Elements of Logistics Management

What is Logistics? Can you visualize the production function of a business process? What is the most accessible of all production functions you can visualize? Now what activities make production happen? * Procurement Sourcing Moving or Transportation Handling Storage
11/27/2012 1

Elements of Logistics Management - continued *Conversion * Distribution Transportation Warehousing

11/27/2012

Logistical Management Making inputs and outputs available when they are needed, where they are needed and in the quantities they are needed * Inputs from market [domestic or import] are needed for production * Out puts of production process [Industrial products, engineering, chemical & pharmaceutical products are needed in the market [domestic or export] * Battle fronts need troops * Troops need supplies *People need agricultural products * Agriculture needs fertilizers *11/27/2012 needs food grains PDS 3

Logistical Management - continued Without logistics no value adding process can run Logistics is a facilitator of trade & business Age old practice Modern logistics is scientific Logistics is a planning function Genesis of logistics is in military planning Origin of many OR techniques like Value analysis, PERT, CPM etc.. is the crucible of war

11/27/2012

Logistical History of India India was a maritime power since about 300 BC Goods Made in India, steel, textiles etc. Trade and prosperity Gradual degeneration Some logistical feats in history: Berlin Air Lift A study in logistics Indians in the Gulf countries - 1991 Operation Overlord, II World War1945 1962 war with China 1776 American war of Independence [4th July1776]
11/27/2012 5

What causes bad logistics? Infrastructure: bad roads, inefficient railways, poor communication lines, congestion in ports Taxation: e.g. Octroi Information: Inadequate information, bad communication Management: Bad management decisions [carrier selection, out sourcing etc.]

11/27/2012

V1

V2

V3

V5

Receiving stores

V4

Procurement
Outbound Logistics

Inbound Logistics

Operation

Finished Goods Stores

W1

W2

W3

R1
11/27/2012

R2

R3

R4

R5

R6
7

Market

Importance of Logistics

Why should we learn logistics? Why is logistics important for management students? Logistics is the bed rock of trade and business Leads to customer satisfaction, D&F expectations of customers Integrates logistical activities Competitive edge in a commodities market Logistics wins or loses wars Supports critical functions like operations and marketing to be JUST IN TIME by providing Interface with marketing
11/27/2012 8

Importance of Logistics - continued Logistical costs are 5% to 35% of sales depending on type of business, geographical areas of operation etc. Crucial to survival and prosperity in global business logistics experts are moving up in corporate ladder leads to the concept of supply chain management Indian market is changing- shift from sellers market to buyers market changing customer expanding business, global trade competition, internal & external concept of lean management
11/27/2012 9

Operating Objectives Of Logistics 1.Rapid response F- Objective: Ability to respond rapidly to customers order Role of Information Technology Concept of SMED and Kanban 2. Minimum variance D-Objective as OTD Any event that disturbs the supply chain is variance Problems in information flow, traffic snarls, acts of god, wrong dispatches, transit damage Traditional approach Vs costs
11/27/2012 10

Operating Objectives Of Logistics -continued 3. Minimum inventory Concept of Inventory Turns Increase these turns without sacrificing customer satisfaction Single piece flow as practiced by JIT companies 4. Movement consolidation Integrating interests of several players in the supply chain. Planning several small shipments together [of different types of shipments]
11/27/2012 11

Operating Objectives Of Logistics -continued 5. Quality Quality of logistics performance complete fulfillment of order 6. Life cycle support [cradle to cradle logistical support] After sales service Reverse logistics # Rigid quality standards # transit damage # product expiration dating # law against unscientific disposal
11/27/2012 12

Operating Objectives Of Logistics -continued # law making recycling mandatory # erroneous order processing by

supplier

11/27/2012

13

Logistical Functions

INFORMATION SYSTEMS Internal & External Information flow

NETWORK DESIGN

LOGISTICS FUNCTIONS

WARE HOUSING Storage, Handling, Packing & Distribution

TRANSPORTATION Water, Road, Rail, Pipeline & Air

INVENTORY When to order? How much to order? Just In Time

11/27/2012

14

Logistical Functions

components of logistics or elements of logistics Information management * Role of technology, fast & accurate information * Real time logistics in competitive business * Notification to customer * Role of information in logistical forecasting & logistical operations, order processing and order management * Erroneous information will result into product recall and reshipment
11/27/2012 15

