Logistics Note BMS


Published on

Published in: Business
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Logistics Note BMS

  1. 1. What is Logistics Management? <ul><li>The objective is to plan and coordinate all the activities necessary to achieve desired level of delivered service and quality at lowest possible cost. </li></ul><ul><li>The scope of logistics include the entire gamut of activities starting from the procurement and management of raw materials through to delivery of final product to the customer. </li></ul><ul><li>The ultimate purpose of any logistics system is to satisfy the customer by establishing linkages of people at all levels in the organization directly or indirectly to the market place. </li></ul>
  2. 2. <ul><li>As it is getting increasingly difficult to maintain a competitive edge through product alone, customer service has started to provide the distinctive difference between one company’s offer and that of its competitors. </li></ul><ul><li>The underlying concept is “ The process of strategically managing the procurement, movement and storage of materials, parts and finished inventory and the related information flows through the organization and its marketing channels in such a way that the current and future profitability are maximized through the cost effective fulfillment of orders.” </li></ul>
  3. 3. Competitive Advantage Customers seeking benefits at acceptable cost Company A (Asset utilization) Company B (Asset utilization) Cost differential
  4. 4. Source of Competitive Advantage <ul><li>Competitive advantage is the ability of an organization to differentiate itself in the eyes of the customer, from its competition, and to operate at a lower cost and hence greater profit. </li></ul><ul><li>Competitive advantage helps organizations to achieve commercial success which mainly depends upon two factors – cost advantage and value advantage. </li></ul>
  5. 5. Commercial success Cost advantage Value advantage
  6. 6. <ul><li>Cost advantage or Productivity advantage </li></ul><ul><li>Characterized by low cost of production due to greater sales volume, economies of scale enabling fixed costs to be spread over a greater volume and the impact of the ‘experience curve’. </li></ul><ul><li>Value advantage is in terms of product offering a differential ‘plus’ over competitive offerings. </li></ul><ul><li>Based on marketing concept that customers that ‘customers don't buy products, they buy benefits’. </li></ul><ul><li>Benefits may be intangibles and may not relate to specific product features. </li></ul><ul><li>It can be an image or reputation or even some functional aspects. </li></ul>
  7. 7. <ul><li>Adding value through differentiation is extremely powerful means of achieving competitive edge in the market. </li></ul><ul><li>One of the significant method of adding value is service. </li></ul><ul><li>Service helps in developing relationship with the customers through provision of an augmented offer. </li></ul><ul><li>Augmentation takes many forms such as delivery services, after-sales services, financial packages, technical support etc. </li></ul>
  8. 8. Productivity and Value Matrix Commodity Market (1) Cost Leader (2) Service Leader (3) Cost and Service Leader (4) Productivity Advantage V a l u e A d v
  9. 9. <ul><li>For companies in quadrant (1), the market is uncomfortable place as their products cannot be differentiated from their competitors’ offerings as they do not have any cost advantage. These are commodity markets. </li></ul><ul><li>Companies in quadrant (2), adopt cost leadership strategies. Traditionally, these are based on economies of scale gained through volume. </li></ul><ul><li>Another route to achieving cost advantage is through logistics management. As logistics constitutes a major proportion of total costs, reengineering logistics processes results into substantial cost reduction. </li></ul>
  10. 10. <ul><li>Companies in quadrant (3), seek differentiation through service excellence since markets are becoming more and more service sensitive. </li></ul><ul><li>Customers expect greater responsiveness and reliability from the suppliers, reduced lead times, just-in-time delivery, and various other value added services. </li></ul><ul><li>Services strategies can be developed through enhanced logistics management. </li></ul><ul><li>Companies in quadrant (4) are distinctive in value they deliver and are also cost competitive. </li></ul><ul><li>Competitors find it hard to attack these companies which try to excel in all the value chain activities. </li></ul>
  11. 11. Value Chain Activities Value Chain Activities <ul><li>Primary Activities </li></ul><ul><li>Inbound Logistics </li></ul><ul><li>Operations </li></ul><ul><li>Outbound Logistics </li></ul><ul><li>Marketing & Sales </li></ul><ul><li>Service </li></ul><ul><li>Secondary Activities </li></ul><ul><li>Infrastructure </li></ul><ul><li>Human Resource Management </li></ul><ul><li>Technology Development </li></ul><ul><li>Procurement </li></ul>
  12. 12. <ul><li>Primary activities represent the functional areas like arranging inputs for transforming them into output, and managing distribution, marketing, sales, and services. </li></ul><ul><li>The secondary activities facilitate the integration of all the functions across the entire organization. </li></ul><ul><li>The companies can achieve competitive advantage and create differentiation by organizing and performing these activities more efficiently or in a unique manner than their competitors. </li></ul>
  13. 13. Factors affecting value and productivity advantage <ul><li>Productivity advantage </li></ul><ul><li>Capacity utilization </li></ul><ul><li>Asset utilization </li></ul><ul><li>Inventory reduction </li></ul><ul><li>Integration with the suppliers. </li></ul><ul><li>B. Value advantage </li></ul><ul><li>Customized services </li></ul><ul><li>Reliability </li></ul><ul><li>Responsiveness. </li></ul>
  14. 14. Underlying Philosophy Behind Logistics Concept Suppliers Procurement Operation Distribution Customers Materials Flow Information Flow
  15. 15. <ul><li>The objective of logistics is to link the market place, distribution network, the manufacturing process and procurement activity, so as to provide higher levels of services to the consumers yet at a lower cost. </li></ul><ul><li>Scope of logistics management encompasses management of raw materials and other inputs through the delivery of the final product. </li></ul>
  16. 16. How do we define logistics management? <ul><li>A process of satisfying customer needs through coordination of materials and information flows that extend from the market through the firm’s operation and beyond that to the suppliers. </li></ul><ul><li>A shift to an integrated orientation from the conventional manufacturing or marketing orientation. </li></ul><ul><li>Traditionally, manufacturing and marketing have been considered as separate activities each having different priorities. </li></ul>
  17. 17. <ul><li>Manufacturing priorities and objectives are concerned with achieving operating efficiencies based on long production runs, minimized set ups and changeovers, and product standardization. </li></ul><ul><li>Marketing priorities and objectives are concerned with achieving competitive advantage based on varieties, high service levels, and frequent product changes. </li></ul><ul><li>Customer orientation and cost competitiveness has been integrated by introducing flexible manufacturing systems, practicing inventory management policies based on manufacturing requirement planning and just-in-time inventory policy, laying sustained emphasis on quality and integrating supply side issues in strategic plans. </li></ul>
  18. 18. How do we define supply chain? <ul><li>A network of organizations that are having linkages, both upstream and downstream in different processes and activities that produce and deliver value in the form of products and services in the hands of ultimate consumer. </li></ul>Customers Retailers Shirt Manufacturer Weavers of Fabrics Yarn/Fibre mfrers Downstream Upstream
  19. 19. <ul><li>A shirt manufacturer is a part of supply chain that extends upstream through the weavers of fabrics to the spinners and the manufacturers of fibres, and downstream though distributors and retailers to the final consumers. </li></ul><ul><li>Though each of these organizations are dependent on each other yet traditionally do not closely cooperate with one another. </li></ul>
  20. 20. Is Supply chain management same as vertical integration? <ul><li>SCM is not the same as vertical integration. </li></ul><ul><li>Vertical integration implies ownership of upstream suppliers and downstream customers. </li></ul><ul><li>Earlier, vertical integration used to be the desirable strategy but increasingly the companies are focusing on their core business i.e. the activities that they do really well and where they have a differential advantage. </li></ul><ul><li>Everything else is outsourced. </li></ul>
  21. 21. Implementation of SCM through Logistics Management <ul><li>SCM raises the challenge of integrating and coordinating the flow of materials from multitude of suppliers, including offshore, and similarly managing the distribution of the finished product by way of multitude intermediaries. </li></ul><ul><li>Transferring costs upstream or downstream leads to logistics myopia as all costs ultimately will make way to the final market place to be reflected in the price paid by the end user. </li></ul><ul><li>The prime objective of SCM is to reduce or eliminate the buffers of inventory that exists between the organizations in a chain through sharing of information on demand and current stock levels. </li></ul>
  22. 22. How does Logistics differ from SCM? <ul><li>Logistics management is primarily concerned with optimizing flows within the organization. </li></ul><ul><li>Supply chain management deals with integration of all partners in the value chain. </li></ul><ul><li>Logistics is essentially a framework that creates a single plan for flow of products and information through a business. </li></ul><ul><li>Supply chain builds upon this framework and seeks to achieve linkage and coordination between processes of other entities in the pipeline i.e. suppliers and customers, and organization itself. </li></ul>
  23. 23. Impact of Logistics and Customer Service on Marketing <ul><li>Traditionally, marketing has focused on end-customer or consumer, seeking to promote brand values and to generate a ‘demand pull’ in the market place for company’s products. </li></ul><ul><li>Due to shift in power in marketing channels, companies are realizing to develop strong relations with such intermediaries like large retail outlets to create a customer franchise as well as consumer franchise. </li></ul><ul><li>The impact of both strong consumer franchise and customer franchise can be enhanced or diminished by effectiveness of suppliers’ logistics system. </li></ul>
  24. 24. <ul><li>Consumer </li></ul><ul><li>Franchise </li></ul><ul><li>Brand values </li></ul><ul><li>Corporate image </li></ul><ul><li>Availability </li></ul><ul><li>Customer </li></ul><ul><li>Franchise </li></ul><ul><li>Customer </li></ul><ul><li>Services </li></ul><ul><li>Partnership </li></ul><ul><li>Quick </li></ul><ul><li>Response </li></ul><ul><li>Supply Chain </li></ul><ul><li>Efficiency </li></ul><ul><li>Flexibility </li></ul><ul><li>Reduced </li></ul><ul><li>Inventory </li></ul><ul><li>Low cost </li></ul><ul><li>supplier </li></ul><ul><li>Marketing </li></ul><ul><li>Effectiveness </li></ul><ul><li>Market </li></ul><ul><li>Share </li></ul><ul><li>Customer </li></ul><ul><li>Retention </li></ul><ul><li>Superior </li></ul><ul><li>ROI </li></ul>
  25. 25. Activities Included in Logistics <ul><li>Logistics competency is achieved by coordinating the following functional areas. </li></ul><ul><li>Network design </li></ul><ul><li>Information </li></ul><ul><li>Transportation </li></ul><ul><li>Inventory </li></ul><ul><li>Warehousing, material handling and packaging. </li></ul>
  26. 26. Network Design <ul><li>Network design is the prime responsibility of logistics managers since a firm’ facilities and structure is used to provide products and materials to the customers. </li></ul><ul><li>Logistics facilities typically include manufacturing plants, warehouses, cross-dock operations, and retail stores. </li></ul><ul><li>Determining the number and type of facility required, their geographic locations, and the work to be performed at each is an important part of network design. </li></ul><ul><li>In certain situations, some of the facility operations may be outsourced to service specialists. </li></ul>
