STUDY MATERIAL COURSE : Global Logistics-Principles & Practices COURSE CODE: BA 202 COURSE OBJECTIVE: To understand the basics

ics of supply chain and logistics To understand the current & global practices of supply chain and logistics To understand and develop different strategies for supply chain.

LECTURE 1 SCM is the collaborative design and management of seamless, value added processes to meet the real needs of the end customer.

What are the goals of SCM? SCM is concerned with the efficient integration of supplier, factory, warehouse and stores so that merchandise is produced and distributed: In the right quantity To the right location In the right time. In order to achieve: minimize total system cost Satisfy customer service requirements.

Consider the following: Wal-Mart and K-Mart founded in the same year while k-mart declared bankruptcy in 2001 while Wal-Mart became the largest retailer in USA & worldwide. DELL has been able to generate profits even when its competitors lost money on their PC operations. HONDA has established itself a dominant brand in automobiles

What have these firms done? What is the secret of their success- Answer is Effective and Efficient SUPPLY CHAIN MANAGEMENT STRATEGIES.

LECTURE 2 Some Basic Terminologies: Inventory: When goods are kept in warehouse to be released to the shop for selling it is called as inventory. Goods when in warehouse are called inventory. Inventory is the phenomenon between warehouse and selling point. Stock: When inventory comes into the shop for selling to the ultimate consumer it is known as stock. Goods when in shop are called stock. Stock is the phenomenon between shop and customer. Fleet Management: Fleet means Vehicle .Its the management of a companys vehicle fleet. It includes commercial motor vehicles, such as cars, vans & trucks. It includes a range of functions: Vehicle Financing Vehicle maintenances Driver Management Speed Management Fuel Management Health and Safety Management

Lead Time: Lead Time is the time from the moment the customer places an order to the moment it is received by the customer. For example, the lead time for ordering a new car from a manufacturer may be minimum of 15 days. In industry, lead time reduction is an important part of SCM. Logistics-The term logistics comes from the Greek logos meaning speech, reason, ratio, rationality, language & phrase, and more specifically from Greek word logistiki, meaning accounting and financial organisation.Its original use was to describe the science of movement, supplying & maintaining of military forces in the field. Later on it was used to describe the management of material flow through an organization, from raw material through to finished goods. 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 as a business concept evolved in the 1950s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for experts called supply chain logisticians. Business logistics can be defined as "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" The term production logistics is used to describe logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right time. The concern is to streamline and control the flow through value-adding processes and eliminate nonvalue-adding ones. Logistics management Logistics management is that part of the supply chain which 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 customer and legal requirements. A professional working in the field of logistics management is called a logistician. Logistics management is known by many names, the most common are as follows:

Materials Management Channel Management Distribution (or Physical Distribution) Business or Logistics Management or Supply Chain Management

Lecture: 3 Supply Chain of Li & Fung

Magnitude of Supply Chain Cost Eg:Apparel Industry

Cost/ shirt

%saving

Manufacturer

Distributer

Retailer

Customer

Rs.527

0%

Manufacturer

Distributer

Retailer

Rs.425
Customer

28%

Manufacturer

Distributer

Retailer

Customer

Rs.204

62%
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STUDY MATERIAL LECTURE-4 EVOLUTION OF SUPPLY CHAIN MANAGEMENT AND LOGISTICS. Logistics is seen to have developed as a society transported from the stage of human selfsufficiency to the era of exchange which was needed in the socio-economic sytem.with the transformation of business function itself, there has been transformation in the concept of logistics, which has been systematically divided into four phases, namely: 1. 2. 3. 4. Independent Business Function era (till 1950s) Limited Internally Integrated Business Function era (1960-70) Fully internally integrated Function Era (1980s) Externally Integrated Business Function Era (1990s onwards)

Independent Business Function era (till 1950s) During the early phase of industrial growth the emphasis was on finding solutions to production problems. Corporate enterprises were under tremendous pressure to increase production capacity due to high demand created by war time shortages, followed by very limited number of players. In such an environment of technical capacity for mass production, production led business functions dominated the whole enterprise. Furthermore, this era reflected independent business function, because each and every function such as procurement, inventory, production, sales etc were independently performed. The objective of this stage was to maximize the profit by a corresponding maximization of sales volume by means of aggressive selling and preaching skills for the sales force. This stage was the phenomenon till 1950s. Limited Internally Integrated Business Function era (1960-70) In order to overcome the prevailing competitive environment, firms started searching for new tools and techniques for most efficient cist control systems. At the same time, they also realized that physical distribution and logistics were activities whose costs had neither been carefully studied nor coordinated. In fact, this era had given a real impetus to the concept of logistics. Prior to the period of 1960s activities such as procurement, sales, storage and warehousing, transportation etc were performed in a fragmented manner that caused poor performance and high costs. But in this era material management, manufacturing management and physical distribution management integratively perform organization functions.

The major objective behind this era was to control the costs & gain price based competitive capability to survive in the competitive marketplace comfortably. Fully internally integrated Function Era (1980s) With the beginning of 1980s, the business situation became more critical as both external and internal forces continued to change the business scenario mainly due to the following reasons: (a) Transportation could no longer be considered to be a stable factor in the business planners equation, as fuel prices continuously soared. (b) Inflation continues to rise at an unprecedented rate. (c) There was a gradual change in the economic system of most of the countries, especially with regard to multinational operations. The entire situation above further increased the magnitude of competition in the marketplace. For this purpose they realized the need for further integration of business functions in general and distribution functions in particular. Integrated logistics refers to a set of activities concerned with the flow of all materials, information and control systems. In an integrated logistics system, there is an interface between traditional activities of physical distribution & material management along with other functions of marketing, sales & manufacturing such as production planning and scheduling, sales forecasting, inventory management & customer service. The major objective behind the development of an integrated logistic management system was cost reduction, which facilitated firms in practicing maximization of profitable sales volume by means of a high degree of coordination between various managerial functions. The output of era contributed significantly in the overall performance of corporate enterprises in terms of increased productivity, profitability and market share. Externally Integrated Business Function Era (1990s onwards) With the beginning of the 1990s, the overall business scenario became more critical, mainly due to the following sea change in the environmental scenario: (a) Liberalization of almost all economies of the world for movement of goods from one country to another resulted in the world-class competition in the market. Firms started adopting the concept of Total Quality Management widely throughout the industry. The idea of zero defects in products and services started pervading in logistical operations in the form of timely & intact delivery. (b) Rapid innovations in the field of science and technology, particularly information and communication technologies, have completely changed the corporate mindset from safety-stock mechanism to real-time response mechanism by the means of rapid communication & exchange of data.
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(c) New inventory management techniques like JIT,quick response, continuous replishment,vendor managed inventory, efficient consumer response became popular instruments to efficiently plan and deploy inventory items throughout the complex and multi-level distribution networks, preventing stock-out situation without excessive safety stock, resulting into further curtailment of logistical costs in general and inventory cost in particular. As a result of the above stated developments, a new pattern of external integration in the organizational structures has started emerging for various logistics activities in the 1990s.this new dimension given impetus to the concept of Supply Chain Management. The major objective of this era is to gain core competency by means of further streamlining the logistics system with other supply chain members so as to achieve a higher level of specialization, and to reduce financial risk. The output of this era is maximization of stakeholders value and harmonious long term relationships between all supply chain members. LECTURE 5 Enterprise Resource Planning (ERP): ERP system gathers data from across multiple functions in a firm. ERP systems monitor orders, production schedules, raw material purchases, and finished goods inventory. They support a process oriented view of business across different functional departments. For instance, an ERP system can view the entire order fulfillment process and track an order from the procurement of material to fill to delivery of finished product to the customer. ERP systems come in modules that can be installed on their own or in combination with other modules. There are usually modules for finance, procurement, manufacturing, order fulfillment, human resource and logistics. The focus of these modules is primarily on carrying out and monitoring daily transactions. ERP systems are installed in most companies today. They provide a common infrastructure throughout the company with role based access to data. Enterprise resource planning (ERP) system is an integrated computer-based application used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise-wide system environment. An ERP system can either reside on a centralized server or be distributed across modular hardware and software units that provide "services" and communicate on a local area network. The distributed design allows a business to assemble modules from different vendors without the
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need for the placement of multiple copies of complex and expensive computer systems in areas which will not use their full capacity. MODULES

Transactional backbone

Financials Distribution Human resources Product lifecycle management

Advanced applications

Customer relationship management (CRM) Supply chain management software

Purchasing Manufacturing Distribution

Warehouse management system.

