SUMMER INTERNSHIP REPORT

TATA MCGRAW HILL EDUCATION PVT. LTD.

May-July 2010
on
Logistic Management and Export Distribution

Under kind guidance of

Mr. K. Sreedharan
General Manager
Customer Service and Distribution

Submitted ByMayank Bajaj

MBA,IInd Year
Department of Management Studies
Indian Institute of Technology ,Roorkee

Acknowledgement
It has been a great learning experience for me during this two month long
summer internship at Tata Mcgraw Hill Education Pvt. Ltd.
I take this opportunity to convey my sincere gratitude to Mr. K. Sreedharan,
General Manager, Customer Service Department for giving me freedom to
perform internship in my area of interest and providing with the necessary
infrastructure and information to carry out the internship successfully.
A special thanks to Mrs. Anindita Mukherjee for guiding me through the
complete process going on in the organization and providing me with all
the valuable inputs without which the project would not have been
possible.
I also thank Mrs. Aradhana Narang for giving the necessary inputs to carry
out the project successfully.
Also, my sincere thanks to Mr. Manoj Gupta for giving his valuable inputs
and moral support during my project.
I thank Tata Mcgraw Hill Education for giving me this opportunity to carry
out my summer internship project with them that provided me with
lifetime learning experience.

CERTIFICATE

This is to certify that Mr. Mayank Bajaj, Roll No.9810038 is a bonafide student of
Department of Management Studies, Indian Institute of Technology, Roorkee and has
completed his summer project in TATA MCGRAW HILL EDUCATION PVT. LTD. NOIDA,
during the academic year 2009-11 in partial fulfillment of Master of Business
Administration during the period from May 24, 2010 July 16, 2010.
The topic of his project was LOGISTIC MANAGEMENT AND EXPORT DISTRIBUTION
and was supervised by the undersigned Internal Project Guide.
We wish him all the best for his future endeavors.

Project Guide

Prof V K Nangia
Head: Department of Management Studies
IIT, Roorkee

CERTIFICATE
This is to certify that Mr. Mayank Bajaj student of Management of Business
Administration

from Department of Management Studies, Indian Institute of

Technology (IIT), Roorkee has satisfactorily completed his project work entitled
LOGISTIC MANAGEMENT AND EXPORT DISTRIBUTION in TATA MCGRAW HILL
EDUCATION PVT. LTD.,NOIDA, from 24 May 2010 to 16 July 2010.

Authorized Signature

DECLARATION

I ,Mayank Bajaj, hereby declare that this project report has been submitted
to Department of Management Studies, IIT Roorkee in partial fulfillment of
Summer Internship Program (SIP) in Master of Business Administration
(MBA) program class of 2009-11.
I declare that the report has been prepared by me and all the information
included in the report has been based on my experience at TMH education
Pvt . Ltd. No part of this report has been copied from other sources.

Mayank Bajaj
MBA ,IInd Year
DoMS, IIT , Roorkee
Batch 2009-11.

CONTENTS
1.
2.
3.
4.
5.
6.

Executive Summary..8
Industry Profile 9
Company Profile12
Logistics/Distribution Management13
Total Cost Concept..15
Key Logistics Activities..15
6.1 Customer service16
6.2 Demand forecasting/planning..16
6.3 Inventory management.16
6.4 Logistics communications16
6.5 Material handling..17
6.6 Order processing ..17
6.7 Packaging17
6.8 Parts and service support...17
6.9 Plant and warehouse site selection..18
6.10 Procurement..18
6.11 Return goods handling...18
6.12 Reverse logistic...18
6.13 Traffic and transportation..... 18
6.14 Warehousing and storage..... 19
7. Customer Service.... 19
7.1 Elements of customer service.....19
8. Logistic Information System.....23
8.1 Customer Order Cycle.... 23
9. Inventory Concepts.....24
9.1 WIP Inventory24
9.2 Inventory as a buffer..24
9.3 Reverse Logistic..24
10. Types of inventory..24
10.1 Cycle stock.25
10.2 Transit Inventories..25
10.3 Safety/Buffer stock25
10.4 Speculative Stock25
10.5 Seasonal Stock..25
10.6 Dead Stock.25
11. Inventory Carrying Cost25
11.1 FIFO26

12.

11.2 LIFO..26
11.3 Average Cost..26
Types of Inventory cost26

13. Transportation27
14.
Global Logistics..33
15.
Value Chain.40
16.
Export Distribution Procedure at TMH Education..46
16.1 Performa of document to be sent to bank46
16.2 Preparation of bank documents for export to UK/Singapore..46
16.3 Bill of Exchange....48
16.4 Mail Format to Forwarder..51
16.5 Export Invoice finalization form(For Pakistan).51
16.6 Export Invoice finalization form.52
16.7 Export Insurance Format.54
16.8 CAPEXIL document preparation ...55
16.9 Returns.56
16.10 Bank Realization Certificate...57
17.

Learnings from the project....58

BIBLIOGRAPHY...58

1.Executive Summary
The aim of the project is to provide with a broad view of Logistic
management and Export Distribution process taking place in Tata Mcgraw
Hill Education Pvt. Ltd. The various logistic activities as customer service,
Inventory management, logistic communication, material handling, order
processing, return goods handling ,warehousing etc. have been discussed
in detail.
The concept of Global logistics and various ways in which companies go for
international logistic management has also been discussed in detail. The
documentation process associated with the export distribution is also
included for better understanding of the process.
The Value chain concept developed by Michael Porter is explained along
with the primary and support activities that form the value chain and value
chain analysis of the publishing company has been done for better
understanding of it with respect to TMH.
The complete process of export distribution taking place in Tata Mcgraw
Hill Education Pvt Ltd. has been illustrated and complete formats of all the
documents to be prepared for the same have been included in the report.
The report provides the complete insight into the logistic management and
explains the export distribution process taking place at TMH. The
screenshots have been included at appropriate places. Necessary
suggestions for the improvement of the processes have been included at
proper places.

2. Industry Profile
Publishing IndustryPublishing is the process of production and dissemination of literature or information
the activity of making information available for public view. In some cases authors may
be their own publishers, meaning: originators and developers of content also
provide media to deliver and display the content.
Publishing includes: the stages of the development, acquisition, copyediting, graphic
design,
production
printing (and
its electronic
equivalents),
and marketing and distribution of
newspapers,
magazines,
books, literary
works, musical works, software and other works dealing with information, including
the electronic media.
Publication is also important as a legal concept: (1) as the process of giving formal notice
to the world of a significant intention, for example, to marry or enter bankruptcy; (2) as
the essential precondition of being able to claim defamation; that is, the
alleged libel must have been published, and (3) for copyright purposes, where there is a
difference in the protection of published and unpublished works.
Pre-production stages
Although listed as distinct stages, parts of these occur concurrently. As editing of text
progresses, front cover design and initial layout takes place and sales and marketing of
the book begins.
Editorial stage
A decision is taken to publish a work, and the technical legal issues resolved, the author
may be asked to improve the quality of the work through rewriting or smaller changes,
and the staff will edit the work. Publishers may maintain a house style, and staff
will copy edit to ensure that the work matches the style and grammatical requirements
of each market. Editors often choose or refine titles and headlines. Editing may also
involve structural changes and requests for more information. Some publishers
employ fact checkers, particularly regarding non-fiction works.
Design stage
When a final text is agreed upon, the next phase is design. This may
include artwork being commissioned or confirmation of layout. In publishing, the word
"art" also indicates photographs. This process prepares the work for printing through
processes such as typesetting, dust jacket composition, specification of paper quality,
binding method and casing, and proofreading.

Sales and marketing stage

The sales and marketing stage is closely intertwined with the editorial process. As front
cover images are produced or chapters are edited, sales people may start talking about
the book with their customers to build early interest. Publishing companies often
produce advanced information sheets which may be sent to customers or overseas
publishers to gauge possible sales. As early interest is measured, this information feeds
back through the editorial process and may affect the formatting of the book and the
strategy employed to sell it. For example, if interest from foreign publishers is high, copublishing deals may be established whereby publishers share printing costs in
producing large print runs thereby lowering the per-unit cost of the books. Conversely, if
initial feedback is not strong, the print-run of the book may be reduced, the marketing
budget cut or, in some cases, the book is dropped from publication altogether.
Printing
When editing and design work are completed, the printing phase begins. The first step is
the creation of a pre-press proof, which is sent for final checking and sign-off by the
publisher. This proof shows the book precisely as it will appear once printed and is the
final opportunity for the publisher to find and correct any errors. Some printing
companies use electronic proofs rather than printed proofs. Once the proofs have been
approved by the publisher, printingthe physical production of the published work
begins.
A new printing process is printing on demand. The book is written, edited, and designed
as usual, but it is not printed until the publisher receives an order for the book from a
customer. This procedure ensures low costs for storage, and reduces the likelihood of
printing more books than will be sold.
Distribution
The final stage in publication is making the product available to the public, usually by
offering it for sale. In previous centuries, an author was frequently also his own editor,
printer, and bookseller, but these functions are usually separated now. Once a book,
newspaper, or other publication is printed, the publisher may use a variety of channels
to distribute it. Books are most commonly sold through booksellers and other retailers.
Newspapers and magazines are typically sold directly by the publisher to subscribers,
and then distributed either through the postal system or by newspaper carriers.
Periodicals are also frequently sold through newsagents and vending machines.
Within the book industry, some copies of the finished book are often flown to
publishers as sample copies to aid sales or to be sent for pre-release reviews.

