Blr india..uu

Logistics Management in BLR INDIA 1
INTRODUCTION
Logistics is concerned with getting the products and services where they are needed
when they are desired. It is difficult to accomplish any marketing or manufacturing without
logistical support. It involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging. The operating responsibility of logistics is the
geographical repositioning of raw materials, work in process, and finished inventories where
required at the lowest cost possible.
The formal definition of the word ‗logistics‘ is: - it is the process of planning,
implementing and controlling the efficient, effective flow and storage of goods, services and
related information from the point of origin to the point of consumption for the purpose of
conforming to customer requirements.

FUNCTIONS
1) Information management
Management is appreciating importance of information as an element of logistics of
late, now. The role of information is vital in order processing. Quality of information is
critical as error in composition of information requirement creates potential disturbance in the
supply chain. Incorrect order processing due to erroneous information will result into product
recall and reshipment if the sales opportunity still exists. Faster and Qualitative information
flow from customer to processor, results into cost effective logistics. Forecasting and
order management are two areas of logistical work dependent on information.
Leading firms typically have information systems capable of monitoring logistical
performance on a real time basis giving them the capability to identify potential operational
breakdowns and take corrective actions prior to customer service failure. In situations where
timely corrective action is not possible, customers can be notified in advance and thereby
taking the surprise out of forthcoming service failures
2) Inventory control
Keeping the stock levels in such a position, so that neither stock out nor stock piling
takes place is Inventory control. While formulating inventory policies find out 20% of the
products marketed that account for 80% of the profit.
3) Transportation
Transportation is the most visible of all elements of logistics and high contributor to
logistics expenditure. Costs of transportation are mainly as follows :

a) Movement costs : Money paid for moving material across geographical terrain
b) Preservation costs : money spent on preserving the material during transit
c) Cost of idle asset : inventory is unavailable for conversion during transit. This results
into costs for organization
d) Administration costs : money spent on administration
Transportation is accomplished in three ways
a) One‘s own fleet – private carriage
b) Contract with specialists on long term basis – contract carriage
c) Contract on individual shipment basis – common carriage
Expectations from transportation service are
a) Minimum Cost : transportation costs are explained earlier
b) Speed : speed of transport means the speed with which goods reach the destination.
c) Consistency : consistency in speed is achieving the same speed over a long period of
time. Consistency reflects on the reliability of carrier. Any unexpected variance can
play havoc with logistics. Modern information technology has made continuous
tracking of consignments possible. This takes the element of surprise out. IT has helped
logistics managers to seek out ways and means to improve speed and consistency. What
is becoming important is a combination of speed and consistency.
Requirement of speed depends on type of industry. In some situations speed may not be
important, the transportation service offering high speed increases cost. So logistics managers,
have to strike a balance between service and cost. Three important aspects of transportation
are facility location, transportation cost and consistency. Design of logistics system should
consider total costs rather than elemental cost of transportation.

4) Warehousing
Warehousing is holding material before dispatch after it is produced. Although
warehousing is conventionally considered to be a storage facility, it plays a much higher role
from logistics viewpoint. It is perceived to be a switching facility rather than a storage facility.
Warehouse ownership can be private, public or third party contract. Warehouse provides
economic benefits such as Movement Consolidation, Break-bulk, Cross-dock,
Processing/Postponement & Stock Piling and Service benefits like Spot Stocking, Assortment,
Mixing & Production support to the logistical system.
5) Material handling
Material handling covers receiving, moving, storing, dispatching activities. It
has an impact on cost [capital as well as running], quality and safety. One of the
principles of material handling is minimum movement. Commonly used material
handling equipment are forklifts, EOT Cranes, hoists, pulley blocks, trolleys, railroad
cars, conveyers, ropes and slings etc.
6) Packaging
Packaging is done to make handling and transporting cost effective. It protects the
product in transit and handling. Packing is expected to facilitate lifting and moving by
providing easy access to forks or hooks. Packing is also expected to display universal symbols
and other instructions for handling.
For Eg. Pallets and containers, wooden boxes, wrapping etc.

Functions of packaging [how packaging helps reducing overall costs & value addition]
1) Protection : Protection from environment, pilferage, shocks of handling and
moving. Fried chips in tennis ball boxes.
2) Cube minimization : The truck is cubed out, that means the truck is full space
wise, but not fully utilized weight wise. E.g. Round containers, round bottles.
Cube minimization is reducing the space occupied by the product to cut the
freight charge. Square shaped bottles and oval shaped containers.
3) Weight minimization : The truck is full, weight wise, but not fully utilized space
wise. Liquids in glass bottles. Weight minimization is reducing the weight of the
consignment to fully utilize the capacity of the truck. Liquids are packed in
plastic bottles reducing the weight.
4) Facilitating handling & using : fruit juices in tetra packs, handling and
consumption by users.
5) Facilitating storage & reuse : ink cartridges for printers, floppies, CDs, reusable
corrugated boxes, bottles and refill packs.
6) Grouping goods into convenient unit for distribution: mangos in boxes, milk
bags in crates, cola bottles in crates.
7) Reducing pilfering opportunities : pilfer proof caps, pilfer proof seals
8) Communication :
a) Content identification : what does this contain? Product, manufacturer,
universal code etc. with high visibility
b) Tracking : bar codes and scanners

c) Handling instructions : fragile, which side up? Temperature restrictions,
environment concerns, potential dangers etc
Palletization and Unitization
Unitization, unit loads:
Unitization is a concept where size shape, weight, volume of the items is considered and
a collection of such items is decided in terms of these factors. And always in this unit inventory
is moved whenever required.
1. This leads to standardization of handling equipment, methods and training
2. Now, the standardization reduces the time for handling and cost of handling
3. Inbound shipment checking is simplified
4. When transport vehicles are standardized to unit loads, product protection is improved
Examples: bottles in crates, steel sheets in coils, steel ropes in coils etc. container also is an
example of unit load.
Palletisation
Unit load is secured on a pallet to facilitate handling and protect the product which is
unitized. One can say container is a self contained, ie., unitized and palletized, shipping unit.
Pallet facilitates use of standardized handling equipment like a forklift or a crane. Without the
use of pallet it would almost impractical to use this equipment.
1. Palletized unit loads bring down time of handling and cost of handling
2. Safe handling
3. Product is well protected

Types of pallets :
1. Wooden pallets very commonly used, but break and disintegrate, wood is a rare
natural resource
2. Plastic pallets, light, recyclable - being researched
3. Pressed wood fiber pallet
4. Solid molded plastic pallets
5. Corrugated fiber board pallet
6. Corrugated fiberboard slip-sheet to provide cushion effect to the unit load
7. Refrigerated pallets : self-contained shipping units for refrigerated materials
8. Pallet pools : central pools to collect pallets and issue pallets to global business

THE MISSION OF LOGISTICS MANAGEMENT
The mission is to plan and coordinate all those activities necessary to achieve desired
levels of delivered service and quality at lowest possible cost. Logistics must therefore be seen
as the link between the marketplace and the operating activity of the business. The scope of the
logistics spans the organization, from the management of raw materials through to the delivery
of the final product.
Materials flow
Requirements information flow
Suppliers Procurements Operations Distribution Customers

LOGISTICAL INTEGRATION
Inventory Flow
Information Flow
INTEGRATED LOGISTICS
Logistics is viewed as the competency that links an enterprise with its customers and
suppliers. Information from and about customers flows through the enterprise in the form of
sales activity, forecasts and orders. As products and materials are procured, a value added
inventory flow is initiated that ultimately results in ownership transfer of finished products to
customers. Thus the process is viewed in terms of two inter-related efforts, inventory flow and
information flow.
1) Inventory Flow
The management of logistics is concerned with the movement and storage of materials
and finished products. Logistical operations start with the initial shipment of a material or
component part from a supplier and are finalized when a manufactured or processed product is
delivered to a customer.
Manufacturing
support
Physical
distribution
ProcurementSuppliers
Customers

From the initial purchase of a material or component, the logistical process adds value
By moving inventory when and where needed. Thus the material gains value at each step. For a
large manufacturer, logistical operations may consist of thousands of movements, which
ultimately culminate in the delivery of the product to an industrial user, wholesaler, dealer or
customer.
Similarly for a retailer, logistical operations may commence with the procurement of products
for resale and may terminate with consumer pickup or delivery.
The significant point is that regardless of the size or type of the enterprise, logistics is useful
and requires continuous management attention.
In order to understand logistics it is useful to divide it into three areas.
 Physical distribution
 Manufacturing support
 Procurement
Physical distribution
The area of physical distribution concerns movement of a finished product to the
customers. In physical distribution the customer is the final destination of the marketing
channel. Unless the products are delivered where and when needed, a great deal of marketing
effort can be wasted. All physical distribution systems have one feature in common: they link
manufacturers, wholesalers and retailers and ensure that the product is available.
Manufacturing support
The area of manufacturing support concentrates on managing W.I.P inventory as it
flows between the stages of manufacturing. A Master Production Schedule is prepared and
arrangements are made for timely availability of materials, components, parts etc.