Management portal/dashboard

Decision support system

These modules can exist in a system or can be utilized in an ad-hoc fashion. COMMERCIAL APPLICATIONS Manufacturing Engineering, bills of material, work orders, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow Supply chain management Order to cash, inventory, order entry, purchasing, product configuration, supply chain planning, supplier scheduling, inspection of goods, claim processing, and commission calculation Financials General ledger, cash management, accounts payable, accounts receivable, fixed assets Project management Costing, billing, time and expense, performance units, activity management Human resources Human resources, payroll, training, time and attendance, rostering, benefits Customer relationship management
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Sales and marketing, commissions, service, customer contact, call-centre support Data services Various "self-service" interfaces for customers, suppliers and/or employees Access control Management of user privileges for various processes. The term "enterprise resource planning originally derived from manufacturing resource planning (MRP II), which followed material requirements planning (MRP). MRP evolved into ERP when "routings" became a major part of the software architecture and a company's capacity planning activity also became a part of the standard software activity. ERP systems typically handle, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. ERP software can aid in the control of many business activities, including sales, marketing, delivery, billing, production, inventory management, quality management, and human resource management ERP systems are often incorrectly called back office systems, indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management (CRM) systems that deal directly with the customers, or the ebusiness systems such as e-commerce, e-government, e-telecom, and e-finance, or supplier relationship management (SRM) systems. ERP systems are cross-functional and enterprise-wide. Advantages

ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable. Integration among different functional areas to ensure proper communication, productivity and efficiency. Tracking the three-way match between purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced). ERP systems centralize the data in one place. Eliminates the problem of synchronizing changes between multiple systems consolidation of finance, marketing and sales, human resource, and manufacturing applications Permits control of business processes that cross functional boundaries Shorten production lead time and delivery time
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Disadvantages

Customization of the ERP software is limited. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. ERP systems can be very expensive. (This has led to a new category of "ERP light" solutions.) ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companiesthis is cited as one of the main causes of their failure. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, and then over time "dirty data" will reduce the reliability of some applications.

Once a system is established, switching costs are very high for any partner. The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

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ERP Logistics Main Features The decision to implement ERP allows Businesses to make the daily tasks simpler through the correct control of the logistic, production and counter sales. The possibility of tracing back in time to forecast provides a clear and reliable sight of the origin and destiny of the lot. The liquidations for transports could be done with rates previously defined. The purchasing and selling of contracts is easy to handle with prearranged dates for delivery and the collection of payment. The system is also helpful in easily calculating the costs of financing, transport and storage, as well as carriage payments, profit margins, benefits and intermediaries. ERP provides control panels for merchandising, whether packed or in bulk. With this system, the necessary quantities can be processed or delivered, depending on the respective prices of the purchase and sale. This feature is fundamental in having proper control over all the activities that are directly or indirectly related to the logistics. There are specific modules for the satisfaction and needs of this particular sector. Some of the more common shared by all the enterprise resource management includes the standard module, the production module and the transport module. The first one offer the functions of basic maintenance with are related to the application like clients, providers, products, warehouses, and taxes. One of the most important objectives of the standard module is to control and display the purchasing contracts with providers and the sale with clients. This is based on the material
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entries, and each entry for storage, merchandise origin, and specific weights are saved in a controlled way. In regards to the production module, the user will be able to handle all the management of the production orders, packaging, and cleaning expenses. The system also provides the user with the ability to look up the past orders and modify them to create new ones. Besides, there is a special control display, where all the details of stocks and product prices are available. Finally, the transport module offers the advantages of maintaining of transports, typing the expenses for each transport depending the origin and destiny, and also making the liquidations for transports based on the prearranged fees. The conclusion of the main objectives of the implementation of ERP is to provide the organization with a simpler method of managing and integrating the Business controls of the logistics. The merchandise in stock and the production of products is also crucially important. With the use of this program to collect information about the clients, providers, products, storage, and selling of contracts, it is an easy task that could help save money and time. It is a great advantage to consider this like an investment rather than an expense. LECTURE 6-CASE STUDY 7 Eleven convienience Stores-Tech savy Stock ups.

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STUDY MATERIAL -3 LECTURE 7- Surprise Test LECTURE 8- Case study-WALMART SUPLY CHAIN PRACTICES

LECTURE 9,10,11- PACKAGING-For safe product handling, Movement and Storage. Packaging can be defined as materials used for the containment, protection, handling, delivery, and presentation of goods. Packaging can be divided into three broad categories:

Primary packaging is the wrapping or containers handled by the consumer. Secondary packaging is the term used to describe larger cases or boxes that are used to group quantities of primary packaged goods for distribution and for display in shops. Transit packaging refers to the wooden pallets, board and plastic wrapping and containers that are used to collate the groups into larger loads for transport, which facilitates loading and unloading of goods.

Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale and use. Packaging can be defined as the coordinated system of preparing goods for transport, warehousing, sale and end use. Package labeling is any written, electronic, or graphic communication on the packaging or on a separate but associated label. OBJECTIVES of Packaging and Package Labeling Packaging and package labeling have several objectives :

Physical protection - The objects enclosed in the package may require protection from, among other things, compression, temperature etc. mechanical shock, vibration, electrostatic from oxygen, water vapor, dust, etc., discharge, is often

Barrier

protection -

barrier

required. Permeation is a critical factor in design. Some packages contain desiccants or Oxygen absorbers to help extend shelf life. Modified atmospheres or controlled atmospheres are also maintained in some food packages. Keeping the contents clean, fresh, sterile and safe for the intended shelf life is a primary function.

Containment or agglomeration - Small objects are typically grouped together in one package for reasons of efficiency. For example, a single box of 1000 pencils requires less physical handling than 1000 single pencils. Liquids, powders, and granular materials need containment.
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Information transmission - Packages and labels communicate how to use, transport, recycle, or dispose of the package or product. With pharmaceuticals, food, medical, and chemical products, some types of information are required by governments. Some packages and labels also are used for track and trace purposes. Marketing - The packaging and labels can be used by marketers to encourage potential buyers to purchase the product. Package graphic and physical design have been important and constantly evolving phenomenon for several decades. Marketing communications and graphic design are applied to the surface of the package and (in many cases) the point of sale display. Security - Packaging can play an important role in reducing the security risks of shipment. Packages can be made with improved tamper resistance to deter tampering and also can have tamper-evident features to help indicate tampering. Packages can be engineered to help reduce the risks of package pilferage: Some package constructions are more resistant to pilferage and some have pilfer indicating seals. Packages may include authentication seals and use security printing to help indicate that the package and contents are not counterfeit. Packages also can include anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance[9] tags that can be activated or detected by devices at exit points and require specialized tools to deactivate. Using packaging in this way is a means of loss. Convenience - Packages can have features that add convenience in distribution, handling, stacking, display, sale, opening, reclosing, use, dispensing, and reuse.

Packaging materials The most common types of material used for packaging are paper, board, plastic, glass, steel and aluminium.

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GLASS

Many types of Symbols for package labeling are nationally & internationally standardized for consumer packaging, symbols exist for product certification, trademark etc.Some symbols exist
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to communicate aspects of consumer use and safety. Example of Environmental and recycling symbols include the recycling symbol, the green dot etc.