10

Industry sub-divisions
Newspaper publishing
Newspapers are regularly scheduled publications that present recent news, typically on
a type of inexpensive paper called newsprint. Most newspapers are primarily sold
to subscribers or are distributed as advertising-supported free newspapers.

Periodical publishing
Nominally, periodical publishing involves publications that appear in a new edition on a
regular schedule. Newspapers and magazines are both periodicals, but within the
industry, the periodical publishing is frequently considered a separate branch that
includes magazines and even academic journals, but not newspapers.
Book publishing
Book publishers represent less than a sixth of the publishers in the United States.[5] Most
books are published by a small number of very large book publishers, but thousands of
smaller book publishers exist. Many small- and medium-sized book publishers specialize
in a specific area. Additionally, thousands of authors have created their own publishing
companies, and self-published their own works.
Within the book publishing industry, the "publisher of record" for a book is the entity in
whose name the book's ISBN is registered. The publisher of record may or may not be
the actual publisher.
Directory publishing
Directory publishing is a specialized genre within the publishing industry. These
publishers produce mailing lists, telephone books, and other types of directories.[5]
Academic publishing
Academic publishers are typically either book or periodical publishers that have
specialized in academic subjects. Some, like university presses, are owned by scholarly
institutions. Others are commercial businesses that focus on academic subjects.
One of the key functions that academic publishers provide is to manage the process
of peer review. Their role is to facilitate the impartial assessment of research and this
vital role is not one that has yet been usurped, even with the advent of social
networking and online document sharing.
Today, publishing academic journals and textbooks is a large part of an international
industry. Critics claim that standardized accounting and profit-oriented policies have
displaced the publishing ideal of providing access to all. In contrast to the commercial
model, there is non-profit publishing, where the publishing organization is either

11

organized specifically for the purpose of publishing, such as a university press, or is one
of the functions of an organization such as a medical charity, founded to achieve specific
practical goals. An alternative approach to the corporate model is open access, the
online distribution of individual articles and academic journals without charge to
readers and libraries.

3.Company Profile
Tata McGraw-Hill Education Pvt Ltd has been the market leading provider of
Educational materials in India since 1970, serving the School, Higher Education,
Professional and Healthcare markets.
A joint-venture between the Tata Group and McGraw-Hill Companies, Tata McGraw-Hill
Education addresses virtually every aspect of the education market from Pre-K through
Professional Learning. Using traditional materials, online learning and multimedia tools,
empower the growth of teachers, professionals and students of all ages
Tata McGraw-Hill Publishing Company Private Limited engages in publishing, reprinting,
and marketing of McGraw-Hill books. It publishes educational and professional books in
Sciences, Technology, Computing, Medicine, Management, Finance, and Economics, and
books and guides for various competitive examinations. The company markets the
McGraw-Hill International Editions and American Editions in India, as well as books
published by the American Management Association. It also publishes and markets
content in new media primarily through CD-ROMs. The company is based in New Delhi,
India. Tata McGraw-Hill Publishing Company Private Limited operates as a subsidiary of
McGraw-Hill Companies, Inc.
McGraw-Hill Education is a global leader in educational materials and professional
information, with offices in more than 33 countries and publications in more than 40
languages. McGraw-Hill Education develops products that influence lives, from preschool through professional careers.
Leading markets in elementary, high school, higher education, adult education and
professional learning, Tata McGraw-Hill Education engages and stimulates students of
all ages. With a broad range of solutions - from traditional textbooks to the latest in
online and multimedia learning - we help teachers teach and learners learn.
MARKETS:
The India region targets the higher education, trade, professional, medical and school
markets.

12

McGraw-Hill Education: Where the World Learns to Succeed

Mission
As an innovator and a global leader in high-quality teaching and learning solutions, we
are helping improve the world's prospects and providing individuals vital knowledge to
enable them to reach their full potential throughout their lives.

Values
Innovation
Tata McGraw-Hill Education Pvt Ltd constantly looking at new ways to improve learning
and help people become more productive and efficient in rapidly changing markets.
Success and Learning
Tata McGraw-Hill Education Pvt Ltd is focused on helping students of all ages succeed
with our proven solutions.
Customer Focus
Tata McGraw-Hill Education Pvt Ltd is committed to provide superior customer service
and solutions to meet every teaching and learning need.

4.Logistics/Distribution Management
Logistics is having the right item in the right quantity at the right time at the right place
for the right price in the right condition to the right customer. Logistics is the
management of the flow of goods, information and other resources between the point
of origin and the point of consumption in order to meet the requirements of consumers.
Logistics involves the integration of information, transportation, inventory, warehousing,
material-handling, and packaging, and occasionally security. Logistics is a channel of
the supply chain which adds the value of time and place utility. Logistics is the
management of the flow of goods, information and other resources between the point
of origin and the point of consumption in order to meet the requirements of consumers.
The
term Logistics
Management is
that
part
of Supply
Chain
Management that plans, implements, and controls the efficient, effective, forward, and
reverse flow and storage of goods, services, and related information between the point
of origin and the point of consumption in order to meet customers requirements.

13

Logistics has been called by many names, including the following:

Business logistics
Channel management
Distribution
Industrial logistics
Logistical management
Materials management
Physical distribution
Quick-response systems
Supply chain management
Supply management

14

5.Total Cost Concept

The total cost concept is the key to effectively managing logistics processes. The goal of
the organization should be to reduce the total cost of logistics activities, rather than
focusing on each activity in isolation. Reducing costs in one area, such as transportation,
may drive up inventory carrying costs as more inventory is required to cover longer
transit times, or to balance against greater uncertainty in transit times.
Management should be concerned with the implications of decision making on all of the
costs shown in Figure . These six major cost categories cover the 14 key logistics
activities . Figure illustrates how the logistics activities drive the six major logistics cost
categories. To provide a better understanding of the total cost concept, each of these
activities will be briefly described.

6.Key Logistics Activities

Customer service
Demand forecasting/planning
Inventory management
Logistics communications
Material handling
Order processing
Packaging

15

Parts and service support

Plant and warehouse site selection
Procurement
Return goods handling
Reverse logistic
Traffic and transportation
Warehousing and storage

6.1.Customer service
Customer service has been defined as "a customer-oriented philosophy which integrates
and manages all elements of the customer interface within a predetermined optimum
cost-service mix. Customer service is the output of the logistics system. It involves
getting the right product to the right customer at the right place, in the right condition
and at the right time, at the lowest total cost possible. Good customer service supports
customer satisfaction, which is the output of the entire marketing process.

6.2.Demand forecasting/planning
There are many types of demand forecasts. Marketing forecasts customer demand
based on promotions, pricing, competition, and so on. Manufacturing forecasts
production requirements based on marketing's sales demand forecasts and current
inventory levels. Logistics usually becomes involved in forecasting in terms of how much
should be ordered from its suppliers (through purchasing), and how much of finished
product should be transported or held in each market that the organization serves. In
some organizations, logistics may even plan production. Thus, logistics needs to be
linked to both marketing and manufacturing forecasting and planning.

6.3. Inventory management

Inventory management involves trading off the level of inventory held to achieve high
customer service levels with the cost of holding inventory, including capital tied up in
inventory, variable storage costs, and obsolescence. These costs can range from 14 to
over 50 percent of the value of inventory on an annual basis.

6.4. Logistics communications

Communications are becoming increasingly automated, complex, and rapid. Logistics
interfaces with a wide array of functions and organizations in its communication
processes. Communication must occur between:
1. The organization and its suppliers and customers.
2. The major functions within the organization, such as logistics, engineering,
accounting, marketing, and production.
3. The various logistics activities listed previously.
4. The various aspects of each logistics activity, such as coordinating warehousing
of material, work in process, and finished goods.
5. Various members of the supply chain, such as intermediaries and secondary

16

customers or suppliers who may not be directly linked to the firm.

Communication is key to the efficient functioning of any system, whether it be the
distribution system of an organization or the wider supply chain. Excellent
communications within a system can be a key source of competitive advantage.

6.5.Material handling
Materials handling is a broad area that encompasses virtually all aspects of all
movements of raw materials, work in process, or finished goods within a plant or
warehouse. Because an organization incurs costs without adding value each time an
item moves or is handled, a primary objective of materials management is to eliminate
handling wherever possible. That includes minimizing travel distance, bottlenecks,
inventory levels, and loss due to waste, mishandling, pilferage, and damage. Thus, by
carefully analyzing material flows, materials management can save the organization
significant amounts of money.

6.6.Order processing
Order processing entails the systems that an organization has for getting orders from
customers, checking on the status of orders and communicating to customers about
them, and actually filling the order and making it available to the customer. Part of the
order processing includes checking inventory status, customer credit, invoicing, and
accounts receivable. Thus, order processing is a broad, highly automated area. Because
the order processing cycle is a key area of customer interface with the organization, it
can have a big impact on a customer's perception of service and, therefore, satisfaction.

