2. Contents
1. Introduction to Logistics Management
Basic understanding of logistics function and its role in SCM;
Logistics system design; Demand management and planning;
Multi-echelon distribution systems; Inter-relationship with
other functions.
2. Transportation: Unit load
3. Costs associated with the logistics management
4. Logistics information system
5. Warehousing concept: Warehousing locations, Methods
of storage; Order picking and Order assembly
6. Third Party Logistics (3PL) and Fourth Party Logistics
(4PL) service providers.
P. Acharya 2
3. Books
• Blanchard B.S., Logistics Engineering and Management,
5thEdn, Prentice-Hall, 1998.
• Stock J.R. and Lambert D.M., Strategic Logistics
Management,4thEdn, McGraw-Hill, 2001.
• Blumberg D.F., Introduction to Management of Reverse
Logistics and Closed Loop Supply Chain Processes, CRC
Press, 2005.
• Schonsleben P., Integral Logistics Management, CRC
Press, 2000.
• Coyle J.J, Bardi E.W., Langley C.J., The Management of
Business logistics, Thomson Asia, 2003
P. Acharya 3
5. Metamorphic Change since 1990’s
• The phenomenal change that has taken place
in the business world in last three decades.
Tremendous
growth
opportunities
Complex business
problems threatening
survival
P. Acharya 5
6. Comparative scenarios
Many brands and
numerous
variants of
Cars
Two wheelers
Toilet soaps
Shampoos
Detergents
Textiles
Garments etc.
(Decontrolling
Economy)
Six to eight years
waiting for a
bajaj scooter
Waiting line
before Govt
stores for
premium grade
Dalda during
festive season
(State Control on
Commodity
items)
vis-a-vis
P. Acharya 6
7. Causes
• Macro reasons
Heavy industrialisation following economic liberalisation.
Rapid innovation in the field of science and technology.
• Micro reasons
Consumer becoming selective, aware and hence conscious of
his/her purchase decisions.
Distributors/ retailers being very selective and dynamic about
their own return on investments due to availability of multiple
trade opportunities.
P. Acharya 7
8. Effect
Therefore to sustain in this highly competitive
global business environment it is important
for any organisation to
- Generate highest level of customer satisfactions
- Delivering highest value to its shareholders
P. Acharya 8
9. Strategies for higher customer satisfaction
• Increasing product portfolio
• Quick information
• Prominent displays
• Prompt delivery
• 24×7 on-the-spot after sales services
• Eagerness to sort out complaints
But for achieving all these firms have to rely heavily on
marketing intermediaries since the later have the ultimate
interface with the end-users for a final sales deal
P. Acharya 9
10. Keeping them in good humour
• Companies are putting their best efforts to
keep their market intermediaries happy, loyal
and well motivated towards business.
Key: Recognise them as business partners rather than traders
P. Acharya 10
11. Goals and Means
1. Offer highest value
to shareholders
2. Offer cost efficient
best services
3. Improvement in
productivity and
profitability
4. Optimum utilisation
of resources
5. Reduction in lead
times
Offer products of
Right quality
Right quantity
Right time
Right price
Right location
Avoiding a stock out situation
Logistics Management
P. Acharya 11
12. Indian Logistics Market
Net Worth US $160 Billion
Expected US $ 215 Billion (2020)
Domestic – 135 Billion and Exports - 80 Billion
Current and expected CAGR Current- 8%
Expected- 10.5%
Employment 22 million
Global logistics performance
index (LPI) rank
2014 – 54
2016 – 35
2018 – 44
Spending of GDP 13%-14%
8% (in developing nations)
5-6 % (in developed nations)
Expected 3pl market with CAGR Rs. 580 billion (2019-20) with CAGR of about 20%
P. Acharya 12
13. Logistics: Origin and Definitions
• Originated from Greek word logisticos meaning ‘science of
computing’
• Webster defines logistics as ‘procurement, maintenance and
transportation of materials, facilities and personnel (1963)
• Logistics is the process of planning, implementing and
controlling of efficient and effective flow and storage of
goods, services and related information from point of origin to
point of consumption for the purpose of conforming to
customer expectations.
P. Acharya 13
14. Business Logistics of a Company
Raw material
supply points
Raw material
storage
Manufacturing Finished Good
storage
Markets
RM
Supply
RM
Supply
storage
storage
Pl ant1
Plant2
Warehouse1
Warehouse2
Physical supply/materials management
/Inbound logistics
Physical distribution/outbound logistics
P. Acharya 14
16. Logistics Activities
• Plant and ware house location
• Transport
• Inventory Control
• Storage
• Demand forecasting
• Material Handling
• Order fulfilment
• Packaging
• Customer service
• Communication
• Warranties and service
• Reverse logistics (Handling returns/scraps/wastages)
• Green Logistics
P. Acharya 16
18. Procurement Function
• Indent Study
• Study of potential vendors
• Supplier negotiations and contracts
• Order Placement
• Chasing contracts
• Shipments
• Receiving
• Quality checking (inspections)
• Handling
• Storage
• Movement to shop floor (material handling)
Key: Reducing supplier lead time, ensuring quality supply,
quantity discount, vendor loyalty
P. Acharya 18
19. Production Function
• Demand management
• Production schedule
• Inventory management
• Material handling
• Packaging if required
• Storage
Key: Reducing production cycle time, work-in-process
inventory
P. Acharya 19
20. Physical Distribution Function
• Finished goods inventory
• Protective packaging
• Order processing
• Transport
• Distribution warehousing
• Inventory Management
Key: Reducing inventory, ensuring high customer service level
P. Acharya 20
21. Integrated logistics Management System
Integrated logistics Management System
S
U
Inventory Value C
U
P
P
Procurement Function Production
Function
Distribution Function S
T
L
I Cash Information
O
M
E
R
E
R
P. Acharya 21
22. Logistics Costs
• Inventory costs
• Transportation costs
• Storage and warehousing costs
• Material handling costs
• Protective packaging costs
• Order processing costs
• Information costs
• Customer service costs (including warranty)
P. Acharya 22
23. Role of Intermediaries
• Finding customers
• Providing storage
• Offloading firm inventory
• Packaging
• Providing services
• Sales promotions
P. Acharya 23
25. Logistics Channel
• This refers to the intermediaries engaged in
- Transfer
- Storage
- Handling
- Communications
- and other functions that
Facilitate efficient flow of goods
Logistics channel can be viewed as part of total distribution
channel (the later also includes transaction flow to the
marketing specialist)
P. Acharya 25
26. Types of logistics channel
Logistics
Channel
Simple
logistics
channel
Multi-
echelon
logistics
channel
Complex
logistics
channel
P. Acharya 26
32. Channels of Distribution of Food
Manufacturing Industry
Food Manufacturing Firms
Consumers of Manufactured Food Products
Food
Service
Distributers
Grocery
Whole
sellers
Large
Retail
Chain
Direct
Online
E-
retailer
Rlys
Restau
rant
Air
line
Retail
chain(s)
Ind.
Retail
Inst.
buyer
P. Acharya 32
33. Growth of Distribution Industry
Mostly visible in retail sector
Mass merchandise such as Walmart
Regional Supermarkets
E-retailers
P. Acharya 33
34. Distribution Centres are distinguished from conventional
warehousing operations in that they are major centralised
warehousing operations that-
Serve regional markets
Process and regroup customised orders
Maintain a full line of products for customer distributions
Consolidate large shipments from different production points
Frequently employ computer systems and various material
handling equipment and may be highly automated rather than
labour intensive
P. Acharya 34
36. Inventory
• Inventory has often been rightly recognised as one of the
major impediments to firm’s business growth.
