Supply chain management

Supply Chain Management - Definition
and importance of its strategies
Definition of Supply Chain Management
If you go to a Supermarket and pick up a few items off the shelf from electronics and white
goods or even clothes and look at the labels, the chances are that you will find them having been
manufactured in China or Mexico. The coffee pods you buy to use for your everyday use comes
from Africa. Computers have been shipped out of South American Factories and Soft furnishings
on the shelves are from India and Hong Kong.
Global markets are expanding beyond borders and re-defining the way demand and supplies are
managed. Global companies are driven by markets across continents. To keep the cost of
manufacturing down, they are forced to keep looking to set up production centers where the cost
of raw materials and labor is cheap. Sourcing of raw materials and vendors to supply the right
quality, quantity and at right price calls for dynamic procurement strategy spanning across
countries.
With the above scenario you find companies procuring materials globally from various vendors
to supply raw materials to their factories situated in different continents. The finished goods out
of these different factory locations then pass through various chains of distribution network
involving warehouses, exports to different countries or local markets, distributors, retailers and
finally to the end customer.
In simple language, managing all of the above activities in tandem to manage demand and supply
on a global scale is Supply Chain Management. As per definition SCM is the management of
a network of all business processes and activities involving procurement of raw materials,
manufacturing and distribution management of Finished Goods. SCM is also called the art
of management of providing the Right Product, At the Right Time, Right Place and at the Right
Cost to the Customer.
Why SCM strategy is important for an Organization
Supply Chain Strategies are the critical backbone to Business Organizations today. Effective
Market coverage, Availability of Products at locations that hold the key to revenue recognition
depends upon the effectiveness of Supply Chain Strategy rolled out. Very simply stated, when a
product is introduced in the market and advertised, the entire market in the country and all the
sales counters need to have the product where the customer can buy and take delivery. Any
glitch in the product not being available at the right time can result in the drop in customer
interest and demand which can be disastrous. Transportation network design and management
assume importance to support sales and marketing strategy.
Inventory control and inventory visibility are two very critical elements in any operations for
these are the cost drivers and directly impact the bottom lines on the balance sheet. Inventory
means value and is an asset to the company. Every business has a standard for inventory

turnaround that is optimum for the business. Inventory turnaround refers to the number of times
the inventory is sold and replaced over a period of twelve months. The health of the inventory
turn relates to the health of business.
In a global scenario, the finished goods inventory is held at many locations and distribution
centers, managed by third parties. A lot of inventory would also be in the pipeline in
transportation, besides the inventory with distributors and retail stocking points. Since any loss
of inventory anywhere in the supply chain would result in loss of value, effective control of
inventory and visibility of inventory gains importance as a key factor of Supply Chain
Management function.
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Supply Chain Management
 Supply Chain Management
 Freight Forwarding & Logistics
 3PL Contract Logistics Operations
 Finished Goods Supply Chain
 FG Supply Chain Operations
 Spare Parts Supply Chain
 Spare Parts Logistics
 Reverse Logistics
 Reverse Logistics & SCM
 Contract Logistics
 Contract Logistics RFQ Process
 Vendor Managed Inventory (VMI)
 Documentation in Supply Chain
 Warehouse Management System
 3PL Service & Warehouse Management
 Selecting a 3PL Service Partner
 Internal Planning in Warehousing
 Warehouse Design Concepts
 Warehouse Efficiency Factors
 Warehouse Efficiency & Inventory Health
 Contract Logistics & Warehousing
 Contract Logistics Pricing Methods
 Contract Logistics Cost Model
 Logistics Solution Design Document

 Inventory Migration
 Inventory Migration Scope
 Warranty Management
 Supply Chain Network
 Supply Chain Network Design
 Customs Clearance
 Internet Enabled Supply Chains
 Sourcing Strategies
 SCM - Problems and Roadblocks
 SCM as Source of Competitive Advantage
 Analysis of Amazon’s Supply Chain Management Practices
 How Automation Benefits the Logistics Sector through Efficiencies and Synergies
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4. Supply Chain Management
5. Information Technology - A Key Driver of SCM
Information Technology - A Key Driver
of SCM
Supply Chain Management is a broad-based function that encompasses all business and
operational processes involved in but not limited to Procurement, Manufacturing, and Finished
Goods Transportation, warehousing & Distribution and Inventory Management.
In a globalized business scenario characterized by Geographically spread markets, raw material
procurement sources across the world and cheaper manufacturing and labor markets being
available in developing world, the business of meeting demand with supply is constantly
changing and evolving.

Global business has been fuelled and enabled by the IT Technology which has redefined all
aspects of business today. All businesses today are run on ERP - Enterprise Resource Planning
which provides the organizations with tools to manage all the functions including procurement,
production, sales, and finance management in seamless and integrated manner.
These software systems like SAP, Oracle, People soft, etc., have taken over and enhanced the
business processes that were traditionally being managed manually.
Demand planning, Forecasting, Global procurement management are some of the enabling tools
on which the Global procurement strategies are built and managed. The availability of these
sophisticated systems has further enabled companies to implement good and cost effective
manufacturing practices like JIT, Kanban, VMI, etc.
Finished goods distribution, transportation, and inventory management, besides sales process is
again driven by the various ERP modules combined with additional specific applications as
required.
ERP has enabled companies to manage their business processes in different markets and
countries under one common business process thus providing standardization and control.
The complex network of various processes, software platforms and applications and different
software tools used by various vendors and agents in the entire chain drive the supply chain of
the companies.
E commerce has further redefined the way business is carried on. Online purchase has impacted
the way supply chains are organized and markets are driven. Customer behavior and preferences
are changing as online marketing is establishing a one to one contact with the customer and can
offer a personalized experience. The instant delivery of the information through internet elicits
immediate response and action from the customer. The sales lead time is rapidly decreasing. The
demanding customer, therefore, needs to be serviced immediately at the same speed.
The internet technology has further opened up the geographical boundaries for the companies.
Any person sitting in any corner of the globe can purchase a product online at the click of a
button. The companies have to be well equipped with the logistics and supply chain network to
be able to service the customer.
When in a global scenario, goods and services move through multiple chains involving very
many agents including transporters, forwarders, customs, distribution centers, distributors and
lastly the retail outlets, availability of data, documentation and information becomes the lifeline
for the organization to be able to take decisions and ensure seamless processes and control the
supply chain.
IT is one of the most important enabler of the Supply chain in complex modern world of
Global Businesses.

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5. Logistics - An Integral Component of Supply Chain Management
Logistics - An Integral Component of
Supply Chain Management encompasses, planning, design, control and implementation of
all business processes related to procurement, manufacturing, distribution and sales order
fulfillment functions of a business.
All these activities involve multiple networks of vendors and service providers which are
integrated and co-coordinated by the Supply Chain Experts of the organization to move raw
materials and finished goods from and to all distant locations across the globe.
Logistics is the backbone on which Supply Chains are driven. Logistics refers to the
management of the flow of goods and supplies involving information, data and documentation
between two entities or points. Logistics plays important role in post procurement function of
delivery of raw material from the supplier to the point of production and Finished Goods Supply
chain management from the point of dispatch from factory to the point of delivery to the
customer.
The flow of goods flows through a network of transportation by road, rail, air or ship and
intermediary warehouses to hold inventories before moving to the forward locations. The entire
activity involves multi-tier suppliers, agents, and agencies including freight forwarders, packers,
customs department, distributors and Logistics service providers, etc.
Logistics therefore is an integral component of Supply Chain Management.
Origin of Logistics as a recognized discipline is attributed to military and defense organizations.
Defense departments make use of detailed and extensive planning to gather supplies and move
men and materials to various locations and bases. The success of any military exercise depends
upon the ability of the establishment to be able to gather information, analyze, assimilate and
take appropriate logistical measures to support their units continuously.

Similarly in any business organization, the successful operations depend upon visibility and
control over the logistics process managed through and with excellent logistics service provider
backbone and network.
In many cases Supply chain is often referred to as Logistics and vice e versa. Though
logistics and supply chain are intricately linked, both do not mean the same. Logistics is a sub-
component and extension of Supply Chain.
Supply chain design in an organization would detail, plan and strategize the procurement
strategy, manufacturing location selection, design and develop distribution network and strategy
for finished goods, etc. While logistics planning would deal with the details of procurement
logistics, finished goods distribution, sales order fulfillment, and inventory management, etc.
Logistics planning drives the strategic direction and framework for its design planning from
SCM Strategy.
Take the case of production procurement, SCM strategy will define the process, selection of
vendors, procurement strategy and the mode of order fulfillment coupled with cycle time and
lead time to supply to the production floor. Logistics in this case details out the mode of
transportation from the vendor, the consignment planning, process for order trigger,
consolidation of shipments, detailing transportation modes and vendors, defines transit times,
documentation process and implements the plan, controls and monitors the flow of goods from
point of origin up to the point of delivery to the plant for production.
In the case of Finished Goods distribution, SCM strategy will define overall network design for
stock holding and other channels of distribution. Logistics deals with the entire gamut of
designing transportation network, partnering with 3rd party logistics providers to establish
distribution centers and warehouses, planning inventory management and operations process
including packing, promotional bundling, etc., primary, secondary distribution network and
vendors and at the end the complete documentation and information process for the entire chain
of activities.
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5. Logistics Operations in Supply Chain Network

Logistics Operations in Supply Chain
Network
Logistics has aided and contributed to enabling global trade. Third Party Logistics Service
Providers both at global levels and local levels form major partners to manage and offer
Supply Chain services and the second major factor being the Internet and IT technology
that helps manage information and data ahead of or along with flow of materials and
goods.
Supply Chain Consultants and professionals find it very essential to have knowledge of the
operational field and how things work on the ground. Theoretical models can be effectively
deployed only when realities on the ground are understood and adapted to.
Take an example of DELL which has successfully implemented its Supply Chain strategy built
around the concept of JIT manufacturing and Direct Marketing.
Dell has manufacturing facilities located in Austin-Texas, North Carolina, Miami, Florida that
service US Markets. European Markets are serviced from its plants in Ireland and Poland. Asia
and other sub-continents are supported by its manufacturing facilities in Penang in Malaysia and
Xiamen in China along with the latest factory set up in Chennai in India. South America is
serviced from its Eldora do plant while the new plan in Brazil supports the African continent.
One can imagine the complexities involved in designing procurement systems. Dell does not buy
raw materials and components and maintains inventory. Dell’s vendors use third party service
providers to set up logistics parks and distribution warehouses close to Dell’s plants and deliver
materials just in time to the plant against an order for production that is triggers based on an
order confirmed by the customer on the internet.
Under procurement logistics, in this case, some logistics service providers play a major part in
ensuring smooth operations. Vendors are based out of Europe, Taiwan, China, Singapore, Hong
Kong, Korea, and Japan, etc.
Though the raw materials belong to the vendors until the time they are supplied to production
shop floor, the design, planning and selection of logistics service provider are initiated and
managed by Dell. Dell has appointed freight forwarders such as DHL, CEVA, Panalpina, UPS
etc sector wise to pick up shipments from vendor locations, transport the collected shipments by
road and consolidate inventories of all providers in the freight forwarders consolidation
warehouses situated at the gateways in each country and ship out cargo by ships to the port of
destination or airfreight shipments to the plant locations after completing exports and customs
clearance formalities on behalf of vendors.
While the shipments are in transit, the freight forwarders electronically transfer shipment
information and documentations to their overseas offices or agents at the destination and keep
Dell and vendors informed of the status of shipments.

Freight forwarders at the destination ports file advance shipment documents with customs and on
arrival of cargo, complete customs formalities and custom cleared cargo is then transported to
freight forwarders warehouse or customs bonded warehouse or to another designated third party
warehouse that houses all inventories meant for Dell.
The third party service provider who manages the inventories in his warehouse receives the
cargo, unpacks the shipments from bulk skids to individual carton level and completes inbound
formalities including updating of inventories in its system and stocks the materials in designated
rack locations. Both vendors and Dell are continuously kept informed of the data regarding
shipments and stocks. The warehouse stocks inventory in the name of various vendors at SKU
level. Most of the times these warehouses are situated adjacent to the plant or at proximity. Upon
receiving a production order from Dell, as per Bill of Material received through DELL ERP
system, items are picked up, loaded into the supply cages and trays as per predetermined design
and delivered to the plant after completing documentation and system entries to remove
inventory from its system held in vendors name, invoice raised and physical delivery
accompanied with documents completes the supply chain cycle of Raw material supply.
The revenue recognition happens when the material is transferred out of the warehouse and its
system and invoiced to Dell.
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5. Logistics Service Providers keeps Supply Chain Moving
Logistics Service Providers keeps
Supply Chain Moving
Procurement Logistics, Manufacturing Logistics and Finished Goods Logistics functions
are managed by different independent departments in a company. Though the duties of the
departments involve common activities like transportation etc., however, the processes and
nature of logistics functions are specific to each function besides the requirements and
sensitivities of delivery times, schedules, etc.

With the emerging trends and availability of third party logistics providers has pushed the
companies to adapt the practice of outsourcing all supply chain components and logistics
functions termed as noncore functions to their logistics providers.
In this topic we shall examine the role and functions of Third Party Service Providers a little
closely to understand how they make a difference to the supply chain activities.
Third Party Logistics field is a multi-layer or multi-tier integration of various players who
have the niche segment expertise to manage any one or many functions of Logistics. In any
Logistics Contract or Supply Chain Network, you will not find one single service provider being
able to manage the entire chain of activities. You can have a lead logistics service provider who
will further tie up with and manage other service providers to provide a single window service to
the client organization. At all levels, a lot of components of logistics get outsourced by these
service providers to contractors and local players. Like for example in a contract logistics
facility, the third party logistics provider who has secured the contract may not own and operate
the facility himself. Labor is often outsourced along with other operations like Loading/
Unloading, Yard Management, Fleet Management, etc.
Logistics further also works with the concept of the 4Party Logistics providers in the market who
take up large projects spanning huge volumes and multiple locations and services as the lead
service providers. They draw up the operating plans, requirements, and specifications for the
services and, in turn, choose the best service provider in each segment or function for each of the
locations and thus manage to provide the entire gamut of logistics services to the customer.
Normally in Logistics, the lead players front ending the businesses would be the Freight
Forwarders, Transport Companies (generally in long haul segment only) and Warehousing
Service Providers. In many cases Freight Forwards own and manage warehousing facilities too.
Freight forwarders are those agencies who consolidate the cargo and book the cargo for onward
freight using an airline or a shipping line or use ground transportation network including rail
services wherever required. Freight forwarders do not own any mode of transportation services.
They book the space with airlines and shipping lines and negotiate the freight. They play the key
role of providing origin and destination services coupled with single window client services
using other third party service providers. Most of them also have in-house customs clearance
division to support ground logistics operations.
Without the support of the freight forwarders who are multinational companies capable of
managing your supply chain with ability to provide services in any country, any location across
the globe, supply chain would not be able to function efficiently, for it is impossible for
companies to coordinate and manage each leg and every activity in so many locations and
manage so many vendors and interfaces.

