Warehouse Management

WAREHOUSE MANAGEMENT
INTRODUCTION
Warehouse can play a key role in the interate! loistics stratey an! its "uil!in an!
#aintainin oo! relationships "et$een supply chain partners% Warehousin a&&ects custo#er
ser'ice stock(out rates an! &ir#)s sales an! #arketin success% A $arehouse s#oothens out
#arket supply an! !e#an! &luctuations% When supply e*cee!s !e#an!+ !e#an! $arehouse
stores pro!ucts in anticipation o& custo#er)s re,uire#ents $hen De#an! e*cee!s supply the
$arehouse can spee! pro!uct #o'e#ent to the custo#er "y per&or#in a!!itional ser'ices like
#arkin prices+ packain pro!ucts or &inal assy% Etc
Warehousin can "e !e&ine! as a location $ith a!e,uate &acilities $here 'olu#e ship#ents are
recei'e! &ro# pro!uction centre+ $hich are then "roken !o$n in to particular or!er an! shippe!
on$ar!s to the custo#er%
Warehousin is an interal part o& any loistics syste#% The $arehouse is a link "et$een
pro!ucer an! custo#er%
Out("oun! $arehouse help consu#ers "uy on !e#an! $ithout a near"y pro!uction plant
$arehousin cost are a"out-./ o& total interate! loistics costs &or #ost co#panies%
T01ES O2 WAREHOUSES
-% 1ri'ate $arehousin
3% 1u"lic $arehousin
4% Contract $arehousin
-% 1RI5ATE WAREHOUSING
A &ir# pro!ucin or o$nin the oo!s o$ns pri'ate $arehouses% The oo!s are store! until they
are !eli'ere! to a retail outlet or sol!% 1otential a!'antae o& usin a pri'ate $arehouse is the
a"ility to #aintain physical control o'er the &acility+ $hich allo$s #anaers to a!!ress loss+
!a#ae+ an! the&t% When not in use they can rent in out%
The construction an! #aintenance o& pri'ate $arehousin can "e e*tre#ely costly% All the
e*penses ha'e to "e care&ully analy6e! an! e'aluate!% These are7
Logistics Management
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i% 2i*e! e*penses an! "uil!in an! lan! ac,uisition costs $hich are hih8
ii% E*penses incurre! on ensurin that $arehouses are properly e,uippe! $ith #aterial(
han!lin e,uip#ent like con'eyors+ &ork li&ts+ han! trucks+ racks an! "ins+ an! !ock
le'elers8
iii% The costs o& salaries o& sta&& re,uire! &or peak acti'ity perio!s $hich can "e 'ery hih
since retrench#ent !urin slack perio!s #ay not "e possi"le8
i'% E*tra pay#ent to "e #a!e &or $ork on Satur!ay an! Sun!ays an! holi!ays8
'% 9anitor an! other ser'ices chares are re,uire! to "e taken into account8
'i% The o&&ice an! recor!(keepin e,uip#ent necessary &or success&ul $arehousin
operations has to "e "u!ete! &or8
'ii% To this #ust "e a!!e! the cost o& such ite# as &uel+ air(con!itionin+ po$er+ an! liht8
'iii% The cost o& #aintainin insurance recor!s an! o& the pre#iu#s pai! &or &ire+ the&t+ an!
also &or $ork#en)s co#pensation%
ADVANTAGES OF PRIVATE WAREHOUSING
The a!'antaes an! !isa!'antaes o& pri'ate $arehousin as aainst those o& pu"lic
$arehousin are7
i% 1ri'ate $arehousin o&&ers "etter control o'er the #o'e#ent an! storae o& pro!ucts as
re,uire! "y the #anae#ent &ro# ti#e to ti#e8
ii% There is less likelihoo! o& error in the case o& pri'ate $arehousin since the co#pany)s
pro!ucts are han!le! "y its o$n e#ployees $ho are a"le to i!enti&y the pro!ucts o& their
o$n co#pany "etter8
iii% I& there is su&&icient 'olu#e o& oo!s to "e $arehouse!+ the costs o& pri'ate $arehousin
co#pares &a'oura"ly $ith that o& pu"lic $arehousin% :ut pri'ate $arehouse #ay not "e
e*pecte! to "e packe! upto the "ri# all the $hile% There&ore the costs o& pri'ate
$arehousin per unit #ay actually hiher%
2. PUBLIC WAREHOUSING
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A pu"lic $arehouse rents space to in!i'i!uals or &ir# nee!in storae+ so#e pro'i!e $i!e array
o& sre'ices inclu!in packain+ la"ellin+ testin+ in'entory+ #aintenance+ local !eli'ery+ !ata
processin an! pricin%
All the &oreoin cost &actors operate in pu"lic $arehousin as $ell% :ut in pu"lic $arehousin+
the e*penses are !istri"ute! o'er se'eral other consin#ents o& other clients% In #ost instances
there&ore the net result is lo$er cost &or each% Warehousin has "eco#e a hihly specialise!
ser'ice an! a pu"lic $arehouse#an can ren!er "etter sre'ice $ith reater &le*i"ility &or the user%
A co#pany runnin a pri'ate $arehouse $ill ha'e to co#pare costs incurre! $ith the total
&iure &or the co#plete ser'ice throuh pu"lic $arehousin%
ADVANTAGES OF PUBLIC WAREHOUSING
i% It is enerally less e*pensi'e an! #ore e&&icient8
ii% 1u"lic $arehouses are usually strateically locate! an! i##e!iately a'aila"le8
iii% 1u"lic $arehousin is su&&iciently &le*i"le to #eet #ost space re,uire#ents+ &or se'eral
plans are a'aila"le &or the re,uire#ent o& !i&&erent users8
i'% 2i*e! costs o& a $arehouse are !istri"ute! a#on #any users% There&ore the o'erall cost
o& $arehousin per unit $orks out to a lo$er &iure8
'% 1u"lic $arehousin &acilities can "e i'en up as soon as necessary $ithout any a!!itional
lia"ility on the part o& the user8
'i% The costs o& pu"lic $arehousin can "e easily an! e*actly ascertaine!+ an! the user pays
only &or the space an! ser'ices he use%
4. CONTRACT WAREHOUSING
Contract $arehousin is a specialise! &or# o& pu"lic $arehousin% In a!!ition to $arehousin
acti'ities such $arehousin pro'i!es a co#"ination o& interate! loistics ser'ices% Thus
allo$in the leasin &ir# to concentrate on its specialty% They pro'i!e custo#i6e! sr'ices%
;5alue(a!!e! ser'ices<
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FUNCTION OF WAREHOUSE
Warehouses are "asically inter#e!iate storae points in the loistics syste# $here ra$
#aterial+ $ork in process+ &inishe! oo!s an! oo! in transit are hel! &or 'aryin !uration o&
ti#es &or a 'ariety o& purposes% The $arehousin &unctionality to!ay is #uch #ore than the
tra!itional &unction o& storae% The &ollo$in are #ain &unction that $arehousin ser'es to!ay7
CONSOLIDATION: this helps to pro'i!e &or the custo#er re,uire#ent o& a co#"ination o&
pro!ucts &ro# !i&&erent supply or #anu&acturin sources% Instea! o& transportin the
pro!ucts as s#all ship#ents &ro# !i&&erent sources+ it $oul! "e #ore econo#ical to ha'e a
consoli!ation $arehouse% This $arehouse $ill recei'e these pro!ucts &ro# 'arious sources
an! consoli!ate these into ship#ents+ $hich are econo#ical &or transportation or as re,uire!
"y the custo#ers%
BREAK BULK7 as the na#e suest+ the $arehouse in this case ser'es the purpose o&
recei'in "ulk ship#ents throuh econo#ical lon !istance transportation an! "reakin o&
these into s#all ship#ents &or local !eli'ery% This ena"les transportation econo#ies $ith
co#"ination o& lon !istance "ulk transportation+ "reak "ulk $arehousin+ an! short !istance
s#all ship#ents in place o& lon !istance s#all ship#ents%
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1>ANT A
1>ANT :
1>ANT C
CONSO>IDATION
WAREHOUSE
A : C
:REA? :U>?
CROSS DOCKING7 this type o& &acility ena"les receipt o& &ull ship#ents &ro# a nu#"er o&
suppliers+ enerally #anu&acturers+ an! !irect !istri"ution to !i&&erent custo#ers $ithout
storae% As soon as the ship#ents are recei'e!+ these are allocate! to the respecti'e
custo#ers an! are #o'e! across to the 'ehicle &or the on$ar!s ship#ents to the respecti'e
custo#ers at these &acilities% S#aller ship#ents acco#panyin these &ull ship#ents are
#o'e! to the te#porary storae in these &acilities a$aitin ship#ents to the respecti'e
custo#ers alon $ith other &ull ship#ents%
CROSS DOC?ING
PRODUCT MIXING7 pro!ucts o& !i&&erent types are recei'e! &ro# !i&&erent #anu&acturin
plants or sources in &ull ship#ent si6es% These pro!ucts are #i*e! at these $arehouses into
riht co#"ination &or the rele'ant custo#ers as per their re,uire#ents% So#e pro!ucts $hich
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Co#pany AA 1lant
A
Co#pany : A 1lant
:
Co#pany CA 1lant
C
DISTRI:UTION
CENTRE
CUSTOMER A
CUSTOMER :
CUSTOMER C
1>ANT A :REA?
:U>?
CUSTOMER A
CUSTOMER :
CUSTOMER C
are co##only re,uire! in#ost pro!uct #i*tures+ are kept in constant storae at these
$arehouses an! continuously pro'i!e! &or the pro!uct #i*ture ship#ents re,uirin these%

1RODUCT MIBING
STOCK PILING7 this &unction o& $arehousin is relate! to seasonal #anu&acturin or
!e#an!% In the case o& seasonal #anu&acturin+ certain ra$ #aterials are a'aila"le !urin
short perio!s o& the year% Hence+ #anu&acturin is possi"le only !urin these perio!s o&
a'aila"ility+ $hile the !e#an! is &ull year aroun!% This re,uires stockpilin o& the pro!ucts
#anu&acture! &ro# these ra$ #aterials% A# e*a#ple is #ano pulp processin% On the other
han!+ certain pro!ucts like $oolens are re,uire! seasonally+ "ut are pro!uce! throuhout the
year+ an! thus nee! to "e stockpile! as such%
POSTPONEMENT: this &unctionality o& $arehousin ena"les postpone#ent o&
co##it#ent o& pro!ucts t o custo#ers until or!ers are recei'e! &ro# the#% This is utili6e!
"y #anu&acturers or !istri"utors &or storin pro!ucts rea!y up to packain stae% These
pro!ucts are packae! an! la"ele! &or the particular custo#er only on receipt o& the or!er%
POSITIONING7 this per#its positionin pro!ucts or #aterials at strateic $arehouses near
to the custo#ers% These ite#s are store! at the $arehouse until or!ere! "y the custo#ers
$hen these can "e pro'i!e! to the custo#ers in the shortest lea!(ti#e% This &unction o&
$arehousin is utili6e! &or hiher ser'ice le'els to custo#ers &or critical ite#s an! !urin
increase! #arketin acti'ists an! pro#otions%
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1>ANT A
1>ANT :
1>ANT C
WARE HOUSE
TRANSIT
MIBING 1OINT
1RODUCT D
CUSTOMER W
A : C D
CUSTOMER B
A : C D
CUSTOMER 0
A : C D
CUSTOMER W
A : C D
ASSORTMENT: assort#ent $arehouse store a 'ariety o& pro!ucts &or satis&yin the 'ariety
re,uire#ents o& custo#ers% 2or e*a#ple+ retailers #ay !e#an! !i&&erent "ran!s o& the sa#e
pro!uct in s#all ,uantities rather than larer ,uantities o& the sinle "ran!%
DECOUPLING: !urin #anu&acturin+ operation lea!(ti#es #ay !i&&er in or!er to ena"le
pro!uction econo#ies% Thus+ the "atch si6e an! the lea!(ti#e o& pro!uction #ay !i&&er in
consecuti'e operations% This !ecouplin o& operations re,uires inter#e!iate storae o&
#aterials re,uire! &or the su"se,uent operation%
SAFETY STOKING: in or!er to cater to continencies like stock outs+ transportation
!elays+ receipt o& !e&ecti'e or !a#ae! oo!s+ an! strikes+ sa&ety stocks ha'e to "e
#aintaine!% This ensures that+ on the in"oun! si!e pro!uction stoppaes !o not occur+ an!+
on the out"oun! si!e custo#ers are &ul&ille! on ti#e%
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SQUARE ROOT LAW WITH EXAMPLE
In their aressi'e e&&ort to take cost out o& loistics net$ork+ &ir#s are searchin &or ne$ $ays
to re!uce le'els o& in'entory $ithout a!'ersely e&&ectin custo#er ser'ice% A currently popular
approach is to consoli!ate in'entories into &e$er stokin location in or!er to re!uce areate
in'entories an! their associate! cost% Correspon!inly+ this stratey re,uires the in'ol'e#ent o&
capa"le transportation an! in&or#ation resources to see that custo#er ser'ice is hel! at e*istin
le'els an! is e'en i#pro'e! $hene'er possi"le%
S,uare root la$7
The s,uare root la$ helps !eter#ine the e*tent to $hich in'entories #ay "e re!uce! throuh
such stratey% Assu#in the total custo#er !e#an! re#ains the sa#e+ the SR> esti#ates the
e*tent to $hich areate in'entory nee!s $ill chane as a &ir# increases or re!uces the nu#"er
o& stockin location% In eneral+ the reater the nu#"er o& stokin locations+ the reater the
a#ount o& in'entory nee!e! to #aintain custo#er ser'ice le'els% Con'ersely+ as in'entories are
consoli!ate! into &e$er stockin locations+ areate in'entory le'els $ill !ecrease% The e*tent
to $hich these chanes $ill occur is un!erstoo! throuh application o& the s,uare root la$%
The s,uare root la$ states that7
E the total sa&ety stock in'entories in the &uture nu#"er o& &acilities can "e appro*i#ate! "y
#ultiplyin the total a#ount o& in'entory at e*istin &acilities "y the s,uare root o& the nu#"er
o& &uture &acilities !i'i!e! "y nu#"er o& e*istin &acilities%F
There&ore
B3 G B- N3
N-
Where7
N-G nu#"er o& e*istin &acilities
N3G nu#"er o& &uture &acilities
B-G total in'entory in e*istin &acility
B3G total in'entory in &uture &acilty

EXAMPLE:
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A co#pany presently !istri"utin =.... units o& pro!uct to its custo#er &ro# eiht &acility
location throuhout In!ia is locate! at A+ :+ C+ D+ E+ 2+ G an! H% the co#pany is e'aluatin an
opportunity to consoli!ate its operations into t$o &acilities% Usin SR> &in! the total a#ount o&
in'entory in the t$o &uture &acility%
Solution7
B3 G B- N3
N-
Here+
B-G =....
