logistics in tourism


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logistics in tourism

  1. 1. 1 MINOR PROJECT REPORT ON ROLE OF LOGISTICS IN TOURISM Session: 2010-2013 SUBMITTED TO: - SUBMITTED BY:- Mr. Heramb Nayak Megha Aggarwal Assistant Professor Enrollment No.02514905010 Dept. of Business Administration Course: BBA (T&TM) 6th Sem. MAHARAJA SURAJMAL INSTITUTE Affiliated to Guru Gobind Singh Indraprastha University Recognized by UGC U/S2 (F) C-4 JANAK PURI, NEW DELHI-58
  2. 2. 2 CERTIFICATE This is to certify that the research project initiated to certify that is the innovative effort of “MEGHA AGGARWAL” ROLL NO-02514905010 and it has been accomplished under my guidance. Certified that this project report “ROLE OF LOGISTICS IN TOURISM” Is the bonafide work of "MEGHA AGGARWAL” who carried out the project work under my supervision. SIGNATURE SIGNATURE Megha Aggarwal Mr. Heramb Nayak BBA (TTM) 6th Sem Assistant Professor 02514905010 Dept. of Business Administration
  3. 3. 3 ACKNOWLEDGEMENT A project can never become a success with efforts of only one individual. it requires a group of people to complete a project at its best. It may be your friend, your teacher and your family member. The present work is an effort to throw some light on “the role of logistics in tourism”. The work would not have been possible to come to the present shape without the able guidance, supervision and help to me by number of people. With deep sense of gratitude I acknowledge the encouragement and guidance received by Mr. HERAMB NAYAK, ASST. PROFESSOR, DEPT. OF BUSINESS ADMINISTRATION and other staff members. I convey my heartfelt thanks to all those people who helped and supported me during the course, for completion of my Project Report. MEGHA AGGARWAL ENROLL. NO. 02514905010 Course: BBA (T&TM) 6th Sem.
  4. 4. 4 TABLE OF CONTENTS S. No Particulars Page No. 1. Chapter 1 - Introduction Introduction to Logistics 1-9 Objectives 10 Research Methodology 11 Source of Data Collection 12 Limitations 13 2. Chapter 2 – Profile History of Logistics 15-22 The geography of transport systems 23-27 Logistics Management Function 27-32 Tourism & Logistics 33-38 Relevance of Logistics in International Marketing 38-40 The Indian Logistics Sector 40-45 Future Prospects 46-56 Global Logistics Scenario 56-58 Logistics Companies of India 58-61 Emerging Trends in Indian Logistics Industry 62-67 Indian logistics industry (a regional perspective) 68-69 3. Chapter 3 – Data Analysis and Interpretation Analysis and interpretation of statistical data 70-81 4. Chapter 4 - Conclusion and Recommendation Conclusion Suggestions & recommendations Bibliography 82 83 84
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  7. 7. 7 INTRODUCTION TO LOGISTICS Fierce competition in today’s market has forced business enterprises to invest in and focus on supply chains. The growth in telecommunication and transportation technologies has led to further growth of the supply chain. The supply chain, also known as the logistics network, consists of suppliers, manufacturing centers, warehouses, distribution centers and retail outlets, as well as raw materials, work-in-process inventory and finished products that flow between the facilities. Logistics is the management of the flow of resources between the point of origin and the point of destination in order to meet some requirements, for example, of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as time, information, particles, and energy. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security. The complexity of logistics can be modeled, analyzed, visualized, and optimized by dedicated simulation software. The minimization of the use of resources is common motives. The logistics management takes into consideration every facility that has an impact on cost. It plays an important role in making the product conform to customer requirements. Also it involves efficient integration of suppliers, manufacturers, warehouses and stores and encompasses the firms’ activities at many levels, from the strategic level through the tactical to the operational level. Logistics is a challenging and important activity because it serves as an integrating or boundary spanning function. It links suppliers with customers and it integrates functional entities across a
  8. 8. 8 company. With the ever-growing competition in today’s market place it becomes necessary for a firm to use its resources to focus on strategic opportunities. This includes several internal factors like management style, culture, human resources, facilities and several external factors like technology, globalization and competition. This is where the concept of logistics plays a major role, i.e. it helps to leverage certain advantages the firm has in the marketplace. “Logistics is the art and science of management, engineering and technical activities concerned with requirements, design and supplying, maintaining resources to support objectives, plans and operation.” --- Society of logistics engineers (sole) 1974. ORIGINS The term logistics comes from the late 19th century: from French logistique, from loger 'to lodge'. Logistics is considered to have originated in the military's need to supply itself with arms, ammunition, and rations as it moved from a base to a forward position. In the ancient Greek, Roman, and Byzantine Empires, military officers with the title Logistikas were responsible for financial and supply distribution matters. The Oxford English Dictionary defines logistics as "the branch of military science relating to procuring, maintaining and transporting material, personnel and facilities." However, the New Oxford American Dictionary defines logistics as "the detailed coordination of a complex operation involving many people, facilities, or supplies", and the Oxford Dictionary online defines it as "the detailed organization and implementation of a complex operation". Another dictionary definition is "the time-related positioning of resources." As such, logistics is commonly seen as a branch of engineering that creates "people systems" rather than "machine systems". According to the Council of Logistics Management, logistics includes the integrated planning, control, realization, and monitoring of all internal and network-wide material, part, and product
  9. 9. 9 flow, including the necessary information flow, in industrial and trading companies along the complete value-added chain (and product life cycle) for the purpose of conforming to customer requirements. Logistics is the process of planning, implementing, and controlling the effective and efficient flow of goods and services from the point of origin to the point of consumption. MAIN LOGISTICS TARGETS Logistics is one of the main functions within a company. The main targets of logistics can be divided into performance-related and cost-related targets. A few examples are high due date reliability, short delivery times, low inventory level, and high utilization of capacity. When decisions are made, there is a trade-off between targets. LOGISTICS VIEWPOINTS Inbound logistics is one of the primary processes of logistics, concentrating on purchasing and arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores. Outbound logistics is the process related to the storage and movement of the final product and the related information flows from the end of the production line to the end user. LOGISTICS FIELDS Given the services performed by logisticians, the main fields of logistics can be broken down as follows: Procurement logistics Production logistics Distribution logistics After sales logistics Disposal logistics
  10. 10. 10 Reverse logistics Global logistics Domestics logistics Procurement logistics consists of activities such as market research, requirements planning, make-or-buy decisions, supplier management, ordering, and order controlling. The targets in procurement logistics might be contradictory: maximizing efficiency by concentrating on core competences, outsourcing while maintaining the autonomy of the company, or minimizing procurement costs while maximizing security within the supply process. Production logistics connects procurement to distribution logistics. Its main function is to use available production capacities to produce the products needed in distribution logistics. Production logistics activities are related to organizational concepts, layout planning, production planning, and control. Distribution logistics has, as main tasks, the delivery of the finished products to the customer. It consists of order processing, warehousing, and transportation. Distribution logistics is necessary because the time, place, and quantity of production differs with the time, place, and quantity of consumption. Disposal logistics has as its main function to reduce logistics cost(s) and enhance service(s) related to the disposal of waste produced during the operation of a business. Reverse logistics denotes all those operations related to the reuse of products and materials. The reverse logistics process includes the management and the sale of surpluses, as well as products being returned to vendors from buyers. Military logistics In military science, maintaining one's supply lines while disrupting those of the enemy is a crucial—some would say the most crucial—element of military strategy, since an armed force without resources and transportation is defenseless. The defeat of the British in the American War of Independence and the defeat of the Axis in the African theatre of World War II are
  11. 11. 11 attributed to logistical failures. The historical leaders Hannibal Barca, Alexander the Great, Freighnk Nieman, and the Duke of Wellington are considered to have been logistical geniuses. Militaries have a significant need for logistics solutions and so have developed advanced implementations. Integrated Logistics Support (ILS) is a discipline used in military industries to ensure an easily supportable system with a robust customer service (logistic) concept at the lowest cost and in line with (often high) reliability, availability, maintainability, and other requirements, as defined for the project. In military logistics, logistics officers manage how and when to move resources to the places they are needed. Supply chain management in military logistics often deals with a number of variables in predicting cost, deterioration, consumption, and future demand. The United States Armed Forces' categorical supply classification was developed in such a way that categories of supply with similar consumption variables are grouped together for planning purposes. For instance, peacetime consumption of ammunition and fuel will be considerably lower than wartime consumption of these items, whereas other classes of supply such as subsistence and clothing have a relatively consistent consumption rate regardless of war or peace. Some classes of supply have a linear demand relationship: as more troops are added, more supply items are needed; or as more equipment is used, more fuel and ammunition are consumed. Other classes of supply must consider a third variable besides usage and quantity: time. As equipment ages, more and more repair parts are needed over time, even when usage and quantity stays consistent. By recording and analyzing these trends over time and applying them to future scenarios, the US Armed Forces can accurately supply troops with the items necessary at the precise moment they are needed. History has shown that good logistical planning creates a lean and efficient fighting force. The lack thereof can lead to a clunky, slow, and ill-equipped force with too much or too little supply.