Symbols used for Packaging

Packaging Cost The logistical packaging helps in reducing the transit damages, enhancing the operating efficiency of the material handling equipment and economizing on space utility. The net result is reduction in operating cost of the system through better asset utilization and prevention of transit damage to the product. However, the gain is more than the loss, which would have resulted otherwise due to improper logistical packaging. But for those gains, the manufacturer needs to plan creation cost of the packaging, which includes: 1) 2) 3) 4) 5) 6) Cost of Package (manufactured or Landed) Storage cost of empty package Handling Cost of empty Package Packaging operating cost (cleaning, filling, sealing, labeling, unitizing, strapping etc.) Package Damage (during packaging operation) cost. Obsolescence cost
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The logistical packaging cost depends on type of product, physical dimension of product, the unit value of product, type and quality of handling and transportation of equipment, regulations etc.However ,broadly it varies from 0.5 to 5% of the value of consignment.

Lecture 12- Radio Frequency Identification (RFID) and Bar coding

RFID RFID is the most recent application of information technology in the logistics and supply chain operations. It is more promising alternative to bar codes, which communicate data via radio waves to a reader typically connected to a host computer system. Basically , an RFID consists of an antenna and a piece of silicon, a microcircuit of data storage. They have intelligence that allows the data to be coded into the tag and the data is communicated through radio waves. Radio-frequency identification (RFID) is a technology that uses communication via radio waves to exchange data between a reader and an electronic tag attached to an object, for the purpose of identification and tracking. Some tags can be read from several meters away and beyond the line of sight of the reader. The application of bulk reading enables an almost parallel reading of tags. Radio-frequency identification involves interrogators (also known as readers), and tags (also known as labels).Most RFID tags contain at least two parts. One is an integrated circuit for storing and processing information, modulating and demodulating a radio (RF) signal, and other specialized functions. The other is an antenna for receiving and transmitting the signal.

In January 2005, Wal-Mart required its top 100 suppliers to apply RFID labels to all shipments. To meet this requirement, vendors use RFID printer/encoders to label cases and pallets that require EPC (Electronic Product Code) tags for Wal-Mart. These smart labels are produced by embedding RFID inlays inside the label material, and then printing bar code and other visible information on the surface of the label.

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An EPC RFID tag used by Wal-mart

RFID in practice Future group,owner of Pantaloon,Big Bazzar and food bazzar in india,has entered into a tie up with Cisco System to implement RFID technology in all its retail formats in India. The project cost is INR 200 crores. Almost one million stock keeping units (SKU) out of total three million will be tagged with RFID chips. All commodities over the INR 400 price band will be tagged with RFID chip. Bar- coding The bar code systems are the identification technology that facilitates speedier flow of logistical information such as quick tracking receipts, movements details, product identification, etc with a lesser probability of error. It refers to the placement of computer readable codes on items, cartons and containers. It is grouping of parallel bars of different widths separated by light spaces (using white), again on different widths. These bars (black and white), again of different widths used to define a particular character which can be identified by an electronic scanning machine system. Bar codes are seen on all types of goods today. These bars are nothing but items of information in codified form, which can be decodified or read with help of scanner. The bar code facilitates data accuracy, real time data availability, uniformity and easy useage, which are recognized globally.

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Benefits

Fast-selling items can be identified quickly and automatically reordered. Slow-selling items can be identified, preventing inventory build-up. The effects of merchandising changes can be monitored, allowing fast-moving, more profitable items to occupy the best space, Historical data can be used to predict seasonal fluctuations very accurately. Items may be re-priced on the shelf to reflect both sale prices and price increases. This technology also enables the profiling of individual consumers, typically through a voluntary registration of discount cards. While pitched as a benefit to the consumer, this practice is considered to be potentially dangerous by privacy advocates.

The various bar code symbologies differ both in the way they represents data and in the type of data they can encode. Some symbology can encode numbers, while others both numbers and letters, and some can encode letters, numbers as well as characters, that is ASCII codes. The latest symbologies include multiple language options. Bar code symbologies can be divided ito 3 broad categories: Linear It consists of a single row of bars and can be read by single line scanner. Stacked-A stacked Symbology consists of several rows of bars and spaces and can be read by a multiple ID scanner with moving laser beam. Matrix-These are in a Polygonal array of data cells and are read from 2D mage scanner. Bar codes are also one, two or three dimensional types depending on the symbology and its application.

Some popular symbologies in use: Symbology Code 39 Code 128 Pharma Code Ups/EAN Maxi codes PDF-417 Type Linear Linear Linear Linear Matrix Stacked Data Capacity Alpha Numerical 1-48 ASCII Alfa-numeric 13 digits 1-90 Alpha numerical 1-1200 Full binary Usage Distribution Shipping ,Labels Pharmaceutical ind. Grocery items Parcels Passports,IDs

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Bar-Coding and EDI Texas instruments has linked EDI and Bar coding in the order placement and management of office supplies the company benefited by way of reduction in the inventory- holding cost to the extent of USD 2 million,freed up 40,000 sq ft of warehouse space and reduction in cycle time by more than one-third.

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Study Material 4 Lecture12-Seven Eleven Case Study Lecture -13,14,15,16-Transportation: Backbone of Logistics
Rate Negotiations Documentation Claim Administratio n Transport Management Carrier evaluation and selection Route Planning Transport mode and mix decisions

Transportation is an indicator which measures the economic, social & commercial progress of a country. It has transformed the entire world into one organization and greatly contributed to the evolution of civilization. Transportation is the most visible element of logistics operation. It has a significant share in overall logistical cost of the firm and needs a great deal of planning to control it. Transportation is the exciting and dynamic part of the supply chain & managing transportation presents both opportunities and challenges.

Evolution of Transportation System

Transportation ensures movement of people as well as goods from one place to another. So it helps in growth of trade and commerce of the country. A good transportation system is one of the pillars of industrial growth and commercial structure of the country. In ancient times, various modes of transportation, such as human beings, camels, horses, donkey, bullock-carts and ships. An evidence of these modes found in the histories of Roman, Greek, Persian, harrappan and Mohenjo-Daro civilizations. But capacity and speed were the main constraints for these modes. With the advent of the industrial revolution in Europe, rapid changes occurred in the transportation system. The new system required easy transportation of workers to and from the factories and speedy movement of goods to the place of consumption. The result was development of 4 modes of transport that is, road, rail, air and water. In India before independence, the transportation system mainly comprised roads and railways, which was
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developed for smooth administration by the then government for communication. However, after independence, the focus changed to the development of railways and road infrastructure for supporting the developmental needs of Indian economy and society. Then, slowly the seaports and airports were developed to facilitate industrialization in the country.