Manufacturing support has one significant difference when compared with physical
distribution. Physical distribution attempts to satisfy the needs of the customers while
manufacturing support involves movement requirements that are under the control of the
manufacturing enterprise.
Procurement
Procurement is concerned with purchasing and arranging in-bound movement of
materials, parts and /or finished inventory from suppliers to manufacturing or assembly plants,
warehouses or retail stores. Procurement is also known as purchasing and buying and in some
cases inbound logistics. Procurement s concerned with availability of the desired material
assortments where and when needed. Within a typical enterprise, the three areas of logistics
overlap. The prime concern of an integrated logistical process is to coordinate overall value-
added inventory movement. The three areas combine to provide integrated management of
materials.
2) Information flow
Information flow identifies specific locations within a logistical system that have
requirements. Information also integrates the three operating areas. The primary objective of
developing and specifying requirements is to plan and execute integrated logistical operations.
Within individual logistics areas, different movement requirements exist with respect to size of
order, availability of inventory, and urgency of movement. The primary objective of
information sharing is to reconcile these differences.
Logistical information involves two major types of flows:
a) Coordination flows
b) Operation flows

a) Coordination flows
Coordination is the backbone of the overall information system. Coordination
results in plans specifying :
 Strategic objectives : Strategic objectives detail the nature and location of
customers, which are matched to the required products and services to be
performed.
 Capacity constraints : Capacity constraints coordinate internal and external
manufacturing requirements. Capacity constraints identify limitations, barriers,
within basic manufacturing capabilities and determine appropriate outsource
requirements.
 Logistical requirements : Logistics requirements specify the work that
distribution facilities, equipment and labour must perform to implement the
capacity plan.
 Inventory deployments : Inventory deployments are the interfaces between
planning/coordination and operations that detail the timing and composition of
where inventory will be positioned.
 Manufacturing requirements : Manufacturing plans are derived from logistical
requirements and typically result in inventory deployment.
 Procurements requirements : Procurements requirements schedule material and
components for inbound shipment to support manufacturing requirements. In
retailing and wholesaling situations, procurements involve manufacturing
requirements.

 Forecasting : Forecasting utilizes historical data, current activity levels, and
planning assumptions to predict future activity levels. Logistical forecasting is
generally concerned with relatively short –term predictions. The overall purpose
of information planning/coordination flow is to integrate specific activities
within a firm and to facilitate overall integrated performance.
b) Operational flows
The second aspect of information requirements is concerned with directing
operations to receive, process, and ship inventory as required supporting customer and
purchasing orders. Operational requirements deal with
 Order management
 Order processing
 Distribution operations
 Inventory management
 Transportation and shipping
 Procurement

SUPPLY CHAIN & LOGISTICS MANAGEMENT
Traditional Perspective
Traditionally most organizations have viewed themselves as entities that exist
independently from others and indeed need to compete with them in order to survive. However
such a philosophy can be self-defeating idf it leads to unwillingness to corporate in order to
compete. Behind this seemingly paradoxical concept is the idea of supply chain integration.
Definition
“ Supply chain management is the management of upstream and downstream
relationships with suppliers and customers to deliver superior customer value at less cost to the
supply chain as a whole.”
Explanation
The supply chain is the network of organizations that are involved through upstream
and downstream linkages, in the different processes and activities that produce value in the
form of products and services in the hands of ultimate consumer. Thus for example a shirt
manufacturer is a part of a supply chain that extends upstream through the weavers of fabrics to
the manufacturers of fibres, and downstream through distributors and retailers to the final
consumer. Each of these organizations in the chain are dependent upon each other by definition
and yet and yet paradoxically by tradition do not co-orporate with each other.
Clearly this trend has many implications for logistics management, not the least being
the challenge of integrating and coordinating the flow of materials from a multitude of
suppliers, often offshore, and similarly managing the distribution of the finished product by
way of multiple intermediaries.

Differences between Supply chain management and Logistics management
1. Supply chain management is a broader concept whereas Logistics management is a
narrower concept.
2. The concept of Supply chain management is relatively new whereas the concept of
Logistics management is relatively old.
3. Supply chain management is an extension of Logistics management.
4. Logistics management is primarily concerned with optimizing flows within the
organization whilst supply chain management recognizes that internal integration by
itself is not sufficient.
5. Logistics is essentially a planning orientation and framework that seeks to create a
single plan for the flow of product and information through a business. Supply chain
management builds upon this framework and seeks to achieve linkage and co-ordination
between processes of the other entities in the pipeline, i.e. suppliers and customers, and
the organization itself.
6. The focus of Supply chain management is upon the management of relationships in
order to achieve a more profitable outcome for all parties in the chain where as the
focus of Logistics management is upon the management of resources within the
organization.

LOGISTICS PLANNING PROCESS
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 and design
methodology to formally include the relevant consideration and effectively evaluate the
alternatives.
Methodology
The logistics relational and operating environment is constantly changing. Even for the
established industries, a firm's markets, demands, costs and service requirements change
rapidly in response to the customer and competitive behavior. Just as no ideal logistical system
is suitable for all enterprises the method for identifying and evaluating alternative logistics
strategies can vary extensively. However there is a general process applicable to most logistics
design and analysis situations. The process can be segmented into three phases: problem
definition and planning, data collection and analysis, and recommendations and
implementation. The following discussion describes each phase and illustrates the types of
issues encountered.
PHASE I : PROBLEM DEFNITION AND PLANNING
Phase 1 of logistics system design and planning provides the foundation for the entire
project. A thorough and well-documented problem definition and plan are essential to all that
follows.
1. Feasibility Assessment
The process of evaluating the need and desirability for change is referred to as
feasibility assessment and it includes the activities of situational analysis, supporting logic
development, and cost benefit estimation. The objective of doing so is to understand the

environment, process, and performance characteristics of the current system and to determine
future estimation.
a) Situational analysis : The purpose of the situational analysis id to provide senior
management with the best possible understanding of the strengths and weaknesses
of the existing logistics capabilities for both current and future environment. The
situational analysis is the performance of measures and characteristics that describe
the current logistics environment through :
 Internal review: Internal review is necessary to develop a clear understanding
of existing logistics by covering the overall logistics process as well as each
logistics function with respect to its stated objectives and its capabilities to meet
those objectives. It profiles historical performance, data availability, strategies,
operation and tactical policies and practices. All major resources such as
workforce, equipment, facilities, relationships and information are examined.
The comprehensive review attempts to identify the opportunities that might
motivate or justify logistics system redesign or refinement. Assessment must
consider the process (physical and information flows through the value – added
chain), decisions (logic and criteria currently used for value chain management),
and key measures for each major logistics activity. These measurements focus
on the key performance indicators and the firm‘s ability to measure them.
 Market assessment & competitive evaluation: the objective is to document
and formalize customer perceptions and desires with regard to the changes in the
firm‘s logistical capabilities. It‘s the review of the trends and service demands
required by customers by the use of interviews with the selected customers or
through customer5 surveys. The assessment focuses on the external relationships
with the suppliers, customers (wholesalers and retailers) and consumers (final
consumer). The assessment not only considers trends in requirements and
processes but also the enterprise and the competitor‘s capabilities.

 Technology Assessment: it focuses on the application and capabilities of the
key logistics technologies, including transportation, storage, material handling,
packaging, and information processing. The assessment considers the firm‘s
capabilities in terms of current technologies and the potential for applying new
technologies. The objective of the assessment is to identify advancements that
can provide effective trade – offs with other logistics resources such as
transportation and inventory.
b) Supporting logic development : The second feasibility assessment task is
development of a supporting logic to integrate the findings of the internal review,
external assessment and technology study. Supporting logic development builds on this
comprehensive review in three ways.
 First - supporting logic development forces a critical review of the potential
opportunities for logistics improvements and a determination of whether
additional investigation is justified, using logistics principles such as tapering
principle, principle of inventory aggregation. The resulting benefits or costs
should be clearly identified.
 Second - it critically evaluates current procedures and practices using
comprehensive, factual analysis and evaluation that isn‘t influenced by opinion
and thus help in identifying areas with improvement potential which in turn
provides a foundation to determine the need for strategic adjustment. The
deliverables of this evaluation process include classification of planning and
evaluation issues prioritized into primary and secondary categories across short
and long range planning horizons.
 Third - the process of developing supporting logic should include clear
statements of potential redesign alternatives such as
 Definition of current procedures and systems

 Identification of the most likely system design alternatives based on leading
industry and competitive practices
 Suggestion of innovative approaches based on new theory and technologies
The alternatives along with being practical should also challenge the existing
practices. Flow diagrams and /or outline illustrating the basic concepts associated with each
alternative are constructed, which frame opportunities for flexible logistics practices, clearly
outline value added and information flow requirements and provide a comprehensive
overview of the options. A recommended procedure requires the manager responsible
for evaluating the logistical strategy to develop a logical strategy to develop a logical
statement and justification of potential benefits. Using customer service concept and
logistics integration logic and methodology, the manager should commit to paper the
most attractive strategy alternatives.
c) Cost benefit estimate : The final feasibility assessment is a preplanning estimate of
the potential benefits of performing a logistics analysis and implementing the
recommendation. Benefits should be categorized in terms of:
 Service improvements - It includes results that enhance availability,
quality or capability. Improved sciences increase loyalty of existing customers
and may also attract business.
 Cost reduction - Cost reduction benefits may be observed in two forms:
First, they may occur as a result of a one time reduction in financial or
managerial resources required to operate the existing system for e.g. Reduction
in capital deployed for inventory and other distribution related assets
Second, cost reductions may be found in the form of out - of - pocket or variable
expenses. For e.g. new technologies for material handling and information
processing often reduce variable cost by allowing more efficient procedures and
operations.