6.7. Packaging
Packaging is valuable both as a form of advertising/marketing, and for protection and
storage from a logistical perspective. Packaging can convey important information to
inform the consumer. Aesthetically pleasing packaging also can attract the consumer's
attention. Logistically, packaging provides protection during storage and transport. This
is especially important for long distances over multiple transportation modes such as
international shipping. Packaging can ease movement and storage by being properly
designed for the warehouse configuration and materials handling equipment.

6.8.Parts and service support

In addition to supporting production through the movement of materials, work in
process, and finished goods, logistics also is responsible for providing after-sale service
support. This may include delivery of repair parts to dealers, stocking adequate spares,
picking up defective or malfunctioning products from customers, and responding quickly

17

to demands for repairs. Downtime can be extremely costly to industrial customers who
may have to stop or delay production while awaiting repairs.

6.9.Plant and warehouse site selection

Determining the location of the company's plant(s) and warehouse(s) is a strategic
decision that affects not only the costs of transporting raw materials inbound and
finished goods outbound, but also customer service levels and speed of response.

6.10.Procurement
Procurement is the purchase of materials and services from outside organizations to
support the firm's operations from production to marketing, sales, and logistics.
Procurement, also referred to as purchasing, supply management, and by a number of
other names, includes activities such as supplier selection, negotiation of price, terms
and quantities, and supplier quality assessment.

6.11.Return goods handling

Returns may take place because of a problem with the performance of the item or
simply because the customer changed his or her mind. Return goods handling is
complex because it involves moving small quantities of goods back from the customer
rather than to the customer as the firm is accustomed. Many logistics systems have a
difficult time handling this type of movement. Costs tend to be very high. The cost of
moving a product backward through the channel from the consumer to the producer
may be as much as nine times as high as moving the same product forward from the
producer to the customer. Thus, this significant cost and service area is beginning to
receive more attention.

6.12.Reverse logistic
Logistics is also involved in removal and disposal of waste materials left over from the
production, distribution, or packaging processes. There could be temporary storage followed by transportation to the disposal, reuse, reprocessing, or recycling location. As
the concern for recycling and reusable packaging grows, this issue will increase in
importance.

6.13.Traffic and transportation

A key logistics activity is to actually provide for the movement of materials and goods
from point of origin to point of consumption, and perhaps to its ultimate point of
disposal as well. Transportation involves selection of the mode (e.g., air, rail, water,
truck, or pipeline), the routing of the shipment, assuring of compliance with regulations
in the region of the country where shipment is occurring, and selection of the carrier. It
is frequently the largest single cost among logistics activities.

18

6.14.Warehousing and storage

Warehousing supports time and place utility by allowing an item to be produced and
held for later consumption. It can be held near the location where it will be needed, or
transported later. Warehousing and storage activities relate to warehouse layout,
design, ownership, automation, training of employees, and related issues.

7.Customer Service
In a broad sense, customer service is the measure of how well the logistics system is
performing in providing time and place utility for a product or service. This includes
activities such as the ease of checking stock, placing an order, and postsale support of
the item.
In most organizations, customer service is defined in one or more ways, including
(1) an activity or function to be managed, such as order processing or handling of
customer complaints;
(2) actual performance on particular parameters, such as the ability to ship
complete orders for 98 percent of orders received within a 24-hour period; or
(3) part of an overall corporate philosophy, rather than simply an activity or
performance measures.

7.1 Elements of Customer Service

The elements of customer service can be classified into three groups:
1. Pretransaction
2. Transaction
3. Posttransaction
7.1.1 Pretransaction Elements. The pretransaction elements of customer service tend
to be related to the organization's policies regarding customer service, and can have a
significant impact on customers' perceptions of the organization and their overall
satisfaction. These elements are not all directly related to logistics. They must be
formulated and in place before the organization can consistently implement and
execute its customer service activities. Pretransaction elements include the following:
1. A written statement of customer service policy. This policy would define service
standards, which should be tied to customers' needs. It should include metrics for
tracking service performance and the frequency of reporting actual performance, and
be measurable and actionable.
2. Customers provided with a written statement of policy. A written statement lets the
customer know what to expect and helps to safeguard against unreasonable
expectations. It should provide the customer with information about how to respond if
expected service levels are not achieved by the firm.

19

3. Organization structure. The organization structure best suited to ensure the

achievement of customer service goals varies across organizations, but the senior
logistics executive should be positioned at a high level and have high visibility within the
firm. The structure should facilitate both internal and external communication of
policies,performance, and orrective actions as needed. Customers should have easy
access to individuals within the organization who can satisfy their needs and answer
their questions. Imagine the frustration felt by a customer who has experienced a
problem with product delivery or performance, who telephones the selling organization
only to be put on hold, and transferred from one representative to another, continually
reexplaining his or her entire problem! The customer may never call that organization
again for anything.
4. System flexibility. Flexibility and contingency plans should be built into the system,
which allow the organization to successfully respond to unforeseen events such as labor
strikes, material shortages, and natural disasters such as hurricanes or flooding.
5. Management services. Providing the customers with help in merchandising,
improving inventory management, and ordering are examples of some of the services
an organization may provide to its customers. These may be provided in the form

20

of training manuals, seminars, or one-on-one consultation. The services may be free of

charge or fee based.
All of these pretransaction elements may be experienced by the customer outside of the
normal order cycle. Decisions relating to the pretransaction elements tend to be
relatively stable, long-term decisions that are changed infrequently. This provides some
stability for the customer in terms of expectations.

7.1.2 Transaction Elements. Transaction elements are the elements that are normally
considered to be associated with customer service, and include the following:
1. Stockout level. The stockout level measures product availability. Stockouts should be
monitored by product and customer in order to better track potential problems. When
stockouts occur, the organization should endeavor to maintain customer goodwill by
offering a suitable substitute, drop-shipping from another location to the customer if
possible, or expediting the shipment once the out-of-stock item arrives.
2. Order information availability. Customers' expectations regarding access to all types
of information related to their orders have increased dramatically because of the avail-ability of relatively inexpensive computing power. This includes information on
inventory status, order status, expected or actual shipping date, and back-order status.
Tracking backorder performance is important because customers pay close attention to
problems and exceptions to delivery. Back-orders should be tracked by customer and by
product type, so that recurring problems become visible and can be addressed in a
timely fashion.
3. System accuracy. In addition to the ability to rapidly obtain a wide variety of data,
customers expect that the information they receive about order status and stock levels
will be accurate. Inaccuracies should be noted and corrected as quickly as possible.
Continuing problems require major corrective action and a high level of attention. Errors
are costly to correct for customers and suppliers in terms of time delays and paperwork
created.
4. Consistency of order cycle. The order cycle is the total time from customer initiation
of the order through receipt of the product or service by the customer. Thus, if a
salesperson obtains an order from a customer and holds it for five days before entering
the order, that adds five days to the order cycle time, even though those five days were
invisible to the distribution center. Elements of the order cycle include placing the order,
order entry if separate from placement, order processing, order picking and packing for
shipment, transit time, and the actual delivery process. Customers tend to be more
concerned with the consistency of lead times than with absolute lead time, so it is
important to monitor actual performance in this regard and take corrective action if
needed. However, with the increased emphasis on time-based competition, reducing
total cycle time has received greater attention. This topic will be discussed later in this
chapter.

21

5. Special handling of shipments. Special handling of shipments relates to any order

that cannot be managed through the normal delivery system. This could happen
because it needs to be expedited or has unique shipping requirements. The costs of
such shipments are considerably higher than standard shipments. However, the cost of
a lost customer could be higher still. The company should determine which customers
or situations warrant special treatment and which do not.
6. Transshipment. Transshipments refer to shipping products between various
distribution locations to avoid stockouts. For companies with multiple locations, some
sort of policy should be in place concerning transshipments as opposed to back-ordering
or drop-shipping directly to a customer from more than one location.
7. Order convenience. Order convenience refers to how easy it is for a customer to place
an order. Customers prefer suppliers that are user-friendly. If forms are confusing, terms
are not standardized, or the waiting time on hold on the telephone is long, customers
may experience dissatisfaction. Order-related problems should be monitored and
identified by talking directly with customers. Problems should be noted and corrected.
8. Product substitution. Product substitution occurs when the product that the
customer ordered is not available, but is replaced by a different size of the same item or
a different product that will perform just as well or better.
7.1.3 Post transaction Elements. The posttransaction elements of customer service
support product or service after the customer has received it. Historically, this has
tended to be the most neglected of the three groups of customer service elements, in
part because a relatively small proportion of customers complain about poor service.
However, retaining and satisfying current customers can be much more profitable than
finding new customers. Posttransaction elements include:
1.Installation, warranty, repairs, and service parts. These elements should be an
important consideration in almost all purchases, especially purchases of capital
equipment where such costs tend to far outweigh the cost of the purchased item itself.
These elements should receive the same attention and scrutiny as transaction elements.
2. Product tracking. Product tracking, also referred to as product tracing, is an
important customer service element. For example, in order to inform consumers of
potential problems, firms must be able to recall potentially dangerous products from
the market once the potential hazard has been identified.
3. Customer complaints, claims, and returns. To resolve customer complaints, an
accurate on-line information system is needed to process the data from the customer,
monitor trends, and provide the customer with the most current information available.
Logistics systems are designed to move products to customers, so the cost of non
routine handling, particularly of small shipments such as customer returns, tends to be
high. Customer returns go through the logistics process in reverse; hence the term
reverse logistics. Corporate policies should be established to handle these complaints as
efficiently and effectively as possible.