Transportation Infrastructure
In the movement of raw materials or products from place of production to the place of consumption, transportation is the most important component of logistical system. It serves two purposes, one is product movement and the other is in-transit product storage. In India, 39% of the total domestics cargo movement is done through road; followed by rail, which contributes to the extent of 35%; balance shared by inland water, air and sea. Table indicates the cargo handled through each mode. Cargo movement (2006-2007),mode comparison Transport Mode Road Rail Sea Air Pipelines Road Road transportation is one of the promising means for agricultural and industrial advancement of the country. It is suitable for short and medium distances where other means are unable to reach. It provide basic infrastructure to bring trade and commerce from remote rural areas to urban areas or vice-versa and bring far off villages in the mainstream of national life ensuring connectivity. Today road transportation is occupying predominant position in the transport network in the country. Road transportation offers a number of advantages such as Door to door service Flexibility Reliability Reaching Remote Places Speed As regards the trucking industry in country, it is predominantly in the unorganized private sector and bulk operators are single truck owners. The operator face many irritant, such as levy of multi-point octroi and traffic police checks, which impede the free flow of
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Cargo handled(billion km/ton) 768 481 -

Cargo handled (million tones) 450 728 464 1.55 58.5

goods traffic.Currently,25 million trucks are playing on Indian roads. The Indian road conditions not being good, the average distance covered by a truck is 250-300 Km per day as against 550-600 Km by their counterparts in developed countries. The average operating cost of the Indian truck is INR 15 per KM. Railways Railways are the principal carriers of men and material and play a major role in countrys trade and commerce activities. It is main source of supplying essential commodities, transporting them through length and breadth of country. Across, the world railways have played an important role in industrialization and development of nations. It has been primary means of for movement of raw material and finished goods. Indian railways operating through a network of 6896 railway stations across 62,800 Km of route length. IRs 96% cargo consists of bulk items such as coal, iron ore cement, fertilizers, raw material for steel plants, finished steel products and petroleum. Bulk

Railway goods trafic

Cement POL Fertilisers Steel Coal Foodgrains Ironore others

Cargo is transported through railways because of cost advantage over other modes of transportation. Sea The shipping fleet across the world comprises tankers, dry bulks carriers, containers, container ships and special vessels. The tanker fleet accounts for 33% of the total fleet, while a dry bulk carrier contributes 32% of the total in terms of million gross registered tones (GRT). India as approx. 55 shipping companies. Indian shipping on has very high dependence on international trade, with 95% of overseas cargo by volume and 77% by value moving by sea. Crude oil, oil products, iron ores, coal, food grains and steel are some major products transported through sea. In India, 11 major ports handle 95% of international trade and 85% of domestic sea trade. The Indian shipping companies (SCI and Essar) are slowly moving from carrying business to become a complete sea logistics solution providers,
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thereby maximizing shareholders wealth focus on energy (oil) transportation business and moving upward in value chain by providing one stop integrated logistics solution and value addition by providing their client web-based logistics solutions. Air Compared to all other modes of transport, air transport is less hazardous in nature. Air Transportation is a costly affair and it is used only for highly perishable commodities and items, whose life is short and value is high. Even though the cargo handled by air is growing at a rate of 15-16 percent, it is significant as compared to cargo handled by other modes of transportation. The air cargo traffic is handled by eight international airports, 87 domestic airports and 28 civilian airports (shared with defense forces).the air cargo traffic is concentrated around the gateway airports such as Mumbai,Chennai,Delhi,Kolkatta and Bangalore. These airports handle 87% of air cargo traffic in India. Inland water transport (IWT) IWT is an eco-friendly transportation mode. IWT can play a significant role in augmenting the countrys transportation infrastructure. India has a potential of 1, 45,000 km of IWT infrastructure comprising rivers, lakes and channel. Cargo movement through IWT in India is meager one percent as against 10-12 % in UK, Europe and China. With the globalization of Indian economy and implementation of WTO directives in India, there will be greater movement of goods to and fro. This will create heavy pressure on already Burdened transportation system of rail and road in India. There is a limit to expansion of road capacity because of limited availability of land, high input cost and environmental considerations. IWT is cost effective as compared to road and rail infrastructure. A Kilometer of highway construction cost INR 6 crores, while more than 100 kms waterways can be developed at the same cost at the current rate. There are some hazardous commodities, which should not be allowed for transportation on road. The major advantage of IWT is doubling of load capacities or a small increase in depth and thereby providing flexibility and cost elasticity, which does not exist in other mode of transportation .Besides lower fuel consumption and construction cost. Pipelines Pipeline as a mode os transportation which was first developed in 1870 by Samuel Van Syckel for transporting petroleum.20 yrs later, Standard oil Company changed the face of transportation. Though petroleum was the first product transportated in this manner, the pipeline became useful for several other commodities such as coal in slurry form, iron ore fines in slurry form, chemicals, and natural gas etc.The basic advantage of this mode is it reduces the operational cost, though the initial investment is high. In India, pipeline is used for oil transportation by all public and private sector petroleum refineries.
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It is an eco-friendly transportation mode. The cost of moving oil by rail and road continues to rise over the years; however, pipeline heads towards downtrends. The transportation cost of moving oil is INR 1.15 per tone per km on a new pipeline, while it is INR 2.50 per tone per km by road. Currently, 27% of the petroleum products are moved by pipelines of 6350 km length in India. Ropeways In India more than 16% of the geographical area is hilly. Communication to such areas is a problem because of the long circuitous routes The transportation of goods and essential commodities to the hilly areas is sometimes important because of their strategic location from the defense point of view. Ropeways cause least damages to the ecology. Inaccessible hilly areas can be reached with shortest distances. Other modes of transportation are uneconomical. Bulk material can be moved faster over short distance. Currently 175 km of ropeways are in use in the above territories for transportation of both materials and human beings. Transportation modes: Characteristics Comparison

Characterstics Speed Investment Freight Cost Reliability Frequency Capability

Road 2 1 4 2 2 4

Rail 3 2 3 3 3 3

Water 4 3 1 4 4 2

Air 1 4 5 5 5 5

Pipeline 5 5 2 1 1 1

Elements of transportation Cost It has already been said that transportation cost is one of the major constituents of total logistical costs. Hence it is essential to have a proper analysis of transportation costs, which includes various elements. Some element behave in contradictory manner with others. E.g.-if we opt for speedier mode of transportation, say airways, the transit time, obsolescence and deterioration costs are less but tariff cost goes up. Following are the elements of Transportation cost: 1) Tariff of transport mode-This element of transportation refers to freight charge of various modes of transport to be paid for movement of goods from one location to another,
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Tariff of airways is highest, followed by roadways, railways, seaways and pipelines. Normally, Freight charges increases with the decrease in transit time.Tarriff of transport mode largely depends upon large no. of factors, such as: Nature of product Distance to be covered Volume/quantity to be shipped Density ( Weight and Space) of the product Trade relationship, etc 2) Transit time cost- this cost of transportation deals with the cost of inventory in transit. From total logistics costs point of view, this element of transport cost is very significant. If the transit time of particular mode of transportation is longer, it means the product of the firm remains in transit for a longer period of time.So, the involvement of warehouse cost for a longer period of time, resulting into higher transit time cost. 3) Obsolescence & deterioration Costs- This element of cost caused due to obsolescence & deterioration in the physical attributes of the product during transit. There are various products which are perishable & delicate in nature, whose physical attribute deterioration over a period of time, gradually resulting into devaluation of product. 4) Protective Packaging Cost- For specific products and modes of transportation, there is a requirement of a specific protective packaging, such cost come under transport cost If transportation is done through railways, more sophisticated protective packaging required to protect goods from breakage and pilferage. In case of roadways, less protective packaging required As far as breakage and pilferages concern, normally road transports settle the shippers claim instantly, whereas as it takes too long in railways. Hence shippers need to take into consideration the protective packaging requirements along with cost incurred in it while selecting a particular mode of transportation and its cost calculation. 5) Transit insurance cost-It is cost of insurance paid to insurance company to cover various risks. At the advent of Containerization, this cost is minimized because there are less chances of damages. 6) Miscellaneous cost - Apart from the above elements of transportation costs. There are other miscellaneous costs, such as local taxes, octroi,toll taxes etc.specially when goods shipped through roadways.