N-G H
N3G 3
There&ore+
B3G =.... 3
H
B3G =....I-A3
B3G 3....
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The N!"e# $% W&#eh$'e':
The nu#"er o& $arehouses is another !ecision para#eter i#pactin a nu#"er o& cost 'aria"les
an! custo#er ser'ice% I& custo#er ser'ice is taken in cost ter#s as cost o& custo#er
!issatis&action+ the nu#"er o& $arehouses $ill a&&ect transportation+ in'entory+ $arehousin an!
custo#er !issatis&action costs%
Transportation costs initially !ecreases $ith increasin nu#"er o& $arehouses% This is !ue to the
transportation econo#ies o"taine! "y ha'in lare('olu#e lon(rane transportation &ro#
consoli!ation $arehouses an! short(rane s#all('olu#e transportation &ro# "reak("ulk
$arehouses% Ho$e'er+ as the nu#"er o& $arehouses increases "eyon! a certain 'alue+ the
transportation cost starts increasin !ue to lare nu#"er o& transportation trips in K"et$een the
larer nu#"ers o& $arehouses% In'entory costs continuously increases $ith the increasin
nu#"er o& $arehouses "ecause the increase! space a'aila"le nee!s to "e utili6e! an! &ir#s
increase the co##it#ent o& in'entory at these $arehouses "eyon! those actually nee!e!% Transit
in'entory costs continuously !ecrease $ith the increase! nu#"er o& $arehouses !ue to the
shorter transportation ti#es "et$een the larer nu#"er o& $arehouses% The $arehousin costs
increase $ith #ore $arehouses !ue to the #aintenance an! &acility costs associate! $ith each
$arehouse% 2or the sa#e space+ a sinle $arehouse incurs less $arehousin cost than t$o
$arehouses%
The increasin nu#"er o& $arehousin lea!s to increasin custo#er ser'ice le'els+ thus+
!ecreasin custo#er !issatis&action cost%
W&#eh$'e L$(&)*$+
Warehousin is i#portant to the &ir#s since it i#pro'es ser'ice an! re!uces coJst i#pro'e#ents
in ser'ice are aine! throuh rapi! response to custo#er re,uests ;ti#e utility<+ $hich is a+
pri#ary &actor lea!in to increase! sales% The location !ecision rear!in $arehouses is a&&ecte!
"y #anu&acturin plant+ an!+ custo#er an! #arket locations% A tra!itional classi&ication "y
E!ar Hoo'er classi&ies $arehouse locations as #arket(positione!+ #anu&acturin(positione!+ or
inter#e!iately(positione!%
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M&#,e)-.$'*)*$+e/ 0&#eh$'e'
Market(positione! $arehouses are locate! near to the custo#ers an! #arkets ;point o& pro!uct
consu#ption< $ith the o"Lecti'e o& ser'in the#% These enerally ha'e a lare 'ariety an! lo$
'olu#e o& ite#s to ser'ice local re,uire#ents% Such $arehouses re!uce cost "y pro'i!in place
utility% A Market(positione! $arehouses &unctions as a collection point &or the pro!ucts o&
!istant &ir#s $ith the resultin accu#ulations o& pro!uct ser'in as the supply source &or retail
in'entory replenish#ent% This approach allo$s lare an! cost(e&&ecti'e ship#ents &ro# the
#anu&acturer $ith lo$er(cost+ local transportation pro'i!in ser'ice to in!i'i!ual retailers%
Market(positione! $arehouses #ay "e o$ne! "y the &ir# or the retailer ;pri'ate $arehouses<+ or
they #ay "e an in!epen!ent "usiness pro'i!in $arehouse ser'ice &or pro&it ;pu"lic<%
M&+%&()#*+1 P$'*)*$+e/ W&#eh$'e
Manu&acturin positione! $arehouse are locate! near to the #anu&acturin &acilities in or!er to
support #anu&acturin on the in"oun! si!e an! to &acilitate assort#ent(creation an! shippin on
the out"oun! si!e% I#pro'e custo#er ser'ices an! #anu&acturin support achie'e! throuh type
o& $arehouse $hich acts as the collection point &or pro!ucts nee!e! in &illin custo#er or!ers
an! #aterial nee!e! &or #anu&acturin%
I+)e#!e/*&)e23- P$'*)*$+e/ W&#eh$'e
Inter#e!iately( positione! $arehouse are those locate! "et$een #anu&acturin an! #arket(
position $arehouses% These help in consoli!ation o& assort#ents &or ship#ents &ro# !i&&erent
#anu&acturin &acilities% A &ir# #ay ha'e #any #anu&acturin plant locate!+ &or econo#ic
reasons+ near the sources o& ra$ #aterial% Un!er these con!itions the cost(e&&ecti'e $arehouse
#ay "e at so#e inter#e!iate point%
A &e$ o& the &actors o'ernin the $arehouse locations are7
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a'aila"ility o& ser'ices8
lan! cost8
a'aila"ility o& transport linkaes &or e*a#ple+ to a rail si!in8
a'aila"ility o& utilities o& $ater an! po$er8
ta*es an! insurance cost8
e*pansion space a'aila"ility8
An! soil strenth an! lay o&& lan! &or !rainae%
WAREHOUSE LAYOUT AND DESIGN
To un!erstan! layout an! !esin+ so#e "ackroun! in&or#ation on a typical $arehouse)s "ase
space re,uire#ents is necessary% This !iscussion o& space re,uire#ents relates ,uite closely to
the !iscussion o& "asic $arehouse operations% :e&ore lookin speci&ically at eh types o& space a
&ir# nee!s+ $e co##ent "rie&ly a"out !eter#inin ho$ #uch space a &ir# re,uires%
This &irst step in !eter#inin $arehouse space re,uire#ents is to !e'elop a !e#an!
&orecast &or a co#pany)s pro!ucts% This #eans preparin an esti#ate in units &or a rele'ant sales
perio! ;usually thirty !ays< "y pro!uct cateory% Then the co#pany $ill nee! to !eter#ine each
ite#)s or!er ,uantity+ usually inclu!in so#e allo$ance &or sa&ety stock% The ne*t step is to
con'ert the units into cu"ic &ootae re,uire#ents+ $hich #ay nee! to inclu!e pallets an! $hich
usually inclu!e an allo$ance o& -. to -@ percent &or ro$th o'er the rele'ant perio!% At this
point+ the co#pany has an esti#ate o& "asic storae space re,uire#ents% To this the co#pany
#ust a!! space nee!s &or aisles an! other nee!s such as la'atories an! #eetin roo#s%
Warehouse co##only !e'otes one(thir! o& their total space to non(storae &unctions% Many
co#panies #ake these spaces !ecision throuh co#puter si#ulation% The co#puter can consi!er
a 'ast nu#"er o& 'aria"les an! can help pro!uct #ore re,uire#ents oo! so&t$are packaes are
a'aila"le%
One a!!itional $arehouse space re,uire#ents pro'i!es an inter&ace $ith the
transportation part o& the loistics syste#( recei'in an! shippin% While this can "e operate+
e&&iciency usually re,uires t$o separate areas% In consi!erin these space nee!s a &ir# #ust
choose $hether to use the !ock area outsi!e the "uil!in or to unloa! oo!s out o& the 'ehicle
!irectly into the $arehouse% The &ir# has to allo$ or turnaroun! space an! possi"ly &or
e,uip#ent an! pallet storae% Also i#portant are areas &or stain oo!s "e&ore transportation
an! &or uniti6in consoli!ate! ship#ents% In a!!ition this area #ay nee! space &or checkin
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countin an! inspectin% The 'olu#e an! &re,uency o& the throuhput are critical in !eter#inin
recei'in an! hippin space nee!s%
Another space re,uire#ents in physical !istri"ution $arehouses is &or or!er packin an!
asse#"ly% The a#ount o& space these &unctions nee! !epen!s upon or!er 'olu#e an! the
pro!uct)s na#e alon $ith the #aterials(han!lin e,uip#ent% This area)s layout is critical to
e&&icient operations an! custo#er ser'ice%
A thir! type o& space is the actual storae space% In a $arehouse+ a &ir# #ust use the &ull
'olu#e o& the cu"ic storae space as e&&iciently as possi"le% A &ir# can !eri'e the a#ount o&
storae space &ro# the analysis !escri"e! earlier in this section an! it $ill larest sinle area in
the $arehouse% As $ith the or!er pickin area+ a &ir# has to consi!er storae area layout in
!etail% We co'er this topic in a su"se,uent section%
2inally a &ir# #ust consi!er three a!!itional types o& space% 2irst+ #any physical
!istri"ution $arehouses ha'e space &or recoupin( that is+ an area to sal'ae un!a#ae! parts o&
!a#ae! cartoons% Secon! a!#inistrati'e an! clerical sta&& enerally re,uire o&&ice space%
2inally+ rest roo#s an!+ e#ployee ca&eteria+ utilities an! locker roo#s re,uire #iscellaneous
space% The a#ount o& space these last three cateories re,uire !epen!s upon a nu#"er o&
'aria"les% 2or e*a#ple+ the a'erae a#ount o& !a#ae! #erchan!ise an! the &easi"ility o&
repackin un!a#ae! #erchan!ise !eter#ine recoupin space nee!s% The space re,uire#ent &or
a ca&eteria an! locker roo#s !epen! on the nu#"er o& e#ployees%
LAYOUT AND DESIGN PRINCIPLES
While the !iscussion thus &ar has !elineate! a typical $arehouse)s 'arious space nee!s+ $e nee!
to consi!er layout in #ore !etails% We &irst consi!er so#e eneral layout !esin principles an!
then e*a#ine layout in the conte*t o& the space cateory pre'iously% The #ost co##only
accepte! $arehouse !esin an! layout principles are as &ollo$s7
2irst+ use a one story &acility $here'er possi"le+ since it usually pro'i!es #ore usa"le
space per in'est#ent !ollar an! usually it is less e*pensi'e to construct% Secon!+ use straiht(line
or !irect &lo$ o& oo!s into an! out o& the $arehouses+ to a'oi! "acktrackin%
A thir! principle is to use e&&icient #aterials han!lin e,uip#ent an! operations% The
ne*t section e*plores #aterials(han!lin &un!a#entals% A#on other "ene&its+ #aterials(
han!lin e,uip#ent i#pro'es e&&iciency in operations%
A &ourth principle is to use an e&&ecti'e storae plan on the $arehouse% In other $or!s+
the &ir# #ust place oo!s in the $arehouse in such a $ay to #a*i#i6e $arehouse operations
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an! a'oi! ine&&iciencies% State! si#ply+ $e are tryin to utili6e e*istin space as co#pletely an!
e&&ecti'ely as possi"le $hile pro'i!in "oth a!e,uate accessi"ility an! protection &or the oo!s
$e are storin%
The &i&th principle o& oo! layout is to #ini#i6e aisle space $ithin the constraints that
the si6e+ type+ an! turnin ra!ius o& #aterials(han!lin e,uip#ent i#pose% We #ust also
consi!er the pro!ucts an! the constraints they i#pose%
A si*th principle is to #ake #a*i#u# use o& the "uil!in)s heiht(that is to utili6e the
"uil!in)s cu"ic capacity e&&ecti'ely% This usually re,uires interation $ith #aterials han!lin%
Thouh 'ehicles capa"le o& #aneu'erin in s#all aisles an! stackin hiher than con'entional
#aterials can "e 'ery e*pensi'e+ such e,uip#ent o&&ers potentially lare o'erall syste#s sa'ins
"ecause usin heiht costs $orks "est $hen ite#s are reularly shape! an! easily han!le!+ $hen
or!er selection is the #i!!le stae o& acti'ity an! $hen pro!uct #o'es in hih 'olu#es $ith &e$
the %
A co#pany shoul! not #ake $arehousin !ecisions once an!M! then take the# &or
rante!8 rather+ the co#pany shoul! #onitor pro!ucti'ity reularly !urin $arehouse
operations% While #onitorin #etho!s 'ary $i!ely+ the co#pany shoul! set oals an! stan!ar!s
&or cost an! or!er(han!lin e&&iciency an! then #easure actual per&or#ance in a n atte#pt to
opti#i6e the $arehouse)s pro!ucti'ity% :y i#pro'in pro!ucti'ity+ a co#pany can i#pro'e its
resources uses increase cash &lo$+ pro&its an! return on in'est#ent8 an! pro'i!e its custo#er
$ith "etter ser'ice% To "ein a pro!ucti'ity prora#+ a co#pany shoul! !i'i!e $arehouse
operations into &unctional areas an! #easures each areas pro!ucti'ity+ utili6ation an!
per&or#ance+ &ocusin on i#pro'e#ents in la"or+ e,uip#ent an! #akin co#parisons $ith
stan!ar!s i& they e*ist% Repeatin #easure#ents can sho$ relati'e tren!s% There is no sinle
#easure o& $arehouse pro!ucti'ity+ "ut the #etho! the co#pany chooses #ust ha'e the
&ollo$in attri"utes 'ali!ity+ co'erae+ co#para"ility+ co#pleteness+ use&ulness+ co#pati"ility
an! cost e&&ecti'eness%
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VALUE ADDING
The $arehouse ser'es se'eral 'alue a!!in roles in a loistics syste#% Co#panies $ill
so#eti#es &ace less than truckloa! ;>T>< ship#ents o& ra$ #aterial an! &inishe! oo!s%
Shippin oo!s lon8 !istances at >T> rates is #ore costly than shippin at &ull truckloa! or
carloa! rates% :y #o'in the >T> a#ounts relati'ely short !istances to or &ro# a $arehouse%
Warehousin can allo$ a &ir# to consoli!ate s#aller ship#ents into lare ship#ent7 ;a car loa!
or truckloa!< $ith sini&icant transportation sa'ins% 2or the in"oun! loistics syste# the
$arehouse $oul! consoli!ate !i&&erent suppliers >TI ship#ents an! ship a 'olu#e ship#ent
;T>< to the &ir#) plant% 2or the out"oun! loistics syste# the $arehouse $oul! recei'e a
consoli!ate! 'olu#e ship#ent &ro# 'arious plants an! ship >T> ship#ents to !i&&erent #arkets%
A secon! $arehousin &unction #ay "e custo#er or!er pro!uct #i*in% Co#panies
&re,uently turn out a pro!uct line that contains thousan!s o& E!i&&erentF pro!ucts i& $e consi!er+
color+ si6e shape an! other 'ariations% When plannin or!ers+ custo#ers o&ten $ant a pro!uct
line #i*ture( &or e*a#ple+ &i'e !o6en+ &our cup co&&ee pots+ si* !o6en ten cup co&&ee pots $ith
"lue tri# an! ten !o6en re! tri# an! three !o6en "lue sala! "o$l sets% :ecause co#panies o&ten
pro!uce ite#s at !i&&erent plants+ a co#pany that !i! not $arehouse oo!s $oul! ha'e to &ill
or!ers &ro# se'eral locations causin !i&&erin arri'al ti#es an! opportunity &or #i*(ups
there&ore a pro!uct #i*in $arehouse &or a #ultiple pro!uct line lea!s to e&&icient or!er &illin%
:y !e'elopin ne$ #i*in $arehouses near !ense ur"an areas+ &ir#s can #ake pickups an!