  12. 12. 12 Business logistics A forklift stacking a logistics provider's warehouse of goods on pallets. One definition of business logistics speaks of "having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer". As the science of process, business logistics incorporates all industry sectors. Logistics work aims to manage the fruition of project life cycles, supply chains, and resultant efficiencies. Logistics as a business concept evolved in the 1950s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for experts called "supply chain logisticians". In business, logistics may have either an internal focus (inbound logistics) or an external focus (outbound logistics), covering the flow and storage of materials from point of origin to point of consumption (see supply-chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation, and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions to coordinate resources in an organization. There are two fundamentally different forms of logistics: one optimizes a steady flow of material through a network of transport links and storage nodes, while the other coordinates a sequence of resources to carry out some project. Production logistics The term production logistics describes logistic processes within an industry. Production logistics aims to ensure that each machine and workstation receives the right product in the right quantity and quality at the right time. The concern is not the transportation itself, but to streamline and control the flow through value-adding processes and to eliminate non–value- adding processes. Production logistics can operate in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency.
  13. 13. 13 Production logistics becomes more important with decreasing batch sizes. In many industries (e.g., mobile phones), the short-term goal is a batch size of one, allowing even a single customer's demand to be fulfilled efficiently. Track and tracing, which is an essential part of production logistics due to product safety and reliability issues, is also gaining importance, especially in the automotive and medical industries. LOGISTICS MANAGEMENT Logistics is that part of the supply chain that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer and legal requirements. A professional working in the field of logistics management is called a logistician. Materials management Channel management Distribution (or physical distribution) Supply-chain management The Chartered Institute of Logistics and Transport (CILT), established in the United Kingdom in 1919, received a Royal Charter in 1926. The Chartered Institute is one of the professional bodies or institutions for the logistics and transport sectors that offers professional qualifications or degrees in logistics management. LOGISTICS AUTOMATION Logistics automation is the application of computer software and/or automated machinery to improve the efficiency of logistics operations. Typically this refers to operations within a warehouse or distribution center, with broader tasks undertaken by supply chain management systems and enterprise resource planning systems.
  14. 14. 14 LOGISTICS OUTSOURCING Logistics outsourcing involves a relationship between a company and an LSP (logistic service provider), which, compared with basic logistics services, has more customized offerings, encompasses a broad number of service activities, is characterized by a long-term orientation, and thus has a strategic nature. THIRD-PARTY LOGISTICS Third-party logistics (3PL) involves using external organizations to execute logistics activities that have traditionally been performed within an organization itself. According to this definition, third-party logistics includes any form of outsourcing of logistics activities previously performed in house. For example, if a company with its own warehousing facilities decides to employ external transportation, this would be an example of third-party logistics. Logistics is an emerging business area in many countries. FOURTH-PARTY LOGISTICS The concept of a fourth-party logistics (4PL) provider was first defined by Andersen Consulting (now Accenture) as an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build, and run comprehensive supply chain solutions. Whereas a third-party logistics (3PL) service provider targets a single function, a 4PL targets management of the entire process. Some have described a 4PL as a general contractor that manages other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking responsibility of a complete process for the customer. EMERGENCY LOGISTICS Emergency logistics is a term used by the logistics, supply chain, and manufacturing industries to denote specific time-critical modes of transport used to move goods or objects rapidly in the event of an emergency. The reason for enlisting emergency logistics services could be a production delay or anticipated production delay, or an urgent need for specialized equipment to prevent events such as aircraft being grounded (also known as "aircraft on ground"—AOG),
  15. 15. 15 ships being delayed, or telecommunications failure. Emergency logistics services are typically sourced from a specialist provider. LOGISTICS AS A PROFESSION A logistician is a professional logistics practitioner. Professional logisticians are often certified by professional associations. One can either work in a pure logistics company, such as a shipping line, airport, or freight forwarder, or within the logistics department of a company. However, as mentioned above, logistics is a broad field, encompassing procurement, production, distribution, and disposal activities. Hence, career perspectives are broad as well. A new trend in the industry are the 4PL, or fourth-party logistics, firms, consulting companies offering logistics services. Some universities and academic institutions train students as logisticians, offering undergraduate and post graduate programs.
  16. 16. 16 OBJECTIVES To study about the contribution of logistics in the GDP of the country. To study about the impact of logistics in tourism industry. To study about the current scenario of Indian Logistics Industry. To study about the growth in logistics in the past few years. To study about the role of global 3PL service providers in India To study economic zone development for Logistics industry
  17. 17. 17 RESEARCH METHODOLOGY Research can be defined as systematized effort to gain knowledge. A research is carried out by different methodology, which has their own pros and cons. Research methodology is a way to solve research problem along with the logic behind them. Thus when we talk of the research methodology we not only take of research method but also context of our research study and explain why we are using a particular method or techniques and why we are not using other so that research result are capable of being evaluated either by the researchers himself or by others. Research methodology means the method carried out to study the problem. Research methodology has following steps: Step: 1 to decide the objective of the study. Step: 2 to collect the required data. Step: 3 to process and analyze the collected data. Step: 4 to prepare the research report.
  18. 18. 18 SOURCE OF DATA COLLECTION Secondary data: Secondary data is any data, which have been gathered earlier for some other purpose. Among the above mentioned types of data was used for the study and analysis of the objective of this project, also the secondary to data proved to be helping hand in framing up the industry scenario and also the relevant topics in the entire project report. Advantages of Secondary data 1. It is economical. 2. It saves efforts and expenses. 3. It is time saving. Disadvantages of Secondary Data 1. Accuracy of secondary data is not known. 2. Data may be outdated.
  19. 19. 19 LIMITATIONS This project report suffers with some disadvantages which are written as follows – RESEARCH METHODOLOGY – the research methodology being used in making this project is secondary data, any leakages in data collected may affect the project report. LIMITED SOURCES – the proper information about few topics was not easily available which caused a lot of inconvenience to me. TIME CONSUMING – logistics is very broad in terms of transport industry and this sometimes cause a huge problem since we can’t get it as to what information to pick and which not. INACCURATE DATA – As the data has been collected from secondary sources, the information gathered may suffer with the problem of data inaccuracy
  20. 20. 20 CHAPTER-2 PROFILE
  21. 21. 21 HISTORY OF LOGISTICS Logistics has been playing a fundamental role in global development for almost 5,000 years now. Since the construction of the pyramids in ancient Egypt, logistics has made remarkable strides. Time and again, brilliant logistics solutions have formed the basis for the transition to a new historical and economic era. Examples of this fundamental progress include the invention of the sea-cargo container and the creation of novel service systems during the 20th century. Both are integral parts of globalization today. Around 2700 B.C.:- Material handling technology in pyramid construction. Blocks of stone weighing several tons were transported and assembled at the construction site. To build the Great Pyramid of Giza, which is 146 meters high and weighs 6 million tons, the Egyptians needed sophisticated material transport equipment capable of moving the massive building blocks and putting them into place. Even today, we still cannot fully explain how this level of precision was achieved using the hoisting equipment and means of transport available around 2700 B.C.
  22. 22. 22 Around 300 B.C.: - Revolutionary Greek rowing vessels – the new foundation of intercontinental trade. The revolutionary invention of rowing vessels created the basis for rapid travel across the high seas. This invention formed the foundation for the creation of enormous logistics supply systems required by mobile army camps. Using these logistics capacities, Alexander the Great undertook campaigns with his troops, their families and their weapons of war that extended all the way to India. Around A.D. 700:- Procurement logistics in the construction of the Mesquite Mosque – pillars came to Spain from all parts of the Islamic empire. Construction of the famous Mezquita Mosque in Cordoba, Spain, began in 756 under the Caliph of Cordoba in the Umayyad dynasty. It is considered to be the largest mosque in Europe. Extraordinary procurement logistics was required to transport the pillars of the mosque from all parts of the Islamic empire.
  23. 23. 23 Around 1200: The international network known as the Hanseatic League – cooperation for transport bundling and international sea transport. In 1188, the city of Hamburg, Germany, was founded as a base on the North Sea for the Hanseatic League to make travel on the sea more secure and to represent business interests abroad. Up to 200,000 fur pelts were transported by a single hanseatic cog ship. Hanseatic trade extended from the Black Sea to Reval. From a modern-day vantage point, the league’s cross-border trade bears strong similarities to the European Union. Around 1500: Progressive postal service in Europe – the first time-definite mail shipping service. Under an agreement with Philipp of Burgundy, Franz von Taxis organized the first postal service with strictly defined transit times. Letters were delivered to places such as Paris, Ghent, Spain and the imperial court of Vienna. In view of the infrastructure of the times and the political fragmentation created by the array of small principalities, the mail reached its destination with very little delay.