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Containerization A container can be defined as a transport device for moving solid and liquid material. It is a case or tank with adequate strength to be repeatedly used for packaging and transportation of material. It was Malcolm McLean, owner of a huge trucking Company in the USA, who conceived the idea of containers in 1956.Initially containers were used for sea transportation. These are normally air and water tight construction using steel and aluminium ally and are built as per ISO instructions and verification. During its first 20 years, many container sizes and corner fittings were used; there were dozens of incompatible container systems in the U.S. alone. Among the biggest operators, the Matson Navigation Company had a fleet of 24-foot (7.3 m) containers while Sea-Land Service, Inc used 35-foot (11 m) containers. The standard sizes and fitting and reinforcement norms that exist now evolved out of a series of compromises among international shipping companies, European railroads, U.S. railroads, and U.S. trucking companies. Today Today, approximately 90% of non-bulk cargo worldwide moves by containers stacked on transport ships;[11] 26% of all containers originate from China. As of 2005, some 18 million total containers make over 200 million trips per year. There are ships that can carry over 14,500 Twenty-foot equivalent units (TEU), for example the Emma Mrsk, 396 m long, launched August 2006. Biggest ISO container companies Top container shipping companies in order of TEU capacity, 23 Jan 2011

Company

TEU capacity

Number of ships

A.P. Moller-Maersk Group

2,150,888

545

Mediterranean Shipping Company S.A.

1,638,962

414

CMA CGM

1,100,007

384

American President Lines

589,879

147

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Evergreen Marine Corporation

554,725

152

Hapag-Lloyd

541,811

124

COSCO

498,437

134

CSAV

469,428

128

Hanjin Shipping

448,051

98

China Shipping Container Lines

440,236

122

NYK Line

365,034

95

30

20 ft Dry

40 ft Dry

20 ft Dry High Cube

40 ft Dry High Cube

20 ft Refer ( Referigerated)

Sea Freight Container dimensions Outside dimension: 6.045x 2.438x 2.438 m Inside Dimension: 5.918x 2.337x2.2103 m Volume: 31 m3 Outside dimension: 12.192 x 2.438 x 2.591m Inside Dimension: 12.040 x 2.337 x2.338 m Volume: 67 m3 Outside dimension: 6.045x 2.438x 2.591 m Inside Dimension: 5.918x 2.337x2.413 m Volume: 33 m3 Outside dimension: 12.192 x 2.438 x 2.896 m Inside Dimension: 12.040 x 2.337 x 2.692 m Volume: 76 m3 Outside dimension: 6.045x 2.438x 2.438 m Inside Dimension: 5.385x 2.159x 1.956 m Volume: 23 m3

ISSUES Increased efficiency A 1998 study of post-containerization employment at United States ports found that container cargo could be moved nearly twenty times faster than pre-container break bulk. The new system of shipping also allowed for freight consolidating jobs to move from the waterfront to points far inland, which also decreased the number of waterfront jobs. Additional fuel costs Containerization increases the fuel costs of transport and reduces the capacity of the transport as the container itself must be shipped around not just the goods. For certain bulk products this makes containerization unattractive in some areas (mostly USA and Canada) containers are double stacked (one above another), but this is usually not possible in other countries.
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Hazards Containers have been used to smuggle contraband. The vast majority of containers are never subjected to scrutiny due to the large number of containers in use. In recent years there have been increased concerns that containers might be used to transport terrorists or terrorist materials into a country undetected. The U.S. government has advanced the Container Security Initiative (CSI), intended to ensure that high-risk cargo is examined or scanned, preferably at the port of departure. Empty containers Containers are intended to be used constantly, being loaded with new cargo for a new destination soon after having emptied of previous cargo. This is not always possible, and in some cases, the cost of transporting an empty container to a place where it can be used is considered to be higher than the worth of the used container. Loss at sea Containers occasionally fall from the ships, usually during storms; 10,000 containers are lost at sea each year. For instance, on November 30, 2006, a container washed ashore on the Outer Banks of North Carolina USA, along with thousands of bags of its cargo of Doritos Chips. Containers lost at sea do not necessarily sink, but seldom float very high out of the water, making them a shipping hazard that is difficult to detect .In 2007 the International Chamber of Shipping and the World Shipping Council began work on a code of practice for container storage, including crew training on parametric rolling, safer stacking and marking of containers and security for above-deck cargo in heavy swell.

Who is Shipper & Carrier? Xerox made Photocopier at the factory situated at Rampur, U.P., Blue Dart transported these photocopier to its Delhi based warehouse. Xerox refers to shipper and Blue-Dart is carrier. Shipper-One who sends goods from one place to another Carrier-One who is employed, or makes it his business, to carry goods for others for hire; a porter;

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Transportation decisions (Pricing & Rate) There are various factors which affect transportation decisions: Economic Factors Shippers factors Carriers Factors Alternative Pricing strategies. Economic Factors

There are several economic factors which influence transport rates. The specific economic factors are distance, volume, density, stowability, and handling. Distance-It contributes directly to variable cost, including labour.fuel, maintenance. Distance is one of the most basic economic factors which determine the total logistic cost. It contribute directly to variable cost, including labour, fuel, maintainnace.The transport variable cost is directly proportionate to distance. Volume- The second economic factor is load volume, which influences the transportation cost. Transport cost per unit of weight decreases with the increase in the load volume. It is mainly due to fixed administrative and other costs like delivery and picking costs. Furthermore, it increases in the cases of under load capacity of the vehicle. Density- The density factor incorporates weight and space aspects, which is significant because transportation cost is normally quoted in terms of rupees per ton. Logistics managers are required to increase the product density, allowing more unit of product to be loaded on a trailer of the vehicle to better utilize capacity. Stowability- The stowability factor refers to product dimensions and how they affect vehicle space utilization. Products of odd sizes and shapes along with excessive weight or length, typically waste space because, they cant be stowed well. For instance, while steel blocks and rods have the same density, rods are more difficult to stow because of their length and shape than blocks. Transportation costs are generally more in the case of odd-shaped products whose stowability is more difficult. Shippers factors

While making transportation related decisions, a shippers objective emphasizes on minimization of total logistics costs in terms of transportation, inventory, information and maximization of customer responsiveness capability of the firm. The following aspects of costs are required to be taken into account: I. Cost paid to carrier for shipment
33

II. III.

Cost of holding inventory incurred by shipper supply chain network. Facility cost in the shippers supply chain. Carriers Factors

While making Transportation related decisions, carriers are required to make investment decisions for the development of transport infrastructure and then operating decisions to maximize their own return against investment. Carrier incurs the following costs: I. Cost of procurement of vehicle II. Fixed operational costs like salary of drivers, attendants, vehicles insurance,registration,road tax etc III. Trip related cost- like cost of fuel, labour, road permit, toll tax etc. IV. Value added services such as tracking of shipment, point-to-point information, barcoding, EDI etc. Alternative pricing strategy While setting rates to charge, shippers and carriers can adopt one or a combination of two of the following alternative pricing strategies. The major objective is to bring about a trade-off between the cost of service rendered by carrier and the value of the service to the shipper. I. Cost of service strategy- It is the simplest pricing strategy for transportation service. In this strategy a build up approach is adopted where the transport service provided. Determine a rate based on the cost of providing the service plus a profit margin to get predetermined return. a. E.g. - Cost of transportation-5000 b. Profit mark up - 10% c. Cost of Service - 5500 Value of service strategy- this strategic approach refers to fixation of transportation charge on the basis of value of the service required by the shipper. Currently, logistics manager of the enterprise are not expecting more movement of goods from point of origin to destination point, but they need value added services in terms of total logistics solution. Hence in this approach transport charges are fixed on the basis of perceived shipper value rather than the cost of actually providing the service. This approach is most suitable in the case of transportation of high-value goods. Combination Strategy- As the name itself depicts, this strategy is a combination of earlier discussed two approaches. It refers to the establishment of the transportation price

II.

III.

34

at the same intermediate level between where the cost of service minimized and value of service maximized. Inter- modal Transportation Its the use of more than one mode of transportation for the movement of shipment from the origin to is destination. These are joint; point-to-point.it generally involves two or more modes of transportation. Piggyback- Coordination between railways and roadways. Its also call TOFC or COFC .it involves picking up goods in a trailer or container, delivering it to rail, removing the truck trail, reattaching it to a truck, which make final delivery. Fishy back-This is achieved by coordination of road and water modes of transportation. Goods containing boxes are loaded on the trailer which will be further loaded on ship. Tranship- Intermodal transportation system is the outcome of the coordination between railways and waterways for the bulk movement. Air truck- Its outcome of the coordination between airways and roadways. Its also called Birdyback.It refers to exchange of goods container between air and road carriers.

