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market logistics & scm
- 1. Market Logistics &Supply Chain Management by Anoop Kumar Gupta MAIT 1
- 2. 2 Materials Management • Materials forms the largest single cost item in most manufacturing companies – needs to be carefully managed • Materials management function includes planning and control, purchasing and stores and inventory control • Materials management is the precursor to logistics and supply chain management
- 3. Evolution of Distributionto SCM thru Logistics The concept of SCM has only recently stepped into the marketing world. It rooted three decades back and has passed through three phases •Phase 1: Physical distribution management: This phase is better characterised as ‘inventory push phase when manufacturing was handled in isolation and output was pushed down to the finished goods warehouses. •Phase II : Integrated logistics management : This phase recognised the importance of integrating operations within the organisation like sales, procurement, manufacturing, warehousing, distribution and transportation to achieve an efficient and effective goods distribution system. •Phase IIl : SCM : The graduation of logistics management to its modern day avatar is better known as ‘SCM’. SCM extends the scope to link external partners like suppliers, vendors, distributors and customers with a view to deliver enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from source to consumption. 3
- 4. 4 Logistics Defined • Logistics collect raw materials from suppliers and deliver finished goods to the customers. • Logistics means having the right thing, at the right place, at the right time and at the right cost. • Logistics is the function that moves both tangible materials (e.g. raw materials) and intangible material (e.g. information) through the operations to the customers (as a finished product), for an organization.
- 5. 5 Logistics Defined • Logistics is a logical extension of transportation and its related areas to achieve an efficient and effective goods distribution system. • Logistics encompasses the activities of – Inventory management – Order processing – Warehouse and materials handling – Physical distribution (Transportation)
- 6. 6 Scope ofLogistics • 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
- 7. Logistics Activities InputOutput 7 Components of LOG Management •Natural Resources (land, facilities Equipment) •HR •Finance •Information •Marketing Orientation (competitive Advantage) •Time and Place utility •Efficient move to customer 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
- 8. 8 Links andFlows Customer’s customer Supplier’s General material flow/ service flow Customer Lead Firm Supplier supplier General cash flow Information flow Information flow Outbound / Downstream logistics Inbound / Upstream logistics Source: ICFAI
- 9. 9 Logistics andMarketing • Interface on: – Product design and pricing – Customer service policies – Sales forecasts and order processing – Inventory policies and location of warehouses – Channels of distribution and despatch planning – Transportation to reach products to customers • Production wants larger production runs to minimise time spent on set up changes on the machines. Marketing wants smaller runs of a variety of products.
- 10. Order Processing •Primary contact between the firm and its customer. • Getting the order, preparing the invoice, picking and packing the goods and despatch • Quality, speed and accuracy of the order processing function determines the ‘value’ of the logistics function 10
- 11. Order Processing SupportRecords • Customer master – all information about the customers • Item master – all information about the goods by SKU • Price master – details of the prices for the items to be despatched to customers • General data base – customer quotations, customer sales history and open sales orders 11
- 12. Benefits • Someof the benefits of a good order processing system are: – Order cycle times get reduced – Order execution accuracy is 100% – Timely invoicing and accounting – Order review and follow up costs get eliminated – Improved customer service 12
- 13. Materials Handling •Function of managing inventory along with storage and transfer of information. Includes: – Receiving, storing and despatch of goods – Order picking and packing – Sorting of goods – Re-packing in case of damages – Arranging transport and loading of the goods on the carrier vehicle 13
- 14. Source: Michael Porter 14 The Value Chain Company Infrastructure Organisation, people, methods Systems & technology Procurement Inbound logistics Operations Outbound logistics Marketing & sales Service Primary activities S UPP ORT margin margin
- 15. Logistics Strategy •Corporate strategy defines the business the company wants to be in • The marketing strategy decides the products and markets to be focused on • The distribution strategy decides how the company will ‘reach’ its customers/markets • The distribution strategy includes the physical distribution and channel management 15
- 16. Logistics Strategy Based On… • Markets – focus on meeting customer requirements even across business units • Process – operation of an efficient and integrated logistics function • Channels – participate in the customer service delivery process 16
- 17. 17 Logistics PlanOutline • Internal analysis (current position) – Organisation – Human resources – Transportation – Relations with internal customers – Quality of product – Quality of Service • External / situation analysis – Competitor logistics performance – Trends – External environment / economy – Public, private and contract warehouse – Public, private and contract carriage
- 18. Principles of LogisticsExcellence 18 Strategic Operational Alling & Tyndall Link logistics to corporate strategy Organise comprehensively Use the power of information Emphasise human resources Form strategic alliances Focus on financial performance Target optimum service levels Manage the details Leveraging logistics volumes Measure and react to performance
