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Logistics main

  1. 1. Elements of Logistics ManagementWhat is Logistics?¶ Can you visualize the productionfunction of a business process?¶ What is the most accessible of allproduction functions you canvisualize?¶ Now what activities makeproduction happen?* Procurement• Sourcing• Moving or Transportation• Handling• Storage03/16/12 1
  2. 2. Elements of Logistics Management - continued*Conversion* Distribution• Transportation• Warehousing 03/16/12 2
  3. 3. Logistical Management Making inputs and outputs availablewhen they are needed, where they areneeded and in the quantities they areneeded* Inputs from market [domestic orimport] are needed for production* Out puts of production process[Industrial products, engineering,chemical & pharmaceutical productsare needed in the market [domestic orexport]* Battle fronts need troops* Troops need supplies*People need agricultural products* Agriculture needs fertilizers*03/16/12 needs food grains PDS 3
  4. 4. Logistical Management - continued• Without logistics no value addingprocess can run• Logistics is a facilitator of trade &business• Age old practice• Modern logistics is scientific• Logistics is a planning function• Genesis of logistics is in militaryplanning• Origin of many OR techniques likeValue analysis, PERT, CPM etc.. isthe crucible of war 03/16/12 4
  5. 5. Logistical History of India• India was a maritime power sinceabout 300 BC• Goods Made in India, steel, textilesetc.• Trade and prosperity• Gradual degenerationSome logistical feats in history:• Berlin Air Lift – A study inlogistics• Indians in the Gulf countries - 1991• Operation Overlord, II WorldWar-1945• 1962 war with China• 1776 American war ofIndependence [4th July1776]03/16/12 5
  6. 6. What causes bad logistics?• Infrastructure: bad roads, inefficientrailways, poor communication lines,congestion in ports• Taxation: e.g. Octroi• Information: Inadequateinformation, bad communication• Management: Bad managementdecisions [carrier selection, outsourcing etc.] 03/16/12 6
  7. 7. V1 V2 V3 V5 Receiving stores V4 Procurement Operation OutboundInbound LogisticsLogistics Finished Goods Stores W1 W2 W3 R1 R2 R3 R4 R5 R603/16/12 Market 7
  8. 8. Importance of Logistics Why should we learn logistics?Why is logistics important formanagement students?• Logistics is the bed rock of tradeand business• Leads to customer satisfaction,D&F expectations of customers• Integrates logistical activities• Competitive edge in a commoditiesmarket• Logistics wins or loses wars• Supports critical functions likeoperations and marketing to be JUSTIN TIME by providing Interface withmarketing 03/16/12 8
  9. 9. Importance of Logistics - continued• Logistical costs are 5% to 35% ofsales depending on type of business,geographical areas of operation etc.• Crucial to survival and prosperity in global business• logistics experts are moving up in corporate ladder• leads to the concept of supply chainmanagement• Indian market is changing- shiftfrom seller’s market to buyer’s market• changing customer• expanding business, global trade• competition, internal & external• concept of lean management 03/16/12 9
  10. 10. Operating Objectives Of Logistics1.Rapid response• F- Objective: Ability to respondrapidly to customer’s order• Role of Information Technology• Concept of SMED and Kanban2. Minimum variance• D-Objective as OTD• Any event that disturbs the supplychain is variance• Problems in information flow,traffic snarls, acts of god, wrongdispatches, transit damage• Traditional approach Vs costs 03/16/12 10
  11. 11. Operating Objectives Of Logistics -continued3. Minimum inventory• Concept of Inventory Turns• Increase these turns withoutsacrificing customer satisfaction• Single piece flow as practiced byJIT companies4. Movement consolidation• Integrating interests of severalplayers in the supply chain.• Planning several small shipmentstogether [of different types ofshipments] 03/16/12 11
  12. 12. Operating Objectives Of Logistics -continued5. Quality• Quality of logistics performance -complete fulfillment of order6. Life cycle support [cradle tocradle logistical support]• After sales service• Reverse logistics# Rigid quality standards# transit damage# product expiration dating# law against unscientific disposal03/16/12 12
  13. 13. Operating Objectives Of Logistics -continued# law making recycling mandatory# erroneous order processing bysupplier 03/16/12 13