22

4. Product replacement. Depending on the item, having backup product temporarily

available when the item is being serviced can be critical. For example, some automobile
dealerships provide loaner cars to their customers at no charge while their cars are
being serviced. This minimizes the inconvenience and may create a more loyal customer.

8.Logistic Information System

The order processing system is the nerve center of the logistics system. A customer
order serves as the communications message that sets the logistics process in motion.
The speed and quality of the information flows have a direct impact on the cost and
efficiency of the entire operation. Slow and erratic communications can lead to lost
customers or excessive transportation, inventory, and warehousing costs, as well as
possible manufacturing inefficiencies caused by frequent production line changes. The
order processing and information system forms the foundation for the logistics and
corporate management information systems. It is an area that offers considerable
potential for improving logistics performance. The customer order cycle is at the heart
of logistics information systems.

8.1 Customer Order Cycle

The customer order cycle includes all of the elapsed time from the customer's
placement of the order to the receipt of the product in an acceptable condition and its
placement in the customer's inventory. The typical order cycle consists of the following'
components: (1) order preparation and transmittal, (2) order receipt and order entry, (3)
order processing, (4) warehousing picking and packing, (5) order transportation, and (6)
customer delivery and unloading.

Electronic methods, such as an electronic terminal with information transmitted by

telephone lines, and computer-to-computer hookups such as electronic data
interchange (EDI), are commonplace today. These methods support the maximum
speed and accuracy in order transmittal and order entry. Generally, rapid forms of order
transmittal require an initial investment in equipment and software. However,

23

management can use the time saved in order transmittal to reduce inventories and
realize opportunities in transportation consolidation, offsetting the investment.

9. Inventory Concepts
Inventory is required if an organization is to realize economies of scale in purchasing,
transportation, or manufacturing. For example, ordering large quantities of raw
materials or finished goods inventory allows the manufacturer to take advantage of the
per unit price reductions associated with volume purchases. Purchased materials have a
lower transportation cost per unit if ordered in large volumes. This lower per unit cost
results because less handling is required; for example, an order of I unit usually requires
the same administrative handling as 1,000 units, and truckload and full railcar shipments
receive lower transportation rates than smaller shipments of less-than-truckload (LTL)
or less-than-carload (LCL) quantities.
9.1 Work-in-process inventory is often maintained between manufacturing operations
within a plant to avoid a shutdown if a critical piece of equipment were to break down,
and to equalize flow, since not all manufacturing operations produce at the same rate.
The stockpiling of work-in-process within the manufacturing complex permits maximum
economies of production without work stoppage.
9.2 Inventory as a Buffer. Inventory is held throughout the supply chain to act as a
buffer for the following critical interfaces:
Supplier-procurement (purchasing)
Procurement-production
Production-marketing
Marketing-distribution
Distribution-intermediary
Intermediary-consumer/user
9.3 Reverse Logistics: It is often necessary to move a product backward through the
channel for a number of reasons. For example, a customer may return a product
because it is damaged, or a manufacturer may need to recall a product because of
defects. This is referred to as "reverse logistics."

10. Types of Inventory

Inventories can be classified based on the reasons for which they are accumulated. The
categories of inventories include cycle stock, in-transit inventories, safety or buffer stock,
speculative stock, seasonal stock, and dead stock

24

10.1 Cycle Stock. Cycle stock is inventory that results from replenishment of inventory
sold or used in production. It is required in order to meet demand under conditions of
certainty; that is, when the firm can predict demand and replenishment times (lead
times).
10.2 Transit Inventories. In-transit inventories are items that are en route from one
location to another. They may be considered part of cycle stock even though they are
not available for sale or shipment until after they arrive at the destination.
10.3 Safety or Buffer Stock. Safety or buffer stock is held in excess of cycle stock
because of uncertainty in demand or lead time. Average inventory at a stockkeeping
location that experiences demand or lead time variability is equal to half the order
quantity plus the safety stock.
10.4 Speculative Stock. Speculative stock is inventory held for reasons other than
satisfying current demand. For example, materials may be purchased in volumes larger
than necessary in order to receive quantity discounts, because of a forecasted price
increase or materials shortage, or to protect against the possibility of a strike.
Production economies also may lead to the manufacture of products at times other than
when they are in demand.
10.5 Seasonal Stock. Seasonal stock is a form of speculative stock that involves the
accumulation of inventory before a seasonal period begins. This often occurs with
agricultural products and seasonal items.
10.6 Dead Stock. Dead stock refers to items for which no demand has been registered
for some specified period of time. Dead stock might be obsolete throughout a company
or only at one stockkeeping location.

11. Inventory Carrying Costs

Inventory carrying costs are those costs associated with the amount of inventory stored.
They are made up of a number of different cost components and generally represents
one of the highest costs of logistics. The magnitude of these costs and the fact that
inventory levels are directly affected by the configuration of the logistics system shows
the need for accurate inventory carrying cost data.
Most manufacturing companies use one' of the following three methods for the
purposes of calculating inventory carrying costs:
11.1 First-in, first-out (FIFO). Stock acquired earliest is assumed to be sold first, leaving
stock acquired more recently in inventory

25

11.2 Last-in, first-out (LIFO). Sales are made from the most recently acquired stock,
leaving items acquired in the earliest time period in inventory
11.3 Average cost. This method could be a moving average in which each new purchase
is averaged with the remaining inventory to obtain a new average price, or a weighted
average in which the total cost of the opening inventory plus all purchases is divided by
the total number of units.
12. Types Of Inventory Costs
12.1 Inventory Service Costs. Inventory service costs are comprised of ad valorem
(personal property) taxes and fire and theft insurance paid as a result of holding the
inventory. Taxes vary depending on the state in which inventories are held. Tax rates
can range from zero in states where inventories are exempt to as much as 20 percent of
the assessed value. In general, taxes vary directly with inventory levels.
12.1.1 Storage Space Costs. Storage space costs relate to four general types of facilities:
(1) Plant warehouses,
(2) Public warehouses,
(3) Rented or leased (contract) warehouses, and
(4) Company-owned (private) warehouses.
Plant warehouse costs are primarily fixed. If any costs are variable, they are usually
variable with the amount of product that moves through the facility, throughput, and
not with the quantity of inventory stored. If some variable costs, such as the cost of
taking inventory or any other expenses, change with the level of inventory,
management should include them in inventory carrying costs. Fixed charges and
allocated costs are not relevant for inventory policy decisions. If the firm can rent out
the warehouse space or use it for some other productive purpose instead of using it for
storing inventory, an estimate of the appropriate opportunity costs would be
appropriate.
Public warehouse costs are usually based on the amount of product moved into and
out of the warehouse (handling charges) and the amount of inventory held in storage
(storage charges). In most cases, handling charges are assessed when the products are
moved into the warehouse and storage charges are assessed on a periodic basis (e.g.,
monthly). Usually, the first month's storage must be paid when the products are moved
into the facility. In effect, this makes the first month's storage a handling charge since it
must be paid on every case of product regardless of how long it is held in the warehouse.

26

Rented or leased warehouse space is normally contracted for a specified period of time.
The amount of space rented is based on the maximum storage requirements during the
period covered by the contract. Thus, warehouse rental charges do not fluctuate from
day to day with changes in the inventory level.
The costs associated with company-owned or private warehouses are primarily fixed,
although some may vary with throughput. All operating costs that can be eliminated by
closing a company-owned warehouse or the net savings resulting from a change to
public warehouses should be included in warehousing costs, not inventory carrying
costs. Only those costs that vary with the quantity of inventory belong in inventory
carrying costs.

12.1.2 Inventory Risk Costs. Inventory risk costs vary from company to company, but
typically include charges for (1) obsolescence, (2) damage, (3) shrinkage, and (4)
relocation of inventory.
Obsolescence cost is the cost of each unit that must be disposed of at a loss because it
can no longer be sold at a regular price. In essence, it is the cost of holding products in
inventory beyond their useful life
Damage costs incurred during shipping should be considered a throughput cost, since
they will continue regardless of inventory levels. Damage attributed to a public
warehouse operation is usually charged to the warehouse operator if it is above a
specified maximum amount. Damage is often identified as the net amount after claims
Shrinkage costs have become an increasingly important problem for American
businesses. Many authorities think inventory theft is a more serious problem than cash
embezzlement. Theft is far more common, involves far more employees, and is hard to
control.
Relocation costs are incurred when inventory is transshipped from one warehouse
location to another to avoid obsolescence.