!eli'eries in s#aller 'ehicles an! sche!ule these acti'ities at #ore opti#u# ti#es to a'oi!
conestion%
In a!!ition to pro!uct #i*in &or custo#er or!ers+ co#panies sin ra$ #aterials or se#i
&inishe! oo!s;e%% auto #anu&acturer< co#pany #o'e carloa!s o& ter#s #i*e! &ro# a physical
supply $arehouse to plant% This stratey not only re!uces transportation costs &ro#
consoli!ation "ut also allo$s the co#pany to a'oi! usin the plant as a $arehouse% This stratey
$ill "eco#e increasinly popular as increase! &uel e*penses raise transport costs an! &ir#
increase the use o& sophisticate! strateies such as #aterials re,uire#ents plannin ;MR1< or
Lust in ti#e ;9IT< syste#%
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Cross (Dockin is an operation that &acilitates the pro!uct #i*in &unction% In cross
!ockin operations pro!ucts &ro# !i&&erent suppliers arri'e in truckloa! lots "ut instea! o& "ein
place! into storae &or later pickin they are #o'e! across the $arehouse area $aitin trucks &or
#o'e#ent to particular custo#ers% The inco#in #aterials are picke! &ro# the !eli'erin truck
&ro# te#porary storae locations to &ill a speci&ic or!er an! #o'e! across the !eck to a truck
!estine! &or the custo#er% The $hole process is co#plete! in a #atter o& hours% E*cess pro!uct
an! s#all ite#s are store! te#porarily to a$ait sche!ule! !eli'eries an! to per#it sortin o&
in"oun! loa!s o& #i*e! pro!ucts%
A thir! $arehouses &unctions is to pro'i!e ser'ice% The i#portance o& custo#er ser'ice
is o"'ious% Ha'in oo!s a'aila"le in a $arehouse $hen a custo#er places an or!er+ particularly
i& the $arehouse is in reasona"le pro*i#ity to the custo#er usually lea!s to custo#er
satis&action an! enhances &uture sales% Ser'ice #ay also "e a &actor &or physical supply
$arehouses% Ho$e'er+ pro!uction sche!ules+ $hich a &ir# #akes in a!'ance+ are easier to
ser'ice than custo#ers $hile custo#ers !e#an!s is o&ten uncertain physical supply stock outs
costs so#eti#es see# in&inite%
A &ourth $arehousin &unctions is protection aainst continencies such as
transportation !elays 'en!ors stock outs or strikes% A potential trucker)s strike $ill enerally
cause "uyers to stock larer in'entories than usual8 &or e*a#ple this particular &unction is 'ery
i#portant &or physical supply $arehouse in that a !elay in the !eli'ery o& ra$ #aterial can !elay
the pro!uction o& &inishe! oo!s% Ho$e'er+ continencies also occur $ith physical !istri"ution
$arehouses( &or e*a#ple+ oo!s !a#ae! in transit can a&&ect in'entory le'els an! or!er &illin%
A &i&th $arehousin &unction is to s#ooth operations or !ecouple successi'e staes in
the #anu&acturin process% Seasonal !e#an! an! the nee! &or a pro!uction run alon enouh to
ensure reasona"le cost ,uality are e*a#ples o& s#oothin( that is pre'entin operations un!er
o'erti#e con!itions at lo$ pro!uction le'els% In e&&ect+ this "alancin stratey al$ays a co#pany
to re!uce its #anu&acturin capacity in'est#ent%
As $e can see $arehouse &unctions can #ake i#portant contri"utions to loistics syste#s an!
co#pany operation% Ho$e'er+ $e #ust also 'ie$ $arehousin in a tra!e(o&& conte*t8 that is
$arehousin)s contri"ution to pro&it #ust "e reater than its cost%
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PLANNING AND CO-ORDINATION OF FLOWS
4. C$-$#/*+&)*$+ is the "ack"one o& o'erall in&or#ation syste# architecture a#on the
participants o& the 'alue chain% Coor!ination results in plans speci&yin 7 ;i< Strateic
o"Lecti'es+ ;ii< Capacity constraints+ ;iii< >oistical re,uire#ents+ ;i'< in'entory !eploy#ent+
;'< Manu&acturin re,uire#ents+ ;'i< procure#ent re,uire#ents an! ;'ii< 2orecastin%
;i< Strateic O"Lecti'es !etail the nature an! location o& custo#ers+ $hich are #atche! to the
re,uire! pro!ucts an! ser'ices to "e per&or#e!% The &inancial aspects o& the strateic plans
!etail resources re,uire! to support in'entory+ recei'a"les+ &acilities+ e,uip#ent an!
capacity%
;ii< Capacity Constraints coor!inate internal an! e*ternal #anu&acturin re,uire#ents &or
i'en strateic o"Lecti'es+ capacity constraints i!enti&y li#itation+ "arriers or "ottlenecks
$ithin #anu&acturin capa"ilities an! !eter#ine appropriate outsource re,uire#ents%
;iii< >oistics Re,uire#ents speci&y the $ork that !istri"ution &acilities+ e,uip#ent an!
la"our #ust per&or# to i#ple#ent the capacity plan% :ase! on inputs &ro# &orecastin+
custo#er or!ers an! in'entory status+ loistics re,uire#ents speci&y 'alue chain
per&or#ance%
;i'< In'entory Deploy#ents are the inter&aces "et$een planninAcoor!ination an! operations
that !etail the ti#in an! co#position o& $here in'entory $ill "e positione! &ro# an
in&or#ation perspecti'e+ in'entory !eploy#ent speci&ies the $hat+ $here an! $hen o& the
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o'erall loistics process% 2ro# an operational 'ie$point+ in'entory #anae#ent is
per&or#e! as a !ay(to(!ay e'ent%
;'< Manu&acturin 1lans are !ri'en &ro# loistical re,uire#ents an! result in in'entory
!eploy#ent% The pri#ary output is a state#ent o& ti#e(phase! in'entory re,uire#ents $hich
!ri'es #aster pro!uction sche!ulin ;M1s< an! #anu&acturin re,uire#ents plannin
;MR1<% The output &ro# MR1 is a !ay(to(!ay pro!uction sche!ule that can "e use! to
speci&y #aterial an! co#ponent re,uire#ents%
;'i< 1rocure#ent Re,uire#ents sche!ule #aterial an! co#ponents &or in"oun! ship#ent to
support #anu&acturin re,uire#ents% 1urchasin coor!inates !ecisions concernin supplier
,uali&ication+ !eree o& !esire! speculations+ thir! party arrane#ents an! &easi"ility o& lon(
ter# contractin%
;'ii< 2orecastin utilises &ast !ata+ current acti'ity le'els an! plannin assu#ptions to pre!ict
&uture acti'ity le'els% The &orecasts pre!ict perio!ic ;#onthly or $eekly< Nsales le'els &or
each pro!uct+ &or#in the "asis &or loistical re,uire#ent an! operatin plans%
2. O.e#&)*$+&2 Re5*#e!e+)' 7 The secon! aspect o& in&or#ation re,uire#ents is concerne!
$ith !irectin operations to recei'e+ process an! ship in'entory as re,uire! to support
custo#er an! purchase or!ers% Operational re,uire#ents !eal $ith7 ;i< or!er #anae#ent+
;ii< or!er processin+;iii< !istri"ution operations+ ;i'< in'entory #anae#ent+ ;'<
transportation an! shippin an! ;'i< procure#ent%
;i< Or!er Manae#ent re&ers to the trans#ission o& re,uire#ents in&or#ation "et$een 'alue
chain #e#"ers in'ol'e! in &inishe! pro!uct !istri"ution% The pri#ary acti'ity o& or!er
#anae#ent is accurate entry an! ,uali&ication o& custo#er or!ers%
;ii< Or!er 1rocessin allocates in'entory an! assins responsi"ility to satis&y custo#er
re,uire#ents% In technoloy(rich or!er processin syste#s+ t$o($ay co##unication linkae
can "e #aintaine! $ith custo#ers to enerate a neotiate! or!er that satis&ies custo#ers
$ithin the constraints o& planne! loistical operations%
;iii< Distri"ution Operations in'ol'e in&or#ation &lo$s re,uire! to &acilitate an! coor!inate
per&or#ance $ithin loistics &acilities% The key to !istri"ution operation is to store an!
han!le speci&ic in'entory ill little as possi"le $hile still #eetin custo#er or!er
re,uire#ents%
;i'< In'entory Manae#ent is concerne! $ith usin in&or#ation to i#ple#ent the loistics
plan as speci&ie!%
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;'< Transportation an! Shippin in&or#ation !irects the #o'e#ent o& in'entory% It is also
necessary to ensure that re,uire! (transportation e,uip#ent is a'aila"le $hen nee!e!%
;'i< 1rocure#ent is concerne! $ith the in&or#ation necessary to co#plete purchase or!er
preparation+ #o!i&ication an! release $hile e*istin o'erall supplier co#pliance%
The o'erall purpose o& operational in&or#ation is to pro'i!e the !etaile! !ata re,uire! &or
interate! per&or#ance o& physical !istri"ution+ #anu&acturin support an! procure#ent
operations $hereas planninAcoor!ination &lo$s pro'i!e in&or#ation concernin planne!
acti'ities+ operational re,uire#ents are nee!e! to !irect !ay(to(!ay $ork7O
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TRANSPORTATION MANAGEMENT
Intro!uction
Transportation plays a key role in econo#ic success "y allo$in &or the sa&e an! e&&icient
!istri"ution o& oo!s an! ser'ices throuhout the supply chain%
Transportation links the 'arious interate! loistics acti'ities% Without transportation+ the
interate! loistics syste# "reaks !o$n% So#e 'ie$ transportation as the lue that hol!s the
entire syste# toether% Without the transportation link ra$ #aterial cannot &lo$ into the
$arehouses an! plants+ nor can "e &inishe! pro!uct &lo$ out o& the plant to &iel! $arehouses an!
&inally to the custo#er%
Transportation physically #o'es pro!ucts &ro# $here they are pro!uce! to $here they are
nee!e!% This #o'e#ent across space or !istance a!!s 'alue to pro!ucts% This 'alue a!!e! is
o&ten re&erre! to as place utility%
Ti#e Utility is create! "y $arehousin an! storin pro!ucts until they are nee!e!%
Transportation is also a &actor in ti#e utility+ it !eter#ines ho$ &ast an! ho$ consistently a
pro!uct #o'es &ro# one point to another% This is kno$n as ti#e(in(transit an! consistency o&
ser'ices respecti'ely%
I& a pro!uct is not a'aila"le at the precise ti#e it is nee!e!+ there #ay "e e*pensi'e
repercussions+ such as lost sales+ custo#er !issatis&action+ an! pro!uction !o$nti#e+ $hen the
pro!uct is "ein use! in the #anu&acturin process% Transportation Ry!er Interate! >oistics
an! Unite! 1arcel Ser'ices ;U1S< ha'e achie'e! successes "ecause they are a"le to pro'i!e
consistent ti#e(in(transit an! thus increase the ti#e an! place utility o& their custo#er pro!ucts%
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3.
Transportation 2unctionality
Transport &unctionality pro'i!es t$o #aLor &unctions% 1ro!uct Mo'e#ent an! 1ro!uct Storae%
1ro!uct Mo'e#ent
Where the pro!uct is in the &or# o& #aterials+ co#ponents+ asse#"lies+ $ork(in(proress or
&inishe! oo!s+ transportation is necessary to #o'e it to the ne*t stae o& the #anu&acturin
process or physically closer to the ulti#ate custo#er% A pri#ary transportation &unction is
pro!uct #o'e#ent up an! !o$n+ the 'alue chain since transportation utili6es Te#poral ;ti#e<+
&inancial an! en'iron#ental resources+ it is i#portant that ite#s "e #o'e! only $hen it truly
enhances pro!uct 'alue%
The #aLor o"Lecti'e o& transportations to #o'e pro!uct &ro# an oriin location to a prescri"e!
!estination $hile #ini#i6in te#poral+ &inancial an! en'iron#ental resource costs+ loss an!
!a#ae e*penses #ust also "e #ini#i6e!%
1ro!uct Storae
A less co##on &unction is Pte#porary Storae)% 5ehicles #ake rather e*pensi'e storae
&acilities% Ho$e'er+ i& the in(transit pro!uct re,uires storae "ut $ill "e #o'e! aain shortly ;say
in &e$ !ays<+ the cost o& unloa!in an! reloa!in the pro!uct in a $arehouse #ay e*cee! the per
!ay chare o& storae in the transportation 'ehicle% In circu#stances $here $arehouse space is
li#ite! utili6in transportation 'ehicles #ay "e a 'ia"le option%
-< One #etho! #ay "e in'ol'in loa!in pro!uct on the 'ehicle an! then ha'e it to take a
circuitous route or in!irect route to its !estination%
3< Another #etho! is "y $ay o& !i'ersion% This occurs $hen an oriinal
ship#ent !estination is chane! $hile the !eli'ery is in transit%
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1rinciples7
There are 3 &un!a#ental principles ui!in transportation #anae#ent7
-< Econo#y o& scale
3< Econo#y o& !istance
-< Econo#y o& scale
This re&ers to the characteristics that transportation cost per unit o& $eiht !ecreases $hen the
si6e o& the ship#ent increases% It is also enerally true that larer capacity transportation 'ehicles
such as rail or $ater are less e*pensi'e per unit o& $eiht than s#aller capacity 'ehicles like
truck an! te#po% Transportation econo#ies o& scale e*ist "ecause &i*e! e*penses associate! $ith
#o'in an! loa!in can "e sprea! o'er the loa!s $eiht% The #ore the loa!+ the lesser $ill "e
cost per unit $eiht% The &i*e! e*penses inclu!e a!#inistrati'e cost o& takin the transportation
or!er8 ti#e to position the 'ehicle &or loa!in an! unloa!in+ in'oicin an! e,uip#ent cost%
3< Econo#y o& !istance
Re&ers to the characteristic that transportation cost per unit o& !istance !ecreases as !istance
increases% These principles are i#portant consi!erations $hen e'aluatin alternati'e
transportation strateies or operatin practices% The o"Lecti'e is to #a*i#i6e the si6e o& the loa!