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5. International Logistics
International Logistics
Supply Chains ride on Logistics Networks and IT Applications / Internet. In this topic a
brief introduction to each of the Logistics Function/Industry is attempted.
The foundation of logistics function is based mainly on Transportation by Road, Rail, and Air &
Sea.
Maritime trade has existed since times immemorial. History is replete with the major maritime
routes that connected continents across the globe and enabled trade between them. Harbors and
waterways have flourished in strategic locations in all countries attracting trade and commerce.
Global trade is dependant 80% on sea route than air route, simply for the fact that air route is far
more expensive and is used only in case of light weight cargo, perishable cargo, and priority
shipments or in other conditions where shipping would not be possible.
Shipping trade is characterized by shipping companies who own vessels and specialize in the
transportation of certain types of cargo like General Cargo, Containerized cargo, bulk
commodities carriers, oil tankers, gas tankers, OD cargo carriers, etc. Normally the so called
mother vessels ply on the main shipping route across the continents traveling through Pacific or
Atlantic oceans and calling on countries from point to point. Mother vessels are bigger vessels
with higher cargo carrying capacity. Some of the main routes normally traversed by mother
vessels are the Far East to Europe and Mediterranean, Europe to America East Coast and the
Gulf of Mexico, Far East Australia to South Africa, Intra Asia, Asia to the Middle East, and
Europe to South Africa, etc. The schedules in detail are announced in advance for each of the
vessels. The feeder vessels carry cargo from individual ports in nearby countries which discharge
the cargo at the port of calling to be transshipped on to the main vessel.
Thus for example, a cargo originating in India bound for South Africa may follow the route
where cargo reaches one of the ports in Ceylon or Dubai even Singapore in some cases and
travels right up to Europe where in is further transshipped on another vessel bound to South
Africa. Like wise the global shipping trade lanes have certain gateways and lanes which they
operate and in turn are fed and supported by feeder lanes and vessels.
Shipping liner announces schedules of the vessels a few months in advance. Freight forwarding
agents book space on the vessels either based on estimates or based on their pipeline orders.
Depending upon the volume that the forwarder is able to give and patronize shipping lines, they
get to bargain and negotiate for better rates. In general cargo, the shipments are made in FCL
Containers. FCL stands for Full Container Load. FCLs come in two sizes called 20 feet and 40
feet containers which refers to the length of the container. Each container has fixed dimension
and weight carrying capacity. FCL Containers are provided by shipping lines to the freight

forwarders who stuff the cargo and get the cargo sealed after customs inspection which is then
picked up and loaded on the ship at the port.
Some of the major international shipping lines dominated world shipping trade is P&A,
Nedlloyd, Maersk, Hapag Lloyd, American President Lines, Evergreen, NYK, HanJin,
Cosco, CSCL etc.
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5. Role of Freight Forwarding & Logistics Companies in Supply Chain Management
Role of Freight Forwarding & Logistics
Companies in Supply Chain
Management
Global Logistics Scene is dominated by a handful of ten to twelve multinational Companies
followed by smaller companies altogether numbering below fifty. Entire global trade is
facilitated by these service providers. Major players in the field are lead by DHL, Kuehne +
Nagel, Schenker/BAX, UPS, Geodis, Expeditors, Agility, CEVA Logistics, Hellman worldwide
logistics, etc. The last two decades have seen the emergence of multinational companies having
acquired and bought out local and smaller players to acquire the multinational status coupled
with the global network. The entire logistics field is filled with mergers and acquisitions in quick
succession in the recent past.
Most of the logistics players have been traditionally freight forwarders dealing with cargo
bookings coupled with origin and destination services. However, as the global business
practices changed, and supply chain managements started gaining ground, these companies
realized the potential of being able to offer multiple services including ground transportation,
warehousing, and contract logistics under one umbrella as the future trend and quickly turned
themselves to acquire the required capabilities and have managed to become single window
service providers on global scale.

In any supply chain, these 3PL Service Providers further outsource certain functions and
segments to many other local service providers. Any SCM expert would naturally wonder if it is
possible to deal directly with the other service providers and cut out the 3PL Lead provider and
thereby save some cost. In a global scenario, this would not be possible for many reasons.
3PL Service Providers can offer you standard operating processes and procedures across all
locations and countries. If you are dealing with a 3PL office in Europe and another in Japan
besides your local office in Houston for example, all three offices will follow the same
methodology, documentation, and processes. Secondly, 3PL providers know the local situations
and can adapt international processes to suit local situations better. A principle company may not
be able to get into the local situation be it with transportation or customs or legal compliance and
is better left to the 3PL to deal with it effectively. By the size of these companies 3PL logistics
providers have built core competencies and capabilities in all of the functions namely
Freight, Customs Clearance and Contract Logistics and are equipped with cutting edge
technology to support international operations and provide visibility to the customers at all
time. 3PL companies rely heavily on electronic exchange of data and information in their
businesses. Today 3PL companies not only provide highly specialized inventory management
and warehousing operations, but they also offer another value adds like Purchase Order
Management, Semi, and Light Manufacturing, other value added services designed for niche
segments called as Integrated Logistics Services.
3PL service providers are today investing in building distribution networks and facilities to cater
to the client�s requirements wherever required. They are building in-house capabilities with
employing SCM Experts to specialize in Automotive Logistics, Aero Spares, Medical &
Environmental Logistics and other specific segments.
SCM strategy of the company today aims at converting logistics cost to transactional cost and
thus avoids any investments into managing Supply Chain.
It would not be possible for a principal company to invest in setting up and managing logistics
services and facilities in origin and destination locations for its Supply Chain and manage local
regulations etc. It is best left to the best Service Provider as the partner and leverage on his
competencies and skill sets as is being done today.
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5. 3PL Contract Logistics Operations

3PL Contract Logistics Operations
While Freight Forwarding is an important function of 3PL Service providers to facilitate the
Supply Chain, another equally important function managed by 3PL Logistics Companies is
Contract Logistics.
Under the broad umbrella of Contract Logistics, 3PL providers provide services of setting
up consolidation centers, distribution centers, warehouses and inventory management
services.
European network of transportation and warehouses stand apart from the rest of the world and
are highly evolved regarding supply chain capabilities. America too has similar capabilities
developed in recent years. Normally warehousing facilities are built and rented out as real
estates. Warehousing Parks or Distribution Facilities are designed with complete layout and
infrastructure for truck parking, yard management, and security systems, etc. Warehousing
buildings of sizes ranging from 1000 sq. mtrs to several hundred sq. mtrs come equipped with all
weather docks, dock levelers, and dock platforms to facilitate continuous loading and unloading
activities and quick turnaround of vehicles. These facilities include office facilities and other
utilities too as a complete stand-alone facility.
3PL companies rent out such facilities or in some cases invest in building their facilities in
strategic locations in the transportation network or near major markets or in some cases in
specific locations close to customer facilities.
3PL Warehousing is used for managing inventories of both raw materials and finished goods
including spare parts, consumables, and promotional materials as the case may be.
Depending upon the need and size of operations, a 3PL may set up completely dedicated
facility for a client specific requirement or provide dedicated storage space and services in
shared facility or provide pallet wise storage on rental basis. All these modes are used
depending upon the particular need of the logistics plan.
Normally the warehouses consist of vertical racks with levels anywhere from five levels up to
ten and above with a carrying capacity of one ton per pallet position. Depending upon the storage
need, racking design will vary from pallet racking to block stack, deck racking, shelving, bins,
etc. Material Handling equipment used include Hand Pallet Jacks, Trolleys, Battery Operated
Fork Lifts and various types of Reach Trucks used in racks.
The entire warehousing operations include Receiving Process involving unloading, de-skidding,
inspection, in warding and put away. Delivery or shipment includes receipt of shipping order
from the customer along with invoice or sales documentation, picking materials, consolidation,
packing, marking, preparing outbound documentation and shipping out by loading into
containers. Besides these functions, the other main functions in the warehouse include inventory
management that involves location management, managing storage capacities and bulk and loose
inventory, carrying out inventory counts to ensure accuracy of inventory and stock takes.

The entire warehousing operations are dependent upon documentation and systems that manage
operations and inventory. Warehouses use WMS - Warehouse Management System as the
backbone. The system manages inbound transactions, location management and generates and
controls warehousing operations for both inbound and outbound transactions coupled with
maintaining inventory in detailed level and managing inventories.
For any principle employer, the support of a good 3PL is necessary because its entire inventory
amounting to a huge amount regarding value is in the custody of a third party. Inventory
management operations are core to any operations. Hence it is necessary for every SCM
Expert to understand nuances of 3PL Contract Logistics operations before taking decisions
to outsource these functions.
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Published - 13 Apr 2018
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5. Finished Goods Supply Chain
Finished Goods Supply Chain
Buying a Desktop computer for your home or a Laptop for your use is very easy. You browse the
internet to see the latest models and configurations, decide on your specific requirement and
click to place an order. At times, of course, you might go into an electronic supermarket and
check out the physical product before you buy. Immediately on payment, you cannot wait for the
delivery and expect to be serviced on priority.
Ever wondered how companies like HP, Dell, and IBM manage to place just the right products in
all point of sale not only in your city but all over your country, all over the world where the
product availability and standard processes are made available? If u start thinking back about
where the products came in from? Where were they manufactured? Where were they stored and
finally how and who brought it down to your door step, you are in fact tracing the logistics of the
supply chain.
Finished Goods supply chains are very dynamic and are the backbone of a good sales
organization. Some departments are responsible for working in coordination and seamlessly to
ensure Finished Goods reach the markets and the customers. Logistics and supply chain
departments have to work in tandem with or aim to be ahead of Marketing and Sales and ensure
that when a product is announced for sale by marketing, the products are made available at all
nook and corner of the city, state, and country. A situation where the customer goes to a sales
counter to place an order and the product is not available cannot and should never happen as a
rule.
Taking customer as the starting point, let us trace back the journey of finished goods and
the functions.
While Marketing departments work on marketing and advertising the product and are focused on
reaching out to the customer to sell a product to him, Whenever a customer places an order,
further coordination and deliveries are managed by order fulfillment teams that are responsible
for sales order processing who place orders on the distribution centers on the backend to pull
materials for forward stocking points or to effect deliveries to the customers. Customer

Fulfillment teams are the internal customers to the FG Logistics team. Logistics team is the
department that is responsible for stocks and FG inventory held in the pipeline across multiple
networks of distribution centers and the inventory in the pipeline in various transit points. In
other words, Logistics teams own the inventory from the point they leave the plant until delivery
is effected to the customer who may be a distributor, retailer or end user as the case may be.
Logistics teams comprise of multiple competency centers including inventory planners, freight
managers responsible for transportation leg and warehousing operations experts who are
responsible for the inventory and warehousing operations including documentation control and
statutory process compliance.
Logistics teams work in close coordination with finance teams, the procurement team, plants,
and manage operations through a chain of third party service providers who run the operations of
inventory handling and distribution.
Logistics is never an event free operation. While multi-tier third party service providers are
handling the cargo across various borders, locations each with its unique local situations, there
are very many other vagaries of nature and events that can keep disrupting the smooth flow of
supplies and the situation is every dynamic.
Managing multiple product lines, and vast distribution networks coupled with managing third
party partners calls for the Logistics Managers and Supply Chain Managers to be always
thinking on their feet and constantly innovating new processes and finding new ways to keep
operations happening smoothly.
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5. Finished Goods Supply Chain Operations
Finished Goods Supply Chain
Operations
FG Supply Chain consists of all activities involved in movement, storage and distribution of
Finished Goods from the Delivery point of Plant to the Point of Sale.

In the case of global supply chains, supply chain management gets more complicated with the
variations arising out of different countries regulations and logistical practices.
Computer Hardware supply chain is a good example for students and SCM professionals to
understand the dynamics. The life cycle of computers is very short, and frequently models and
technology keeps changing all the time. This factor needs to be kept in mind while drawing up
the supply chain strategy for Finished Goods to ensure that obsolete inventory does not clog the
pipeline and that the inventory maintained is lean.
Manufacturing practices have changed drastically over the last decades. With the help of ERP
systems, manufacturing has JIT system of manufacturing.
Computer manufacturers have established the strategy of setting up assembly plants in various
countries to service global markets. Computer manufacturing is built on two models. While
certain fast moving desk tops are built on BTS - Build to Stock model, most of the laptops and
other products are manufactured on Build to Order Model, wherein manufacturing of a batch
quantity is taken upon confirmation of orders from the customers.
HP has multiple business divisions managing different product lines. While one division
manages PSG Group - Printer and Consumables section of the product, two other divisions
separately manage laptops, desktops and servers. Manufacturing of all the products is spread
across various countries for each of these products. Common Supply Chain Division and
Logistics services departments manage the functions of all business divisions.
Managing multiple product lines under common logistics network provides challenges in
ensuring process compliance. To add to the complexity, a set of DeskTop or Laptop includes the
main module assembled at HP Plant and other items like monitors, keyboard, mouse, etc which
are bought out from third party vendors.
Third party vendor items are supplied to the designated FG warehouses that are managed by 3
part Logistics Providers and held as HP inventory. Finished goods are received similarly from
HP Plants across countries.
Normal Supply Network consists of 3PL Owned Country Depot in each country and further
regional distribution centers and stocking points which ship out goods to distributors who
maintain their logistical network to reach to the customer point of delivery.
On receipt of all items at the warehouse, process is designed to kit or bundle all the items
together, re-label the cartons at the distribution center and move out as one item.
Such an activity involves managing inventory processes where the items are received as
individual items with SKU description and after the kitting or bundling is done, all SKUs get
converted into a separate SKU as the final product. The inventory management and transaction
of conversion needs to be managed both at the warehouse level in the warehouse management
system and simultaneously in HP Systems.
In few cases the bought out items are kept in stock at the warehouse as vendor managed
inventory belonging to the vendor and only at the time of kitting, the transfer of ownership

happens using a sale. In such cases, the 3rd Party Logistics provider maintains HP inventory and
Vendor inventories in the same system and managed operations accordingly.
In FG Distribution, ensuring FIFO is essential for all items and capturing serial numbers at the
point of dispatch from distribution center to ensure updating in warranty tracking database.
A culture of drilling down processes, active participation and interaction with 3PL service
provider with frequent audits and training goes a long way in ensuring that service levels are met
by the 3PL service provider which reflects on the SCM division’s performance too.
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5. Spare Parts Supply Chain
Spare Parts Supply Chain
When you buy any Computer or Electronics Hardware or equipment, normally one of the
questions asked to the sales person is “What is the Service Support” provided by the company.
Today the brand image or market demand rides not only the quality of the product but on
the quality of service support too. Service support is critical in industries like Computers,
Telecom, Aero spares, etc.. In all cases the response time and availability of the spares become
critical. In all cases corporate installations demanding onsite support coupled with critical
downtime service level measurements have pushed the suppliers to set up an efficient spare parts
supply chain.
Take the case of an installation of a server in a bank’s central processing division cannot afford
to be down at all. The company who installs the server is required to ensure that service engineer
is available at site during normal hours and on call basis on 24 × 7 basis. It is not enough to have
the engineer attending to or being available at site; the required spare parts need to be available.
Critical and high value spare parts have to be made available in a nearby warehousing location
and logistical arrangements are required to be made to reach it to the site in a fastest and quickest
reach time, which is a few hours in most of the cases. The site engineer most often can perform
diagnostic functions and report back to the service team. The service support team would then
escalate the matters to the technical experts who get involved in solving the problem. All of the

coordination and problem solving along with logistics arrangements is required to happen in a
matter of hours. Such critical performance levels are documented in the service agreements and
in most cases 99% up times are required to be committed by the company supplying the server.
Similar situation exists in aero spares parts supply chain too. Airplanes can develop snags in any
location and not necessarily at the base where they operated from. Therefore, the logistics of
having to locate the defective part, requisitioning the part besides the request being directed to
the central spare parts warehouse by the 3PL service provider and managing to airlift or courier
the part in the fastest mode is the normal requirement in this industry. Most of the parts are high-
value parts and cannot be stocked or warehoused in all locations as inventory. Airplanes cannot
be grounded for a long time which would result in heavy losses to the airlines. The down time
allotted for preventive maintenance itself is very less.
Aero spare parts supply chain has also been built around processes to ensure fastest lead times
and ready availability and immediate retrieval of the right component.
In most cases the essential spare parts are kept in stock at the country level based on the number
of installations or volumes of sale under each category of product. In case of non availability the
parts are called for on urgent basis from a regional distribution center normally available at a
regional level servicing a continent and flown down on urgent courier mode.
In all cases ensuring minimum downtime is the key factor that drives the spare parts
process which involves logistics service providers, warehouses, customer service teams and
technical teams working in tandem to ensure customer satisfaction.
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5. Spare Parts Logistics
Spare Parts Logistics
In a computer spare parts supply chain, usually the network consists of the country depot that
stocks all the parts required to support the field. The number of parts in such depots run very
high depending upon the volume of sales and can range from 15000 SKUs to 35000 SKUs.
Depending upon the model and vendors. In a country, regional locations are housed in all states
or major markets normally in all major cities. At the regional and local levels, the parts supply

warehouse is often combined with test repair centers where customers can walk in and submit
their laptops or products for repair.
Spare parts are delivered out of these outlets in two modes. One is under warranty service where
the customer has bought a warranty contract with the company including free replacement of
spare parts. In such situation, the good part is issued by the warehouse instead of receipt of a
defective spare part. The other mode is sale of part where the customer pays for a spare part and
makes the purchase.
Besides the Test Repair Centers, larger markets also have authorized service agents and dealers
located all over the city. The regional warehouse receives orders for parts from these dealers who
service the end customers. The orders can be under warranty free replacement or sale of part.
Warehouse accordingly services orders and delivers parts locally to the dealers and collects the
defectives back.
The regional warehouses, in turn, requisition parts from the country depot based on their forecast
and stocking pattern.
In case of parts supply warehouses, commonly they contain two different warehousing divisions’
namely good part and defective parts store.
In case of good spare parts, the warehouses maintain and manage two separate inventory lines as
well as separate processes to manage original spare parts procured from vendors and refurbished
spare parts repaired locally through third party repair vendors.
Against each good part supplied, a defective part is taken back which travels through the various
stocking points to the warehouse’s defective parts store. The defective parts stores issue parts to
identified vendors for repair and once repaired issue back the refurbished parts to good store for
inventory.
In some cases the defective parts if still under warranty are grouped together and re-exported
back to the vendor overseas for free replacement under warranty.
The entire supply chain network of spare parts involves the Logistics department of the
principle company, inventory planners, test repair center teams and outsourced 3PL
warehousing partners who manage to warehouse and local logistics and designated dealers,
authorized service representatives and repair vendors.
The entire supply chain rides on a strong backbone of IT application that manages sales
order fulfillment on one end and inventory management at the other end. The applications
are robust with enhanced features to be able to manage and track warranties and also SKU wise
stocks and serial nos. Defective parts collection and management is as important as good part
management and carries the same value as it becomes a refurbished good part once again after
repairs.

