paying the agreed charges.

Advantages:

1. Great flexibility in location changeover2. No permanent liability.3. Adjustments as per season are possible.4. Availability of expert manpower and dedicated resources.

Disadvantages:

1. Less control on operations2. Performance of organisation depends on the performance on third party

4. Co-operative Warehouses

These warehouses are owned, managed and controlled by co-operative societies. They providewarehousing facilities at the most economical rates to member of society.

LOCATION OF WAREHOUSE

The primary considerations while locating the warehouse are:

1. CostWarehouse may be located near production plant to reduce operating cost.2. Customer ServiceWarehouse may be located near market to serve the customer well.

Steps in Site Selection of Warehouse (Nov. 02)

While deciding the location of warehouse following factors are to be considered:

1. Desired level of customer service2. Nature of product i.e. seasonal, perishable etc.3. Presence of Competitors warehouse4. Marketing orientedcloser to market5. Production orientedcloser to plant6. Cost of distribution to market area7. Availability of transportation facilities and its cost8. Availability and cost of basic infrastructure i.e. power, water, gas, sewerage etc.9. Availability and cost of labour supply10.Local taxation levied by the local authority in the area.


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11.Potential for further expansion of warehouse.12.Geographical hazards like floods, earthquake etc.

DESIGN AND LAYOUT OF WAREHOUSE (Nov. 05)

Steps in Design / Layout of Warehouse (Nov. 02)

1. Number and nature of activities to be performed1. Nature of products to be stored2. Frequency of in and out movement of the products3. Storage and handling equipments to be used4. Total space availability5. Statutory requirements6. Safety and security of people and products

NUMBER OF WAREHOUSES

Factors Deciding Number of Warehouse(May 04, 05, Nov. 04)

1. Desired level of customer service2. Nature of the products3. Presence of Competitors warehouse4. Size of the market5. Number of customer and their buying habits6. Current and potential demand7. Total operating cost of warehouse

SQUARE ROOT LAW (Nov. 03, May 04)

Square Root Law states that the total inventory in a system is proportional to the square root ofthe number of warehouses.

Law: The law determines the extent to which inventory reduces by reducing the numberwarehouses. Provided that the total customer demand remains constant.

L = L1 _W2_

W1

L = Total inventory in future warehouses

L1 = Total inventory in existing warehouses

W1 = Number of existing warehouses


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W2 = Number of future warehouses

Assumptions:

1. Inventory transfer from one warehouse to other is not done.2. Lead-time for supply of goods is constant.3. Customer service level does not change from any warehouse.4. Demand level is well distributed from all the warehouses.

(May 05)

WAREHOUSE DISTRIBUTION CENTER

Warehouses belong to an organisation Distribution center is a separate entityWarehouses stores all products It keeps minimum inventory of high demand

items.It handles products in four stagesreceive,

store, pick and ship.

It handles products in two stagesreceive and

ship.It performs minimum value added activities. It performs more value added activities.It focuses on reducing operating costs It focuses on maximizing the profits.

CHAPTER 21MATERIAL HANDLING AND PACKAGING

MATERIAL HANDLING SYSTEM

Material handling is a process of movements of raw materials, WIP and finished goods within a facility most

efficiently at the lowest possible cost.

OBJECTIVES OF MHS (Nov. 05, Nov. 06, May 06)

1. To achieve efficiency in movement of products in & out of stores or warehouse.2. To ensure movement of goods in right quantity3. To ensure availability of products when and where required.4. Effective utilisation of available space, equipment and manpower.5. To sort inbound shipments as per precise customer requirements

SCOPES OF

MHS(May 06)

Activities performed during materials handlingare as follows:

A] During Receipt of Materials:


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1. Receipt of vehicle at nominated area2. Unloading the consignment from vehicles.3. Weighing, sampling and inspection of materials.4. Moving the materials to assigned storage space.5. Documentation of materials received and sold.6.

Management Information System

B] During Dispatch of Finished Goods:

1. Receipt of vehicle at nominated area2. Weighing, counting and packing of goods to be dispatched3. Movement of goods to the exit point4. Loading the products to transport vehicles5. Documentation of goods dispatched6. Management Information System

CLASSIFICATION OF MHS

1. Manual System

Manual handling of materials is done when the weight of materials is low and distance to betraveled is less. It is the cheapest option for material handling.

Equipments required are manual trolleys, racks, drawers, lockers etc.

2. Mechanical System

Mechanical handling of materials is done when the weight of materials is high and distance to be

traveled is more. It is the safest option for material handling.

Material Handling Equipments (Nov. 01, 05)

1. 1. Forklift Trucks: They are lifting devices, can move loads both horizontally andvertically.

2. 2. Cranes: They are drag devices, either floor mounted or overhead mounted.3. 3. Conveyors: They eliminate re-handling before and after each function.4. 4. Carousels: several bins on an oval track keep rotating. The operator can choose

required bin to pick from. The system saves space and reduces walking time anddistances.