• In 70’s and 80’s the Ford motor company had 15 times more
WIP than that of the Toyota severely impacting its competitive
advantage against the later.
• Ever since, the firms have successfully managed to reduce the
inventory carrying costs. Even though total business inventory
has gone up with increase in industry business, the increase in
inventory carrying cost has reduced
• Firms’ inventory to sales ratio has fallen over the years.
Inventory to sales ratio has gone down from 23% to 14%
P. Acharya 36
37. Key Inventory Management strategies
• Deployment of inventory items throughout
the complex multilevel networks.
• Prevent stock out situations
• Reduce safety stock
• Helps reducing logistics costs in general
P. Acharya 37
38. Emphasis is on..
• Fewer suppliers
• Smaller lot sizes
• Shorter replenishment times
• Reduced set up times
• Real time response to customers requirements
Downsizing inventory without any effect on
service level is key.
P. Acharya 38
39. Why we need Inventory
• Because of demand-supply gap
Time factor- Transport/Production/Transit/Distn.
Risk factor – Manufacturer/Distributor/Retailer
Uncertainty factor- strike/breakdown/natural calamity
Economic factor: Quantity discount/coordinated
replenishment
P. Acharya 39
40. Inventory Exists in many form
Secondary Vendor Primary Vendor
RM Inv.
Manufacturer WIP Inv.
Distribution Centre Customers
FG Inv.
40
P. Acharya
41. Types of Inventory
Inventory Types Description
Production Inventory Raw materials
Component items
subassemblies
Work-in-process (WIP)
Inventory
Semifinished goods in the shop floor
lying between work centres
Finished Goods (FG)
Inventory
Finished goods coming out of shop
floor and going to factory warehouse
MRO inventory
(Maintenance, Repair
and operating supplies)
Jigs, fixtures, cutting tools, lubricants
etc.
41
P. Acharya
42. Too much-Too Little inventory
Too much Inventory Too Little inventory
Carrying charges high Too frequent ordering
Working capital tied up in inventory Loss of quantity discount
High transport costs
High stock out rate
P. Acharya 42
43. Too high Inventory Factor Too Low Inventory
High Total Distribution Costs Low
High Volume of sales Low
High Carrying costs Low
Low Procurement costs High
Low Stockout costs High
Low Profitability Low
High Availability Low
High Working capital need Low
High Volume of production Low
P. Acharya 43
44. Inventory Costs
• Inventory Ordering Costs
• Inventory Carrying/Holding Costs
• Inventory Stock out Costs
44
P. Acharya
45. Ordering or Procurement or Set up Cost
• Costs of Reviewing
• Cost of Order forms
• Costs of mailing, postal costs
• Cost of change of set up
• Cost of expediting/chasing
Order cost decreases with the increase in
order quantity
45
P. Acharya
46. Carrying or Holding costs
• Interest on capital tied up in inventory
(opportunity cost)
• Cost of record keeping
• Cost of deterioration, obsolescence and pilferage
• Cost of storage facility, rental costs
• Cost of insurance, taxes etc.
Carrying cost increases with the increase in
order quantity.
46
P. Acharya
47. Inventory Nomenclature
Order Quantity: It is the amount of items procured in
one order
Demand rate/ Consumption rate: It is the rate at which
inventory is consumed and shown as the –ve slope.
Lead Time: The time between the day the order
processing begins to the day the item is available on
shelf for effective use.
47
P. Acharya
49. • Safety Stock: The minimum stock which is
maintained to take care of the uncertainties in
demand and/or lead time
• Re-Order Point: It is the stock position at which
ordering action for a fresh order is initiated
Stock Position= Stock on hand + Stock on order
– Back order – committed stock
49
P. Acharya
50. Economic Ordering
Two questions in inventory management are
always critical. They are-
50
P. Acharya
When to order ? How much to order ?
51. Assumptions of Simple EOQ Model
• Demand rate is constant denoted by the –ve
slope
• Lead time is constant or zero.
• Replenishment is one time and instantaneous
• No stock out is allowed. Hence no safety stock
is required.
51
P. Acharya
52. EOQ Formula
where, A= Order cost per order/units
D= Annual demand in units
v= unit value of the item
r= Annual inventory carrying rate
Q= Quantity ordered in one order
Where, order cost = A.D/Q
carrying cost = Q.C/2 = Q.v.r/2
52
P. Acharya
56. Economic Ordering under Quantity
Discount
Let unit price = v if Q < Qb
= v (1-d) if Q ≥ Qb
where d is the % of discounts expressed as fraction
P. Acharya 56
57. STEP-1
Assuming we can avail quantity discount
Unit Price = v (1-d)
EOQ =
2𝐴𝐴𝐴𝐴
v (1−d)𝑟𝑟
If EOQ ≥ Qb, order EOQ units else go to step-2
P. Acharya 57
58. STEP-2
TRC (Qb) = AD/ Qb + Qb /2 * v (1-d) r + Dv (1-d) --- (1)
TRC (Q*) = 2𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 + Dv ----------- (2)
If (1) is greater than (2) then order Q* = 2𝐴𝐴𝐴𝐴
𝑣𝑣𝑣𝑣
units
If (2) is greater than (1) then order Qb units
P. Acharya 58
59. Inventory Management Systems
1. Fixed order quantity system
I. Perpetual or continuous review inventory system
II. Two-bin inventory system
2. Fixed order interval system
I. Periodic review inventory system
P. Acharya 59
60. Continuous Review Inventory System
• The stock position is continuously reviewed
and replenishment is made when the stock
position reaches a pre-determined ROP level.
• Features are-
– Variable demand rate
– Fixed reorder point
– Fixed order quantity
– Fixed or variable lead time
– Variable time between orders
P. Acharya 60
62. • Important parameters are EOQ, ROP, SS etc.
• Average Inventory is given by
Iavg = SS + Q/2
• Carried out for A-class items
P. Acharya 62
63. P. Acharya 63
Advantages Limitations
Less chances of stock
out and hence high
service level
Costly process of controlling inventory
Efficient and
economic order size
Can’t avail quantity discount because of
small orders
Safety stock needed
for lead time period
Can’t make Coordinated replenishment
Less attention to
slow moving items
Numerous independent orders can result in
high transportation cost
Very good for costly
A-Class items
Suffers from clerical errors
ROP, SS, OQ may not be reviewed for years
64. Periodic Review Inventory System
• The stock position is reviewed at a fixed interval and
replenishment is made at the review period by the
amount given by-
OQ = Imax - IRP
• Features are-
– Variable demand rate
– Variable reorder point
– Variable order quantity
– Fixed or variable lead time
– Fixed time between orders (known as RP or Review
Period)
P. Acharya 64
66. P. Acharya 66
Limitations Advantages
High chances of stock out
and hence low service level
Inventory control is cheaper
Economic order quantity
may not be possible
Quantity discount can be availed
because of bulk orders
High amount of Safety stock
needed to avoid stock out
Coordinated replenishment is
possible for number of items
reviewed on the same day
Not good for A-Class items Lower transportation cost
Works well for B-Class items
SS, OQ can be reviewed frequently
67. Inventory Classification
• Why to classify ?
– Can we control or manage all?
– Do we need to manage all?
– What if we leave out some? How are some
different from others?