  27. 27. <ul><li>Network design determines the type of the inventory and the quantity to be stocked at each facility, and the assigning of customer orders for shipment. </li></ul><ul><li>Network of facilities also includes information and transportation as a part of entire structure from where logistical operations such as processing of customer orders, maintaining inventory and material handling are performed. </li></ul><ul><li>The network design must consider geographical variations. </li></ul>
  28. 28. <ul><li>The factors influencing modifications of network design are: </li></ul><ul><li>Change in demand and supply </li></ul><ul><li>Product assortments </li></ul><ul><li>Changes in suppliers’ source of supplies. </li></ul><ul><li>Manufacturing requirements. </li></ul><ul><li>The first step towards achieving competitive advantage lies in superior network design, as the real competition is not between two companies but between efficiency and effectiveness in managing their supply chain network. </li></ul>
  29. 29. Information Deficiencies in the quality of information <ul><li>Incorrect information </li></ul><ul><li>with respect to trends may cause </li></ul><ul><li>Inventory </li></ul><ul><li>shortage </li></ul><ul><li>Over commitment </li></ul><ul><li>Incorrect information </li></ul><ul><li>relating to a specific </li></ul><ul><li>customer’s requirements </li></ul><ul><li>leads to </li></ul><ul><li>Processing of incorrect </li></ul><ul><li>orders creating additional </li></ul><ul><li>costs. </li></ul><ul><li>Reduced sales </li></ul>
  30. 30. <ul><li>Forecasting and order management are the two areas of logistical work that depend on information. </li></ul><ul><li>Forecasting enables to decide on positioning of inventory to satisfy anticipated customer requirements. </li></ul><ul><li>Order management involves handling of specific customer’s requirements, both external as well internal. </li></ul><ul><li>External customers are those that consume the product or service, or trading partners that purchase the products or services for resale. </li></ul>
  31. 31. <ul><li>Internal customers are organizational units within a firm that require logistical support to perform their designated work. </li></ul><ul><li>(c)The process of order management involves </li></ul><ul><li>Receipt of an initial order </li></ul><ul><li>Invoicing </li></ul><ul><li>Delivery, and </li></ul><ul><li>Collection. </li></ul><ul><li>Incorrect information and delays in order processing can cripple the logistics performance; thus quality and timeliness are the key issues in logistical operations. </li></ul>
  32. 32. Transportation <ul><li>Transportation is the operational area of logistics that geographically positions the inventory i.e. provides for place utility. </li></ul><ul><li>Companies accomplish transportation in three different ways: </li></ul><ul><li>A private fleet of vehicles may be operated. </li></ul><ul><li>Contracts may be entered into with transport companies. </li></ul><ul><li>The service of different transport companies may be engaged on an individual shipment basis. </li></ul>
  33. 33. Factors affecting transportation performance Transportation performance Cost Speed Consistency
  34. 34. <ul><li>Cost of transportation </li></ul><ul><li>The payment for movement between two geographical locations and expenses related to administration and and maintaining in-transit inventory. </li></ul><ul><li>B. Speed of transportation </li></ul><ul><li>The time required to complete a specific movement. </li></ul><ul><li>Transport firms capable of providing faster services normally charge higher rate. </li></ul><ul><li>The faster the transportation services, shorter is the time interval during which the inventory is in transit and unvailable. </li></ul>
  35. 35. <ul><li>C. Consistency of transportation </li></ul><ul><li>Refers to variations in time required to perform a specific movement over a number of shipments. </li></ul><ul><li>Consistency is a measure of dependability of transportation. </li></ul><ul><li>Inconsistency in transportation leads to inventory safety stocks required to protect against unpredictable service breakdowns. </li></ul><ul><li> Speed and consistency combine to create quality aspect of transportation. </li></ul>
  36. 36. Inventory <ul><li>The objective is to achieve the desired customer service with minimum inventory commitment, consistent with lowest total cost. </li></ul><ul><li>Excessive inventories may be helpful in compensating for deficiencies in network design but ultimately result into higher total logistics cost. </li></ul><ul><li>The best practice of inventory management is to achieve maximum turnover while satisfying customer commitments. </li></ul>
  37. 37. Warehousing, Material Handling, And Packaging <ul><li>Merchandise needs to be warehoused at selected times, transport vehicles material handling for efficient loading and unloading and goods are most efficiently handled when packaged together into shipping cartons or other type of containers. </li></ul><ul><li>The logistical activities carried out in warehouse are sorting, sequencing, order selection, transport consolidation and sometimes product modification and assembly. </li></ul>
  38. 38. <ul><li>Within the warehouse, products must be received, moved, sorted, and assembled to meet customer order requirements and for these activities material handling becomes significant. </li></ul><ul><li>Products packed in cans, bottles or boxes are handled more efficiently when combined into larger units such as Master Cartons. </li></ul><ul><li>Master units can further be consolidated into large units such as pallets, containers etc. </li></ul>
  39. 39. Inventory Management Policy <ul><li>The following factors are required to be considered while formulating inventory management policy. </li></ul><ul><li>Customer segmentation </li></ul><ul><li>Product requirements </li></ul><ul><li>Transport integration </li></ul><ul><li>Time-based requirements </li></ul><ul><li>Competitive performance. </li></ul>
  40. 40. Customer Segmentation <ul><li>The profitability of business depends upon the products purchased by the customers, sales volumes, prices, value-added services required and supplementary activities to develop and maintain an ongoing relationship. </li></ul><ul><li>Some customers are highly profitable and have growth potential, while others do not. </li></ul><ul><li>Hence, highly profitable customers constitute the core market for an enterprise and inventory strategies need to be focused on meeting requirements of such core customers. </li></ul><ul><li>Inventory priorities designed to support core customers come out of effective segmented logistics. </li></ul>
  41. 41. Product Requirements <ul><li>Applying Pareto’s principle, firm’s 20% of all products marketed account for more than 80% of total profits. </li></ul><ul><li>Offer high availability and consistent delivery on more profitable products, though sometimes high –level support of less profitable items becomes necessary to provide full-line service to core customers. </li></ul><ul><li>Not advisable to provide high service performance on less profitable products purchased by non core customers. </li></ul>
  42. 42. <ul><li>Thus, it may be desirable to hold slow-moving or low profit items at a central distribution warehouse whereas core customers may be served by fast, reliable air services. </li></ul><ul><li>Orders to fringe customers may be delivered by less expensive ground transportation. </li></ul>
  43. 43. Transport Integration <ul><li>A sound inventory management strategy would be to stock sufficient products at warehouse to be able to arrange consolidated shipments to a customer or a geographic area. </li></ul><ul><li>The corresponding savings in transportation may more than offset the increased cost of holding the inventory. </li></ul>
  44. 44. Time-Based Requirements <ul><li>Time-based arrangements reduce the overall inventories by developing the capability to respond rapidly to exact to exact manufacturing or retail customers. </li></ul><ul><li>If the products/materials can be delivered quickly, it may not be necessary to maintain inventories at manufacturing plants/ retail stores. </li></ul><ul><li>If replenishment can be achieved rapidly less safety stock will be required and instead of stockpiling and holding safety stock the requirement will be to receive the exact quantity of inventory at the time required. </li></ul>
  45. 45. <ul><li>Time-based programmes tend to reduce shipment sizes, which in turn increases the number, frequency, cost of shipments and hence higher transportation cost. </li></ul><ul><li>An effective logistical arrangement will be to achieve a trade-off resulting into desired customer service at the lowest total cost. </li></ul>
  46. 46. Competitive Performance <ul><li>Sound inventory management policy is designed to gain customer service advantage or neutralize a strength that a competitor may be enjoying currently. </li></ul><ul><li>As inventories exist across a logistical system for various reasons, the policy should be viewed from holistic cost perspective. </li></ul>
  47. 47. Integrated Logistics Customers Physical distribution Manufacturing support Procurement Suppliers Inventory Flow Information Flow
  48. 48. <ul><li>Information from and about customers flows through the enterprise in the form of sales activity, forecasts and orders. </li></ul><ul><li>Information is then translated into manufacturing and purchasing plans. </li></ul><ul><li>The materials are then procured,value addition takes place along with the inventory flow ultimately resulting into transfer of ownership of finished products to the customers. </li></ul><ul><li>The process of integration is not restricted to manufacturing companies alone, the retailing and wholesaling firms link physical distribution and purchasing since manufacturing is not required. </li></ul>
  49. 49. <ul><li>The entire process of integration can be viewed in terms of two interrelated activities. </li></ul><ul><li>Inventory flow, and </li></ul><ul><li>Information flow </li></ul>Inventory Flow Physical distribution Manufacturing support Procurement
  50. 50. Physical Distribution <ul><li>Establishes linkage of marketing channel with its customers facilitating the movement of a finished product to the final destination of a marketing channel. </li></ul><ul><li>Would need a proper marketing effort resulting into desired assortment being delivered when and where needed.-Outbound logistics. </li></ul><ul><li>Fulfills objective of implementation of time and space dimension of customer service as an integral part of marketing. </li></ul>
  51. 51. Manufacturing Support <ul><li>Concerned with managing work-in-process inventory as it flows between the stages of manufacturing. </li></ul><ul><li>Formulates a master production schedule that subsequently facilitates arranging for timely availability of materials, component parts, and work-in-process inventory. </li></ul><ul><li>Is not concerned with ‘how’ production occurs but rather ‘what,’ ‘when’, ‘where’ products will be manufactured. </li></ul>
  52. 52. Difference between Physical distribution and Manufacturing Support <ul><li>Physical distribution attempts to serve the desires of the customers and therefore must accommodate the uncertainties of consumer and industrial demand. </li></ul><ul><li>Manufacturing support involves movement requirements that are under the control of manufacturing enterprise. </li></ul>
  53. 53. Procurement <ul><li>Concerned with purchasing and arranging in-bound movement of materials, parts, and/or finished inventory from suppliers to manufacturing or assembly plants , warehouses, or retail stores thereby ensuring availability of materials/ assortments where and when needed. -Inbound logistics. </li></ul><ul><li>In a given marketing situation, manufacturers’ physical distribution is same as retailers’ procurement operations. </li></ul>