 Cost prevention - Cost prevention reduces involvement in programs and
operations experiencing cost increases. Any cost prevention justification is
based on an estimate of future conditions and therefore is vulnerable to some
error for e.g. many material – handling and information technology upgrades are
at least partially justified through financial analysis of the implications of future
labor availability and wage levels.
In the final analysis, the decision to undertake in – depth planning will
depend on how convincing the supporting logic is, how believable estimated
benefits are, and whether estimated benefits offer sufficient return on investment
to justify organizational and operational change. These potential benefits must
be balances against the out 0- of pocket cost required to complete the process.
2. Project Planning : Logistics system complexity requires that any effort to identify and
evaluate strategic or tactical alternatives must be planned thoroughly to provide a sound basis
for change. Project planning involves five specific items:
a) Statement of objectives : The statement of objectives documents the cost and
service expectations for the logistics systems revisions. It‘s essential that they be stated
specifically and in terms of measurable factors. The objective fine market or industry segments,
the time frame for revisions, and specific service levels. For e.g., desired delivery of 98 percent
of all orders within 48 hours after the order is placed, minimal customer shipments from
secondary distribution centers, back – orders held for a maximum of five days, etc. specific
definitions of these objectives direct system design efforts to ache9ice explicit performance
levels. Total system cost can then be determined.
b) Statement of constraints : The second project planning consideration concerns
design constraints. On the basis of the situational analysis, it‘s expected that senior
management will place restrictions on the scope of permissible system modifications depending
on the specific circumstances of individual firms. But constraints can affect the overall

planning process for e.g. one restriction common to distribution system design concerns the
network of manufacturing facilities and their product mix assortment which the management
often holds constant for logistical system redesign as there are large financial investments in
existing production facilities. The purpose of developing a statement of constraints is to have a
well-defined starting point and overall perspective for the planning effort. The statement of
constraints defines specific organizational elements, buildings, systems, procedures, and/or
practices to be retained from the existing logistical system.
c) Measurement standards : Such standards direct the project by identifying the cost
structures and performance penalties and by providing a means to ass‘s success. Management
must stipulate guidelines for each category as a prerequisite to formulation of a plan. It is
important that the standards adequately reflect total system performance rather than a limited,
sub optimal focus on logistics functions. Once formulated, such standards must be held
constant throughout system development. An important measurement requirement is to
quantify a list of assumptions that underlie or provide the logic supporting the standards.
Measurement standards should include definitions of how cost components such as
transportation are calculated and also relevant customer service measures and method of
calculation must also be included.
d) Analysis procedures : Analysis techniques range from simple manual methods to
elaborate computerized decision support tools. For e.g., models incorporating optimization ort
simulation algorithms for evaluating and comparing alternative logistics warehouse networks.
Once the project objectives and constraints are defined, planning must identify alternative
solution techniques and select the best approach. Selection an analysis technique must consider
the information necessary to evaluate the project issues and options
e) Project work plan : On the basis of feasibility assessment, objectives, constraints
and analysis technique, a project work plan must be determined and the resources and time
required for completion identified. The alternatives and opportunities specified during the
feasibility assessment provide the basis for determining the scope of the study. In turn the scope

determines the completion time. One of the most common errors in strategic planning is to
undere4stimate the time required to complete a specific assignment. Overruns require financial
expenditures and reduce project credibility. There are a number of PC – based software
packages available to structure projects, guide resource allocation, and measure progress.
PHASE II: DATA COLLECTION AND ANALYSIS
Once the feasibility assessment and project plan are completed, phase 2 focuses on data
collection and analysis. This includes activities to (1) define assumptions and collect data, and
(2) analyze alternatives
1) ASSUMPTIONS AND DATA COLLECTION :
This activity builds on the feasibility assessment and project plan to develop detailed
planning assumptions and identify data collection requirements. Specific tasks are as follows
a) Define analysis approach and techniques : The most common techniques are
analytical, simulation and optimization
The analytical approach uses standard numerical methods, such as those available
through spreadsheets, to evaluate each logistics alternative. For e.g., spreadsheet availability
have increases the use of analytical tools for distribution applications
A simulation approach can be likened to a ―wind tunnel‖ for testing logistics
alternatives. Simulation is widely used, particularly when significant uncertainty is involved.
The testing environment can be physical (a model material handling system that physically
illustrates product flow in a scaled down environment) or numerical (such as a computer model
of a material handling environment that illustrates product flow on a computer screen) current
software makes simulation one of the most cost effective approaches foe dynamically
evaluating logistics alternatives

Optimization uses linear or mathematical programming to evaluate alternatives and
select the best one. Because of its powerful capabilities, optimization is used extensively for
evaluating logistics network alternatives such as the number and location of the distribution
centers.
b) Define and review assumptions : Assumptions definition and review build on the
situation analysis, project objectives, constraints and measurements standards. For planning
purposes, the assumption defines the key operating characteristics, variables and economies of
current and alternative systems. Assumptions generally fall into three classes:
Business assumptions - They define the characteristics of the general environment including
relevant market, consumer, and product trends and competitive actions, within which an
alternative logistics plan must operate. They are generally outside the ability of the firm to
change.
Management assumptions define the physical and economic characteristics of the current or
alternative logistics environment and are generally within the firm‘s ability to change or refine.
Typical assumptions include a definition of alternative distribution facilities, transport modes,
logistics processes and fixed and variable costs.
Analysis assumption defines the constraints and limitations that must be included to fit the
problem to the analysis technique. These assumptions frequently concern problem size, degree
of analysis detail and solution methodology.
c) Identify data resources : The process of data collection begins with a feasibility
assessment. A fairly detailed specification of data is required to formulate or fit the
analytical technique. For situations when data are extremely difficult to collect or when
the necessary level of accuracy is unknown, sensitivity analysis can be used to identify
data collection requirements.

For e.g. an initial analysis may be completed using transportation costs estimated with
distance – based regressions. The types of data required in a logistical design n study
can be divided into three classes: business assumptions, management assumptions and
analysis assumptions. The majority of data required in a logistical study can be obtained
from internal records. Although considerable searching may be needed, most
information is generally available.
The first major data category is sales and customer orders. The annual sales forecast and
percentage of sales by month, as well as seasonality patterns are necessary for determining
logistics volume and activity levels. Historical samples of customer order invoices are also
needed to determine shipping patterns by market and shipment size. The combination of
aggregate measures of demand and detailed order profiles of projects the requirements that the
logistics system must be capable of satisfying. Specific customer data are also required to
consider the cost and time associated with moving the products across distance. Customers and
markets ate often aggregated by location, type, size, order frequency, growth rate, and special
logistical services to reduce analysis complexity.
For integrated channel analysis, its necessary to identify and track the costs associated
with manufacturing and purchasing. It‘s often necessary to consider the number and location of
plants, product mix, production schedules and seasonality. Identification of policies and costs
associated with inventory transfer, reordering, and warehouse processing, inventory control
rules and product allocation procedures. For each of the current and the potential warehouse,
the operating costs, capacities, product mix, storage levels and service capabilities should be
established.
Transportation data requirements include the number and type of modes utilized, modal
selection criteria, rates and transit times, and shipping rules and policies.
For most logistics analysis applications, a select amount of future market data is useful
for evaluating future scenarios. Although the management may be able to prepare a

consolidated sales forecast it is difficult to prepare a market-by-market projection of sales.
There can be two solutions to this problem.
1. Usage of demographic projections that correlate highly with sales can help the
company to estimate future demand levels and hence determine future logistics requirements.
Secondary data published by various government agencies can also provide a data bank of
environmental information
2. Keeping a watch on the competitors strategies and capabilities by documenting
competitive logistical system designs and flows can be helpful in providing competitive
benchmarks that compare customer service capabilities, distribution networks and operating
capabilities.
d) Collect Data : Once the data sources have been identified the company can start
assembly of required data and conversion of that data to an appropriate format for the
analysis tool. To avoid errors like overlooking data that does not reflect major
components of logistical activity or collection of data from a misrepresentative time
period, the data collection process should be properly documented.
e) Collect Validation Data : The objective of validation is to increase management
credibility regarding the analysis process and to ensure that the results of the analysis
accurately reflect reality. It is important to ensure that a through investigation is
conducted into analytical results based on data that might not accurately reflect the past.
2) ANALYSIS
The analyst uses the technique and data from the previous activity to evaluate logistics
strategic and tactical alternatives. The process of analysis includes

a) Define analysis questions
This involves defining specific analysis questions concerning alternatives and the range
of acceptable uncertainty. The questions build on research objectives and constraints by
identifying specific operating policies and parameters. For e.g.: In the case of inventory
analysis questions might focus on alternative service and uncertainty levels.
b) Complete and validate baseline analysis
The second task completes the baseline analysis of the current logistics environment
using the appropriate method or tools. Results are compared with validation data collected
previously to determine the degree of fit between historical and analytical findings. The
comparison should focus on identifying significant differences, determining sources of possible
errors and identifying and correcting them.
c) Complete alternative analysis
An evaluation of systems alternatives should be accomplished either manually or
electronically to determine the relevant performance characteristics of each alternative.
d) Complete sensitivity analysis
In this phase uncontrollable factors like demand, factor cost or competitive actions are
varied to assess the ability of potential alternatives to operate under a variety of conditions.
Sensitivity analysis in conjunction with an assessment of potential scenario probabilities is then
used in a decision tree to select the best alternative.
PHASE III - RECOMMENDATIONS & IMPLEMENTATIONS
Phase III operationalize planning and design efforts by making specific management
recommendations and developing implementation plans.

