Module 1

WHAT IS LOGISTICS

Movement of Material? Acquiring Material?

Delivering Material to Customers? Storing Material?

Logistics is the Process of Anticipating Customer Needs And wants; Acquiring the Capital, Materials, People, Technologies and Information Necessary to

Meet those Needs and Wants; Optimizing the Goods/ Services-Producing Network to Fulfill Customer

Requests; and Utilizing the Network Most Efficiently to Do the Same in A Timely and Cost-effective Way

Provides Time & Place Utility/ Value of Materials& Products in Support of Company Objectives

?

Logistics is the Process of Strategically Managing theAcquisition, Movement and Storage

Of Material, Parts and Finished Products Along with Related Information Flows Through the Organisation and its Marketing Channels in a Way that Maximises

Current and Future Profitability By

Cost Effective Fulfilment of Customer Orders

LOGISTICS

Definition

Effective Logistics Management Reduces Costs By Speeding UpMaterials/ Work-In-Process/ Finished Product Flows Within Organization

Raw Materials

Sub- Assemblies

Semi-Finished

Components

Packaging Materials

LOGISTICS MANAGEMENT Channels

ofSupply

Inventories

Channelsof

Distribution

Cu

stom

ersWork inProcess

Production FactoryWarehouse

FinishedProduct

Distribution Warehouses

FinishedProduct

Information Flows – Reports/ Orders/ Documentation for Moving Material/ Goods

Su

pp

liers

Information Flow

LOGISTICS MANAGEMENT

Managing the Logistics System Within Organization to Ensure that

Order Fulfillment Meets & Exceeds Customer Expectations Competitive-Market Demand for Efficiency is Also Met Simultaneously at the Lowest Total Cost of Logistics

Managing Part of Supply Chain Process that Plans, Implements and Controls the Efficient & Effective Forward + Reverse Flows & Storage of Good/ Services & Related Information from Point of Origin to the Point of Use/ Consumption in Order to Meet Customer Requirement Logistics Management Involves Managing Flow of Materials & Related Information from Point of Entry into the Organization Through Various Stages of Value- Adding Till Dispatch of Finished Goods To Customer

Good Logistics is Business Power

Logistics Deliver What Marketing/ Sales Promise

Quality Products + Effective Marketing + Efficient Logistics Systems Essential for Business Success

To Meet and Exceed Customer Expectations While Fulfilling Customers Orders At the Lowest Cost is the Challenge for Logistics Management

LOGISTICS - COMPETITIVE TOOL

Effective Logistics Management Helps ToEnhance Competitiveness

Logistics Management Develops Procedures To Meet Desired Customer Service at Lowest Cost

LOGISTICS VIS-A-VIS SC MANAGEMENT

Logistics Aims at Efficient Management of the Static Gap Between Demand & Supply Within the Company (in a Localized Sense) SCM Tries to Capture Dynamic Nature of Value Creation Aiming for an Effective Management Response in the Long Run By Looking at the Competitive Elements

Goal of SCM is Profit Maximization in the Long Run Using Flexibility of Investment & Restructuring Not Just Cost Minimization, which is Only One Activity for Maximizing Profitability

Responsiveness Quality Design

Logistics Management Activities are Supply Driven Cost Minimization with Respect to Known Demand By Improving Efficiency

SCM Activities are Mostly Demand Driven Profit Maximization with Some Resource Constraints at a Broad Level By Improving Effectiveness

Plants/Operations

Sources0f Supply

Customers

Physical Supply(Materials Management)

Physical Distribution(Distribution Management)

LOGISTICS RESPONSIBILITIES

Company Logistics

• Transportation• Inventory Management• Order Processing• Purchasing• Commodity Packaging (Internal)• Warehousing• Materials Handling• Information Management• Supply Scheduling

• Transportation• Inventory Management• Customer Service• Product Scheduling• Protective Packaging (External)• Warehousing• Materials Handling• Information Management• Distribution Scheduling

Distribution Management Is Mirror Image of Materials Management

Transport/Warehouse

Transport/Warehouse

VALUE-ADDING ROLE OF LOGISTICS

4 Types of Economic Utility that Add Value to Product and Services:

Form Utility Time Utility Place Utility Possession Utility

PRODUCTION

Form Utility

Place UtilityTime Utility

Marketing +Finance

LOGISTICS

PossessionUtility

Logistics Adds Value to Product/ Services by Providing Place and Time Utility

Good Logistics is Business Power

In-Bound Logistics Supports Manufacturing/ Operations Through Materials Management

Outbound Logistics Supports Marketing Through Physical Distribution of Finished Goods

LOGISTICS FUNCTIONS

Marketing

PromotionProduct MixPricingSales Forecast

Customer ServiceOrder ProcessingProduct ForecastPackagingWarehouse LocationsParts & Service Support

