Market Logistics• Physical Distribution starts from the factory.• Managers chooses a set of (a) Warehouses (stocking points); and (b) transportation carriers that will deliver the goods to final destination in the desired time and at the lowest total cost.• Physical Distribution has now expanded into a broader concept of Supply Chain Management (SCM).• SCM starts from: – strategically procuring the right inputs (raw materials and capital equipments); – converting them efficiently into finished products; and – dispatching them to the final destination.
Market Logistics Planning: 4 stages Deciding on the best Channel design and network strategy for reaching its customers Implementing the solution • Should we serve with the best directly or through intermediaries?• What on-time • Where to source the manufacturing • Sales Forecasting • Information Systems delivery standard should we offer? facilities? For what • Warehouse • Equipments products? Management • Policies• What levels should we attain • How many warehouses • Transportation • Procedures in ordering and should we maintain? Management billing accuracy? • Where should we locate • Material these warehouses? ManagementDeciding on the company’s Developing Operational Value Proposition to its excellence in customers
Supply Chain for an Individual FirmTransportation Transportation Customers Warehousing Information flows FactoryTransportation Vendors/plants/ports Warehousing Transportation 1-2
Logistics DefinedLogistics is the process of planning, implementing andcontrolling the efficient, cost-effective flow and storageof raw materials, in-process inventory, finished goodsand related information from the point of origin to pointof consumption for the purpose of conforming tocustomer requirements. Council of Logistics ManagementSupply Chain Management DefinedSCM is the integration of all activities associated with theflow and transformation of goods from raw materialsthrough to end user, as well as information flows, throughimproved supply chain relationships, to achieve asustainable competitive advantage. Handfield and Nichols 1-5
The Logistics/Supply Chain MissionGetting the right goods or services tothe right place, at the right time, and inthe desired condition at the lowest costand highest return on investment. 1-6
Significance of LogisticsCosts are high About 10.5% of GDP domestically About 12% of GDP internationally A range of 4 to 30% of sales for individual firms, avg. about 10% A high as 70-80% of sales if purchasing and production are includedCustomers are more demanding of the supply chain Desire for quick response Desire for mass customizationAn integral part of company strategy Generate revenue Improve profitLogistical lines are lengthening Local vs. long distance supplyLogistics is a key to trade and an increased standard of living Law of comparative economic advantage appliesLogistics adds value Time and place utilities 1-8
Scope of the Supply Chain for Most Firms Business logistics Physical supply Physical distribution (Materials management)Sources of Plants/ Customers supply operations •Transportation •Transportation •Inventory maintenance •Inventory maintenance •Order processing •Order processing •Acquisition/ Procurement •Product scheduling •Protective packaging •Protective packaging •Warehousing •Warehousing •Materials handling •Materials handling •Information maintenance •Information maintenance Focus firm’s internal supply chain 1-14
Key Activities/ProcessesPrimary- Setting customer service goals- Transportation- Inventory management- LocationSecondary, or supporting- Warehousing- Materials handling- Acquisition (purchasing)- Protective packaging- Product scheduling- Order processing 1-11
The Logistics Strategy TriangleInventory Strategy Forecasting Storage fundamentals Transport Strategy Inventory decisions Transport fundamentals Purchasing and supply Transport decisions scheduling decisions Customer Storage decisions service goals The product Logistics service Information sys. Location Strategy Location decisions The network planning process 1-12
Strategic, Tactical, and Operational Decision MakingDecision area Strategic Tactical OperationalTransportation Mode selection Seasonal equip- Dispatching ment leasingInventories Location, Control policies Safety stock levels Order fillingOrder Order entry, transmittal, Processingprocessing and processing system orders, Filling design back ordersPurchasing Development of supplier- Contracting, Expediting buyer relations Forward buyingWarehousing Handling equipment Space utilization Order picking selection, Layout design and restockingFacility Number, size, andlocation location of warehouses 2-7
Integrated Logistics Systems (ILS)• ILS is used by many firms, with the help of Information Technology for tracking and coordinating the following functions effectively: – Material management – Material flow systems – Physical distribution• Volvo operates their warehouse in Memphis with the support of third party suppliers, FedEx Logistics Services, to handle stocks of truck parts. If a Volvo dealer needed a part in an emergency, phones a toll-free number and the part is flown out the same day and delivered that night at either the airport or the dealer’s office.
Market Logistics Objectives Situations where logistics planning may go wrong:• The Traffic/ Logistics manager favours rail shipment over air shipment because of the less rail cost. However, because the rail transport are slower, it ties up working capital longer, delay customer payment, and might cause customers to buy from competitors who offer faster service.• The Shipping department uses cheap containers to minimize shipping costs. Cheaper containers lead to a higher rate of damaged goods.• The Inventory manager favours low inventory. This increases the possibility of ‘stockouts’, back orders, huge paperwork etc. Major objectives for any company logistics planning:• On-time delivery• Effectively meet emergency needs• Careful handling of merchandise• Willingness to take back defective goods and resupply them quickly.