a) Recommendations
Alternative and sensitivity analysis results are reviewed to determine recommendations
to management. There are four steps in this part of the phase namely: -
1. Identify the Best Alternative
Performance characteristics and conditions for each alternative must be
compared to identify the two or three best options. The decision tree analysis should identify
the best alternative i.e.: The one that meets the desired service objectives at the minimum total
cost.
2. Evaluate Costs and Benefits
A Cost Benefit analysis compares the alternatives for a base period and then
projects comparative operations across a particular planning horizon. Potential benefits such as
cost reduction; service improvement and cost prevention are identified and quantified. In other
words when evaluating the potential of a particular logistical strategy an analysis comparing
present cost and service capabilities with projected conditions must be completed for each
alternative.
3. Develop a Risk Appraisal
Risk Appraisal considers the probability that the planning environment will
match the assumptions. It also considers the potential hazards related to system changeover.
Risk related to adoption of a selected alternative can be quantified using sensitivity analysis.
For e.g.: Assumptions can be varied and the resulting influence on system performance for each
alternative can be determined. The end result of a risk appraisal provides a financial evaluation
of the downside risk if the planning assumptions fail to materialize. Risks related to system
changeover such as unanticipated delays, a series of contingency plans etc can also be
quantified and a series of contingency plans could be tested to determine their possible impact.

4. Develop Presentation
The final step in this procedure is a presentation to the management / submission
of a report that identifies specific operating and strategic changes, provides qualitative reasons
for suggesting these changes and then quantitatively justifies the changes in terms of service,
expenses, asset utilization or productivity improvements.
b) Implementation
The actual plan or design implementation is the final process activity. An adequate
implementation procedure is the only means to obtain a tangible return from the planning
process. This broadly includes four phases.
1. Define Implementation Plan
The implementation plan has to be defined in terms of the individual events, their
sequence and their dependencies. The planning process may initially develop at a macro level.
But it must ultimately be refined to provide individual assignment responsibility and
accountability. Plan dependencies identify the interrelationships between events and thus define
the completion sequence.
2. Schedule Implementation
The implementation plan is scheduled based on the assignments identified in the
previous stage. The schedule must allow adequate time for acquiring facilities and equipment,
negotiating agreements, developing procedures and training.
3. Define Acceptance Criteria
The criteria for evaluating the success of the plan are then developed. The Acceptance
Criteria should focus on service improvements, cost reduction, improved asset utilization and
enhanced quality. Although the acceptance criteria may focus on the area / function which was
the main focus for the Plan, it should also take a broad perspective that focuses on total
logistics system performance rather than the performance of an individual function.

4. Implement
The final task is actual implementation of the plan or design. Implementation must
include adequate controls to ensure that performance occurs on schedule and that acceptance
criteria are carefully monitored.

TRANSPORTATION
Transport Functionality
Transportation is one of the most visible elements of logistics operations.
Transportation provides 2 major functions :
 Product movement
 Product storage.
Product Movement
Whether the product is in the form of materials, components, assemblies, work-in-
process, or finished goods, transportation is necessary to move it to the next stage of the
manufacturing process or physically closer to the ultimate consumer. A primary transportation
function of product movement is moving up and down the value chain. Since transportation
utilizes temporal, financial, and environmental resources, it is important that items be moved
only when it truly enhances the product value.
Transportation involves the use of temporal resources because product is inaccessible
during the transportation process. Such product, commonly referred to as in-transit inventory, is
becoming a significant consideration as a variety of supply chain strategies such as just – in –
time and quick response practices reduce manufacturing and distribution center
inventories.Transportation uses financial resources because internal expenditures are necessary
for private fleets or external expenditures are required for commercial or public transportation.
Product Storage
A less common transportation function is temporary storage. Vehicles make rather
expensive storage facilities. However, if the in-transit product requires storage but will be

moved again shortly (e.g. in a few days), the cost of unloading and reloading the product in a
warehouse may exceed the per-daily charge of storage in the transportation vehicle. In
circumstances where warehouse space is limited, utilizing transportation vehicles may be a
viable option.
One method involves loading on the vehicle and then having it take an indirect route to
its destination. This is desirable when the origin or destination warehouse has limited storage
capacity.
A second method to achieve temporary product storage is diversion. This occurs when
an original shipment destination is changed while the delivery is in transit.
E.g. suppose a product is initially scheduled to be shipped from Chicago to Los
Angeles. However, if during the delivery process, it is determined that San Francisco is in
greater need of the product or has available storage capacity; the product could be delivered to
the alternative destination of San Francisco.
In short, although product storage in transportation vehicles can be costly, it may be
justified from a total cost or performance perspective when loading or unloading costs, capacity
constraints, or the ability to extend lead times are considered.
Principles
There are two fundamental principles guiding transportation management and operations.
They are economy of scale and economy of distance.
Economy of scale refers to the characteristic that transportation cost per unit of weight
decreases when the size of the shipment increases.
E.g. truckload shipments cost less per pound than less-than-truckload shipments. It is
also generally true that larger capacity transportation vehicles such as rail or water are less

expensive per unit of weight than smaller capacity vehicles like motor or air. Transportation
economies of scale exist because fixed expenses associated with moving a load can be spread
over the load‘s weight. The fixed expenses include administrative costs of taking the order;
time to position the vehicle for loading or unloading, invoicing and equipment cost. These costs
are fixed because they do not vary with shipment volume.
E.g. suppose the cost to administer a shipment is $ 10.00. Then the 1-pound shipment
has a per unit of weight cost of $10.00, while the 1,000 pound shipment has a per unit of weight
cost of $0.01. Thus, it can be said that an economy of scale exists for the 1000-pound shipment.
Economy of distance refers to the characteristic that transportation cost per unit of
distance decreases as distance increases.
E.g. a shipment of 800 miles will cost less than two shipments (of the same combined weight)
of 400 miles. Transportation economy of distance is also referred to a se tapering principle
since rates or charges taper with distance. The rationale of distance economies is similar to that
for economies of scale.
Longer distances allow the fixed expenses to be spread over more miles, resulting in
lower overall per mile charge.
These principles are important considerations when evaluating alternative transportation
strategies or operating practices. The objective is to maximize the size of the load and the
distance that is shipped while still meeting customer service expectations.
Transport Infrastructure
Transportation infrastructure consists of the rights-of-ways, vehicles, and carrier
organizations that offer transportation services on a for-hire or internal basis. The nature of the
infrastructure also determines a variety of legal and economic characteristics for each mode or
multimodal system. A mode identifies the basic transportation method or form.

Transportation Cost Elements
Following are the essential elements of transportation to be taken into account:
1. Transport Mode – The most critical decision is the selection of appropriate mode of
transport. This fixes two basic elements of distribution function:
a) Transit time or time lapse between production and sale;
b) Level of transportation costs.
There is an inverse relationship between transit time and transport cost – the lower the transit
time, the higher the transport cost. However, a decision that takes into account only one cost
factor cannot be justified. An evaluation of the effect of transit time on other costs must also be
considered. Unsold production represents a high cost, and the longer the transit time, the higher
the level of unsold production.
2. Inventory Costs – A first class service to clients often requires immediate delivery and,
hence a higher level of inventory at the market centre. Economy, on the other hand, calls for
minimum inventory. The level of output held in stock is dictated by -
a) Transit time: If the time lapse between production and sale is longer, the level of inventory
becomes higher.
b) Sales pattern: If the pattern of sales is erratic, higher inventory levels are caused.
c) Production pattern: If the production pattern is erratic, higher inventory levels have to be
maintained to prevent stock –outs.
Assuming that the sales and production patterns are largely fixed, the important
variable, which can influence stock, levels in transit time. As transit time is reduced, the level
of static stock can be reduced with accompanying stock reduction.