3. Automated System

Automated handling of materials is done when the weight of materials is very high and distanceto be traveled is more as well as the warehouse space is limited. It is the best and efficient optionfor material handling.

Material Handling Equipments (Nov. 01, 05)


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1. Sortations: In Sortations, labels are read and the packages are delivered to right docks foronward dispatch

2. Robotics: It is a human like machine that can be programmed to perform one or series ofactivities.

3. Automated Storage and Retrieval System: It has following merits and demerits.Merits ARS:

1.1. Reduction in labour cost and material handling costs2. Increase in productivity3. Increase accuracy and speed of services4. Reduce handling related product damage.

Demerits of ARS:

1.

1. It requires huge initial capital cost2. It has perpetual maintenance costs3. It cannot not respond to the changing needs4. Downtime of equipment may cause interruptions5. Its user required proper training

1. Automatic Guided Vehicle System (AGVS): It is as driverless vehicle that are controlledby computers for task assignment, path selection, and positioning.

Benefits of AGVS: same as that of ARS.

PRINCIPLES OF MHS

1. Planning: All material handling should be as a result of a deliberate planning.2. Work Principle: Avoid unnecessary movement the products.3. Ergonomic Principle: Human capacities and limitations must be recognized.4. Unit Load Principle: Load should be of uniform size to have smooth material flow.5. Standardisation: Methods, equipments, controls and software should be standardized.6. Space Utilisation: Available space should be used efficiently.7. Automation: Operations should be automated wherever feasible to improve efficiency.8. Systems: All activities should be integrated to form a coordinated operational system.9. Environment: Environment impact and energy consumption should be considered.10.Preventive Maintenance: Materials handling equipments should be regularly maintained.

PACKAGING


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Packaging though an integral part of logistics, also affect marketing and production function.Packaging helps in promotion of products and size, shape, material of the package affectsproduction labour efficiency.

Logistical Functions of Packaging(May 06, Nov. 06)

How packaging helps reducing overall costs and value addition?

1. Containment: Packaging provides containment for products.2. Protection: Protection from environment, pilferage, shocks of handling and moving.1. Cube Minimization: Reducing the space occupied by the product to cut the freight

charge. E.g. Round containers, oval shaped containers and square shaped bottles, etc.

1. Weight minimization: Reducing the weight of the consignment to fully utilize thecapacity of the truck. E.g. Liquids are packed in plastic bottles rather than glass bottles.

2.

Apportionment: Grouping goods into convenient unit for distribution. E.g. mangos inboxes, milk bags in crates.3. Facilitating handling & using: fruit juices in tetra packs, handling and consumption by

users4. Convenience: Facilitating handling, storage & reuse. E.g. ink cartridges for printers,

reusable corrugated boxes, bottles and refill packs.5. Communication:

1. Content IdentificationProduct, manufacturer, universal code etc.2. Tracking: Bar codes and scanners.3. Handling Instructions: Fragile, This side up, temperature restrictions,

environment concerns, potential dangers etc

Consumer Oriented Packaging V/S Logistics Oriented Packaging (May 07)

1. Consumer Oriented Packaging: Focuses on consumer convenience and appeal, marketingconsideration and display.

2. Logistics Oriented Packaging: Focuses on handling convenience and protection duringtranspiration, material handling and storage.

STAGES IN LOGISTICS PACKAGING

1. Products Packaging: Packaging the products itself, e.g. soft drinks are packed in cans.1. Master Cartons: Packaged products are packed in larger cartons to facilitate quantity

handling.2. Unit Load: Master cartons are consolidated into a single large unit to facilitate

transportation, protection and storage. It involves Unitisation or Palletisation.3. Contenerisation: Unit load is placed in a rigid container for transportation.

Unitization / Palletisation (Nov. 03, May 05)


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Unitization is a concept where size shape, weight, volume of the items is considered and mastercartons are placed to form a single larger unit. E.g. bottles in crates, steel sheets in coils, etc.

1. Leads to standardization of handling equipments and methods.2. Facilitates use of standardized handling equipment like a forklift or a crane.3.

Reduces the time for handling and cost of handling.4. Simplifies the checking of inbound shipments.

5. Improve product protection.Types of Pallets

1. Wooden palletsused commonly but break and disintegrate.2. Pressed wood fiber pallet3. Plastic palletslight and recyclable4. Solid molded plastic pallets5.

Corrugated fiberboard slip sheetprovide cushion effect to the unit load6. Refrigerated pallets- for refrigerated materials

Contenerisation

(Nov. 04, May 05)

Contenerisation is a technique of distributing goods in

unitized form and making convenient to establish an

intermodal transport system. Containers are of standard size

i.e. 20 ft or 40 ft.

Benefits of Contenerisation:

1. It eliminates need for intermediate handling at

terminals.

1. Standardized containers helps in saving on packaging materials and labour for packaging.2. Less risk of damage and pilferage.3. Facilitates intermodal transportation without intermediate reloading.