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3. Operations
5. Reverse Logistics
Reverse Logistics
As Supply Chain Activities are evolving and partnering changes in business models, the focus
and activities are not restricted to the management of raw materials and finished goods from
point of origin from the vendors to plants and further on to the end customers. There is another
extension to Supply Chain Process called as Reverse Logistics.
Reverse Logistics as the name denotes, deals with the planning, process and flow of finished
goods inventory, packaging materials and parts of finished product back from end
customer to the product company as sales return or warranty return or unsold inventory
with trading partners. Reverse Logistics planning further re-captures value from these
materials as much as possible by way of re salvaging, repair, refurbishing, recycling etc.
Globally awareness about Hazardous waste generation and disposal is increasing and leading to
legislations being passed by the various countries. Europe has been the leader to implement
legislation about ensuring that the product companies take responsibility for reverse logistics of
all product wastage arising out of any supply chain activity. The European Union has passed bills
on Waste Electrical and Electronic Equipment and Restriction of Hazardous Substances. Green
Logistics initiative has outlined a detailed process for the suppliers and manufacturers to
adapt color coding systems to identify different kinds of waste reusable, recyclable, green
waste, etc.. Packaging retrieval, salvaging and scrapping process have been well developed with
the entry of many small and medium sector companies investing in setting up scrap salvaging
activity as commercial ventures.
Awareness has further pushed companies to adopt standards and measures in ensuring recycling
and e-waste in a bid to take responsibility towards minimizing environmental impacts and
reducing scrap besides ensuring complete recovery of waste materials.
Automotive After Market and Electronic Equipment and Computer Hardware industries have
developed successful Reverse logistics practices and have managed to integrate reverse logistics
as a important marketing strategy to project the company’s social responsibility in the area of
waste management as well as to contribute to the developmental activities in society by donating
funds arising out of scrap disposal and recycling.

While many developing countries are yet to pass legislation concerning environmental
safeguards, recycling, e-waste disposal processes, the Multinational Organizations have already
adapted processes of reverse logistics and implemented them in all countries wherever they have
operations.
Automotive after Market industry has developed the successful practice of producing refurbished
parts and recycled components that are sold through the spares markets. A lot of value has been
unlocked from the reusable parts of vehicles especially starters and alternators.
Re-engineering products with re-used material has yielded in the saving of tons of raw materials,
besides providing and generating employment to hundreds of people involved in setting up small
outfits to dismantle the parts. As per industry estimates, this activity has employed over 12000 in
the US alone and the reused auto parts make up for over 36 billion dollars as estimated by Auto
Parts Re-Manufacturers Association.
In the computer hardware and peripherals industry case study, HP makes for a good example. HP
has developed supply chain model of collecting the used cartridges and other consumables
through e-bins prominently displayed with the retailer outlets. The reverse logistics for this
particular process is designed to collect the waste locally from all e-bins, consolidate and ship
out to regional centers that are located at gateway ports in the country. Such consolidated waste
is further forwarded to recycling plants identified within the country to another nearby location
overseas. Recycling plants manage to salvage metals and other materials before using the plastic
raw material as the raw material to manufacture some other items such as bottles etc. It is
reported that HP has allocated the funds generated out of such activity to sponsor events directed
at fulfillment of its social responsibility and community development projects.
Today taking responsibility to take back the packaging and products has been found not only to
yield scrap and salvage value but is increasingly being looked upon as corporate responsibility
and part of corporate governance and good practice adopted by responsible companies. No doubt
this provides value to marketing strategy too and improves stature business.
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5. Reverse Logistics & SCM - Scope and Advantages

Reverse Logistics & SCM - Scope and
Advantages
Supply Chain Management is concerned not only with the flow of raw materials and finished
goods, but scope extends beyond this to include reverse flow of unsold finished goods, parts and
packaging materials from the point of consumption at customer’s end back to the organization or
to rework/refurbishing vendors.
Today reverse logistics has been adopted in a big way by automotive aftermarket spare parts
field as well as electronics and computer hardware markets. Retail and book publishing too have
implemented reverse logistics schemes, but the volumes that are returned are relatively lesser
than the other fields.
Reverse Logistics offers several advantages to the company in terms of both tangible and
intangible benefits. In the first instance, companies can retrieve defective equipment and parts
which are either salvaged or refurbished and thus reclaims value out of the defective parts.
Secondly, the packaging and defective materials are collected and recycled thereby generating
scrap value back for the company. Thirdly unsold and obsolete equipment are collected back
from the point of sale which encourages the distributors and stockists to buy confidently stocks
from the company knowing that he can always return unused inventory and not stand to lose in
the bargain. Distributors are more likely to be open to stocking all fast moving as well as slow
moving stocks.
In the eyes of the customer and society, the organization stands to gain a good standing and
reputation of being a responsible company that takes care of the e-waste and hazardous waste
generated and thus stands out for its corporate governance policies.
Reverse logistics has been successfully adapted as the marketing strategy. Refurbished
computers are sold at lower prices by all leading brands and the demand for such laptops seems
to be growing. The spare parts used by the computer manufacturers to service the laptops and
computers on warranty or sale include refurbished parts. Many electronic and consumer durable
manufacturing companies offer to buy back or exchange offer for the old equipment instead of
the customer purchasing a brand new product. In consumer electronics and white goods, the
exchange offers are a big hit during discount sale seasons.
Managing reverse logistics process is as operations intensive and complex as FG supply
chain and demands the same focus and involves multiple logistics partners. Companies like
IBM, HP, Dell and other equipment manufacturers like Xerox have established processes and
network of refurbishing centers together with spare parts distribution centers. Unlike managing
good parts inventory, defective spare parts require more handling and processes at the logistics
providers end. Commonly it has been noticed that the good parts are handled neatly by all
involved in the supply chain including distributors and retailers. On the other hand, while the
process demands that the defective part be returned in good condition, both users and retailers do
not give enough attention to handling defective parts. Statistics has shown that the defective parts
are found to have suffered more transit damage and handling damage than the good part. A lack

of understanding that the defective part has value to the organization is noticed in few cases of
the sales staff of the organizations as well as retailers, who treat defectives as scrap.
However the reverse logistics processes followed by the computer and electronic equipment
industry is a good example for other industries to begin looking at adopting similar strategies in
their markets too.
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5. Contract Logistics - Key block in Supply Chain Management
Contract Logistics - Key block in
Supply Chain Activities constitute multi-modal transportation, customs clearance, and
warehousing activities in one or more locations in the entire network. Supply chain activities
may be local referring to within the country or regional meaning within a continent or region and
global which is essentially intercontinental. Global operations are the order of the day as
businesses follow markets and also look for cheaper conversion costs that are achieved by setting
up manufacturing facilities in countries where costs are cheaper.
Take the case of Pharmaceutical industry. High cost of manufacturing led the companies to shift
manufacturing out of Europe and US to South Africa, India, and other cheaper nations.
While inbound supplies from these countries may be consolidated in each country by the freight
forwarder and shipped out, they may also be shipped out by the supplier to a third party
warehouse in the destination country for VMI inventory replenishments. Inbound supplies may
be running into thousands of part numbers and hundreds of shipments from a few hundred
suppliers.
Finished goods, on the other hand, would be dispatched from the plant directly to a distribution
center in the country or exported to another distribution center abroad. Similarly, each country
distribution center would receive finished goods from the local plant, imported finished goods
from other distribution centers. They would also receive the bought out items that are procured
for integration with finished goods at the distribution center. The distribution center manages the

inventory, completes any in-house process, etc. Further movement of cargo goes happens from
the mother distribution center to subsidiary or secondary warehouses from where they finally
reach the distributor.
If you plot the above two supply chains, you will see that at any time, the highest amount of
inventory is help at the warehouse that holds supplier parts and the distribution center and
subsidiary warehouse. The amount of shipments in the pipeline would be very small compared to
the inventory at the warehouses. Plants do not hold inventories at all. Therefore, warehouses are
critical to supply chain networks. Warehouses are the main links in the supply chain and their
location and functioning in terms of operations affect the rest of the supply chain efficiency.
Distribution Centers, VMI Centers, Parts Centers and various business models of warehousing
activities are now outsourced to 3PL Service Providers. Many companies do manage these as
critical functions in-house, but the increasing trend is to outsource these activities.
A warehousing operation encompasses many value added processes and critical operations. In
the case of plant logistics, these activities involve the complete responsibility of managing
inbound traffic management, yard management, and inbound shipment receiving, warehousing
and inventory management. In-house processes can include kitting; sub-assembly and any other
value-add processes to be managed before parts are supplied to the plant. Any wrong transaction
or mistake in the transaction will affect the production line and result in an increase in downtime.
Other responsibilities managed include scrap management, packing material management, etc. In
the case of automotive plants, these warehousing activities are very big and complex in size and
word as independent companies on 24 x 7 basis with senior management being present at the site
to manage the small company. Hypothetically In typical small size operations, a logistics facility
could be receiving over a hundred shipments a day, unloading around 50-60 containers a day,
maintaining inventory anywhere between 20000 to 35000 SKU part numbers, held in various
modes in 8000 to 10000 rack locations and many more block stock locations. Outgoing supplies
to plant may happen on call basis - every two hours and supplies can consist of a few hundred
parts kitted as per the Bill of Material. All this activities needs to happen continuously on a shift
basis. Contract Logistics companies have further extended their services into managing semi
manufacturing processes within the plant.
Many multi-national companies have invested into building Contract Logistics capabilities. The
management structure consists of supply chain managers, engineers and other technical staff
required managing specific segments. Development of core competence in managing
warehousing operations and supply chain network was perfected in Europe in automotive, retail
and many other industries.
In cases where the operations size and processes involved are more than just a warehouse;
normally it is referred to as Contract Logistics. The business is driven by a Contract Manager
at the site with administration support staff and operations teams. Such sites normally call for a
lot of investments in infrastructure including material handling equipment, racking, building, etc.
The size of operations and investments being large, the contracts usually run for some years. The
projects involve integration and building interface with IT applications of both companies to
facilitate day to day transactions.

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5. Contract Logistics RFQ Process
Contract Logistics RFQ Process
Outsourcing of core Logistics function of Warehousing is fast becoming popular not only for
Multi National Companies with global operations but all organizations in medium and small
sector too.
Outsourcing may fall into two categories. One category would be the flow through warehouses,
merging and distribution centers that are but a consolidation points in the supply chain network.
These can be managing finished goods or raw material supplies or even spare parts etc. The
project size is relatively smaller and the warehouse is not expected to hold inventories beyond a
few days.
The Second category of warehouses could be the larger distribution centers managing finished
goods inventory and related operations in large scale, catering to exports or supplies to a region,
continent or country level or inbound raw material warehouses managing JIT or VMI operations,
in plant management, Plant FG operations, etc. These warehouse operations are critical in nature
and are primarily categorized by the volume & value of inventory held, size of operations and its
relative position and important in the supply chain network.
In the first case of a flow through consolidation center, the selection of a 3PL vendor is relatively
simpler and the criteria lesser. In the second case the SCM managers of the Buyer and the
procurement have to set up a project to float the RFP, invite bidders, evaluate the bidders,
negotiate and award the contract.
RFQ should contain complete details of the said project to enable the 3PL to propose a solution
and prepare a solution design document. The RFQ should contain at least the following
details as minimum information:
 Detailed explanation of the business requirements, service specifications coupled with
details of the business process, IT Process and product, etc.
 Project Scope should cover details of activities, volumes, IT infrastructure, interface
requirements, report requirements etc.
 List service level expected along with performance metrics for all operations of the
warehouse

 RFQ dates for vendor meets, presentations and submission of bids.
 Project span including timelines for selection of a vendor, criteria, and process of selection,
project implementation & Go Live.
 Contract Period and Extensions
 Pricing and Costing expectations, methodology & approach.
 Legal and statutory compliance requirements.
 Liability requirements including inventory liability, third party liability, and insurance.
 Contract and agreement terms and draft of proposed contract
 Any specific requirement of the buyer with regard to services or project etc.
 Confidentiality agreements if any.
RFQ Process
RFQ document is normally prepared by the business function manager along with project lead
and procurement leaders.
Once document is prepared and internal processes and approval are in place, the procurement
issues the RFQ to either all vendors in the market or shortlisted vendors.
Post RFQ, the buyer invites all participants for Question and Answer session either in a face to
face meeting or on mail. Normally all answers to the received questions are posted to all vendors
participating to ensure fair chance for everyone.
The vendors can be allowed to meet and discuss the scope in detail or visit the proposed site to
collect more details.
Buyer facilitates clarifications and discussions with all relevant internal business functional
groups whenever required by the vendors to be able to give them better insight into the
requirement.
On due date of the RFQ, vendors are required to submit detailed bid response document.
Short listing of vendors happens internally with participation from related functional teams and
project leaders. Response documents are studied, graded and tabulated based on an evaluation of
solution design, capability as well as pricing. Shortlisted vendors are given opportunity to
present solution to the buyer’s team on selected dates.
Final selection happens after the vendor is selected internally and procurement further negotiates
with the selected vendor and comes to agreeable terms and conditions.
Lastly, internal management approval is obtained from concerned, selected vendor is announced,
and LOI is released to the selected vendor.