Logistical Functions - continued

* Inventory control * Neither stock-out nor stockpiling * Inventory policies * Inventory models * Inventory systems Transportation * the most visible of all elements * High contributor to costs logistics - Movement costs, Preservation costs, Cost of idle asset, Administration costs * Transportation is accomplished in three ways- Private carriage, contract carriage, common carriage
11/27/2012 16

Logistical Functions - continued * Expectations from carrierminimum cost, speed of transport, consistency in speed Warehousing * Switching facility rather than a storage facility * Ownership can be private, public or third party contract. *Economic benefits - Consolidation, Break bulk, Cross Dock, processing postponement, stock piling[seasonal storage] * Service benefits - spot stocking, Assortment, mixing, production support, market presence
11/27/2012 17

Logistical Functions - continued Material handling * Receiving, moving, storing, dispatching activities * Impact on cost [capital as well as running], Quality and safety * One of the principles of material handling is minimum movement * Commonly used material handling equipment- forklifts, EOT Cranes, hoists, pulley blocks, trolleys, railroad cars, conveyers, ropes, slings, carousels, sortations, robotics Packaging * Types of packaging- consumer packaging and industrial packaging
11/27/2012 18

Logistical Functions - continued *Consumer packaging Attracts attention single most important factor in purchasing decisions made at point of sale * Industrial packaging - makes logistical activities of handling storage moving easy * Sales functions of packaging Display - attraction, easy identification, communication of recipe, hazard, special care Ease of opening Convenience - flexi tubes, sprays Dispensing - spouts, taps, spays, tubes 11/27/2012 19

Logistical Functions - continued * Functions of packaging # Protection - physical damage, bubble pack, corrugated sheet cartons, mangos in crates # Cube minimization - flattened cans, square shaped whisky bottles, soft drink concentrates, furniture in knocked down condition # Weight minimization - plastic bottles, plastic crates, milkbags # Facilitating handling & using fruity packs, flexible tubes, aerosol pacs # Facilitating storage & reuse corrugated boxes
11/27/2012 20

Logistical Functions - continued # Grouping goods into convenient unit for distribution - mango boxes, cola bottles, cotton bales, wire rope coils # Pilfer proofing - bisleri caps, cola caps # Handling - pallets, straps Net work design [Location analysis] - to minimize overall system cost of delivering value to the customer # Number of facilities - production facilities, warehouses # What is to be performed in these facilities?

11/27/2012

21

Logistical Functions - continued # Their location - to minimize overall system cost # Who operates these facilities? outsourcing decisions # Communication between these facilities - are some of the salient features of net work design.

11/27/2012

22

Some important concepts # Logistics and supply chain management Logistics and Supply Chain
Management by G.Raghuram, N.Rangaraj. Page #15, The Management of Business Logistics by Coyle, Bardi, Langlely Page # 31 ]

Focus on costs and benefits in

physically moving the goods to customers - post war1950s.

Idea of total system cost

of several activities

Trade off situations between costs

11/27/2012

23

Some important concepts continued Selection of modes of transport

1960s - Emergence of Physical

distribution management logistics

- integration of activities of outbound

- Electronic era, information as an

element of Physical distribution

management 1970 - some aspects of financial

subsystem integrated & focus on

activities of inbound logistics until considered to be vendors concern
11/27/2012 24

Some important concepts continued 1980s - Concept of Logistics as a

management function, internally integrating all activities of inbound and out bound logistics - Focus on logistical operations, application of TQM, TPM & JIT 1990 - Gradually concept is encompassing entire value chain as Supply Chain Management

Henry Fords [early 1990s] idea of

control on supply chain No firm can be self sufficient
11/27/2012 25

Some important concepts continued Scope - Source of raw materials to end user - all upstream & downstream organizations & linkages How is this created in business? external integration Concept of supply chain as a pipe line Main objective - Supply chain profitability by value creation Focus - end user