– How do we segregate ? Is there any basis? If so
what are they?
68. Can we Control/Manage all?
• There are hundreds of thousands of items in
inventory.
• Managing or controlling all is next to
impossible.
• So there is a need to segregate some that
needs to be controlled from all that are there.
69. Do we need to Manage all?
• Fortunately, not.
• From many thousands of items only a few
need to be seriously controlled
• Rest do not need that much of attention
• While some may need no control at all
70. What if we leave out some? How are some
different from others?
• Some are precious, highly valued, or highly critical to
production, or getting exhausted quickly, high demand
items as compared to others
• So, in other words there are many items which are
cheap, easily available or have very little impact in
production assembly which can be excluded from close
scrutiny.
71. How do we segregate ? Is there any
basis?
• Cost based
• Criticality based
• Movement based
• Demand Variability based
72. Inventory Classification
• ABC classification: Cost based
• VED Classification: Criticality based
• FSN Classification: Movement based
• XYZ Classification: Demand variability based
Combining two or more approaches is key.
P. Acharya 72
73. ABC Classification
• It is a cost based classification.
• The aim is to separate the ‘vital few’ from
‘many’.
• The governing criteria is Annual Usage
Class of Items Nature of items % of items % of annual
usage
A Highly Costly 10% 70%
B Moderately costly 20% 20%
C Cheap 70% 10%
74. Steps in Carrying out an ABC
Classification
• List out items with their annual demand and unit
value (Rs.)
• Find Annual Usage for each of these items
• Annual Usage = annual demand × unit value
• Arrange the items as per descending order of
Annual Usage.
• Find the Cumulative Annual Usage.
• Select the cut off margins (in %) for the A, B and C
category of items from the Cumulative Annual
Usage column.
78. Inventory Control System
A Class
Items
Perpetual/ Continuous Inventory Control
System
(review stock position continually and
order when it reaches ROP)
B Class
Items
Periodic Inventory Control System
(review stock position once in 2/3 months
and order)
C Class
Items
Do we need to control? That’s costlier than
the items itself!!
79. VED Classification
• It is a classification based on criticality in
production system
Class
of
Items
Nature of items Description Impact
V Highly Critical The item for which no
replacement is available
Production gets
halted
E Moderately
Critical
The item for which
replacement is available
with difficulty
Production gets
delayed or
becomes costlier
D Non Critical The item whose
replacement is easily
available
Minimal Impact
82. Items having variable demand and
Lead Time
When both demand and lead time follow probability
distribution function.
Let
D = Mean demand
σD = Standard deviation of demand
L = Mean Lead time
σL = Standard deviation of Lead Time
XDLT = Mean demand during lead time
σDLT = Standard deviation of demand during lead time
83. Items having variable demand and
variable Lead Time
• XDLT = D*L
• σDLT = LσD
2 + D2σL
2
• Safety Stock = k σDLT
• ROP = SS + XDLT = k σDLT + D*L
84. Stock out Costs
• Customer may wait and be back as and when product
is ready
• Customer may buy an expensive or a cheaper
substitute
• Back ordering
• Customer may go to a competitor
• Temporary shifting: cost of lost sales
• Permanent shifting: cost of lost customer
Amidst all this, the Cost of loss of Goodwill is
difficult to assess.
84
P. Acharya
85. Stock out Costs
• In case of a producer, stock out costs amounts to the
expenses that result from the tearing down of existing
production set up to run emergent orders and attendant
cost of expediting.
• Unsatisfied demand leads to immediate cost of
backordering or lost sales. Again poor customer service
leads to a loss of goodwill.
• Halt in production due to shortage of stock has costs
related to underutilisation of manpower and equipment.
85
P. Acharya
86. Cost of stock out
• S = Estimated cost of stock out
Where pi = probability of occurrence of an
outcome arising because of a stock out
Ci = unit cost to the company for each outcome
Then, Q = SQRT(2D(A+S)/vr) is Order Quantity with Stock out
And, Q* = SQRT(2AD/vr) is Order Quantity without Stock out
Additional quantity to be procured and kept in stock in the event
of stock out is = Q – Q*
P. Acharya 86
91. Warehousing
• Costs: Cost of holding raw material / finished goods,
stoppage of flow of goods
• Many companies want to minimise/avoid these costs
• But there are several benefits (product availability,
shorter lead times for customers) which have to be
weighed against the cost of ware housing
P. Acharya 91
92. Traditional purpose
• Earlier warehousing was meant for long term
storage of Raw Materials and Finished Goods
• Supported inventory levels for 60-70 days of
use or even more
P. Acharya 92
93. Present scenario
• Current warehousing aims at
Shorter cycle time
Lower inventory
Lower costs
Higher customer services
Speed of movement, customer responsiveness are key.
Products remain in ware house for few days even hours
P. Acharya 93
94. Warehousing Industry in India
• Grew from 391 mn. sq.ft. to 476 mn. sq.ft. during
2010-2013 and currently stands at close to 600
mn sq ft (2018).
• CAGR in range of 6%-10%.
• Presently in India, warehousing accounts for
around US $15 bn annually (in2020) and
expected to reach US $ 29 bn by 2025 (roughly 9-
10 % of total logistics costs)
P. Acharya 94
95. Warehousing feeds on key Sector’s needs
• Food
• Chemicals
• IT, Electronics and Telecom
• Automotive and components
• Engineering goods
• Textiles
• Pharmaceuticals
• FMCG
P. Acharya 95
98. Transportation Consolidation
• Consolidate smaller shipments from various suppliers
at warehouse to achieve volume shipment to plant
site (Inbound logistics)
• Consolidated volume shipments of finished goods
are received from plants at the warehouse and
smaller shipments are made from there to nearby
markets (outbound logistics)
P. Acharya 98
101. Supply and Product Mixing
• Products from various firms are grouped together in
various combinations to meet customer orders
(outbound).
• Similarly different combination of raw materials are
clubbed together at the supply side warehouse and
sent to the plants (inbound).
P. Acharya 101
102. Product Mixing
P. Acharya 102
Plant1
A and B
Plant2
A, C, and D
Plant3
B, C and E
Warehouse
Market/Cust P
Market/Cust Q
Market/Cust R
Market/Cust S
A,B,D,E
A,C,D
B,C,D
A,C,E
104. Cross-docking
• Similar to product mixing
• Delivery is quicker and stocking time is less (in
hours).
• Items from suppliers truck are distributed to
various transport system for customers.
P. Acharya 104
105. Services
• By way of products availability and proximity
to the customer at the warehouse resulting in
greater customer satisfaction and hence sales.
P. Acharya 105
106. Contingencies
• To guard against uncertainties such as transport
delays, vendor stock outs, strikes, natural
calamities such as floods/ landslides etc.
• These uncertainties disrupt production (in
bound) and order filling (outbound).
P. Acharya 106
107. Smoothing
• Limited capacity coupled with seasonality of
demand necessitates surplus production and
hence inventory to be stocked in the
warehouse (during lean season).
P. Acharya 107
109. • Warehousing Decisions are a trade off between
two opposing cost trends which are—
Cost of lost sales and lost customer goes down
because of greater warehousing (closer product
availability to customer)
Vs
Cost of warehousing, inventory carrying goes up
with greater warehousing
P. Acharya 109
110. Decisions with regard to
• Public or Private
• Number of warehouses
• Location decision
• Size and layout decision
• Multiple warehouse stocking decisions
P. Acharya 110
111. Public or Private Warehousing
Ware
housing
Private
Purchase Build Lease
Public
Rent
P. Acharya 111
113. Public Warehousing
• Warehousing rates are proportional to the
throughput volume. More the volume handled
more is the cost. This is only the variable cost.