  14. 14. Logistical Functions INFORMATION SYSTEMS Internal & External Information flow WARENETWORK HOUSINGDESIGN Storage, Handling, LOGISTICS Packing & Distribution FUNCTIONS TRANSPORTATION INVENTORY Water, Road, Rail, When to order? Pipeline & Air How much to order? Just In Time03/16/12 14
  15. 15. Logistical Functions components of logistics or elements of logistics• Information management* Role of technology, fast & accurateinformation* Real time logistics in competitivebusiness* Notification to customer* Role of information in logisticalforecasting & logistical operations,order processing and ordermanagement* Erroneous information will resultinto product recall and reshipment 03/16/12 15
  16. 16. Logistical Functions - continued* Inventory control* Neither stock-out nor stockpiling* Inventory policies* Inventory models* Inventory systems• Transportation* the most visible of all elements* High contributor to costs logistics- Movement costs, Preservation costs, Cost of idle asset, Administrationcosts* Transportation is accomplished inthree ways- Private carriage, contractcarriage, common carriage 03/16/12 16
  17. 17. Logistical Functions - continued* Expectations from carrier-minimum cost, speed of transport,consistency in speed• Warehousing* Switching facility rather than astorage facility* Ownership can be private, public orthird party contract.*Economic benefits - Consolidation,Break bulk, Cross Dock, processingpostponement, stock piling[seasonalstorage]* Service benefits - spot stocking,Assortment, mixing, productionsupport, market presence 03/16/12 17
  18. 18. Logistical Functions - continued• Material handling* Receiving, moving, storing,dispatching activities* Impact on cost [capital as well asrunning], Quality and safety* One of the principles of materialhandling is minimum movement* Commonly used material handlingequipment- forklifts, EOT Cranes,hoists, pulley blocks, trolleys,railroad cars, conveyers, ropes, slings,carousels, sortations, robotics• Packaging* Types of packaging- consumerpackaging and industrial packaging 03/16/12 18
  19. 19. Logistical Functions - continued*Consumer packaging°Attracts attention° single most important factor inpurchasing decisions made at pointof sale* Industrial packaging - makeslogistical activities of handlingstorage moving easy* Sales functions of packaging° Display - attraction, easyidentification, communication ofrecipe, hazard, special care° Ease of opening° Convenience - flexi tubes, sprays° Dispensing - spouts, taps, spays,tubes 03/16/12 19
  20. 20. Logistical Functions - continued* Functions of packaging# Protection - physical damage,bubble pack, corrugated sheet cartons,mangos in crates# Cube minimization - flattened cans,square shaped whisky bottles, softdrink concentrates, furniture inknocked down condition# Weight minimization - plasticbottles, plastic crates, milkbags# Facilitating handling & using -fruity packs, flexible tubes, aerosolpacs# Facilitating storage & reuse -corrugated boxes 03/16/12 20
  21. 21. Logistical Functions - continued# Grouping goods into convenientunit for distribution - mango boxes,cola bottles, cotton bales, wire ropecoils# Pilfer proofing - bisleri caps, colacaps# Handling - pallets, straps• Net work design [Locationanalysis] - to minimize overallsystem cost of delivering value to thecustomer# Number of facilities - productionfacilities, warehouses# What is to be performed in thesefacilities? 03/16/12 21
  22. 22. Logistical Functions - continued# Their location - to minimize overallsystem cost# Who operates these facilities? -outsourcing decisions# Communication between thesefacilities- are some of the salient features ofnet work design. 03/16/12 22
  23. 23. Some important concepts# Logistics and supply chainmanagement Logistics and Supply ChainManagement by G.Raghuram, N.Rangaraj. Page#15, The Management of Business Logistics byCoyle, Bardi, Langlely Page # 31 ]• Focus on costs and benefits inphysically moving the goods tocustomers - post war1950s.• Idea of total system cost• Trade off situations between costsof several activities 03/16/12 23
  24. 24. Some important concepts - continued• Selection of modes of transport• 1960s - Emergence of Physicaldistribution management- integration of activities of outboundlogistics- Electronic era, information as anelement of Physical distributionmanagement• 1970 - some aspects of financialsubsystem integrated & focus onactivities of inbound logistics untilconsidered to be vendors’ concern 03/16/12 24