11/27/2012

26

Some important concepts continued

Origin -

extension of scope of

logistics management

Definition - Management of
upstream and down stream relationships with suppliers and

customers to deliver superior

customer value at less cost to the supply chain as a whole

breaking the organizational barriers

to deliver value
11/27/2012 27

Some important concepts continued

* Sharing of sales information in real

time - reduces inventories by reducing uncertainties - compresses value chain by slashing lead-times thereby quickening cash flow

11/27/2012

28

vendors

M/M

Incoming materials stores

Inbound logistics

Conversion process [WIP]

O/M

FG stores

Supply Chain Magt

Logistics management network

Warehouses

Physical distrib. Mgt [outbound logistics]

Customers

11/27/2012

29

particulars

Logistics management

Supply chain management

Scope

All players in the supply chain from raw material source to finished product consumer, vendors, their vendors, supplier organization [shipper], Warehouses, service providers, customers, their customers How this is created By internal By external in business? integration of integration of roles logistics functions of various players handled by various in the supply chain. management functions within organization Main objective Logistics cost Supply chain reduction by profitability by integrating value creation. resources across the pipeline
11/27/2012 30

Inbound logistics, in process inventory, outbound logistics

focus

L/M tries to take the product to the consumer at minimum logistical cost. Hence it is supply driven. Logistics is the process of strategically managing procurement and storage of material , part and finished inventory [and related information flow] through organization and its marketing channels in such a way that current and future profits are maximized through cost effective fulfillment of order

SCM focuses on value creation in the supply chain. Hence this is customer focused or demand driven. Management of upstream and down stream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.

definition

Origin

A very old concept As a logical in military planning. extension of logistics management

11/27/2012

31

Some important concepts continued Business functions of logistics management [physical distribution

management by K.K.Khanna page # 13, The Management of Business Logistics by Coyle, Bardi, Langlely Page # 39]

military origin, military functions & post war march into business procuring, moving and storing of R/M and industrial F/G making inputs available for value addition to a conversion process facilitation of relevant manufacturing and marketing
11/27/2012 32

Some important concepts continued - making finished goods available to the customers in the market procuring, moving and storing of agricultural products Food Corporation of India importance of logistics function in commodities market * Event logistics - The net work of activities, facilities and personnel required to organize, schedule and deploy the resources for an event to take place and to efficiently withdraw after the event
11/27/2012 33

Some important concepts continued * Service logistics - the acquisition, scheduling and management of the facilities/assets, personnel and materials to support and sustain a service operation * Military logistics - design and integration of all aspects of support for the operational capability of the military forces [deployed or in garrison] and their equipment to ensure readiness, reliability and efficiency
11/27/2012 34

Some important concepts continued *Logistical mission [Logistics &

SCM by Martin Christopher, Page # 13, L/M by Bowersox Page #9]

Achievement of business objectives

at minimum logistical cost [delivering- QCD expectations of customers at minimum logistical costs, i.e. creating customer value at minimum cost set of goals to be achieved at a particular type of market responsive to competition
11/27/2012 35

Some important concepts continued mission focus Vs individual function Mission of logistics is providing a means by which customer satisfaction is achieved

11/27/2012

36

Some important concepts continued

*Inbound logistics
Procurement operations in procurement cycle potential avenues for reducing systems costs value of inventory is low

trade off between cost of

maintaining inventory in transit and low cost transport exists

Delivery time, size of shipment,

mode of transport are different from O/B logistics
11/27/2012 37

Inbound logistics - continued

Sourcing

Order placement & expediting

Supplier

Receiving

Transportation

11/27/2012

38

Some important concepts continued *Outbound Logistics

Value added goods are to be made

available in the market distributed

through the network of warehouses

and retailers shops

Value of the inventory is very high

as during conversion value is added

Delivery time, size of shipment,

mode of transport are different from

I/B logistics

11/27/2012

39

Outbound Logistics - continued

Activities in distribution performance cycle

Order processing Order transmission Customer order

Order selection

Order transportation

Customer delivery

11/27/2012

40

Some important concepts continued *Total cost analysis Conventional approach No information on the impact of cost of an individual function on the system Apportionment of Logistics costs Costs get submerged Competitive edge is lost by the organization. Incremental cost to the system on account of changes to the system like introduction of a warehouse and the impact on the system Impact of decisions at various levels on the system
11/27/2012 41