Manufacturing

Aggregate PlanningProductionPlant Design & LayoutJob DesignQuality Control

Production ControlProduction SchedulingPlant WarehousePurchasing

CommunicationInventory Control

Operating Budget & Control Capital Budgeting & ControlPlant & Machinery

Finance

Warehousing & StorageMaterial HandlingTransportation

Logistics ManagementLogistics

LOGISTICS OBJECTIVES

Minimize Operating Cost of Physical Movement of Material

Reduce Time Spent At All Stages In Logistics from Procurement To Distribution Add Value at Every Stage in the Logistics Pipeline

Effectively Control Of Inventory Raw Material Work-In-Process (WIP) Parts Finished Goods

Enhance Effective Communications Both Internal & External

Implement Lean & Just In Time Principles Promote Coordination & Collaboration Between Sub-Systems To Enhance Customer Service at Lowest Costs

Effective Logistics Management Ensures Right Goods/ Services Made Available At Right Place/ At the Right Time/ In Right Condition/

at Right Price For Meeting/ Exceeding Customers’ Expectations

LOGISTICS COLLABORATION

Manufacturing

Deciding Batch Size/ Length of Production Run

Handling Seasonal Demand

Supply-side Material Acquiring, Movement & Storage Synced with Production Scheduling

Proper Packaging to Protect from Damage

Handling 3rd Party Logistics Service Providers To Support Outsourced Production

Interfaces in Each Area of Marketing Mix of 4 Ps

PRODUCT – Physical Attributes of Size/ Weight/ Consumer Packaging/ Unitizing that Affect Movement & Storage of Product

PRICE – Adjusting Quantity Prices To Conform with Carriers’ Preferred Size of Shipment; Choosing the Right Mode of Transportation; Expected Sale–Volumes Against Proposed Differential Price Schedules

Marketing

PROMOTION – Keeping Right Products/ Quantities/ With Right Distribution Channels/ at Right Time To Match Sales Promotional Efforts- For Both ‘Pull’ & ‘Push’ Strategies

PLACE – Where & How To Move Products in Distribution Channel- Wholesalers-Distributors-Retailers/ Distributors- Retailers / Direct to Retailers

LOGISTICS COLLABORATION

New Product Development Alteration Service Selecting New Assembly/ Components Parts Value Analysis Setting Norms and Standards for Purchased Material and Components Quality Control Updating Bills of Material Make/ Buy Decision Formulating/ Finalising Enquiries/ Tenders

Design & Development

Lowering Material Costs & Inventory Levels Through Collaboration

LOGISTICS COLLABORATION

Planning Inventory Levels for Annual Budget Managing and Controlling Inventory Levels Implementing Inventory Reduction Projects Analysing Make/ Buy Decisions Investment Decisions On Transport/ Warehousing Implementing Overhead Reduction Plans Credit/ Account Receivables (AR) Control Exchanging Information for Planning and Control

Close Co-ordination Essential as Logistics Handles Major Costs within Company & Has

Influences on Most of the Current Assets

Finance & Accounting

LOGISTICS COLLABORATION

Provides Strategic Planning

STRATEGIC ROLE OF LOGISTICS

Logistics Not only Contributes Valuable Inputs to the Company Strategic Planning But also Takes Major Responsibility for Success/ Failure of the Operational Plans - the Output of Strategic Planning Process

Logistics influences Large Chunks of Costs and Profits and Hence Must be Integrated into Strategic Management Process of the Company

The Process of Formulating Operational Plans, implementation of which would Ensure Long Term Profitability

Product Availability as Required by Markets/ Production Service Levels Facility Locations Timings

Company Resources Most Efficiently

LOGISTICS ACTIVITIES

Right Product Right Unit Right Size Excellent Condition of Product + Packaging at Point of Sale Appropriate Time Convenient Place Lowest Cost of Logistics

Planning & Co-ordination of the Logistics Mix To Satisfy Customer Needs & Meet Logistics Objectives

Analysis, Planning and Control of

LOGISTICS MIX

Inventory

Facilities

Communications

Unitisation/ Packaging

Transportation

Materials Management

Scheduling (Production/ Purchase)

Customer Service

Balancing Between Customer Service Vis-à-Vis Cost of Carrying Inventory & Obsolescence

• How Much to Hold• Where to Hold• Replenishment Quantity & Frequency

Inventory Management

Facilities – Warehousing/ Storing Facilities

Numbers Locations Size Layout

LOGISTICS MIX

LOGISTICS MIX

Demand Forecasting Receipts & Registration of Orders Order Processing Invoicing

Communications

Unitisation/ Packaging

Units of Packing Aggregate Units of Packing Transport Packaging Limited by Weight/ Volume Packaging Material

LOGISTICS MIX

Mode of Transport • Road• Rail• Waterways• Air• Pipeline

Frequency of Delivery Scheduling of Deliveries Special Contracts

• Outbound & Inbound• Multi-Modal

Owned/ Hired

Transportation (Long Distance- Inbound & Outbound)

Transportation (Short Distance - Material Handling)

LOGISTICS MIX

Production Scheduled In Sync with Sales Plans Purchase Scheduled in Sync with Production Plans

