Market Logistics & Supply Chain Management

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Market Logistics & Supply Chain Management

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Market Logistics & Supply Chain Management

  1. 1. Chapter 15 Market Logistics & Supply Chain Management SDM – Ch 15 Tata McGraw Hill Publishing 1
  2. 2. Logistics Defined • Logistics means having the right thing, at the right place, at the right time • The science of planning, organizing and managing activities that provide goods or services – Logistics World, 1997 SDM – Ch 15 Tata McGraw Hill Publishing 2
  3. 3. Logistics • Functions: planning, procurement, transportation, supply and maintenance • : science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources SDM – Ch 15 Tata McGraw Hill Publishing 3
  4. 4. Scope of Logistics • • • • • • • • Choice of markets Procurement Plant location and layout Inventory management Location and management of warehouses Choices of carriers, mode of transport Packaging decisions Relevant to all enterprises: manufacturing, Government, Institutions, service organisations SDM – Ch 15 Tata McGraw Hill Publishing 4
  5. 5. Input •Natural Resources (land, facilities Equipment) •HR •Finance •Information SDM – Ch 15 Logistics Activities Customer service Demand forecasting Distribution Communications Inventory control Materials handling Order processing Parts and service support Plants and warehouse selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehouse and storage Tata McGraw Hill Publishing Output •Marketing Orientation (competitive Advantage) •Time and Place utility •Efficient move to customer 5
  6. 6. Logistics and SCM • Logistics tends to focus on transportation and distribution, SCM focuses on purchasing and procurement, production planning, demand management, from popint of origin to point of consumption • Supply chain management also logistics functions plus purchasing,sourcing, procurement, manufacturing operations, location planning, • All activities and flows from point of origin to point of comsumption of a materials SDM – Ch 15 Tata McGraw Hill Publishing 6
  7. 7. Links and Flows General material flow/ service flow Information flow Information flow Customer’s customer Customer Lead Firm Supplier Supplier’s supplier General cash flow Outbound / Downstream logistics SDM – Ch 15 Inbound / Upstream logistics Tata McGraw Hill Publishing Source: ICFAI 7
  8. 8. Source: Michael Porter The Value Chain S U P P P O R T Company Infrastructure Organisation, people, methods margin Systems & technology Procurement Inbound Operations logistics Outbound Marketing logistics & sales Service margin SDM – Ch 15 Tata McGraw Primary activities Hill Publishing 8
  9. 9. Inbound and outbound logistics • Inbound logistics • Receiving storing issuing inputs and taking care of materials handling, inventory control, scheduling for production, • Interface with company’s suppliers, vendors and other service providers SDM – Ch 15 Tata McGraw Hill Publishing 9
  10. 10. • Outbound logistics • Distributing finished goods to dealers/ stockists/customers • Interface with copmay’s customers SDM – Ch 15 Tata McGraw Hill Publishing 10
  11. 11. Logistics Focus Areas Customer service related Packaging Order processing Spare parts and service support After sales Customer service support Demand forecasting Distribution communications Return goods handling Operations related Plant and warehouse site location Procurement Inventory control Materials handling Salvage and scrap disposal Traffic and transportation Warehousing and storage Logistics may be confined to the company whereas SCM extends beyond SDM – Ch 15 Tata McGraw Hill Publishing 11
  12. 12. Supply Chain Management • Business context: – – – – Globalization of the market place Advances in technology Increasingly demanding, informed customer base Purchase decisions on dimensions of quality, price and time • Innovative supply chain: – – – – To meet customer driven challenges To reduce costs Improve service levels Enhance speed to market SDM – Ch 15 Tata McGraw Hill Publishing 12
  13. 13. Supply Chain Integration Customer Analysis Order Fulfillment Purchasing/Supplier Partnering Storage & Transportation Integrated Supply Chain Management Demand & Lead Time Management Manufacturing/ Re-manufacturing/ Assembly SDM – Ch 15 Inventory Management and control Materials Tata McGraw Hill Publishing Management Inventory management… 13
  14. 14. • Inventory Management SDM – Ch 15 Tata McGraw Hill Publishing 14
  15. 15. Why Carry Inventory? • Support production requirements • Support operational requirements • Maximize customer service – ensure availability when needed – protect against uncertainty • Hedge against marketplace uncertainty • Take advantage of order quantity discounts SDM – Ch 15 Tata McGraw Hill Publishing 15
  16. 16. Factors Which Drive Inventory • Target service level parameters • Lot sizing practices • Safety stock and safety time conventions • Volume discounts and purchase arrangements • Seasonal build up needs SDM – Ch 15 Tata McGraw Hill Publishing 16
  17. 17. Categories of Inventory • Anticipation – built in anticipation of future demand – peak season, strike, promotion • Fluctuation (safety) – to cover random, unpredictable fluctuations in supply and demand and lead time – to prevent disruption in operations, deliveries etc • Lot-size – to take advantage of quantity discounts, reduce shipping, set up and clerical costs – also called cycle stock SDM – Ch 15 Tata McGraw Hill Publishing 17
  18. 18. Categories of Inventory • Transportation – pipeline or movement inventories – to cover the time needed to move from one point to another – factory to distribution point for example • Hedge – for materials where prices are volatile • Maintenance, repair and operating supplies (MRO) – to support M and O – spare parts, lubricants, consumables etc SDM – Ch 15 Tata McGraw Hill Publishing 18