3. Transit Capital – Capital can be released by changing the proportion of the total output in
transit. This can be done by adjusting the transit time. As transit time is reduced, the quantity of
goods in transit can be decreased with an associated reduction in transit inventory costs. By
realizing the capital cost of transit inventory and goods in transit, capital commitments can be
reduced, and more capital can be available for other purposes.
4. Obsolescence - When a slow or erratic mode of transport is employed, a higher level of
inventory is necessary to ensure continuous, prompt delivery to the customer. However, when
designs change rapidly, obsolescence reduces the market value of the products in store. Rapid
advances in technology bring about swifter technical obsolescence. Any goods in the pipeline
realize a lower figure when new models are introduced by a company or it‘s competitors. Air
distribution can overcome this problem, and the effect of such obsolescence can be minimized.
5. Packaging – The nature of packaging of a product is often determined by the mode of it‘s
transport. E.g. Because of the dry conditions of carriage, short transit times and minimum
handling, air cargo generally requires much less packaging than other forms of long distance
transport. Goods dispatched by air may require only a dust cover or even no cover at all. In
some cases, savings on the packaging of sophisticated products may more than pay for the
actual transport charges. Less packaging may lead to other advantages too. These include lower
unpacking costs and lower chargeable weight for freight.
6. Insurance – Insurance risks are based on transit time as well as the possibility of damages en
route. With faster transit times, skillful handling, substantial reduction in damage and greater
security in transit, insurance premiums tend to fall substantially.
7. Breakages – Cost of breakages is an important factor in any cost benefit analysis. Because
breakages may be indemnified by insurance companies, the true cost of damage to cargos can
easily be overlooked. In the first place, the vulnerability of various products sent by different
modes is reflected in the insurance premium. To high premiums must be added the clerical
work involved in establishing claims, making replacements and the loss of customer‘s

goodwill. The replacements themselves will be subject to the same hazards and premiums will
require further documentation. Therefore, only that mode of transport must be selected which
substantially reduces real damage in transit. This calls for a selection of the routes which are
more direct and which avoid transshipment. Handling equipment must also be more
sophisticated. Containers can be used by shippers for door-to-door transportation, thereby
avoiding all handling of goods by the carrier.
8. Pilferage – Many expensive administrative problems associated with breakages also apply to
pilferage. This problem is reduced for example, when door-to-door containers are used, a fact
which is again reflected in lower insurance rates.
9. Deterioration – In many surface cargos, deterioration may be avoided only by complicated
and expensive packing to counteract mechanical shock, exposure to weather or unfavorable
temperature etc. Some cannot be stored at all, except at great expense, and others deteriorate
slowly. Deterioration can be costly in terms of packing, stock losses and expensive
conditioning in store. It can only shut the door on many distant markets. A high speed of
transport and the frequency of services can overcome many of these problems.
10. Transport Costs – Transport can be divided into 3 phases:
(i) Delivery to docks, airport or railway station.
(ii) Transport from one terminal to another.
(iii) Delivery from the terminal to the consignee‘s place.
In the cost-benefit analysis of the turnaround time of a company‘s delivery and
collection vehicles, their man hour costs can be significant. Some customers may find this item
to be more costly than the cost of the major journey.

Transportation Hidden Costs
The physical distribution component of a major project, including transportation of raw
materials, project materials, machinery and equipment and such infrastructure facilities as
roads, vehicles etc., usually accounts for 20 to 30% of the total capital cost. The general
scarcity of various goods, unpredictable nature of the economy and economic behavior on the
part of the business community and the bureaucracy in India make it all the more necessary for
one to plan well ahead. In fact, planning of transportation and infrastructure must be done well
ahead of general planning, so that resources spent on other parts of the project do not result in
in - fructuous expenditure.
In developed countries, these facilities are already available in abundance or are
provided for well in advance. In developing countries, action is generally initiated only after the
project has been partially put through or when it becomes totally inescapable to do so. On the
other hand, because of lack of these facilities, such problems are faced even during
construction.
Eg. Trucks get stuck in muddy roads, work sites remain unapproachable, andserious
vehicular accidents are caused near the project areas.
In developing countries, for the supervision of construction of a building, usually no
qualified individual is appointed for the co ordination and planning of transportation
infrastructure, which forms a major fraction of the total cost of a project running into crores.
For a major project, the average total cost to the economy of a project costing Rs. 100 crores
which is delayed by one year from the date of targeted completion is 39% more than the
original budgeted cost on account of the following:
1. The rate of interest on capital may be taken at nearly 12%.
2. The profit on income per year about 12%
3. The cost of depreciation on account of obsolescence or rusting without running of the plant
at 5%.
4. The cost of escalation of the project cost at 10%.

The cost of delay in the completion of the project would therefore be roughly about
Rs.11 lakhs per day or Rs. 3.25 crores per month. It would be worthwhile to educate senior
executives to recognize these facts, for this aspect of the project is usually ignored by project
authorities. Project authorities do not hold themselves responsible for the transportation
bottlenecks and resulting delays. These delays are due to non-receipt of equipment, machinery,
raw materials etc. and these delays generally run into months. Due to such delays, the project
suffers heavy losses, which occur because of congestion in the ports, traffic jams, railway
restrictions etc. Therefore, it is financially more practical to obtain critical equipment,
machinery and raw materials, critical not from the point of view of availability in the market
but critical form the standpoint of transportation bottlenecks- so that the likely delays are
avoided.
A proper transportation planning of materials, therefore, may well save a project as well
as the economy form the ill effects of wasteful expenditure. At the same time it would help
speed up production.
Transportation Network Design Options
Classical economists neglected the importance of facility, location and overall network
design Economists, when originally discussed supply – demand relationships, facility, location
and transportation cost differentials were assumed to be non existent or equal among
competitors. The number, size, geographical relationships of the facilities are used to perform
logistics operation directly affect customer service capabilities and cost.
Network design – primary responsibility of logistics. Typical logistics facilities are
manufacturing plants, warehouses, gross dock operations and retail stores. Determining
(i) How many of each facility are required
(ii) Their geographic location
(iii) The work to be performed at each is a significant part of network design.

In specific situations facility operations may be outsourced to service specialists. No matter
who does the actual work, all facilities must be managed as an integral part of a firm‘s
logistical network. You have a network for internal customers, external customers as well as
suppliers. Suppliers should be made to understand what their commitment is and follow it. You
have to co-exist with your suppliers and share information with them. Network design must
take into account geographical location because a great deal of variation exists between
different geographical markets. If you set up your base in a place where your demand is high
then after a while the demand shifts and come from another location, then again you are in a
dilemma. In a dynamic, competitive environment
• Product assortment
• Customer supplies
• Manufacturing requirements
All of the above are constantly changing. However re-location of all logistics facilities at one
time is inconceivable. Relocation or redesign of specific facilities is possible. Over a period of
time, all facilities should be evaluated, to determine if their location is desirable. Selection of a
superior location network can provide the first step. Your network of facilities forms a structure
from which logistical operations are performed. Your network should incorporate
transportation and information. Specific work tasks related to network design are processing
customer orders, management of inventory, material handling.
Freight Rate Structure
Freight rates of any mode of transport are based on the following principles:
1. Freight should the actual cost of transport operation. The actual cost of operation
depends on the following factors:

a) Fixed costs - Freight should cover interest on capital, depreciation, registration and
insurance expenses of a vehicle, if applicable, general upkeep of the vehicle, administration
overheads, and expenditure on other fixed facilities, etc.
b) Semi-fixed costs - Freight should cover the salary of the driver, cleaner, conductor
and miscellaneous maintenance expenses, which vary partially with the running of the vehicle.
c) Vehicle Utilization - A transporter is interested in getting maximum mileage out of
his vehicle by moving it at top speed to cover the distance in as short a time as possible.
i. If the consignments loaded or the route covered is not conducive, the transporter
would quote a higher freight rates.
ii. Higher freight rates are also quoted when vehicles are detained at terminals either for
certain formalities, terminal congestion in busy ports or at factory gates, or while waiting for
loading or unloading operations. Terminal detentions are invariably accounted for in the freight
rates themselves, but they are normally not noticed at all.
iii. Freight rates are quoted higher if there an expectation of obtaining a return trip with
a load or if considerable empty movement of vehicles is involved after unloading.
iv. Vehicle Utilization is affected by the nature of goods. Hazardous goods that are
likely to cause damage to the other consignments or the vehicle itself attract higher freight
rates.
v. Consignments, which can be loaded less by weight in a vehicle, attract higher unit
freight rate since they yield poor utilization of the vehicle.
2. Traffic Bearing Capacity:
An age-old consideration for the freight rates is the doctrine of ―what traffic can bear.‖
Transportation adds place utility to goods, for it makes them marketable at another place.
However, after the addition of the cost of transport, the price of goods should be still attractive
to the buyer.

3. Public Use:
Freight rates all over the world are governed on human grounds that items of public use
should be made available to the common man at the cheapest rate. For example, foodgrains
and salt are carried at rock-bottom prices, sometimes even at those, which do not cover the
actual cost of operation.
4. Government Policies :
Freight rates are often framed on the basis of government objectives, which aim at
serving certain points – such as promotion of certain type of trade, development of certain
industries, etc. In such cases, freight rates are either depressed to promote the particular traffic
or hiked to discourage particular traffic.
5. Reasonable Profit :
The transporter must provide for a reasonable profit after covering the cost of
operations and capital investment. This margin must give not only return of investment but also
compensate him for the entrepreneurial time and effort he puts in, but also provide sufficient
funds for future development of his enterprise.
Modal Characteristics
ROAD TRANSPORT
Road transport forms an essential part of any transport activity, whether rail, sea or air.
It is essential as a supplementary and complementary mode of transport to complete movement
by other modes of transport. Eg. From one terminal i.e. the railway station the goods have to be
carried to the destination like an area by road.