  54. 54. Information Flow <ul><li>A. Planning & Coordination Flows </li></ul><ul><li>Nature & Location of customers </li></ul><ul><li>Required products & services matching to needs of customers. </li></ul><ul><li>Limitations or bottlenecks within manufacturing capabilities thus helping to decide outsourcing requirements. </li></ul><ul><li>Requirements of logistical facilities based upon forecasting. </li></ul><ul><li>MPS and MRP to support manufacturing /procurement requirements. </li></ul>
  55. 55. <ul><li>B. Operational Flow </li></ul><ul><li>Order management and processing </li></ul><ul><li>Procurement </li></ul><ul><li>Inventory management </li></ul><ul><li>Transportation and shipping </li></ul><ul><li> Advantages of effective operational flows </li></ul><ul><li>Allocates and assigns inventory/ assortments to customers according to predetermined priorities. </li></ul><ul><li>- Use of information technology in deploying inventory to ensure effective performance of logistical system. </li></ul><ul><li>Consolidating orders to achieve freight economies and making correct documentation. </li></ul><ul><li>Facilitate purchase order preparation, amendments and release to ensure overall supplier compliance. </li></ul>
  56. 56. Logistical Performance Cycles <ul><li>The logistical integration through performance cycles provides interface and link the suppliers, the firm and its customers by means of communication and transportation. </li></ul>Performance Cycle Transaction creating activities Physical fulfillment activities Advertising & Selling Physical distribution
  57. 57. Physical distribution performance cycle Customer order Order transmission Order processing Order selection Order transportation Order delivery to the customer
  58. 58. Significance of physical distribution performance cycle <ul><li>As it links a firm with its customers, it helps create marketing and manufacturing initiatives into an integrated efforts. </li></ul><ul><li>It resolves conflicting interface between marketing & manufacturing. </li></ul><ul><li>As marketing is dedicated to delighting customers, it would like to maintain broad product line with high inventory regardless of each product’s profit potential. By doing so, any customer's requirement, no matter how small or large would be satisfied. </li></ul>
  59. 59. <ul><li>Traditional mindset in manufacturing is to control cost, which is achieved by long production runs. Continuous manufacturing processes maintain economies of scale and reduce per unit cost. Therefore, a narrow line of products is mass produced. </li></ul><ul><li>Inventories are kept to resolve the inherent conflict between these two philosophies. </li></ul><ul><li>The above is achieved by forward deployment of inventory throughout the logistical system in anticipation of future sales on the basis of forecasted information. </li></ul>
  60. 60. How to reduce physical distribution operational variance <ul><li>Improve accuracy of forecast </li></ul><ul><li>Improve order management and coordination with the customers. </li></ul><ul><li>Have responsive and flexible cycle. </li></ul>
  61. 61. Manufacture Support Performance Cycle <ul><li>It provides production logistics being positioned between the physical distribution and procurement operations of a firm. </li></ul><ul><li>Movement and storage of product, materials, and semi-finished parts and components between enterprise facilities represent the responsibility of manufacturing support logistics. </li></ul><ul><li>In context of wholesale & retail trade, it implies selection of assortment of inventory to be moved to the next level of value chain. </li></ul><ul><li>Basically, supports what, where and when of the production and not how. </li></ul>
  62. 62. Features of manufacturing support performance cycle. <ul><li>Initiates provision of materials and externally manufactured components at a place and time needed. </li></ul><ul><li>Operations are restricted to dock-to-dock movement within the firm and where intermediate storage is required. </li></ul><ul><li>After completion of manufacturing cycle the finished goods inventory is allocated and deployed either directly to the customers or to distribution warehouses for further customer shipment. </li></ul>
  63. 63. Procurement Performance Cycles Sourcing Order placement and Expediting S U P P L I E R S Transportation Receiving
  64. 64. <ul><li>The procurement operations are identified as inbound logistics. </li></ul><ul><li>International procurement often requires large shipments necessitating the use of barges, ocean going vessels, trains and multiple truckloads for transportation. </li></ul><ul><li>The lower value of materials and components as compared to finished product implies greater trade-off between higher cost of maintaining inventory in transit and the use of low cost modes of transport. </li></ul><ul><li>As the cost of maintaining inventory in the pipeline is less per day than the cost of maintaining finished inventory, there is no benefit for paying higher freight rates for faster inbound transport. </li></ul>
  65. 65. <ul><li>Procurement performance cycles are invariably longer excepting in those cases where the value of material or component may justify paying higher freight rates for faster inbound transport. </li></ul><ul><li>A critical issue in procurement is uncertainty in respect of price change, and/or supply discontinuity. </li></ul>
  66. 66. Reducing performance cycle uncertainties <ul><li>Use of electronic data interchange </li></ul><ul><li>Monitoring daily changes in workloads </li></ul><ul><li>Human resource availability </li></ul><ul><li>Availability of specialized unloading and loading handling equipments </li></ul><ul><li>Establishing safety stock/ buffer inventory to cover variances so as to avoid delays. </li></ul>
  67. 67. A few terms used in Inventory Management <ul><li>Buffer stock= {Average lead time}x{Average usage rate}. </li></ul><ul><li>Safety stock= Average usage during the extension of lead time. </li></ul><ul><li>Reserve stock= Excess usage requirement during the average lead time. </li></ul><ul><li>Re-order level= B.S.+ S.S.+ R.S. </li></ul><ul><li>Minimum Inventory Level= S.S.+R.S. </li></ul><ul><li>Max. Inventory Level= {Minimum Level} + {Order quantity} </li></ul>
  68. 68. <ul><li>Average Inventory Level= (Min. level+Max.level)/ 2 </li></ul><ul><li>In case of periodic review the buffer stock will be modified to {Average consumption rate}x{Average lead time+Review period} </li></ul>
  69. 69. Inventory Planning <ul><li>Ideally, if the forecast is done accurately, there will not be any need for an inventory. </li></ul><ul><li>Most warehousing would vanish, product would move with less handling requirements from warehouses to customers. </li></ul><ul><li>However, in real life situations, the thrust is on reducing inventory and maintain proper customer service and optimal inventory levels. </li></ul>
  70. 70. Inventory decisions-High risk & high cost <ul><li>Without the proper inventory assortment, marketing may find that sales are lost and customer satisfaction declining. </li></ul><ul><li>Overstocks increase cost and reduce profitability through added warehousing, working capital requirements, deterioration, insurance, and obsolescence. </li></ul><ul><li>As the significance percentage of assets are inventory related, a reduction of firm’s inventory by a few percentage points can lead to dramatic improvement in profits. </li></ul><ul><li>ROI= (Profit/ Fixed assets +Current assets) </li></ul>
  71. 71. <ul><li>Substantial improvement in the productivity of inventory can be achieved by re-engineering supply chain processes. </li></ul><ul><li>Poor inventory management may lead to stock outs and hence cancellation of customers orders, overstocking leading to insufficient storage space and increase in the number and rupee value of obsolete products. </li></ul><ul><li>Consequently, inventory management has a large financial impact on the firm. </li></ul><ul><li>Investments blocked in inventory cannot be used to obtain other goods or assets that could improve the enterprise performance. </li></ul>
  72. 72. Types of Inventory <ul><li>Broadly there are three types of inventory </li></ul><ul><li>Manufacturing inventory </li></ul><ul><li>Wholesale inventory </li></ul><ul><li>Retail inventory </li></ul><ul><li>Manufacturing inventory </li></ul><ul><li>Manufacturer’s inventory commitment starts with raw material and component parts, including work-in-process, and ends with finished goods. </li></ul><ul><li>Manufacturer needs to transfer the finished goods inventory to warehouses in closer proximity to wholesalers and retailers. </li></ul><ul><li>Manufacturer’s inventory commitment is relatively deep and has long duration. </li></ul>
  73. 73. <ul><li>(b) Wholesale inventory </li></ul><ul><li>Wholesaler purchases large quantities from manufacturers and sells small quantities to retailers in order to provide retail customers with assorted merchandise from different manufacturers in smaller quantities. </li></ul><ul><li>Thus wholesaler risk exposure is narrower but deeper and of longer duration than that of retailers. </li></ul><ul><li>In case of seasonal goods, the wholesaler is forced to commit inventory, far in advance of selling, thus increasing the depth and duration of risk. </li></ul><ul><li>The current trend of expansion of product lines has increased the width of inventory risk. </li></ul>
  74. 74. <ul><li>(c) Retail inventory </li></ul><ul><li>Retailer inventory risk is wide but not deep. </li></ul><ul><li>The emphasis is more on inventory velocity. </li></ul><ul><li>Inventory velocity is measured by inventory turnover. </li></ul><ul><li>The risk is undertaken on variety of products but for a given product the risk is not deep relatively. The exception is specialty retailer where the depth and duration will be longer as they handle narrower lines. </li></ul><ul><li>For instance, retailers’ risk is spread across more than 10,000 SKUs, a general merchandise and food store may carry around 25,000 SKUs and a full line department store may have as many as 50,000 SKUs. </li></ul>
  75. 75. Functions underlying inventory commitments <ul><li>Geographical Specialization </li></ul><ul><li>It allows for geographical specialization for individual operating units. </li></ul><ul><li>The need for geographical specialization arises because various factors of production viz. power, materials, water, labour, manufacturing facilities are located at a considerable distance from the major markets. </li></ul><ul><li>For instance, tyres, batteries, transmission equipments and springs for an automobile assembly. The production facilities for each of the these are traditionally located near the source of materials to minimize transportation cost. </li></ul>
  76. 76. <ul><li>- This strategy leads to specialization of manufacturing each automobile component and hence economically. </li></ul><ul><li>- This will also involve internal inventory transfer to completely integrate various components into final assembly. </li></ul><ul><li>- Thus, manufactured goods from various locations are collected at a single warehouse and then combined as a consolidated/ assorted shipment. </li></ul><ul><li>- P&G uses distribution centres to combine products from its laundry, food, and healthcare divisions to offer the customer a single integrated shipment. </li></ul><ul><li>Economies gained through geographical specialization invariably offset increased inventory and transportation cost. </li></ul>
  77. 77. <ul><li>B. Decoupling </li></ul><ul><li>Provides for increasing operating efficiency within a single manufacturing facility by stockpiling work-in-process inventory between production operations. </li></ul><ul><li>Decoupling enables manufacturing and distribution of economic lot sizes in anticipation of sales thus ensuring large sized shipments with minimum freight cost. </li></ul><ul><li>Decoupling permits products manufactured over a period of time to be sold as an assortment. </li></ul><ul><li>Decoupling increases the operating efficiency at a single location while geographical specialization includes multiple locations. </li></ul><ul><li>However, JIT,DRP etc have reduced the economic benefits of decoupling considerably. </li></ul>