• In reality there is discount offered on greater
volume of usage.
• The rates are never disclosed and is a matter of
negotiation between warehouse owner and the
customer firm.
P. Acharya 113
114. Public Ware housing rate depends on
• Volume of goods
• Time of need for the warehouse space
• Variety of items required to be stored
• Average size of outbound orders
• Special requirement for storage such as
specific temperature/lighting/ventilation/air
conditioning etc.
P. Acharya 114
115. Private Warehousing
• Fixed cost because of property taxes and
depreciation etc.
• Variable cost is the operating cost at the ware
house such as w/h running and maintenance
costs, handling and clerical costs
• Total costs vary depending on mode of ware
housing operations; i.e.,
manual/mechanical/automatic/robotised..
P. Acharya 115
117. Public Warehousing Private Warehousing
Fluctuating demand Stable demand
Lower Throughput Volume Higher Throughput Volume
Not necessary Closer to large market or large
number of suppliers
Control is usually not as much Greater control on quality
storage, theft, protection against
hazardous material etc.
Less security Greater security
Less service to customers Higher service to customers
P. Acharya 117
118. Number of Warehouses
• Greater number leads to decentralised and smaller to
centralised warehousing.
• Greater number of ware houses bring the products closer
to the customer (market) reducing the transportation cost
and cost of lost sales
• However greater number of warehouses increase the space
hired/owned as also the overhead costs of running
warehouses.
• Similarly there is greater inventory requirement as seen by
the square root rule.
P. Acharya 118
119. Square-Root law
P. Acharya 119
• Inventory at multiple location
I2 =I1 𝑛𝑛𝑛
𝑛𝑛𝑛
Where:
• I1=total inventory in existing facility
• I2 = total inventory in future facility
• n1=no.of existing facilities
• n2=no.of future facilities
This law is only for inventories in warehouse. Does not
include the additional overheads accruing because of
managing more warehouses.
120. Example-2
A firm wishes to increase its number of warehouses from existing
5 to 10. The present inventory it is carrying in the ware house is
18000 units. Find the new inventory level it has to carry with
increase in warehouses.
• n1=5; n2=10
• I1 = 18000
So, I2 =18000 * 2
= 25450
Each ware house will carry an average of 2545 units of inventory
as against 3600 earlier.
P. Acharya 120
121. Cost of warehouse
P. Acharya 121
• Cost of running a warehouse depot is given a
TC=A+BW+(C+VI)
𝑊𝑊
104
+ 2𝜎𝜎
Where W=annual through out in tons
q=total annual sales all depots
σq=S.D of total annual sales
A=annual fixed cost of depot
B=handling cost/tons of through put
C=annual depot cost/ avg tons of stock
V=factory cost of production per ton
I= interest rate on capital tied up in stock
σ=S.D of weekly demand in tons
σ = σ q *
𝑊𝑊
𝑞𝑞
122. Cost of..
P. Acharya 122
• Company operates an inventory control policies in
which goods sold in one week are replenished in the
following week
• A more simplified version of above equation have
been seen to be working well, where total warehouse
cost is expressed as a function of annual throughput
given as:
F=a+bw+c√𝑤𝑤
123. Factors in favour of less warehouses
• Less cost of building and storage area which
are anyway non productive facilities
• Reduced operating costs (mostly overheads)
• Reduced handling costs
P. Acharya 123
124. Less warehouses work
• If throughput volumes are high either by way
of consolidation or product mixing or both.
• Very good and reliable transport infrastructure
P. Acharya 124
125. Warehouse Location Decisions
• In outbound logistics (FG warehouse) closer to
dense market location.
• Closer to large number of small market
pockets
• Similarly raw material (in bound) side
warehouse should be closer to supplier sites.
P. Acharya 125
126. Other location decision criteria include
Transportation facility
Infrastructure availability for rent
Labour and wages
Community and labour culture
Land and Building costs
Power and telecom infrastructure
P. Acharya 126
127. Practical approach to warehouse Location
It can be shown that the warehouse location will
be most optimal when it is located near either
the source or the destination
P. Acharya 127
128. Example-3
Distance from
Source (Km)
Transport Rate
(Rs) from
Source
Distance to
Market (Km)
Transport Rate
(Rs) to Market
Total Transport
Rate (Rs)
0 0 400 90 90
100 30 300 75 105
200 55 200 55 110
300 75 100 30 105
400 90 0 0 90
P. Acharya 128
129. Most Economical site is
near Source or near Destination
P. Acharya 129
0
20
40
60
80
100
120
1 2 3 4 5
Chart Title
Series1 Series2 Series3
130. The plot shows that the rates near either the
supplier or the market is lowest at Rs 90/-
At any other location, the rates are higher.
Therefore, the tapering rate pulls the location
towards either the source or the market
P. Acharya 130
131. Example-4
Find the warehouse location in following cases.
P. Acharya 131
Distance from
Source (km)
Transport
Rate (Rs)
Distance to
Market (km)
Transport
Rate (Rs)
0 0 800 135
200 40 600 110
400 70 400 80
600 95 200 45
800 115 0 0
132. Example-5
P. Acharya 132
Distance from
Source (km)
Transport
Rate (Rs)
Distance to
Market (km)
Transport
Rate (Rs)
0 0 1000 155
250 50 750 125
500 90 500 85
750 130 250 50
1000 170 0 0
133. Special Category Rates
P. Acharya 133
Blanket Rates:
• It does not increase with distance.
• Rate remains same from origin to all locations in a blanket region.
• These are known as special rates. Usually for goods requiring special
category of handling.
Commercial zones:
• Small/specified blanket area.
• Eg: to a particular city or a region around of i.e: Delhi or NCR region.
• Based on taxes/duties/delays at security check pots
Foreign trade zones:
• Region/zone into which importers can enter a product and hold it without
paying duties.
134. Heuristic approach of Warehouse location
(Grid method)
C = center of mass
𝐷𝐷𝑗𝑗 = 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝑜𝑜𝑜𝑜 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑡𝑡𝑡𝑡 𝑡𝑡𝑡𝑡𝑡 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 j
𝑑𝑑𝑖𝑖 = 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑎𝑎𝑛𝑛𝑛𝑛𝑛𝑛 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝑜𝑜𝑜𝑜 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑡𝑡𝑡𝑡 𝑡𝑡𝑡𝑡𝑡 𝑟𝑟𝑟𝑟𝑟𝑟 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 i
𝑀𝑀𝑗𝑗 =weight of finished goods sold in market j (in ton)
r = rate in price
𝑠𝑠𝑖𝑖= weight of raw material goods purchased from source i (in ton)
C1 =
∑𝑖𝑖=1
𝑚𝑚
𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 + ∑𝑗𝑗=1
𝑛𝑛
𝑟𝑟𝑟𝑟𝑟𝑟𝑗𝑗𝑀𝑀𝑗𝑗
∑ 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟+ ∑ 𝑟𝑟𝑗𝑗𝑀𝑀𝑗𝑗
– This equation will generate the least cost location for a Warehouse. of
transportation rates for raw material and finished goods are same
136. Comments on Grid method
• The transportation rate per distance varies depending on
the nature of goods at varies locations both supply as well
as market
• Advantages: simple, starting point of decision making,
eliminates far off locations.