Indian Logistic System: Scenario IndustryOverview• Logistics functions are currently an in-house activity for companies that hire discrete services such as transportation and warehousing while internally performing order processing, distribution, and logistics planning for inbound and outbound logistics.• Outsourcing of entire logistics to third-party logistics service providers is highly limited.• The practice of complete logistics outsourcing is recent in India with multinational companies being the major users of this service.
Indian Logistic System: Scenario• The logistics industry in India is highly fragmented. This is mainly due to the nature of the transportation industry.• In India, over 50 percent of goods are transported by road. The road transport sector is highly fragmented with vehicle ownership firmly in the hands of individual trucks owners with 67 percent of the owners with a fleet of less than five vehicles.
Indian Logistic Scenario• Inventory carrying costs account for approximately 24 percent of the logistics cost.• Order processing and administrative costs account for a significant 10 percent of the logistics costs.• Stock filing and warehouse management in many cases is done manually increasing the administrative costs at the same time adding an element of inefficiency in warehouse management.
Indian Logistic Scenario• Companies in India are slowly moving towards total outsourcing of logistics that provides access to logistics services to their production facility, warehouses, and IT systems.• A high level of integration is required between the company and logistics service providers to provide logistics services that fulfill the strategic objective of the companies.
Indian Logistic Structure• The total logistics market consists of market participants from the unorganized segment to highly technology savvy and process driven service providers with high levels of expertise in the area of logistics management.• The market participants in this industry can be broadly classified into three broad segments, namely: – Pure transporters – Integrated transporters with warehousing facilities – Third-party logistics service providers (3PLs)
Pure & Integrated Transporters• Transporters are involved only in the physical movement of goods. They can be classified as – small, medium and large based on the ownership pattern of vehicles and their revenue.• Transporters are considered to be highly unorganized although many large transporters form a part of the organized segment of the market.• Many large transporters are diversifying their operations to include total logistics management.
Third Party Logistics (3PLs) Third-party logistics service providers• (3PLs) are involved in the complete value chain of logistics management including inbound logistics, supply chain management, tracking and data reporting, warehousing, (JIT) deliveries, and outbound logistics.• 3PL companies currently present in India are multi- national companies with wide experience in handling international logistics.
Indian Supply Chain Scenario Some Facts• GDP : Rs. 27.55 Lakh Crores*• Inventory tied up : Rs. 1.17 Lakh Crores• Logistics Cost : 14% of our GDP• 1% Reduction in LC : Rs. 27550 Crores• 2% Reduction in LC : Rs. 55100 Crores* Economic Survey 2003-04
Logistics Cost Country GDP (USD b)* Logistics Cost as % of GDP Australia 393.0 10-11 Asian Region China Mainland 1237.1 14.5 India 460.0 14.0 Japan 3996.2 10.5 Korea 468.7 12.4 Singapore 87.0 12.4 Taiwan 281.5 13.5* World Competitiveness Year Book 2003
Logistics Cost cont… Country GDP (USD b)* Logistics Cost as % of GDP European Region France 1419.3 11.7 Germany 1987.0 11.8 Italy 1186.0 12.6 Netherlands 418.8 12.2 Spain 654.0 12.1 UK 1555.2 12.2 North American Region Canada 729.3 11.8 Mexico 637.3 14.4 USA 10445.6 08.7* World Competitiveness Year Book 2003
International Comparison of Customer Orientation Parameters Product Product Design On-Time After-Sales Managing Quality Delivery Service Distribution Brazil 52.39 56.62 36.34 39.15 51.83 Canada 68.13 58.06 62.19 62.50 66.45 France 55.94 66.96 44.64 45.56 66.09 Germany 92.50 71.39 88.06 78.61 75.83 India 41.08 34.05 30.27 41.08 52.43 Japan 92.68 81.46 93.17 89.76 72.20 Netherlands 72.89 63.11 69.78 68.44 74.76 South Korea 60.71 48.57 59.29 47.14 57.14 Thailand 63.00 58.50 57.00 54.00 66.50 USA 59.67 69.84 62.62 57.70 74.43Note: Companies are rated 0=poor to 100=excellent
Elements of Logistics cost• Transportation 35%• Inventories 25%• Losses 14%• Packaging 11%• Handling and Warehousing 9%• Customers shopping 6%
Ma r k e t O p p o r t u n i t i e s a n d ForecastsFigure 1-1 and Chart 1.1 present the revenueforecast of the Indian logistics industry overthe period 2002 to 2009.
Figure1-1 Logistics Industry: Revenue Forecasts (India), 2002-2009 Revenues Year ($ Billion) 2002 12.66 2003 13.46 2004 14.31 2005 15.22 2006 16.19 2007 17.24 2008 18.35 2009 19.54Compound Annual Growth Rate (2003-2009): 6.4%Note: All figures are rounded; the base year is 2003. Source: Frost & Sullivan
Figure 1-2 and Chart 1.2 present the revenueforecast of the third-party logistics solutionsmarket over the period 2002 to 2009.
End-userDemandAnalysisFigure 1-3 and Chart 1.3 present the industry wiserevenue contribution to the total Indian logisticsindustry.
Challenges Facing the Logistics Industry in India
What’s New in Supply Chain?• Global competition• Well informed more powerful Customers• Customer Expectations• Shorter product life cycle• New, low-cost distribution channels• Internet and E-Business strategies