  19. 19. Performance Measures • Inventory turns = Annual cost of goods sold /average inventory in value • Days of sales = inventory on hand / average daily sales SDM – Ch 15 Tata McGraw Hill Publishing 19
  20. 20. Types of Classification • ABC category – most common for all • HML - high, medium, low - similar • FSND – fast moving, slow moving, nonmoving, dead – spare parts / FG SDM – Ch 15 Tata McGraw Hill Publishing 20
  21. 21. ABC Inventory Analysis • Based on Pareto’s law: – A – 20% items worth 80% of value – B – 30% items worth 15% of value – C – about 50% items account for 5% of the usage • Classify items based on the above criteria • Apply degree of control in proportion to the importance of the group SDM – Ch 15 Tata McGraw Hill Publishing 21
  22. 22. Inventory Related Costs • Unit costs – basic value of the item carried • Ordering costs – generating and sending a material release, transport, any other acquisition costs • Carrying costs – capital, storage, obsolescence • Stock-out costs • Quality costs – non-conforming goods • Other costs – duties, tooling, exchange rate differences etc SDM – Ch 15 Tata McGraw Hill Publishing 22
  23. 23. Approaches for Controlling Inventory • Continuous review: – Safety stocks and forecasting methods – Excess and obsolete inventory • Part simplification and re-design • On-site supplier managed inventory • Use of supply chain inventory management systems, Materials Requirement Planning, Distribution Requirement Planning etc • Automated inventory tracking systems • Supplier – buyer cycle-time reduction Warehouse management… SDM – Ch 15 Tata McGraw Hill Publishing 23
  24. 24. Functions Warehouses Material handling Customer service Information transfer Receive goods Identify goods Sort goods Despatch to storage Hold inventory Recall, select goods Marshal the shipment Despatch the shipment Prepare records and advices SDM – Ch 15 Storage function Temporary Tata McGraw Hill Publishing Permanent 24
  25. 25. Purpose of Warehousing • To provide desired level of customer service at the lowest possible total cost • It is that part of the firm’s logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored • Distribution warehousing relates mainly to FG SDM – Ch 15 Tata McGraw Hill Publishing 25
  26. 26. Warehouses • Support manufacturing • Mix products from multiple facilities for shipment to a single customer • Break-bulk • Aggregate • Used more as a ‘flow-thru’ point than as a ‘hoarding’ point SDM – Ch 15 Tata McGraw Hill Publishing 26
  27. 27. Distribution Warehousing • The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost • Could be C&FA s, depots or distribution centers • Macro location strategies: – Market positioned – Production positioned – Intermediately positioned SDM – Ch 15 Tata McGraw Hill Publishing 27
  28. 28. Transportation • Very important in the Logistics function: – Movement across space or distance adds value to products – Transportation provides time and place utility • Role of transportation includes: – Provides opportunity for growth under competitive conditions – Deeper penetration into markets – Wider distribution means greater demand – Can influence product prices favourably SDM – Ch 15 Tata McGraw Hill Publishing Principles…. 28
  29. 29. Transportation Principles • • • • • • • • Continuous flow Optimise unit of cargo - stackability Maximum vehicle unit – capacity utilization Adaptation of vehicle unit to volume and nature of traffic Standardisation Compatibility of unit load equipment Minimum of dead weight to total weight Maximum utilization of capital, equipment and personnel SDM – Ch 15 Tata McGraw Hill Publishing Process…. 29
  30. 30. Comparison of modes…… Reverse Logistics • Movement of goods from the market or customer back to the company • The need: – – – – Increased awareness of the environment Stringent legislation For some it is part of the business Profitability of dealing with scrap, surplus • Surplus, obsolescence can result due to: – Over optimistic sales forecasts, change in product specs, errors in estimating material usage, losses in processing or overbuying based on incentives SDM – Ch 15 Tata McGraw Hill Publishing 30
  31. 31. Advantages of Rail • Economy – more so for goods over long distances • Efficiency of energy • Reliability – not affected by weather conditions SDM – Ch 15 Tata McGraw Hill Publishing 31
  32. 32. Disadvantages • Uneconomical for small shipments and short distances • Not suitable for remote stations • Costly terminal handling facilities • Inflexible time schedules Road transport….. SDM – Ch 15 Tata McGraw Hill Publishing 32
  33. 33. Road Freight Advantages • Through movement – direct from consignor to consignee, no transshipment • Flexibility – routes and loading routines can be easily altered, operate day and night • Less capital costs – for own fleet + immunity from industrial action • Fast turn-around – if articulated units like tractors and trailers are used • Minimum delays SDM – Ch 15 Tata McGraw Hill Publishing 33
  34. 34. Disadvantages • Susceptibility to weather and road conditions – in spite of the best protection • Unsuitability for heavy loads – rail transport more economical for bulk loads • Unsuitability for long distances – again the rail telescopic rates are more favourable Air transport…. SDM – Ch 15 Tata McGraw Hill Publishing 34
  35. 35. Air Transport Advantages • • • • • Faster mode Reduction in cost particularly inventory Broad service range Increasing capabilities Disadvantages: – High cost – Weather affects flight conditions – Limitations on heavy consignments SDM – Ch 15 Tata McGraw Hill Publishing Water transport…… 35
  36. 36. Water Transport • Advantages: – Mass movement of bulk – Lowest freight cost – Preferred for long haul of low value commodities • Disadvantages: – Not for quick transit – Suitable for certain types on commodities only Pipeline…. SDM – Ch 15 Tata McGraw Hill Publishing 36

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