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5. Vendor Managed Inventory - A collaborative Supply Chain Concept
Vendor Managed Inventory - A
collaborative Supply Chain Concept
As the name suggests, VMI stands for Vendor Managed Inventory. VMI involves a
collaborative and continuous inventory supply owned, managed and replenished by the
Manufacturer right up to the last stocking point or point of sale to end customer.
VMI concept is widely being used by companies both as procurement business model and FG
supply chain model too. Industries like retail supermarkets, consumable supplier industry,
electronic hardware industry and Automotive Components industries have adopted these
strategies effectively to improve their supply chain efficiencies.
VMI concept aims to reduce inventory in the pipeline, besides achieving the concept of JIT -
Just in time wherein the ownership of the inventory lies with the supplier until the time of usage
or sale where it gets transferred to the buyer. This model also reduces operational costs of
logistics and inventory management for the buyer.
VMI’s success depends upon several factors. First of the entire concept predetermines the
existence of a strategic partnership and alliance between the supplier and the distributor as well
as the logistics service partners. On the part of the supplier, a participative approach to growing
the relationship by investing into enhancing value for the customer and extending customer
relationship management initiative drives such an approach, wherein the supplier agrees to own
the inventory until the point of call off and continues to monitor and manage the inventory
besides ensuring replenishments. The customer being distributor or manufacturing plant, in this
case, appreciates the supplier initiative and take interest in coordinating and cooperating with
supplier and supervise at times the 3PL who is situated at his premise or a nearby location.
In the case of Raw Material supplies and OE Supplies to Manufacturing plants, the VMI
programs are driven by the procurement logistics team of the plants. The VMI warehouses are
operated upon by a designated 3PL within the plant premises or at a nearby location. In such
cases, though the inventory belongs to the supplier and the cost of operations are paid for by the
supplier, the procurement logistics team of the plant continues to monitor, supervise and manage
the 3PL service provider as the suppliers do not have visibility or effective control over 3PL at
such remote locations.
The role of a competent 3PL Warehousing Partner is very critical to the success of a VMI
in a manufacturing plant setup. Normally a lead logistics player is selected by the Buyer

Company and given the responsibility to handle the transportation logistics from the place of
origin, provides destination services like customs clearance, domestic transportation and after
that setup and manage warehousing operations and JIT supplies to the plants. The buyer
organization would have a panel of buyers enrolled into the VMI program and can include
multiple suppliers supplying similar materials and products. The 3PL would act as a warehouse
provider for all the companies, manage the inventories of different suppliers in its WMS system
and supply such materials as per the call off list provided by the buyer.
A VMI model as practiced in retail supermarkets is similar conceptually to the model as in
Manufacturing setup, but the role of 3PL would not be as important or relevant it may not call
for huge inventory management operations to be set up at the retail store. Though the purchasing
and consumption decisions are taken by the buyer and accordingly trigger for stock release takes
place from VMI bins, the supplier actively monitors the inventory usage and operates
replenishment cycle, plans the shipment modes, delivery and takes ownership of ensuring agreed
inventory fill rates and service performance.
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5. Documentation - A Control Mechanism of Supply Chain Logistics
Documentation - A Control Mechanism
of Supply Chain Logistics
Supply chain operations and network extend beyond domestic boundaries and global boundaries
of all countries. A logistical exercise originates at the buyers end and involves multiple agencies
including buyer, seller, 3PL freight forwarder, transporters at various juncture, shipping lines,
airlines, various governmental agencies, customs departments at various locations and financial
institutions like banks to complete the entire supply chain cycle.
Smooth flowing of materials in a journey originating at one point and going through the entire
cycle of exports and imports to reach a point of consumption would mean engagement and
interaction with all of the above agencies who have a stake in the said transaction. Need for

decision making concerning financial, commercial, technical, operational matters about
shipments arise at various times in the cycle, which demands that the 3PL, the logistics carrier,
the buyer, the supplier are actively engaged and have visibility to information and documentation
for the smooth flow across various transit points. In fact, in faultless logistics operations, the
documentation and information flow should precede physical movement of goods.
Documentation becomes important not only for the physical logistics operations involving
multiple agencies engaged in the entire chain, the financial, trading and accounting
processes of the both buyer and sellerorganizations and partner banks also involved
depend upon the entire set of documentation pertaining to each transaction to be able to
recognize the sale, recognize value of consignment and effect necessary payment.
Accounting practices of the organizations require detailed documentation as per bookkeeping
practices and norms. Finally, goods and services are recognized and identified at every stage
only with the set of authenticated documentation showing ownership based on which the
customs allow them to be exported or imported into or out of the country. There are many more
aspects like terms of carriage by the carrier coupled with insurance liabilities and coverage that
call for set of documentation covering specific aspects of each transaction.
Therefore the entire supply chain transaction involves set of standardized documentation from
buyer and seller, from 3PL carriers and documentation as required by customs at exporting
country and importing country coupled with trading or bank requirements documents. The entire
set of documents and the terms of trade have been developed and standardized across all
countries to facilitate international trade.
INCO terms and EDI approved/enabled standardized documentation has made Export and
Imports smoother and hassle free, thus cutting down on bottlenecks and delays arising out of
documentation requirements.
Today software applications have built in standardized documentation templates and modules in
their offerings that reduce the amount of time and effort involved in preparing documentation.
ERP modules contain the documentation formats as an integral part of its internal processes. 3PL
logistics providers work with various software applications that have shipping documentation
built into its operational processes and offer track and trace with documentation visibility to
customers on the web. Filing documents with customs has been EDI enabled. Electronic
documentation has become a part of operations amongst all agencies. However at customs and
banking counters, original documents are required to be produced as negotiating and valid legal
documents for shipments to be cleared through.
A supply chain manager needs to be aware of the complete set of documentation requirement
along with the various aspects to be able to design processes and documentation control
mechanisms. Errors in documentation will lead to financial damage, delays in delivery and
performance that is what every manager aims to avoid.

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5. Warehouse Management System
Warehouse Management System
In any Supply Chain, Inventory Management and Warehousing form a part of operations
intensive function and is one of the key building blocks in the entire chain. Most of the inventory
is held at the warehouses as compared to the pipeline, and the efficiency of the warehouse
operations will determine the further supply chain efficiency.
Though it is a normal industry practice now to outsource the warehousing operations to a 3PL
Logistics service provider, the SCM managers who are the decision makers and network owners
would need to know the intricacies of warehouse operations and get actively involved in
choosing the right partner and right facility.
A distribution center or a warehouse is the key to the entire model as it holds the inventories and
also manages other operations like bundling, packing, labeling, co-packing, kitting, etc. as per
buyer requirement. Most of the marketing and buyers requirements are met with from the
warehouses.
Many factors and elements contribute to successful operations of a distribution center. The time
taken to detail the project and build a model taking into account all considerations will go a long
way in ensuring operational efficiency of the supply chain.
Physical Infrastructure
The building blocks or operational criteria of an ideal Warehouse Management System includes
location, structure, roof height and flooring, design and layout external, utilities and facilities in
the premise, internal layout design, storage infrastructure, material handling equipment, lighting
and safety equipment and mechanisms, office infrastructure, IT and communications
infrastructure, power and backup services and finally accessibility of the location and availability
of labor. The list can be exhaustive and depends upon specific needs of each buyer’s business.
IT Systems
The efficiency of warehousing operations is highly dependant not only upon the physical
infrastructure but the system and intelligence that controls, directs and manages the physical
transactions. A robust WMS capable of managing inventory and locations which is RF driven or
enabled would be the backbone of a good efficient warehouse.
The Warehouse Management System controls two sets of operations:

1. On the inventory front, the system maintains inventory in the warehouse at Zone &
individual location level, SKU level, pallet wise, carton wise and unit level inventories for
multiple customers and allows specific inventory attributes and parameters to be built in to
manage, allocate or block the inventory. The system also provides options to adapt FIFO,
LIFO or other methods of inventory flow.
2. On the Operations front the system manages, controls and directs all operations including
receiving processes, put away processes, order processing, inventory allocation, picking
process, packing process and finally shipment along with inventory updating. The
intelligent system guides and helps operations manager to schedule and manage all
operations for various groups and teams simultaneously depending upon the workload and
pattern and thereby manage resource allocation too.
Another critical function of WMS is the cycle count process that is required to maintain the
health of the inventory. WMS initiates daily cycle count and wall to wall counts as per user
specification and attributes.
Lastly WMS can provide various types and categories of reports and information related to
inventory, shipments, transactions, timings of transactions and many more parameters.
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5. Selecting 3PL Service Provider for Warehouse Management
Selecting 3PL Service Provider for
Warehouse Management
Global business models are rapidly changing. Shorter life cycles of products and new business
need exert pressure on Supply Chain managers to keep pace with the new scenarios. They are
often faced with the target to reduce logistical costs and establish new supply networks.
It has now become a common practice to outsource all logistical activities to third party vendors
both in procurement side of logistics as well as finished goods, spare parts and reverse logistics
areas too.

Today the 3PL service providers market is filled with players of all sizes and competencies, from
single owner driven local service provider to multi national companies. Most of the companies
have traditionally been transporters or freight forwarders and over the years have acquired
warehousing and contract management capabilities keeping in line with the growing needs.
Selecting a 3PL service provider to provide warehousing services needs careful
considerations on the part of the SCM manager responsible for the decision. The right
partner selection is important because you are handing over the companies assets to someone
else’s custody and secondly any performance hindrance can seriously affect the sales and
revenues of the company in case of FG Supply chain or effect the plant production in case of
Raw Material supplies.
1. Size of company, Structure & Responsiveness
The business volumes and size of the project will determine the selection of the Service
Provider. Most of the Multi National Companies can offer integrated logistics services to
manage the entire supply chain including freight, transportation and warehousing; you will
also find companies at regional or local levels that offer warehousing as a core competency
area.
The size of the company is important as a key parameter as one would not want to deal with
a small company that does not have the capability to invest or a fly by night operator. The
Management structure of the company holds a clue to their focus on the various businesses
and customers. This will enable you to find out the kind of management focus that the
service provider has in warehousing or CL as a product.
A multi national company being able to invest into your business does not necessarily make
the best choice. They can more often turn out to be expensive. Besides the availability of
CL expertise in another location or country does not necessarily ensure competence locally.
However Multi nationals are preferred as partners most of the times due to many other
advantages like integrated services, global standards, ability to invest, etc.
Responsiveness measures the quality and speed with which the service provider company
responds to your bid request and engages with you to offer a solution. The nature of
response and interaction hold key to the company’s culture and enables us to evaluate
options of investing into a relationship or partnership possibility.
2. Technical & Operational competency of Vendor
A vendor should be able to demonstrate the competency regarding its experience in
managing functions for other customers and products. Besides the competency can be
demonstrated and seen in the solution building process or document prepared and presented
by the vendor.
A company with experience in managing distribution center operations would have the
team comprising of people with sufficient experience in the operations at management
level, supervisory and staff levels.

The company needs have to have a strong IT management and functional operational
competence and capability in managing the IT system at site as well as being able to
support the site with IT administration at management level.
3. Service provider’s interest and attitude towards your business
proposal
The capability, interest and attitude of the vendor would help you to choose the vendor who
is interested in your business with long term prospect and is willing to invest time, money
and effort and not somebody who is chasing business as a sales target and doesn’t have the
required interest, organizational and operational capability to service your business.
Lastly the cost drivers play a major role in vendor selection for the project. An RFQ document
should seek information on above criteria from the vendor, and the process of selection should be
based on evaluation, demonstration coupled with site visits to vendor’s site to assess overall
suitability.
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5. Selecting 3PL Service Partner
Selecting 3PL Service Partner
When an Organization chooses to outsource its inventory management services, the project
success hinges on choosing the right partner because the stakes in a warehouse management
projects are very high. Besides the impact on the other functions like manufacturing or markets,
the third party service provider is the custodian of your inventory which meaning your money is
in someone else’s hands.
So the question one needs to ask for is - What are we looking for in a 3PL Partner ?
The answer to this question will take you through few of the important factors that are to be
considered.

Choice between Multi National 3PL Service Provider or Local Service
Provider
This is often a dilemma faced by SCM managers while choosing the partners. Dealing with Multi
National Companies has its advantages. Normally the MNC service providers provide integrated
logistics services that give you value addition besides seamless service coupled with lower costs.
Strategically it makes sense to go with Multi National companies who can leverage on their
competence available across the network and provide standardized processes across various
locations.
However on the flip side, these companies may not have the same management focus and
competence in all countries and all locations. Besides many companies have been traditionally
transportation providers who have acquired warehousing competence and skill sets and are not
warehouse centric or focused players.
Domestic Service providers, on the other hand, would know the laws of the land better and know
how things work. They will have the local expertise and capability to manage operations and
resources better. By virtue of them being local and small players, one can expect better focus and
attention.
The choice is a difficult one to make. At the end it depends on the size of the project, the number
of locations and the company’s policies besides any local specific situations to decide on the
above.
Global companies prefer to tie up with Multi National Players to be able to leverage on their
network as well as operate with a global agreement. With a lot of business in transportation and
warehousing being given to an MNC, the buyer can have a better bargaining power with the 3PL
provider. Contractual obligations, third party obligation, and local statutory compliances can be
easily owned and managed by MNC 3PL providers.
Service Provider Capability Evaluation
Evaluation of a 3PL service provider involves understanding of their capabilities both regarding
technical competence, operational capabilities and Management Culture.
The evaluation normally consists of Detailed Response document to RFQ from the 3PL service
provider, followed by a presentation by the 3PL and subsequent site visits to the proposed
location, site visits to other locations /operations of 3PL, coupled with customer references.
Detailing these processes becomes important especially in the case of a bigger project depending
upon the criticality of the project.
Management Focus / Involvement and commitment at corporate and
local level
Often the face to the markets from the 3PL side is the marketing and BD teams. As contract
logistics is capital intensive and operations intensive, it is important to understand the company
management’s focus and commitment towards this part of the business, especially in cases where
3PL is an Integrated Service Provider with other logistics businesses. A management interested

and focused on CL business is likely to invest in building a long term relationship and enhance
its competence and deliver the better value proposition to the buyer. Company profile and
meetings with management will enable one to assess this criterion.
The other important and relevant areas to be evaluated are the IT Backbone and capabilities of
the 3PL and its experience and expertise in deploying and managing WMS systems.
Expertise in Operations and inventory management as core functions coupled with project
management capability, local expertise availability and quality programs, etc. can be judged
from the response document and subsequent personal discussions and site visits.
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5. Internal Planning for Effective Operations in Warehousing Projects
Internal Planning for Effective
Operations in Warehousing Projects
Globally outsourcing 3PL Market is growing fast. In the US, the industry is expected to reach
over $150 billion as compared to a global estimate standing at $450 billion as per industry
experts estimates.
Companies aiming for aggressive growth in global scenario recognize the need to partner with
3PL logistics providers to be able to establish supply chain networks across countries.
Outsourcing is the only vehicle with which they can operate and cannot afford to manage
functions in-house.

Warehousing activities whether in Finished Goods logistics or Plant logistics, are very critical to
the entire supply chain. Take the example of an automobile manufacturer who depends upon a
3PL to manage complete inbound activities including vehicle unloading, inventory management,
and JIT supplies to the plant. The manufacturing facility completely is dependent upon the 3PL
service provider. Both the buyer and 3PL co-exist together at the same location, over a period the
systems and operations get enmeshed and integrated into the process of localization and finding
practical solutions. In such cases, any non-performance on the part of 3PL due to any reason will
affect the plant output. It is not possible to make a sudden switch to another 3PL overnight.
Hence, the marriage has to be lived through and managed.
Therefore choosing a 3PL partner for your warehouse operations needs thoughtful considerations
and evaluation. Of course, any project of this nature is dependent upon the relationship between
the buyer and 3PL. Collaborative and partnership approaches have yielded very good results than
a buyer and seller relationship. Where ever buyers have invested time and interest in engaging
directly with 3PL operations, with helping in training and periodic assessments coupled with
motivational exercises, have helped 3PL operations remain focused on the deliverables and
maintain efficiencies.
Before you start looking for a 3PL partner, internal alignment with management, clarity of the
project and criteria for selecting 3PL Partner is to be worked out in detail.
Following factors are to be considered internally to plan the exercise:
1. Internal Decisions
a. Outsourcing project should be clearly defined as to Scope of Activity, Business
Risks Identified. Decision to outsource with definite timelines in-line with business
function should be approved by Management.
b. Budgetary approvals should be in place for the project implementation as well as the
monthly logistical service outflow from concerned business functions and
Management.
Without clarity, many times RFP & RFQs are floated and discarded resulting in
wastage of time and effort of all parties concerned.
2. Defining Project Scope and Responsibilities
Plant Supply Warehouses, Regional Distribution Centers, VMI, etc. projects are often very
huge in size of operations as compared to a flow through finished goods warehouse in a
supply chain network.
Such big projects are characterized by huge capital outlay, multiple process designs, and
infrastructure-intensive and involve complex IT system design and interfaces.
RFP / RFQ would need to define each element very clearly and describe the scope of
activity and responsibility on the part of the buyer as well as the 3PL.
The document should define clearly the capabilities and competencies required for the
project, the timelines, and deliverables.