  25. 25. Some important concepts - continued• 1980s - Concept of Logistics as amanagement function, internallyintegrating all activities of inboundand out bound logistics - Focus on logistical operations,application of TQM, TPM & JIT• 1990 - Gradually concept isencompassing entire value chain asSupply Chain Management• Henry Ford’s [early 1990s] idea ofcontrol on supply chain• No firm can be self sufficient 03/16/12 25
  26. 26. Some important concepts - continued• Scope - Source of raw materials toend user - all upstream &downstream organizations & linkages• How is this created in business? -external integration• Concept of supply chain as a pipeline• Main objective - Supply chainprofitability by value creation• Focus - end user 03/16/12 26
  27. 27. Some important concepts - continued• Origin - extension of scope oflogistics management• Definition - Management ofupstream and down streamrelationships with suppliers andcustomers to deliver superiorcustomer value at less cost to thesupply chain as a whole• breaking the organizational barriersto deliver value 03/16/12 27
  28. 28. Some important concepts - continued* Sharing of sales information inreal time - reduces inventories byreducing uncertainties - compresses valuechain by slashing lead-times therebyquickening cash flow 03/16/12 28
  29. 29. vendors Inbound Incoming materials logistics M/M stores Conversion process O/M [WIP] Supply Chain FG stores Magt Logistics Physical management distrib. network Warehouses Mgt [outbound logistics] Customers03/16/12 29
  30. 30. particulars Logistics Supply chain management management Scope Inbound logistics, All players in the in process supply chain from inventory, raw material source outbound logistics to finished product consumer, vendors, their vendors, supplier organization [shipper], Warehouses, service providers, customers, their customers How this is created By internal By external in business? integration of integration of roles logistics functions of various players handled by various in the supply chain. management functions within organization Main objective Logistics cost Supply chain reduction by profitability by integrating value creation. resources across the pipeline03/16/12 30
  31. 31. focus L/M tries to take the SCM focuses on product to the value creation in the consumer at supply chain. Hence minimum logistical this is customer cost. Hence it is focused or demand supply driven. driven. definition Logistics is the Management of process of upstream and down strategically stream relationships managing with suppliers and procurement and customers to deliver storage of material , superior customer part and finished value at less cost to inventory [and the supply chain as related information a whole. flow] through organization and its marketing channels in such a way that current and future profits are maximized through cost effective fulfillment of order Origin A very old concept As a logical in military planning. extension of logistics management03/16/12 31
  32. 32. Some important concepts - continued*Business functions of logisticsmanagement ……[physical distributionmanagement by K.K.Khanna – page # 13, TheManagement of Business Logistics by Coyle,Bardi, Langlely Page # 39]• military origin, military functions &post war march into business• procuring, moving and storing of R/M and industrial F/G• making inputs available for valueaddition to a conversion process• facilitation of relevantmanufacturing and marketing 03/16/12 32
  33. 33. Some important concepts - continued - making finished goods available tothe customers in the market• procuring, moving and storingof agricultural products• Food Corporation of India• importance of logistics function incommodities market* Event logistics - The net work ofactivities, facilities and personnelrequired to organize, schedule anddeploy the resources for an event totake place and to efficiently withdrawafter the event 03/16/12 33
  34. 34. Some important concepts - continued* Service logistics - the acquisition,scheduling and management of thefacilities/assets, personnel andmaterials to support and sustain aservice operation* Military logistics - design andintegration of all aspects of supportfor the operational capability of themilitary forces [deployed or ingarrison] and their equipment toensure readiness, reliability andefficiency 03/16/12 34