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Lecture-17, 18,19,20,21 Warehousing: A role beyond storage Modern warehousing is in the process of an evolutionary change from an emphasis on storage to emphasis on flow through, from inventories at rest to inventories at motion. In logistical system role of a warehouse is that of a switching facility rather than a storage facility. The effectiveness of the supply chain can be considerably enhanced through proper decision making on warehousing.

Occupancy

Order Fulfillment

Warehousing Productivity Source of logistical competence Inventory turns

Timely shipment

Damage free delivery

Operating Costs

Documentation

Warehousing A logistical challenge A warehouse act as a supporting function for logistics and play a key role in attaining the overall objectives of the firms logistical supply chain system. In todays context, a warehouse is used as a switching facility rather than a long term storage house. The attention is paid to higher inventory turnover, lower operating costs and shorter cycle times. The performance of a warehouse is judged by its productivity and cost performance, to achieve two polemic goals of customer satisfaction and lower cost of operation. One of the most important steps in the selection of a logistics network is deciding on a centralized or decentralized warehouse system. A warehouse can act as mother warehouse or a distribution warehouse depending on the distribution system adopted by company. The centralized warehouse ensures tight control on inventories and can operate on economies of scale resulting in lower operating cost. The decentralized warehouse operations with multiple
36

distribution centers ensure the best services to the customers. The site selection for locating the warehouse is the next step which depends on type of product, consumption centers, transportation cost, customer service needs etc. The following needs to be taken care of: Maximum utilization of storage space. (Floor and cubic space) Higher labour productivity Maximum asset utilization Reduce material handling Reduce operating cost. Increased inventory turnover. Reduced order filling time.

Warehousing Functions The primary task of a warehouse is to store any material until it has been delivered to the customer or the end user. As the manufacturing and consumption cycle never match, the manufactured material has to be stored somewhere till the demand for the same is generated and delivery is confirmed. In fact, the storage facilities are designed around the following four functions: Material Storage function HOLD- the holding function is the most important function of a warehouse for the finished products ready for delivery. Depending on demand or order booking pattern and delivery schedules promised to the customer by the marketing department, the goods are dispatched from the warehouse. At the warehouse there is continuous inflow and outflow of material. The allocation of area for materials at different point of time is necessary to retrieve those materials as and when required for further delivery to particular customers or markets. Hence, the material holding function has to be carefully planned looking at variables such as product categories, product mix, product characterstics, shipment arrival time, expiry dates etc.

Manufacturing Plant

Warehouse (Finished goods)

Customer

37

CONSOLIDATION if the supplies are originated from various sources in small quantities, it may be economical to collect these small shipments at one centre and combine them into a large shipment for sending it to the customer. The consolidation will ensure cost saving on freight. For import or export of goods for large buyers whose requirement does not warrant for enough volumes for shipment from each source, there is potential cost saving on freight with consolidated shipment.

Vendor 1

Buyer 1

Vendor 2

Consolidation warehouse

Buyer 2

Vendor 3

Buyer 3

BREAK BULK in contrast to consolidation warehouse, here the material arriving in bulk is divided into small shipments for delivering it to the end customer. The bulk cargo of fertilizers, oil, chemicals coming from a source is broken into small consignments for buyers as per their requirement.
Customer 1

Manufacturing Manufacturing
Plant

Break Bulk Warehouse

Customer 2

Customer 3

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CROSS DOCKING this is similar to break bulk activity except that it involves multiple suppliers. The usage of a warehouse is for very short time. The material arriving in bulk in fully loaded trucks is broken into smaller consignments for further dispatch to the customers. The stay of material in warehouse is not more than 48 hours. Cross docking is most commonly used in retail chains wherein the mother warehouse receives different materials from multiple suppliers, which is broken, assorted and consolidated for dispatch to various retail stores as per the requirement. MIXING a warehouse sometimes is used as a product mixing point for a company having a number of plants manufacturing different ingredients, which are mixed at a convenient place to make final product. The process involved is a simple mixing. The customer order can be fulfilled without mixing, by sending the ingredients in small uneconomical volumes from individual plants to the customer. However the transportation cost becomes prohibitive, for shipments of individual ingredients to the customer. A common mixing point permits volume shipments of ingredients at a single location. Packing this is an important function that is carried out in a warehouse after the break bulk operations. The repackaging of the material as per the ordered quantities of the individual customer is done. The packs are labeled and marked as per the packaging regulations or as per requirements of the customer. Material Handling Function This function is divided into 3 activities: Loading and Unloading- The unloading activity is performed when the goods arrive in a warehouse. The material is offloaded from the transportation vehicle. Loading is the last function performed in a warehouse. the material packed in boxes is loaded on to the transportation vehicle at the loading area. Loading includes the additional efforts of bracing the load to prevent damages. Material movement These activities are carried out either manually or with the help of the material handling equipment. The incoming material that is unloaded has to be moved to an assigned place in a warehouse for temporary storage, while during order pick up the material is to be moved from the storage area to the picking area and then to the loading area. For material movement the most common equipments in use are trolley, crane, conveyor or forklift. Order filling- This includes the selection of material from various lots at various locations in a warehouse as per the customer order. This activity is done manually or with the help of robots.

39

The order cycle time, which is the most critical parameter in customer service, is very much dependent on the speed of material picking. Information Handling Function For an effective and efficient customer service, it is essential for the marketing persons to know the availability of stocks and the likely dispatch schedule. Also the inventory level at any point of time is of crucial importance to the top management to know its impact on cash flow of the firm. This is possible with a proper warehouse information system. Information is also required on the following: Goods inward Inspection an auditing Goods Outwards Stock outs Excess Stocks Invoicing Warehouse expenses Transit damage and Breakage Consignment tracking

Warehouse Options- A Strategic Decision

The warehouse option is a strategic decision having long-term effects on the efficiency and effectiveness of the system. The option may be exercised after thorough evaluation of the logistics system design mix. For acquiring a warehouse space the following 3 options are available: Private Warehouse Public Warehouse Contract Warehouse

Private Warehouse- Private Ownership of a storage facility refers to the entire facility under financial and administrative control of the firm. The firm owing the product operates these warehouses. These facilities may include a production oriented captive warehouse or a distribution warehouse located in the field for customer service. Private warehouses are attractive prepositions under certain circumstances such as:
40

Product specific material handling and storing facilities are required which are not available with other options Volumes handled are high ensuring full capacity utilization and benefits of scale economies High degree of control over operations is required

The benefits of a private warehouse are flexibility, full management control and lower operating cost. The operating cost of a private warehouse is less as private warehouses do not have a profit mark up. The material handling and the storage facility can be changed as per the product mix, which is not possible in case of public or contract warehouses. Public Warehouse- A public warehouse is similar to a private carrier in transportation service. The firms having warehousing space, storage facility and material handling equipment, for the most general use, provide these services. These types of warehouses are extensively used in logistical systems. Public warehouses are designed for handling the most general packaged products or commodities, which do not require specialized storage and handling arrangement. The products generally stored are food grains, paper rolls, furniture, chemicals, bulk material (cement, fertilizers) etc. A public warehouse provides financial flexibility. A newly formed firm desirous for expanding its distribution network need not invest in developing a private warehouse. The option is to hire some space in a public warehouse and use the money for other productive activities. Contract Warehouse- These are the product specific warehousing facilities acquired for use for a specific period against fixed charges. A contract warehouse can provide the benefits for both private and public warehouse. This facility provides the benefits of scales, flexibility and customizes a facility. The resources such as labour,material handling equipment, storage arrangement, communication equipment, can be used on sharing basis with depositors from the same industry to economize on operating cost. As the facilities are product specific product damages are less.