Detailed understanding of the project scope will ensure that only the 3PL who has the
required capability and strength will bid for the project.
3. An outsourcing project should have clear internal guidelines about the ownership of the
project, individual program owners, business unit who will own the project after
implementation coupled with operation management and escalation process.
This information can be shared with the 3PL in the RFQ, and one should expect similar
structure from the 3PL in its response document.
4. Defining Length of the Contract with possible scope for extension and period of
extension is essential to help 3PL work out financials. It helps to define the methodology of
costing template along with the RFQ to ensure common platform.
5. Finally determining process for evaluation of vendor is very essential. What are the
capabilities that you look for in a 3PL, what is the selection criteria, who are the internal
team members to be involved in selection process and decision making should be clearly
enumerated.
A well thought out internal proposal and RFQ document will help you find the best fit and
smooth project implementation.
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5. Warehouse Design Concepts
Warehouse Design Concepts
Supply chain efficiencies depend upon the efficiency of logistics including transportation and
warehousing operations. Warehouse efficiencies depend upon a combination of warehouse
design, layout, infrastructure, systems, process and people.
In cases where one can design a warehouse and implement the complete project from ground
zero, gives the SCM Project Manager a good scope to create a tailor made solution design
matching the exact requirement, thereby increase efficiency as well as reduce transactional cost.
However, this may not be the case all the time. In an ongoing situation, often SCM managers are

forced to take up available facilities and work around the available design and try to get the best
results.
Warehouse Design element aims to maximize the utility of space, equipment, and efficiency
of operations. We will briefly cover the various elements of a warehouse design and understand
their importance.
In basic functional aspects, a warehouse function consists of - Material receipts including
unloading, unpacking and inspection, put away and Storage of materials in various categories of
storage locations, systems updating, pull materials for dispatch and delivery of materials after
processing.
Warehouse Location, Layout and Building
The location of a warehouse should ideally be situated on a flat ground. The location should be
easily approachable and in a area suited for this nature of business. Locations closer to markets
or to national highways would be ideal. Public transportation and communication infrastructure
should also be available.
The layout of the building should be designed to accommodate fleet parking, and enable
containers to drive in and drive out easily. Any time two containers should be able to pass
through on the path without any interruption. There should be enough free space for vehicles to
maneuver. The layout should also provide for other utility, safety and security operations.
Building is normally constructed using galvanized metallic sheets mounted on C Section girdles.
The flooring should be RCC concrete with weight bearing capacity as per requirement of the
load to be calculated in each case. The ground should be flat, even and smooth surface to
facilitate MHE movements and dust free.
The roof height would be a major consideration to be able to install multi-vertical storage
racking installation. The walls and roof should be designed with suitable lighting panels and
ventilators for air exchange fitted with bird cages.
The number of loading and unloading docs and placement of these docs play an important role in
the design of operations and efficiency of operation. All weather docks and the facility should
enable 24 hours operations. Dock Levels. The docks should be equipped with dock levelers and
all these have to be installed during construction phase itself. Ramps have to be provided to
facilitate movement of forklift etc.
Lighting design will depend upon the layout and the racking design.
Internal Layout
Internal layout design will be built taking into account the operational process, nature of goods,
volumes of transactions both inbound and outbound, storage types, in-house operations involving
put away and pull sequences and process requirements including packing, kitting etc and the
availability of floor space coupled with building layout design of inbound and outbound docks.

The design aims to maximize space utilization, minimize MHE movement and Manpower
movement.
Types of Storage
Types of storage are determined by the nature of cargo. Depending upon the cargo whether
finished goods, raw material parts, etc., the types of storage can vary from bulk stock, block
stock, racking, pallet racking, shelf racking, binning, unit pick or loose pick face, carton pick,
etc. The storage types vary with nature of materials with different types of storage designs for
drums, pallets, tires, cartons, tube, and rods, etc.
Racking Designs & Material Handling Equipment
Racking Design takes into account the storage type, storage unit, volume, and weight coupled
with the available floor space and roof height to design system that maximizes the storage
capacity. Put away and picking process and transactional volumes are also taken into
consideration. The profile inventory study would include detailing of number of SKUs in each
category of fast moving, slow moving or other criteria as per the nature of business and the
storage type would be designed as per the inventory profile and the process.
Racking designs are very many and varies with the type of industries and nature of inventory.
Normal racking designs include pallet racking on multiple levels. You can have shelving,
binning or a combination of bulk stock and forward pick face racking designs. Block stack
racking and other types of high-density racking can be found in FG warehouses. Mezzanine store
binning and shelving rack designs are normally designed for spare parts and small parts.
Highly automated racking designs can have automatic retrieval systems and conveyors in the
warehouse.
Material Handling Equipment are specified based on rack design coupled with pallet design,
nature of the cargo, weight, and the warehouse layout, etc. Forklifts, reach trucks, hand pallet
jacks, trolleys are normal Material handling equipment in normal warehousing operations.
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5. Warehouse Operational Efficiency Contributing Factors

Warehouse Operational Efficiency
Contributing Factors
Managing Warehouse Operations is akin to playing a symphony with people, systems, and
processes. As long as these elements are balanced and in harmony the operations go on smoothly
and efficiently.
People
People are very important assets of warehouse operations. Human resources can be the strongest
and the weakest link to warehouse performance.
Even in a highly automated and system controlled design, warehouse operations are heavily
dependant upon people to run and manage operations.
Typically in warehouse operations, besides management structure, the operations resource
categories are MHE Operators, Operations staff who manage shipments, put away, material
picking tasks and other operations including labeling, packing, kitting, inventory counting,
documentation and systems operators. These resources are mainly categorized as team leaders
and operators.
Normally in warehouse operations, the manpower resources structure is employed in a mix of, on
the company role jobs, on contract and temporary or daily wages and outsourced contract labor.
The categorization is based on the nature and skill set requirement of each job coupled with
criticality of the position and the local supply and availability of resources.
Workforce - Qty, Job Structure
Many times in 3rd party managed warehouses, workforce strength is often an issue that affects
the operational efficiency. It has been noticed several times that few local managements try to
cut corners by understaffing at various levels and extending the working hours or job
responsibilities and trying to save costs. There can be several instances of shortage of manpower
from the strength that has been planned and budgeted for.
Any warehouse operations needs to have an optimum workforce budgeted based on clear-cut
tasks and volumes of transactions. As all operations are time bound activities having inter-related
tasks and dependencies, estimation of work and work division clarity is essential to avoid
overstaffing or understaffing. Overstaffing can result in slackness in individual performance
levels besides increasing the costs.
Warehouse activities very often are found to be seasonal and cyclical. The business type and
seasons resulting in peak seasons and low seasons place similar demands on the warehouse to
step up operational throughputs or cut down on operations. Besides internal requirement also
creates temporary demand for workforce. Extra teams are called for during year-end operations,
annual wall to wall stock takes or any internal inventory exercises, etc.

Warehouses source temporary labor and resources from local nearby areas to mange this sudden
surge in demands. Any change in internal process or business process or improvement in systems
and processes can lead to redundancies. Many times, they are having to face over staffing
problems and need to look at ways to reduce numbers or re deploy resources into other activities.
Therefore, warehouse operations are never in a stable state or status quo for a long time.
Managing people dynamics holds key to managing operations effectively.
Right skill sets
In warehousing operations, process and system compliance demands keen focus and discipline at
all levels. The skill sets and attitude requirements are different for different jobs. The skill set
requirement is more linked to attitude and functional capability of the persons and less dependant
upon knowledge or educational qualification.
Any person who works on Forklift would need to have a good sense of control, direction, and
patience. Similarly, a picker would need to be able to identify and have a feel of locations,
Inventory SKU types and be able to identify the part numbers, description.
At operating level, people are required to understand what is expected of them, be able to follow
the process and comply with the process and instructions. The operations require manual
dexterity and ability to be on feet for long durations besides being able to bend down and reach
up constantly to pick up items. Ability to lift small weights and walking distances in the
warehouse are a Must Have strengths. These practical points have to be kept in mind and
evaluated while hiring people.
Attitude and Outlook
It has been seen in warehouse operations that the workforce attitude towards the company, job
and customer plays an important role in the operations. Studies done in various cases have shown
a direct link between people’s attitude and commitment to day to day operations. Wrong
shipments, short shipments and defective deliveries coupled with warehouse equipment damage,
misuse and accidents are few of the results of the problems that show up and need correction of
attitudes at individual levels. Inventory management functions are highly vulnerable to
individual performance and attention to detail.
A good warehousing operations management team who is sensitive to the above factors and is
equipped to manage a team and the dynamics would be successful in ensuring efficient
operations.
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5. Warehouse Operational Efficiency and Inventory Health
Warehouse Operational Efficiency and
Inventory Health
Any warehouse operations are measured by service levels, volume of transactions handled
quality of transactions and most importantly inventory health maintained.
By Inventory health in a warehouse, we are referring to Physical Inventory Accuracy, the way
inventory is physically kept in locations and discipline maintained in transactions, inventory
maintained in the system.
Inventory Health, in turn, is dependent upon System setup, floor layout and infrastructure
coupled with defined process, compliance, and regular inventory checking, audit and training.
The key to good warehouse operations is reflected in availability of documented process
covering all above mentioned functions and documented proof of day to day compliance of
above tasks.
All warehouse processes are documented in Standard Operating Procedure, which is the guiding
bible. These processes are further broken down to Work Instructions for each job function and
task or activity.
Physical Inventory
Warehouse floor will have layout design with designated areas for stocking inbound materials
waiting to be in warded, stocking locations with locations marked either in racks, shelves, bins or
floor locations to store pallet level, carton level or unit level items and outbound shipment area
where materials are removed from inventory locations and kept for consolidation and preparing
cargo for outbound shipments.
A good warehouse floor will have clearly marked aisles, locations with labels depicting various
kinds of inventory like good stock, stock on hold/ QA, defectives, returns materials, reserve
stocks, etc.
The key to inventory health as well as to operational efficiency lies in people following process
to keep the right material in the right location, in the right way and updating system transaction
to complete the cycle.
Location accuracy is critical to the operations. In a huge operation, materials are picked based on
system guided pick lists or RF enabled picking. Any wrong material lying in the location picked
may get missed out in the process and end up as wrong shipment or pickers may have to waste a
lot of time looking for right part numbers if the location accuracy is not perfect and the lead
times cannot be maintained.

System Inventory
Warehouse operations and stocks are driven by Inventory management systems or warehouse
management systems. WMS systems manage locations, initiate and control transactions for in
warding and outward shipments tasks coupled with inventory management besides interacting
with external sources to receive advance shipment notices and to report back on warehouse
inventory and transactions.
In all cases system transactions and physical transactions are very closely linked. System always
initiates action and tasks that are executed by Physical operations.
Since system is the brain that drives operations and inventory, system inventory and physical
inventory needs to be matching perfectly at all times.
Matching system transactions with the physical transaction is a must and very crucial in day to
day operations. All system transactions have a bearing on physical transactions and vice versa.
Therefore, process adherence to complete transactions is a must.
Taking a simple example, if an operator initiates a change of location of one particular part
number for operational purpose and does not update system, the system inventory will show
wrong inventory location and not match with physical location. Similarly, if the system initiates
any transaction that is not made good on the location will impact stocks adversely.
In ongoing operation thousands of transaction keep taking place in the system and tasks keep
getting generated and updated. Even in an RF driven operations scenario, there is always a need
to ensure that every system transaction is closed.
Best practices in warehouse operations involve a daily audit of system transaction audit and
location accuracy audit on a continuous basis on all shift. System integrity checks are also
conducted frequently.
Inventory Audits
Finally a warehouse that gives important to inventory audits as much as to its operations reflects
good healthy warehouse operations.
Inventory checking and counting is practiced as a daily activity. Inventory counting teams
consist of system operators and shop floor operatives. Inventory counts are normally system
driven and stratified where a percentage of locations or Inventory is verified as per list thrown up
by the system. In a 4-week cycle or a quarterly cycle, all locations in the warehouse would have
been counted, and system throws up inventory discrepancies and transactions that are then
resolved by management. Annually wall to wall audits are conducted to count all inventory in the
warehouse before starting a new database for New Year.
Besides system driven inventory counts, inventory audits are initiated by operations to verify
process compliance and stock/ location accuracy.
Inventory Health is the report card of Every Warehouse reflecting is operational efficiency.

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5. Contract Logistics & Warehousing - Pricing & Costing Mechanisms
Contract Logistics & Warehousing -
Pricing & Costing Mechanisms
3PL Logistics Service Providers are many in the market. There are players from Multi National
background, regional players, local companies and individually managed business organizations.
Warehousing business, on the other hand, can flow through warehouses, consolidation and
merging centers, finished goods stocking points, forward locations, raw material warehouses, JIT
/ VMI operations, Bonded warehouses, in plant warehouses, etc. depending upon the business
requirement.
In this section of the article, we proposed to cover pricing mechanism aspects of a small
warehouse like a consolidation center or finished goods flow through warehouse that need not be
dedicated to the buyer alone and can be a shared facility.
Normally the bigger operations involving inventory management etc. are considered stand alone
facilities and costing is worked out for the entire project, and this part of discussion is not
covered under the scope of this article.
Normally in the Finished goods supply chain or raw material supply chains, there would be a
need for a warehouse facility en route to the plant or the markets. These warehouses can be
consolidation centers or merging centers in case of finished goods where different components of
the order or finished goods are brought in from various locations, merged and dispatched to the
next leg of the network. In case of raw material supplies, there can be a consolidation center at a
country level where all shipments from several buyers are consolidated and shipped out as a
container load.
Such kinds of warehousing requirements may not call for dedicated facilities. Normally the 3PL
service provider who manages the freight will have warehouses that are used as shared or
common facilities. In few cases public warehouses are also used by the buyers as the case may
be.