13. Transportation
Transportation physically moves products from where they are produced to where they
are needed. This movement across space or distance adds value to products. This value
added is often referred to as place utility.
Time utility is created by warehousing and storing products until they are needed.
Transportation is also a factor in time utility; it determines how fast and how
consistently a product moves from one point to another. This is known as time-intransit and consistency of service, respectively.

27

13.1 Factors Influencing Transportation Costs and Pricing

In general, factors influencing transportation costs/pricing can be grouped into two
major categories:
Product-related factors
Market-related factors
Product-Related Factors. Many factors related to a product's characteristics influence
the cost/pricing of transportation. They can be grouped into the following categories:
Density refers to a product's weight-to-volume ratio. Items such as steel, canned foods,
building products, and bulk paper goods have high weight-to-volume ratios; they are
relatively heavy given their size. On the other hand, products such as electronics,
clothing, luggage, and toys have low weight-to-volume ratios and thus are relatively
lightweight given their size.
Stowability is the degree to which a product can fill the available space in a transport
vehicle.
Related to stow ability is the ease or difficulty of handling the product. Difficult-to
handle items are more costly to transport. Products that are uniform in their physical
characteristics (e.g., raw materials and items in cartons, cans, or drums) or that can be
manipulated with materials-handling equipment require less handling expense and are
therefore less costly to transport.
Liability is an important concern. Products that have high value-to-weight ratios are
easily damaged, and are subject to higher rates of theft or pilferage, cost more to
transport.
Where the transportation carrier assumes greater liability (e.g., with computer, jewelry,
and home entertainment products), a higher price will be charged to transport the
product.

Market-Related Factors.
In addition to product characteristics, important market related factors affect
transportation costs/pricing. The most significant are:
1. Degree of intramode and intermode competition.
2. Location of markets, which determines the distance goods must be transported.
3. Nature and extent of government regulation of transportation carriers.
4. Balance or imbalance of freight traffic into and out of a market.
5. Seasonality of product movements.
6. Whether the product is transported domestically or internationally.

28

13.2 Carrier Characteristics and Services

Anyone or more of five transportation modes-motor, rail, air, water, and pipeline-may
be selected to transport products. In addition, intermodal combinations are available:
rail motor, motor-water, motor-air, and rail-water. Intermodal combinations offer
specialized or lower cost services not generally available when a single transport mode
is used. Other transportation options that offer a variety of services to shippers include
freight forwarders, shippers' associations, intermodal marketing companies (or shippers'
agents), third-party logistics service providers, parcel post, and air express companies.

13.3 Third Parties

Third parties are companies similar to channel intermediaries that provide linkages
between shippers and carriers. Often, third parties do not own transportation
equipment themselves; instead, they partner with a number of carriers who provide the
necessary equipment to transport their shipments. There are several types of third
parties, including transportation brokers, freight forwarders (domestic and foreign),
shippers' associations or cooperatives, intermodal marketing companies (shippers'
agents), and third-party logistics service providers.
Transportation Brokers. Transportation brokers are companies that provide services to
both shippers and carriers by arranging and coordinating the transportation of products.
They charge a fee to do so, which usually is taken as a percentage of the revenue
collected by the broker from the shipper. The broker in turn pays the carrier.
Freight Forwarders. Freight forwarders purchase transport services from various
carriers, although in some instances they own the equipment themselves. For example,
the most successful air freight forwarders typically purchase and operate their own
equipment, rather than relying on other air carriers. Freight forwarders consolidate
small shipments from a number of shippers into large shipments moving into a certain
region at a lower rate. Because of consolidation efficiencies, these companies can offer
shippers lower rates than the shippers could obtain directly from the carrier. 25 Often,
the freight forwarder can provide faster and more complete service because they are
able to tender larger volumes to the carrier.
Freight forwarders can be classified as domestic or international, depending on whether
they specialize in shipments within a country or between countries. They can be surface
or air freight forwarders. If they are involved in international shipments, freight
forwarders will provide documentation services, which is especially vital for firms with
limited international marketing experience.

29

Often, freight forwarders and transportation brokers are viewed similarly, but there are
important differences:

A forwarder is the shipper to a carrier and the carrier to a shipper.

A broker is neither shipper nor carrier, but an intermediary between the two.
A forwarder can arrange for transportation of freight by any mode.
A broker can arrange for freight transportation only by a motor carrier.
A forwarder is exempt from federal government oversight.
A broker must be licensed by the Surface Transportation Board.
A forwarder is primarily liable to a shipper for cargo loss and damage.
A broker is not usually liable for cargo loss and damage, although many do provide this
coverage.
Shippers' Associations. In their operations, shippers' associations are much like freight
forwarders, but they differ in terms of perception by regulatory authorities. A shippers'
association can be defined as a nonprofit cooperative that consolidates small
shipments into truckload freight for member companies.
Shippers' associations primarily utilize motor and rail carriers for transport. Because
small shipments are much more expensive to transport (on a per pound or per unit basis)
than large shipments, companies band together to lower their transportation costs
through consolidation of many small shipments into one or more larger shipments. The
members of the shippers' association realize service improvements.
Intermodal Marketing Companies (or Shippers' Agents). Intermodal marketing
companies (IMCs), or shippers' agents, act much like shippers' associations or
cooperatives. They specialize in providing piggyback services to shippers and are an
important intermodal link between shippers and carriers.
13.4 Third-Party Logistics Service Providers.
This sector is growing very rapidly. With the increasing emphasis on supply chain
management, more companies are exploring the third-party option. For some firms,
dealing with one third-party firm who will handle all or most of their freight offers a
number of advantages, including the management of information by the third party,
freeing the company from day-to-day interactions with carriers, and having the third
party oversee hundreds or even thousands of shipments.
In addition to the preceding alternatives, many companies find that other transport
forms can be used to distribute their products. Small-package carriers such as Federal
Express (FedEx), United Parcel Service (UPS), and parcel post are important transporters
of many time-sensitive products.

30

Parcel Post.
The U.S. Postal Service provides both surface and air parcel post services to companies
shipping small packages. The advantages of parcel post are low cost and wide
geographical coverage, both domestically and internationally. Disadvantages include
specific size and weight limitations, variability in transit time, higher loss and damage
ratios than other forms of shipment, and inconvenience because packages must be
prepaid and deposited at a postal facility. Mail-order houses are probably the most
extensive users of parcel post service
Intermodal Service A number of intermodal combinations are available to the shipper.
The more popular combinations are trailer-on-flatcar (TOFC) and container-on-flatcar
(COFC). Intermodal movements combine the cost and/or service advantages of two or
more modes in a single product movement.
Piggyback (TOFC/COFC). In piggyback service, a motor carrier trailer or a container is
placed on a rail flatcar and transported from one terminal to another. Axles can be
placed under the containers, so they can be delivered by a truck. At the terminal
facilities, motor carriers perform the pickup and delivery functions. Piggyback service
thus combines the low cost of long-haul rail movement with the flexibility and
convenience of truck movement.
Roadrailers. An innovative intermodal concept was introduced in the late 1970s.
Roadrailers, or trailer trains as they are sometimes called, combine motor and rail
transport in a single piece of equipment.
Miscellaneous Intermodal Issues. Many other intermodal combinations are possible. In
international commerce, for example, the dominant modes of transportation are air and
water. Both include intermodal movements through the use of containers and truck
trailers. Combinations of air-sea, air-rail, truck-sea, and rail-sea are used globally.

13.5 FOB Pricing

The FOB pricing terms that are offered by sellers to buyers have a significant impact on
logistics generally and transportation specifically. For example, if a seller quotes a
delivered price to the buyer's retail store location, the total price includes not only the
cost of the product, but the cost of moving the product to the retail store.

31

Why FOB Terms are Important

1. The buyer knows the final delivered price prior to the purchase.
2. The buyer does not have to manage the transportation activity involved in getting
the product from the seller's location to the buyer's.
3. The buyer typically will not control the transportation decision, so it is possible that
a mode or carrier could be selected by the seller that might be disadvantageous to the
buyer (e.g., due to poor service levels provided by the mode/carrier).
13.6 Quantity Discounts
Quantity discounts can be cumulative or noncumulative. Cumulative quantity discounts
provide price reductions to the buyer based on the amount of purchases over some
prescribed period of time. Noncumulative quantity discounts are applied to each order
and do not accumulate over a time period.
From a transportation perspective, buyers purchasing products under a cumulative
quantity discount system can order smaller quantities, paying the higher transportation
costs for smaller shipments, and still gain a cost advantage (i.e., the additional cost of
transportation is less than the cost savings resulting from the quantity discount). On the
other hand, if a noncumulative quantity discount is applied, buyers must purchase
sufficient quantities in order to obtain truckload (TL) or carload (Cl.) rates for larger
shipments. While transportation costs on a per item or per pound basis will be less for

32

larger shipments, buyers will incur additional costs (e.g., warehousing and inventory
carrying costs), which must be considered when they place larger, but fewer, orders
with sellers.
13.7 Allowances
Sometimes, sellers will provide price reductions to buyers that perform some of the
delivery function. For example, when using a delivered pricing system, the seller
assumes all costs of delivery and adds those costs to the price of the product. If the
buyer is willing to assume some of the delivery functions, the seller will often provide
some allowances, or price reductions, to the buyer.
The most common allowances are provided for customer pickup of the product or
unloading of the carrier vehicle upon delivery at the customer's location. These services
cost the seller money and if the buyer is willing to perform these functions, the seller
can provide a price concession.
The important element in making the right decisions about taking advantage of
allowances is to know the costs associated with each delivery function. The allowance
should be equal to, or greater than, the costs to the buyer for assuming these
responsibilities.