• Limitations: static method
• Changes in Volume in purchase/sales/ transportations
rates/ location of source and market can alter the
economy of operation
• Assumptions of Linear transportation rate does not
reflect reality
• As with any other method it does not consider the
topography of the location
137. Other Warehousing Location Methods
1. Factor Rating Method
2. Weighted Factor Rating Method
3. Load Distance Method
4. Centre of Gravity Method
5. Break-even Analysis
P. Acharya 137
138. 1. Factor Rating Method
• Identify the important location factors
• Rate each factor according to its relative
importance
P. Acharya 138
139. Example-6
Three locations are being considered for setting
up of a warehouse for a Garment Unit. The
factor rating and the location specific values are
given in Table below.
P. Acharya 139
Sl. No. Location Factor Factor Rating Location Rating
Location A Location B Location C
1 Land Cost 8 3 5 2
2 Labour Charges 5 4 3 4
3 Transport Facility 7 5 4 3
4 ICT infrastructure 4 1 2 4
5 Power 6 2 3 2
140. • Factor Score of A = 24+20+35+4+12 = 95
• Factor Score of B = 40+15+28+8+18 = 109
• Factor score of C = 16+20+21+16+12 = 85
The site selected for Warehouse location is B
since its factor score is the highest (109).
P. Acharya 140
141. 2. Weighted Factor Rating Method
• Extension of Factor Rating method
• Here WEIGHTs are assigned to each factor
such that
– Total WEIGHT = 100
P. Acharya 141
142. Example-7
The factor rating along with the WEIGHTs and
the location specific values are given in Table
below.
P. Acharya 142
Sl. No. Location Factor Weight Location Rating
Location A Location B Location C
1 Land Cost 30 3 5 2
2 Labour Charges 20 4 3 4
3 Transport Facility 25 5 4 3
4 ICT infrastructure 15 1 2 4
5 Power 10 2 3 2
143. WSA = 90+80+125+15+20 = 330
WSB = 150+60+100+30+30 = 370
WSC = 60+80+75+60+20 = 295
Location B is best as it has the highest weighted
score.
P. Acharya 143
144. Load-Distance Method
This is a mathematical method used to evaluate
locations based on proximity factors.
The objective is to select a location that
minimizes the total weighted loads moving into
and out of the facility
P. Acharya 144
145. • Distance between two locations (A and B) is
calculated by
– Euclidean distance
– That is DAB = Sqrt ((XA- XB)2+ (YA- YB)2)
• Or
– Rectilinear distance
– That is DAB = |XA- XB| + |YA- YB|
P. Acharya 145
146. Example-8
A garment manufacturer is considering converting one of its
retail outlets in the city to its wholesale centre. Two of its
retail outlets Q and S are under consideration for the choice
of the wholesale centre. Find out which of the two
locations is more suitable with the help of load distance
method using
i. Rectilinear distance.
ii. Euclidean distance.
P. Acharya 146
147. Retail
outlets
P Q R S T
Coordinates 5,7 6,9 5,15 2,12 4,18
Transport
load/year
200 150 100 250 300
P. Acharya 147
Rectilinear Distance:
For Q
LD = 600+0+700+1750+3300 = 6350
For S
LD = 1600+1050+600+0+2400 = 5650
So S is a better location as LD is lower
Euclidean Distance:
For Q, LD = 5071
For S, LD = 4237
So, S is still the better location as its LD is lower
148. Basic ware housing Operations
• Receiving
• Schedule carrier
• Unloading
• Inspection for pilferage
• Matching P/O
• Product identification and segregation
• Product movement
• Transaction reporting
• Storage categorising
• Order picking of items
• Shipping (packaging, levelling, racking for loading)
• Schedule carrier
• Loading
• Transaction updating
P. Acharya 148
149. Public warehousing charges
Charges are based on sq.ft/day basis and varies with-
-Value of the goods (since, greater the value
greater the risk)
- Fragility of items (firms should go for
good protective packaging to reduce costs)
- Damage to or susceptible for damage from
other goods
- Higher Volume and frequency of use will lower per unit
costs (since the warehousing firm use its fixed cost)
P. Acharya 149
150. Warehouse Management System
• An information system that helps warehouse mangers in all
warehousing operations.
• Can be even better with use of RFID technology.
Warehouse operations Actions of WMS
Receiving scanning item barcode, checking
with P/O, updates stock position
Order picking Tracking item location and updating
after each movement
Shipment Similar to those of receiving
P. Acharya 150
151. Benefits of WMS
• Higher efficiency
• Greater productivity
• Easier error detection and tracking
• Reduced ineffective time
• Higher manpower productivity, reducing costs.
• Greater personnel accountability
• Better control
• Greater performance measurement
P. Acharya 151
152. Warehouse layout principles
• Should be single storied
• Higher cubic feet utilisation
• Straight line movement of materials
• Minimise unnecessary movements of people
• Keep miscellaneous/secondary items to the
periphery and principal items in the central
zone
• Separate entry and exit for materials
P. Acharya 152
156. Objectives of Material Handling
• Maximum utilisation of Warehouse space (capacity)
so as to minimise warehouse operating cost
• As much utilisation of cubic space
• Reduction of number of times a material is handled
in the warehouse
• Ensure safe working for workers
• Reduce heavy labour
P. Acharya 156
157. Role of packaging
• Identify the product and provide information
• Improve handling efficiency
• Better stowability
• Improve distribution
• Protecting the product against damage
/moisture/heat etc.
• Look and Feel to attract certain customer
segments
P. Acharya 157
158. Packaging Materials
• Softer material
• Air bubble packaging
• Foam
• Thermocol
• Polyethylene
• Polystryene
• Wooden framing etc.
P. Acharya 158
161. Logistics Industry in India
India 14-15% of annual GDP
Developed countries 7-8 % of GDP
Other BRIC countries 9-10% of GDP
P. Acharya 161
162. Logistics Transportation
• Transportations is the largest cost component and
accounts for about 40-50 % of the total logistics
costs.
• Thus Indian logistics transport sector has an annual
turnover of close to US $ 120 billion. (2022)
P. Acharya 162
164. • In 2021-22, the freight revenue earned by Indian
Railways stood at Rs 2700 billion (or little over US $
34 billion)
• Even though no data is available, freight earnings in
Road transport is believed to be much higher (in
excess of US $ 75 billion)
P. Acharya 164
165. Roll of Transport in logistics
• Helps bridge buyer-seller gap
• It is the physical thread connecting company’s
geographically dispersed operations
• Transportation adds value by creating time and
place utility
Value is added by physical movement of goods to
place desired at time desired
• Global supply chain has further highlighted the
importance of transportation
P. Acharya 165
166. Roll of Transportation in logistics cost
cutting
• Reduction in transit time
• Less damages, and pilferage en-route
• Curtailment of protective packaging costs
P. Acharya 166
167. Positioning of Transportation in
logistics
Functional
Requirements
Source to Destination Preferred
Mode
Production
Scheduling
Vendor-to-plant or
Plant-to-plant
Rail/Road
Stock replenishment Plant-to-warehouse Rail/Road
Stock balancing Warehouse-to-warehouse Road
Distribution service Warehouse-Retailer
Warehouse-to-customer
Road
Export/Import Country-to-country Sea/Air
Emergency service Plant-to-customer Air
P. Acharya 167
168. Elements of Transportation Cost
• Tariff cost of the mode of transport
• Transit time cost
• Deterioration cost
• Protective packaging cost
• Transit insurance cost
• Taxes (octroi, toll etc.)