  35. 35. Some important concepts - continued*Logistical mission ………[Logistics &SCM by Martin Christopher, Page # 13, L/M byBowersox Page #9]• Achievement of business objectivesat minimum logistical cost[delivering- QCD expectations ofcustomers at minimum logisticalcosts, i.e. creating customer value atminimum cost• set of goals to be achieved at aparticular type of market responsiveto competition 03/16/12 35
  36. 36. Some important concepts - continued• mission focus Vs individualfunction• Mission of logistics is providing ameans by which customer satisfactionis achieved 03/16/12 36
  37. 37. Some important concepts - continued*Inbound logistics Procurement operations inprocurement cycle• potential avenues for reducingsystems costs• value of inventory is low• trade off between cost ofmaintaining inventory in transit andlow cost transport exists• Delivery time, size of shipment,mode of transport are different fromO/B logistics 03/16/12 37
  38. 38. Inbound logistics - continued Order Sourcing placement & expediting Supplier Receiving Transportation03/16/12 38
  39. 39. Some important concepts - continued*Outbound Logistics• Value added goods are to be madeavailable in the market distributedthrough the network of warehousesand retailers’ shops• Value of the inventory is very highas during conversion value is added• Delivery time, size of shipment,mode of transport are different fromI/B logistics 03/16/12 39
  40. 40. Outbound Logistics - continued Activities in distribution performance cycle Order Order Customer processing transmission order Order Order Customer selection transportation delivery03/16/12 40
  41. 41. Some important concepts - continued*Total cost analysisConventional approach• No information on the impact of cost of an individual function onthe system• Apportionment of Logistics costs• Costs get submerged• Competitive edge is lost by theorganization.• Incremental cost to the system -on account of changes to the systemlike introduction of a warehouseand the impact on the system• Impact of decisions at variouslevels on the system03/16/12 41
  42. 42. Some important concepts - continued• Cost information is biased, costelements tend to get hidden out offear that they expose functionalweakness• Costs in no man’s land are neverowned - like tube lights on passages,cost of returned vehicle• Cost cutting is fragmented sodoesn’t reduce system cost• Focus is on input function. Henceattempt is to reduce function cost inisolation• Customer dissatisfaction* Total cost approach• Modern approach to logisticalcosting03/16/12 42
  43. 43. Some important concepts - continued• Focus on reduction of cost ofoutput of the system• Provides competitive edge to thecompany• Several trade off points in thesystem, further areas of improvement 03/16/12 43
  44. 44. Some important concepts - continued*Mission based costing[or budgeting] in logistics• input focused costing• output focused costing• mission goals and costs are set• functional inputs are worked out tomeet the system deliverables Purchasing Sales Transportation Production Marketing Etc Customer service goals [QCD] Mission At market type A A 290 Customer service Mission goals [QCD] B At market type B Mission Customer service C goals [QCD] At market type C 03/16/12 44
  45. 45. Mission based costing - continued transportation Ware housing Customer serviceMission 15 5 5 C1 goals [QCD]A =Rs. 25/- At market type A Customer serviceMission C1 goals [QCD]B 45 35 20 =Rs. 100/- At market type B Customer serviceMission C1 goals [QCD]C =Rs. 30/- At market type C 10 10 10 70 50 35 Rs.155/- Functional Inputs to Logistical Management Fig.8 03/16/12 45
  46. 46. Interface with marketing PRICE LOGISTICS PRODUCT MARKETING PROMOTION PLACE03/16/12 46
  47. 47. Some important concepts - continued*Interface with marketing• a common wall,surface or area withanother body, concept or function -area of common interest or concern• Four Ps of marketing and logisticalinterface• Price - marketing can re offer theprice to beat the competition withsuperior logistical support• Product & Packaging- size shape &weight/volume ratio of the producthas major impact on logistical cost.# Gillette story of floor displays 03/16/12 47
  48. 48. Some important concepts - continued, Interface with marketingPromotion - promotional strategies ofmarketing need to be decided byworking closely with logistics# Push/Pull strategyPlace - whether to distribute throughwholesalers or through retailers is amarketing decision with impact onlogistics# wholesalers’ demand & retailers’demandCustomer Service - another area ofinterface between marketing &logistics 03/16/12 48