  24. 24. 24 Around1800: Discovery of new road conveyances and the railroad– expansion of logistics tasks through new technologies and means of transport. The practical use of the steam engine, the invention of vehicles, railroads and ships as well as the discovery of crude oil ushered in a new economic era that generated new missions, tools and opportunities for logistics. Around 1940: Military logistics during the world wars – transfer of military logistics concepts to the business world. During World War I, military logistics was the vital link in the network that supplied troops with rations, weapons and equipment. With the onset of World War II, logistics was further refined. As a result, logistics gained an important place in the business world as well.
  25. 25. 25 Around 1956: Invention of the sea container – structural evolution of world trade and the boom of international flows of goods. The invention of the sea container by the American Malcom P. McLean changed production conditions for nearly all industries around the world and, as a result, altered people’s consumption habits. Even today, the sea container continues to ensure that harbors gain major contracts, new countries and regions experience commercial booms, markets arise and products from all parts of the world can be bought and sold at reasonable prices. In this way, the container has significantly contributed to globalization. Around 1970 – 1980: Kanban and just-in-time – logistics concepts with a special emphasis on procurement. The Kanban and just-in-time (JIT) concepts were developed and introduced at Japan’s Toyota Motor Co. by Taiichi Ohno – with the objective of effectively linking logistics to other operational functions. Special emphasis was placed on procurement.
  26. 26. 26 Around 1990: QR and ECR technologies – logistics concepts with a special emphasis on distribution. The quick response and efficient consumer response (ECR) technologies were developed during the 1990s and applied by many retail and wholesale companies. These technologies had a major impact on logistics. As a result of this technology, distribution centers are tasked with moving goods instead of storing them. This allows companies to accelerate reaction times to market developments and to set up efficient goods-supply systems. Today: Supply chain management – a look at the entire logistics chain from the vendor’s supplier to the end customer. Supply chain management is a term that has grown enormously in use and significance since the late 1980s. Today, supply chain management is viewed as a holistic consideration of key business processes that extend from the vendor’s supplier to the end user. Accordingly, supply chain management is an extremely interactive, complex system requiring simultaneous monitoring of many conflicting objectives.
  27. 27. 27 Today: Advancing globalization – efficient logistics as a competitive edge in the era of globalization. Global competition began to arise and spread in the 1970s and accelerated in the 1990s. Globalization is still moving forward today. Efficient logistics creates a crucial competitive edge for companies that are expanding in global markets. Successful logistics efforts in international supply chains can fuel the development of global markets. LOGISTICS HISTORY SHOWS THE BENEFIT AND IMPORTANCE OF LOGISTICS Logistics can be defined as providing the right type of products and/or services at the right price, at place, time and in the right condition. A quick look back at some logistics history may prove very enlightening. The birth of Logistics can be traced back to ancient war times of Greek and Roman empires when military officers titled as 'Logistikas' were assigned the duties of providing services related to supply and distribution of resources. This was done to enable the soldiers to move from their base position to a new forward position efficiently, which could be a crucial factor in
  28. 28. 28 determining the outcome of wars. This also involved inflicting damage to the supply locations of the enemy and safeguarding one's own supply locations. Thus, this lead to the development of a system which can be related to the current day system of logistics management. During the Second World War (1939-1945), logistics evolved greatly. The army logistics of United States and counterparts proved to be more than the German army could handle. The supply locations of German armed forces were inflicted with serious damages and Germany was not able to wreak the same havoc on its enemy. The United States military ensured that the services and supplies were provided at the right time and at the right place. It also tried to provide these services when and wherever required, in the most optimal and economical manner. The best available options to do the task were developed. This also gave birth to several military logistics techniques which are still in use, albeit in a more advanced form. Logistics has now evolved itself as an art and science. However, it cannot be termed as an exact science. Logistics does not follow a defined set of tables nor is it based on skills inherited from birth. A logistics manager performs his duties and responsibilities based on his educational experiences, skills, past experiences and intuition. These skills are nourished by a constant application of the same by him for the betterment of his organization. The logistics manager ensures that the company is benefited by an effective and efficient system of logistical management. He also needs to ensure that the right kind of products and services are provided at the right time and for a right price, whether inside the organization's premises or delivery of shipments outside the premises of the organization. Logistics has come to be a kind of relief for many organizations that formerly looked upon it as a burden. Companies nowadays are hiring people with the requisite knowledge to deliver sustainable enhancements in the field of supply chain management. As has been the case throughout most of logistics history, the task of a logistics manager involves a clear vision and a drive within to deliver results under strict deadlines in addition to his usual responsibilities
  29. 29. 29 THE GEOGRAPHY OF TRANSPORT SYSTEMS THE NATURE OF LOGISTICS The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. These changes are not merely quantitative with more freight in circulation, but structural and operational. Structural changes mainly involve manufacturing systems with their geography of production, while operational changes mainly concern freight transportation with its geography of distribution. As such, the fundamental question does not necessarily reside in the nature, origins and destinations of freight movements, but how this freight is moving. New modes of production are concomitant with new modes of distribution, which brings forward the realm of logistics; the science of physical distribution. Logistics involves a wide set of activities dedicated to the transformation and distribution of goods, from raw material sourcing to final market distribution as well as the related information flows. Derived from Greek logistikos (to reason logically), the word is polysemic. In the Nineteenth century the military referred to it as the art of combining all means of transport, revictualling and sheltering of troops. Today it refers to the set of operations required for goods to be made available on markets or to specific locations. The application of logistics enables a greater efficiency of movements with an appropriate choice of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available goods, raw materials and commodities, fulfilling four major requirements related to order, delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity including production, location, time and control of elements of the supply chain. It represents the material and organizational support of globalization. Activities comprising logistics include physical distribution; the derived transport segment, and materials management; the induced transport segment. Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution
  30. 30. 30 includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be derived from materials management demands. Materials management considers all the activities related in the manufacturing of commodities in all their stages of production along a supply chain. It includes production and marketing activities such as production planning, demand forecasting, purchasing and inventory management. Materials management must insure that the requirements of supply chains are met by dealing with a wide array of parts for assembly and raw materials, including packaging (for transport and retailing) and, ultimately, recycling discarded commodities. All these activities are assumed to be inducing physical distribution demands. The close integration of physical distribution and materials management through logistics is blurring the reciprocal relationship between the derived transport demand function of physical distribution and the induced demand function of materials management. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. The functions of production, distribution and consumption are difficult to consider separately, thus recognizing the integrated transport demand role of logistics. Distribution centers are the main facilities from which logistics are coordinated. Distribution Center Facility or a group of facilities that perform consolidation, warehousing, packaging, decomposition and other functions linked with handling freight. Their main purpose is to provide value-added services to freight. DCs are often in proximity to major transport routes or terminals. They can also perform light manufacturing activities such as assembly and labeling. Since it would be highly impractical to ship directly goods from producers to retailers, distribution centers essentially act as a buffer where products are assembled, sometimes from other distribution centers, and then shipped in batches. Distribution centers commonly have a market area in which they offer a service window defined by delivery frequency and response time to order. This structure looks much like a hub-and-spoke network. The wide array of
  31. 31. 31 activities involved in logistics, from transportation to warehousing and management, have respective costs. Once compiled, they express the burden that logistics impose on distribution systems and the economies they support, which is known as the total logistics costs. Costs are however not the only consideration in supply chain management since supply chains can also be differentiated by time, reliability and risk level. The nature and efficiency of distribution systems is strongly related to the nature of the economy in which they operate. Worldwide logistics expenditures represent about 10-15% of the total world GDP. In economies dependent on the extraction of raw materials, logistical costs are comparatively higher than for service economies since transport costs account for a larger share of the total added value of goods. For the transport of commodities, logistics costs are commonly in the range of 20 to 50% of their total costs. OBJECTIVE OF LOGISTICS MANAGEMENT The primary objective of logistics management is to effectively and efficiently move the supply chain so as to extend the desired level of customer service at the least cost. Thus, logistics management starts with ascertaining customers’ needs till their fulfilment through product supplies. However, there are some definite objectives to be achieved through a proper logistics system. These can be described as follows: 1. Improving customer service: An important objective of all marketing efforts, including the physical distribution activities, is to improve the customer service. An efficient management of physical distribution can help in improving the level of customer service by developing an effective system of warehousing, quick and economic transportation, and maintaining optimum level of inventory. 2. Rapid Response: Rapid response is concerned with a firm's ability to satisfy customer service requirements in a timely manner. Information technology has increased the capability to postpone logistical operations to the latest possible time and then accomplish rapid delivery of required inventory.