41

Warehouse options Basis Investment Flexibility in Private High Material handling, storage and throughput planning Related to volume High High Public None Location Contract Very little Location

Cost per unit stored Level of control Adequacy of goods stored

Low Low Low

Related to volume Medium High

Ten 21st Century warehousing Trends Practices as just-in-time, quick response, efficient customer response, direct store delivery and continuous flow distribution will reduce the dependence on warehouse in distribution. But in real world, warehousing will still link suppliers with consumers. The following are some warehousing trends for 21st century: 1. Focusing on the customer: 2. Compression of operations and time 3. Continuous flow 4. Cross- Docking 5. Electronic transactions 6. Customized warehousing 7. Third party warehousing 8. The incredible shrinking order 9. Automation 10. The human factor

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Warehouse Site Selection The Consideration of warehouse site selection revolve around two major factors, i.e., service and the cost. Product availability can greatly be enhanced by locating the warehouse close to a market place. Smaller and frequent deliveries, which nowadays the customer prefers, can be organized this will enhance the confidence in the supplier. However, transportation cost, which is major element in logistical cost, depends on the location of the warehouse. The other factors affecting site selection are: Infrastructure- the availability of proper infrastructure such as approach roads, utilities (water, electricity, communication), and labour has a great effect on the efficiency and the effectiveness of warehouse operations. For a cold storage warehouse, availability of electric power is a major factor influencing site selection. The unavailability of a proper road or rail siding facility will have a serious impact on the operations of a warehouse and as a result the transportation cost may go up considerably. Market- The distribution warehouses are planned in close proximity to the markets or consumption centers for offering better service to the customers. Frequent deliveries with small quantities as required by the customers can be organized due to limited geographical area coverage. Access- the location of the warehouse has the greatest effect on the primary transportation cost. The difficulty in access will have an influence on the transportation cost. Primary transportation cost- transportation cost is the largest component in the product cost, particularly for low unit price products. The location of the warehouse will have the greatest influence on the primary transportation cost. The product demand pattern will influence the transportation cost in two ways, first, on the frequency of truck trips and , second, on the loading pattern (full or partial) of the transportation pattern. Availability- the availability of warehousing space in an urban area, particularly in metros at cheaper rates, is a remote possibility. In such cases the site has to be shifted beyond the municipal city limits where storage space is available at a considerably cheaper rate. However, this arrangement may add to the transportation cost. Product- the type of product will have a profound effect on the number of warehouses and their locations. For example-perishable products need to be delivered to the customer within their expiry period and hence they should be located near consumption centers. Regulations- For certain types of products (explosives, hazardous chemicals, and radio active materials), which can cause damage to human life; the storage site selection is guided by
43

government regulations. In such cases very little options are left with the firms to choose the site form. Local Levies- depending on the sales tax and octroi charges in the region, the location of a warehouse is planned. Due to non- uniformity of sales tax across the Indian states, marketers invariably plan the warehouse to take benefits of the local sales tax disparities. Warehouse Costing The elements of warehousing cost normally accounted for are transportation; storage and administration. The inventory carrying cost is not included in warehousing cost. The warehousing cost includes Fixed and Variable cost elements. Fixed cost covers, rental, capital cost, salary-wages of the employees, and utilities while the variable cost covers repair and maintenance, material handling, transportation, and packaging which is related to the load on the warehouse etc.Wide variations are observed in proportion of variable and fixed cost across the different warehouse. Warehousing strategies Warehousing network plays a major role in the success of the physical distribution of products. However, with the proliferation of a number of warehouses, the cost of logistics operations goes up. Hence, it is a tight rope walk for the logistics manager to meet the expectations for cost and customer service. Under these circumstances, to strike a balance between the two and to remain competitive, it is observed that the leading firms adopt and implement the following warehousing strategies. Hub Networking-to reduce the level of inventory and exercise better control on the distribution, warehousing hubs are planned at a few strategic locations to serve the entire market spread over a vast geographical area. This is practiced more in FMCG, pharmaceutical an white goods industry, wherein the distribution networks consists of a large number of dealers, stockiest and retailers. In the Indian context, most of the leading firms have their warehousing hubs located near or around the four metros (Mumbai, Kolkata, Chennai, Delhi) catering to the demand of four regions (east, west, south, north) in the country. The hubs are responsible for secondary distribution to dealers, stockiest and wholesalers in the specified region. A regional hub will cater to the needs of several states covered under respective regions. These hubs will eliminate the need of having distribution centers located in each state which is the practice followed by many firms. The advantages of hub strategy are: Reduction in operating cost Minimization of transportation cost
44

Better control on inventory Improved customer service.

Capacity switching- For a given market there will be a monthly demand pattern for a product. This demand may be greatly fluctuating in certain months due to seasonality in consumption of a product. Under such circumstances the capacity of a warehouse may be planned on the basis of average demand per month over the year and for additional space requirement (to take care of seasonal requirement), a public or contract warehouse may be used for a short period during the season. This may reduce the quantum of investment in a private warehouse if planned on the basis of the peak demand.

Public or contract warehouse (for 25% capacity) Warehousing Storage Capacity Requirement Private Warehouse (for 75% capacity) FC

Months Warehouse Capacity planning

Cobbling-This strategy works well with players who ae not competitors but cater to the needs of similar groups of users or customers and have a similar distribution channel. For example, FMCG products manufactured by the manufactured by the companies such as HLL, J&J & Nestle can be cobbled together to reduce wasteful practices in the storage and transportation. The operating cost will considerably be reduced benefiting all the cobbling partners.

45

Outsourcing- most of the firms do not have expertise in warehousing operations. Moreover, it is not a core activity in their business process. Hence, this area of operations remains neglected for investment decisions and as a result it becomes a bottleneck in overall system productivity, efficiency and effectiveness. For gaining logistical competitiveness, leading firms are outsourcing entire warehousing operations to 3PL providers who bridge these gaps through their expertise, technology and infrastructure. Warehousing in India In India warehousing in general is a neglected area and it is used to the extent of storage of goods until they are delivered. However, some multinationals and professionally managed companies are exception to this. Unlike the developed countries, in India a warehouse is not used as a strategic area for developing a competitive advantage. Most of the warehouses in India still use manual material handling system and are smaller in size as compared to those in the western countries, where they operate on economies of scale and use sophisticated material handling equipment and storage scheme and make use of the latest IT and communication technologies. Indian business firms practice a number of different types of warehousing arrangement. The following are the important amongst them: Captive warehouse located in manufacturing premises of the firm. Network of distribution warehouses at different geographical locations by hiring space from private warehouse. Utilizing godowns available with the stockiest, distributors or dealers at major market centres.

Each pattern has its associated cost, benefits, merits and demerits. Different firms prefer patterns based on their unique situation and their perception of relative cost and benefits. The warehousing industry catering to the industry sector is highly fragmented. There is no central government agency to look after the growth of the industry.Cenral warehousing Corporation and State Warehousing Corporation are the main public warehousing agencies in India. They are statutory agencies having network of warehouses all over the country and are mainly catering to needs of government bodies such as Food Corporation of India for storing grains, spices, fertilizers, cotton seeds etc.They perform functions such as storage, stock accounting, insurance and outward delivery. These agencies are governed by the warehousing Corporation Act, 1962. For the distribution of food grains in the country, the FCI has its own network of warehouses with 13 million tones of storage capacity the total food grain storage capacity (FCI,SWC,CWC,

46

ARDC and private storage capacity together) is around 19% of the total food grain production (202 million tons) in the country which grossly inadequate. Food grain storage capacity in country Public warehousing agencies Food Corporation of India (FCI) Central Warehouse Corporation (CWC) State Warehouse Corporation (SWC) Agricultural Rural Dev. Corporation (ARDC) Storage Capacity (million tons) 13.07 9.80 11.39 3.50

Virtual warehouse - Virtual warehouse is a important terminology of E-Commerce technology. The main advantage of virtual warehouse is reduction of costs and the flexibility of handling to users. This is because the available information can be shared not only by many users of the same company but also if required globally by many companies thus giving flexibility and ease of handling. The cost gets reduced because there is reduction in structure costs by the concept of virtual warehouse. The concept of virtual warehousing surfaced due to emerging networking and communication technologies in the 1980s. this helped very large organizations operating in the global markets to evolve a framework of competitiveness with effective and efficient logistics operations to develop an advantage over their business rivals. It is defined as a single storage system located at a convenient place to take care of worldwide requirements of products and services thereof, based on the information in the real time environment. However the effectiveness of a virtual warehousing system depends on the speed and accuracy of information flow and accuracy.the success of a virtual warehouse will depend on the availability of the following: Alternative and efficient transportation system. Speedy communication and computing system Networking facility Real-time tracking system Inventory management software for demand management to handle product volumes and varieties.