  78. 78. <ul><li>C. Balancing Supply and Demand </li></ul><ul><li>Balancing is concerned with elapsed time between consumption and manufacturing as balancing inventory reconciles supply availability with demand. </li></ul><ul><li>Particularly useful in linking variations of consumption with manufacturing in case of seasonal products. </li></ul><ul><li>Balancing seasonal production and year round consumption such as orange juice or year round production and seasonal consumption of blankets or knitting wool. </li></ul><ul><li>In case of sort selling season, manufacturers, wholesalers and retailers are forced to take an inventory position far in advance of peak selling season. </li></ul>
  79. 79. <ul><li>From retailers’ perspective, an inventory position is planned six months prior to the peak selling period. </li></ul><ul><li>The main function of balancing supply and demand is to ensure that investment in stocks is liquidated completely within the season. </li></ul><ul><li>Buffer Uncertainties </li></ul><ul><li>Safety stock protects against two types of uncertainties: </li></ul><ul><li>(a) Demand in excess of forecast during the performance cycle. For instance, customers’ request of more or less units than planned. </li></ul><ul><li>Delays in the performance-cycle length itself. For instance, delay in order receipt, order processing, or transportation. </li></ul>
  80. 80. Inventory Management Strategy <ul><li>Companies can postpone positioning of inventory by maintaining stock at the plants or they may decide to place more products in local distribution centres to have it closer to the market. </li></ul><ul><li>Manage inventory at each distribution centre independently. </li></ul><ul><li>Consider inventory interdependence across distribution sites by managing inventory centrally. </li></ul><ul><li>Ensure more coordination and communication in case of centralized inventory management. </li></ul>
  81. 81. Inventory Cost Consideration <ul><li>Origin purchase consideration </li></ul><ul><li>Transportation cost. </li></ul><ul><li>Origin purchase means the buyer is responsible for freight cost and product risk when the product is in transit. </li></ul><ul><li>Depending on the delivery terms, the buyer assumes full risk on inventory at the time of shipment. </li></ul><ul><li>Depending on the payment terms, transit inventory would be a part of enterprise's average inventory and therefore subject to an appropriate charge. </li></ul><ul><li>Transportation cost must be added to purchase price to obtain an accurate assessment of the value of goods tied up in inventory. </li></ul>
  82. 82. <ul><li>After the inventory is received, the amount invested in the product must be increased by transportation expenses. </li></ul><ul><li>Thus, inventory carrying cost should be assessed on the combined cost of the product plus transportation. </li></ul>
  83. 83. Inventory Control Procedures Perpetual Review Periodic Review
  84. 84. Perpetual Review <ul><li>Inventory status is reviewed to determine replenishment needs. </li></ul><ul><li>Implemented through a reorder point and order quantity. </li></ul><ul><li> ROP= D x T + SS, where </li></ul><ul><li>ROP= reorder point in units </li></ul><ul><li>D= average daily demand in units </li></ul><ul><li>T= average performance-cycle length in days </li></ul><ul><li>SS=safety or buffer stock in units. </li></ul>
  85. 85. <ul><li>The following are considered in perpetual review: </li></ul><ul><li>On hand inventory represents quantity that is physically present in the particular distribution facility. </li></ul><ul><li>On-order inventory represents quantities that have been ordered from suppliers. </li></ul><ul><li>If on-hand plus on-order quantity is less than or equal to the established reorder point, inventory control process will initiate another replenishment order. </li></ul>
  86. 86. <ul><li>Mathematically, this can be stated as </li></ul><ul><li>If I+q  ROP then order Q, where </li></ul><ul><li>I= inventory on hand </li></ul><ul><li>q= inventory on order from suppliers </li></ul><ul><li>ROP = re-order point in units </li></ul><ul><li>Q= order quantity in units. </li></ul><ul><li>Average inventory level for a perpetual review system is calculated as </li></ul><ul><li>I = Q/2 + SS, where </li></ul><ul><li>I= average inventory in units </li></ul><ul><li>Q= order quantity in units, and </li></ul><ul><li>SS= safety stock in units </li></ul><ul><li>The assumption is that P.O. will be placed when the reorder point is reached and there is a continuous monitoring of inventory system. </li></ul>
  87. 87. Periodic Review <ul><li>The inventory status is reviewed at regular intervals such as weekly or monthly. </li></ul><ul><li>The re-order point is adjusted to consider the extended intervals between reviews. </li></ul><ul><li>The formula for calculating the periodic review reorder point is </li></ul><ul><li> ROP= D( T + P/2) +SS, where </li></ul><ul><li>ROP= re-order point </li></ul><ul><li>D=average daily demand </li></ul><ul><li>T= average performance cycle length </li></ul><ul><li>P=review period in days </li></ul><ul><li>SS= safety stock </li></ul>
  88. 88. <ul><li>Average inventory for periodic review is </li></ul><ul><li>represented as I= Q/2 + (P x D)/2 + SS, </li></ul><ul><li>I= average inventory in units </li></ul><ul><li>Q= order quantity in units </li></ul><ul><li>P= review period in days </li></ul><ul><li>D= average daily demand </li></ul><ul><li>SS= safety stock. </li></ul><ul><li>Because of the time interval introduced by periodic review, periodic control systems generally require larger average inventories than perpetual system. </li></ul>
  89. 89. Inventory Planning Methods Fair Share allocation Distribution Requirement Planning
  90. 90. Fair Share Allocation Plant Warehouse Inventory- 600 units Distribution Centre-1 Distribution Centre-2 Distribution Centre-3 Inventory= 50 units Daily use= 10 units Inventory= 100 units Daily use= 50 units Inventory= 75 units Daily use= 15 units
  91. 91. <ul><li>Fair share allocation provides each distribution facility with an equitable or fair share of available inventory from a common source such as a plant warehouse. </li></ul><ul><li>Assuming that from a total inventory units of 600 it is desirable to retain 100 units at plant warehouse; 500 units are available for allocation. </li></ul><ul><li>First we need to determine the number of days’ supply. </li></ul>
  92. 92. <ul><li> DS = (A +  I j ) /  D j , where </li></ul><ul><li>DS= no. of days supply for distribution centre inventories. </li></ul><ul><li>A= inventory units to be allocated from the warehouse </li></ul><ul><li>I j = inventory in units for distribution centre j. </li></ul><ul><li>D j = daily demand for distribution centre j </li></ul><ul><li> In the above example, </li></ul><ul><li>DS = {500 + ( 50+100+75)} / (10+50+ 15) </li></ul><ul><li>DS= {500 + 225} /75 =725/75 = 9.67 days </li></ul>
  93. 93. <ul><li>Thus, fair share allocation means that each distribution centre should be brought up to 9.67 days stock. </li></ul><ul><li>The amount to be allocated to each distribution centre is determined as under: </li></ul><ul><li> A j = (DS – I j /D j ) x D j , where </li></ul><ul><li>A j = amount allocated to distribution centre j </li></ul><ul><li>DS= number of days supply that each distribution centre is brought upto. </li></ul><ul><li>I j = inventory in units for distribution centre j </li></ul><ul><li>D j = daily demand for distribution centre j </li></ul><ul><li>Thus, the amount allocated to distribution centre 1 will be </li></ul><ul><li> A 1 = (9.67- 50/10) x 10 = (9.67- 5) x 10= 4.67x 10= 46.7 or 47 units. </li></ul>
  94. 94. <ul><li> A 2 = (9.67-100/50)x50=(9.67-2.00)x50=383.5 or 384.00 </li></ul><ul><li> A 3 = (9.67-75/15)x15=(9.67-5.00)x15=70 units. </li></ul><ul><li>However, does not consider site specific factors. </li></ul><ul><li>Difference in performance cycle. </li></ul><ul><li>Economic order quantity. </li></ul><ul><li>Safety stock requirements. </li></ul>
  95. 95. Distribution Requirement Planning <ul><li>Logical extension of manufacturing requirement planning (MRP). </li></ul><ul><li>Operates in an independent environment where uncertain customer demand determines inventory requirements. </li></ul><ul><li>Requires forecast for each distribution centre and SKU as well as adequate lead-time to allow product movement. </li></ul><ul><li>Errors may creep in because of prediction of demand at wrong location or at wrong time. </li></ul><ul><li>Requires consistent and reliable performance cycles for movement between distribution facilities. </li></ul>
  96. 96. Plant Warehouse Regional warehouse Regional warehouse Distribution centre Distribution centre Distribution centre Distribution centre Distrib ution centre Distribution centre C U S T O M E R S
  97. 97. Raw Materials Warehouse Part A Part B Sub-assembly A Part C Part D Part E Sub assembly B Sub assembly C Final Assembly (Manufacturing) Plant Warehouse
  98. 98. <ul><li>DRP/MRP system integrates finished goods, work-in-process, and materials planning. </li></ul><ul><li>DRP provides a schedule for each SKU and each distribution facility. </li></ul><ul><li>For each planning period, the schedule will report the following: </li></ul><ul><li>Gross requirements reflecting demand from customers being catered to by different distribution facilities. </li></ul><ul><li>Scheduled receipts i.e.replenishment shipments planned for arrival at the distribution centre. </li></ul><ul><li>Anticipated week ending total deliveries. </li></ul><ul><li>Projected on-hand inventory i.e. prior week’s on-hand inventory- current week’s gross requirement + scheduled receipts. </li></ul>
  99. 99. Benefits of DRP <ul><li>Improved service levels by increasing on –time deliveries and decreasing customer complaints. </li></ul><ul><li>Better planning of new product launches. </li></ul><ul><li>Improved ability to anticipate shortages so that marketing efforts are not expended on products with low stock. </li></ul><ul><li>Reduced distribution centre freight costs resulting from coordinated shipments. </li></ul><ul><li>Improved inventory visibility and coordination between logistics and manufacturing. </li></ul><ul><li>Reduced warehousing space requirements because of inventory reductions. </li></ul>
  100. 100. Demand Forecasting <ul><li>Forecasting process comprises of two elements </li></ul><ul><li>Nature of demand, and </li></ul><ul><li>Forecast components </li></ul>Nature of Demand Dependent demand Independent demand
  101. 101. Dependent versus Independent Demand <ul><li>Vertical dependent is characterized by sequence of purchasing and manufacturing, such as number of tyres used for assembly of automobiles. </li></ul><ul><li>Horizontal dependent occurs in a situation where an attachment, promotion item or operator’s manual is included with each item shipped. </li></ul><ul><li>The demanded item may not be required to complete the manufacturing process but may be needed to complete the marketing process. </li></ul>
  102. 102. <ul><li>(b) Once manufacturing plan for base item is determined , requirements of components/ attachments can be calculated directly and no separate forecasting is done. </li></ul><ul><li>Independent demands are ones that are not related to the demand for another item. </li></ul><ul><li>For instance, demand for refrigerator is not related to the demand for milk. </li></ul><ul><li>Independent demand items are forecasted individually. </li></ul>
  103. 103. Forecast Components <ul><li>Base demand </li></ul><ul><li>Seasonal factors </li></ul><ul><li>Trends </li></ul><ul><li>Cyclic factors </li></ul><ul><li>Promotions </li></ul><ul><li>Irregular quantities. </li></ul><ul><li>Mathematically forecast is expressed as </li></ul><ul><li> F t+1 = (B t x S t x T t x C t x P t ) + I, where </li></ul><ul><li>F t+1 = forecast quantity for period t+1 </li></ul>
  104. 104. <ul><li>B t = base level sales demand (average sales level) for period t+1 </li></ul><ul><li>S t = seasonal factor for period t </li></ul><ul><li>T= trend component (quantity increase or decrease per time period) </li></ul><ul><li>C t = cyclic factor for period t </li></ul><ul><li>P t = promotional factor for period t </li></ul><ul><li>I= irregular or random quantity. </li></ul><ul><li>All forecasts may not include all components. </li></ul><ul><li>A. Base demand is based on average demand over an extended period of time. </li></ul><ul><li>There is no seasonality, trend, cyclic or promotional component. </li></ul>