14. Global Logistics

Many factors can influence a company's decision to enter international markets. They
include:
Market potential.
Geographic diversification.
Excess production capacity and the advantage of a low-cost position due to
experience-curve economies and economies of scale.
Products near the end of their life cycle in the domestic market could generate
growth in the international market.
Source of new products and ideas.
Foreign competition in the domestic market

33

Companies that become involved in the international marketplace have many options
available to them:
Exporting
Licensing
Joint ventures
Ownership
Importing
Countertrade

14.1 Exporting
The most common form of distribution for firms entering international markets is
exporting. Exporting refers to selling products in another country. Companies can hire
independent marketing intermediaries (indirect exporting) or market their products
themselves (direct exporting). Exporting requires the least amount of knowledge about

34

foreign markets because domestic firms allow an international freight forwarder,

distributor, trading company, or some other organization to carry out the logistics and
marketing functions.

14.2 Financial Aspects of Global Logistics

A firm participating in global logistics faces a financial environment quite different from
that of a strictly domestic firm. It has concerns about currency exchange rates, costs of
capital, the effects of inflation on logistics decisions and operations, tax structures, and
other financial aspects of performing logistics activities in foreign markets.
Working Capital. Global logistics activities require financing for working capital,
inventory, credit, investment in buildings and equipment, and accommodation of
merchandise adjustments that may be necessary. Working capital considerations are
extremely important to the international firm owing to time lags caused by distance,
border crossing delays, and government regulations. Typically, foreign operations
require larger amounts of working capital than domestic operations.
Inventories. Inventories are an important aspect of global logistics: In general, higher
levels of inventory are needed to service foreign markets because of longer transit
times,greater variability in transit times, port delays, customs delays, and other factors.
When management considers direct investment in facilities and logistics networks in the
foreign market, the capital budgeting aspects of financial planning become important.
As is the case in domestic operations, customers in the international sector do not
tender payment to the shipper until the product is delivered. Many factors might cause
the foreign shipment to have a longer delivery time than a comparable domestic
shipment. The exporter must be concerned with exchange rate fluctuations that may
occur between the time the product is shipped, delivered to the consignee, and paid for
by the customers.
Letters of Credit: To ensure that international customers pay for products shipped to
them, letters of credit are often issued. A letter of credit is a document issued by a bank
on behalf of a buyer which authorizes payment for merchandise received. Payments are
made to the seller by the bank instead of the buyer. Figure shows how a letter of credit
works.

35

14.3 The Global Marketplace

All forms of entry into the international marketplace require an awareness of the
variables that can affect a firm's distribution system. Some of these factors can be
controlled by logistics executives. Others, unhappily, are not subject to control, but
must still be dealt with in any international marketing undertaking.

36

Uncontrollable Elements. Anything that affects the logistics strategy of the international
firm, yet is not under the direct control and authority of the logistics manager, is an
uncontrollable element. The major uncontrollable elements include:
Political and legal systems of the foreign markets.
Economic conditions.
Degree of competition in each market.
Level of distribution technology available or accessible
Geographic structure of the foreign market.
Social and cultural norms of the various target rnarkets.
Controllable Elements. When a firm becomes involved in international operations, the
scope of the logistics executive's responsibilities often expands to include international
distribution activities. Although the logistics executive may have full international
responsibility, others within the organization probably have some involvement.

14.4 Management of the Export Shipment

Many facilitator organizations are involved in the exporting activity. The types of
organizations utilized most extensively are:
Export distributor
Customshouse broker
International freight forwarder
Trading company
Non-vessel-operating common carrier (NVOCC)
Other facilitators are used, but to a much lesser degree. These include export brokers,
export merchants, foreign purchasing agents, and others.
Export Facilitators
A firm involved in exporting for the first time would likely use an export distributor,
customshouse broker, international freight forwarder, or trading company.
Export Distributor. A company involved in international markets often employs the
services of an export distributor (export management company). An export distributor
(1) is located in the foreign market, (2) buys on its own account, (3) is responsible for
the sale of the product, and (4) has a continuing contractual relationship with the
domestic firm. The distributor frequently is granted exclusive rights to a specific
territory. It may refrain from handling the products of competing manufacturers, or it
may sell goods of other manufacturers to the same outlets.

37

The distributor often performs some of the following functions:

Managing channels of distribution and marketing/sales efforts.
Handling customs clearances.
Obtaining foreign exchange for payments to suppliers
Providing warehouse facilities.
Managing transportation activities.
Breaking bulk.
Managing credit policies.
Gathering market information.
Providing after-the-sale services.
Customshouse Broker. The customshouse broker performs two critical functions:
(1) facilitating product movement through customs and
(2) handling the necessary documentation that must accompany international
shipments.
International Freight Forwarder. International freight forwarders perform a number of
functions to facilitate trade for an international company.
Speed the movement of goods from the site of production to the customer's location
by using drop shipments, thus eliminating double handling.
Receive advanced shipping notices which speed clearance of customs and rapid
preparation of required documentation.
Arrange transportation and carrier routings.
Coordinate product storage and pick-and-pack operations.
Provide full-service logistics to their clients
Trading Company. Most trading companies are primarily involved in exporting, but
some engage in the import business as well. Trading companies match the seller with
buyers of goods or services, and manage the export arrangements, paperwork,
transportation, and foreign government requirements.
Non-Vessel-Operating Common Carrier (NVOCC). The NVOCC, sometimes referred to as
a NVO, "consolidates small shipments from different shippers into full container loads
and accepts responsibility for all details of the international shipment from the
exporter's dock, including paperwork and transportation.

14.5 Documentation
International documentation is much more complex than domestic documentation
because each country has its own specifications and requirements. Errors in
documentation can create long, costly delays in shipping. Nine of the most widely used
documents are listed below:

38

1. Air waybill. Issued by: Airline, consolidator.

Purpose: Each airline has its own air
waybill form, but the format and numbering system have been standardized by the
airline industry to allow computerization. Like the ocean bill of lading, the air waybill
serves as contract of carriage between shipper and carrier.
2. Certificate of origin. Issued by: Exporter or freight forwarder on exporter's behalf.
Purpose: Required by some countries to certify the origin of product components.
Used for statistical research or for assessing duties, particularly under trade agreements.
3. Commercial invoice. Issued by: Seller of goods.
Purpose: Invoice against which payment is made. Required for clearing goods through
customs at destination.
4. Dock receipt (DIR).Issued by: Exporter or freight forwarder on exporter's behalf.
Purpose: No standard form, but the D/R must include shipment description, physical
details, and shipping information. Used by both shipper and carrier to verify shipment
particulars, condition, and delivery to carrier.
3.Ocean bill of lading (B/L). Issued by: Steamship line. Purpose: Each carrier has its own
bill of lading form. Serves as the contract of carriage between carrier and shipper,
spelling out legal responsibilities and liability limits for all parties to the shipment. The
BIL also can be used to transfer title to the goods to a party named in the document.
Specifies shipment details, such as number of pieces, weight, destination, and so on.
6. Packing list. Issued by: Exporter. Purpose: Provides detailed information of contents
of each package in the shipment.
Customs authorities at destination use this information during clearance and inspection
procedures. The packing list also is invaluable when filing claims for damage or shortage.
7. Shipper's export declaration (SED). Issued by: Exporter or freight forwarder on
exporter's behalf.
Purpose: Required by federal law for any commodity with a value over $2,500 or any
shipment requiring validated export license.
S. Sight, time drafts. Issued by: Exporter or freight forwarder on exporter's behalf.
Purpose: Request for payment from the foreign buyer. Instructs buyer's bank to collect payment; when collected, the bank releases shipping documents to the buyer. The
buyer's bank then remits to seller's bank. Sight drafts are payable on receipt at the
buyer's bank. Time drafts extend credit; the foreign bank releases documents
immediately, but collects payment later.
9. Validated export licenses. Issued by: U.S. Department of Commerce. Purpose:
Required for commodities deemed important to national security, foreign
policy objectives, or protecting domestic supplies of strategic materials. The validated
export license constitutes permission to export a specific product to a specific part.