P. Acharya 168
171. Multimodal Transport
• Each of the transportation modes mentioned has its
own strengths and limitations.
• Therefore each transport mode has looked to
cooperate with other modes so as to pool in their
resources for a win-win scenario for all while
meeting the service expectations of their customers
• Coordinating with two or more modes rather than
competing with each other.
P. Acharya 171
173. Multimodal Transport contd..
Coordinated
Systems
Links Notes
Piggyback Roadways and Railways Popular in India
since 1980s
Fishyback Roadways and
Waterways
Widely used in
export-import
freight cargo
Trans-ship Railways and Waterways Bulk movement
Airtruck Airways and Roadways Also known as
birdyback
P. Acharya 173
174. Containerisation
• Intermodal or multimodal transportation systems are
structured around the containers.
• Container is a metal box/trunk usually of dimension
8’× 8.5’ × 20’ or 8’× 8.5’ × 40’.
• Now-a-days bigger containers are also used.
• Twenty-feet containers are used as standards (TEUs
or twenty feet equivalent units)
P. Acharya 174
176. Features of Containers
• Strong containers of distinct shape suitable for
repeated use in packaging and transport
• Specially designed to protect goods from breakages
and pilferages during transportation by different
modes
• Equipped with fittings for easy handling from one
mode of transport to the other
P. Acharya 176
177. Advantages of Containerisation
• Speedier transportation
• Lower inventory cost due to reduction in
transit time
• Lower insurance charges due to less damage
• Minimum handling cost because of
elimination of en-route handling
• No protective packaging requirement
• Less documentation
P. Acharya 177
178. Selection Issues for Mode of
Transportation
• Strengths and weaknesses of the company in terms
of marketing, financial and production resources
• Prevailing market characteristics including
competitive scenario, geographical and territorial
scenario
• Product features suitability to different modes such
as weight, size, shape, fragility, perishability etc.
P. Acharya 178
179. Selection issues…
• Quantity to be transported each time
• Distance to be covered
• Total transportation costs of different modes.
P. Acharya 179
180. Selection issues…
• Carrier performance w.r.t.
Speed
Availability
Flexibility
Frequency
Reliability
safety
Claim settlement procedure
Hyundai utilizes Railways for 30% of its transportation needs saving
about 70-80 lakhs/yr in carrying cars from its factory to Delhi.
P. Acharya 180
181. Extension of EOQ model for logistics
• Longer transit time leads to higher inventory costs. So, mode of transport is
important
• Inventory carrying cost = inventory cost in warehouse + inventory cost in transit
Out bound logistics EOQ model: Let order cycle time=T
Inventory transit time =TM
Average Inventory per oder cycle = Q
Average no. of inventory in transit=QM
Unit value of item=u
Annual Demand = D
No.of order (n) = D/Q
Total annual cost=TAC
Interest rate=r
Carrying rate for inventory in transit = rm
Q
T
TM
L
T
Q
M
ROP
182. • Qm/Q = Tm/T so Qm = Q *Tm/T
But order cycle time (t)=365/n where n = No.of order = D/Q
So
• Qm/Q = Tm/(
365
𝐷𝐷/𝑄𝑄
)
• Qm =
Tm D
365
• TAC=
𝑄𝑄
2
𝑣𝑣𝑣𝑣 +
𝐴𝐴𝐴𝐴
𝑄𝑄
+
𝐷𝐷∗Tm
365
vrm
183. Example-9
The annual demand of a product is 4000 units. Annual
inventory carrying rate is 25%. Order size is 400 units. Order
cost per order is Rs. 200 and unit value of the product is Rs.
100. Four modes of transport are being considered whose
transit times and transportation costs are given as-
Mode Ship Rail Road Air
Transit time (days) 18 8 6 2
Transport cost/Unit (Rs.) 2 4 6 10
Cost of carrying inventory in transit is 10%. Which mode is
preferable?
186. • Modern furniture has its plant is located in new Delhi. A company
warehouse is located in Agra. The firm sells its components in six markets
of Gwalior, Agra, Mathura, New Delhi, Noida and Gurgaon. The firms
manager must decide on a plan for shipping chairs from its plant and its
warehouse to the markets. The firm has 200 chairs available for shipping
from its plant and l00 from its warehouse. Market demands are given in the
table with the unit cost of shipping chairs from each source to each market.
• The transportation cost is sum of handling cost at the facilities and at the
markets and the trucking (mileage) cost
• The objective is to minimize the transportation cost of shipping chairs from
source to markets
s.no From to New
Delhi
Noida Gurgaon Mathura Agra Gwalior
1 Plant 15 17 18 21 23 25
2 Warehouse 19 20 21 15 14 17
3 Demand 50 35 40 25 35 30
Example-10
188. • The distribution manager wants to find out the benefits of locating a cross
docking facility near markets in Noida and Mathura. The facility would
receive goods from plant as well as warehouse and immediately dispatch
them to the two markets.it would have very little space for storage goods
the possible advantage is that the modern furniture unit achieve low
transportation cost to cross dock facility than to the to markets due to the
product consolidation .transportation cost data given in below table
• In addition to this, there is a handling charge of Rs 2/- per each chair from
shipping through the cross dock facility and a maximum of 70 chairs can
flow through that per week
from to Cross dock from To
Plant 10 Cross dock
facility
Noida Mathura
warehouse 8 4 3
190. Transportation Networks
1. Direct Shipment Network
2. Direct Shipping with Milk Runs
3. Direct Shipment via Distribution Centres
4. Shipping via Distribution Centre using Milk
Runs
P. Acharya 190
191. Transportation Networks
Direct Shipment Network
• Shipment comes directly from Plant to the stockist or
customers
• Routing of each shipment is specified and logistics manager
has to decide-
– Quantity of shipment
– Mode of transportation
So as to make a trade off between transportation
and inventory costs
Necessitates high degree of coordination due to
direct interface between suppliers
P. Acharya 191
192. Advantages
• Results in elimination of warehousing infrastructure.
Limitations
High cost of transportation when full truck load is
not utilised because of small size customer orders
Use
By cement, fertiliser, petroleum industry to deliver to
nearby customers
P. Acharya 192
193. Direct Shipping with Milk Runs
• Truck collects goods from various plants of
supplier/shipper and delivers to a single
customer.
or
• Truck carrying goods from a single supplier
delivers at multiple customer locations
P. Acharya 193
194. Advantages
• Overcomes the limitations of small shipments (and its
resulting higher cost of transportation).
• Also eliminates the warehousing and its inventory costs
ex. MUL (all suppliers in and around 50 km radius)
Limitations
• It requires close cluster of plants/customers to succeed
• Needs high degree of coordination among all concerned.
P. Acharya 194
195. Direct Shipment via Distribution Centres
• Modification of direct shipping network by the
introduction of a distribution centre in between the
group of plants and the customers
• Ex. Mahindra and Mahindra
Plant locations: Mumbai and Nasik
P. Acharya 195
197. Shipping via Distribution Centre using Milk Runs
• This network design is the extension of direct
shipping with milk runs.
• Ex. Soft drinks giants Pepsi, Coca-cola operate with
this network design.
• Results lower plant-DC and DC-customer
transportation costs for small retailers.
• Results in increasing inventory and warehousing
costs.