- 19. 19 Logistics FocusAreas Customer service related Operations related Packaging Order processing Spare parts and service support After sales Customer service support Demand forecasting Distribution communications Return goods handling 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
- 20. Logistics for Rural • A business challenge as ‘access’ is still limited • Some of the salient points on rural distribution: – Vast potential for business but collection and delivery points are too many – Producers of agricultural produce and the users of consumer products are dispersed – Transport is unviable – no return loads – Agri produce is seasonal, bulky, perishable and not of standard sizes – Intermediaries in various forms are a major element of cost 20
- 21. Evolution of theconcept of SCM The chain of activities and organizations is named differently as per the situation. •If the emphasis is on operations then it is called process; •If the emphasis is on marketing then it is called logistics; •If the emphasis is on value-addition then it is called value-chain; •If the emphasis is on meeting customer demand then it is called demand chain; •If the emphasis is on movement of material then we use the most general term i.e., supply chain. 21
- 22. Logistics and SCM • Logistics is more concerned with activities within the company – procurement, production scheduling, despatch planning, inventory, warehousing and transportation. • Supply chain management extends the process of planning procurement, production and despatches beyond the company boundaries to its suppliers and customers. 22
- 23. 23 Supply ChainManagement • 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
- 24. Supply Chain Integration • Optimising the supply chain requires supplier and customer involvement to integrate processes, policies, systems, database and strategies between diverse trading partners 24
- 25. 25 Supply ChainIntegration Integrated Supply Chain Management Manufacturing/ Re-manufacturing/ Assembly Demand & Lead Time Management Storage & Transportation Materials Management Inventory Management and control Customer Analysis Purchasing/Supplier Partnering Order Fulfillment Inventory management…
- 26. IT Systems forSCM • Supplier relationship management – processes for flow of materials between the suppliers and the firm • Customer relationship management – to optimize revenue and profitability by superior customer service • Electronic data interchange – exchange of business information through standard interfaces between suppliers and the firm 26
- 27. IT Systems forSCM • Bar codes – popular and cost effective way of tracking items along the supply chain • Radio frequency identification – tracking of items, people and equipment in real time without need for ‘line-of-sight’ • Data warehousing – collection of data from multiple sources and converting into information for storage and use as required 27
- 28. 28 Why CarryInventory? • 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
- 29. 29 Functions ofInventory • Inventory serves as a buffer between: – Supply and demand – Customer demand and finished goods – Material requirements for an operation and the output from the previous operation – Parts and materials to begin an operation and the suppliers of these materials The shock absorber of business !
- 30. Factors Which DriveInventory • Target service level parameters • Lot sizing practices • Safety stock and safety time conventions • Volume discounts and purchase arrangements • Seasonal build up needs 30
- 31. 31 Stores Management Objectives • Providing efficient service to users • Reduce cost of carrying goods • Providing correct, updated stock figures • Controlling inventory • Preventing damage to or obsolescence of materials • Achieve all of the above with good housekeeping
- 32. 32 Functions Warehouses Material handling Storage function Customer service Information transfer Temporary Permanent Receive goods Identify goods Sort goods Despatch to storage Hold inventory Recall, select goods Marshal the shipment Despatch the shipment Prepare records and advices
- 33. 33 Purpose ofWarehousing • 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
- 34. 34 Reasons forWarehousing Service related Cost related Maintain source of supply Support customer service policies Meet changing market conditions Overcome time and space differentials Support JIT programs of suppliers and customers Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled Achieve production economies Achieve transportation economies Take advantage of Quantity Purchase discounts and forward buys Least Logistics cost for a desired level of customer service
- 35. 35 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
- 36. 36 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
- 37. 37 Distribution Center • Warehouse designed to speed the flow of goods and avoid unnecessary costs • Speeds bulk-breaking to avoid inventory carrying costs • Helps to centralise control and co-ordination of logistics activities • Products can also be cross-docked (one vehicle to another) Market positioned..
- 38. 38 Market Positioned • Warehouses located nearest to the final customer • Factors influencing are: – Order cycle time – Transportation costs – Sensitivity of the product – Order size – Levels of customer service offered Production positioned….
- 39. 39 Production Positioned • Warehouses located close to the production facilities or supply sources • Not the same level of customer service as the earlier one • Serve as points of aggregation / collection for products made in a number of plants • Factors influencing are: – Perishability of raw materials – Number of products in the product mix – Assortments ordered by customers – Transport consolidation rates ex; FTL In between…
- 40. 40 Intermediate Positioned • Mid point locations between the final customer and the producer • High customer service levels possible even if products made in number of units • Other macro approaches look at cost minimisation or cost and demand elements to maximise profitability Transportation management….
