The document discusses supply chain and logistics concepts including: 1) Physical distribution involves choosing warehouses and transportation carriers to deliver goods in the desired time at lowest cost. Physical distribution has expanded into supply chain management. 2) Supply chain management involves procuring inputs, efficiently converting them into finished products, and dispatching them to customers. 3) Market logistics planning involves four stages - deciding on a value proposition, developing operational excellence, implementing solutions, and deciding on a channel/network strategy.

1. Session:
Supply Chain and
Logistics
IIM Rohtak

2. Market Logistics
• Physical Distribution starts from the factory.
• Managers chooses a set of (a) Warehouses (stocking
points); and (b) transportation carriers that will
deliver the goods to final destination in the desired
time and at the lowest total cost.
• Physical Distribution has now expanded into a broader
concept of Supply Chain Management (SCM).
• SCM starts from:
– strategically procuring the right inputs (raw materials and
capital equipments);
– converting them efficiently into finished products; and
– dispatching them to the final destination.

3. Market Logistics Planning: 4 stages
Deciding on the best Channel
design and network strategy
for reaching its customers
Implementing the solution
• Should we serve with the best
directly or through
intermediaries?
• What on-time • Where to source the
manufacturing • Sales Forecasting • Information Systems
delivery standard
should we offer? facilities? For what • Warehouse • Equipments
products? Management • Policies
• What levels
should we attain • How many warehouses • Transportation • Procedures
in ordering and should we maintain? Management
billing accuracy? • Where should we locate • Material
these warehouses? Management
Deciding on the company’s Developing Operational
Value Proposition to its excellence in
customers

4. Supply Chain for an Individual Firm
Transportation Transportation Customers
Warehousing
Information
flows
Factory
Transportation
Vendors/plants/ports
Warehousing Transportation
1-2

5. Logistics Defined
Logistics is the process of planning, implementing and
controlling the efficient, cost-effective flow and storage
of raw materials, in-process inventory, finished goods
and related information from the point of origin to point
of consumption for the purpose of conforming to
customer requirements.
Council of Logistics Management
Supply Chain Management Defined
SCM is the integration of all activities associated with the
flow and transformation of goods from raw materials
through to end user, as well as information flows, through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
Handfield and Nichols
1-5

6. The Logistics/Supply Chain Mission
Getting the right goods or services to
the right place, at the right time, and in
the desired condition at the lowest cost
and highest return on investment.
1-6

7. Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory
Warehousing
Logistics
Material handling
Packaging
Finished goods inventory Supply Chain
Physical Supply Chain
Management
Distribution Management
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
1-7

8. Significance of Logistics
Costs are high
About 10.5% of GDP domestically
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
A high as 70-80% of sales if purchasing and production are
included
Customers are more demanding of the supply chain
Desire for quick response
Desire for mass customization
An integral part of company strategy
Generate revenue
Improve profit
Logistical lines are lengthening
Local vs. long distance supply
Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies
Logistics adds value
Time and place utilities 1-8

9. Effect on Logistics Outsourcing
Internal handling Outsourcing
Profit Profit Increase
Marketing
Marketing
Logistics Increase
Logistics
Overhead Tariffs
Overhead
Materials
Materials
Labor Reduction
Labor
1-9

10. Scope of the Supply Chain for Most Firms
Business logistics
Physical supply Physical distribution
(Materials management)
Sources of Plants/
Customers
supply operations
•Transportation •Transportation
•Inventory maintenance •Inventory maintenance
•Order processing •Order processing
•Acquisition/ Procurement •Product scheduling
•Protective packaging •Protective packaging
•Warehousing •Warehousing
•Materials handling •Materials handling
•Information maintenance •Information maintenance
Focus firm’s internal supply chain
1-14

11. Key Activities/Processes
Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location
Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
1-11

12. The Logistics Strategy Triangle
Inventory Strategy
Forecasting
Storage fundamentals Transport Strategy
Inventory decisions Transport fundamentals
Purchasing and supply Transport decisions
scheduling decisions
Customer
Storage decisions
service goals
The product
Logistics service
Information sys.
Location Strategy
Location decisions
The network planning process
1-12

13. Strategic, Tactical, and Operational Decision Making
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip- Dispatching
ment leasing
Inventories Location, Control policies Safety stock levels Order filling
Order Order entry, transmittal, Processing
processing and processing system orders, Filling
design back orders
Purchasing Development of supplier- Contracting, Expediting
buyer relations Forward buying
Warehousing Handling equipment Space utilization Order picking
selection, Layout design and restocking
Facility Number, size, and
location location of warehouses
2-7

14. Integrated Logistics Systems (ILS)
• ILS is used by many firms, with the help of
Information Technology for tracking and coordinating
the following functions effectively:
– Material management
– Material flow systems
– Physical distribution
• Volvo operates their warehouse in Memphis with the
support of third party suppliers, FedEx Logistics
Services, to handle stocks of truck parts. If a Volvo
dealer needed a part in an emergency, phones a toll-free
number and the part is flown out the same day and
delivered that night at either the airport or the dealer’s
office.

15. Market Logistics Objectives
Situations where logistics planning may go wrong:
• The Traffic/ Logistics manager favours rail shipment over air shipment
because of the less rail cost. However, because the rail transport are slower,
it ties up working capital longer, delay customer payment, and might cause
customers to buy from competitors who offer faster service.
• The Shipping department uses cheap containers to minimize shipping
costs. Cheaper containers lead to a higher rate of damaged goods.
• The Inventory manager favours low inventory. This increases the
possibility of ‘stockouts’, back orders, huge paperwork etc.
Major objectives for any company logistics planning:
• On-time delivery
• Effectively meet emergency needs
• Careful handling of merchandise
• Willingness to take back defective goods and resupply them quickly.