Types of Containers:

1. General Cargo Containersfor general cargo like garments metals etc.2. Refrigerated Containersfor food items that require cold storage like fish, meat.3. Insulated Containersfor items that require airtight space like fruits and vegetables.4. Ventilated Containersfor items that require fresh air like coffee seeds, tea leaves.


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5. Flat ContainersThey have only flat base with no walls, used when cargo the cargo is ofodd size or very heavy like trucks.

6. Liquid ContainersThey have main holes for loading and unloading of liquid cargo likemilk, oil.

7. Gas ContainersThey have fixtures to fill or empty liquefied gas. E.g. Liquid oxygen.Polarisation

(Nov. 04, May 05)CHAPTER 22SUPPLY CHAIN MANAGEMENT

CONCEPT OF SCM

According to Martin Christopher; Supply Chain Management is defined as the management of

upstream and downstream relationships with suppliers and customers to deliver superiorcustomer value at lesser cost.

OBJECTIVES OF SCM

1. To solve suppliers problems2. To improve customers service performance3. To reduce pre and post production inventory4. To minimise total cost of operations and procurement5. To achieve maximum efficiency in utilisation of labour, capital and plant.

ADVANTAGES OF SCM

For Customers

1. Improve customers service performance.2. Reduce product cost3. Improve delivery performance4. Provide quick response to change in demand

For Company

1. Reduce pre and post production inventory2. Minimise total cost of operations and procurement3. Facilitates efficient utilisation of labour, capital and plant.4. Sustained growth of sales

LOGISTICS SUPPLY CHAIN MANAGEMENTLogistics is concerned with getting goods andservices where and when they required

SCM is concerned with movement of goodsfrom raw material stage to the end user


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It works within a single organisation It works in a coordination of variousorganisations.

It is a part of supply chain management It is an extension of logistics managementThe concept of logistics is relatively old The concept of SCM is relatively newIt is a narrow concept It is a broader concept

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he following is the list of questions appeared in University papers Of Elements of LogisticsManagement from Nov 2001-2008.

2 mks:-1) Benchmarking2) Customer retention3) Terminal delays4) Lead time5) Vendor managed inventory6) What is intermodal transportation system?7) Define reverse logistics8) What is JIT II?9) Define obsolescence cost10) State main objectives of customer service

11) What is Fill rate?12) Define 4th party logistics13) State operating objectives of logistics management14) What is Electronic Data Interchange (EDI)?15) Define Re-order level16) Define logistical management17) What are the advantages of hiring public warehouses?18) What is matrix organization19) Define Activity based costing20) Differentiate b/w MRP I and MRP II21) Cross docking

22) Economic order quantity23) Fill rate24) Bill of material25) Intermodal transportation26) Palletisation in material handling27) Drivers in reverse logistics28) Internal performance measures in logistics29) Activity based costing


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30) ABC classification in inventory control31) Basic functions of warehousing32) Product related factors in transportation costs33) Relevance of distance and volume to transportation cost34) Differentiate b/w internal and external logistics information system

35) Distinguish b/w MRP-I and DRP36) Pipeline is a modal transport Explain37) Pipeline inventory is a form of inventory

10 mks:-1) Explain the growing importance of Logistics management in India in todays context2) Explain in detail various parameters to achieve logistical competency3) How is performance appraisal carried out in logistics function?4) What is economic order quantity in inventory problem? Discuss its basic square root formulaalong with assumptions and limitations5) Explain the different objectives of developing and implementing performance measurement

system in logistics6) Explain the important steps involved in layout, design and site selection for a modelwarehouse

5mks:-

1) Elements of Customer Service or Importance2) Objectives and Components of Logistics Performance Measurement3) Objectives, Types, Principles of Material Handling4) Importance/ Functions and Role of Transportation,5) Types of Transportation costs

6) Demand Forecasting and its methods7) Costs, Assumptions and Limitations of EOQ8) Objectives, Functions, design and layout of warehousing9) Different methods of Inventory control10) P and Q system of inventory control11) Elements of logistics costs12) Functions of Logistics13) Inbound and outbound logistics14) Responsive Organization15) Mission Based Costing16) Activity Based Costing17) Functions of Packaging18) 4 PL19) DRP20) Process of outsourcing and its benefits21) Perfect Order Concept22) Information functionality23) Primary activities of LIS


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Exclusively for Oct 2010 Exams of Mumbai University for TYBMS Sem V by Achievers

Academy

Q. 1)a) How is the logistical competency achieved?

b) Whats pull whipped effect? How it is controlled through Kanban?c) What are intermodal transport system?d) What are inventory control procedure?e) State importance of Logistics parks?

Q.2)a) What are operating objectives of logistics?b) What is 4PL?c) How is warehouse layout design made? (Infra, Mkt, Regularity, Tax.. etc.)d) How inventory is classified?e) Modification of ABC analysis

f) What is activity based costing and mission based costing?

Q.3)a) Difference b/w Logistics and SCMb) What are functions of logistics management?c) How are carrier selection made by Selector (Freight Management)d) Inventory functionality and reasons for carrying inventorye) Economic benefits of Golden Quadrilateral

Q.4)a) S

Lscm Notes

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