  32. 32. 32 3. Reduce total distribution costs: The cost of physical distribution consists of various elements such as transportation, warehousing and inventory maintenance, and any reduction in the cost of one element may result in an increase in the cost of the other elements. Thus, the objective of the firm should be to reduce the total cost of distribution and not just the cost incurred on any one element. 4. Generating additional sales: A firm can attract additional customers by offering better services at lowest prices. For example, by decentralizing its warehousing operations or by using economic and efficient modes of transportation, a firm can achieve larger market share. Also by avoiding the out-of-stock situation, the loss of loyal customers can be arrested. 5. Creating time and place utilities: The products are physically moved from the place of their origin to the place where they are required for consumption; they do not serve any purpose to the users. Similarly, the products have to be made available at the time they are needed for consumption. 6. Price stabilization: It can be achieved by regulating the flow of the products to the market through a judicious use of available transport facilities and compatible warehouse operations. By stocking the raw material during the period of excess supply and made available during the periods of short supply, the prices can be stabilized. 7. Quality improvement: The long-term objective of the logistical system is to seek continuous quality improvement. Total quality management (TQM) has become a major commitment throughout all facets of industry. If a product becomes defective or if service promises are not kept, little, if any, value is added by the logistics. Logistical costs, once expended, cannot be reversed.
  33. 33. 33 8. Movement consolidation: Consolidation one of the most significant logistical costs is transportation. Transportation cost is directly related to the type of product, size of shipment, and distance. Many Logistical systems that feature premium service depend on high-speed, small shipment transportation. Premium transportation is typically high-cost. To reduce transportation cost. It is desirable to achieve movement consolidation. LOGISTICS MANAGEMENT FUNCTION Logistics is the process of movement of goods across the supply chain of the company. This process is consist of various functions, which have to be properly managed to bring effectiveness efficiency in the supply chain of organization. The major logistical function are shown in figure 1. Order processing: The starting point of physical distribution activities is the processing of customers’ orders. In order to provide quicker customer service, the orders received from customers should be processed within the least possible time. Order processing includes receiving the order, recording the order, filling the order, and assembling all such orders for transportation, etc. the company and the customers benefit when these steps are carried out quickly and accurately. The error committed at this stage at times can prove to be very costly. Logistics Functions Order Processing Inventory Manage - ment Ware - housing Transpor- tation Material Handling & Storage Packaging Information Flow
  34. 34. 34 Order processing activity consist of the following  Order checking in any deviations in agreed or negotiation terms  Prices , payment and delivery terms  Checking the availability in of the material stocks  Production and material scheduling for storage  Acknowledge the order, indicating deviation 2. Warehousing: Warehousing refers to the storing and assorting products in order to create time utility. The basic purpose of the warehousing activity is to arrange placement of goods, provide storage facility to store them, consolidate them with other similar products, divide them into smaller quantities and build up assortment of products. Generally, larger the number of warehouses a firm has the lesser would be the time taken in serving customers at different locations, but greater would be the cost of warehousing. Thus, the firm has to strike a balance between the cost of warehousing and the level of customer service. Major decision in warehousing is as follow:  Location of warehousing facility  Number of warehousing  Size of warehouse  Design of the building  Ownership of the warehouse 3. Inventory Management: Linked to warehousing decisions are the inventory decisions which hold the key to success of physical distribution especially where the inventory costs may be as high 15 as 30-40 per cent (e.g., steel and automobiles). No wonder, therefore, that the new concept of Just-in-Time- Inventory decision is increasingly becoming popular with a number of companies. The decision regarding level of inventory involves estimate of demand for the product. A correct estimate of the demand helps to hold proper inventory level and control the inventory costs. This is not only
  35. 35. 35 helps the firm in terms of the cost of inventory and supply to customers in time but also to maintain production at a consistent level. The major factors determining the inventory levels are: The firm’s policy regarding the customer service level, Degree of accuracy of the sales forecasts, Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs to the factory and get the products in the market. The cost inventory consists of holding cost (such as cost of warehousing, tied up capital and obsolescence) and replenishment cost (including the manufacturing cost). 4. Transportation: Transportation seeks to move goods from points of production and sale to points of consumption in the quantities required at times needed and at a reasonable cost. The transportation system adds time and place utilities to the goods handled and thus, increases their economic value. To achieve these goals, transportation facilities must be adequate, regular, dependable and equitable in terms of costs and benefits of the facilities and service provided. 5. Information: The physical distribution managers continuously need up-to-date information about inventory, transportation and warehousing. For example, in respect on inventory, information about present stock position at each location, future commitment and replenishment capabilities are constantly required. Similarly, before choosing a 16 carrier, information about the availability of various modes of transport, their costs, services and suitability for a particular product is needed. About warehousing, information with respect to space utilization, work schedules, unit load performance, etc., is required. In order to receive all the information stated above, an efficient management information system would be of immense use in controlling costs, improving services and determining the overall effectiveness of distribution. Of course, it is difficult to correctly assess the cost of physical distribution operations. But if correct information is available it can be analyzed systematically and a great deal of saving can be ensured. 6. Facilities:
  36. 36. 36 The Facilities logistics element is composed of a variety of planning activities, all of which are directed toward ensuring that all required permanent or semipermanent operating and support facilities (for instance, training, field and depot maintenance, storage, operational, and testing) are available concurrently with system fielding. Planning must be comprehensive and include the need for new construction as well as modifications to existing facilities. Facility construction can take from 5 to 7 years from concept formulation to user occupancy. It also includes studies to define and establish impacts on life cycle cost, funding requirements, facility locations and improvements, space requirements, environmental impacts, duration or frequency of use, safety and health standards requirements, and security restrictions. Also included are any utility requirements, for both fixed and mobile facilities, with emphasis on limiting requirements of scarce or unique resources. DRIVING FORCES IN SUPPLY CHAIN MANAGEMENT The emergence of logistics in contemporary supply chains is based upon continuous improvements in transport and inventory management costs, which commonly results in lower lead times; the time it takes for an order to be fulfilled. Lean supply chains, as a managerial concept, is often labeled as seminal in the emergence of modern supply chains where inventory levels are kept at a minimum and where a large share of the inventory is in constant circulation. Typically the manufacturing sector has 6 to 8 inventory turns per year. In the electronics sector, this can even be faster with 10 to 20 inventory turns per year. During the 1980s, the application off low control permitted to reduce inventories in time-sensitive manufacturing activities from several days' worth to several hours. Much of these efforts initially took place within the factory, while supply and output flowed as batches from suppliers and to distributors. In the 1990s, with the convergence of logistics and information and communication technologies (ICT), this principle was increasingly applied to the whole supply chain, particularly to the function of distribution.Another important requirement was containerization, which conferred substantial flexibility to production systems in addition to the container being its own storage unit. The expansion of standard transport infrastructure such as highways, terminals and airports was also essential for the development of modern logistics. Logistics and integrated transport systems are
  37. 37. 37 therefore related, particularly because of the container which has concomitantly become a unit of load (transport), production and distribution. Thus, the physical as well as the ICT elements of technological change are being underlined as it helps strengthen the level of control distributors have over the supply chain. The technological dimension of logistics can thus be considered from five perspectives: Transportation modes. Modes have been the object of very limited technological changes in recent decades. In some cases, modes have adapted to handle containerized operations such as road and rail (e.g. doublestacking). It is maritime shipping that has experienced the most significant technological change, which required the construction of an entirely new class of ships and the application of economies of scale to maritime container shipping. In this context, a global network of maritime shipping servicing large gateways has emerged. Transportation terminals. The technological changes have been very significant with the construction of new terminal facilities operating on a high turnover basis. Better handling equipment lead to improvements in the velocity of freight at the terminals, which are among the most significant technological changes brought by logistics in materials movements. In such a context, the port has become one of the most significant terminals supporting global logistics. Port facilities are increasingly been supported by an array of inland terminals connected by high capacity corridors. Distribution centers and distribution clusters. Technological changes impacted over the location, design and operation of distribution centers; the facilities handling the requirements of modern distribution. They serve different purposes depending on the combination of fabrication, storage and distribution functions they perform within their supply chains. Modern distribution centers tend to consume more space, both from the site they occupy and the building area. From a locational standpoint, distribution centers mainly rely on trucking, implying a preference for suburban locations with good road accessibility supporting a constant traffic. They service regional markets with a 48 hours service window on average, implying that replenishment orders from their customers are met within that time period. They have become one floor facilities designed more for throughput than for warehousing with specialized loading
  38. 38. 38 and unloading bays and sorting equipment. Cross-docking distribution centers represent one of the foremost expressions of a facility that handles freight in a time sensitive manner. Another tendency has been the setting of freight distribution clusters where an array of distribution activities agglomerate to take advantage of shared infrastructures and accessibility. This tends to expand the added-value performed by logistics. Load units. Since logistics involves improving the efficiency of flows, load units have become particularly important. They are the basic physical management unit in freight distribution and take the form of pallets, swap bodies, semi-trailers and containers. Containers are the privileged load unit for long distance trade, but the growing complexity of logistics required a more specific level of load management. The use of bar codes and increasingly of RFID (Radio Frequency Identification Device) enables a high level of control of the load units in circulation. Information technologies / E-commerce. Consider the vast array of information processing changes brought by logistics. The commodity chain is linked with physical flows as well as with information flows, notably through Electronic Data Interchange (EDI). Producers, distributors and consumers are embedded in a web of reciprocal transactions. While these transactions mostly take place virtually, their outcomes are physical flows. E- commerce offers advantages for the whole commodity chain, from consumers being exposed to better product information to manufacturers and distributors being able to adapt quickly to changes in the demand. The outcome is often more efficient production and distribution planning with the additional convenience of tracking shipments and inventories. For logistics, ICT is particularly a time and embeddedness issue, particularly because of ICT; freight distribution is within a paradigm shift from inventory-based logistics (push) to replenishment-based logistics (pull). Demand, particularly in the retailing sector, is very difficult to anticipate accurately. A closer integration between supply and demand enables a more efficient production system with fewer wastes in terms of unsold inventory. Logistics is thus a fundamental component of efficiency improvements in a market economy.