  105. 105. <ul><li>B. Seasonal component is characterized by upward and downward movement in demand pattern, usually on annual basis e.g. emand for woollen blankets is at peak during winter months and lowest during summer. </li></ul><ul><li>Seasonality at wholesale level precedes consumer demand by approximately one quarter. </li></ul><ul><li>An individual seasonality factor of 1.2 indicates that sales are projected at 20% higher than an average period. </li></ul><ul><li>C. Trend Component exhibits long range movement in sales over an extended period of time. </li></ul><ul><li>(a) Trend may change number of times over the entire product life cycle. </li></ul>
  106. 106. <ul><li>(b) For instance, a reduction in birth rate implies reduction in demand of disposal diapers. </li></ul><ul><li>(c) Trend component influences base demand as B t+1 = B t x T, where </li></ul><ul><li>B t+1 = base demand in period t+1 </li></ul><ul><li>B t = base demand in period t, and </li></ul><ul><li>T= periodic trend index. </li></ul><ul><li>D. Cyclic component are known as business cycles. </li></ul><ul><li>Economies swing from recession to expansion every three to five years. </li></ul>
  107. 107. <ul><li>E.Promotions are initiated by the firm’s marketing activities such as advertising, and various other schemes. </li></ul><ul><li>Sales increase during promotion as the consumers take advantage of promotional schemes thus leding to liquidation of inventories. </li></ul><ul><li>Promotion can either be the deals offered to the consumers or deals offered to the trade (wholesalers/ retailers). </li></ul><ul><li>Promotions if offered on regular basis at the same time every year will resemble a seasonal component. </li></ul><ul><li>F. Irregular components include random or unpredictable quantities that do not fit into any other category hence are impossible to predict. </li></ul><ul><li>(a) By tracking and predicting other components the magnitude of random component can be minimized. </li></ul>
  108. 108. Forecast Approaches <ul><li>A. Top-Down Approach </li></ul>Plant Distribution Centre Field Distribution Centre# 1 Forecast 4000 units Field Distribution Centre#2 Forecast 3000 units Field Distribution Centre#3 Forecast 2000 units Field Distribution Centre#4 Forecast 1000 units
  109. 109. <ul><li>Assume the firm has an aggregate monthly forecast for the entire country as 10,000 units and it use four distribution centres to service the demand with a historical split of 40, 30, 20, and 10 per cent respectively. </li></ul><ul><li>Forecasts for individual distribution centres will be projected to be 4,000, 3000, 2,000 and 1,000 respectively. </li></ul><ul><li>In top-down approach a national level SKU forecast is developed and then the forecasted volume is spread across locations on the basis of historical sales pattern. </li></ul>
  110. 110. <ul><li>B. Bottom-up Approach </li></ul><ul><li>Decentralized approach since each distribution centre forecast is developed independently. </li></ul><ul><li>Results into more accurate forecast as it tracks and considers demand fluctuations within specific markets. </li></ul><ul><li>Requires more detailed record keeping and is more difficult to incorporate demand factors such as impact of promotion. </li></ul><ul><li> Trade-off the detail tracking of bottom-up approach with data manipulation ease of top-down approach. </li></ul>
  111. 111. Components of Forecasting Process Orders History Tactics Forecast database Forecast Administration Forecast Technique Forecast Support System Forecast Process Forecast Users Finance Marketing Sales Production Logistics
  112. 112. <ul><li>Forecast data base keeps information about </li></ul><ul><li>Orders </li></ul><ul><li>Order history </li></ul><ul><li>Tactics used to obtain orders such as promotions, schemes, special promotional programmes. </li></ul><ul><li>State of economy and competitive actions. </li></ul><ul><li>B. Forecast process integrates forecast techniques, support system and administration. </li></ul><ul><li>Two prominently used forecasting techniques are time series and correlation modelling. </li></ul><ul><li>Forecast support system is the capability to gather and analyze data, evaluate impact of promotion, develop forecast and communicate to the relevant personnel. </li></ul>
  113. 113. Issues addressed by Forecast Administration <ul><li>Who is responsible for developing the forecast? </li></ul><ul><li>How is forecast accuracy and performance measured? </li></ul><ul><li>How does forecast performance affect job performance, evaluation and rewards? </li></ul><ul><li>Do the forecast analysts understand the impact of forecasting on logistics operations? </li></ul><ul><li>Do they understand the differences in various forecasting techniques? </li></ul>
  114. 114. Transportation <ul><li>Transportation decisions are more strategic ones closely linked with inventory decisions. </li></ul><ul><li>Decisions are based on trade-off between the cost of using a particular mode of transport with the cost of inventory associated with that mode. </li></ul><ul><li>For instance, air shipments may be fast, reliable , and warrant less safety stocks; they are expensive whereas shipping by sea or rail may be much cheaper but they necessitate holding relatively large amount of inventory to protect against the inherent uncertainty associated with them. </li></ul>
  115. 115. <ul><li>Customer service levels and geographic locations are important aspects in transportation decisions. </li></ul><ul><li>Transportation accounts for roughly 30% of the logistics costs and therefore operating efficiencies become important aspects . </li></ul><ul><li>Shipment sizes i.e. consolidated bulk shipments versus smaller lot sizes; routing and scheduling of vehicles become important part of company’s transport strategy. </li></ul><ul><li>Transportation is one of the most visible elements in the logistics operation. </li></ul>
  116. 116. Transportation Functionality Product Movement Product Storage
  117. 117. <ul><li>A. Product Movement </li></ul><ul><li>Primary function is the movement up and down the value chain. </li></ul><ul><li>As transportation uses temporal, financial and environmental resources, the movement of materials should take place only when it enhances the product value. </li></ul><ul><li>Uses temporal resources because the product is inaccessible while in transit. </li></ul><ul><li>Due to JIT strategies transit inventories are becoming more significant thereby reducing manufacturing and distribution centre inventories. </li></ul><ul><li>(b) Expenses incurred internally for private fleet of vehicles or externally for commercial or public transportation constitute financial resources. </li></ul>
  118. 118. <ul><li>(c) Transportation consumes fuel and oil and also creates environmental expenses through congestion, air pollution and noise pollution. </li></ul>Objectives of Transportation Move product from original location to prescribed destination while minimizing temporal, financial and environmental Costs. Minimize expenses incurred due to loss and damage. Meet customer demand regarding delivery and shipment information availability
  119. 119. <ul><li>B. Product Storage </li></ul><ul><li>Temporary storage through vehicles becomes expensive as in-transit storage is required to be moved again in a short duration of time. </li></ul><ul><li>Sometimes temporary storage becomes advantageous as the cost of unloading and reloading the product in a warehouse may exceed the daily charge of storage in transportation vehicles. </li></ul><ul><li>Many times where the warehouse space is limited, utilizing transportation vehicles becomes a viable option. </li></ul>
  120. 120. <ul><li>The options available to a transporter in case of warehouse space constraints are </li></ul><ul><li>Instruct driver to take a circuitous or indirect route to its destination, as the transit time would be greater as compared to direct route. Thus transport vehicle is used as temporary storage option. </li></ul><ul><li>Change the shipment destination i.e. temporary storage is achieved through diversion. </li></ul><ul><li>For instance, product that is, say, scheduled initially from Mumbai to Hyderabad gets diverted mid way to Vishakapatnam (Vizag) as Vizag warehouse may be in greater need of product and has the storage capacity. </li></ul>
  121. 121. <ul><li>Traditionally, the telephone was used to direct diversion but nowadays satellite communications between headquarters and vehicle handle such tasks more efficiently. </li></ul><ul><li>Though product storage in vehicles can be costly, it can be justified from a total cost perspective when loading, unloading costs,or capacity constraints are considered. </li></ul>
  122. 122. Principles of Transportation Economies of Scale Economies of Distance
  123. 123. <ul><li>A. Economies of Scale </li></ul><ul><li>Transportation cost per unit of weight decreases when the size of the shipment increases i.e. shipments that utilize the entire vehicle’s capacity like truck load (TL) cost less per kg than less than truck load (LTL) shipments. </li></ul><ul><li>Fixed costs in transportation include administrative costs of taking transportation order, time to position the vehicle for loading or unloading, invoicing and equipment cost. </li></ul><ul><li>It costs as much to administer a shipment of 1 kg as it does to administer a 1000 kg shipment. </li></ul>
  124. 124. <ul><li>B. Economies of Distance </li></ul><ul><li>Transportation cost per unit of distance increases at a decreasing rate as distance increases. Also called “Tapering Principle” </li></ul><ul><li>For instance, a shipment covering a distance of 800 kilometers will cost less than two shipments of same combined weight covering 400 kms. </li></ul><ul><li>Fixed expenses incurred to load and unload the vehicle get spread over more kilometers resulting in lower overall per kilometer charges. </li></ul>
  125. 125. Tapering Principle Distance C O S T
  126. 126. Participants in Transportation decisions Government Shipper Carrier Consignee Public
  127. 127. Role and Perspective of each party <ul><li>Shippers and Consignees’ Expectations </li></ul><ul><li>Move the goods from origin to destination within a prescribed time at the lowest cost. </li></ul><ul><li>Specified pick up and delivery times, predictable transit time, zero loss and damage, accurate and timely exchange of information and invoicing. </li></ul>
  128. 128. <ul><li>B. The Government Role </li></ul><ul><li>Stable and efficient transportation environment to sustain economic growth. </li></ul><ul><li>Product availability throughout the country at a reasonable cost. </li></ul><ul><li>Providing right-of-way such as road or railways or air traffic control system. </li></ul><ul><li>C. The Public concerns </li></ul><ul><li>Accessibility, cost effectiveness and protection of environmental and safety standards. </li></ul><ul><li>Development of transport infrastructure to have goods from global sources. </li></ul>
  129. 129. Features of Different Modes of Transportation Modes of Transportation Rail Highway Water Pipeline Air
  130. 130. <ul><li>Rail </li></ul><ul><li>Capability to transport large shipments economically with more frequency. </li></ul><ul><li>High fixed costs because of expensive equipment, right of way, switching yards, and terminals. </li></ul><ul><li>Variable cost per kg/km has been consierably reduced by electrification. </li></ul><ul><li>Bulk industries and heavy manufacturing use railways more frequently. </li></ul><ul><li>Can improve effectiveness of transportation by having alliances with other modes. </li></ul>
  131. 131. <ul><li>B. Highway </li></ul><ul><li>Growth of motor carrier industry has resulted into door-to-door operating flexibility and speed of inter-city movement. </li></ul><ul><li>Compared to railways, motor carriers have relatively small fixed investments in terminal facilities and operate on publicly maintained highways. </li></ul><ul><li>Variable cost per kilometer is high because a separate driver and cleaner are required for each vehicle. </li></ul><ul><li>Labour cost is also high because of the need for substantial dock labour. </li></ul>
  132. 132. Cost Structure in respect of Motor Transport Fixed costs such as overheads and vehicle cost are low relative to railway Variable costs such as driver, fuel, tyres and repairs are high relative To railways.