P. Acharya 197
198. Transport Related Decisions
• Economic factors
• Shipper’s factors
• Carrier factors
• Alternate pricing strategies
P. Acharya 198
200. Shipper’s factors
• Transportation cost paid to carriers for
shipment of goods to customers
• Cost of holding inventory due to shipper’s
supply chain network
• Facility related costs
P. Acharya 200
201. Carrier factors
• Cost of procurement of vehicles
• Recurring operational costs like salaries to drivers,
attendant, vehicle insurance, registration and taxes
• Trip related costs such as fuel, labour, road permit, toll
taxes etc.
• Value added costs such as tracking of shipments, door-
to-door delivery, express cargo, barcoding, EDI etc.
P. Acharya 201
202. Alternate pricing strategies
• Cost of service strategy
• Value of service strategy
• Combination strategy
P. Acharya 202
203. Modification of EOQ model
for volume transportation rate
The volume of transport has a beaning on the logistic cost
• Higher volume of shipment requires
Increased inventory carrying cost for inventory in warehouse as larger
volume of shipments necessitates larger stock to be maintained in the
warehouse and hence higher inventory carrying cost
Decreased order or setup cost since number of orders/set up changes
reduce.
Decreased transportation cost as large quantity reduce cost/volume of
goods thereby as well as the number of orders placed thereby lowering the
transportation cost.
Decreased in transit inventory carrying cost: A truck load transportation
usually have shorter transport time than a Less than load (LTL) truck.
This reduces the in transit inventory cost.
204. • Qm=basic EOQ (at lower than volume transport)
• Qn=volume rate quantity to be produced
• tm=normal transit time
• tn=volume flow transit time
• Tm=less than volume transport rate (higher)
• Tn=volume transport rate(low)
• t = order cycle time
• TACm =
1
2
Qm ∗ 𝑣𝑣𝑟𝑟 + 𝐴𝐴
𝐷𝐷
Qm
+ TmQm
𝐷𝐷
Qm
+
tm
t
Qm ∗ 𝑣𝑣𝑟𝑟 tm
• TACn=
1
2
Qn ∗ 𝑣𝑣𝑟𝑟 + 𝐴𝐴
𝐷𝐷
Qn
+ TnQn
𝐷𝐷
Qn
+
tn
t
Qn ∗ 𝑣𝑣𝑟𝑟 ttn
205. Example-11
P. Acharya 205
For the road transport mode as given above (example-9)
done earlier
tm= 6
tn= 4
Tm= 6
Tn= 4
Qn = 600
216. Stunted Growth in Indian Railways
Year Route Length of Railways (km)
1950-51 53,000
1996-97 62,000
2011-12
2019-20
65,000
67956
Comparison with other nations
Country Route Length of Railways (km)
USA 227,000
Russia 128,000
China 110,000
India 68,000
P. Acharya 216
217. Limitations with Indian Rail Transport
• Inadequate density of Rail network
• Share of Railways in total transport freight
Country Germany Belgium India
Density (Rail-km/100sqkm) 20 44 1.98
China USA India
87% 63% 30%
P. Acharya 217
218. Limitations…
• Average speed of freight trains is low (24km/hr)
• No guaranteed transit time
• Absence of freight tracking system
• Pilferage in some routes
• The freight percentage has reduced from 65% in
1951 to 30% in 2011.
P. Acharya 218
219. Comparative Freight Rail (in Billion Tonne-km)
Country Freight-Rail
(Billion Tonne-Km
Year
China 2947 2011
United States 3000 2011
Russia 2011 2010
India 668 2011
P. Acharya 219
220. Freight Rail in million-ton
Country Freight (in
million-ton)
Year
China 3919 2011
USA 1820 2007
Russia 1109 2009
India 1010 2012
P. Acharya 220
221. Improvement in Indian Railway Transport
• From 58% broad gauge lines in 1993, it is now
86% in 2012 and gone up to 92% in 2017.
• From 93 million tonnes of goods (and 205596
wagons) in 1951 to 1212 million tonnes of
goods (in 293077 wagons) in 2020.
P. Acharya 221
222. Indian Road Transport
• Indian Road- 5885000 km as in 2021 Second
largest after USA.
Country India USA China Brazil
Road-km/ sq-km of land 0.66 0.65 0.16 0.2
Country India USA France
Road-km/ 1000 people 4 21 15
P. Acharya 222
223. National Highway 130,000 km
State Highway 164,000 km
Major/District Road 25,77,396 km
Rural Roads 14,33,577 km
Single/Intermediate lane 18,400 km 26%
Double lane 36,000 km 51%
Four/Six/Eight lanes 16,600 km 23%
National Highways
Road Category
P. Acharya 223
224. Indian Roadways vis-à-vis Global
standards
Features India Others
Average Road Speed 30-40 kmph Global: 60-80 kmph
Average distance
covered
200-250
km/day
500-600 km/day
Length of four or
higher lane
16,500 km China- 34,000 km
Average freight cost US $ 0.07/km Japan : US $ 0.037/km
P. Acharya 224
225. Limitations of Road Transport in India
• Fuel wastage/cost of additional fuel consumption
due to badly maintained roads and subsequent
delay is Rs. 100,000 crore (2016)
• Cost of delay due to various congestion points
such as octroi, sales tax check points, toll gates
increases transit cost and such delays costs
Rs.46,000 crore (2016).
• Bigger losses due to large wear and tear in tyres
and vehicle spare parts and other components.
P. Acharya 225
226. Limitations of Road...
• The KPMG report also notes that India's road
network logistics and transportation bottlenecks
hinder its GDP growth by one to two percent (US$16
billion – US$32 billion). In India's 2010 per capita
income basis, this is equivalent to a loss of about 10
million new jobs every year.
• As per 2018 estimate the GDP growth is hampered
by 1.3% to 1.5% ($35 billion to $40 billion) which is
about Rs. 300,000 crore per annum
P. Acharya 226
227. In Land Water Transport in India
• This constitute rivers, canals, backwaters and creeks
totalling to 14,500km of navigable length.
• India has five national water ways.
Ganga-Bhagirathi-Hoogli 1620km
Krishna-Godavari 1095 km
Brahmaputra 891 km
Mahanadi-Brahmani 623 km
Kollam-Kottapuram canals 205 km
P. Acharya 227
228. In-land waterways Cargo is negligible
Country Germany Bangladesh India
% of total inland cargo 20% 35% 0.15%
P. Acharya 228
230. Disadvantages
1. Slow:
Speed of Inland water transport is very slow and therefore this mode of
transport is unsuitable where time is an important factor.
2. Limited Area of Operation:
It can be used only in a limited area which is served by deep canals and rivers.
3. Seasonal Character:
Rivers and canals cannot be operated for transportation throughout the year
as water may freeze during winter or water level may go very much down
during summer.
4. Unreliable:
The inland water transport by rivers is unreliable. Sometimes the river
changes its course which causes dislocation in the normal route of the trade.
5. Unsuitable for Small Business:
Inland water transport by rivers and canals is not suitable for small traders, as
it takes normally a longer time to carry goods from one place to another
through this form of transport.
P. Acharya 230
231. Sea/Ocean Transport
• Can be of two types
– Coastal
– Overseas
Coastal Transport is highly beneficial for nations
having large coastline (India, USA, China, Canada
etc.)
Overseas Transport is the source of cheapest and
highest capacity transport of Cargo.