47

Study material -5 Lecture 22:-Some Terminologies SIX SIGMA Six Sigma is a business management strategy originally developed by Motorola, USA in 1986. As of 2010, it is widely used in many sectors of industry. Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase). The term Six Sigma originated from terminology associated with manufacturing, specifically terms associated with statistical modeling of manufacturing processes. The maturity of a manufacturing process can be described by a sigma rating indicating its yield, or the percentage of defect-free products it creates. A six sigma process is one in which 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million). Motorola set a goal of "six sigma" for all of its manufacturing operations, and this goal became a byword for the management and engineering practices used to achieve it. Methods Six Sigma projects follow two project methodologies inspired by Deming's Plan-Do-Check-Act Cycle. These methodologies, composed of five phases each, bear the acronyms DMAIC and DMADV. DMAIC The DMAIC project methodology has five phases:

Define the problem, the voice of the customer, and the project goals, specifically. Measure key aspects of the current process and collect relevant data. Analyze the data to investigate and verify cause-and-effect relationships. Determine what the relationships are, and attempt to ensure that all factors have been considered. Seek out root cause of the defect under investigation. Improve or optimize the current process based upon data analysis using techniques such as design of experiments, poka yoke or mistake proofing, and standard work to create a new, future state process. Set up pilot runs to establish process capability.
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Control the future state process to ensure that any deviations from target are corrected before they result in defects. Implement control systems such as statistical process control, production boards, and visual workplaces, and continuously monitor the process. DMADV or DFSS The DMADV project methodology, also known as DFSS ("Design For Six Sigma"), features five phases:

Define design goals that are consistent with customer demands and the enterprise strategy. Measure and identify CTQs (characteristics that capabilities, production process capability, and risks. are Critical To Quality), product

Analyze to develop and design alternatives, create a high-level design and evaluate design capability to select the best design. Design details, optimize the design, and plan for design verification. This phase may require simulations. Verify the design, set up pilot runs, implement the production process and hand it over to the process owner(s).

Quality management tools and methods used in Six Sigma Within the individual phases of a DMAIC or DMADV project, Six Sigma utilizes many established quality-management tools that are also used outside of Six Sigma. The following table shows an overview of the main methods used. Histograms ANOVA Pareto chart Chi-square test Correlation Cost-benefit analysis, etc.

Implementation Roles One key innovation of Six Sigma involves the "professionalizing" of quality management functions. Prior to Six Sigma, quality management in practice was largely relegated to the production floor and to statisticians in a separate quality department. Formal Six Sigma programs adopt a ranking terminology (similar to some martial arts systems) to define a hierarchy (and career path) that cuts across all business functions.
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Six Sigma identifies several key roles for its successful implementation.

Executive Leadership includes the CEO and other members of top management. They are responsible for setting up a vision for Six Sigma implementation. They also empower the other role holders with the freedom and resources to explore new ideas for breakthrough improvements.

Champions take responsibility for Six Sigma implementation across the organization in an integrated manner. The Executive Leadership draws them from upper management. Champions also act as mentors to Black Belts. Master Black Belts, identified by champions, act as in-house coaches on Six Sigma. They devote 100% of their time to Six Sigma. They assist champions and guide Black Belts and Green Belts. Apart from statistical tasks, they spend their time on ensuring consistent application of Six Sigma across various functions and departments.

Black Belts operate under Master Black Belts to apply Six Sigma methodology to specific projects. They devote 100% of their time to Six Sigma. They primarily focus on Six Sigma project execution, whereas Champions and Master Black Belts focus on identifying projects/functions for Six Sigma. Green Belts are the employees who take up Six Sigma implementation along with their other job responsibilities, operating under the guidance of Black Belts.

Some organizations use additional belt colors, such as Yellow Belts, for employees that have basic training in Six Sigma tools.

Kaizen-Kaizen, Japanese for "improvement" or "change for the better", refers to philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, supporting business processes, and management. It has been applied in healthcare, psychotherapy, life-coaching, government, banking, and many other industries. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions, and involves all employees from the CEO to the assembly line workers. It also applies to processes, such as purchasing and logistics that cross organizational boundaries into the supply chain. By improving standardized activities and processes, kaizen aims to eliminate waste (see lean manufacturing). Kaizen was first implemented in several Japanese businesses after the Second World War, influenced in part by American business and quality management teachers who visited the country. It has since spread throughout the world and is now being implemented in many other venues besides just business and productivity.
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While kaizen (at Toyota) usually delivers small improvements, the culture of continual aligned small improvements and standardization yields large results in the form of compound productivity improvement. This philosophy differs from the "command and control" improvement programs of the mid-twentieth century. Kaizen methodology includes making changes and monitoring results, then adjusting. Large-scale pre-planning and extensive project scheduling are replaced by smaller experiments, which can be rapidly adapted as new improvements are suggested. The five main elements of kaizen:

Teamwork Personal discipline Improved morale Quality circles Suggestions for improvement

Just In-Time (JIT)- JIT is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals or Kanban between different points in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented correctly, JIT focuses on continuous improvement and can improve a manufacturing organization's return on investment, quality, and efficiency. To achieve continuous improvement key areas of focus could be flow, employee involvement and quality. This saves warehouse space and costs. The just-in-time inventory system focus is having the right material, at the right time, at the right place, and in the exact amount Benefits Main benefits of JIT include:

Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of ideas). The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management. Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed. Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by
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not having to pay workers overtime or by having them focus on other work or participate in training.

Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important. Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced.

Kanban- Its also spelled kamban and literally meaning "signboard" or "billboard", is a concept related to lean and just-in-time (JIT) production. According to Taiichi Ohno, the man credited with developing Just-in-time, kanban is one means through which JIT is achieved. Kanban is not an inventory control system. Rather, it is a scheduling system that tells you what to produce, when to produce it, and how much to produce. The need to maintain a high rate of improvements led Toyota to devise the kanban system. Kanban became an effective tool to support the running of the production system as a whole. In addition, it proved to be an excellent way for promoting improvements because reducing the number of kanban in circulation highlighted problem areas. Kanban, is part of an approach of receiving the "pull" from the demand. Therefore, the supply or production is determined according to the actual demand of the customers. In contexts where supply time is lengthy and demand is difficult to forecast, the best one can do is to respond quickly to observed demand. This is exactly what a kanban system can help with: It is used as a demand signal that immediately propagates through the supply chain. This can be used to ensure that intermediate stocks held in the supply chain are better managed, usually smaller. Kanban cards are a key component of Kanban that utilizes cards to signal the need to move materials within a manufacturing or production facility or move materials from an outside supplier to the production facility. Kanban cards thus, in effect, help to create a demand-driven system. It is widely espoused by proponents of Lean production and manufacturing that demanddriven systems lead to faster turnarounds in production and lower inventory levels, helping companies implementing such systems to be more competitive.

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