an! the !istance that it is shippe! $hile still #eetin custo#er ser'ice e*pectations%
1articipants in transportation Decisions7
-< Shipper
3< Carrier
4< Consinee
=< 1u"lic
@< Go'ern#ent
Mo!es o& transportation
There are &i'e #aLor #o!es o& &reiht transportation+ airlines+ #otor carriers+ pipelines+
railroa!s an! $ater carriers% Each o& these #o!es has !istinct characteristics that i'e the#
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33
a!'antae o'er the others% Which #o!e is the "est !epen!s on the &reiht haule! cost+ spee!+
relia"ility+ capacity+ lenth o& haul an! &le*i"ility%
Airlines
Airlines are the &astest ter#inal(to(ter#inal #o!e o& transportation% That is the pri#ary
a!'antae% They speciali6e in ti#e sensiti'e #o'e#ent o& !ocu#ents+ perisha"le ite#s+
technical instru#ents+ #e!ical supplies an! hih 'alue! pro!ucts% Also air transportation has the
hihest percentae o& re'enues co#in &ro# passener tra'el% While airlines are i#portant &or
so#e &reiht #o'e#ent+ their pri#ary "usiness has tra!itionally "een passener tra'el%
Air&reiht ser'ices cost #ore than other #o!es+ pri#arily !ue to their spee!% Air carriers pro'i!e
ter#inal(to(ter#inal ser'ice+ #eanin that !irect !eli'ery to a consu#erPs !oor is the rarest o&
e*ceptions% Airlines are reasona"ly relia"le% While $eather relate! &liht !elays #iht !isrupt
ser'ice+ the !isrupte! ser'ice is o&ten still the &astest than the ne*t &astest #o!e+ the #otor
carrier% The airlines+ spee! a!'antae is #ost apparent &or hauls o'er @.. #iles% 2or trips less
than @.. #iles+ #otor carriers can o&ten outper&or# airlines !oor(to(!oor%
Airlines transport s#all 'olu#e ship#ents rather than lare 'olu#es+ an! packae! pro!ucts
rather than hea'y "ulk co##o!ities% The physical con&iuration an! cost o& air ser'ice also li#it
the 'ariety o& pro!ucts shippe! "y air% Measure! "y $eiht airlines transport 'ery little &reiht%
The percentae o& total &reiht !ollars shippe! "y air is relati'ely s#all althouh the re'enue
ro$th rate is pro#isin% As custo#er ser'ice e*pectations increase+ so !oes the !e#an! &or
shorter transit ti#es% As a result+ #any shippers ha'e turne! to air transportation
Most airline costs chane o'er a short perio! o& ti#e an! !epen! on output #akin airlines
pre!o#inantly 'aria"le cost carriers% When the initial cost o& the air &leet is sini&icant these
&i*e! costs are sprea! o'er the lon use&ul li&e o& the aircra&t% Ter#inals represent a #aLor &i*e!
cost in other #o!es+ "ut airline ter#inals are pu"licly o$ne! &acilities &or $hich the airlines pay
user &ees% The sini&icant start(up costs associate! $ith an airline li#it the nu#"er o&
co#petitors creatin an oliopolistic #arket structure+ $ith only a &e$ lare carriers%
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Motor carriers ;Roa!<
Motor carriers are the #ost &le*i"le #o!e o& transportation% This #eans "etter !irect access to
#otor carriae &or #ore shippers an! &inal consu#ers% Motor carriers co#pete $ith airlines &or
hiher 'alue! pro!ucts as $ell as ti#e(sensiti'e pro!ucts ;electronics perisha"le etc+< $ithin a
@.. #iles ra!ius% Motor carriae ranks as the secon! &astest #o!e o& transportation+ $ith the
a!!itional a!'antaes o& !oor(to(!oor &le*i"ility an! "roa! eoraphic co'erae% :ecause
trailers 'ary in lenth+ te#perature control an! &or# #otor carriers can carry a 'ariety o&
pro!ucts% In &act+ they can carry al#ost anythin% As in!ustry sayin Pi& it ot there+ a truck
"rouht itP rins 'ery nearly true% Motor carrier rates are hih co#pare! $ith all other #o!es "ut
air% They also &ace ross $eiht an! lenth restrictions+ as $ell as other leal li#its% Motor
carriers are suscepti"le to !elays "ecause o& "a! $eather or tra&&ic conestion% Al#ost+ #otor
carriers are not $ell suite! to han!le e*tre#ely hea'y "ulky pro!ucts "ecause the trailer is not
properly constructe! to ship such sini&icant $eiht e&&iciently e'en $hen per#it allo$ the leal
restriction to "e li&te!%
1ipelines
1ipelines are uni,ue #o!e o& transportation% They are &i*e! in place+ an! the pro!uct #o'es
throuh the#% This li#its the type o& pro!ucts they can transport "ut $ithin these li#its they can
#o'e #ore tons un!er a sinle ship#ent than any other #o!e o& transportation ;4.+... to
3@+..+... tons<% They can transport pro!uct only in a li,ui! or aseous state% 1etroleu# is the
nu#"er one pro!uct #o'e! "y pipelines% 1ipelines are cost e&&ecti'e $here lare ,uantities o&
li,ui! pro!ucts nee! to "e transporte!% 1ipelines o&&er one a!'antae that none o& the other
#o!es can o&&er% A pipeline is a continuous &lo$ #o!e% When the pipeline is &ull the pro!uct
&lo$s to the !estination i##e!iately an! continues to !o so al#ost $ithout &ail% 1ipelines are the
#ost !epen!a"le #o!e o& !eli'ery una&&ecte! "y e*ternal &actors like $eather% Ho$e'er+
pipeline transportation is slo$+ rii! in ter#s o& routes an! pro!uct types an! li#ite! to ter#inal(
to(ter#inal ser'ice% A pipelinePs a'erae spee! is usually "et$een t$o an! &i'e #iles per hour%
1ipelines can rarely !eli'er the pro!uct to the consu#erPs !oor an! the oriin an! !estination o&
the #o!e are &i*e!(unless househol! $ater an! as lines are taken into account%
Many pipelines are "uilt "y pri'ate entities &or pri'ate use% Di&&erent types o& li,ui! can "e
shippe! throuh a pipeline at the sa#e ti#e separate! "y a "atchin plu% A "atchin plu is a
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#echanis# !esine! to allo$ &or continuous &lo$ throuh the pipeline $hile #aintainin the
interity o& each in!i'i!ual pro!uct% 1ipeline costs are pre!o#inantly &i*e!% 1ipelines #ust "uil!
their o$n riht(o&($ay+ an e*tre#ely e*pensi'e un!ertakin% 1ipelines #ost o&ten #o'e lare
,uantities o& a li,ui! pro!uct &ro# a &i*e! oriin to a &i*e! !estination% The construction o& a
pipeline "eco#es cost e&&ecti'e only $hen the hih initial &i*e! cost can "e sprea! o'er enouh
'olu#e to keep the unit transportation cost co#petiti'e $ith other #o!es%
Railroa!s
Railroa!s transport a sini&icant a#ount o& !o#estic &reiht% Railroa!s haul hih(!ensity lo$(
'alue! &reiht o'er lon !istances at rates lo$er than truckin an! air+ "ut hiher than $ater an!
pipeline% 1ro!ucts haule! inclu!e coal+ stone+ san!+ #etals+ rain an! auto#o"iles% Their pri#ary
co#petitors inclu!e !o#estic $ater carriers &or lare "ulk pro!ucts an! #otor pro!ucts &or
hiher 'alue! oo!s% Railroa!s can han!le a $i!e 'ariety o& oo!s "ut enerally ha'e not% They
lack &le*i"ility an! hih(spee! !eli'ery in their stan!ar! operation% Historically+ railroa!s ha'e
"een unrelia"le !ue to poor sche!ulin+ a su"stan!ar! in&rastructure an! unrelia"le e,uip#ent%
Railroa!s arue that their assets are ol!er "ecause they #ust co##it consi!era"le resources to
"uil! their o$n riht o& $ay% Rail co#panies ha'e atte#pte! to i#pro'e their reputation &or
custo#er ser'ice "y up!atin ol! e,uip#ent+ installin current technoloies an! i#ple#entin
custo#er(oriente! strateies%
>ike other #o!es+ railroa!s are classi&ie! "y annual sales &iures% Railroa!s operate in an
oliopoly+ $ith a li#ite! nu#"er o& inter!epen!ent co#petitors% 2i*e! costs are hih co#pare!
$ith air+ $ater an! #otor carriae% The hiher percentae o& &i*e! costs ste#s &ro# o$nership
an! construction o& the riht(o&($ay% Rail transportation has "ene&ite! &ro# sini&icant le'el o&
international inter #o!al &reiht+ $hich currently pro'i!es the in!ustry $ith its hihest ro$th
an! pro&its%
Water Carriers
Water carriers !o#inate international transportation "ecause o& their cost structure an! a"ility
to transport lare 'olu#es% Their sini&icant #o!al #arket share is !eri'e! &ro# these
international operations% A!'antae o& $ater transport inclu!es lon haul capa"ilities(
particularly &or lo$('alue! pro!ucts such as coal+ stone+ rain an! ores(at lo$ rates% They can
an! !o haul a "roa! rane o& pro!ucts &ro# ores an! rains to Christ#as toys% Since $ater
carriers haul a $i!e 'ariety o& co##o!ities+ they operate a 'ariety o& ships% Tankers pri#arily
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carry li,ui! pro!ucts like petroleu# an! cru!e oil% Measurin o'er -%@.. &eet lon an! 3.. &eet
$i!e+ these 'essels are so#e o& the larest on the ocean% :ulk carriers are constructe! to haul
co##o!ities like coal+ iron ore+ or aricultural pro!ucts% 2urther#ore+ sini&icant ro$th in
container ships sho$s the i#pact containeri6ation has ha! on $ater carriae% Stan!ar!i6e!
containers are loa!e!+ place! on container ships+ an! shippe! across the ocean to their
!estination% A stan!ar! container #easures either HP "yPH "y 3.P or HP "y H "y =.P%One t$enty(&oot
container is re&erre! to as one t$enty(&oot e,ui'alent unit ;TEU<% A &orty &oot container is t$o
TEUs%
Water carriers co#pete hea'ily $ith railroa!s alon certain routes an! $ith pipelines &or the
#o'e#ent o& so#e pro!ucts+ particularly petroleu#% Water carriers cost structure an! 'olu#e
le'els are such that they can chare 'ery lo$ rates% Water carriers are relati'ely slo$+ unrelia"le
an! su&&er &ro# a hih !eree o& 'aria"ility in !eli'ery sche!ules% T$o #ain types o& &or(hire
carriers #ake up the !eep($ater in!ustry% >iners ha'e &i*e! sailin ti#es an! &i*e! routes+ $hile
tra#ps sail $hen they reach capacity% Since liners #ust sail at a speci&ic ti#e+ they are not
al$ays &ille! to capacity% Tra#ps are usually the "etter choice $hen ser'ice !ates an! ti#es are
not critical+ an! liners the "etter choice $hen these criteria are critical% Water carriers operate in
an oliopoly !ue to the lare initial in'est#ent+ $hich ten!s to li#it the nu#"er o& carriers%
Ho$e'er+ o'er the li&e o& the ship+ 'aria"le cost !o#inates% The initial cost o& the ship is
sini&icant+ "ut the 'olu#e transporte! o'er the use&ul li&e o& the ship is so lare that the cost per
unit is relati'ely lo$%
M$/e C$!.&#*'$+- D$!*+&+) T#&%%*(
MODE
6 SHARE NATURE OF TRAFFIC
Rail =./ Aricultural pro!ucts+ ores+ coal+ hea'y #achines+ etc%
Roa!A
Hih$ay
4./ Me!iu# Q >iht #anu&acturin !istri"ution
Water -@ / Minin+ ce#ent che#icals+ aricultural pro!ucts+ hea'y
#achinery+ etc%
1ipeline -./ 1etroleu# pro!ucts+ che#icals+ as
Air @/ E#erency re,uire#ents o& any #aterial+ s#all lots
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C$') S)#()#e F$# E&(h M$/e
MODE
FIXED COSTS VARIABLE COSTS
Rail Hih >o$
Roa! >o$ capital Me!iu#( &uel+ #aintenance
Water HihA #e!iu# >o$
1ipeline Hihest >o$
Air Me!iu# Hih( &uel hu#an operation
Re2&)*7e $.e#&)*+1 Ch&#&()e#*')*('
OP.
CHARTS
RAIL
ROAD WATER PIPELINE AIR
Spee! 4 3 = @ -
A'aila"ility 3 - = @ 4
Depen!a"ility 4 3 = - @
Capa"ility 3 4 - @ =
2re,uency = 3 @ - 4
Total score -= -. -H -D -C
SCA>E7 - TO @8 - IS :ETTER
Classi&ication o& carriers
Co##on carriers
The "asic &oun!ation o& the pu"lic transport an! syste# is the co##on carrier% They ha'e the
riht to transport any #aterial $ithin a speci&ie! 6one% ;Trucks an! te#pos<%
Contract Carriers
Contract carriers pro'i!e transport ser'ices &or selecte! custo#ers% The "asis &or contract is an
aree#ent "et$een a carrier an! a shipper &or a speci&ie! transportation ser'ice at a pre'iously
aree! cost%
1ri'ate Carriers
A pri'ate carrier consists o& a &ir# pro'i!in its o$n transportation% They are Pnot &or hireP%
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Speciali6e! carriers
a< Oil tankers
"< Trailers to carry container ;H &t% hih+ 3. or =. &t% lenth Q H &t%$i!e< loa!s an! special
pro!ucts #aterial%
c< Special close! trucksAte#pos%
!< 1arcel ser'ices("lue !art+ 2e!(e*% Etc%
5alue A!!e! Ser'ices
These are as &ollo$s7
a< Electronic trackin
"< A!'ance! la"el i#ain syste# ;"ar co!e<
c< Deli'ery con&ir#ation ser'ice
!< On(call pick up ser'ice
e< 1ackain an! &or$ar!in+ etc%
Transportation Docu#ents
a< :ill o& la!in
It is the "asic !ocu#ent utili6e! in purchasin transport ser'ices% It ser'es as a receipt an!