  39. 39. 39 TOURISM & LOGISTICS Tourism Logistics aims to understand the relationships between tourism and transport in the context of their development, organization and management. For the organizations which are involved in tourism, efficiency is conditioned, among other determinants, by the coordination and harmonization of all participants’ efforts from the specific activities chain: tourism services suppliers, tour-operators, travel agencies and tourists themselves. Among these participants, a special role is assigned to the tour-operators. Going from certain tourism attractions, they take upon themselves the fabrication of those products that are required by tourists, assembling the different basic and supplementary tourism services, that are offered by numerous services suppliers, and further, distributing them to the retailers, or directly to the tourists. The impact of their activity is very strong because through the realized products they incorporate different types of tourist services. Going from these aspects and analyzing in a similar manner the tourism activity as the material goods manufacturing activity from logistical point of view, it can be said that, successful activity can be achieved when those different participants’ categories act like a system, into a supply chain. On tour-operators’ level, the supply chain management incorporates, among the others, planning and management activities concerning purchasing suppliers selection, internal logistics’ management, as well as collaboration with all marketing channel partners. Internal logistics involves activities that refers to purchasing, operations’ support and some aspects that are similar with physical distribution, the supply chain being structured by cooperation between a various number of participants, from raw materials suppliers (their impact is visible especially in catering, foods or beverage suppliers services), up to end consumers. Otherwise, the role of the last category is more important because they lend the tourism activity specific nature, through there’s participation on a successful holiday product. Nowadays, the science of logistics appears to be very helpful and applicable, especially in the tourist and recreation sector. Broad knowledge as well as practical experience in this field can bring a lot of support not only in the creation of the supply chain, its realization and monitoring processes but also in the efficiency analysis or even tendering procedures. It is beyond any question that the process of forming a supply chain in the tourist and recreation sector requires
  40. 40. 40 advanced and professional knowledge of both transportation systems and carriage of goods and passengers. There is no need to emphasize the fact that, in the view of a very competitive and modern market of tourism and recreation, high quality of tenders is still a priority. However, there is one more factor that plays an important and decisive role in this very sector. Strange as it may seem, it is the costs rather than the prices that determine our choices when making important decisions. Therefore, in order to gain a strong market position, maintain it and leave the competition behind, it is crucial to pay close attention to the cost analysis in particular links of the supply chain as well as restructuring them. One of the methods that can be applied in order to back up the implementation of the aforementioned policies is definitely benchmarking. According to the definition” benchmarking is a process of comparing practices, procedures and performance of one company with specially selected benchmarking partners”. In other words, benchmarking is a process not only of deriving quantifiable goals and targets, but more importantly, it is the process of investigating and documenting the best industry practices, which can help to achieve goals and targets. What is more, it gives the external references and the best practices on which to base the evaluations and to design the work processes. In the modern and competitive market of today, all the activities mentioned above are really helpful, especially that most of the companies are no longer evaluated in accordance with profits they make but more often they are compared to their rivals. Since benchmarking is the process of identifying "best practice" in relation to both products and the processes by which those products are created and delivered, it seems to be a perfect tool for examining different strategies and general approaches as well as creation of supply chains and other logistics systems. Logistics and supply chain management: Strategies for reducing cost and improving service. The market of tourist and recreational services is composed of the following: - Hospitality services; - catering services; - Tour operating services; - Tourism oriented services;
  41. 41. 41 - Recreation oriented services. Those segments of the market where many different firms, business entities or incorporated companies operate can easily and successfully adopt the premises of logistics. As a matter of fact the science of logistics combines both theoretical and practical issues. What is more, all its theories can be easily implemented and confronted with reality in order to verify whether they are efficient and applicable in real life. If we took the hospitality services sector in consideration, we would find that there are quite a few areas where it is advisable or even necessary to fall back on the science of logistics. Furthermore, the efficiency and quality of hospitality services can be improved through effective logistics management of the following: - Hotel management; - Quality management; - Information management; - Marketing. On the other hand, such an approach and division of hotel activities may seem a bit limited. Therefore, if we looked at the hospitality sector from more detailed point of view we could distinguish different processes that take place, such as: - supply processes; - Service production processes; - Distribution processes; - Storage and warehousing processes; - Information transmission processes. The areas listed above should be referred to in search for minimization of costs and finding best solutions possible in order to gain a strong, competitive and leading position in the market.
  42. 42. 42 Speaking more precisely, all these processes should be thoroughly examined from the point of view of costs they generate and classified by genre and amount (e.g. 1 hotel guest, 1 room etc). This would allow us to calculate both total and unit logistics cost, which have become very important factors affecting the competitiveness of companies. What is more, total logistics costs analysis is the key to managing the logistics function. That is why it is crucial these days that the management consider the total of all logistics cost. Thus in the hotel industry the total logistics cost include the following: - cost of supply activities; - cost of information; - cost of operation; - cost of marketing; - cost of distribution; - cost of additional services; - cost of insurance; - cost of transport activities; - cost of personnel; - Other financial costs. The cost analysis performed in accordance with the above specification would help us to calculate the total logistics cost of a particular hotel as well as it would indicate which components generate the most costs and therefore should be minimized. Companies can easily enhance their market competitiveness by reducing their logistics costs which eventually results in lowering the total costs of goods and services. However, due to the fact that it is really difficult to determine which individual component of logistics costs should be reduced, companies should make attempts to integrate the logistics
  43. 43. 43 system instead in order to lower total logistics costs. This solution is much safer especially that wrong diagnosis of individual costs may lead to an increase of total logistics costs. Therefore it is very important to remember that in hospitality business effective cost reduction and the ability to manage the total logistics costs in the right way is a very helpful tool in building a strong position in the market. The issue of costs is definitely one of the most important problems and since its role in today’s economy is still growing they should be brought up to everyone’s attention, classified, diagnosed, analyzed and finally used in the decision making process. Unfortunately, most of the companies are fitted with basic financial and accounting systems that do not register the logistics costs which make it difficult to diagnose and analyze them. Keeping track of all logistics costs that are borne by companies from tourist and recreation sector would be easier if only: - They were equipped with additional software aimed for logistics costs registration; - They carried out regular research of their own initial costs. Unfortunately, most of the a fore mentioned procedures would require extra expenses to be made and some hotels as well as other entities operating within the tourist and recreational sector cannot afford to bear them..Generally speaking, in order for the hospitality sector to operate properly and with no objections, some of the following actions should be taken: - Modern logistics solutions should be updated and implemented; - supply chain costs should be analyzed; - Wider spectrum of controlling system should be implemented; - All decisions made should be consulted with professionals. In order to better understand the full concept presented herein, let us have a look at the following example: 1. Hotel provides services to its clients. All services have to meet certain quality standards.
  44. 44. 44 2. The customer is considered as merchandise /efficient consumer response (ECR). All costs that are borne have to be classified in accordance with logistics processes. 3. Controlling system of realization costs that are borne in logistics processes have to be implemented. 4. Accurate and prompt decisions have to be made with regards to logistics processes being executed. Although the instructions listed above might be expensive and time- consuming, they also provide essential information for exact diagnosis of tourist and recreational sector. Last but not least, since nowadays logistics systems have the tendency to change dynamically, it is of a great importance to do research on them on a regular basis. RELEVANCE OF LOGISTICS IN INTERNATIONAL MARKETING Marketing experts have recognized that for developing a position of sustainable competitive advantage, a major source is superior logistics performance. Thus, it can be argued that instead of viewing distribution, marketing and manufacturing as largely separate activities within the business, they need to be unified, particularly at the strategic level. One might be tempted to describe such an integrated approach to strategy and planning as ‘Marketing Logistics’. Business can only compete and survive either by winning a cost advantage or by providing superior value and benefit to the customer. In recent years, numbers of companies have become aware that the market place encompasses the world, not just the India .As a practical matter, marketing managers are finding that they need to do much work in terms of conceptualizing , designing , and implementing logistics initiatives to market effective globally. Following are the reasons behind the extension of logistics activities at global level to do business internationally. The magnitudes of global business are: Increase in the magnitude global business.