General cargo warehouses or shared facilities and public warehouses are warehouses that house
cargo of various clients. Depending upon the clients requirements, materials can be stored per
day, week or month, etc. Inventory held of each customer may not be very high.
Storage Space
Storage and space options provided by the 3PL in such cases can vary with the client’s nature of
the business. In a country consolidation center, where multiple shipments are stored and
consolidated, the buyer may contract a fixed space on square foot basis with specified number of
locations.
In another case of a merging center, the buyer may not contract fixed space and pay on
transaction basis.
Public warehouses normally rent out space in terms of per pallet storage.
Pricing
1. Fixed Price: In cases where the buyer contracts a fixed space, the costing model will be
based on a fixed fee per month including cost of space, resources, infrastructure, etc.
Even in Fixed Fee model, there are many variations in pricing models.
2. Transaction based pricing model: Wherever there is no fixed space allocation, the
transactional pricing models are in vogue. Variable pricing models are many. Some of the
usual methods of pricing are - Per pallet price, per unit or Kg -volumetric weight /volume
price, per transaction price including price per inward, per shipment, etc.
Normally in transactional pricing model, the buyer’s requirement will be minimum and
does not call for any specific or dedicated investments. The 3PL provider normally uses his
general or public facility and recovers his total cost of investment and operations on the
volume or transactions.
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5. Contract Logistics Pricing Methods

Contract Logistics Pricing Methods
Warehousing and Contract Logistics forms an important part of Supply Chain Networks.
Contract Logistics projects are of two kinds. The first being a flow through the warehouse that
can be a Finished Goods warehouse for the purpose of consolidation and merging or
documentation purposes or in the case of supplier shipments, inventories being consolidated to
enable FCL shipments. Often supply chain logistics calls for shipments and cargo to be
warehoused at the point of origin or destination. In all such cases, warehousing facilities are
normally public warehouses or shared, and common facilities offered by 3PL are used.
The second kind of Contract Logistics projects involves larger projects that are client specific
and dedicated. Such warehousing projects may be called for in Supplier inventory management
and supplies to the Plant or manufacturing lines called in plant logistics or models like JIT, VMI
warehouses. In case of Finished Goods too, the distribution centers, FG warehouse and hubs at
regional or country level entail dedicated facility.
Warehousing Projects are normally managed through an RFQ process where the qualified 3PL
vendors bid for the business with the response document containing solution design, followed by
presentations and negotiations with final selected 3PL supplier. Many companies prefer to
suggest a pricing mechanism or model in the RFQ to enable them to compare the various bids as
well as have clarity on costs involved therein.
Types of Pricing Models in Contract Logistics:
1. Fee-based on the percentage of Sales Turnover or volume.
2. Cost Plus model
3. Price per Sq. Ft
4. Transaction and Fixed Price combination
5. Cost per transaction or unit pricing
Fee-based on percentage of Sales Turnover or volume.
Traditionally warehousing service providers who are called carrying and forwarding agencies
involved mainly in Finished Goods logistics have practiced the pricing mechanism of charging
Warehousing Fee as a percentage of sales billed per month. The fee can vary anywhere from 0.5
to 2% of the monthly gross sales turnover. This practice has been in vogue in a multi-tier supply
chain network involving distributors at state levels and further regional distributors and so on.
This pricing mechanism includes a basic minimum guarantee pricing called as floor price. Floor
price or minimum price covers the fixed cost expenses of the warehouse. The revenue earned by
the 3PL varies with the sales revenue. 3PL stands to gain during peak months and loose during
slack months. The variable cost that has a major impact on the costing is labor. 3PL service
providers manage this costing by employing minimum number of human resources and add on
temporary labor only when required.
While 3PL is aware of the market conditions and sales estimation for the buyer’s products he
stands to make a gain when the sales shoot up. Buyer, on the other hand, would find it easier to

account the cost as a standard percentage of the sales turnover without having to get into other
operational details.
Cost Plus model
Large size projects that are dedicated and setup as per a buyer’s requirement are normally run
based on Cost Plus model. As the name suggests, the pricing mechanism involves estimating the
total cost of running operations and profit as a Management Fee which is fixed as a percentage of
the total cost.
This costing method works well when the project size is huge and operations include multiple
transactions and value-added activities within the warehouse. A large size warehousing project
calls for huge investments to create the building and infrastructure. The build may have to be
built or may be hired by paying a security deposit. Infrastructure investments would include
racking or shelving systems, material handling equipment including Forklifts, Reach Trucks,
Dock levelers, etc., conveyer or any other equipment needed. IT infrastructure can include cost
of hardware including servers, desktops, laptops, printers, RF equipment, etc.
Given the size of the project and the investments involved, the contract or project is awarded for
three years with two extensions of one year each. This helps the 3PL to amortize the investments
over the contract period.
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5. Contract Logistics Cost Model
Contract Logistics Cost Model
Warehousing Costing methods vary with the business models. While some warehouses using
common shared facilities may be worked up based on transaction costs, dedicated and stand
alone facilities would be on a different costing model.
In this section, we shall go through the cost elements of a warehouse project briefly.
Warehouse Cost elements are primarily divided into Fixed Costs, Variable Costs and Overheads.
1. Cost of Land & Building

This cost element is included if the land and building are provided by the 3PL and not the
buyer.
Incase the land and building is acquired by the 3PL, the cost of land and building may be
amortized over the life of the building or as per industry standards (average 10-12 years)
and proportionate monthly costs can be added. One needs to ensure that the costs are
realistic and nearer to market rates for rentals.
Incase the land and building is rented by the 3PL, the cost of monthly rental along with the
cost of funds for security deposit may be added to the costs.
All costs would be worked out for the term of contract period with annual escalations
considered annually.
2. Infrastructure Cost
Cost of acquisition of all infrastructure including racks, MHE, Charging equipment, dock
levelers and any other equipment including office equipment are itemized and amortized
over the contract period or over the shelf life of the equipment as the case may be, to arrive
at monthly cost of infrastructure.
3. IT Infrastructure
IT infrastructure consists of the cost of Hardware & Cost of Software. Hardware covers all
servers, desktops, printers, laptops, RF Equipment and any other IT related hardware.
Software application costs include cost of WMS based on one-time fee or individual
number of user license, cost of other soft wares including mailing system and any
operations related soft wares.
IT Costs are amortized over two or three years depending upon statutory audit guidelines.
4. Manpower
Detailed manpower costing will include the cost of Management Staff, Operating staff, in-
house operatives and outsourced operatives like labor, MHE Drivers, etc. Outsourced
security staff costs are also added under this item heading.
In case of in-house staff, detailed calculations based on cost to the company is worked out
including staff benefit, insurance, bonus, training costs, uniform, etc. along with proposed
incremental cost over the number of years as per contract period.
Outsourced staff costs are also tabulated for the contract period including annual
escalations.
5. Utilities & Consumables
Utilities are not fixed costs. They are monthly variable costs. The items in this category are
the costs towards office and communication expenses including telephones, the internet,

etc., stationary and consumables both for office and shop floor items like tapes, packing
materials, etc., cost of electricity, water, fuel, etc.
6. Administrative expenses
Costs of office support, cost of insurance and third party liabilities and travel costs, etc.
including any other statutory costs, deposits are covered here.
7. Overheads
Cost of management time is estimated and included here. Alternatively, a percentage of
corporate or regional office cost overhead is loaded.
Cost of money or interest cost on working capital for three months can be included.
8. Profit / Management Fee
Management fee can be added as a percentage of total cost or a fixed amount.
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5. Contract Logistics Solution Design Document
Contract Logistics Solution Design
Document
In any project involving outsourcing of warehousing operations, setting up a Distribution Center
or Managing Plant logistics, if the project involves setting up a dedicated facility for the
customer and the size of the project is huge; such project requires detailed attention and work
from both parties. The buyer would have to detail the requirements in the RFQ document, and
the 3PL service provider would have to work on designing a detailed solution.
The RFQ response document holds the key to showcasing the proposed solution and the vendors
understanding of the requirement and capability.

In this article we proposed to cover the components of the solution design document in brief.
A response document to an RFQ will normally contain the following sections:
 Covering Letter with List of Enclosures
 Solution Design
 Case Study of 3PL’s other works of experience in the similar industry with photos or video
if possible.
 Company Profile, Management Structure and financial information as requested in the
RFQ,
 Project Implementation information detailing project team, project sponsor and
management team, proposed timelines and schedule, etc.
 Pricing
 Terms and Conditions of offer
 Any identified deviations from the RFQ assumptions or requirements with justification
 Any other information supporting the solution design.
Solution Design Document
Solution Design Document is the main part of a response document, which details the solution
proposed matching with the requirements of the buyer.
Solution design generation is driven by Business Development team with the active involvement
of a solution design team. The solution design team would have the required competence,
engineering capability, and tools to prepare the design. Functional experts or Subject Matter
Experts and operational experts are brought in to collaborate with solution design wherever
required.
Once solution design is ready, it is reviewed by operations team and IT besides costing team for
internal acceptance and approval before being submitted to the client.
A solution design normally consists of:
 General:
- Detailing business process, requirement and assumptions as understood from RFQ.
- Inventory analysis and other data analysis and resultant assumptions made in design
 Proposed Location:
- Explain details about the selection of proposed site, facility drawing, layout and structural
details including height, the number of bays, etc.
 Proposed Infrastructure:
- Proposed Racking and Internal Layout Design with explanation on storage type selection,
number of locations, total storage capacity, etc. including technical details of the racking.

- Material Handling equipment and details.
- All other infrastructure and equipment details.
 IT :
- Proposed System / Application with technical information including possible enhancement
requirements to support business operations.
- Outline benefits of using the system and how it fits into buyer’s requirement
- System and network architecture design map with Document interface requirements and
other technical points relevant to enable interaction between 3PL and buyer’s systems.
- Hardware and Network plan
- IT infrastructure specification and list of equipment including RF equipment, labeling and
printing machines, desktops, Laptops, etc.
- Detailed implementation plan if possible.
 Process / Operations:
- Process document should provide complete overview of the internal operations process
combined with systems and physical processes. This document should be able to give a
clear picture to the reader and enable him to visualize the entire process within the facility.
 Human Resource:
- List of total manpower assumption worked out
- Proposed operations management structure
- Escalation Route and structure
- Details on how recruitments will be managed for the project
- Brief on company policy on hiring, recruitment and HR management practices
 Other Information:
- EHS, Safety & Security Management plan with details.
- Maintenance Plan
- Disaster Recovery Plan, including IT recovery.
- Quality Policy and Quality systems implementation plan
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5. Inventory Migration - Meaning, its need and importance
Inventory Migration - Meaning, its need
and importance
The need for Inventory Migration from one warehouse to another warehouse does not come
about very often in Supply Chain Operations. However, sometimes the business demands
necessitate a change of warehousing location, setting up a new location or even a change of
business model.
The occasion and need for an inventory migration can come about due to many reasons:
 Non performance of a 3PL service provider
 A change in tax policy of the government
 A shift in market dynamics calling for a change of location
 Change of Business Model
 Product Mix and supply chain strategy or a simple case of an increase in business volume
could make a case for shifting or setting up of a new warehouse and closing down a
currently operating warehouse.
There could be many more reasons apart from the situations mentioned above warranting an
inventory migration.
A successful migration will depend upon carefully planning, detailing of every activity,
simulation and trials, combined with team training and briefing exercises. Such a project
involves and affects all functions including marketing, IT, finance, operations, order fulfillment,
inventory planners and controllers, procurement, 3PL service provider, transporters, legal and tax
compliance teams and finally the management.
The project leader in charge of the project would have to have the knowledge to design
operational processes for the entire project coupled with knowledge of the activities and
functional departments involved in the entire exercise.
The first exercise involved would be to set up a cross functional project team, drawing leaders
from all functional departments. If the proposed operations are being managed by a 3PL, then the
team would have to include them as well. In fact, in such cases, the 3PL would need to form an
internal project team with a project manager too. Effectively there would be two project teams
managing the project and taking joint responsibility. The first team would be from the Principle
Company and a second team from the 3PL. While the design, process, budgets, guidelines,
project management would be driven from the company, the 3PL will manage to get the new
facility ready, set up the team, training, getting ready to receive materials and start operations,
besides planning for transportation and inventory movement.

The project being very critical in nature would need a Project Sponsor, who will review as
Management and facilitate and coordinate to ensure timely decisions, resources are made
available and manage communication with other departments and partners. The 3PL provider too
will be required to setup a similar management structure to facilitate the project.
A very important aspect of managing a smooth inventory migration is to build a healthy
dialogue and continuous communication with the existing 3PL service provider to ensure
the ongoing operations at the project planning stage are not disrupted and the Service provider
co-operates with the company and the new 3PL in working together to hand over the inventory
and assets belonging to the company as per laid down process and comply. Periodic meetings
and contract review discussions have to be held to iron out differences arising out of the situation
and would have to be handled sensitively and intelligently with patience.
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5. Inventory Migration Scope
Inventory Migration Scope
Inventory Migration is a mammoth project exercise involving internal teams as well as
many external agencies. Detailed planning, process, simulation, and training are the basis
to ensure successful inventory migration exercise.
Project Teams would consist of teams from all functional departments namely finance, legal
/compliance, inventory planners, IT, procurement, marketing, order fulfillment and logistics &
Facilities team and headed by a Project Leader, who knows the operational details involved in
such a project. A similar project team is required to be setup at the 3PL service provider’s end
too. The project also calls for Project sponsors from management to oversee and facilitate the
project decisions.

In this article, we aim to cover briefly the various functions that are required to be planned in a
project for inventory migration to give an inside view of the project.
The project planning and execution revolves around the setting of a target date for start-up
operations from the new facility after migration. All activities originate after this announcement.
Normally the transitions should be planned in a lean month or period when the demand for
logistics supply chain is likely to be lean, and the inventory in the warehouse is at the lowest
level.
Marketing, Sales and Order Fulfillment departments would have to announce the plans to the
distributors, channel partners and the rest of the players in the chain and plan to increase the
stocks at the forward locations to cover up for the period of migration when the supplies are
likely to get disrupted. The new location address and details would have to be informed to the
markets.
Procurement, inventory planners and logistics will plan for holding required stocks in the
pipeline, plan for a lean inventory in the warehouse by shipping out and liquidating stocks as
much as possible, stop inbound shipments during the transition period and inform all vendors,
suppliers, freight forwarders of the new warehouse location for future transactions.
Legal compliance would entail registering the new facility with the authorities and obtaining the
necessary licenses, permissions, and clearances from all statutory authorities concerned. This
would have to be complied with, both by the company as well as the 3PL service provider in
their respective areas of obligation.
Inventory process planning involves three major components. Firstly, the volume of inventory to
be transferred has to be estimated, some container loads calculated. This becomes the input for
the rest of the major activities to be planned including transportation planning, resource
planning, determining lead times for inventory handing over at the existing warehouse, transit
time estimation and time for receiving and put away of inventory at the receiving warehouse.
Process planning would entail following activities at the existing warehouse. Step by step
preparation of inventory at the existing warehouse for shipment, the sequence of inventory
handing over by the existing warehouse for shipping out, the process of counting and handing
over inventory, handing over documentation and sign off process. The plan should also cover the
allocation of necessary resources, teams including supervisory and management staff.
Transport management planning would have to ensure that the transporter provides dedicated
capacity and containers as planned without disruption. Sufficient arrangements for loading
equipment and teams would have to be planned. The inventory loading plan should cover details
of how inventory would be loaded in sequence and the documentation process. The documents
and loading information would have to be passed on to the receiving warehouse electronically
before shipment reaches, so that the receiving teams can prepare the systems and teams in
advance with the information on what to expect in each container.
The receiving team operations would have to plan in detail to receive shipments, unload, count
and put away materials and upload the inventory into the system before declaring the warehouse
ready to start operations and serve orders.

IT plays an important and critical role. Detailed planning would entail setting up of new location
and transfer of inventory in the system or transferring the existing inventory database to the new
service provider. Aspects of location changes, layout changes or process changes would have to
be worked out in detail, along with trails undertaken to ensure interfacing and data transfer in
sync with the WMS at the new service location. In a migration scene, resolving the inventory
discrepancies arising from the transfer and ensuring a hundred percent matching of physical
inventory to the new system upload at the new warehouse location with the system at the
companies end is most critical to the entire operations.
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5. Warranty Management - Meaning and its Components
Warranty Management - Meaning and
its Components
Warranty Management had been traditionally viewed by companies as a cost of doing business.
The costs of warranty management were found to be costing between 4 to 5 percent of the total
sales revenue of the company per annum and were considered to be the cost of providing
customer satisfaction and as an opportunity to building customer relationship.
However over the last few years, many organizations have realized the underlying value that can
be realized in this area. Today Warranty Management is considered to be a separate revenue
stream. The process of Warranty Management has evolved over a period. The benchmarking of
best practices have led to reduction in cost of service delivery of parts with increase in customer
satisfaction and an independent revenue stream of warranty services.
What is Warranty ?
Warranty is a statement of assurance or undertaking issued by the manufacturer of a product
concerning the performance of the product and parts supplied by him by way of sale transaction
to the customer, for a certain period as stated in the Warranty Card accompanying the product. In
other words, it is a performance guarantee for the product given by the manufacturer. In case of
any poor performance due to the nonperformance of any part or defect in any part of the product,
will be made good by the supplier/manufacturer with either replacement of the part or product or
repair of the product.

Important Components of Warranty Management System
Warranty Management is today a separate function of Service Parts Management Stream in the
organization. Service Parts Managers are P & L heads of their department and the entire business
unit functions as a profit center with its revenue and cost budget.
Service Parts Management Team
Service Parts Management Teams and structure are the Service Support Delivery owners and
function as primary contact points with the customer. At the first level Service, support teams
comprise of Customer Desk, which is the first point contact for the customers to register the
service request. Technicians and Engineers as front end site supports and second point contacts
to the customers. Parts Support Managers oversee the functioning of the operations and take
responsibility to close calls and for delivery performance.
Warranty Management and Claims Processing System
The entire business process and workflow management are driven by the Internet and e-
commerce enabled system application that generally consists of the following modules:
 Service Warranty Database and Tracker (Database information uploaded from Sales
Module)
 Service Request Registration, authorization, service job ticket issue, job ticket closure &
Report functions.
 Parts procurement request, parts issue authorization
 Parts Inventory Management, Purchase Order Management, Repair Management, Vendor
Management etc.
Logistics Service Management and Parts Supply Chain Management processes are driven
outside the above system, managed by 3PL service providers and Logistics teams.
SME Experts
Service Parts Teams are supported by a team of Subject Matter Experts. Escalation processes
determine the nature of technical support required to be assigned and timelines for service issue
closures.
Parts Procurement and Logistics
Parts Procurement and Logistics may be handled by a single department or by separate teams
depending upon the volume of business and the management structure.
These functions manage parts procurement functions, inbound logistics, parts warehousing and
distribution on the outbound cycle.
Reverse Logistics functions managed by the team involve - Parts collection, parts segregation,
inventory holding of defective parts, parts repair, warranty replacement with OE manufacturer,
Re-Export, and Waste disposal or Scrapping functions.