!ocu#ents co##o!ities an! ,uantities shippe! &or this reason accurate !escription an! count are
essential% In case o& loss !a#ae or !elay+ the "ill o& la!in is the "asis &or !a#ae clai#s% The
!esinate! in!i'i!ual or "uyer on a "ill o& la!in is the only "ona(&i!e recipient o& the oo!s+ a
carrier is responsi"le &or proper !eli'ery accor!in to instructions containe! in the !ocu#ent in
e&&ect+ an! title is trans&erre! $ith co#pletion o& !eli'ery%
The "ill o& la!in speci&ies ter#s an! con!itions o& carrier lia"ility an! !ocu#ents
responsi"ility &or all possi"le causes o& loss% Or !a#ae e*cept those !e&ine! as acts o& GOD
;&loo!+ earth,uake% etc%<
"< 2reiht "ill
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The &reiht "ill represents a carrierPs #etho! o& charin &or transportation ser'ices
per&or#e!% It is !e'elope! usin in&or#ation containe! in the "ill o& la!in% The &reiht "ill #ay
"e either pre(pai! or collect%
c< Shippin #ani&est
The shippin #ani&est lists in!i'i!ual stops or consinees $hen #ultiple ship#ents are
place!% The o"Lecti'e o& the #ani&est is to pro'i!e a sinle !ocu#entation that !e&ines the
content o& the total loa! $ithout re,uirin the re'ie$ o& in!i'i!ual "ill o& la!in%
Transportation Cost Structures
;-< 2i*e! cost ;3< 'aria"le cost ;4< Loint cost ;=< co##on cost
2i*e! cost% Certain costs are constant rear!less o& the &ir#Ps acti'ity% E*a#ple o& this $oul!
inclu!e the capital in'este! in railroa!+ tracks+ airplanes+ or tractors%
A 'aria"le cost chanes as output chanes% I& a tractor is !ri'en #ore #iles+ certain costs
increase proportionately% 2uel costs+ $aes+ #aintenance costs an! tire replace#ent !epen! on
output% As #iles increases so !o these costs% 2uel usae &or airlines 'aries $ith the nu#"er o&
&lihts as $eek as the !istance tra'ele!% To !eter#ine i& a cost is 'aria"le consi!er $hat happens
i& operations shut !o$n% The costs that !isappear are 'aria"le an! these that continue are &i*e!%
All cost in the lon run are 'aria"le% 2or instance+ a loco#oti'e is e'entually no loner
usea"le an! #ust "e replace!% 2or the t$enty(&i'e year li&e o& the loco#oti'e the cost is &i*e!%
When a ne$ loco#oti'e is purchase! to replace it+ the cost chanes+ it is no loner &i*e!%
Ho$e'er once the ne$ enine is place!+ it too $ill ha'e a use&ul li&e o& #any years% The cost
aain "eco#es &i*e!% 2or #ost !ecisions !o not reach "eyon! its use&ul li&e% The "ene&its o&
increase! 'olu#e accrue #ore to hih &i*e! cost carriers than to hih 'aria"le costs carriers seek
'olu#e to sprea! the &i*e! costs o'er #ore units reatly increasin pro&its%
A Loint cost occurs $hen the pro!uction o& one pro!uct or ser'ice re,uires or o&&ers the
pro!uction o& another pro!uct or ser'ice% 2or e*a#ple+ a railroa! #o'es oo!s &ro# Ne$ 0ork
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to >os Aneles% It no$ has enines a'aila"le in >os Aneles to pro'i!e "ack(haul ser'ice to
Ne$ 0ork or a!!itional transportation &ro# >os Aneles% The cost o& placin the train in >os
Aneles is a Loint cost $ith the Ne$ 0ork to >A run an! $hate'er run &ollo$s it% 2i*e! an!
'aria"le costs can also "e Loint costs% All #o!es incur Loint costs to so#e e*tent%
Co##on cost cannot "e !irectly associate! $ith a pro!uct or acti'ity% Since this creates
con&usion $e nor#ally assin acti'ities percentae o& these co##on costs% 2or instance a tractor
tra'elin &ro# Dallas to Chicao $ith three ship#ents "reaks !o$n an! re,uires R@... in
repairs% Ho$ #uch o& this repair cost shoul! "e allocate! to the three !i&&erent ship#entsS It is
"ase! on space use!+ $eiht or "othS That)s the pro"le# $ith co##on costs% In transportation
co##on costs are sini&icant an! are &oun! in all #o!es%
Airlines are 'aria"le cost #o!e "ecause they !o not o$n the riht o& $ay% Go'ern#ental entities
o$n the lare airports the &e!eral o'ern#ent operates the air$ays an! airlines pay &ees &or the
pri'ilee o& usin the#% In keepin $ith the !e&inition o& 'aria"le costs airlines pay take o&& an!
lan!in &ees only $hen they take o&& an! lan!% Other lare 'aria"le costs inclu!e &uel+ $aes an!
#aintenance% MaLor &i*e! costs are the airplanes an! salaries% Due to their type o& operations
airlines ha'e #any co##on costs since they nor#ally #o'e &reiht in a sinle airplane &or
#ultiple custo#ers%
Motor carriers like airlines8 !o not o$n the $ay or path o& tra'el% They are 'aria"le cost carriers%
So#e esti#ate that J. percent o& the #otor carrier in!ustryPs cost is 'aria"le% They pay user &ees
;ta*es etc%< to o&&set the roa! #aintenance costs% Other #aLor 'aria"le costs are &uel+ !ri'er
$aes+ an! e,uip#ent #aintenance% The #aLor &i*e! costs are the ter#inals an! e,uip#ent% >>
carriers ha'e #any co##on costs "ecause o& the nu#"er o& ship#ents in a sinle trailer% T>
carriers ha'e &e$ co##on costs "ecause the trailer is &ille! $ith pro!uct &ro# a sinle shipper%
1ipelines are cateori6e! as hea'y &i*e! cost carriers% They o$n their riht o& $ay an! their
ter#inals% In &act "ecause o& co#puteri6ation+ this #o!e is also classi&ie! as 'ery capital
intensi'e% This lea!s to lo$er $aes an! #aintenance costs% :ecause pipelines #o'e a 'ariety o&
li,ui! pro!ucts+ they ha'e sini&icant co##on costs%
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Railroa!s are &i*e! cost carriers "ecause they o$n their e,uip#ent an! tracks% Econo#ic o& scale
arise &ro# increase! 'olu#e $hich allo$ per unit costs to "e kept lo$ "y sprea!in &i*e! costs
o'er #ore units% A sini&icant portion o& railroa! cost is co##on "ecause all tra&&ic share
replace#ent costs%
Water carriers are 'aria"le cost carriers "ecause they !o not o$n the $ater$ays% They $ays are
not &ree% Channels #ust "e #aintaine! in #aLor ri'ers an! ports% In the Unite! States+ the U%S%
Ar#y Corps o& Enineers !re!es the channels% Water carrier)s #aLor 'aria"le costs are la"or+
&uel an! #aintenance% >ike railroa!s+ sini&icant portion o& their costs are co##on "ecause
#ultiple ship#ents o&ten share a 'essel%
2actors in&luencin Transportation Costs an! 1ricin
In eneral &actors in&luencin transportation costsApricin can "e roupe! into t$o #aLor
cateories7 pro!uct relate! &actors an! #arket relate! &actors% Many &actors relate! to a pro!ucts
characteristic in&luence! the costApricin o& transportation% They can "e roupe! into the
&ollo$in cateories7
-< Density
3< Sto$ a"ility
4< Ease or !i&&iculty o& han!lin
=< >ia"ility
Density re&ers to a pro!uctPs $eiht to 'olu#e ratio% Ite#s such as steel+ canne! 2oo!s+
"uil!in pro!ucts an! "ulk paper oo!s ha'e hih $eiht to 'olu#e ratios% They are relati'ely
hea'y i'en their si6e% On the other han! pro!ucts such as electronics clothin+ luae an! toys
ha'e lo$ $eiht to 'olu#e ratios an! thus are relati'ely liht$eiht i'en their si6e% In eneral+
lo$(!ensity pro!ucts(those $ith lo$ $eiht to 'olu#e ratios(ten! to cost #ore to transport on a
per poun! ;kilo< "asis than hih(!ensity pro!ucts%
Sto$ a"ility is the !eree to $hich a pro!uct can &ill the a'aila"le space in a transport 'ehicle%
2or e*a#ple+ rain ore+ an! petroleu# pro!ucts in "ulk ha'e e*cellent sto$ a"ility "ecause they
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can co#pletely &ill the container ;e%% railcar+ tank+ truck+ pipeline< in $hich they are transporte!%
Other ite#s such as auto#o"iles+ #achinery+ li'estock an! people !o not ha'e oo! sto$ a"ility
or cu"e utili6ation% A pro!uctPs sto$ a"ility !epen!s on its si6e+ shape+ &raility+ an! other
physical characteristics%
Relate! to sto$ a"ility is the ease or !i&&iculty or han!lin the pro!uct% Di&&icult to han!le
ite#s are #ore costly to transport% 1ro!ucts that are uni&or# in their physical characteristics ;e%%
ra$ #aterials an! ite#s in cartons+ cans+ or !ru#s< or that can "e #anipulate! $ith #aterials
han!lin e,uip#ents re,uires less han!lin e*penses an! are there&ore less costly to transport%
>ia"ility is an i#portant concern% 1ro!ucts that ha'e hih 'alue to $eiht ratios are easily
!a#ae! an! are su"Lect to hiher rates o& the&t or pil&erae+ cost #ore to transport% Where the
transportation carrier assu#es reater lia"ility ;e%% $ith co#pute+ Le$elry an! ho#e
entertain#ent pro!ucts< hiher price $ill "e chare! to transport the pro!uct%
Other &actors+ $hich 'ary in i#portance !epen!in on the pro!uct cateory+ are the pro!ucts
ha6ar!ous characteristics an! the nee! &or stron an! rii! protecti'e packain% These &actors
are particularly i#portant in the che#ical an! plastic in!ustries%
Market(Relate! 2actors
In a!!ition to pro!uct characteristics+ i#portant #arket relate! &actors a&&ect transportation
costApricin% The #ost sini&icant are7
-< Deree o& intra(#o!e an! inter(#o!e co#petition%
3< >ocation o& #arkets+ $hich !eter#ines the !istance oo!s+ #ust "e transporte!%
4< Nature an! e*tent o& o'ern#ent reulation o& transportation carriers
=< :alance or I#"alance o& &reiht tra&&ic into an! out o& a #arket
@< Seasonality o& pro!uct #o'e#ent
C< Whether the pro!uct !o#estically or internationally
Custo#er ser'ice is a 'ital co#ponent o& loistics #anae#ent% Which each acti'ity o&
loistics #anae#ent contri"utes to the le'el o& ser'ice a co#pany pro'i!es to its custo#ers+ the
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i#port o& transportation on custo#er ser'ice is one o& the #ost sini&icant% The #ost i#portant
transportation ser'ice characteristics a&&ectin custo#er ser'ice le'els are7
(Depen!a"ility consistency o& ser'ice
(Ti#e an! transit
(Market co'erae( the a"ility to pro'i!e !oor(to(!oor ser'ice
(2le*i"ility( han!lin o& a 'ariety o& pro!ucts an! #eetin the special nee!s o& shippers
(>oss an! !a#ae per&or#ance
(A"ility o& the carrier to pro'i!e #ore than "asic transportation ser'ice i%e% ;to "eco#e part o&
shippers o'er all #arketin an! loistics prora#s<
Each #o!e o& transport( #otor+ rail+ air+ $ater an! pipeline( has 'aryin ser'ice capa"ility%
Ser'ice Choices An! 1er&or#ance Characteristics
The user o& transportation has a $i!e rane o& ser'ices as his or her !isposal all re'ol'in
aroun! the &i'e "asic #o!es+ the 'ariety is al#ost li#itless ;-< The &i'e #o!es #ay"e use! in
co#"ination ;3< Aencies+ associations an! "rokers #ay"e use! &or their in!irect ser'ices ;4< A
sinle transportation #o!e #ay"e use! e*clusi'ely% 2ro# a#on this plethora o& ser'ice
choices+ the user #ust select a ser'ice or ser'ice co#"ination that pro'i!e the "est "alance
"et$een the ,uality o& ser'ice pro'i!e! an! the cost o& the ser'ice% The task o& ser'ice choice is
not as &or"i!!in as it soun!s "ecause the circu#stances surroun!in a particular shippin
situation o&ten re!uce the choice to only a &e$ reasona"le ser'ice possi"ilities% To ai! in sol'in
the pro"le# o& transportation ser'ice choice+ transportation ser'ice #ay"e 'ie$e! in ter#s o&
characteristics that are "asic to all ser'ices% These criteria are7
;-< Cost o& ser'ice ;3< A'erae !eli'ery ti#e ;4< Transit ti#e 'aria"ility ;=< >oss an! Da#ae%
It is presu#e! that the ser'ice is a'aila"le an! can "e supplie! $ith a &re,uency that #akes it
attracti'e as a possi"le ser'ice choice%
Cost o& ser'ice7 The cost o& ser'ice is si#ply the line(haul cost &or transportin oo!s plus any
accessorial or ter#inal chares &or a!!itional ser'ice pro'i!e!% In the case &or( hire ser'ice+ the
rate chare! &or the #o'e#ent o& oo!s "et$een t$o points plus any a!!itional chares+ such as
pick(up at oriin+ !eli'ery at !estination+ insurance or the cost o& preparin the oo!s &or
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ship#ent #akes up the total cost o& ser'ice% When the shipper o$ns the ser'ice+ the cost o&
ser'ice is an allocation o& the rele'ant costs to the ship#ent in ,uestion% Rele'ant costs inclu!e
such ite#s as &uel+ la"or #aintenance+ !epreciation o& e,uip#ent an! a!#inistrati'e costs%
Cost co#parisons &or the purpose o& transportation(ser'ice selection #ust "e #a!e on the
"asis o& actual chares that re&lect the speci&ic co##o!ity "ein shippe!+ the !istance an!
!irection o& the #o'e#ent an! any special han!lin re,uire!%
Deli'ery Ti#e an! 5aria"ility7 There are #any &actors to "e consi!ere! $hen selectin a
transportation ser'ice% Repeate! sur'eys ha'e sho$n that a'erae !eli'ery ti#e an! !eli'ery
ti#e 'aria"ility rank at the top in i#portance% Deli'ery ti#e is usually re&erre! to as the a'erae
ti#e it takes &or a ship#ent to #o'e &ro# its point o& oriin to its !estination% The !i&&erent
#o!es o& transportation 'ary as to $hether they pro'i!e !irect connection "et$een the oriin
an! !estination points+ &or e*a#ple+ ship#ents #o'e on air carriers "et$een airports an! on
$ater carriers "et$een har"ors% :ut &or purposes o& co#parin carriers per&or#ance+ it is "est to
#easure !eli'ery ti#e P!oor(to(!oorP e'en i& #ore than one #o!e is in'ol'e!% Althouh the
#aLor #o'e#ent o& ship#ent #ay "e "y rail+ local pickup an! !eli'ery is o&ten "y truck i& no
rail si!ins are a'aila"le at the ship#ent oriin an! !estination points%
5aria"ility re&ers to the nor#al !i&&erences that occur "et$een ship#ents "y the 'arious #o!es%
All ship#ents ha'in the sa#e oriin an! !estination points an! #o'e! on the sa#e #o!e are
not necessarily in transit &or the sa#e lenth o& ti#e !ue to the e&&ects o& $eather+ tra&&ic
conestion+ nu#"er o& stop o&&s+ an! !i&&erence in ti#e to consoli!ate ship#ents% Transit(ti#e
'aria"ility is a #easure o& the uncertainty in carrier per&or#ance%
In recent years there has "een rene$e! interest in the i!ea o& coor!inatin the ser'ice o& #ore
than one transportation #o!e% The #aLor &eature o& coor!ination is the &ree e*chane o&
e,uip#ent "et$een #o!es% 2or e*a#ple+ a truck trailer is carrie! a"roa! an airplane or a rail car
is haule! "y a $ater carrier% Such e,uip#ent interchane creates transportation ser'ices that are
not a'aila"le to a shipper usin sinle transportation #o!e% Coor!inate! ser'ices are usually a
co#pro#ise "et$een the ser'ices o&&ere! "y the cooperatin carriers in!i'i!ually% That is+ cost
an! per&or#ance characteristics rank "et$een those o& the participatin carriers%
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MIXED MODES 8MULTIMODAL AINTERMODAL TRANSPORTATION9
It is not al$ays possi"le to transport the oo!s "y only one #o!e o& transportation !ue to
econo#y o& transportation+ lon !istance o& transportation% So it is essential to ha'e #i*e!