  45. 45. 45 Business is relying on foreign countries to provide a source of raw materials and markets for finished goods. Fall of global trade barriers. Increase in Global competition. PROSPECTS OF GROWTH IN THE INDUSTRY In years gone by, the traditional warehousing and logistics facility was located by railroad tracks, a water port, and/or freeways, usually in the least desirable parts of cities or large towns. This stereotype then faded as gigantic, state-of-the-art facilities began to sprout in more rural areas on the outskirts of transportation and population hubs. The World started beginning to see such facilities showing up in even less "traditional" areas. Modern warehouses now are being located in carefully manicured industrial parks that are sprouting as fast as the corn and wheat once did in these open spaces-often in out-of-the-way places. Why the emphasis on such locations for logistics companies? Much of it is due to the great flux that the logistics industry has been undergoing in the first three years of the 21st century. Most of these changes are being driven by a growing trend in the manufacturing and retail sectors to form partnerships with companies to which they can outsource non-core logistics competencies-3PL providers. In turn, 3PL providers are continually looking to provide innovative supply chain solutions to customers by focusing on value-added capabilities, differentiating themselves from the competition. They focus on key objectives, such as implementing information technologies, instituting effective management processes, integrating services and technologies globally, and delivering comprehensive solutions that create value for 3PL users and their supply chains. This need to partner with customers and become more integrated into their supply chain processes has created the ancillary need to locate close to these customers. That isn't to say the need for easy access to transportation hubs and different modes of transportation won't continue to be important. But the above shift in business strategy, along with the advances in technology and enhanced communication, has opened the door for logistics facilities to operate effortlessly in a myriad of locations.
  46. 46. 46 Profit warnings, share price pressures, mergers, reorganizations, relocations, disposals, painful layoffs and great geopolitical uncertainties can sweep away even the most comprehensive logistics strategies – and that’s despite outstanding management over many years. These are exceptionally difficult times and it has never been more important to connect logistics and freight planning to executive board thinking than now. It’s easy to lose sight of the bigger picture in the rush to cut infrastructure cost and conserve cash. Hopefully organization succeed in protecting the business, satisfying shareholders and analysts, but what about capacity and flexibility, morale and momentum? To be a logistics winner in the coming years organizations need to use the downturn to reshape for growth, propelled by an unshakeable conviction that the mission is still important, that more prosperous times lie ahead, and that in some way the company infrastructure is helping to build a better kind of world. Own passion for running the race matters most of all in a downturn, when people are insecure, see only savage cost savings, and loyalty is tested. The corporation’s future will be dominated by six factors, or faces of a cube, spelling F U T U R E. Logistics is inevitable in the future and essentially the management policy also has a significant role in the future of world. Generally the study is being featured with all aspects of management in Logistics and Freight areas. (Logistics include Transportation, Warehousing, Network Design, Cross docking, and Value Adding). THE INDIAN LOGISTICS SECTOR Wars have been won or lost on the strength of logistics capability or lack of it. Although quite an old concept, logistics has been becoming efficient only since the globalization wave of the early 1990s and hence, the businesses supported by it, worldwide, have been pushed for competitive balance-sheets, providing consumers a better product/service and yet adding value to its investors. Triggering intense competition, globalization, coupled with liberalization, forced both private and public firms to commit themselves to making available to their customers the right material of right condition, at the right time and place at the lowest cost — be it a product or a service.
  47. 47. 47 The World Bank, in a recent survey Connecting to Compete: Trade Logistics in the Global Economy, has developed a Logistics Performance Index (LPI) that can serve as a benchmarking tool for measuring performance of businesses along a country’s logistics supply chain. The Bank study asserts that countries that are able to connect to the global logistics web would not only have access to vast new markets but also remain a part of the global trade growth. The report avers that it is not the income of nations but their undergoing trade expansion that determines their logistics efficiency, as the survey shows that nations with increasing trade (imports and exports) to GDP emerged as the out-performers on the LPI scale relative to their income levels. It also warns that those countries whose links with the global logistics chain are weak are bound to face large and growing costs of exclusion from international trade. India trails behind China on important indices such as customs procedures, overall infrastructure quality, international shipment, logistics competence and tracking of shipments, but is ahead of the latter on the domestic logistics efficiency front. Healthy economic growth in India is increasingly supported by robust industrial growth. One of the relatively lesser known but significant sectors that support almost all industrial activity - the logistics sector - is also witnessing this growth as a follow through. However, not withstanding its importance and size (INR 4 trillion), it has traditionally not been accorded the attention it deserves as a separate sector in itself. Table No- 2.1 Country LPI Score USA 3.93 UK 3.90 Singapore 4.13 India 3.08 China 3.52 Mexico 3.06 Source-http://siteresources.worldbank.org/TRADE/Resources/2390701336654966193/LPI_2012_final.pdf
  48. 48. 48 The level of inefficiency in logistics activities in the country has been very high across all modes. With the evolving business environment creating a strong demand pull for quality and efficient logistics services, core issues around enabling infrastructure, regulatory environment and the fragmented nature of the industry are being overcome gradually. The required pace of efficiency and quality improvement will demand rapid development of capabilities of logistics service providers. And with logistics being a service oriented sector, skill development will emerge as a key capability while skill issues exist in varying degrees in all segments of logistics; those segments where the gaps are not only wide but also widening at a relatively fast pace. The most severe and immediate requirement for skill development is found to be in the road freight and warehousing segments. India’s spend on logistics activities - equivalent to 13 percent of its GDP is higher than that of the developed nations. The key reason for this is the relatively higher level of inefficiencies in the system, with lower average trucking speeds, higher turnaround time at ports and high cost of administrative delays being just a few of the examples. These inefficiencies have arisen over the years from a combination of a non-conducive policy environment, extensive industry fragmentation and lack of good basic infrastructure. India's indirect tax regime discouraged large centralized warehouses and led, over time, to fragmentation in the warehousing sector. At the same time, the absence of a single logistics 'champion' (whether in form of a ministry or otherwise) in the government (or industry) led to a disintegrated approach to development of the sector. Table No- 2.2 Country Logistics Cost/GDP India 13% U.S. 9.9% Europe 10% Japan 11.4% Source-http://siteresources.worldbank.org/TRADE/Resources/2390701336654966193/LPI_2012_final.pdf
  49. 49. 49 Extensive fragmentation meant the incapacity of industry players to develop the industry as a whole and poor support infrastructure, such as roads, ports and telecom, led to a situation where the opportunity to create value is limited. However, much of this is changing with the government now demonstrating a strong commitment towards providing an enabling infrastructure and creating conducive regulations. There is significant current and planned investment in infrastructure to the tune of (INR 15 trillion) over the next few years and an increased emphasis on public-private partnership. At the same time, regulations around rationalization of tax structures and prevention of overloading for example are creating an environment of positive change. Players now have the opportunity to leverage economies of scale, complemented with better infrastructure, to provide integrated logistics solutions which are cost effective. In addition, the evolving business landscape and increasing competition across industries, is creating the need for more efficient and reliable logistics services than what exist today For example, rapid growth of organized retail and the need to reach out to the large untapped rural markets in India are necessitating development of strong back end and front end supply networks. Fundamentally, a fragmented industry with low average scale - and consequent limited investment and market development capability - is worst placed to serve these needs. It is not surprising therefore that there is a frantic pace of consolidation and organic growth that the industry is witnessing. While logistics service providers are struggling to keep pace with the growth, logistics service users with limited or no outsourcing are finding it increasingly difficult and / or undesirable to manage this non-core activity in-house. The result is a wide need gap that is seemingly widening much faster than it is being filled.
  50. 50. 50 It is in this context that capability development of logistics service providers assumes critical importance. While rapid development across all dimensions of organizational capability will be required to achieve and sustain demand growth, logistics being a service industry, manpower capabilities assume utmost 5 importance’s. The sector currently employs about 40 million people, a number that will rise rapidly with exponential growth expectations in the sector. 6 A look at the financials of a set of 80 logistics companies in India across sectors reveals that manpower spends comprise 8-10 percent of overall sales of the sector. This roughly translates to about an INR 500 billion spend on logistics manpower in the country annually. Only about 13 -14 percent of the overall manpower costs are spent on non-salary, manpower development items (welfare, training etc.). This share for the unorganized companies would expectedly be much less. Growth in Outsourcing logistics Increasing trade Greater outsourcin g of manufactur --ing Greater Prosprensity to outsourcing logistics Better enbling environme nt Entry of MNCs Greater economic activity
  51. 51. 51 As against this leading global logistics companies spend around 20 percent of their employee expenditure on non-salary items. This lack of focus on developing manpower and skills for the logistics sector has resulted in a significant gap in the numbers and quality of manpower in the sector. This gap, unless addressed urgently, is likely to be a key impediment in the growth of the logistics sector in India, and in consequence, could impact growth in industry and manufacturing sectors as well. This underscores the need for identifying areas where such manpower and skill gaps are critical, and developing focused action plans to improve the situation. In the next section, we analyze each segment of the Logistics sector in India to identify the skill gaps that exist in each. These gaps are then prioritized to identify key focus areas, and the action that needs to be taken to bridge the gaps. SIZE OF LOGISTIC MARKET IN INDIA Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is the backbone of Indian Economy. Our industry is growing at a rate of 8-10% annually and has been a crucial contributor in the growth and development of the Indian economy. In the near future, Traditional Logistics services like Transportation and Warehousing would continue to growth at a good rate. However, the big ticket growth would come from the Value Added Logistics services in the near future. At present, Outsourced Logistics accounts for only one-third of the total Logistics market in India, which is a significantly lower proportion vis-à-vis the developed markets. Growth in this industry is currently being driven in India by over USD 300 billion worth of infrastructure investments, the phased introduction of VAT, the development of organized Retail and Agro- processing industries, along with a strong manufacturing growth. In addition, we expect strong Foreign Direct Investment inflows in the Indian markets, which would lead to increased market opportunities for providers of Third-Party Logistics in India. Therefore, India possesses substantial opportunities for growth in the Supply Chain & Logistics industry in the coming years, notwithstanding the temporary jolt due to the economic slowdown.