39

15.Value Chain
The value chain approach was developed by Michael Porter in the 1980s in his book
Competitive Advantage: Creating and Sustaining Superior Performance (Porter, 1985).
The concept of value added, in the form of the value chain, can be utilized to develop an
organizations sustainable competitive advantage in the business arena of the 21st C. All
organizations consist of activities that link together to develop the value of the business,
and together these activities form the organizations value chain. Such activities may
include purchasing activities, manufacturing the products, distribution and marketing of
the companys products and activities.
15.1
Main
aspects
of
Value
Chain
Analysis
Value chain analysis is a powerful tool for managers to identify the key activities within
the firm which form the value chain for that organization have the potential of a
sustainable competitive advantage for a company. Therein, competitive advantage of an
organization lies in its ability to perform crucial activities along the value chain better
than its competitors. Firstly, the value chain links the value of the organizations
activities with its main functional parts. Then the assessment of the contribution of each
part in the overall added value of the business is made (Lynch, 2003). In order to
conduct the value chain analysis, the company is split into primary and support activities
(Figure 1). Primary activities are those that are related with production, while support
activities are those that provide the background necessary for the effectiveness and
efficiency of the firm, such as human resource management. The primary and secondary
activities of the firm are discussed in detail below.

40

15.1.1 Primary activities

The primary activities (Porter, 1985) of the company include the following:

Inbound logistics
These are the activities concerned with receiving the materials from suppliers,
storing these externally sourced materials, and handling them within the firm.

Operations
These are the activities related to the production of products and services.
This area can be split into more departments in certain companies. For
example, the operations in case of a hotel would include reception, room
service etc.
Outbound logistics
These are all the activities concerned with distributing the final product and/or
service to the customers. For example, in case of a hotel this activity would
entail the ways of bringing customers to the hotel.
Marketing and sales
This functional area essentially analyses the needs and wants of customers
and is responsible for creating awareness among the target audience of the
company about the firms products and services. Companies make use
of marketing communications tools like advertising, sales promotions etc. to
attract customers to their products.

Service
There is often a need to provide services like pre-installation or after-sales
service before or after the sale of the product or service.

15.1.2 Support activities

The support activities of a company include the following:

Procurement
This function is responsible for purchasing the materials that are necessary for
the companys operations. An efficient procurement department should be
able to obtain the highest quality goods at the lowest prices.
Human Resource Management
This is a function concerned with recruiting, training, motivating
and rewarding the workforce of the company. Human resources are
increasingly becoming an important way of attaining sustainable competitive
advantage.

41

Technology Development
This is an area that is concerned with technological innovation, training and
knowledge that is crucial for most companies today in order to survive.
Firm Infrastructure
This includes planning and control systems, such as finance, accounting, and
corporate strategy etc. (Lynch, 2003).

15.2 Value chain analysis of a Publishing Company

15.2.1 Primary Tasks

The most striking primary task within a publishing company is the book printing.
However, there are more tasks which come before or after printing editing, for
example, or distribution.
15.2.2 Supportive Tasks
To be able to execute the primary tasks, a publishing company needs qualified
personnel and freelancers. Thus, one of the most important supportive tasks is
personnel management. Another supportive task is purchasing of materials (office
materials, printing paper).

15.2.3 Direct, Indirect and Quality Management Tasks

Lets have a closer look at editing. We have already categorized this as a primary task. It
is directly connected to producing a book. A direct task would, therefore, be the actual
editing process.
Sending the files to and from the editor and publishing company, keeping records of
accomplished work and changes in the files would be indirect tasks. They are not
immediately connected to creating value but they are necessary to guarantee a smooth
process.
Quality management tasks could involve sending the edited files to another editor to
check them for mistakes. Evaluation of the editor surely belongs here too. If the editor
has delivered poor work, it will be noted down and s/he will not be approached again
for another project.

42

16.Export Distribution Procedure and Documentation

16.1.Performa of document to be sent to bank
Ref: EXP/CS/ xxx/xxx
Date
Mr.XYZ
Customer Service Manager

XYZ bank
Address
Dear Sir:
Attached please find the following documents for the consignment of Text
Books
which we have exported to XXX Company, .
Please note that we have already sent the consignment against total Invoiced
Amount USD $XXXX, payment received from the above mentioned party
vide FIRC #. XXXX, DT: XX.XX.XXXX.
We have sent one set of Original documents (i.e Invoice, Packing list & RR)
directly to Consignee (i.e our foreign buyer) and submitting below mentioned
documents for
your record and necessary action.
1.
2.
3.
4.

Copy of our Invoice Nos. ____ and ______ for US $XXX

Copy of Railway Receipt No. _______ dated. ____for __cartons
Copy of Packing List
COPIES OF FIRC #. _____, DT: _______ for the amount of $_____

Documents if they are stale have been submitted late due to

oversight/late receipt of the documents from our forwarding agent.

43

We undertake to get the payment of the above consignment within the stipulated
time.
Also please certify & return the copy of our invoice Nos. _____ and ______ for US
$______

Thanking you,
Yours truly,

Head : --------Encl: a/a

44

Note:
1) FIRC-Certificate of foreign inward remittance received from bank.
The following documents are then sent to the Head for signature

Letter.
Invoice(Sales and freight).
Packing List.

After signature, Original and one additional copy is sent to the bank. The bank sent back
the copies after their acknowledgement.
One more copy of below mentioned documents should be kept for further reference

Letter.
Invoice.

45

16.2 Preparation of bank documents for export to UK/Singapore

16.2.1 Letter to Bank for collection /Negotiation of documents.
Drawer(Exporter)

Invoice No. & Date

Exporters ref.
IE code

Drawee(Consignee)

Buyers Order no. & Date

RBI code no.
Drawee(If other than consignee)

Bank

ECGC policy No.& Date

Pre carriage by

Place of receipt by pre carrier

Please receive the following documents for disposal as per

For Banks Use

Instructions (Please tick [] as required)

Instructions:
Documents:
1.Invoice No. & Date

Number

CTD No. & Date

2.*Purchase/Discount

[]

Consular

3.*Dispatch documents by registered airmail/courier

[]

Customs

4.*Release documents against payment/acceptance

[]

5.*Cable advice of non payment/non acceptance

[]

6.*In case of non-payment/non acceptance, protest

Original

Non-negotiable...

Air way Bill No. & Date

Post Parcel Receipt No

....

& Date

[]

Issued by..

...

& Date

8.Credit our A/C No on realization

5.GSP Certificate of Origin No.

...

& Date

of payment
9*.Advice payment by Telex/Cable/Fax/SWIFT

6.Inspection Certificate No.

[]
[]

10*.Deduct charges/collect charges from

& Date
7.Insurance Policy/Certificate No.

[]

..
11*.Do not waive charges/Interest recoverable

& Date
Sight
Since

..
.

from drawee

[]

12.Collect Interest @.............. p.a from.

. Till....

Amount

[]

13*Adjust our packing credit A/C and/or credit the

9.Letter of credit

proceeds to cash credit/current account

Amount.

[]

14.In case of need ,refer to

Expiry Date.
10.GR No.& Date

/do not protest

7.Negotiable documents drawn under L/C No.

.. [ ]

4.Certificate of origin No.

8.Draft No. & Date

[]

Commercial

2.Packing list No. & Date

3.Bill of Lading No.& Date/

1.Collect

..

[]

46

11.Bank Certificate

..

12.Copy of Declaration to ECGC

regarding the shipment

13.Any other document(specify)

15.Return .. Copies of bank certificates

And Copies of commercial
invoice duty certified by you.

[]

16.Return L/C after negotiation

[]

17.Any other Instruction (specify)

[]

DECLARATION:
I/We declare that the particulars given herein are true and correct
and that I/We accept the banks conditions printed overleaf.

Signature and Date

The above details should be filled properly and the document should be stamped.

47

16.3 Bill of Exchange

The bill of exchange is sent to the bank from where it goes to Mcgraw Hill. The
Performa of Bill of Exchange is given below-

BILL OF EXCHANGE

No: .

Date:

For USD $XXX

At 180 days from XX.XX.XXXX (date of shipment) i.e. XX.XX.XXXX
of this first/second of exchange (second/first) of the same tenor and date
being unpaid please pay to ______ Bank, or order a sum of USD
___________________________________ (value received and charge the
same
to
account
of)
of
our
invoice
Nos.
_____________________________ dated ,_______, and _____ dated
_______ consigned under A.W.B No: ___________ dated __________
covering shipment of books drawn under contract No: ________ dated
____________

To:
McGraw-Hill Education (ASAI),
XXXX
XXX

48

16.4 Performa of Letter to be sent to Bank

REF: EXP/CS/AM/XXXX
Date

Mr. XYZ
Customer Service Manager

XYZ Bank

Dear Sir:
We are attaching the following documents for the consignment of
TEXTBOOKS, which we have exported to XYZ Book Co. (UK) Ltd.,

A. Please forward the below mentioned document to our customer

directly.
4.
5.
6.
7.

Bill of Exchange 2 copies (Originals).

Our Invoice Nos. ______ and for US$ ______ (Original).
A.W.B No. ______ dated _____ (Original duly endorsed).
Packing List (Original).

B. Documents for your reference:

1.
2.
3.
4.

Copy of our Invoice Nos._______ and ________ for US$ _____

Copy of our Packing list.
Copy of A.W.B No. ______ dated ____.
Letter to Bank for Collection (Original).

Documents if they are stale have been submitted late due to

oversight/late receipt of the documents from our forwarding agent.