  133. 133. <ul><li>Motor carriers are best suited to handle small shipments moving short distances. </li></ul><ul><li>Favour light manufacturing and distributive traders, short distances and high value products. </li></ul><ul><li>Have captured significant market share of railways in medium and light manufacturing industries. </li></ul><ul><li>Because of delivery flexibility, motor transport has captured almost all freight moving from wholesalers or warehouses to retail stores. </li></ul><ul><li>Higher cost in replacing equipment, higher wages to driver and other dock labour. </li></ul>
  134. 134. <ul><li>C. Water </li></ul><ul><li>Capacity to move extremely large shipments. </li></ul><ul><li>Fixed costs are somewhere between rail and motor carriers. </li></ul><ul><li>Though water carriers have to develop and operate their own terminals, the right-of-way is developed and maintained by the government, resulting into moderate fixed costs compared to rail and highways. </li></ul><ul><li>Low variable cost makes this an attractive mode when low freight rates are desired and speed is secondary consideration. </li></ul><ul><li>Typically bulk commodities such as mining , chemicals, cement, and certain selected agricultural products are transported by ocean going vessel. </li></ul>
  135. 135. <ul><li>Unless the point of origin and point of destination are adjacent to a waterway, it needs to be supplemented by rail or trucks. </li></ul><ul><li>D. Pipelines </li></ul><ul><li>Used for transporting natural gas, manufactured chemicals, pulverized dry bulk materials such as cement and flour via hydraulic suspensions, sewage and water within the cities and municipalities. </li></ul><ul><li>Operate on 24x7 basis are limited only by commodity changeover and maintenance. </li></ul><ul><li>No empty container or vehicle that must be returned. </li></ul><ul><li>Highest fixed cost an lowest variable cost. </li></ul><ul><li>High fixed costs due to right-of-way, construction and requirements for control station and pumping capacity. </li></ul>
  136. 136. <ul><li>As pipelines are not labour intensive, variable operating cost is extremely low once the pipeline is constructed. </li></ul><ul><li>Inflexible and limited to products in the form of gas, liquid or slurry. </li></ul><ul><li>E. Air </li></ul><ul><li>Significant advantage lies in the speed with which a shipment can be transported. </li></ul><ul><li>Though the freight cost is very high, the same may be trade-off with reduced warehousing or inventory. </li></ul><ul><li>Characterized by load size constraints and aircraft availability. </li></ul><ul><li>Fixed cost associated with aircraft purchase and requirements for specialized handling systems is low as compared to rail, water and pipeline. </li></ul>
  137. 137. <ul><li>Airways and airports are generally developed and maintained with public funds. </li></ul><ul><li>Airfreight variable cost is extremely high as a result of fuel,maintenance and intensity of in-flight and ground crew. </li></ul><ul><li>Airfreight is justified in following situations: </li></ul><ul><li>High value products </li></ul><ul><li>Perishables </li></ul><ul><li>Limited marketing period. </li></ul><ul><li>Emergency. </li></ul>
  138. 138. Nature of Traffic versus Mode of Transportation Emergency, perishables, limited marketing period, high value premium products. Air Petroleum, gases, slurry. Pipeline Mining and basic bulk commodities, chemicals, cement, agro-based products. Water Medium and light manufacturing, distribution between wholesalers and retailers. Highway Extracting industries, heavy manufacturing, agricultural commodities Rail Nature of Traffic Mode
  139. 139. Cost Structure for Each Mode of Transportation High-fuel, labour and maintenance . Low-aircraft and cargo handling system. Air Lowest-no labour cost of any significance. Highest-rights-of-way, construction, control stations, pumping capacity. Pipeline Low-capability to transport large amount of tonnage. Medium- ships and equipment Water Medium- fuel, maintenance. Low-highways provided by public funds Highway Low High- equipment terminals, tracks etc. Rail Variable Cost Fixed Cost Mode
  140. 140. Transport Economies <ul><li>Distance </li></ul><ul><li>Volume </li></ul><ul><li>Density </li></ul><ul><li>Stow ability </li></ul><ul><li>Handling </li></ul><ul><li>Liability </li></ul><ul><li>Market factors </li></ul>
  141. 141. <ul><li>Distance </li></ul><ul><li>Cost curve increases at a decreasing rate as a function of distance and is known as tapering principle. </li></ul><ul><li>Cost curve does not begin at the origin because of the fixed costs associated with shipment pick up and delivery regardless of distance. </li></ul><ul><li>Tapering effect comes into existence, as the longer movements tend to have a higher percentage of inter-city rather than urban kilometers. </li></ul><ul><li>Frequent intermediate stops, typical of urban kilometers, and additional loading and unloading add to the costs. </li></ul><ul><li>Inter-city miles are less expensive since more distance is covered with same fuel as a result of higher speed. </li></ul>
  142. 142. <ul><li>B. Volume </li></ul><ul><li>Transport cost per unit of weight decreases as load volume increases. </li></ul><ul><li>Fixed costs of pick up and delivery as well as administrative costs get spread over additional volumes. </li></ul><ul><li>Smaller loads must be consolidated into larger loads. </li></ul><ul><li>C. Density </li></ul><ul><li>Transportation cost per unit declines as product density increases. </li></ul><ul><li>In terms of weight and space, an individual vehicle is constrained more by space than by weight. Once is the vehicle is full, it is not possible to increase the amount carried even if the product is lightweight. </li></ul>
  143. 143. <ul><li>Higher density products allow fixed costs to be spread across additional weight, as a result the products are assessed at a lower transport cost per unit. </li></ul><ul><li>Attempts are made to increase product density so that more can be loaded in a vehicle to utilize its capacity. </li></ul><ul><li>D. Stow ability </li></ul><ul><li>Refers to product dimensions and impact of the same on vehicle utilization. </li></ul><ul><li>Odd sizes and shapes as well as excessive weights and lengths do not stow well and typically waste space. </li></ul><ul><li>Though density and stow ability are similar, products may have same density that stow differently. </li></ul>
  144. 144. <ul><li>Items with regular shapes are easier to stow than odd shaped items. </li></ul><ul><li>While the steel blocks and rods have the same density, rods are more difficult to stow because of their length and shape. </li></ul><ul><li>E. Handling </li></ul><ul><li>Special handling equipments may be required for loading or unloading trucks, trains, or ships and the unitization/ palletization affects the handling cost. </li></ul><ul><li>F. Liability </li></ul><ul><li>- Product characteristics such as susceptibility to damage, perishability, susceptibility to to theft, susceptibility to explosion affect the risks and hence claims. </li></ul>
  145. 145. <ul><li>G. Market factors </li></ul><ul><li>Back-haul i.e. vehicle returning back to the point of origin with load. </li></ul><ul><li>Dead head to be avoided because empty returns incur labour, fuel, and maintenance costs. </li></ul><ul><li>Thus design of logistics system must add back-haul movement wherever possible. </li></ul>
  146. 146. Multimodal Transport System <ul><li>Multimodal or Intermodal transport refers to journeys that involve two or more different modes of transport. </li></ul><ul><li>For instance, if materials are moved from Lanchow in central China to Warsaw in Poland goods may be loaded on to trucks, transferring them onto rails for a journey across China to Shanghai, then ship to Rotterdam, back into rails to cross Europe, then truck for local delivery. </li></ul>
  147. 147. <ul><li>For Logistics managers intermodal services become necessary because of their characteristics and costs. </li></ul><ul><li>For example, limited accessibility of air transport requires coordination with a land carrier to make the pick ups and deliveries. </li></ul><ul><li>Similarly, inaccessibility applies to rail, water and pipeline but not to the motor which has a definite advantage here. </li></ul><ul><li>The intermodal services maximizes the primary advantages inherent in the combined modes and minimize their disadvantages. </li></ul><ul><li>The combined services will have both good and bad aspects of the utilized modes. </li></ul>
  148. 148. <ul><li>For instance, coordinate of rail and water will have a lower total cost than an all-rail movement but higher cost than that of all-water. </li></ul><ul><li>Likewise, combined system transit time will be lower than all water movement but higher than all-rail. </li></ul><ul><li>The decision to use multi-modal system must consider the effect on total logistics costs. </li></ul><ul><li>The aim of intermodal transport is to combine the benefits of several separate modes but avoid the disadvantages of each, like, combining the low cost of shipping with flexibility of the road, or getting the speed of air with the cost of road. </li></ul>
  149. 149. <ul><li>However, each transfer between modes causes delays and adds costs of extra handling. </li></ul><ul><li>Intermodal transport works well when transfer can be done efficiently. </li></ul><ul><li>Transfer of motor carrier trailer to another transport mode is facilitated through containerization. </li></ul>
  150. 150. Choice of Mode <ul><li>Factors influencing the choice of mode are as under: </li></ul><ul><li>Bulkiness of the materials; heavy items would be shipped by ocean going vessels. </li></ul><ul><li>Value of materials; expensive items raise inventory costs and thus encourage faster modes. </li></ul><ul><li>Criticality of materials; even low unit value items that hold up the operations need fast and reliable transport. </li></ul><ul><li>Susceptibility to market changes; operations that respond quickly to changes cannot wait for critical supplies using slower transport. </li></ul><ul><li>Reliability with consistent delivery is important. </li></ul>
  151. 151. <ul><li>Cost and flexibility to negotiate rates. </li></ul><ul><li>Reputation and stability of carrier. </li></ul><ul><li>Susceptibility to loss, theft and pilferage </li></ul><ul><li>Schedule and frequency of delivery. </li></ul><ul><li>Special facilities available </li></ul><ul><li>Limitations of Multimodal system </li></ul><ul><li>Sometimes carriers are reluctant to participate. </li></ul><ul><li>Willingness to coordinate in respect of moving the product is higher when any one carrier is incapable to transport in its entirety. </li></ul>
  152. 152. Containerization <ul><li>Container is large rectangular box into which a firm places commodities to be shipped. </li></ul><ul><li>After initial loading, the commodities themselves are not rehandled until they are unloaded at their final destinations. </li></ul><ul><li>Throughout the movement, the carrier handles the container, not the commodities. </li></ul><ul><li>The shipper can transfer the container from one mode to another, eliminating the need to handle the commodities each time thus reducing handling costs, damage costs, theft, pilferage and the time required to complete the modal transfer. </li></ul>
  153. 153. <ul><li>Many firms that modify their material handling systems to include cranes, forklift trucks, and other equipment capable of handling large, heavy containers have found containerization to be desirable avenues for increasing productivity and controlling material handling costs, especially in periods of continually increasing labour costs. </li></ul><ul><li>As the objective of intermodal transport system is to provide virtually seamless journey, the best way to achieve same is to use modular or unitized loads. </li></ul>
  154. 154. Piggyback –Trailer on Flat Car <ul><li>TOFC is a specialized form of containerization in which rail and motor transport coordinate. </li></ul><ul><li>Carrier places motor carrier trailer on a rail flatcar, which moves the trailer by rail for long distance. </li></ul><ul><li>A motor carrier then moves the trailer for short distance pickups and deliveries. </li></ul><ul><li>This service combines the long-haul, low cost advantage of rail with accessibility of motor. </li></ul><ul><li>Piggyback services mostly move under contract. </li></ul>
  155. 155. Material Handling <ul><li>The primary material handling objective is to efficiently move large quantities of inventory into and specific customers orders out of the warehouse. </li></ul><ul><li>The functions performed in a warehouse are classified as movement or Handling and storage. </li></ul><ul><li>Movement or handling is emphasized and storage is secondary. </li></ul><ul><li>Handling is divided into </li></ul><ul><li>Receiving </li></ul><ul><li>In storage handling , and </li></ul><ul><li>Shipping </li></ul>
  156. 156. <ul><li>An extremely important aspect of logistics is the productivity potential that can be realized from capital investment in material-handling equipment. </li></ul><ul><li>Specialized handling equipment is required for unloading bulk materials such as for solids, fluids, or gaseous materials. </li></ul><ul><li>The guidelines suggested in designing the material handling systems are: </li></ul><ul><li>Equipment for handling and storage should be as standardized as possible. </li></ul><ul><li>When in motion, the system should provide maximum continuous flow. </li></ul><ul><li>Investment should be made in handling rather than stationery equipment. </li></ul>