16. Indian Logistic System: Scenario
IndustryOverview
• Logistics functions are currently an in-house activity for
companies that hire discrete services such as transportation and
warehousing while internally performing order processing, distribution,
and logistics planning for inbound and outbound logistics.
• Outsourcing of entire logistics to third-party logistics service
providers is highly limited.
• The practice of complete logistics outsourcing is recent in
India with multinational companies being the major users of
this service.

17. Indian Logistic System: Scenario
• The logistics industry in India is highly fragmented.
This is mainly due to the nature of the
transportation industry.
• In India, over 50 percent of goods are transported
by road. The road transport sector is highly
fragmented with vehicle ownership firmly in the
hands of individual trucks owners with 67 percent
of the owners with a fleet of less than five vehicles.

18. Indian Logistic Scenario
• Inventory carrying costs account for approximately
24 percent of the logistics cost.
• Order processing and administrative costs account
for a significant 10 percent of the logistics costs.
• Stock filing and warehouse management in many cases is
done manually increasing the administrative costs at the
same time adding an element of inefficiency in warehouse
management.

19. Indian Logistic Scenario
• Companies in India are slowly moving towards total
outsourcing of logistics that provides access to
logistics services to their production facility,
warehouses, and IT systems.
• A high level of integration is required between the
company and logistics service providers to provide
logistics services that fulfill the strategic objective of
the companies.

20. Indian Logistic Structure
• The total logistics market consists of market participants
from the unorganized segment to highly technology savvy
and process driven service providers with high levels of
expertise in the area of logistics management.
• The market participants in this industry can be broadly
classified into three broad segments, namely:
– Pure transporters
– Integrated transporters with warehousing facilities
– Third-party logistics service providers (3PLs)

21. Pure & Integrated Transporters
• Transporters are involved only in the physical
movement of goods. They can be classified as
– small, medium and large based on the ownership
pattern of vehicles and their revenue.
• Transporters are considered to be highly
unorganized although many large transporters form
a part of the organized segment of the market.
• Many large transporters are diversifying their
operations to include total logistics management.

22. Third Party Logistics (3PLs)
Third-party logistics service providers
• (3PLs) are involved in the complete value chain of
logistics management including inbound logistics,
supply chain management, tracking and data
reporting, warehousing, (JIT) deliveries, and
outbound logistics.
• 3PL companies currently present in India are multi-
national companies with wide experience in
handling international logistics.

23. Indian Supply Chain Scenario
Some Facts
• GDP : Rs. 27.55 Lakh Crores*
• Inventory tied up : Rs. 1.17 Lakh Crores
• Logistics Cost : 14% of our GDP
• 1% Reduction in LC : Rs. 27550 Crores
• 2% Reduction in LC : Rs. 55100 Crores
* Economic Survey 2003-04

24. Logistics Cost
Country GDP (USD b)* Logistics Cost as % of GDP
Australia 393.0 10-11
Asian Region
China Mainland 1237.1 14.5
India 460.0 14.0
Japan 3996.2 10.5
Korea 468.7 12.4
Singapore 87.0 12.4
Taiwan 281.5 13.5
* World Competitiveness Year Book 2003

25. Logistics Cost cont…
Country GDP (USD b)* Logistics Cost as % of GDP
European Region
France 1419.3 11.7
Germany 1987.0 11.8
Italy 1186.0 12.6
Netherlands 418.8 12.2
Spain 654.0 12.1
UK 1555.2 12.2
North American Region
Canada 729.3 11.8
Mexico 637.3 14.4
USA 10445.6 08.7
* World Competitiveness Year Book 2003

26. International Comparison of Customer Orientation
Parameters Product Product Design On-Time After-Sales Managing
Quality Delivery Service Distribution
Brazil 52.39 56.62 36.34 39.15 51.83
Canada 68.13 58.06 62.19 62.50 66.45
France 55.94 66.96 44.64 45.56 66.09
Germany 92.50 71.39 88.06 78.61 75.83
India 41.08 34.05 30.27 41.08 52.43
Japan 92.68 81.46 93.17 89.76 72.20
Netherlands 72.89 63.11 69.78 68.44 74.76
South Korea 60.71 48.57 59.29 47.14 57.14
Thailand 63.00 58.50 57.00 54.00 66.50
USA 59.67 69.84 62.62 57.70 74.43
Note: Companies are rated 0=poor to 100=excellent

27. Elements of Logistics cost
• Transportation 35%
• Inventories 25%
• Losses 14%
• Packaging 11%
• Handling and Warehousing 9%
• Customers' shopping 6%

28. Ma r k e t O p p o r t u n i t i e s a n d
Forecasts
Figure 1-1 and Chart 1.1 present the revenue
forecast of the Indian logistics industry over
the period 2002 to 2009.

29. Figure1-1
Logistics Industry: Revenue Forecasts (India), 2002-2009
Revenues Year ($ Billion)
2002 12.66
2003 13.46
2004 14.31
2005 15.22
2006 16.19
2007 17.24
2008 18.35
2009 19.54
Compound Annual Growth Rate (2003-2009): 6.4%
Note: All figures are rounded; the base year is 2003. Source: Frost & Sullivan

31. Figure 1-2 and Chart 1.2 present the revenue
forecast of the third-party logistics solutions
market over the period 2002 to 2009.

34. End-userDemandAnalysis
Figure 1-3 and Chart 1.3 present the industry wise
revenue contribution to the total Indian logistics
industry.

40. Challenges Facing the Logistics Industry in India

44. What’s New in Supply Chain?
• Global competition
• Well informed more powerful Customers
• Customer Expectations
• Shorter product life cycle
• New, low-cost distribution channels
• Internet and E-Business strategies