#o!es so#e o& the #ost co##only use! are
1iy"ack ;roa! T rail <
2ishy "ack ; roa! T $ater <
:ir!y "ack ; roa! T air<
There are ten possi"le co(or!inate ser'ices7
;-< Rail(truck ;3< Rail($ater ;4< Rail(air ;=< Rail(pipeline ;@< Truck(air ;C< Truck($ater
;D< Truck(pipeline ;H< Water(pipeline ;J< Water(air ;-.< Air(pipeline% Not all o& these
co#"inations are practical% So#e that are &easi"le ha'e aine! little acceptance% Only rail truck
calle! Ppiy"ackP has seen $i!esprea! use% Truck($ater co#"inations+ re&eree! to as P&ishy(
"ack)+ are ainin acceptance especially in the international #o'e#ent o& hih('alue! oo!s% To
a #uch lesser e*tent truck(air an! rail($ater co#"inations are &easi"le "ut they ha'e seen
li#ite! use%
TO2C% Trailer on &latcar or piy"ack re&ers to transportin truck trailers on rail "oar! &latcars+
usually o'er lon !istances than trucks nor#ally haul% TO2C is "len!in o& the con'enience an!
&le*i"ility o& truckin $ith the lon haul econo#y o& rail% The cost is less than &or truckin alone
an! has per#itte! truckin to e*ten! its rane% >ike$ise+ rail has "een a"le to share in so#e
tra&&ic that nor#ally $oul! #o'e "y truck alone% The shipper "ene&its &ro# the con'enience o&
!oor(to(!oor ser'ice o'er lon !istances at reasona"le rates% These &eatures ha'e #a!e
piy"ack the #ost popular coor!inate! ser'ice%
1iy"ack ;TO2CACO2C< In piy"ack ser'ice+ a #otor carrier trailer or a container is place!
on a rail &latcar an! transporte! &ro# one ter#inal to another% A*les can "e place! un!er the
containers so a truck can !eli'er the#% At the ter#inal &acilities+ #otor carriers per&or# the
pickup an! !eli'ery &unctions% 1iy"ack ser'ice thus co#"ines the lo$ #o'e#ent $ith the
&le*i"ility an! con'enience o& truck #o'e#ent% Since -JDC shippers ha'e increase! their use o&
piy"ack ser'ice "y 3.. percent% In -JJ= there $ere H%-#illion inter(#o!al ship#ents $ith
-JJ@ an! -JJC ship#ents appro*i#atin the sa#e le'els%
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Truck an! rail partnerships to support inter #o!alis# such as the one "eun in -JHJ "et$een
the Santa 2e railroa! an! 9%:%Hunt Transport Ser'ices are relati'ely co##on% The railroa!
carriers &reiht on the lon haul an! the truckin co#pany picks up an! !eli'ers "et$een the
custo#er an! railroa!%DD/ o& inter(#o!al users aree that such alliances ha'e a positi'e i#pact
on transportation options a'aila"le to the#% In In!ia ?onkan Rail$ay has starte! this type!
ser'ice%
Roa!railers% An inno'ati'e inter(#o!al concept $as intro!uce! in the late -JD.s%Roa!railers or
trailer trains as they are so#eti#e calle!+ co#"ine #otor an! rail transport in a sinle piece o&
e,uip#ent% The roa! railer rese#"les a con'entional #otor carrier trailer% Ho$e'er the trailer
has "oth ru""er truck tires an! steel rail $heels% O'er hih$ays tractor po$er units transport the
trailers in the nor#al $ay+ "ut instea! o& placin the trailer on a &latcar &or rail #o'e#ent+ the
$heels o& the trailer are retracte! an! the trailer ri!es !irectly on the rail tracks%
The a!'antaes o& this inter(#o!al &or# o& transport are that rail &latcars are not re,uire! an!
that the s$itchin ti#e to chane $heels on the trailer is less than loa!in an! unloa!in the
trailer &ro# the &latcar% The #aLor !isa!'antaes o& roa!railers are the a!!e! $eihte! o& the rail
$heels+ $hich re!uces &uel e&&iciency an! results in hiher #o'e#ent costs in a!!ition to the
hiher cost o& the e,uip#ent% The !isa!'antaes ha'e ten!e! to out($eiht the a!'antaes
resultin in 'ery lo$ usae o& this Inter(#o!al option% I& technoloy i#pro'e#ents can re!uce
the cost o& this transport option+ usae is likely to increase%
Miscellaneous inter(#o!al issues% Any other inter(#o!al co#"inations are possi"le% In
international co##erce &or e*a#ple the !o#inant #o!es o& transportation are air an! $ater%
:oth inclu!e Inter(#o!al #o'e#ents throuh the use o& containers an! truck trailers%
Co#"inations o& air(sea+ air(rail+ truck(sea an! rail(sea are use! lo"ally%
As an e*a#ple P:y shippin caro "y ocean &ro# 9apan to Seattle+ then trans&errin it to a
!irect &liht to Europe &ro# Seattle(Taco#a Airport% Asian e*porters reap su"stantial "ene&its%
They can cut their transit ti#es &ro# 4. !ays &or all $ater ser'ice to a"out -= !ays an! slash
&reiht costs "y up to @ / co#pare! $ith all ser'ices%
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Thir! 1arty >oistics Ser'ice 1ro'i!ers
This sector is ro$in 'ery rapi!ly% With the increasin e#phasis on supply chain
#anae#ent+ #ore co#panies are e*plorin the thir! party option% 2or so#e &ir#s !ealin $ith
one thir! party &ir# $ho $ill han!le all or #ost o& their &reiht o&&ers a nu#"er o& a!'antaes+
inclu!in the #anae#ent o& in&or#ation "y the thir! party+ &reein the co#pany &ro# !ay(to(
!ay interactions $ith carriers+ an! ha'in the thir! party o'ersee hun!re!s or e'en thousan!s o&
ship#ents% Thir! parties ha'e a!#inistere! acti'ities such as &reiht pay#ent an! !e!icate!
contract carriae &or #any years% Ho$e'er+ a!!itional transportation an! loistics acti'ities are
"ein outsource!% In so#e instances+ so#e co#panies ha'e outsource! lare parts o& their
loistics operations to their parties%
:rokers+ &reiht &or$ar!ers+ shipper+ associations+ Inter(#o!al #arketin co#panies an! thir!
party loistics ser'ice pro'i!ers can "e a'aila"le shippin options &or a &ir# in the sa#e $ay
that the i'e "asic #o!es an! Inter(#o!al co#"inations can% The loistics e*ecuti'e #ust
!eter#ine the opti#al co#"ination o& transport alternati'es &or his or her co#pany%
In a!!ition to the prece!in alternati'es #any co#panies &in! that other transport &or#s can
"e use! to !istri"ute their pro!ucts% S#all packae carriers an! parcel post are i#portant
transporters o& #any ti#e sensiti'e pro!ucts% These co#panies use a co#"ination o& transport
#o!es+ especially air% The U%S% !o#estic air&reiht #arket consists o& C./ e*press+ 3@/
passener carriers an! -@/ #ail% The ro$th rate in this sector has "een ro"ust+ a'erain a"out
-./ a year%
TRANSPORTATION NETWORK DESIGN OPTIONS:
T#&+'.$#)&)*$+ Ne)0$#, De'*1+ O.)*$+'
Classical econo#ists nelecte! the i#portance o& &acility+ location an! o'erall net$ork !esin
Econo#ists+ $hen oriinally !iscusse! supply K !e#an! relationships+ &acility+ location an!
transportation cost !i&&erentials $ere assu#e! to "e non e*istent or e,ual a#on co#petitors%
The nu#"er+ si6e+ eoraphical relationship o& the &acilities are use! to per&or# loistics
operation !irectly a&&ect custo#er ser'ice capa"ilities an! cost%
Ne)0$#, /e'*1+ K pri#ary responsi"ility o& loistics%
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Typical loistics &acilities are #anu&acturin plants+ $arehouses+ ross !ock operations
an! retail stores%
The !esin o& a transportation net$ork a&&ects the per&or#ance o& a supply chain% This is
"ecause a supply chain esta"lishes an in&rastructure $ithin $hich operational !ecision rear!in
sche!ulin an! routin are #a!e% A $ell(!esine! transportation net$ork is 'ery essential &or an
orani6ation% It allo$s the supply chain to achie'e the !esire! !eree o& responsi'eness at a lo$%
A9 DIRECT SHIPMENT NETWORK: The retail stores chain net$ork options &or the !irect
ship#ent net$ork% As the na#e suests+ the retail stores chain net$ork structures its
transportation net$ork in such a $ay that the ship#ent o& oo!s an! #aterials co#e !irectly
&ro# the suppliers to the retail stores%
In !irect ship#ent net$ork+ the path or the route $hich each ship#ent has to take is
speci&ie!% The !uty o& the supply chain #anaer in this case is only to !eci!e on the ,uantity o&
oo!s that has to "e sent to the retail stores an! then+ !epen!in on the type an! ,uantity o&
oo!s+ he has to !eci!e on the #o!e o& transportation% Here the supply chain #anaer has to
strike a "alance% In other $or!s+ i& "e !eci!es to re!uce the nu#"er o& trips o& transportation to
#ini#i6e transportation cost+ then he has to !eci!e on larer in'entories at a retail stores% :ut
#aintainin lare in'entories ha'e their !isa!'antaes as $ell% Aain to keep the in'entory le'el
#ini#u# at the retail stores+ there $ill "e #ore nu#"er o& trips "y trucks to the retail stores%
This $ill increase the cost o& transportation% Hence+ the supply chain #anaer has to !eci!e in a
Lu!icious #anner "et$een in'entory cost an! transportation cost%
B9 DIRECT SHIPPING WITH MILK RUNS: A #ilk run is a route in $hich a truck either
!eli'ers pro!uct &ro# a sinle supplier to #ultiple retailers or oes &ro# #ultiple supplier to a
sinle retailer% Hence+ in !irect shippin $ith #ilk runs+ a supplier !eli'ers !irectly to #ultiple
retail stores on a truck+ or a truck picks up !eli'eries &ro# #any suppliers !estine! &or the sa#e
retail stores% When usin this opinion+ a supply chain #anaer has to !eci!e on the routin o&
each #ilk run% This is "ecause i& a supplier has to !eli'er to #ultiple retail stores+ the supply
chain #anaer has to !eci!e $hich retail stores are to "e i'en priority an! accor!inly the
routes ha'e to "e !eci!e!% Si#ilar !ecision a"out the route has to taken "y the supply chain
#anaer $hen #any suppliers ha'e to "e contacte! "y the truck to take !eli'er o& oo!s #eant
&or the sa#e retail store% Direct ship#ent o& oo!s to the !estinations pro'i!es the "ene&its o&
eli#inatin the nee! o& ha'in inter#e!iate $arehouses% 2urther the #ilk runs help to lo$er the
transportation costs "y consoli!atin ship#ents to #ultiple stores on a sinle truck% 2or e*a#ple
i& replenish#ent to each retail store is consi!ere! on a !irect ship#ent "asis+ it #ay happen that
the lot si6e !ispatche! to that retail store #ay "e s#all an! the truck $ill not "e loa!e! to its &ull
capacity% Ho$e'er+ i& #ilk runs are use! instea!+ the !eli'eries to #ultiple stores can "e
pro&ita"ly+ consoli!ate! on to a sinle truck% This $ill result in the "etter utili6ation o& the truck
an! also helps to re!uce cost%
2or e*a#ple+ Toyota uses #ilk runs &ro# suppliers to support its 9ust(in(Ti#e ;9IT<
#anu&acturin syste# in "oth 9apan an! the Unite! State% Ho$e'er in 9apan+ Toyota has #any
o& its asse#"ly plants locate! close toether an! thus uses #ilk runs &ro# a sinle supplier &or
#any plants% Aain in the Unite! State+ Toyota uses #ilk runs &ro# #any suppliers to its
asse#"ly plant in ?entucky%
C9 ALL SHIPMENTS VIA CENTRAL DISTRIBUTION CENTRE: In this transportation
net$ork+ the suppliers !o not sen! the ship#ent o& oo!s !irectly to the retail stores% The retail
chain !i'i!es the stores "y eoraphical reion% Each reion "as Central Distri"ution Center%
The supplier sen!s the oo!s to the 'arious central !istri"ution centers% The Central Distri"ution
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Centre+ in turn sen!s the oo!s to the retail stores as per the re,uire#ent%
The Central Distri"ution Centre is an e*tra lare "et$een the suppliers an! the retailers%
It can play t$o !i&&erent roles% 2irst role is to store in'entory an! the secon! role is to ser'e as a
trans&er location% The presence o& a !istri"ution center helps to re!uce supply chain cost $hen
suppliers are locate! &ar &ro# the retail stores an! the transportation cost are hih%
Cross Dockin of oo!s an! pro!ucts is taken a!'antaes o& $hen there are lare
ship#ents on the in"oun! si!e an! on the out"oun! si!e+ oo!s an! pro!ucts ha'e to "e sent to
retail outlets replenish#ent lots% A #aLor "ene&it o& cross !ockin o& pro!ucts is that little
in'entory has to "e hel! at the central !istri"ution center an! the pro!ucts &lo$ &aster in the
supply chain% Cross !ockin also sa'es han!lin costs+ "ecause the pro!uct !oes not ha'e to "e
#o'e! in to an! out o& storae at the central !istri"ution center%
M$/&2 (h&#&()e#*')*(' &+/ 'e2e()*$+
In choosin a transportation #o!e+ the transportation #anaers consi!er the &ollo$in criteria%
Cost
Transit ti#e
Sa&ety
Relia"ility
Clai# recor!s
Responsi'eness
Spee!
Capa"ility
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LOGISTICS INFORMATION
4. OPERATIVE LEVEL
The 2$0e') 2e7e2 $% .3#&!*/ #e%e#' )$ )#&+'&()*$+' &+/ e+5*#*e'. E:&!.2e' $% )h*' &()*7*)*e'
&#e $#/e# e+5*#*e'; $#/e# .#$(e''*+1; ')$(, < ')&)' (he(,'; B*22 $% 2&/*+1 .#e.&#&)*$+ &+/
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)he#e &#e /*7e#'e .e$.2e )he#e%$#e e:)e+'*$+ $% *+%$#!&)*$+ *' !$#e .
2. SUPERVISORY LEVEL
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?. MIDDLE MANAGEMENT LEVEL
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*)e!.
4. TOP MANAGEMENT LEVEL
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?. C$!!+*(&)*$+ $% /&)& %$# ')$#&1e &+/ .#$(e''*+1 )$ )he /e(*'*$+ !&,e# *+ )he
%$#! $% #e.$#)'.