Warranty Management is Cross Functional Team Effort
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5. Supply Chain Network and Technology
Supply Chain Network and Technology
The entire concept of business philosophy has moved away from traditional model to being more
customer oriented, driven by demand and based on collaborative and joint operational strategies
across global markets.
Supply Chain Networks have in recent times evolved from simple sequential and linear
process networks to highly dynamic processes that call for information and sharing and
visibility to be available across the network coupled with decision making on real time
basis. Integrated approach to managing logistical tasks in a highly dynamic marketplace is
necessary as it involves some internal as well as external business processes and agencies
working in tandem to manage supply chains.

Logistics events at each stage of the network demands a transactional exchange of information
and documentation which further leads to decision making by various stakeholders at each
activity level on a continuous basis. The technology has not only reduced supply chain timelines,
but increased its reliance on system and application capabilities to manage critical processes.
Applications today manage multiple functions in Supply Chain. While applications primarily
function as storehouse of information, database to capture all transactional information and
history, they also drive and enable processes in the supply chain.
Various technology platforms collaborate and function to enhance supply chain network
functions today. Applications like ERP with various modules covering all functions like MM,
SCM, etc.
Warehouse Management System, Warranty Management System and many more core business
enterprise systems drive business processes in Supply Chain network.
However these systems alone do not suffice. Many more applications to support these systems
are used as required depending upon specific process and needs of the business. Supporting soft
wares may be used as stand-alone applications or integrated with the ERP. Most often it is found
that the systems are used as stand-alone applications without having to integrate with ERP
instead of the cost of integrating and the effort involved therein.
Let us take the example of a supply chain situation of managing multiple vendor supplies in a
warehouse owned and managed by a 3PL service provider on behalf of multiple vendors at the
buyers plant location to effect Just in Time supplies in a VMI Distribution Center. Operations
involve sellers at one end, the buyer at the other end besides in-house operations and the freight
services and logistics of inbound traffic. The 3PL warehouse has to be linked with Buyer to
constantly publish updated inventory information and snapshots to buyer’s system to trigger call
off for materials to be supplies as well as to trigger procurement cycle. 3PL warehouse system
also needs to be talking to suppliers/sellers to give visibility to inventory to trigger replenishment
cycles in sellers system. Further, 3PL Operations need visibility to trace and track shipments in
pipeline with the freight forwarder.
All these multiple systems talking to each other in real time is made possible by communication
enabling applications including interfaces, EDI, The Internet, e-mail, Web Enabling of
applications, etc.
Flow of Information and Cargo in a Supply Chain Network

In a highly evolved technology-driven supply chain, the need for managing processes, events and
deviations on a 24 × 7 basis is a must. Multi process network, sharing knowledge,
information, and enabling transactions can be managed only with an electronically enabled
technology solutions driving businesses processes. These technology enterprises need to be
able to work in collaborative mode and be supported by infrastructure support and an IT strategy
at the business enterprise level.

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5. Supply Chain Network Design & Contributing Factors
Supply Chain Network Design &
Contributing Factors
Designing Supply Chain Network for each industry or business involves arriving at a satisfactory
design framework taking into all elements like product, market, process, technology, costs,
external environment and factors and their impact besides evaluating alternate scenarios suiting
your specific business requirements. No two supply chain designs can be the same. The network
design will vary depending upon many factors including location and whether you are looking at
national, regional or global business models.
1. Supply Chain Network in Simple and basic Terms Involves determining following
process design:
Procurement
 Where are your suppliers
 How will you procure raw materials and components
Manufacturing
 Where will you locate the factories for manufacturing/assembly
 Manufacturing Methodology
Finished Good
 Where will you hold inventories, Number of Warehouses, Location of warehouses
etc.
 How will you distribute to markets - Transportation and Distribution logistics
All above decisions are influenced and driven by Key Driver which is the Customer
Fulfillment.

2. Designing Supply Chain Network involves determining and defining following
Elements:
 Market Structure
 Demand Plotting or Estimation
 Market Segment
 Procurement Cost
 Product /Conversion Costs
 Logistics Costs including Inventory holding costs
 Over heads
 Cost of Sales
3. Network Designaims to define:
 Best fit Procurement model - Buying decision and processes- VMI, JIT, Kanban,
procurement cost models etc.
 Production processes - One or more number of plants, plant capacity design,
Building to order, build to stock etc, in-house manufacturing or outsource
manufacturing and related decisions including technology for production.
 Manufacturing Facility design - Location, Number of factories, size of unit, time
frames for the plant setup project etc.
 Finished Goods Supply Chain network - Number of warehouses, location & size of
warehouses, inventory flow and volume decisions, transportation.
 Sales and Marketing Decisions - Sales Channel and network strategy, Sales pricing
and promotions, order management and fulfillment process, service delivery process
definitions.
4. Network Designalso examines:
 Derives cost estimates for every network element
 Examines ways to optimize costs and reduce costs
 Extrapolates cost impact over various product lines and all possible permutations
and combinations to project profitability
5. Some of the key factors that affect the supply chain network modeling are:
 Government Policies of the Country where plants are to be located.
 Political climate
 Local culture, availability of skilled / unskilled human resources, industrial relations
environment, infrastructural support, energy availability etc.
 Taxation policies, Incentives, Subsidies etc across proposed plant location as well as
tax structures in different market locations.
 Technology infrastructure status.
 Foreign investment policy, Foreign Exchange and repatriation Policy and
regulations.
Supply Chain Network designs not only provide an operating framework of the entire business to
guide the managements, they also examine the structure from strategic view point taking into
account external influences, interdependencies of all processes and critically evaluate
opportunities to maximize profitability.
Supply Chain Design consultants use various design softwares and optimization techniques
coupled with inputs from industry consultants and experts.

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5. Customs Clearance - Meaning, Scope and Documentation
Customs Clearance - Meaning, Scope
and Documentation
Customs Departments are the government designated authority to implement the policies related
to import and export, collect customs duties and facilitate movement of people, goods, and cargo
into and out of the country.
Area of Operations and Authority
Customs departments have offices at all seaports, airports and border gateways that are
essentially the exit and entry points for people and cargo movements into and out of the country.
Customs agencies are empowered to make arrests, confiscate goods and enjoy powers similar to
that of police departments.
Customs and Trade Logistics
Every country annually publishes its policy for Foreign Trade, which stipulates the conditions
under which goods and services are eligible to be exported or imported. Customs departments
implement the provisions of the policy under customs rules, regulations and tariffs.
Imports in many countries may be allowed freely, or some categories may be permitted with due
licenses. Many items are also published as banned for import and not allowed entry into the
country.
All of the items imported into the country have to be custom cleared. This applies to the items
brought in as personal effects and also imported by trade and business establishments including
governmental and defense agencies. Necessary stipulated duties would have to be paid before the
goods are released by Customs.

Cargo imported into the country from any point of entry is warehoused at Customs bonded area
under customs jurisdiction until it is released after clearance.
Imports and Customs Clearance
Freight Forwarders who coordinate the international transportation also provide customs
clearance services to the clients. The activity is called customs brokerage.
Customs clearance work involves preparation and submission of documentations required to
facilitate export or imports into the country, representing client during customs examination,
assessment, payment of duty and co taking delivery of cargo from customs after clearance along
with documents.
Some of the documents involved in customs clearance are :
1. Exports Documentation: Purchase order from Buyer, Sales Invoice, Packing List,
Shipping Bill, Bill of Lading or Airway Bill, Certificate of Origin and any other specific
documentation as specified by the buyer, or as required by financial institutions or LC terms
or as per importing country regulations.
2. Imports Documentation: Purchase Order from Buyer, Sales Invoice of supplier, Bill of
Entry, Bill of Lading or Airway bill, Packing List, Certificate of Origin, and any other
specific documentation required by the buyer, or financial institution or the importing
country regulation.
Customs Agents prepare the document of Shipping Bills in the house for submission while rests
of the documents are obtained from the client. Preparing shipping bill involves Classification of
cargo under specific classification that is a critical activity in the entire process.
Customs clearance agents are also called Carrying and Forwarding agents. They are registered
and licensed by Customs to operate. Their role is limited to acting on behalf of and representing
clients as third party agencies engaged in customs clearance.
Customs Agents are linked through EDI with customs in most of the countries and use
documentation software to facilitate entire process.
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5. Ecommerce and Internet Enabled Supply Chains

Ecommerce and Internet Enabled
Supply Chains
Internet Technology has impacted our day to day life beyond imagination. It has changed the
way we make purchase decisions, the process by which we compare products and finally buy the
product. All this has been enabled instantly by the click of a mouse, sitting in the comfortable
environs of your home.
Lets take the case of e commerce on a B 2 C model. You have just logged into the DELL
website, compared the products and configurations. You go on to construct and build your own
configuration laptop, get the pricing and click to make online payment through your credit card
and have completed a purchase online.
Was this imaginable a few decades ago? No. Internet and E commerce have helped markets get
closer to the customer. Customer Decision making and sales process has been shortened.
Financial payment and delivery mechanism has been instantaneous in this case involving third
party gateways making the transaction possible with collaborative networking.
How does the above transaction impact Supply Chain? At the back end, the customer order has
been logged and a corresponding order has been placed on the nearest plant to assemble the
required laptop as per order. This in turn will trigger a bill of material to be triggered to the
vendor managed inventory warehouse to supply required parts.
Looking into the forward transaction, the laptop gets assembled, is dispatched to the forward
stocking warehouse of the freight forwarder or logistics partner from where it is customs cleared
and exported to the country of customer location or transported to the customer location if it is
within the same country. In case of import into another country, the freight forwarder completes
import customs clearance, takes it to his hub or warehouse to complete further leg of domestic
transportation and delivery to the customer.
The entire exercise is completed within 7 days involving multiple vendors, plant, 3PL service
Providers with integrated logistics flow through activities (warehousing, shipment consolidation,
labeling, packing & transportation at various stages )besides involving airlines and customs
agencies etc. The shipment is continuously tracked and shipment status is visible to all over the
internet. This has been made possible with the various intern organizational systems operating
Internet as platform, extranet, ERP, EDI, Emails besides online web tools.
Internet enabled technologies have impacted supply chain in major way. Earlier on ERP
systems revolutionized business models and processes. These have further been impact with
Internet enabling of ERP applications coupled with other technologies and applications.
On procurement front, e commerce has give birth to E Auction, Online Bidding and Global
RFQs being floated with vendor evaluations being conducted through video conferring etc.
Further on, it has also enabled buyer and supplier to collaborate and implement lean inventory
management concepts and auto replenishments using models like VMI, JIT, Kanban, etc.

In a typical supply chain involving supply of raw materials and components to a manufacturing
location, three different systems of buyer, sellers and the 3PL service agency managing
inventory talking to each other on real time basis exchanging information, data and managing
transactions. Buyer is able to initiate an order, the 3PL is able to process the order, manage
inventory and ship out and the supplier is able to replenish the inventory in very short time.
Visibility of transactions and inventory is available to all the three parties involved.
In the case of Logistics, the freight forwarders system at the distribution center holding inventory
is able to interface with buyer system and initiate processes for documentation from buyer,
shipment label generation. The freight management department picks up details from
warehousing system to further process and generates shipping documents and file with customs
to custom clear export shipment and airlines to book the freight.
All documents are then uploaded on to a website from where the status of shipment can be
tracked by the buyer, seller and others. Advance shipments are downloaded at the point of
destination by the freight forwarding agent from the internet before shipment lands at
destination. He files documents with customs for inbound clearance on EDI. After clearance, the
shipment is delivered to the customer via domestic distribution network and delivery
confirmation is uploaded into the website from where information is picked up by buyer and the
sales process is completed.
Internet has shortened the supply chain transaction time, exploded boundaries of operation
across, increased the amount of volume that the supply chain network can manage and finally
has resulted in bringing down cost of logistics as well as procurement and inventory holding
costs besides reducing manpower costs.
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5. Sourcing Strategies & Procurement Processes
Sourcing Strategies & Procurement
Processes

Not long ago, purchase function was seen to be a desk job, monotonous paper work, dull and
passive and more of an administrative function. The purchase managements were the fall guys
whose only aim was to keep feeding shop floor and avoiding stock out situation.
Today the situation has changed totally. Procurement function is considered to be a strategic
initiative and seen to be adding value to entire business process. Profile of the procurement
managers has changed and expectations from these managers are different.
Modern day procurement managers manage procurement and sourcing function both at strategic
and operational levels. They are proactively engaged in building supplier networks, estimating,
controlling and reducing costs besides performing other functions and ensuring service levels.
Their job functions are increasing becoming cross functional together with supply chain and
manufacturing functions.
Procurement process and paper work is today managed by the ERP systems which drive the
procurement business process.
Procurement Function
Procurement function as explained above is one part of the sourcing function. In an ERP enabled
environment, procurement function consists of detailed indenting process, procurement budget
management, purchase order release, shipment schedule planning with seller coupled with
ensuring compliance with documentation and system updating processes. All these processes are
driven by ERP.
Procurement function deals not only with procurement of raw materials and components, but
also with capital equipments, project procurement, spare parts procurement for after market,
managing rejections, defective returns, warranty replacement process with suppliers too.
Vendor development is a key function in procurement. Sourcing and vendor development are
some of the skill sets required to be developed by Procurement team.
Procurement function works closely with procurement logistics or inbound supply chain. A
procurement professional needs to have operational knowledge of logistical activities in supply
chain network, the various agencies, knowledge of policies, customs rules, Taxation,
commercial, logistical and customs documentation besides knowledge of commercial trade rules
and terms.
Procurement process and sourcing strategy
Though interlinked closely, both procurement process and sourcing strategy are not one and
same.
Sourcing strategy deals with planning, designing and building a reliable and competitive supplier
base, determining the strategy for procurement, defining pricing strategies and supply chain
requirements. The strategy involves integration of its objectives in line with or confirming to the
objectives of stake holders in operations, finance. Marketing and distribution. Lastly sourcing

strategy involves planning to competitive buying sources for its raw materials, components and
services along with alternative variables.
Procurement Process as described above, deals with operational zing business process of
procurement function and ensuring performance.
Shift in Sourcing Strategic approach
Having realized that suppliers play a key important role in the supply chain network of the
business, there has been a change in the way organizations perceive and approach supplier
relationships.
Several factors have contributed to the shifting of the perceive value of supplier partnerships.
Complex business models at global scales coupled with market demands have necessitated
companies to set up manufacturing or assembly facilities closer to markets as well as in locations
where conversion costs are relatively cheaper. This necessitates that the business be supported by
a solid vendor base which is able to ensure supplies at all locations.
Advancement in technology and R & D capability enhancement is leading to shorter product life
cycles. New versions and product innovation means products become obsolete faster. Besides
new introductions of products depend upon speedy development of new design supplier parts
and the suppliers having to keep pace with changing designs and requirements.
Lean Manufacturing and cost per unit concept is demanding that the managers keep looking to
reduce the procurement cost as well as procurement logistics cost. By developing a relationship
with suppliers in a collaborative mode, buyers are able to get supplier companies to hold
inventories for them at buyer location and postpone taking inventory ownership up to the point
of consumption. Today preferred suppliers follow the buyer into countries where buyer is setting
up facilities and take on value added services including managing warehousing in the spirit of
customer relationship management.
Therefore managements have realized the fact that to be able to develop global business model,
they have to develop supplier partnerships and work with collaboration spirit and invest in
developing the supplier capabilities as well as invest into building the relationship. Supplier
management is no longer transactional.
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5. Supply Chain Management - Problems and Roadblocks