  49. 49. Some important concepts - continuedInterface withoperations SHORT RUNS LOGISTICS SEASONAL DEMAND OPERATIONS SUPPLY SIDE INTERFACE PACKAGING 03/16/12 49
  50. 50. Some important concepts - continuedInterface with operations* Short production runs• Very strong logistical support isneeded to operate Just In Time• Short runs lead to inventoryreduction* Seasonal demand• Inventory should be mutuallyaccepted* Supply side interface• Prevent shortages* Packaging• Protective packaging• Third party alternatives 03/16/12 50
  51. 51. Some important concepts - continuedRole of planning in logisticsmanagement• Role of planning is central tologistics management• Mission of logistics is to achievedesired levels of service and quality at lowest possible cost.• Logistics makes one plan, thatreplaces traditional concept ofplanning in pockets 03/16/12 51
  52. 52. Some important concepts - continued 8. Importance of 3Cs “C” customers Look for value Value [benefit] at lowest Value price“C” company “C” competitionBy effective By effectiveutilization utilization of assets of assets tries to Cost differentials tries to create andcreate and offer offer value tovalue to customers customers SERVICE LEADER SERVICE & COST HIGH LEADER Whom shall I buy from? OK S HAPPY COMPANY E R COST LEADER CUSTOMER V I C E LOW SAD OK 03/16/12 HIGH COST LOW 52
  53. 53. Some important concepts - continued*Integrated logistics•Attributes of Logistics Department# Scope is wide spread- functions oflogistics are spread across variousstages of value chain in theorganization# Provides interface betweenmarketing and customers, marketingand operations, operations andsupplier# Provides competitive edge tobusiness in the current environment# Handles flow of information,materials & recovery cycle# Tackles cost reduction 03/16/12 53
  54. 54. Some important concepts - continued• Logistical competency• What is logistical competency?• Definition: Logistical Competency isthe relative assessment of a firm’scapability to provide competitivelysuperior customer service at thelowest possible total cost.• It is a strategy to provide a superiorservice at a total cost below industryaverage.• Its aim is to view how logistics canbe exploited as a core competency sothat fits into a firm’s overall strategicpositioning 03/16/12 54
  55. 55. Some important concepts - continued Inventory flow Customer Physical Manufacturing Suppliers distribution support Procurement Information flow•How can this be achieved?• By integrated performance of logisticalfunctions# jigsaw puzzle# What is the big picture?• What are the parameters needed toachieve this integrated performance?# Information flow, Inventory flow,organization, customers and suppliers 03/16/12 55
  56. 56. Some important concepts - continued• Concept of Integration in LogisticsOperation• Internal & External Integration• Internal Integration# First Stage of Internal Integration -Materials management & Physicaldistribution Management# Second Stage of Internal Integration- Logistics Management• [ External Integration - SupplyChain Management]# functions in coordinated fashion# One operational command -Performance in isolation loses sight ofoverall picture. 03/16/12 56
  57. 57. Some important concepts - continued# Picture before you to solve thejigsaw puzzle# Links the enterprise with customersand suppliers# Information flowing into theenterprise is converted into schedulesand plans & value added productsreach the customers# Integrated logistics is interrelatedefforts of managing information flow& inventory flow 03/16/12 57
  58. 58. Some important concepts - continued• Value added role of Logistics# form utility, place and time utilityand possession utility add value to aproduct• Form Utility is given by Production• How logistics also adds form utility -processing postponement, mixing,unpacking• Place and Time Utility is given bylogistics functions• Possession Utility: Marketingcreates Possession Utility bypromoting the product• But logistics makes finallypossession by customer happen 03/16/12 58
  59. 59. Some important concepts - continued* Logistical Information System.• Primary activities of LIS• data flow from external sources• processing and storage ofinformation within the firm• communication to the decisionmaker in the form of reports• communication to customers andsuppliers and their feedback 03/16/12 59