RAIL NETWORK
Since olden times, railroads have handled the largest number of ton-miles. As a result of
the early establishment of a comprehensive rail network connecting almost all the cities and
towns, railways dominated the intercity freight tonnage till World War II and in some cases of
Europe, Asia and Africa they even connected the countries. This early superiority enabled
railways to transport large shipments very economically. Railroads have come a long way, as
we can see by just the US figures that 54.0% of intercity transport in 1947 was by Railways,
39.2% in 1958, 36.4 % in 1980 and almost 37% in 1992. The period from 1950-1970 saw a
tremendous decline in use of railways.
The capability to efficiently transport large tonnage over long distances is the main
reason railroads continue to handle significant intercity tonnage and revenue. Railroad
operations incur high fixed costs because of expensive equipment, right-of-way (railroads must
maintain their own track), switching yards, and terminals. However, rail experiences relatively
low operating costs. The replacement of steam by diesel power reduced the railroads‘ variable
cost per ton-mile, and electrification offers potential for more reductions.
WATER TRANSPORT
It is the oldest mode of transportation. First it was the sailing vessels, which was
replaced by steamboats in early 1800‘s and by diesel power in the 1920‘s. Domestic water
transportation – involves the Great Lakes, canals, and navigable rivers. In every country, fewer
system miles exist for inland water than any other transportation mode.
The main advantage of water transportation is the capacity to move extremely large
shipments. Water transport employs 2 types of vessels. Deep-water vessels, which are generally
designed for Ocean and Great Lakes use, & are restricted to deep-water ports for access. In
contrast, diesel-towed barges, which generally operate on rivers and canals, have considerably
more flexibility. Water transport ranks between rail and motor carrier in the fixed cost aspect.

Although water carriers must develop and operate their own terminals, the right of way is
developed and maintained by the government and results in moderate fixed costs as compared
to railways and highways.
PIPELINES
Surprisingly, Pipelines are also one of the major form of transportation medium
throughout the world. In 1989, in USA over 53% of all crude and petroleum tonmile
movements were through Pipelines. In addition to Petroleum, other important product
transported by pipeline is the natural gas. Pipelines are owned and operated privately in most of
the countries and many gas companies act as both gas distributors and contract transportation
providers. Pipelines are also utilized for transport of manufacturing chemicals, pulverized dry
bulk materials such as cement, flour via hydraulic suspension, and sewage and water within
cities and municipalities. Pipelines are very unique in nature compared to other types of
transport, such as; they operate on 24-hour basis, seven days a week, and are limited by
commodity changeover and maintenance. Unlike other modes, there is no empty ―Container‖ or
―vehicle‖ that must be returned.
AIR TRANSPORT
Air transport is the newest and the least utilized mode of transport. Its major advantage
is its speed, which is accompanied by high costs. A coast-to-coast shipment via air requires
only a few hours contrast to days taken by other mean of transportation. The high cost of
transport can be traded off for high speed, which allows other elements of logistical design,
such as warehousing, inventory to be reduced or eliminated. But still air transport remains more
of a potential opportunity than a reality because it is very much under utilized. The high cost of
jet aircraft, coupled with erratic nature of freight demand, has limited the assignment of
dedicated planes to all-freight operations. However premium carriers provide planes dedicated
for freight operations.

WAREHOUSING
Warehousing was a customer‘s function conventionally anywhere in the world.
Customer to protect himself from shortages at the time of inclement weather always used to
store provisions and other utilities in his house. Consumer‘s own stores were underground
cellars, smoke houses to store variety of items. Poor communication infrastructure was mainly
the cause for this storage by customer. Producers and tradesmen conveniently shrugged off
their responsibility for storage and passed it on to the customer who was left with no option.
Traditional concept of warehouse as store or godown has undergone major change now.
Warehouse is considered a value adding facility now, playing a remarkable role as a function of
logistical management.
As the times changed, manufacturer started applying modern scientific management
techniques to improve productivity in his factories. Manufacturer visualized the need of a
buffer between factory and market, now the warehouse became storehouse to stock production.
This role of the warehouse supported production.
Functions of warehouse [warehousing operations]
Receiving goods – receive and accept responsibility
1. Identifying goods – place, label, color code
2. Sorting goods- sort out the received goods for appropriate storage area
3. Dispatching goods to storage- for temporary storage with easy accessibility
4. Holding goods- security against pilferage and deterioration
5. Selecting, retrieving, packing- items are retrieved and grouped according to customer order
for dispatch
6. Marshaling goods- check the items of a single order for completeness and order records are
updated
7. Dispatching goods- consolidated order is packaged and directed to right transport
8. Preparing records and advices- of stocks and replenishment requirements

Principles of Warehouse design
 Design criteria: following are the factors to be kept in mind while designing the
warehouses.
Product flow: warehouse should be designed round material handling flow. Movement
of material should be kept minimum
No of stories: one is ideal as against limitations of space. Cost of land prohibits having
only one story as this would need large area.
Height utilization: principle of cubic space, principle of ‗go vertical‘, e.g.-car parking
in Japan. Limitation on this concept is posed by limitation of handling equipment, fire
safety rules, insurance regulations and rules and regulations imposed by the state.
 Handling Technology
Movement continuity and movement scale economics : movement continuity is
ensuring less number of long movements rather than large number of short movements.
Movement scale economies depend on movement in large bulk. Moving material in
cases strapped on pallets or containers yields large benefits in handling. Handling
becomes standardized and simplified. Moving material in small packages is expensive
and complex. Handling technology should address these issues
Storage Plan : storage plan depends on characteristics of product. Some of the
examples are
- open air storage for bulky products
- heavy items closer to floor
- light items on higher rungs of the shelf or rack
- fast moving items in large bulk closer to aisles
- hazardous items stored at safe distances to limit damage in dangerous situations.

Warehousing alternatives
 Private Warehouses
Owned or leased by the product owner. Ownership is not the criterion. Control is fully
with the product owner. Product owner exercises overall control on management. Changes can
be made to integrate the warehouse with rest of the logistical system. It provides market
presence to the product owner. It is considered to be cheaper as there is no profit to be added to
the cost.
 Public Warehouses
It is available to companies on hire. Overheads get distributed over a large customer
base. This makes the usage cheaper. As warehousing is their core business public warehouses
offer expertise in management. Flexibility of location : if the product owner needs to change
the location of warehouse, it is easier if the current warehouse is public. It is only a question of
terminating the contract and starting a new one. But if the warehouse is owned, one has to
dispose off the current facility and procure a new one. Significant scale economies, several
users and resultant volume, benefits in transportation costs can be gained by utilizing these
facilities.
 Contract warehouses
Contract warehouse operators take over logistics responsibility from manufacturing
company. Warehouse owner offers long term relationship and customized service. Product
owner gets the benefit of management expertise of the warehouse owner. As the warehouse
owner centrally controls several warehouses, product owners get the benefit of shared resources
with several clients. This brings down the cost.
General classification of Public warehouses
1. General merchandise
2. Refrigerated
3. Special commodity

4. Bonded
5. Household goods & furniture
Warehousing strategy
Strategy in this context is finding answers some fundamental questions about
warehouses keeping long term business in mind. These questions are product owner should
have how many warehouses in the logistical network? Where these warehouses must be
located? And what type of warehouses is suitable for the business we are in?
How many? Total logistical cost must be calculated keeping various number of warehouses in
the logistical warehouses. If a graph is plotted with total logistical cost on Y axis and number of
warehouses on X axis, shape of the curve would indicate number of warehouses required for
minimum total logistical cost.
Where?
Location considerations: While deciding the location following factors are to be considered
keeping potential locations in mind.
1. Cost of distribution to market area.
2. Transport requirement and facilities.
3. Cost of transportation.
4. Presence of Competition.
5. Availability and cost of utilities [power, water, gas, sewerage disposal] and cost
6. Availability and cost of labour supply.
7. I - R climate, labour productivity. Whether conditions are conducive to operations.
8. Customer‘s expectation of ‗D‘ for our product.
9. Any specific commitments made by the company to any ‗A‘ category customer.
10. Local taxation levied by the local authority in the area.
11. Community attitude towards business from outside.

12. Restrictions associated with warehouses. In some areas some type of products are not
permitted to be stored.
13. Future expansion. Whether the location is able to accommodate organizations plan to
expand in future as per their strategy.
14. Cost of land.
15. Topography and soil condition: if the warehouse needs special and heavy equipment for
material handling and if the incoming loads are heavy then firm soil and flat topography are
ideal. If these conditions are not available, substantial amount of money is required to be
invested.
16. Possibility of title change to the land: Are the title change formalities straight forward? In
some situations this is complex, like title to MIDC land.
Ideal warehouse location
1. Protects of stock against moisture, insects, dust, fumes, pests, thieves, fire etc.
2. Provides facilities for ware housing activities like plenty of water for drinking and fire
fighting.
3. Facilitates economics of operation.
4. Away from sources of detrimental conditions.
5. Easy access from highway, railhead and waterfront. No geographic barriers. There are
no natural barriers like river or steep hills
6. Proximity to ‗A‘ category customers.
Warehousing strategy Of what type? Private? Contract or Public?
Private Contract Public
Presence synergy
Industry synergy

Operating flexibility
Location flexibility
Scale economies
Presence synergy : a private warehouse provides strong market presence to a company. This
has a psychological impact on the customers and also provides physical presence close to the
customers for prompt response to customers.
Industry synergy : if several firms serving the same industry collocate themselves benefits in
transportation cost result. These firms can share several facilities specially products handled are
same.
Operating flexibility : management control is full in a private warehouse.
Location flexibility : change in location and increase or decrease in number of warehouses is
very simple if public warehouses are used. This is important for seasonal demands.
Scale economies : high volume handling results into benefits due to economies of scale. This
can happen when highly capital intensive handling equipment is used. Public warehouses can
invest in technology as they serve a large client base.