Purchasing In-Bound Transport Work-in Process Storage of In-Bound Goods

Materials Management

Scheduling

Customer Service – Customer Order Processing Booking Customer Orders in ERP System Releasing Customer Orders for Pick/ Pack Activities Invoicing/ Preparing Dispatch Documents Forwarding Documents to Customer for Payment Keeping Customers Informed of Order Status Flexible/ Responsive/ Agile

Logistics Sub-Systems Work Together To Meet Logistics Objectives

MAJOR SUB-SYSTEMS

Purchase

Production Logistics (Production Planning & Control)

Warehousing

Marketing Logistics (Distribution)

Packaging & Transportation

Infrastructure Technologies

Maximising Efficiency in All Individual Sub-Systems will Not Necessarily Maximise Total Efficiency of the Company

MAJOR SUB-SYSTEMS

Related to Flows of Material and Information

Sub-Systems are Inter-Linked

Strong Inter-Relationship Exists Between Sub-systems

Any Action Affecting One Will Affect All Sub-Systems, Though in Different Degrees

Characteristics

Unifying and Mobilising All Activities Related to the Process From Product Conception to Consumption

Tying Together Diverse and at Times Conflicting Activities in the Organisation

Influences a Large Chunk of Costs that Directly Relate to Current and Future Profits

STRATEGIC APPROACH OF LOGISTICS

Logistics Need Strategic Orientation for Managing Activities Under its Control

STRATEGIC ORIENTATION IN LOGISTICS

Adapt Disciplined & Systematic Approach to Market

Make Difficult Trade-Off Decisions Every Day

Allocate Resources Strictly & With Justification

Carefully Consider Priorities

Scan Environment Continuously for Emerging Issues

Develop Appropriate Strategic Response

STRATEGIC PLANNING IN LOGISTICS

Focus Gets Shifted from Process to GOAL

Reconciliation of 2 Contradictory Tasks

Formulate Operating Plans for Long Term Profitability

Long Term Planning (Visionary)

Short Term Responsiveness (Agility)

Strategic Planning Provides Goals and Aims

Creativity & Innovation are the Keys to Successful Implementation of Strategy

Concentrate on Management Rather than Control Empower Handling Personnel to Create New and More Effective Ways of Working in Response to External & Internal Changes in Environment

Strategic Plan Framework Protects Creativity from Turning into Chaos

STRATEGIC PLAN IMPLEMENTATION

ANALYZING LOGISTICS SYSTEMS

Material Versus Distribution Management

Balanced System – Balanced Inbound/ Outbound Flows

FMCG Companies Source Material From Various Vendors in Different Locations & Distribute to Numerous Customers in Different Locations

Heavy Inbound – Less Outbound Flows

Auto Manufacturers Source From Many Vendors in Many Locations but Distribute to Not As Many Customers & Locations

Heavy Outbound – Less Inbound Flows

Chemical Companies

Reverse Systems – Reverse Flows

Consumer Durables-Computers/ Telephones/ TV Sets/ White Goods Returned By Customers Moved Up the Supply Chain

Plants/Operations

Sources0f Supply

Customers

Physical Supply(Materials Management)

Physical Distribution(Distribution Management)

LOGISTICS FLOWS

Inbound Logistics Outbound Logistics

Reverse Logistics (Customer Returns)

Transport/Warehouse

Transport/Warehouse

ANALYZING LOGISTICS SYSTEMS

Cost/ Activity Centres

Consider Logistics Activities as Cost/ Activity Centres

Transportation

Warehousing

Inventory

Material Handling

Packaging

Decide Trade-Offs Between Cost/ Activity Centres To Achieve Lower Overall Costs/ Better Service

ANALYZING LOGISTICS SYSTEMS

Nodes Versus Links

Nodes are Spatial Points Where Goods Stop for Processing or Storage - Factory or Warehouse

Links Represent Transportation Network Connecting the Nodes in the Logistics System

Complexity of the Logistics System Relates to

Regularities Predictability Volume of the Flow of Goods Entering/ Leaving and Moving Within the System

Various Time and Distance Relationships Between Nodes & Links

ANALYZING LOGISTICS SYSTEMS

Logistics Channel

Studying the Network of Intermediaries Engaged in Activities that Contribute to Efficient Flow of Goods

Transfer of Goods

Storage of Goods

Handling

Communication

Logistics Channel May be Viewed as Part of the Distribution Channel that Includes Other Flows Such as Transaction Flows - Of Interest to Marketing

LOGISTICS AND COMPETITIVE ADVANTAGE

ServiceLeader

Cost &Service Leader

CostLeader

CommodityMarket

Lo Hi

Cost Advantage

Lo

Hi

Val

ue

Ad

van

tag

e

Effective Logistics Management Provides Competitive Advantage

Seek Out Strategies to Take Business Away From Commodity Towards Position of Strength Based on Differentiation and Cost Advantage

Hi LoRelative Delivered Cost

Lo

H

i

Rel

ativ

e D

iffe

ren

tial

STRATEGIC CHALLENGE TO LOGISTICS

ServiceLeader

Cost & Service Leader

CommodityMarket

CostLeader

Any Questions pl?