  157. 157. <ul><li>(d) Handling equipment should be utilized to the maximum extent possible. </li></ul><ul><li>(e) In selecting handling equipment, the ratio of deadweight to payload should be minimized. </li></ul><ul><li>(f) Whenever possible, gravity flow should be incorporated in the system design. </li></ul><ul><li>The handling systems can be classified as under: </li></ul><ul><li>Mechanized </li></ul><ul><li>Semi automated </li></ul><ul><li>Automated, and </li></ul><ul><li>Information directed. </li></ul>
  158. 158. Mechanized Systems <ul><li>Forklift Trucks </li></ul><ul><li>Forklift trucks can move loads of master cartons both horizontally and vertically. </li></ul><ul><li>A pallet or slip sheet forms a platform upon which master cartons are stacked. </li></ul><ul><li>A slip sheet is a thin sheet of solid fibre or corrugated paper and are used for situations when product is handled only a few times. </li></ul><ul><li>A forklift truck normally transports a maximum of two unit loads i.e. two pallets at a time </li></ul>
  159. 159. <ul><li>High stacking trucks are capable of up to 40 feet of vertical movement. </li></ul><ul><li>Even trucks capable of operating in aisles as narrow as 56 inches ar also found in warehouses. </li></ul><ul><li>The significance of narrow-aisle forklift trucks has increased as warehouses seek to increase rack storage density and overall storage capacity. </li></ul><ul><li>Forklift trucks are not economical for long distance horizontal movements because of high ratio of labour per unit of transfer. </li></ul><ul><li>Most effectively utilized in shipping and receiving and placing merchandise in a predetermined storage space. </li></ul><ul><li>Common sources of power are propane gas and electricity. </li></ul>
  160. 160. <ul><li>Many forklift operations are utilizing radio frequency data communication to speed up load put away and retrieval assignments. </li></ul><ul><li>Under the above system, workers receive their assignments through either handheld or vehicle –mounted RF terminals. </li></ul><ul><li>RF technology provides real-time communication capability to central data processing systems, and when combined with bar code scanning of cartons and pallets,it allows fork lift operators to receive and update item status inquiry, material orders and movement and inventory adjustments. </li></ul>
  161. 161. <ul><li>B. Walkie-Rider Pallet Trucks </li></ul><ul><li>Low cost, effective method of material handling. </li></ul><ul><li>Highly versatile low-lift pallet and/or skid handlers with load capabilities from 3,000 to 8,000 lbs. </li></ul><ul><li>Typical applications include loading and unloading, order selection and shuttling over longer distances throughout the warehouse. </li></ul><ul><li>Popular in grocery warehouses. </li></ul><ul><li>Electricity is the power source. </li></ul>
  162. 162. <ul><li>C. Towlines </li></ul><ul><li>Either in-floor or overhead mounted drag devices. </li></ul><ul><li>The major advantage is the continuous movement but lacks flexibility of forklift trucks. </li></ul><ul><li>Most common application is for order selection within the warehouse. Order selectors place merchandise on a four wheel trailer, which is then towed to the shipping dock. </li></ul><ul><li>D. Conveyors </li></ul><ul><li>Conveyors are classified according to power, gravity or roller/belt movement. </li></ul><ul><li>Portable gravity style roller conveyors are often used for loading and unloading. </li></ul><ul><li>In some cases these are transported on the over-the-road trailers to assist in unloading at the destination. </li></ul>
  163. 163. Semi automated Handling <ul><li>Semi automated system supplements a mechanized system by automating a specific handling requirements. </li></ul><ul><li>Semi automated warehouse is a mixture of mechanized and automated handling. </li></ul><ul><li>Automated-Guided Vehicle Systems </li></ul><ul><li>Performs similar kind of handling function as a mechanized tow tractor with a trailer. </li></ul><ul><li>The essential difference is that an AGVS does not require an operator and is automatically routed and positioned at destination with intervention of the operator. </li></ul>
  164. 164. <ul><li>Typical AGVS equipment relies on an optical or magnetic guidance system. </li></ul><ul><li>In the optical application, tape is placed on the warehouse floor, and the equipment is guide by a light beam that focuses on the guide path. </li></ul><ul><li>A magnetic AGVS follows an energized wire installed in the floor. </li></ul><ul><li>The primary advantage is the elimination of a driver and newer AGVS use video and information technology to follow paths without the need for fixed tracks. </li></ul>
  165. 165. <ul><li>B. Sortations </li></ul><ul><li>Typically used in combination with conveyors. </li></ul><ul><li>The products are selected in the warehouse, they are sorted as per specific specific shipment docks and taken onto the conveyors for moving out. </li></ul><ul><li>Master cartons have a distinguishing code, these are read by optical scanning devices and automatically routed to the desired locations. </li></ul><ul><li>The rate of flow is customized to meet changing requirements. </li></ul><ul><li>The benefits are </li></ul><ul><li>Reduction in labour, and </li></ul><ul><li>Increase in speed and accuracy. </li></ul>
  166. 166. <ul><li>C. Robotics </li></ul><ul><li>Humanlike machine that can be programmed by microprocessors to perform various activities. </li></ul><ul><li>Robots are use in warehouses to break down and build unit loads to accommodate exact merchandise requirements of a customer’s orders. </li></ul><ul><li>In break down process, the robot is programmed to recognize stocking pattern and place products in the desired position on a conveyor belt. </li></ul><ul><li>Similarly, robots are used to build unit loads. </li></ul>
  167. 167. <ul><li>Robots are used effectively in warehouses where prevailing environments make it difficult for humans to work such as high noise areas and extreme temperatures like cold storage freezers. </li></ul><ul><li>The capability to incorporate artificial intelligence in addition to speed, dependability, and accuracy makes robotics an attractive alternative to traditional manual handling systems. </li></ul>
  168. 168. Automated Handling <ul><li>Substitutes capital investment in equipment for labour required in mechanized handling systems. </li></ul><ul><li>Though operates faster and more accurately, requires high degree of capital investment and complex to operate. </li></ul><ul><li>Most automated systems are custom deigned and constructed for each application. </li></ul><ul><li>Automated handling concentrates on order selection system at the master carton level as well as on high rise storage and retrieval system. </li></ul>
  169. 169. <ul><li>Order Selection System </li></ul><ul><li>The handling of fast moving products in master cartons is fully automated from the point of merchandise receipt to placement in over-the-road trailers. </li></ul><ul><li>Such systems use an integrated network of power and gravity conveyors linking the storage. </li></ul><ul><li>System is controlled by computer coupled with inventory and order processing systems of warehouse. </li></ul><ul><li>Upon arrival, merchandise is automatically routed to storage position and inventory records are updated. </li></ul><ul><li>Upon order receipt, merchandise is unitized to vehicle size and schedules made for selection. </li></ul>
  170. 170. <ul><li>At an appropriate time, all merchandise is selected in loading sequence and automatically transported by conveyor to th loading dock. </li></ul><ul><li>The only manual handling of merchandise occurs while stacking into transport vehicle. </li></ul><ul><li>B. Automatic Storage and Retrieval System (ASRS) </li></ul><ul><li>High rise handling systems are fully automated from receiving to shipping. </li></ul><ul><li>The components of this system are storage racks, storage and retrieval equipment and control systems. </li></ul><ul><li>The high rise are the vertical storage racks up to the height of 120 feet. </li></ul>
  171. 171. <ul><li>The storage and retrieval machine travels back and forth with the primary objective of moving products in and out of storage. </li></ul><ul><li> Functions of storage & retrieval equipment </li></ul><ul><li>To reach the desired position rapidly. </li></ul><ul><li>To deposit or retract a load of merchandise. </li></ul><ul><li>To ensure merchandise flowing from production is automatically stacked to create a unit load. </li></ul><ul><li>To transport the unit load to the high rise storage area by power conveyor. </li></ul>
  172. 172. <ul><li>C. Information-directed Systems </li></ul><ul><li>All material handling movements are directed and monitored by the command of microprocessors. </li></ul><ul><li>To begin with all required handling movements are fed into the computer for analysis and equipment assignment. </li></ul><ul><li>Analysis of handling requirements and equipment assignment is done in such a way that direct movements are emphasized and deadhead movements are minimized. </li></ul><ul><li>Work assignments are provided to individual forklifts by terminals located on the truck. </li></ul>
  173. 173. <ul><li>Communication between the computer and the truck uses radio frequency (RF) waves with antennae located on the forklifts and high up in the warehouse. </li></ul><ul><li>Information-directed systems can increase productivity by tracking material handler performance and allowing compensation to be based on activity level. </li></ul><ul><li>A single handling equipment may be involved in loading or unloading several vehicles, selecting many orders, and completing several handling assignments, thus increasing the complexity of work direction. </li></ul>
  174. 174. Packaging <ul><li>Packaging can be categorized into two types viz. </li></ul><ul><li>Consumer packaging, which has a marketing emphasis, and </li></ul><ul><li>Industrial packaging, which has more of logistics emphasis. </li></ul><ul><li>Consumer Packaging (Marketing Emphasis) </li></ul><ul><li>Consumer packaging design focuses on customer convenience, market appeal, retail shelf utilization, and product protection. </li></ul><ul><li>Large containers and odd sizes may increase the consumer visibility but make poor logistical packaging. </li></ul>
  175. 175. <ul><li>For example, shipping products fully assembled such as motorcycles results in substantial reduction in density. </li></ul><ul><li>A low density package would mean higher transportation costs and greater warehousing requirements. </li></ul><ul><li>B. Industrial Packaging (Industrial emphasis) </li></ul><ul><li>Individual products or parts are normally grouped into cartons, bags, bins, or barrels for handling efficiency. </li></ul><ul><li>These containers are used to group individual products and are referred to as master cartons. </li></ul>
  176. 176. <ul><li>When master cartons are grouped into larger units for handling, the combination is referred to as containerization or unitization. </li></ul><ul><li>The master carton and the unitized load provide the basic handling unit in the logistics channel. </li></ul><ul><li>The weight, volume, and fragility of the master carton in an overall product line determines transportation and material handing requirements. </li></ul><ul><li>If the package is not designed for efficient logistical processing, overall performance of the system would suffer. </li></ul>
  177. 177. <ul><li>Standardization of master carton facilitates material handling and transportation. </li></ul><ul><li>Standardization of master carton is beneficial even in context of retail backend operations. </li></ul><ul><li>For instance, in case of shoe store as the contents of each master carton are known, it is not necessary to search through many cartons for a particular style or size of shoe. </li></ul><ul><li>Allows master cartons to be more efficiently stacked, resulting in to less backroom congestion. </li></ul><ul><li>Complete identification of master carton contents facilitates completion of retail inventory and merchandise reorder. </li></ul>
  178. 178. <ul><li>Standardized cartons are selected to achieve maximum conformity in increasing the density in the trailer thereby eliminating dead space in stacking. </li></ul><ul><li>The end result of standardized master carton usage is substantial reduction in total cost combined with an effective material handling system at both warehouse and the retail store. </li></ul><ul><li>In situations, when master cartons of more than one size are required, extreme care should be taken to arrive at an assortment of compatible units. </li></ul><ul><li>These different sizes of master cartons should result into modular compatibility. </li></ul>
  179. 179. How to design an Ideal Package? <ul><li>Invariably, logistical considerations alone cannot fully dominate package design. </li></ul><ul><li>The ideal package for material handling and transportation would be a perfect cube having equal length, depth, and width with maximum possible density but such a package does not exist in practice. </li></ul><ul><li>Thus, logistical requirements should be evaluated along with manufacturing, marketing, and product design considerations when standardizing master cartons. </li></ul>