  52. 52. 52 FUTURE PROSPECTS Despite problems, The Indian logistics industry is growing at 20% vis-à-vis the average world logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the annual logistics cost, there is immense potential for growth of the sector. The major opportunities are highlighted below.  Many large Indian corporates such as Tata and Reliance Industries have been attracted by the potential of this sector and have established logistics divisions. They started providing in-house logistics services, and soon sensing the growth of the market, have started providing services to other corporates as well.  Large express cargo and courier companies such as Transport Corporation of India (TCI) and Blue Dart have also started logistics operations. These companies enjoy the advantage of already having a large asset base and an all-India distribution network. Some large distributors have also forayed into the logistics business for their clients.  Since logistics service can be provided without assets, there is growing interest among entrepreneurs to venture into this business.  Indian shippers are gradually becoming more aware of the benefits of logistics outsourcing. They are now realizing that customer service and delivery performance are equally important as cost to remain competitive in this global economy.  The Indian economy is growing at over 9% for the last couple of years (compared to the world GDP growth rate of 3%), which implies more outputs and more demand for specialized logistics services.  The Indian government has focused on infrastructure development. Examples include the golden quadrilateral project, east-west and north-south corridors (connecting four major metros), Free Trade and Warehousing Zones (FTWZ) in line with Special Economic Zones (SEZ) with 100% Foreign Direct Investment (FDI) limit and public-private partnerships (PPP) in infrastructure development. It is expected that infrastructure development would boost investments in the logistics sector.  In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign investment was not allowed in domestic logistics. Almost all large global logistics companies have their presence in India, mainly involved in freight forwarding. For
  53. 53. 53 domestic transportation and warehousing, they have tie-ups with Indian companies. As the Indian logistics scenario looks promising, these MNCs are expected to play a bigger role, probably forming wholly-owned subsidiaries or taking the acquisition route. The latter may be the preferred route of investment since the target company is readily acquired with its asset base and distribution network, and the need for building everything from scratch can thus be avoided. The benefits for the acquired company include the patronage of an MNC and access to the MNC’s global network. As an example, DHL Danzas, the biggest logistics company in the world, has taken over Blue Dart. MODES OF TRANSPORTATION & WAREHOUSING: ROAD The road freight industry in India is worth about INR 1.42 trillion and is growing at about 6-8 percent year on year. Manpower spends amount to only about 4 percent of sales as against the overall sector average of 8-10 percent. The industry has traditionally been extremely fragmented - almost 75 percent of the trucking 'companies' are single truck operators and almost 90 percent of trucking companies have a turnover of less than INR 10 million A majority of players in this industry have been small entrepreneurs running family owned businesses. Given their small scale and limited investment capability, most of their investments have been focused on short term gains - direct and immediate impact on the top line / bottom line of the business being the key decision criterion. As a result, investments that pay off in the longer term, such as those in manpower development, have been minimal historically. Also,
  54. 54. 54 these businesses are typically tightly controlled by the proprietor and his / her family and as such, making it unattractive for professionals. Poor working conditions, low pay scales relative to alternate careers, poor or non-existent manpower policies and prevalence of unscrupulous practices have added to the segment's woes creating the image of a segment that holds few attractions for those seeking employment. While industry players have been incapable of investing in manpower development, the government has also not focused sufficiently on the same. There exist very few formal training institutions for driver training and practically none for operational training on associated areas like loading / unloading supervisory, proper handling practices etc. The result has been that in the current scenario, there exist gaps in core technical skills of the existing set of personnel. For example, the backbone of the trucking industry truck drivers lack knowledge of good driving practices and areas associated with driving like understanding of VAT. Taking a level-wise view of the skill issues, it is seen that in the road sector, skill issues are widespread across the board with the situation being most severe at the operational level Advantages:  Road network of 3.3 million km is the second largest globally  55% of total freight movement is via roadways  Roads offer wide reach and easy accessibility to even small markets Disadvantages:  High cost of transportation  National Highways account for only 2% of the total network but carries 40% of total freight Key Developments:  National Highway Development Project to upgrade and modernise highways  24,000 km of National Highways are to be upgraded to four/six lanes. Connectivity to ports is also being improved
  55. 55. 55 Railway Rail freight traffic revenues stood at around INR 350 billion in 2006 having grown at around 8 percent in the recent past with the growth in the last couple of years being around 10 percent. It is the world's second largest rail network spread over 81,500 km and covering around 7000 stations. Manpower spends amount to about 45 percent of revenues as against the overall sector average of 8-10 percent. Also, non-salary expenditure comprises 36 percent of overall manpower expenditure compared to the sector average of 13-14 percent. With the government being the only employer, recruitment systems in the railways segment are formalized and there exists an institutionalized training infrastructure and policy. Though the employee numbers are high (around 1.4 million) there are no significant skill gaps owing to this traditionally strong in-house training infrastructure. With technological up gradation, certain jobs are made redundant every year with the people on these jobs being absorbed in newer areas through training. However, the rapid introduction of modern technology that is creating gaps even in technical areas such as signalling and telecom. Also, the Railways is facing increase in attrition levels due to gradual opening of the sector. To counter the emerging gaps, the Railways is overhauling the curriculum and infrastructure and rolling out training to the lowest levels (Grade D) to increase productivity. With competition from road and air, the Railways is focusing on making its large manpower more customer friendly. In the overall assessment, therefore, the skill gaps situation in the railways segment does not seem to be alarming.
  56. 56. 56 The host of new players entering into the rail container services segment (15 licenses have been awarded for the same) will however require skills that hitherto were only residing with the Indian Railways. While the quantum of requirement at this stage would be small and the need would likely be filled by the buffer created by the Railways, this could become a gap area going forward Advantages:  Spread over 81,500 km, railways carries 25% of total freight movement  Low transportation cost as compared to roads Disadvantages:  Bulk commodities account for 90% of total freight revenues  Inflexibility to reach deep interiors Key Developments:  Phase 1 of dedicated freight corridor along Golden Quadrilateral to be initiated in 2008- 09 Water/Port The growth in shipping has been even higher than that of the railways driven by strong growth in foreign trade both in bulk and containerized cargo. Manpower spends amount to about 8-10 percent; non- salary expenditure varies greatly between companies ranging from 3-20 percent of overall man power expenditure. The nature of liner shipping services to and from India has undergone a sea
  57. 57. 57 change in the last few years as a result of the growth in break-bulk and conventional cargoes. With the nature of goods being shipped changing, the potential and opportunities for container transport and logistics companies are enormous. Over the past few years the size and the number of vessels that are being deployed by India has increased. With increasing capacity and infrastructural support, the scope of the operations is set to increase! India now has the largest merchant shipping fleet among the developing countries! India ranks 17th in the world in shipping tonnage. ! Indian share of maritime transport services is 1 percent of world market.! The container traffic has registered an impressive growth of 15 per cent over the last five years. The Government is responsible for creation of the trained manpower required for the country's merchant navy fleet and also facilitation of training and employment of seafarers in foreign flag vessels. . In addition to the above, there are about 124 training institutes in the private sector approved by the Director General of Shipping, imparting pre-sea and post sea training in various disciplines. The Directorate General of Shipping maintains a system of inspections to ensure the quality of training. India is globally recognized as a very important source of mercantile manpower. Accentuating the situation is the inherent disadvantage to the Indian ship owners as employers arising by virtue of extra burden of income tax on Indian seafarers' income. This makes the employment on a foreign flag the first choice of any Indian seafarer, and thereby denies the best talent to the local shipping industry. Thus, in the core shipping industry, while the manpower situation in terms of quality fares much better than the other segments of logistics, the issue here is that of quantity with an increasing number of qualified people being attracted towards working on foreign vessels as they offer better salaries and perks. However, if one were to look at the ports side, there is an increasing lack of trained manpower for pilotage functions and equipment operators
  58. 58. 58 Advantages:  Cheapest mode of transportation Disadvantages:  Poor state of inland waterways in the country  High turnover time Key Developments:  Cargo handling capacity of ports to be increased from 600 million tones in 2007 to 1500 million tones by 2015 AIR : Though the air freight segment holds a small share of India's freight market, it is growing at a fast pace. While India accounts for meagre 3 percent of the global air cargo market, the Indian air cargo industry is expected to double in size by the year 2010, as per an expert estimate. As in the case of sea freight, the level of formalization and standardization of operations in the air freight segment is greater than in the road sector. By virtue of the level of investments in assets, network and relationships required to be a player in this segment, it has traditionally been relatively more organized leading to greater regard for manpower development. The market leaders typically have established internal structured training practices to train the staff employed at this level.