- 41. 41 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 Principles….
- 42. 42 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 Process….
- 43. 43 The TransportPlanning Criteria • Environmental analysis: shipper, carrier, government regulations, public influence • Deciding objectives • Selecting mode • Select transport type within the mode • Define functions of transport • Evaluation and control – customer perception / satisfaction, best practice benchmarking
- 44. 44 Cost Factors • Can be product related or market related. • Product related: density, stowability, ease or difficulty of handling and liability • Market related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer service • Five prominent modes: (including intermodal) – Road, rail, air, water and pipeline. – Sixth one is use of Ropeways
- 45. 45 Customer ServiceFactors • Consistency, dependability • Transit time • Coverage – door-to-door for example • Flexibility in handling a range of products • Loss and damage performance • Additional services provided Reverse logistics…
- 46. Comparison of modes…… 46 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
- 47. 47 Advantages ofRail • Economy – more so for goods over long distances • Efficiency of energy • Reliability – not affected by weather conditions
- 48. 48 Disadvantages •Uneconomical for small shipments and short distances • Not suitable for remote stations • Costly terminal handling facilities • Inflexible time schedules Road transport…..
- 49. 49 Road FreightAdvantages • 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
- 50. 50 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….
- 51. 51 Air TransportAdvantages • Faster mode • Reduction in cost particularly inventory • Broad service range • Increasing capabilities • Disadvantages: – High cost – Weather affects flight conditions – Limitations on heavy consignments Water transport……
- 52. 52 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….
- 53. 53 Pipeline Movement • Advantages: – Reliable, continuous, all weather transport – Low energy consumption – hence low cost – Low maintenance and operating costs – Underground, no space problem – Can traverse difficult terrain – Minimal transit losses – Operation round the clock, safe – Economies of scale – double the throughput for only 30% additional cost • Disadvantage is in the investment cost Ropeways….
- 54. 54 Ropeways •Advantages: – In hilly or inaccessible areas – Long and circuitous routes with streams / deep valleys – For commodities capable of movement in ropeway buckets – Short haulages of less than 50 kms – Areas where other carriers are uneconomical • Disadvantages: – Heavy investments – Limitations on size and quantity of haul How to decide on the right carrier?
- 55. 55 Carrier Selection Traffic Related Shipper related Service related Length of haul Size of firm Consignment weight Investment priorities Dimensions Marketing strategy Value Network of Urgency production and Regularity of distribution shipment Availability of rail Fragility sidings Toxicity Stockholding policy Perishability Management structure Type of packing System of carrier Special handling evaluation required Speed (transit time) Reliability Cost Customer relationship Geographical coverage Accessibility Availability of special vehicles / equipment Monitoring of goods Unitisation Ancillary services – bulk breaking, storage
- 56. 56 Chart ofRelative Merits Parameter Weight age Rail Road Air Water Pipe line Rope way Speed 30 5 6 8 4 3 3 Versatility 10 6 8 5 6 3 2 Reliability 20 6 8 5 5 7 4 Availability 10 7 8 5 6 3 2 Continuity of 10 6 7 5 5 8 3 service Distribution cost 20 4 5 6 6 7 8 Total score 10 5.4 6.7 5.1 5.1 5.1 4.0 Overall ranking 10 2 1 4 5 5 6
- 57. 57 Key Learnings • Support to customer service has evolved from materials management to logistics and to supply chain management • Production and marketing are the two internal customers of Logistics • Logistics also has a direct impact on the financials of a company • Three important functions of logistics are inventory management, warehousing and transportation
- 58. 58 Key Learnings • Inventory directly supports customer service but also adds to the cost and has to be managed carefully • Warehousing provides the place utility and works as a balance between production and meeting customer needs • Transportation supports the place and time utility and uses different modes to reach the products to the consumer • Modern day supply chains integrate the operations of a firm, its suppliers and customers
- 59. 59 Key Learnings • Order processing relates to the primary contact between the company and its customers • A good order processing system creates the benefits of reduction in lead times, higher order accuracy and improved customer service • Materials handling is the function of managing inventory along with storage and transfer of information
- 60. 60 Key Learnings • Logistics strategy is based on: markets, processes and channels in use. • Some of the IT systems in use for effective management of the supply chain are: – Electronic data interchange – Supplier and customer relationship management systems – Bar codes – Radio frequency identification – Data warehousing