  180. 180. <ul><li>Another critical issue to be considered in package design is to determine the degree of protection required to cope with the anticipated physical and climatic environments. </li></ul><ul><li>The package design and material should combine to achieve the desired level of protection without incurring the expense of overprotection. </li></ul><ul><li>In most cases the cost of absolute protection will be prohibitive and therefore the package construction should be a proper blend of design and material. </li></ul><ul><li>Three broad functions of packaging are </li></ul><ul><li>- Damage protection, Utility/ efficiency, and Communication. </li></ul>
  181. 181. <ul><li>A.Damage Protection </li></ul><ul><li>A major function of the master carton is to protect products from damage while moving and being stored in the logistical system. </li></ul><ul><li>Master carton also serve as a deterrent to pilferage. </li></ul><ul><li>Achieving desired degree of protection involves tailoring the package to the product and selecting proper material for package construction. </li></ul><ul><li>The determining factors are the value and fragility of the product; higher the value, the greater is the justification for nearly absolute protection. </li></ul><ul><li>If the product is fragile and has high value, then the cost of absolute protection can be significant. </li></ul>
  182. 182. Cost of Packaging L o s S B y D a m a g e
  183. 183. <ul><li>The susceptibility to damage of a given package is directly related to the environment in which it moves and is stored. </li></ul><ul><li>Product fragility can be measured by product/package testing by means of shock and vibration equipment. </li></ul><ul><li>If packaging requirements and cost are prohibitive, alternative product designs can be evaluated utilizing the same testing equipment. </li></ul><ul><li>The end result is the determination of the exact packaging required to protect the product. </li></ul>
  184. 184. <ul><li>During the logistical process, common causes of product damage are vibrations, impact,puncture, and compression. </li></ul><ul><li>Stacking failure can also result in damage while the product is in storage. </li></ul><ul><li>The potential physical damage of poor stacking ranges from surface scuffing and marring to complete product crushing, buckling and cracking. </li></ul><ul><li>Typical methods of securing the packages are strapping, tie-downs, and use of various dunnage materials that limit vibrations and shock. </li></ul>
  185. 185. <ul><li>B. Efficiency/ Utilization </li></ul><ul><li>Logistical operations are affected by packaging utility i.e. from truck loading and warehouse picking productivity to transportation and storage space utilization. </li></ul><ul><li>Logistical activity output can be described in terms of packages, such as number of cartons loaded per hour into a trailer, number of cartons picked per hour in a warehouse or distribution centre. </li></ul><ul><li>Material handling efficiency is also strongly influenced by the unitization of packages. </li></ul>
  186. 186. <ul><li>An important part of packaging relating to storage and material handling is the concept of unitization. </li></ul><ul><li>Unitization describes the physical grouping of master cartons into one restrained load for material handling or transport. </li></ul><ul><li>Concept of containerization includes all forms of unitization, from taping two master cartons together to the use of specialized transpotation equipment. </li></ul><ul><li>All types of containerization have the basic objective of increasing material handling efficiency. </li></ul>
  187. 187. <ul><li> Benefits of Unit Loads </li></ul><ul><li>Unloading time and congestion at destination is minimized. </li></ul><ul><li>Products shipped in unit load quantities facilitate material handling and inventory can be positioned rapidly for order selection. </li></ul><ul><li>Damage in transit can be reduced by unit load shipping and specialized transportation equipment. </li></ul><ul><li>All above factors lead to reduction in logistical cost. </li></ul>
  188. 188. <ul><li>A unit load can increase damage potential if it is not properly restrained during handling or transport. </li></ul><ul><li>Standard method of imparting stability to unit load include rope ties, steel strapping, adhesives, wrapping- both shrink wrap as well as stretch wrap. </li></ul><ul><li>C. Communication </li></ul><ul><li>Critical to content identification, tracking, and handling as the these are becoming necessary to total channel success. </li></ul>
  189. 189. <ul><li>Content Identification </li></ul><ul><li>A very obvious communication role is identifying package contents for all channel members. </li></ul><ul><li>The typical information includes manufacturer, product, type of container i.e. can or bottle, count and product code number. </li></ul><ul><li>The carton information is used to identify product for receiving, order selection, and shipment verification. </li></ul><ul><li>Visibility is the major consideration, and material handlers should be able to see the label from reasonable distances in all directions. </li></ul><ul><li>High value products often have small labels to minimize the temptation of theft. </li></ul>
  190. 190. <ul><li>(b) Tracking </li></ul><ul><li>A well controlled material handling system tracks product as it is received, stored, retrieved, and shipped. </li></ul><ul><li>A good control on movement reduces product loss and pilferage and is useful for monitoring employee productivity. </li></ul><ul><li>Low cost scanning equipment, and codification increases the tracking capabilities and effectiveness. </li></ul>
  191. 191. <ul><li>(c) Handling Instructions </li></ul><ul><li>Final role of logistics package is to provide handling and damage instructions. </li></ul><ul><li>The information should be provided about any special product handling considerations such as glass containers, temperature restrictions, stacking considerations, or potential environments concerns. </li></ul><ul><li>If the product is dangerous, such as an explosive chemical , the packaging should provide instructions for ealing with spills and container damage. </li></ul>
  192. 192. Channel Integration-PCM <ul><li>Packaging, Containerization, and Material handling represent integral parts of the logistical operating system; as all three areas influence each other. </li></ul><ul><li>For instance, automated handling cannot be efficiently designed without a high degree of master carton standardization, which in turn provide the opportunity to containerize individual products. </li></ul><ul><li>The integration between material handling capability, transportation, warehousing, inventory policy and packaging communication into customer’s logistical system leads to minimum handling during the exchange of merchandise. </li></ul><ul><li>This type of integration is commonly found in physical distribution. </li></ul>
  193. 193. Scrap/Waste Disposal Scrap Material Input Material Processing Material Output Recycle Disposal
  194. 194. <ul><li>Scrap </li></ul><ul><li>Scrap is a waste created while processing the materials. </li></ul><ul><li>The process scrap is unavoidable extra material removed from the stock of material while generating a component. </li></ul><ul><li>For example, while making a machined component some material has to be removed in the form of chips. </li></ul><ul><li>Quite often, while manufacturing any component some dimensions are not maintained and the lot is scrapped as these cannot be used in the assembly of the product. </li></ul>
  195. 195. <ul><li>B. Surplus </li></ul><ul><li>When the project or product needs a specific quantity of the item, extra leftover cannot be used and this quantity is called surplus. </li></ul><ul><li>The surplus quantity has to be disposed off. </li></ul><ul><li>C. Obsolete </li></ul><ul><li>When the item cannot be used in the product/ project due to changes that might have taken place in respect of dimensions, shape, colour etc, these are called obsolete items. </li></ul><ul><li>Changes ay occur due to defect in product design, or shelf life etc. </li></ul><ul><li>These components have to be scrapped/ disposed off. </li></ul>
  196. 196. Wastivity of a System <ul><li>Wastivity of the system is defined as the ratio of the waste to the input. </li></ul><ul><li>Wastivity= Waste / Input </li></ul><ul><li>Gross wastivity= Total waste generated/ Total input. </li></ul><ul><li>All waste is not the waste, some part of it can be recycled. </li></ul><ul><li>Net waste={Total waste generated}-{Waste recycled within the system}. </li></ul><ul><li>Net wasitivity= Waste which cannot be recycled/ Total input. </li></ul><ul><li>Wastivity assesses the productivity for each type of input. Both wasitivity and productivity are complementary to each other. </li></ul>
  197. 197. Issues to be addressed <ul><li>Quick identification of the waste generated. </li></ul><ul><li>Separation of different types of waste. </li></ul><ul><li>Economic reduction. </li></ul><ul><li>Efficient collection and handling. </li></ul><ul><li>Recycling, and effective disposal without affecting the environment. </li></ul><ul><li>Designing a suitable ‘waste control programme’. </li></ul>
  198. 198. Recycling /reusing/ disposal of waste/ surplus/ scrap. <ul><li>Recycling refers to the use of bad quality outputs (rejects) or wastes as inputs to the same process or system e.g. reusing plastic scrap. </li></ul><ul><li>Use the scrap for producing by-products. </li></ul><ul><li>Transfer the surplus from one department to another. </li></ul><ul><li>Sell the scrap/surplus as raw materials to other user factories, external agents, or even to the employees. </li></ul><ul><li>Sell scrap through advertisement and auctioning. </li></ul><ul><li>Return the surplus to the vendor, if possible. </li></ul><ul><li>Donate rejected material to charitable organizations to gain social respect. </li></ul>
  199. 199. Warehousing <ul><li>The primary purpose of a warehouse management is to control the movement and storage of materials within an operation. </li></ul><ul><li>Warehousing can be viewed as a place to store inventory as well as a facility for switching the inventory. </li></ul><ul><li>Warehousing is becoming significant to achieve the following objectives: </li></ul><ul><li>To reduce inventory </li></ul><ul><li>To reduced labour costs </li></ul><ul><li>To increase storage capacity </li></ul><ul><li>To increase customer service </li></ul><ul><li>To increase inventory accuracy. </li></ul>
  200. 200. <ul><li>Typically, the warehouses received merchandise by rail or road and the materials were moved manually to a storage area within the warehouse and piled up on the floor in stacks manually. </li></ul><ul><li>Due to above, though different products were stored in the same warehouse it was difficult to identify the merchandise with respect to a particular order. </li></ul><ul><li>On the receipt of the customer orders, products were handpicked and placed on the wagons and these wagons were pushed out of shipping area. </li></ul>
  201. 201. <ul><li>As the labour was inexpensive, human resources were used extensively and no consideration was given to efficiency utilization, work methods, or material handling. </li></ul><ul><li>Inspite of poor efficiency, warehouses continued to provide a necessary bridge between production and marketing. </li></ul><ul><li>With the improved techniques of forecasting and production scheduling the need to build up inventory was considerably reduced. </li></ul><ul><li>Also, delays during manufacturing process reduced as the production became more coordinated. </li></ul><ul><li>Seasonal products continue to require warehousing. </li></ul><ul><li>The overall need to store materials to support manufacturing has been reduced. </li></ul>
  202. 202. <ul><li>In context of retailing, the department stores face the necessity of stocking an increased variety of products and are unable to order in sufficient quantities from a single supplier to enjoy the benefits of consolidated shipment. </li></ul><ul><li>Direct ordering from manufacturers becomes prohibitively expensive due to high cost of transporting small shipments. </li></ul><ul><li>This necessitates the need for warehousing to provide timely and economical inventory assortments. </li></ul><ul><li>At wholesale level, the warehouse becomes a support unit for retailing. </li></ul>
  203. 203. <ul><li>In context of manufacturing, companies producing products at multiple locations, efficient warehousing becomes a method for reducing material and parts storage and handling costs while optimizing production. </li></ul><ul><li>For implementing JIT and stockless production strategies warehousing becomes an integral part of entire value chain. </li></ul><ul><li>As the basic objective of JIT is to reduce work-in-process inventory, manufacturing needs to supported by highly dependable delivery. </li></ul>
  204. 204. <ul><li>In a country as large as India, this is possible only by having strategically located warehouses. </li></ul><ul><li>The stoc