P. Acharya 231
232. Pipelines (2008)
Category of use Length of pipeline (km)
Crude oil 20,000
Petroleum products 15000
Natural Gas 1700
P. Acharya 232
234. Performance Measurement in logistics
• Four broad categories in which performance is
measured are—
Time
Quality
Cost
Supporting
P. Acharya 234
235. Time related measures
• On time delivery/receipt
• Order cycle time
• Order cycle time variability
• Response time
• Forecasting/planning cycle time
P. Acharya 235
236. Quality related measures
• Overall customer satisfaction
• Processing accuracy
• Perfect order fulfilment (also time related)
On-time delivery
Complete order
Accurate product selection
Damage free
Accurate invoice
• Forecast accuracy
• Planning accuracy
Budget and operating plans schedule adherence
P. Acharya 236
237. Cost related measures
• Finished goods inventory turns
• Days sales outstanding
• Cost to serve
• Cash-to-cash cycle time
• Total delivered cost
Cost of goods
Transportation costs
Inventory carrying costs
Material handling costs
• Other costs
Information Systems
Administrative costs
• Costs of excess capacity
• Costs of capacity shortfall
P. Acharya 237
238. Logistics output that influence
customer service
• Product availability
• Order cycle time
• Logistics operations responsiveness
• Logistics systems information
• Post sales logistics support
P. Acharya 238
239. Logistics metrics
• Measure the performance of various logistics
functions
• Focus on time, availability, quality, cost, profit and
reliability
• Usually are grouped into
Financial Metric (cost/revenue etc.)
Non-financial Metric (service and productivity)
• Include the critical success factors of all level of
business
P. Acharya 239
240. Why to measure logistics
performance?
• To reduce operating costs
• To drive revenue growth
• To enhance shareholder value (ROI)
P. Acharya 240
241. Metrics could be internal or external
• Internal metrics measure the performance of the
system (plant, warehouse, material handling etc.)
• External metrics reflects the expectations of the
organisation by external entities such as the Govt,
customers, third party agencies etc.
P. Acharya 241
244. External Metrics are dependent on
Internal ones
For example-
% of on time delivery of shipments (ext. metric)
depends on
% on time departure of trucks (int. metric)
P. Acharya 244
245. Metrics could be Strategic or
Operational
• Strategic Metrics focus on System-level performance
(ex. % of travel time with full load for the entire fleet)
• Operational metrics focus on unit level performance
(ex. % of travel time with full load for a single vehicle)
P. Acharya 245
246. Internal System Level Metrics
Financial Metrics: i.e. Inventory Turnover Ratio
Non-financial Metrics: i.e. % of demands met
P. Acharya 246
247. Internal Function level Metrics
• Oriented around the main logistics functions
Transportation
Warehousing
Production
Maintenance
Supplier selection
P. Acharya 247
251. External metrics (Customer)
• Quality (% of correct items received)
• Number (or %) of on time deliveries
• Supplier Lead time
• Cost of service
• Warranty costs
• Avg. Query response time/resolution time etc.
P. Acharya 251
252. External Metrics (Govt.)
• No. of new jobs created by the system
• Tax revenue earned
• New infrastructure created
• Impact on other industries
• Control on pollution/congestion etc.
P. Acharya 252
254. Order management
• Refers to the set of activities that that occur from the
time the order is received by the seller/firm to the
time the product is received by the buyer.
• Order-to-cash (OTC) cycle is used
P. Acharya 254
256. Sequence of Activities in OTC cycle
• Process inquiry and quote
• Receive customer order, enter and validate order
• Allocate inventory(stock) and determine delivery
date (ATD or ATP mode)
• Consolidate order to know the daily gross shipments
• Plan and build loads
• Route shipments
P. Acharya 256
257. Sequence of ….
• Select carrier and rate shipments
• Pick product
• Load carriers, generate shipping documents
• Ship vehicles
• Receive and verify goods at customer end
• Install/stock goods at customer end
• Release of invoice and receive of payments
P. Acharya 257
258. OTC cycle
• The length of OTC cycle is important.
• But the variability in cycle length is even more
important.
• This impacts the customer service, buyer-seller relation,
supplier or customer retention, safety stock etc.
• Has been hugely shortened and made more efficient
(accurate) with the use of Internet.
P. Acharya 258
259. Performance metric of Order Management
• Perfect order fulfilment (a mixed metric)
• Order fulfilment cycle time
• Order management cost as % of delivery costs
• Cash-to-cash cycle time
• Flexibility upside order
downside order
P. Acharya 259
260. Best practices
• VMI
• EDI
• Rapid replenishment
• Internet ordering
• ECR.
P. Acharya 260
261. Customer service: Expected cost of stock out
• S = Estimated cost of stock out
Where pi = probability of occurrence of an
outcome arising because of a stock out
Ci = unit cost to the company for each outcome
Then, Q = SQRT(2D(A+S)/vr)
P. Acharya 261
263. Logistics Information System(LIS) Design
LIS is a set of computer hardware-software system
that gathers, organises, summarises and reports any
information for use by managers/customers etc.
LIS design consists of four elements:
Inputs
Database
Outputs
Resources
P. Acharya 263
265. Inputs
• Customer data
• Company records (of customer firms)
• Published data (released by Govt/Trade
agencies/journal reports etc.
This data helps know or forecast the order
size/consumption pattern/ Order frequency/future
sales/market size and location etc.
P. Acharya 265
266. Database Management
Important issues with a DBMS are
Choice of data processing method
Nature of data to be kept for quick access
This depends on
Criticality of the information
Speed and frequency with which the information
needs to be retrieved and accessed
P. Acharya 266
267. Outputs
• This is the processed data used for decision
making.
• Example: Summery reports, Status reports,
• Also in form of documents such as invoices,
purchase orders, transport bills or freight bills
P. Acharya 267
268. The Resources
Four type of resources
1. Human Resource
2. Software Resource
3. Hardware Resource
4. Data Resource
P. Acharya 268
275. Reverse Logistics
• Reverse logistics comprises of the sector of
supply chains that process anything returning
inwards or traveling ‘backward’ through the
supply chain
P. Acharya 275
276. Components of reverse logistics
• Returned goods,
• Inward disposal/recycling of packaging
materials
• Recycling/responsible (Eco friendly) disposal
of materials from previously sold products,
etc.
P. Acharya 276
277. Definition of Reverse Logistics
• According to The Council of Logistics
Management,
Reverse Logistics is the process of implementing,
controlling, and planning the cost-effective flow of
finished goods, raw materials, and in-process inventory.
Here the flow is from the point of consumption (i.e. the
customer) to the point of origin (i.e. the manufacturer), to
properly dispose of these or to recapture value. This also
Includes any re-manufacturing or refurbishment of
goods.
P. Acharya 277
278. Examples of Reverse logistics
• Return of goods by customers
• Return of unsold goods by distribution partners
due to contract terms
• Re-use of packaging
• Refurbishment of goods
• Repairs and maintenance as per guarantee
agreements
• Re-manufacturing of goods from returned or
defective items
• Selling of goods to a secondary market in response
to returns or overstocking
• Recycling and disposal of end-of-life goods
P. Acharya 278
279. Economic issues related to Reverse
Logistics
• Sales revenue from repaired goods in primary
market
• Sales revenue of goods with minor defects in
secondary market
• Cost of transportation in reverse flow
• Cost of handling, inspection, segregation of
returned goods
• Cost of repair/refurbishing
• Cost of running processing warehouse
P. Acharya 279