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***9 W&#eh$'e !&)e#*&2 h&+/2*+1 '3')e! .
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LOGISTICS INFORMATION SYSTEM DESIGN
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==
MATERIAL HANDLING
De%*+*)*$+ $% !&)e#*&2 h&+/2*+1
EMaterial han!lin is !e&ine! as the art an! science o& #o'in+ packain an! storin o&
su"stances in a &or#%F
O)he# /e%*+*)*$+' *+(2/e:
a< Creation o& ti#e an! place utility
"< Mo'e#ent an! storae o& #aterial at the lo$est possi"le cost throuh the use o& proper
#etho!s an! e,uip#ents%
c< >i&tin+ shi&tin an! placin o& #aterial $hich e&&ect in a sa'in in #oney+ ti#e an!
place%
!< Art an! science o& con'eyin+ ele'atin+ packain an! storin o& #aterials%
SCOPE OF MATERIALS HANDLING
The scope o& #aterials han!lin acti'ity $ithin an orani6ation !epen!s on the type o& pro!uct
#anu&acture!+ the si6e o& orani6ation+ the 'alue o& the pro!uct an! the 'alue o& the acti'ity
"ein per&or#e! an! the relati'e i#portance o& #aterials han!lin to the enterprise%
There are three perspecti'es a"out #aterials han!lin 'i67
a< The tra!itional point o& 'ie$%
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"< 1lant $i!e K concern &or o'erall &lo$ o& #aterials%
c< The syste# point o& 'ie$%
In the tra!itional point o& 'ie$ o& #aterials han!lin+ the e#phasis is on the #o'e#ent o&
#aterials &ro# one location to another $ithin the con&ines o& the in!i'i!ual plant% The concern is
to &in! the "est $ay to #o'e the #aterials &ro# one place to another $ithin the planrt%
1lant $i!e concern &ocuses the attention on the o'erall &lo$ o& #aterials in the plant% The #ain
concern is te hinter(relationship "et$een all the han!lin pro"le#s an! the possi"ility o&
esta"lishin an o'erall #aterials han!lin plan%
The syste#s point o& 'ie$ o& #aterial han!lin re,uires 'isuali6ation o& #aterial han!lin
pro"le#s+ the physical !istri"ution acti'ities+ an! all closely relate! &unctions as one+ an all K
enco#passin syste#% This point o& 'ie$ in'ol'es a #uch "roa!er consi!erations o& #aterials
han!lin acti'ities in'ol'in the #o'e#ent o& #aterial &ro# all sources o& supply ;'en!ors<+ all
han!lin acti'ities $itin an! aroun! the plant an! the acti'ities in'ol'e! in the !istri"ution o&
&inishe! oo!s to all custo#ers o& thr &ir#%
IMPORTANCE OF MATERIAL HANDLING
-% E&&icient #aterials han!lin is i#portant to #anu&acturin operations% Materials sent "y
'en!ors #ust "e unloa!e!+ #o'e! throuh inspections an! pro!uction operations to
stores an! &inally to the shippin !epart#ents% This #o'e#ents !onot a!! 'alue to the
pro!uct "ut+ they !o a!! to the cost%
3% #aterials han!lin analysis is a su"set to plant layout an! #aterials han!lin are all part
o& !esin o& a pro!uction &acility an! can har!ly "e treate! as separate% Materials
han!lin syste# an! plant+ enhance e&&ecti'eness o& each other% A oo! plant layout
ena"les an operation to use the #ost e&&ecti'e han!lin #etho!% E&&icient operation o&
appropriate #aterials han!lin #etho!s re!uces costs an! ena"les #a*i#u#
capa"ilities to "e !eri'e! &ro# a i'en pro!uction &acility%
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=C
OBHECTIVES OF MATERIALS HANDLING
E'en thouh the "est solution to the #aterials han!lin pro"le#+ is no han!lin+ it is har!ly
practica"le in the #anu&acturin process% Hence+ the #ain o"Lecti'e o& #aterials han!lin is to
re!uce the nu#"er o& han!lin e,uip#ents an! re!ucin the !istances throuh $hich the
#aterials are han!le!%
O)he# $"Ae()*7e' $% !&)e#*&2' h&+/2*+1 &#e:
-% lo$er unit #aterials han!lin costs%
3% re!uction in the #anu&acturin cycle ti#e throuh &aster #o'e#ents o& #aterials an! "y
re!ucin the !istance throuh $hich the #aterials are #o'e!% Re!uction in
#anu&acturin cycle ti#e results in re!uce! $ork in proress in'entory costs%
4% contri"ution to$ar!s a "etter control o& the &lo$ o& #aterials throuh the #anu&acturin
&acility%
=% i#pro'e! $orkin con!itions an! the reater sa&ety in the #o'e#ent o& #aterials%
@% contri"ute to "etter ,uality "y a'oi!in !a#ae to pro!ucts "y ine&&icient han!lin%
C% increases storae capacity throuh "etter utilisation o& storae areas%
D% hiher pro!ucti'ity at lo$er #anu&acturin cost%
MATERIAL HANDLING PRINCIPLES
Certain principles ha'e e'ol'e! to ui!e &acility layout to ensure e&&icient han!lin o&
#aterials% Althouh+ there are no har! an! &ast rules+ they !o pro'i!e e&&ecti'e ui!elines &or the
e&&icient #o'e#ent o& #aterials in #ost &acility layouts%
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=D
1rinciple -7 M&)e#*&2' 'h$2/ !$7e )h#$1h )he %&(*2*)3 *+ /*#e() %2$0 .&))e#+; !*+*!*>*+1
>*1>&11*+1 $# "&(,)#&(,*+1.
P#*+(*.2e 2: Relate! pro!uction processes shoul! "e arrane! to pro'i!e &or !irect #aterial
&lo$s%
P#*+(*.2e ?: Mechani6e! #aterials han!lin !e'ices shoul! "e !esine! an! locate! so that
hu#an e&&ort is #ini#i6e!%
1rinciple =7 He&73 &+/ "2, !&)e#*&2' 'h$2/ "e !$7e/ )he 'h$#)e') /*')&+(e /#*+1
.#$(e''*+1.
1rinciple @7 The +!"e# $% )*!e' e&(h !&)e#*&2 *' h&+/2e/ 'h$2/ "e !*+*!*>e/.
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h&+/2*+1 e5*.!e+)'; (h&+1e' *+ .#$/()*$+ '3')e! )e(h+$2$13; e)(.
1rinciple D7 M$"*2e e5*.!e+)' 'h$2/ (&##3 %22 2$&/' &22 )he )*!e'.
These se'en principles can "e su##ari6e! as &ollo$s7
-% E2*!*+&)e H&+/2*+1: I& not+ #ake the han!lin !istance as short as possi"le%
3% Kee. M$7*+1: I& not+ re!uce the ti#e spent at the ter#inal points o& a route as short as
possi"le%
4% U'e '*!.2e .&))e#+' $% !&)e#*&2 %2$0 8)he '*!.2e') .&)h *' & ')#&*1h) 2*+e .&)h $% %2$0
0h*(h !*+*!*>e' )he h&+/2*+1 /*')&+(e "e)0ee+ )0$ .$*+)'9. I& not+ re!uce
"acktrackin+ crosso'ers an! other conestion pro!ucin patterns as #uch as possi"le%
=% C&##3 .&3 2$&/' "$)h 0&3': I& not+ #ini#i6e the ti#e spent in Ntransport e#pty) "y
spee! chanes an! route locations%
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@% C&##3 %22 2$&/': I& not+ consi!er increasin the si6e o& unit loa!s+ !ecreasin carryin
capacity+ lo$erin spee!+ or ac,uirin #ore 'ersatile e,uip#ent%
C% U'e G#&7*)3: i& not+ try to &in! another source o& po$er that is relia"le an! ine*pensi'e%
In a!!ition to the a"o'e ui!elines+ there are certain other 'ery i#portant aspects o& #aterials
han!lin+ such as the &ollo$in7
&. M&)e#*&2' h&+/2*+1 ($+'*/e#&)*$+ 'h$2/ *+(2/e )he !$7e!e+) $% !e+; !&(h*+e;
)$$2' &+/ *+%$#!&)*$+.
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*+7e+)$#3*+1; &(($+)*+1; .&(,&1*+1 &+/ &''e!"2*+1.
Since the consi!eration an! o"Lecti'es !o con&lict+ it is essential to take a syste#s !ecision
&ollo$e! "y !elicate !iplo#acy to esta"lish a #aterial #o'e#ent plan that #eets ser'ice
re,uire#ent $ithout su"or!inatin sa&ety an! econo#y%
MATERIAL HANDLING COSTS
The ($')' $% !&)e#*&2' h&+/2*+1 &#*'e %#$! )0$ '$#(e':
-% the cost o& o$nin an! #aintainin e,uip#ent%
3% the cost o& operatin the syste#%
While the costs o& o$nin the e,uip#ent are enerally kno$n since entries are a'aila"le in the
"ooks o& accounts+ the cost o& operatin the han!lin syste# are har! to pin !o$n as recor!s are
not enerally #aintaine!%

E'ery e&&ort has to "e #a!e to re!uce #aterials han!lin costs+ particularly "ecause they !o
not a!! any 'alue to a pro!uct% The pro!uct $ill not "e $orth any #ore toi the consu#er si#ply
"ecause it $as #o'e!+ "ut it $ill still cost the consu#er #ore%
H$0 )$ #e/(e h&+/2*+1 ($')'I
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There are three &un!a#ental $ays o& #ini#i6in the costs7
a< eli#inatin the han!lin itsel& $hene'er an! $here'er possi"le%
"< Mechani6in+ larely "y con'eyors an! po$er !ri'en trucks+ $hate'er han!lin still
re#ains%
c< Makin the necessary han!lin #ore e&&icient%
1ri#ary re,uisite &or any action to "e taken to$ar!s #ini#i6in han!lin costs is to ha'e a
recor! #aintaine! &or the#% It is here that #aLority o& the co#panies are not !oin the riht
thin%
F&()$#' &%%e()*+1 )he 'e2e()*$+ $% !&)e#*&2' h&+/2*+1 e5*.!e+)'
The selection o& #aterials han!lin e,uip#ents re,uires consi!eration o& an! attainin o& proper
"alance "et$een the &ollo$in &actors7
i% 1ro!uction pro"le#%
ii% The capa"ilities o& the han!lin e,uip#ent a'aila"le%
iii% The hu#an ele#ent in'ol'e!%
The ulti#ate ai# is to arri'e at the lo$est cost per unit o& #aterials han!le!%
8*9 The .#$/()*$+ .#$"2e! %&()$#' &#e:
a% 5olu#e o& the pro!uction t o"e attaine!%
"% Class o& #aterials to "e han!le!%
c% The layout o& plant an! "uil!in &acilities%
2or e*a#ple7 the han!lin e,uip#ent $hich can "e econo#ically Lusti&ie! &or the #anu&acture
o& -... T5 sets per !ay $oul! "e entirely !i&&erent &ro# the han!lin e,uip#ent nee!e! in a
plant #anu&acturin 3. stea# tur"ine enerators I na year as the pro!uction rate+ $eiht an!
class o& #aterials nee!e! are !i&&erent%
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8**9 C&.&"*2*)*e' $% )he h&+/2*+1 e5*.!e+)' &7&*2&"2e &#e:
a% A/&.)&"*2*)3: The loa! carryin an! #o'e#ent characteristics o& the e,uip#ent shoul!
&it the #aterial(han!lin pro"le#%
"% F2e:*"*2*)3: Where'er possi"le+ the e,uip#ent shoul! ha'e the &le*i"ility to han!le #ore
than one #aterial+ class or si6e%
c% L$&/ C&.&(*)3: E,uip#ent selecte! shoul! ha'e enouh loa!(carryin characteristics to
!o the Lo" e&&ecti'ely%
!% P$0e#: The e,uip#ent shoul! ha'e enouh po$er a'aila"le to !o this Lo"%
e% S.ee/: The spee! o& #o'e#ent o& the han!lin e,uip#ent shoul! "e as hih as possi"le+
$ithin the li#its o& pro!uction process an! plant sa&ety%
&% S.&(e Re5*#e!e+)': The re,uire! to install or operate #aterials han!lin e,uip#ent is
also an i#portant consi!eration%
% S.e#7*'*$+ #e5*#e/: The !eree o& auto#ation in the han!lin e,uip#ent !eci!es the
a#ount o& super'ision re,uire!%
h% E&'e $% !&*+)e+&+(e: E,uip#ent selecte! shoul! "e capa"le o& easy #aintenance at
reasona"le cost%
i% E+7*#$+!e+): E,uip#ent selecte! #ust con&or# to any en'iron#ental reulations%
L% C$'): The cost o& the e,uip#ent ;capital in'est#ent< is an o"'ious &actor in the selection%
The 7&#*$' ,*+/' $% ($')' )$ "e ($+'*/e#e/ *+ &//*)*$+ )$ )he *+*)*&2 .#(h&'e .#*(e $% )he
h&+/2*+1 e5*.!e+) &#e:
a% Operatin Costs
"% Installation Costs
c% Maintenance Costs
!% 1o$er Re,uire#ents
e% Insurance Re,uire#ents
&% Space Cost
% Depreciation Cost
h% Sal'ae 5alue
i% Ti#e 5alue o& #oney in'este!
L% Opportunity Cost
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@-
;iii< The hu#an ele#entsA&actors cannot "e o'erlooke! in the selection o& #aterials han!lin
e,uip#ent% They are7
&. The (&.&"*2*)*e' $% )he &7&*2&"2e !&+.$0e# )$ $.e#&)e )he e5*.!e+).
". S&%e)3 $% .e#'$++e2 8)h$'e 0h$ $.e#&)e *) $# ($!e *+ ($+)&() 0*)h *)9
T01ES O2 MATERIA> HAND>ING S0STEMS
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e5*.!e+) 'e/; )3.e $% !&)e#*&2 h&+/2e/ &+/ )he !e)h$/'; +ee/ $# %+()*$+' .e#%$#!e/.
The Classi&ications are7
-% E,uip#ent oriente! syste#s !epen!in upon the type o& e,uip#ent use!% They are7
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3% Material oriente! syste#s consistin o& the &ollo$in types7
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4% Metho! oriente! syste#s can "e o& the &ollo$in types7
&9 M&+&2 S3')e!'
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"9 Me(h&+*>e/ $# &)$!&)e/ S3')e!'
(9 H$"-Sh$. H&+/2*+1 S3')e!'
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=% 2unction oriente! Syste#s7
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(9 T#&+'%e##*+1 S3')e!'