A Case Study On

BLR INDIA
The Company
Set up as a small trucking business in 1968, by a visionary
Mr. LC Goel, BLR has shifted gears to become one of the largest & most reliable
Transportation & Logistics companies in India. From a one man in one office in 1968, the
company grew steadily to a sizeable business of about INR 2 crores and three offices by 1989.
1990s saw the spurt of growth in BLR as the company grew from an INR 2 crores in
revenues from three offices to 120 crores (INR 1.2 billion or USD 27 million) out of a network
of more than 50 offices all over India at present. The Company has moved up the ladder
through innovation & consolidation and today with a 450-people strong family, BLR has
become one of the most sought after Transportation & Logistics companies in India. The
inspiring fact is that it is well endorsed by the customers nationally.
With a fleet of more than 250 vehicles including trucks, trailers & LCVs and with a
network of warehouses in major cities in India, BLR offers a truly integrated Logistics Services
to its customer. Custom Bonded-warehousing, bonded-trucking and excise bonded
warehousing are additional unique features of BLR's offerings to complete the bouquet of total
Logistics Services.
BLR is committed to service the customers by offering complete logistics & supply
chain solutions. In order to facilitate this, BLR has promoted BLR Logistics to cater to the
Logistics / Supply Chain requirements of the customers. BLR Logistics is being led by
professionals with varied corporate backgrounds and rich industrial experience.

A Brief History
Mr. L.C. Goel (affectionately called LCG), a self-made man, a great visionary of
strong values, started a small trucking business in the 1968. His short-term goal was to
establish a road transport business between his native place and the commercial capital of
India. The company was very aptly named Bombay Ludhiana Roadways, catering to the
transportation needs of the customers in these stations and the stations en route.
With his able leadership and great vision, LCG nurtured the nascent organization into
an India wide Transport Company catering to the very need of the customers nationally.
Quality, Integrity and Social responsibility are the values that he practiced, preached and
imbibed in the culture of BLR.
In line with his mission, he had grown the business steadily to about INR 2 crores by
1989. By that time, the 2nd generation had already been groomed to take the reigns of the
business. Mr. Ashok Goel, a Commerce Graduate from Mumbai University, joined the Family
business in 1985 started by his father Mr. L C GOEL.
Through his able leadership, he has transformed BLR into an INR 120 crores company
with a network of more than 50 offices spread across the length & breadth of the country.
Ashok is an active member of various developmental industry bodies & associations like
Indian Road Transportation Development Association (IRTDA),
All India Transport Welfare association (AITWA) &
Bombay Goods Transport Association (BGTA)

He is actively involved in industry regulations necessary for the development of the
transport infrastructure in the country.
Company Profile and Key Strengths
As one of India's leading logistics companies BLR offers customized solutions to all industrial
sectors with a focus on saving costs and providing world class services. BLR Logistiks (I) Ltd
stands for globally competitive solutions within a trusting and service oriented environment.
BLR offers truly integrated Logistics Services to its customers through its privately owned fleet
of more than 500 vehicles and over 24 general and custom bonded warehouses in all major
cities across India.
With its 100 offices in India BLR can offer you an extensive network and overall coverage.
Having grown 58% annually, and Reliance Capital Ltd taking on an equity stake of 31%, BLR
Logistiks (I) Ltd has developed from a small trucking company to a 250 crore rupees (equal to
50 million US Dollars) turnover logistics provider.
Mission, Vision and Values
Our mission is to create competitive edge and superior
financial results for our customers by optimizing their supply
chains through innovation & total commitment.
We will be recognized globally as the number one provider of
logistic services offering door-to-door solutions from, to and
within India.

INTEGRITY EQUALITY AMBITION
HONESTY RESPONSIBILITY TRUSTWORTHINESS

At BLR Logistiks Ltd
integrity and trustworthiness are the basis of our
commitment to our customers and employees. BLR allocates tasks and
responsibilities to its staff based on their capacities regardless of other factors
such as sex or religion. BLR values a strong culture of loyalty towards its

employees and from its employees. These values form the backbone of BLR and
will continue to provide the framework to realize BLR‘s potential and ambition in
the future.
The Infrastructure
The Infrastructure of BLR consists of the following :
1) Office Network
2) Fleet
BLR Office Network
BLR has a network of more than 50 offices around the country. The offices are
well networked through latest IT capability. The network of offices covers all the major
business districts of India.

BLR Fleet
With a fleet of more than 250 vehicles including Trucks, Trailers and LCVs,
BLR has the capability to carry all types of goods for transport within India. The profile
of BLR customers varies from Global MNCs, Indian MNCs, Indian Corporate house,
Start Trading house, Trading houses and Importers & Exporters.
The industries and the products that BLR caters to currently include
pharmaceuticals, Chemicals, Lubricants, Engineering, Automotive, Electronics, News
Print, Papers, Fibers,
Polymers, Steel,
Project machinery, Plant
& Equipments, odd
dimensional
cargo and Import & Export containers.
With thorough knowledge of Indian Transport regulations, customers trust BLR
and entrust with responsibilities to deliver goods in time, every time.

BLR Supply Chain Solutions
BLR provides the following services
in its supply chain :
1) Transportation Services
2) Warehousing
3) Distribution
4) International Freight Management
Transportation Services
BLR has the capability to provide Transportation to all kind of material within India.
The broad line segmentation of Transportation Services is as below:
Domestics Transportation
Bonded Trucking
Project Transport
Scheduled Transport
Multi Modal Transport

Customised Transport (Milk run, Hub & Spoke etc.)
Domestics Transportation
Transportation is the movement of people and goods from one place to another.
Domestic transportation refers to the movement within the country. Transportation is the most
visible of all functions of logistics and high contributor to logistics cost. We can see trucks,
containers and wagonloads of material being moved from place to place as an activity directly
associated with trade and business. We should also appreciate that this is an activity that adds
highest amount of cost to the activity of making inputs and outputs available to consumers.
Transportation function moves the products to meet customer expectations at minimum cost.
Bonded Trucking
Bonded Transportation provides same-day or
next-day delivery of anything from an envelope to a
truckload. BLR has been approved by CONCOR
(Container Corp of India), a PSU of Govt. of India, to
operate bonded-trucking services within India and is
one of the few transportation companies in the panel of
Concor to offer this service. BLR has been given this
approval by CONCOR after a due diligence on the capability, security and quality parameters.
Multi-Modal Transport
The BLR Group believes in the concept of a `Multimodal Transport System' and hence
with the help of the various units namely BLR Logistics, a variety of audiences demanding any
/ all of these modes of transportation are been addressed.

The Cargo Industry is still an expanding market. The need for a comprehensive logistics
systems in transportation, communications and information sector, continues to grow. Freight
forwarding services alone are no longer sufficient, special deals are to be initiated on regular
intervals to lure the customers to maintain them on permanent status, especially to cater to the
increasing needs of seasonal vendors.
This is with the object to provide most economical, smooth, reliable and speedy
carriage of shipments to various destinations on selected mode of transport which must not only
ensure hassle-free service but should render sizable savings in the freight expenses. This vital
information of costing must arrive to the shipper well in advance to make proper planning in
co-ordination with logistic company. This is essential in order to ascertain reliable and timely
transportation scheduling and delivery throughout the logistic-chain, from the shipper to the
consignee.
Therefore, the cargo market demands a global solution and network linking all four modes of
transportation i.e. (a) Air (b) Road (c) Rail & (d) Sea. The combination of these modes is
defined as ‗Multimodal transport system‘.
BLR Warehousing & Distribution
The range of warehousing services currently offered to the customers are following;
Bonded Warehousing (Custom Bonded & Excise Bonded)
General Warehousing (for all industry types)

Export Stuffing Warehousing
Export Vendor Consolidation
BLR Bonded Warehouses
BLR is Govt. approved Custom-bonded warehouse operator within India and is
operating Custom-bonded and Excise Bonded warehouses around the country. BLR is also
adding 50,000 sq ft state-of-art bonded warehouse space in New Delhi to the existing network.
An Excise-bonded warehouse of 20,000 sq ft is also being planned for export container
stuffing at Mumbai and Ludhiana by Q1, 2006.
BLR General Warehouses
BLR offers warehousing and distribution services to its customers. With a warehouse
space of more than 100,000 sq ft and with a strong transport network around the country, BLR
has the capability to provide integrated logistics & supply chain services to its customers in
India.
BLR International Freight Management
BLR through its logistics services entity does the complete program
administration for the International Freight Management. In the recent past, the customer's
demand gave rise to the development of a forwarding system in which the designated forwarder
provided, arranged and assumed responsibility for the whole transportation process from
storage, consolidation, packaging, transportation, insurance and custom clearance.
Air Export & Import Freight Management
Ocean Export & Import Freight Management

Project Transportation
Services Offered by BLR
BLR can meet in-bound and out-bound logistical needs to enhance business
efficiency.
In-bound logistics
1. Material movement from suppliers to warehouse
2. Palletising, if required
3. Sub assemblies & kitting - if required
4. JIT supply
5. Return of defectives
6. Packing, Unpacking
7. Stock reporting
8. Payment Collection
Outbound Logistics
1. Storage of finished gods
2. Movement till it reaches customers
3. Invoicing
4. Payment collection

Functions of BLR INDIA
1) Freight forwarding
At BLR, Freight Forwarding is a well defined, planned and
executed service function. Offering a very strong local network and
a comprehensive global reach, it brings to each client the assurance
and the satisfaction of dealing with a professional logistics
management group. Responsible for this service at BLR is a close
knit team of experts who are well informed and well versed with the intricacies of managing
and delivering a complete range of logistics solutions across multiple surfaces. The team has
also initiated and carried forward many mutually beneficial movement management
partnerships nationally and internationally, which has translated into quick, wider and cost
effective access to all markets.Today, the service has evolved to cover a variety of shipments,
offering a wide choice of destinations and provides the perfect match between cost and time
schedules.