49

We undertake to get the payment of the above consignment within the stipulated
time.
Also please certify & return the copy of our invoice Nos. _______ and _____ for US
$ _____

Thanking you,
Yours truly,

Head
Encl: a/a

The following documents should be sent for signature to the Head:

Covering Letter
Bill of Exchange(With Authorised Signature Stamp)
Invoice(Sales+ Freight)
Packing List(With TMH stamp)

One copy of above documents should be prepared for further reference.

Additionally, one copy of below mentioned documents should be sent to the customer

Invoice
Packing list
Air way Bill

50

16.5 Mail Format to Forwarder

The mail format to be sent to the forwarder that includes details of the consignmentDEAR XXXX : PLS FIND THE SINGAPORE CONSIGNMENT DETAILS.
INVOICE NO. XXXXX
DATE OF INVOICE

XX/XX/XX

AMOUNT

$ XXXX

TOTAL QTY

XXXX

CARTON QTY

XX

GROSS WEIGHT

XXX kg

16.9 Export Invoice finalization form(For Pakistan)

This form is used by auditors for auditing purposes.
The fields to be filled in the form are

Country-Enter dealer and country name.

Invoice number-Enter invoice number.

Date of invoice-Enter date.

Conversion rate-Enter conversion rate of the month in which export was done.

Number of cartons-Enter number of cartons.

Gross weight-Enter gross weight written in railway receipt.

Invoice Amount-Enter invoice amount.

Ocean /Air freight-Enter Railway freight.

51

Transportation-Enter the road transport amount.

Miscellaneous- This will include the sum of following headsDocumentation

DEPB
Labor and handling
Labor ECT at custom
Opening/Repacking
Labor/Loading at Railway

Calculate Service Tax as:

X % of above mentioned six heads.
Y % of transport charges.

Agency charges-Sum of Agency and Service tax.

Cost of Carton- On Actual basis.

Freight in INR-Add all above mentioned six rates.

Insurance FOB* X.(X% of FOB)

Thus,
Total Freight Amount- Freight + Insurance.
Bill of Exchange Amount- Total Freight amount +FOB.

16.6 Export Invoice finalization form

In the airway bill received from the forwarder, note down Total charge and Weight and
calculateRate=Total charge/Weight.
Tally this rate with the rate provided in the sheet by Forwarding Agent for Airlines under
the column of FSC. (Fuel surcharge)
Similarly, tally SSC, X-ray and Misc charges.
Next, the fields to be filled in the form are:

52

Country-Enter dealer and country name.

Invoice number-Enter invoice number.

Date of invoice-Enter date.

Conversion rate-Enter conversion rate of the month in which export was done.

Number of cartons-Enter number of cartons.

Gross weight-Enter gross weight written in AW bill.

Invoice Amount-Enter invoice amount.

Ocean /Air freight-Enter Air freight.

Transportation-Enter the road transport amount.

Miscellaneous- This will include the sum of following headsi.

ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.

AWB
PCA
OSC
THC
MYC
SC
X-ray charges
DP
TC
FSC
CMC

Note 1: All these entries will be found in AW bill.

Note 2:THC: Tata Mcgraw Hill charges to be calculated as:
THC =X+Y per carton.
Calculate Service Tax as:
X% of above mentioned eleven heads.
Y % of transport charges.
Agency charges-Sum of Agency and Service tax.

Cost of Carton- Calculate as Rs. X per carton.

Freight in INR-Add all above mentioned eleven rates.

Insurance FOB* X. (X% of FOB)

53

16.7 Export Insurance Format

This document is prepared on monthly basis. The mandatory fields should be carefully
filled with respective details.
Details about the mandatory fields is given below

Serial No.- Enter Serial no.

Policy No.- Enter export.

Risk commencement date- Enter date. Should be between policy start date and
end date. It can be up to 45 days prior to Certificate generation date.

Location from-Enter location from where export is done.

Location to-Enter location to where export is done.

Port of loading-Enter loading port.

Port of discharge-Enter Discharge port.

Shipment type-Enter export for this field.

Importers/exporters name and address-Enter name and address of importer .

Tata Mcgraw Hill in this case.

Goods description-Enter description of goods. Printed Booksin this case.

Mode of transit-Enter mode of transit as Rail, Air, Ocean etc.

Packing details-Enter packing details.

Cargo SI-Enter Invoice amount in INR.

Custom SI -Enter custom SI. Should not be more than Balance custom sum
insured and PSL.

Vessel Name-Enter mode of transport.

Total Packages-Enter total number of packages.

Weight of Goods-Enter total weight of goods.

BL no./AWB no/RR.-Enter airway bill number or Rail receipt number as

applicable.

BL/AWB/RR date-Enter date whichever applicable.

Invoice no.-Enter invoice number.

Invoice date-Enter invoice date.

54

16.8 CAPEXIL document preparation

The Capexil document contains the summary of all exports during a particular month.
The Performa of the document will be as given below-

Member Code :
Panel Code :

For the Month of ______

Member Name

Year & Month _______

Panel Name :

Book Publishing
& Printing Panel

Export Performance

1) Direct Export:
Item

Code

Country

Description

Code

Name

Export Performance

Qty

Indian Port
of
Shipment

Unit FOB
Export
Value (in
Rs)

55

2. Indirect Export :
Name of the Firm
to whom the goods
supplied/exported

Item

Code

Desc

Country

Cod
e

Nam
e

Export Performance

Qty
in
CBM

Unit
s

Indian
Port of
Shipment

FOB
Expor
t
Value
(in Rs)

The above document after being stamped and signed by Head of Department is sent to
the CAPEXIL head offices to Kolkata and New Delhi.

16.9 Returns
The customer is authorised to return certain percentage of the total sales he has done
with the company during the previous year. Thus,customer has got the authority to
send back the books in case the books are not sold further as was planned by him.The
break up of this percentage is distributed as

x% is for Higher Education Books.(Higher Ed)

y% is for Test Prep/School Books.

The returns can be made by the customer in following cases:

1. Old Edition-When the particular edition becomes outdated.This type of return

goes to scrap.
2. Sales Return-When the sales are not as expected.This type of return goes to
stock.
3. Damage-When the goods received by customer is damaged.This type of return
goes to Scrap.
4. Defective goods-When the goods received by customer is defective say some
pages in between are missing.This type of goods again goes to Scrap.
56

Apart from these,some exceptional approval of return goods can be made in order to
maintain a business relationship with the customers.

16.10 Bank Realization Certificate

Once the export proceeds are realized, the exporter has to prepare bank certificate of
export and realization as per form No. 1 in Appendix 25 of Handbook of procedures
1997-2002, for the purpose of claiming import licenses. To prepare this certificate, the
date of realization is most essential, as the exporters have to apply for the import
replenishment license within six months following the month/quarter of the realization
month. The exporter should incorporate the following details in the bank certificates:
Sr.No. Particulars
1

The importer/exporter code number,

The licensing authority to whom the bank certificate is to be submitted,

The name and address of the shipper,

The name and address of the bankers through whom the documents have
been routed,

Whether the documents were sent for collection, negotiation or purchase,

The number and date of invoice,

Number and date of the Export promotion copy of the shipping bill,

Description of the goods exported,

The number and date of Airway bill / Post parcel receipt,

10

Destination of the goods,

11

The Bill amount in foreign currency,

12

Freight amount paid, which is mentioned on the Airway bill/Post Parcel

receipt/Mate receipt,

13

Insurance Amount as per Insurance company's bill/receipt,

14

Commission /discount paid or payable,

15

Whether the export is in freely convertible currency or in Indian Rupees,

16

FOB value of actual realization in free foreign exchange and in Indian Rupees,

17

Date of realization of export bills,

18

GR/PP form No. & date,

19

No & date and category of applicable licence.

This bank realization certificate should be signed by the authorized signatory of the firm
/company with full name in capital letters and official and residential addresses. The
57

place and date of bank certificate should be mentioned. Official seal and stamp should
be affixed.
The format of BRC can be found by clicking the link below.
BRC DOCUMENT.xls
Four copies of the above BRC document should be sent to the Bank with Seal and
signature of the Head of the organization. The bank sent back the copies after it is
stamped.

17.Learnings from the project

The summer internship program at Tata Mcgraw Hill education pvt. Ltd. helped to gain
insight into the complete process of management of logistics in a company.There are
various key issues associated with the logistic management and the program helped to
identify the key elements involved in the process and gave a proper understanding of
the process.
The process of export distribution going on at TMH helped to know the various
important parameters related to distribution and the necessary documentation that is
needed in order to export products from India to other countries.Thus,the study gave
the complete idea about the practical export distribution procedure going on in the
industry.

Bibliography
Books referred Logistic and distribution management Allan Rushton,Peter Baker
Basics of distribution management-Purva Kansal.
Fundamentals of logistics management-Douglas M.Lambert,James R.Stock.
Supply chain-Logistic Management -Donald J. Bowersox ,David J. Closs M. Bixby
Cooper.
Websites Used http://www.logisticsmgmt.com/
http://www.logisticsworld.com/logistics.htm
en.wikipedia.org/
Application Software Bookmaster- Software application used at TMH education.

58

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