Supply Chain Management - Problems
and Roadblocks
Companies increasingly are becoming aware that their opportunity to having a competitive edge
in business can come through supply chain. In the case of companies operating on global scale,
supply chain strategies drive operational efficiencies and affect the bottom line. Unlike
technology or other core areas affecting business, Supply chain is always in a dynamic mode.
Project managers who head supply chain projects are often faced with lot of challenges and
issues to over come all through the project. In this topic we air to discuss a few practical
problems and road blocks faced in implementing and operations of Global supply chain projects.
Project Scale & Span of Control
Often projects are rolled out on global scale involving multiple countries and locations with all
sites scheduled to go live around same timelines. The Project managers and sponsors would be
located in one country and physically it becomes impossible for project managers to keep
running to all locations and be available to concentrate on all sites. Yes project teams are formed
at regional country level. However if the project planning, design and control lies with one office
or a single person or a team, the rest of the project teams would become enablers and
implementers resulting in the dilution of energy and focus. The core project team resources
cannot spread themselves thin to attend to all sites and hence the biggest or the most important
locations get attention while the others suffer due to lack of focus.
Supply chain projects involve technology implementation including infrastructure and software.
They also involve multiple logistical modules involving transportation, international freight and
warehousing etc.
Span of control over project implementation is very important in case of logistics projects
involving multiple channels and external and internal agencies. Project managers at best can
concentrate on rolling out the project in one country depending upon the number of sites and the
logistical components involved.
If the project involves setting up a distribution center or warehouse, all the more reasons that the
roll out should be limited to country level.
Technology
Adoption of right technology and implementation often faces roadblocks in implementing global
supply chain projects. Projects roll out common processes to be followed across all countries and
locations and involve use of technology to drive the processes.
Many issues concerning technology are faced in a project:
 Technology solutions

Most multi national companies find that their supply chain operations across the world are
managed not on one application or a set of applications, but each location and country
would have implemented either legacy systems or stand alone systems to manage individual
local logistics activities. Once implemented, it becomes difficult to isolate such applications
and shift them to one common platform without which common processes and
standardization cannot be driven across locations.
Secondly any software solution would require to be customized to suit local site and
country requirements. One solution does not fit all. While the solution may work in one
country with bigger volumes and size of supply chain network and warehouses, the same
software may not be suitable to be implemented in a small country with one location.
Cost of Technology Absorption then becomes an issue. When a project proposes to
introduce a system across all countries in the supply chain network to bring about seamless
integration and common processes, it fails to account for the cost of technology and
capability of all countries and locations to absorb the cost. The costs of IT implementation
are exorbitant. A bigger site and country may be able to pay for the IT cost but if the same
cost is expected to be paid out of another country which has lesser volumes, it may not be
able to absorb the cost, unless the global project management is able to absorb the costs into
the project cost or get corporate management to absorb the cost and take it off from the user
country’s budget.
 Cost of Technology absorption
Implementation of technology calls for the IT teams to travel to all locations, implement the
setup. Train the people and stabilize the sites post Go Live. The cost of implementation can
run high. Again all countries may not be able to bear the cost of such implementation.
 Availability of technology infrastructure
Technology infrastructure availability is different amongst countries and within the country.
Internet connectivity and bandwidth may not be the same cross all locations which can
hinder implementation of an internet based technology application. Normally if the project
is driven at a global level, the local infrastructure issues of many countries do not figure
while considering the suitability of IT platform for implementation.
 Internal & External resource capability
Supply chain projects involve multiple locations and cross functional departments and
teams within the organization. Besides they also include multiple external agencies who
manage the logistics.
Driving projects through various country managements requires enormous internal selling
to be done. The projects also call for external selling with the service providers. Local
country managements as well as the service provider country managements may or may not
have the same interest and commitment to the project as much as the global project
leadership would have. These are soft challenges faced by Project Managers, to be able to
sell the idea and get commitment from all stake holders.

The availability of quality resources both internally and externally in all locations is critical
to the implementation of the project and is often a challenge which can hold up
implementations and training.
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5. Supply Chains as Sources of Competitive Advantage
Supply Chains as Sources of
Competitive Advantage
Optimizing the Supply Chains
A supply chain is the network of relationships between the upstream and downstream activities
with all stakeholders who are involved in this chain of relationships. To take an example, if a
particular good or service has to be delivered to the customer, there are raw materials that are
needed for the manufacture, the forms of transport and means of storage for the raw materials,
the transport of the finished goods to the retailers and the logistics involved in getting the goods
to the customer are all parts of the supply chain that extend from the suppliers to the customers.
In other words, there is a chain of relationships between the firm and the partners involved in this
chain. Therefore, supply chains are comprised of all these stakeholders and the relationships
between them determine the effectiveness of the supply chain. In contemporary times, supply
chains can be sources of competitive advantage as efficient management of the supply chain
leads to cost savings and synergies between the components of the supply chain leads to
greater profitability for the firms. It is for this reason that many business leaders have focused
their energies on optimizing the supply chains for increasing the top line as well as the bottom
line.
Supply Chains as Strategic Levers
In times of economic recessions, supply chains can be used as strategic levers as they can be
optimized to perform better than the rivals do so that more profits can be extracted and lesser
costs incurred. The optimization of the supply chain through just in time or JIT methods of
holding inventory, focus on reducing the COGS or the Cost of Goods Sold by rationalizing the
expenditure on the components of the supply chain all lead to a situation that can be extremely
beneficial to the firms. It is for this reason that many firms like Wal-Mart, Proctor and Gamble,

Tata Motors, and Unilever has focused on rationalizing the activities that form the supply chain.
The point here is that with astute management of the supply chain, the firms can derive value
from the process, which can then translate into greater profits and lesser costs. Apart from this,
the supply chains can also be of strategic and competitive advantage because a major portion of
the cost of goods sold or COGS is made up of the logistics and the supply chain expenses.
The Case of Wal-Mart
To take some real world examples, Wal-Mart is one retailer that has managed its global supply
chain in an adroit and efficient manner. As it operates in various countries around the world, it
needs to have control over its global supply chain and this is where the company with its focus
on local capabilities and global movement and integration has made its supply chain leaner and
meaner. Further, the company is obsessed with costs and therefore, it focuses exclusively on how
to make its COGS and the logistics aspects of the supply chain efficient and effective. Apart
from this, the single-minded obsession with reducing costs has paid off handsomely for the
company as it retains its number one position in the retailer market space mainly due to its cost
effective strategies that translate into lower unit prices for the products it stocks. Of course, there
are many who believe that the company over emphasizes the cost reductions in its supply chain
and this has led to some ethical issues. However, the point here is that in times of economic
gloom, Wal-Mart with its aggressive approach to supply chain management has scored over its
rivals. Without suggesting that ethics should be discarded or ignored, the fact remains that a
concentrated effort to rationalize the supply chain can pay off well for companies.
Concluding Remarks
Finally, the twin challenges of the globalization of the world economy and the increase in the
global complexity of supply chains are formidable and when taken together with the effect of the
ongoing economic crisis, business leaders have their hands full trying to make decisions on how
to meet these challenges.
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5. Analysis of Amazon’s Supply Chain Management Practices
Analysis of Amazon’s Supply Chain
Management Practices

Analysis
To start with, Amazon’s SCM has a strategic fit with its competitive strategy of being the retailer
of choice for its customers. The combination of multi-tier inventory management, superlative
transportation, and highly efficient use of IT (Information Technology), and its wide network of
warehouses are all geared towards aligning its SCM with its competitive strategy.
The next aspect is related to its outsourcing of its inventory management. Amazon outsources the
storage and distribution of products that are not frequently purchased nor ordered for immediate
delivery as well as products where the costs of storing them exceed the marginal returns on their
sales.
On the other hand, Amazon stocks the frequently purchased and ordered items in its own
warehouses so that it can be responsive to the customer needs as well as not compromise on the
delivery times and the lead times. In other words, by segregating its inventory, Amazon is able to
be responsive to the customers as well as cut costs or cut slack where it is needed (Kotler, 2012,
65).
Amazon divides its customer segments and follows a price differentiation strategy. The
various forms of delivery are one day delivery, free super saver delivery, first class delivery, and
prime customers delivery.
For all these segments, Amazon offers the customers an option of paying more for faster delivery
or retains the traditional lead-time. Coupled with the inventory outsourcing, the customer
segmentation into price-differentiated customers offers the company a nimbleness and agility in
the market that changes with dynamic fluctuations in demand.
A key aspect of Amazon’s SCM is that it has evolved over the years in response to its growth in
the market. For instance, Amazon started off as a bookstore, which acts as an intermediary
between the buyers and the sellers and does not stock any product of its own.
Gradually, this gave way to holding some items in its own warehouses and at the
present, Amazon follows a push-pull strategy wherein the inventory is held in a push
strategy and the shipment of the orders is done in a pull strategy. Of course, even now,
Amazon follows pure pull strategies for items that it does not stock.
Any discussion on Amazon’s SCM is incomplete without an analysis of its multi-tier inventory
system. The first tier is the aggregation in the distribution centers, which ensures that Amazon
holds fewer inventories and responds to demand in a dynamic manner.
The next tier is comprised of the partner distribution centers and the wholesalers wherein
whenever an ordered product is not available in its own distribution centers; Amazon can rely on
its partners and wholesalers to supply the customer with the required product. Further, through
the use of sophisticated and real time IT, Amazon is able to leverage efficiencies in its
distribution.

The third tier is comprised of the networks of third party sellers, publishers, vendors, and
manufacturers who ensure that Amazon acts as an intermediary that fulfills orders from
customers by linking them to this tier.
Recommendations
The previous section has analyzed Amazon’s SCM in a detailed and comprehensive manner. By
focusing on the five themes in which the analysis proceeded, we were able to identify the areas
that Amazon does well in its SCM. However, there are components and aspects of the SCM of
Amazon where improvements can be made. This section identifies those areas and proposes
some recommendations that Amazon can follow and implement to make its SCM world class
and be a source of sustainable competitive advantage.
1. First, Amazon relies to a great extent on courier companies such as FedEx and UPS. In
recent years, Amazons’ brand image has taken a hit because of the unreliability of the last
mile connectivity or the last part of the SCM that is visible to the end consumer.
In other words, while the other components of the SCM seem to be efficient and
complementing and supplementing each other, the part of the SCM where the customer
interacts has been found to be deficient. Therefore, Amazon can setup its own
transportation and actualize superior last mile delivery by creating its own fleet of delivery
vehicles and personnel.
2. The second recommendation has to do with the aspect of “bullwhip”. This means that
Amazon can integrate its SCM better and move from a cooperation model with its suppliers
to a coordination mode. This would entail a sharing of information between all its partners
and suppliers using the latest technology.
Further, this recommendation also entails creation of a unified IT system that can involve
all the suppliers and the stakeholders in its SCM and not Amazon alone. This would call for
substantial investment as well as a new business model where Amazon does not operate in
isolation but instead brings together all the elements and the components of the supply
chain under one umbrella.
3. The third and final recommendation has to do with unifying its supply chain less than one
gigantic IT system so that there is greater visibility on each component of the supply chain
as well as more accountability and transparency in the process. As mentioned elsewhere,
Amazon outsources some functions and this leads to accountability issues. Therefore, in
line with the central theme of this article, Amazon should integrate its entire supply chain
from end to end in one single IT system so that bottlenecks can be identified and suitably
acted upon.
As it expands its global footprint, it needs a single source of truth (to use the industry jargon)
wherein it can have visibility right from procurement to end customer delivery. This would also
ensure that its problems with last mile delivery are sorted out and customers as well as suppliers
along with the employees are linked together in a real time system.

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3. Operations
5. How Automation Benefits the Logistics Sector through Efficiencies and Synergies
How Automation Benefits the Logistics
Sector through Efficiencies and
Synergies
How Automation Benefits the Logistics Sector through Efficiencies and
Synergies
Automation benefits the logistics sector in many ways. Right from order booking and package
handling in warehouses, including transit and shipment that is enabled by automated modes, and
tracking and delivering the materials, automation can increase the efficiencies and synergies of
the entire supply chain.
Efficiencies accrue as logistics providers can implement economies of scale made possible by
automation. For instance, by making robots move packages around the warehouses, more such
packages can be handled since the robots being automated machines, do not tire or need
prolonged breaks.
In addition, by automating the shipment and transit, logistics providers can use drones for
delivery as well as self driving trucks and vehicles that can be on the road for longer periods of
time.
Indeed, the leading online retailer, Amazon, is already using automation to derive the
efficiencies from the economies of scale. similarly, by automating the supply chain and
integrating the diverse, discrete, and disparate components of the value chain, synergies are
possible as previously disconnected components of the supply chain can now be connected
leading to better coordination and collaboration in the supply chain.
Thus, the twin benefits of efficiencies from economies of scale and synergies from integration
would result in substantial benefits to the logistics providers.
How Automation Leads to Lower Carbon Footprint and Higher Value
Addition

In addition, it is often said of the logistics sector that it has high Carbon Footprint due to its fuel
intensive modes of operation. Automation can help the logistics providers in this respect as well
through Green modes of operation.
For instance, electric powered robots and self driving vehicles can be deployed leading to
Zero fuel consumption. In addition, by automating the order booking and delivery components
of the logistics value chain, firms can ensure that drones are used wherein there is no need for oil
consumption.
Moreover, automation can help reduce the burden on logistics workers by freeing them up to
perform higher value adding activities such as process monitoring and tracking as well as route
and operations optimization.
Indeed, in times when the labor policies of most logistics providers are being scrutinized for their
people policies, automation in the logistics sector can ensure that such concerns are addressed.
Of course, this aspect is a double edged sword as automation in logistics can also result in job
losses (something that would be discussed in the next section) and hence, one has to be
circumspect about the impact of automation on the logistics sector.
The Present State of Automation in the Logistics Sector
Indeed, there is more hype than reality as far as automation in the logistics sector is concerned.
For instance, despite the widely predicted job losses and the doom and gloom a scenario, the
logistics sector is still labor intensive.
This is because the field of robotics has not reached a stage where robots can completely take
over from humans. Moreover, self driving vehicles that can replace drivers and long distance
truckers are yet to take off in a commercial sense.
In addition, there are certain aspects of the logistics value chain that do not gain much from
automation. For instance, we are yet to see the emergence of robot order booking and drone
delivery except in isolated cities worldwide and that too, mostly in the United State and Europe.
Having said that, Big Data powered Analytics is certainly helping the logistics sector as can be
seen from the increasing number of workers who are being employed for this task whereas most
of the lower value adding tasks has been automated.
To summarize, while automation in the logistics sector is increasing the efficiencies and
synergies, there is still some time before the benefits kick in fully.
Some Future Predictions
Such benefits can be in the future as can be seen from the predictions of futurists. For instance,
experts point to how logistics providers can automate the entire supply chain including ship
loading and transshipment.

To explain the terms, loading the ships with the materials to be transported and moving them
between ships at transshipment points is being automated to a large extent in global and world
class ports such as Singapore.
Apart from this, using the emerging Blockchain technology to automate the logistics handling
can benefit the logistics firms to decrease defective item handling and move towards a hundred
percent success rate as far as avoiding loss and damage of the packages during transit are
concerned.
Moreover, countries such as China can immensely benefit from automated supply chains
since it is the world’s largest trading country and hence, efficiencies and synergies can be a
game changer.
Indeed, even India can benefit from automating its supply chains though the infrastructure is not
yet in place to deliver such gains. A key point to note is that in many countries worldwide, the
software of the automation is ready and it is only the hardware of the physical infrastructure that
is lacking.
Conclusion
This has lessons for emerging economies as they integrate into the global trading system as they
need to first put in place the necessary physical infrastructure before automating their logistics
value chains.
Moreover, they need to adopt a Glocal approach wherein they bring global best practices and yet
adapt them to local conditions so that the execution is according to the on the ground situation.
Indeed, the last mile connectivity is what drags the logistics sector from automating fully and
hence, they must pay attention to this aspect. To conclude, the future is indeed bright for the
logistics sector to automate and the gains from such automation are indeed immense.
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