2) Project handling
At BLR, project handling is a core function and one of the main
service strengths of its comprehensive portfolio. This service has evolved
from its startup status in the year 1948, to become a real powerhouse
solution provider to a variety of industries today. BLR since inception has
focused on really building up this facet of its service. It has over the years
given due emphasis to every minute detail to add edge to this service and deliver more value to
all its clients. Attention to detail, accurate and quick paperwork, close and continuous co-
ordination with government officials, constant monitoring of movement, trained staff at ports, a
complete understanding of national and international processes, full range of handling
equipment, all these are the hallmarks of this service. Topping this, is the fact that given the
scope and the number of projects that BLR handles, it can really offer visible cost benefits to its
valued clientele plus a delivery quality that guarantees minimum delays, total safety and
adheres to time bound schedules. Today, with the support of trained personnel, a range of fully
functional movement equipment like cranes, trucks etc and a rich and varied experience BLR
has to its credit the successful management and delivery of prestigious projects for leading
Sugar mills, Textile mills, Fertilizer plants, Cement plants, Power plants and White Goods
projects India. No wonder, the company's reputation as a dependable and reliable project
movement partner is growing by the day.
3) Logistics management
Today, BLR is totally geared up to deliver to all its
clients a very strong and complete service back up in terms
of comprehensive logistics solutions. It has created a value-
driven portfolio and this has been further bolstered by
building a support team of professionals, a national and
international network and also a pro-active response and technology system. Today, it
competently handles and enables the speedy clearing and forwarding of a variety of industrial

and customer import and export consignments. From loading at ports, unloading, dispatch,
warehousing etc it can handle and deliver consignments of every shape and size across national
and international borders.
4) Customs clearance
Since the inception of the company in 1968, BLR
Transport has been into Custom Clearance. With the vast
knowledge of custom procedure, we have been handling
customs procedure to post-clearance jobs for various
clients. We also have cleared goods within one working
day. The knowledgeable workforce that we have is one of the best one can find. As always, the
customers have been their priority and this will always hold.
5) Trucking
This facet forms a very specialized aspect
of the BLR service portfolio. Being focused on the
logistics management business it was with
foresight that it steadily invested in and built up a
fleet of vehicles. Today, BLR owns a fleet of
trucks which it deploys to move and manage consignments speedily across national borders.
These trucks are well maintained and driven by knowledgeable and well informed drivers who
are instructed to drive carefully to ensure ―zero damage‖ to consignments during transit. These
trucks are serviced from time to time and checked regularly so as to ensure that they stay in
prime working condition and no breakdowns happen during delivery. BLR uses this fleet to
transport and deliver its own consignment and it also at times gives these trucks on hire to the
industry.
6) Door to door

BLR has created a very clearly focused and value
driven door-to-door service. This service encompasses the
entire national network and places a strong emphasis on
timely delivery, in good condition and with true value for
money service. The service today is available across India
and has steadily built up a reputation for being very
reliable. It is used by a variety of clients from various businesses both big and small and with
the strong infrastructure of vehicles, warehouses and offices that BLR has created, the service
has evolved to set new standards in terms of cost and delivery parameters.
7) Warehousing
BLR warehouse service supports inbound logistics,
distribution and aftermarket services in a way that improves
inventory management, reduces total operating costs and
improves cycle times. Their facilities offer the customers
warehousing that is fully integrated into the wider supply
chain and meets demanding service levels. This encompasses
the design implementation and operation for both dedicated and multi-user sites. The benefits
include improvements in :
 Customer service levels
 Stock accuracy
 Lead times
 Redundant stock costs
 Productivity responsiveness to a company's strategic needs
Warehousing & 3rd
Party Logistics

Being in the logistics industry it was only logical for BLR that investing in warehousing
formed a very vital part of growing the business and expanding the service portfolio. To this
end BLR has made very prudent and strategic investments in creating a chain of warehouses,
set up close to vital transport hubs and outside octroi limits. These warehouses are well
maintained, well staffed and are secured by vigilant round the clock staff. Huge in size, well
ventilated and clean they are used for the storage of both consumer and industrial
consignments. These warehouses have helped to add a competitive edge to the BLR portfolio
as they have served to give the BLR customer that sense of security during transit and also
reduced the chances of damage during storage. This service has served to push BLR up the
value chain considerably.
Warehouse Management Systems
The Warehouse Management System (WMS) records all events and actions in the
receipt, handling and storage of products and orders in a warehouse environment. The WMS
also accurately records the location of inventory whilst stored in the warehouse.
BLC Prologs that WMS manages all critical processes in
the warehouse, and is also an important support for varied
transport and distribution concepts (planning, time
controlling, booking of transport capacity, communication
with customs and other authorities).
Cross Docking
Cross-dock operations are facilities where
shipments are received from one mode of transport and
transferred to another mode, or where shipments complete
one leg of a journey prior to commencement of another journey. Shipments are consolidated or
deconsolidated. Product received into the facility is not taken into inventory.

Through effective inventory management, inefficiencies can be driven out of the supply
chain, overall costs reduced and high service levels achieved. BLR optimises inventory at a
line-item level at every stage of the supply chain.
They focus on driving results in:
 Supplier management
 Expediting
 Order replenishment
 Demand forecasting
 Safety stock setting
 Order pipeline monitoring
 Excess stock management
Inventory optimisation is supported by inventory management software that calculates
'line item risk profiles' that measure the variability of demand and supply for each line item
within a customer's inventory.
They can offer:
 Average of 20% inventory reduction and 8% improvement in product availability
 Reduced inventory and overhead costs
 Improved sales, profitability and return on investment
 High service standards
 Better matching of supply with demand
 More streamlined and responsive supply chain
Bonded Warehousing

Bonded warehouses provide secure environments in which customers' products can be
held without immediate payment of local duties and taxes. BLR takes over and manages the
warehouse activities, either in dedicated or multi-user sites.

Case Study
Ocean Import/Export Freight Management
BLR can handle all your international shipments. We negotiate best rates for you
and provide the documentation necessary for the shipment. We compare all
shipping lines and deliver your shipment all over the world.
Air Import/Export Freight Management
BLR ships your cargo to all major airports in the world. Our contacts with the
Airlines and expertise within the company makes sure that your cargo gets
delivered in a fast and timely manner.
Custom Clearance Services
Customs procedures require specific countrywise expertise. BLR offers this
expertise and provides you with all the proper documentation for clearing of your
cargo in India, both import and export. Our agents, located globally, have a
thorough knowledge of the procedures in their respective countries and will assist
in clearing the cargo all over the world.
Cosmetics Company in Pune
Previous situation :
The customer was using conventional 9MT and 16MT trucks, in which
respectively 7MT and 10MT of cargo was loaded. The truck was covered with
Tarpaulin and lashed with ropes. Main destinations were in Eastern India and the
customer was using a transit time of 6-7 days. By the time the cargo arrived at
Kolkata from Pune the top layer of the cargo was totally damaged due to the
ropes used for lashing. This resulted in loss of cargo and therefore loss of sales.

Solution provided by BLR :
To reduce the damage to the cargo, BLR designed and built a 32ft container
vehicle with 15MT carrying capacity and GPS tracking facility. The customer
was able to load 15MT and therefore used full capacity of the trucks and thus
reducing the amount of vehicles previously required.
The transit time of the cargo also got reduced from 6-7days to 4 days and the
customer no longer lost cargo due to damages. BLR‘s solution increased
efficiency and reduced the customers cost.
Hydraulic axels
Semi - Low Bed trailers
LCV‘s
MCV‘s
32ft containerized vehicles (6 and ten wheels)
28ft containerized vehicles
12 wheel trucks, open and full body
Full Body Truck (18-20-22-24 ft)
Open Body / 24ft Container
Half Body, Open, 20ft Container Carrier
20ft Container Carrier (only frame)
High Bed Trailer with frame (20 and 40 ft)
High Bed Trailer with platform (20 and 40 ft)
44ft Low Bed Trailer
20ft HQ Container
44ft Low Bed Trailer
20ft Double Axle Trailer
40ft Triple Axle Trailer

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