  59. 59. 59 Nevertheless, there exist perceived gaps at the operational / front line level and are primarily to do with soft skills, such as relationship management, interpersonal and managerial, and supervisory skills. Advantages:  Fastest mode of transportation Disadvantages:  Low freight movement  87% of total freight traffic being handled by airports in metro cities Key Developments:  Modernisation of 37 operational airports and development of new airports will increase air cargo handling capacity WAREHOUSE: The warehousing segment consists of storage warehousing related to distribution whether inbound or outbound trans shipment warehouses or 'terminals' used for bulking / de-bulking, stuffing / de-stuffing cross docking and temporary storage (including CFS and ICD) The warehousing segment is perhaps where the greatest growth potential exists. Like road transportation, this segment has traditionally been extremely fragmented, small scale and scattered geographically. A key reason for this has been India's indirect tax structure, with tax paid on cross border (state border) sales not being fully set off against local tax liabilities. As a result, most players resorted to setting up small warehouses across different states, rather than
  60. 60. 60 large, centralized set-ups. This has led to the prevalence of small scale, fragmented warehouses, with corresponding inefficiencies. This cause and effect cycle is depicted in Increasingly, warehouses are being used to serve several important functions, beyond mere storage of products  Customer service Increasingly, warehouses are being used as the customer service and repair centers. This ensures quick availability of spare parts and offers low turnaround time  Distribution The goods are dispatched to the dealers/distributors from the warehouse. The warehouse, thus, performs functions like invoicing and order processing. Warehouse Stockpiling Product Mixing Addition Value Distribution Customer service
  61. 61. 61  Value Addition Increasingly, warehouses are also being used to do higher end tasks associated with production till now. These include MRP tagging, promotion bundling, repackaging , quality checking etc.  Product mixing A warehouse may be used as a place where material from different factories of an organization is mixed and dispatched to common set of distributors.  Stockpiling A warehouse is often used as a stockpiling location to manage demand-supply gaps over a longer term. While no organized players have evolved in this segment, several trends are driving the need for a more professional and organized approach to warehousing. Figure outlines the several additional functions that warehouses perform today, apart from being physical storage points such as Stockpiling, Product Mixing, Value addition, Distribution and Customer Service. These functions require different skill sets and hence, warehouse service providers today need to develop proficiencies in a diverse set of both core and non-core activities The size of the warehousing segment is estimated to be INR 1.2 trillion in 2006; while the overall sector growth may be estimated to be around the GDP growth rate of 8-9 percent, the organized portion of this market is estimated to be growing at over 20 percent. A majority of players in this industry are small / medium entrepreneurs running the warehouse as a CFA for one or more companies. As mentioned earlier, the scale of these warehouses was never large enough to tap scale economies or justify investments in higher standards.
  62. 62. 62 However, going forward, while implementation of the VAT regime is expected to drive consolidation and hence larger scale warehouses, the rapid growth of organized retail is expected to drive sophistication and efficiency in warehousing practices. These developments would drive the need for specialized warehousing skills like picking and packing, inventory management, proper handling practices including usage of warehousing equipment like stackers, pallet trucks etc. and ability to understand and use warehouse management systems (WMS) GLOBAL LOGISTICS SCENARIO In a move to cut down costs, producers are exploring around the globe in search for the lowest cost exporters/suppliers. Lured towards developing countries in south-east Asian region for lower-wages, transportation industry is stretching its reach longer than ever before. Major players are focusing overseas markets for outsourcing cheap manufacturing as well as expanding their businesses, This result in outbound logistics. And acceleration in manufacturing capacity is driving many producers to shutter superfluous plants. The rest of the plants are gaining the developing rhythm, but must export overseas now to sustain their positions in the market. Boom in the Internet based services made overseas suppliers capable to match foot with local suppliers. Web-based sales, services and supplies are emerging vertically. The expanding reach has compelled logistic industry to spur cross-border trade. Regardless-of this outbreak of activity, it is commonplace also for expert managers of local logistics to get acquainted with the complexity of international trade logistics. Global transportation and relevant services includes much complex documentation than for domestic shipments. It almost includes longer delivery times. Evaluation of the arrival times of international shipments is just a magic than solid fact. The business players always look for just-in-time shipments, thus it aspires enhanced build to order model and lot-size-of-one shipments, which results more pressure on logistics industry. Logistics industry has usually been old-fashioned traditions. Usually, the shipping personals
  63. 63. 63 would decide for carriers, customs agents and so on. Normally, their search doesn’t go beyond the initial service providers who cover all the minimum requirements. Once the shipment kicks- off its journey towards its destination, it is really hard to assume reaching time. For example, a ship that started its journey from Asia could meet harsh weather, which may delay its reaching on the West Coast for three days. On the other hand, the trucks at the West Coast would have to wait and sat empty and ideal for the three days, which would certainly result in big loss. These kind of unpredictable losses are usual in international logistics. Thus, even the largest multi- national companies avoided logistic services on a worldwide basis. They opt to establish their operations in each country and let them to manage logistics individually. The boom in Internet services changed international logistics rapidly. At present, vendors can cater massive numbers of global shipments. Complying with this, they create and uphold substantial databases, which cover country-specific laws and regulations. Factually, thousands of combinations of containers, ports, and so on are likely counted for moving a shipment. International logistics vendors also maintains cost and route information on hundreds of hundreds carriers, which are operational in dozens of regions, which offers both lower freight bills and cutting of delivery times. A biggest disadvantage in international logistics is the vagueness in arrival times. Materials managers have had modest choice, so they had get around by adding more safety stocks. Thus, the costs of inventory management in the overseas parts are naturally higher. The uncertainty of delivery time is due to not tapping of international shipments closely and step by- step. This is easier said than done. However vendors are now offering tracking system, which is necessary in continuous tracking of both international logistics network, and electronic visibility in each yard and carrier. Although there is much to be done to achieve this stage, the pieces of the puzzle are gradually coming together. Even though vendors are offering a worldwide network, significantly added and dedicated, equipment is still required. For example, tracking completed products needs a yard management system, which recognizes each container in the yard and its placement. The radio frequency Identification (RFID) tags in containers, whose place is detected by antennas located in the yard.
  64. 64. 64 Maintaining the clear vision also needs tracking the containers as soon as they leave the yard. This tracking is possible by Global Positioning (GPS) systems and satellites, however, use of these systems are not usual at present. As a result, the industry does not provide step-by-step tracking of container. An important trend among logistics services providers would aid the industry. Logistics industry veterans unveil that logistics service providers are extending reach worldwide and expanding their services too. Regardless of understandable limitation, global logistics should obviously improve. Web-based companies and technically ground-breaking carriers such as UPS Logistics, Ryder, and others will carry on showing the way. Global logistics in near future should be distant more faultless and reasonably priced than ever. SIZE OF THE GLOBAL LOGISTICS INDUSTRY Currently the annual logistics cost of the world is about USD 3.5 trillion. For any country, the annual logistics cost varies between 9% and 20% of the GDP, the figure for the US being about 9%. US-based Armstrong & Associates, Inc. tracks the issues and trends in the world logistics market and in the US logistics market, in particular, in their annual surveys of top 25 global LSPs. According to the firm, the global logistics market sizes in 1992, 1996 and 2000 were USD 10 billion, USD 25 billion and USD 56 billion, respectively. In 2003 and 2004, the corresponding figures were USD270 billion and USD 333 billion, registering high growth rates. Though most of the large LSPs are headquartered in Europe, the US logistics market is the largest in the world capturing one-third of the world logistics market. In 2003, it was about USD 80 billion. In 2004, it grew to USD 89 billion, and in 2005, it registered an impressive growth rate of 16% to cross the USD 100 billion mark for the first time and reach USD 103.7 billion (Foster and Armstrong, 2004, 2005, 2006). However, considering the fact that the logistics market in the US is about 10% of its annual logistics cost (Foster and Armstrong, 2006), there is still immense potential for growth of 3PL in the US in particular, and in the world in general. LOGISTICS COMPANIES OF INDIA