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The #aterials han!lin e,uip#ents are classi&ie! into &our "asic types+ 'i6% con'eyors+ cranes
an! hoists+ trucks an! au*iliary e,uip#ent%
T01ES O2 MATERIA>S HAND>ING S0STEMS
-% CON5E0ORS
The'e &#e 1#&7*)3 $# .$0e#e/ /e7*(e'; ($!!$+23 'e/ %$# !$7*+1 2$&/' %#$! .$*+) )$ .$*+)
$7e# %*:e/ .&)h'. The 7&#*$' )3.e' $% ($+7e3$#' &#e:
a< :elt Con'eyor7 M$)$# /#*7e+ "e2); '&223 !&/e $% #""e#*>e/ %&"#*(
$# !e)&2 %&"#*( $+ & #*1*/ %#&!e.
"< Chain Con'eyor7 M$)$# /#*7e+ (h&*+ )h&) /#&1' !&)e#*&2' &2$+1 &
!e)&2 '2*/e "&'e.
c< Roller con'eyor7 B$:e'; 2&#1e .&#)' $# +*) 2&+/' #$22 $+ )$. $% &
'e#*e' $% #$22e#' !$+)e/ $+ & #*1*/ %#&!e.
!< 1neu#atic Con'eyor7 h*1h 7$2!e $% &*# %2$0' )h#$1h & )"e;
(&##3*+1 !&)e#*&2' &2$+1 0*)h )he &*#%2$0.
The $)he# )3.e' $% ($+7e3$#' &#e "(,e) ($+7e3$#; '(#e0 ($+7e3$#; .*.e2*+e ($+7e3$#;
7*"#&)$#3 ($+7e3$#; )#$22e3 ($+7e3$#; &+/ (h)e $# 1#&7*)3 ($+7e3$#'.
A/7&+)&1e' $% ($+7e3$#' &#e )h&) )he3 /$ +$) #e5*#e $.e#&)$#'; 0*22 !$7e & 2&#1e
7$2!e $% .#$/()' &+/ *+e:.e+'*7e )$ $.e#&)e.
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3% CRANES+ E>E5ATORS AND HOISTS
The'e &#e $7e#2$&/e/ /e7*(e' 'e/ %$# !$7*+1 7&#*$' 2$&/' *+)e#!*))e+)23 "e)0ee+ .$*+)'
0*)h*+ &+ &#e&; %*:e/ "3 '..$#)*+1 &+/ "*+/*+1 #&*2'.
a< Cranes &#e /e7*(e' !$+)e/ $+ $7e#he&/ #&*2' $# 1#$+/ 2e7e2 0hee2' $# #&*2'.
The3 2*%); '0*+1 &+/ )#&+'.$#) 2&#1e &+/ he&73 !&)e#*&2'. E:&!.2e' &#e G&+)#3
C#&+e; H*" C#&+e &+/ E2e()#*(&223 O.e#&)e/ O7e#he&/ C#&+e 8EOTC9.
"< Ele'ators &#e & )3.e $% (#&+e' )h&) 2*%) !&)e#*&2' '&223 "e)0ee+ %2$$#' $%
"*2/*+1'.
c< Hoists &#e /e7*(e'; 0h*(h !$7e !&)e#*&2' 7e#)*(&223 &+/ h$#*>$+)&223 *+ & 2*!*)e/
&#e&. E:&!.2e' &#e A*# H$*')'; e2e()#*( h$*')' &+/ (h&*+ h$*')'.
?. INDUSTRIA> TRUC?S
The'e /e7*(e' &#e 'e/ %$# !$7*+1 !*:e/ $# +*%$#! 2$&/' *+)e#!*))e+)23 $7e# 7&#*&"2e
.&)h'. The3 &#e e2e()#*(; /*e'e2; 1&'$2*+e $# 2*5e%*e/ .e)#$2e!; 1&' .$0e#e/ 7eh*(2e'
e5*..e/ 0*)h "e/'; %$#,'; &#!' $# $)he# h$2/*+1 /e7*(e'. E:&!.2e' &#e %$#,2*%) )#(,';
.&22e) )#(,'; )#&()$# 0*)h )#&*2e#'; h&+/ )#(,' &+/ .$0e# )#$22e3'.
4. AUBI>IAR0 EUUI1MENTS
The'e &#e /e7*(e' $# &))&(h!e+)' 'e/ 0*)h h&+/2*+1 e5*.!e+) )$ !&,e )he*# 'e !$#e
e%%e()*7e &+/ 7e#'&)*2e. E:&!.2e' &#e #&!.'; .$'*)*$+e#'; .&22e)'; ($+)&*+e#' &+/ )#+-
)&"2e'.
MISCE>>ANEOUS HAND>ING EUUI1MENTS
-% 1ipe >ines + 0h*(h &#e (2$'e/ )"e' )h&) )#&+'.$#) 2*5*/' "3 !e&+' $% .!.' $#
1#&7*)3.
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3% Auto#atic trans&er !e'ices ; 0h*(h &)$!&)*(&223 1#&'. !&)e#*&2'; h$2/ )he! %*#!23
0h*2e $.e#&)*$+' &#e "e*+1 .e#%$#!e/ &+/ !$7e )he! )$ $)he# 2$(&)*$+'.
4% Auto#ate! ui!e! 'ehicle ;AG5< Syste#s7 The'e /e7*(e' /$ +$) #e5*#e $.e#&)*$+'
&+/ .#$7*/e & 1#e&) /e&2 $% %2e:*"*2*)3 *+ )he .&)h' )he3 )#&7e2 &+/ )he %+()*$+' )he3
.e#%$#! &+/ )he AGV' &#e ($+)#$22e/ "3 '*1+&2' 'e+) )h#$1h )he 0*#e' e!"e//e/
*+ )he %2$$# $# *+/()*7e )&.e $+ )he %2$$# '#%&(e. A #e!$)e ($+)#$2 ($!.)e# *'
+ee/e/ )$ ($+)#$2 )he !$7e!e+) $% AGV'.
=% In!ustrial Ro"ots7 & #$"$) *' & !e(h&+*'! )h&) h&' & !$7&"2e &#!2*,e .#$Ae()*$+
0*)h & 1#*..e# $+ )he e+/ )h&) (&+ .e#%$#! & 7&#*e)3 $% %+()*$+' 0*)h )he ($+)#$2
)h&) (&+ "e #e.#$1#&!!e/ &+/ he+(e )he3 &#e 7e#3 7e#'&)*2e.
The .#$(e'' /e'*1+ &+/ )he .#*+(*.2e' $% e%%*(*e+) !&)e#*&2' h&+/2*+1 .#$7*/e
)he %#&!e0$#, %$# 'e2e()*+1 '.e(*%*( !&)e#*&2' h&+/2*+1 /e7*(e' &' )he ($#e $% )he
!&)e#*&2' h&+/2*+1 '3')e!. E&(h $% )he h&+/2*+1 /e7*(e' h&' *)' $0+ +*5e
(h&#&()e#*')*(' &+/ &/7&+)&1e' &+/ /*'&/7&+)&1e'.
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WHAT IS MRPI
MRP VMaterials Re,uire#ent 1lanO
1opular concept in -JC.Q-JD.% Consists o& a co#puter syste#+ a #anu&acturin in&or#ation syste#+
"uil!in on in'entory+ pro!uction sche!ulin an! a!#inisterin all inputs to pro!uction an! a concept
an! philosophy o& #anae#ent%
De%*+*)*$+ O% MRP SYSTEM
MR1 syste# consists o& a set o& loically relate! proce!ures+ !ecision rules+ an! recor!s !esine!
to translate a #aster pro!uction sche!ule into ti#e phase! net in'entory re,uire#ents an! the
planne! co'erae o& such re,uire#ent &or each co#ponent ite# nee!e! to i#ple#ent sche!ule% An
MR1 syste# re plans net re,uire#ents an! co'erae as a result o& chanes in either the #aster
sche!ule+ !e#an!+ an! in'entory status or pro!uct co#position% MR1 syste#s #eet their o"Lecti'e
"y co#putin net re,uire#ents &or each in'entory ite#+ ti#e(phasin the#+ an! !eter#inin their
proper co'erae
OBHECTIVES
-% Ensure the a'aila"ility o& #aterials co#ponents an! pro!ucts &or planne! pro!uction an!
custo#er !eli'ery%
3% Maintain the lo$est possi"le in'entory le'el%
4% 1lan #anu&acturin acti'ities+ !eli'ery sche!ules an! purchasin acti'ities%
HOWS 1ROCESS
MR1 starts $ith custo#er)s !e#an! &or the ,uantity o& en! pro!uct an! the ti#e $hen the pro!ucts are
nee!e!%
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Then MR1 e*plo!es the ti#e an! nee! &or co#ponents "ase! upon the en! pro!uct nee!% MR1
Syste# &ocuses on in"oun! loistical area
MR1 Syste# uses &ollo$in ,e3 e2e!e+)':
-% Master 1ro!uction Sche!ule
3% :ill o& Materials
4% In'entory Status 2iles
=% MR1 1rora#
@% Outputs Q Reports
MR1 syste# has !e'elope! into its current incarnation in phases% 2irst phase is calle! MR1I
or Materials Re,uire#ent 1lannin an! the secon! phase is calle! MR1II or Manu&acturin
Resources 1lannin
MRP I is a co#puter "ase! pro!uction an! in'entory control syste# Vso&t $areO that atte#pts to
#ini#i6e in'entories $hile #aintainin a!e,uate #aterials &or pro!uction process%
WHEN DOES IT GET APPLIEDI
MR1 I is applie! $hen
-% The process &ollo$s an inter#ittent syste#%
3% De#an! is !epen!ent
4% 1urchasin !ept%+ their suppliers an! co#pany)s o$n #anu&acturin syste# is &le*i"le enouh to
han!le !eli'eries on $eekly "asis
ADVANTAGES OF MRP I
-% I#pro'e! "usiness results VROI+ pro&itsO
3% I#pro'e! #anu&acturin results
4% :etter #anu&acturin control
=% More accurate an! ti#ely in&or#ation
@% >ess in'entory
C% Ti#e phase! or!erin o& #aterials
D% >ess #aterials o"solescence
H% Hiher relia"ility
J% More responsi'eness to #arket !e#an!
-.% Re!uce! pro!uction costs
DISAD5ANTAGES O2 MR1 I
-% Due to s#all lot purchases hih #aterial ac,uisition costs an! hih or!erin costs
3% Stock out costs are #ore as sa&ety stock protection is lo$
4% A li#itation o& so&t$are as a!aptin to speci&ic situations is !i&&icult% So #o!i&ication o& the
so&t$are is necessary
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MR1 II
MR1 I is up!ate! an! e*pan!e! to inclu!e &inancial an! #arketin an! loistics ele#ents%
This ne$er 'ersion is calle! Manu&acturin Resources 1lannin or MR1 II% Inclu!es entire
set o& acti'ities in'ol'e! in plannin an! control o& pro!uction%
It consists o& a 'ariety o& &unctions o& #o!ules an! inclu!es pro!uction plannin+ resource
re,uire#ents plannin+ #aster pro!uction sche!ulin+ #aterials re,uire#ent plannin VMR1
IO+ shop &loor control an! purchasin
:ene&its o& MR1 II
-% In'entory re!uctions o& one &ourth to one thir!
3% Hiher in'entory turn o'er
4% I#pro'e! consistency in on(ti#e custo#er !eli'ery
=% Re!uction in purchasin costs !ue to less urent purchases
@% Mini#i6ation o& $ork&orce o'erti#e
DISTRI:UTION RESOURCE 1>AN VDR1O
Distri"ution Resource 1lan is a $i!ely use! po$er&ul techni,ue applie! to out"oun! loistics to
help !eter#ine appropriate le'el o& in'entory
Distribution requirement panning !DRP I" is !e&ine! as Ethe application o& MR1 principles to the
!istri"ution en'iron#ent Vout "oun! loisticsO+ interatin the special nee!s o& !istri"ution% It is a
!yna#ic #o!el that looks at the ti#e phase! plans o& e'ents that e&&ect in'entory%
Distribution Resource Panning !DRP II] is an e*tension o& DR1 I% Distri"ution resources
plannin applies the ti#e phase! loic o& DR1 I to replenish in'entories in #ulti echelon
$arehousin syste#s% Distri"ution resources plannin e*ten!s DR1 I to inclu!e the plannin o& key
resources in a !istri"ution syste# K$are house space+ #an po$er le'els+ transport capacity Ve%%
trucks+ rail carsO an! &inancial &lo$s%
As an e*tension o& DR1 I+ DR1 II uses the nee!s o& !istri"ution to !ri'e the #aster sche!ule+
controllin the "ill o& #aterials an! ulti#ately #aterials re,uire#ent plannin% In essence+ DR1 I Q
DR1 II are outro$ths o& MR1 I Q MR1 II+ applie! to loistics acti'ities o& a &ir#%
Uses o& DR1 enerate! in&or#ation
Coor!inate the replenish#ent o& S?Us co#in &ro# the sa#e source Ve%% a co#pany o$ne!
or 'en!or)s plant%O
Select transportation #o!es an! carriers an! ship#ent si6es #ore cost e&&iciently%
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Sche!ule shippin an! recei'in la"our
De'elop a #aster pro!uction sche!ule &or each S?U Accurate &orecasts are essential inre!ients
&or success&ul DR1 II syste#%
MARKETING BENEFITS
W Increase! ser'ice le'els ( i#pro'e! OTD+ re!uce! Custo#er Co#plaints
W E&&ecti'e ne$ pro!uct intro!uction plans
W A"ility to anticipate shortaes
W I#pro'e! in'entory coor!ination
LOGISTICS BENEFITS
W Re!uce! !istri"ution costs
W Re!uce! in'entory le'els
W Decrease! $arehouse space re,uire#ent as in'entory is lo$
W >esser "ack or!ers
W I#pro'e! in'entory 'isi"ility Q coor!ination "et$een #anu&acturin an! loistics
CONSTRAINTS
W Nee!s accurate &orecast
W Sources o& errors in the syste#
( Inaccuracy in &orecast ,uantity
( Inaccuracy in &orecast location
( Inaccuracy in &orecast ti#e
W 5aria"le per&or#ance cycles
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W Syste# ner'ousness
W Uncertainty "u&&ers
COMPARE DRP @ MRP
DR1 MR1
-%scope Out"oun! loistics In"oun! loistics
3%!epen!ence &or plannin
inputs
Market 1ro!uction Sche!ule $orke!
out "ase! on past !ata in the
orani6ation
V2orecast "ase! on past !ataO
4% Coor!ination
responsi"ility
Once the &inishe! oo!s
are pro!uce!%
Up to Finished Goods
starting from raw materials
production%
=% Nature o& plan Short ter# an! accurate
@% What is &orecastS 2inishe! oo!s Depen!ent !e#an!
C% 1lannin Tool S(he/2e .#e.&#e/ %$#
/e2*7e#3 $% '..2*e' *+ )he
$)"$+/ 2$1*')*(&2
+e)0$#,.
1ro!uction sche!ule
D% In'entory #anae#ent
o&S
S?Us Ra$ Materials+ co#ponents
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H% 1lannin a'aila"ility o&
stock atS
Market VretailersO Q
$arehouses
Ra$ #aterial stores+
Con'ersion process Q
&inishe! oo!s store
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