Some important concepts continued Cost information is biased, cost elements tend to get hidden out of fear that they expose functional weakness Costs in no mans land are never owned - like tube lights on passages, cost of returned vehicle Cost cutting is fragmented so doesnt reduce system cost Focus is on input function. Hence attempt is to reduce function cost in isolation Customer dissatisfaction * Total cost approach Modern approach to logistical costing
11/27/2012 42

Some important concepts continued Focus on reduction of cost of output of the system Provides competitive edge to the company Several trade off points in the system, further areas of improvement

11/27/2012

43

Some important concepts continued

*Mission based costing

[or

budgeting] in logistics input focused costing output focused costing mission goals and costs are set functional inputs are worked out to meet the system deliverables
Purchasing Sales Production Mission A Mission B Mission C Transportation Marketing Etc Customer service goals [QCD] At market type A Customer service goals [QCD] At market type B Customer service goals [QCD] At market type C

290

11/27/2012

44

Mission based costing - continued

transportation Ware housing Mission A Mission B Mission C

15 5 5 C1 =Rs. 25/C1 =Rs. 100/-

Customer service goals [QCD] At market type A Customer service goals [QCD] At market type B Customer service goals [QCD] At market type C

45

35

20

C1 =Rs. 30/10 10 10

70

50

35

Rs.155/-

Functional Inputs to Logistical Management

Fig.8

11/27/2012

45

Interface with marketing

PRICE

LOGISTICS
PRODUCT

MARKETING
PROMOTION

PLACE

11/27/2012

46

Some important concepts continued *Interface with marketing a common wall,surface or area with another body, concept or function area of common interest or concern Four Ps of marketing and logistical interface Price - marketing can re offer the price to beat the competition with superior logistical support Product & Packaging- size shape & weight/volume ratio of the product has major impact on logistical cost. # Gillette story of floor displays
11/27/2012 47

Some important concepts continued, Interface with marketing Promotion - promotional strategies of marketing need to be decided by working closely with logistics # Push/Pull strategy Place - whether to distribute through wholesalers or through retailers is a marketing decision with impact on logistics # wholesalers demand & retailers demand Customer Service - another area of interface between marketing & logistics
11/27/2012 48

Some important concepts continued Interface with operations

SHORT RUNS

LOGISTICS
SEASONAL DEMAND

OPERATIONS
SUPPLY SIDE INTERFACE

PACKAGING

11/27/2012

49

Some important concepts continued Interface with operations * Short production runs Very strong logistical support is needed to operate Just In Time Short runs lead to inventory reduction * Seasonal demand Inventory should be mutually accepted * Supply side interface Prevent shortages * Packaging Protective packaging Third party alternatives
11/27/2012 50

Some important concepts continued Role of planning in logistics management Role of planning is central to logistics management Mission of logistics is to achieve desired levels of service and quality at lowest possible cost. Logistics makes one plan, that replaces traditional concept of planning in pockets

11/27/2012

51

Some important concepts continued

8. Importance of 3Cs
C customers

Value

Look for value [benefit] at lowest price

Value

C company By effective utilization of assets tries to create and offer value to customers

Cost differentials

C competition By effective utilization of assets tries to create and offer value to customers

HIGH

SERVICE LEADER

SERVICE & COST LEADER Whom shall I buy from?

OK S E R V I C E HAPPY COMPANY COST LEADER

CUSTOMER

LOW

SAD

OK

11/27/2012

HIGH

COST

LOW

52

Some important concepts continued *Integrated logistics

Attributes of Logistics Department

# Scope is wide spread- functions of logistics are spread across various stages of value chain in the organization # Provides interface between marketing and customers, marketing and operations, operations and supplier # Provides competitive edge to business in the current environment # Handles flow of information, materials & recovery cycle # Tackles cost reduction
11/27/2012 53

Some important concepts continued Logistical competency

What is logistical competency? Definition: Logistical Competency is

the relative assessment of a firms capability to provide competitively superior customer service at the lowest possible total cost. It is a strategy to provide a superior service at a total cost below industry average. Its aim is to view how logistics can be exploited as a core competency so that fits into a firms overall strategic positioning
11/27/2012 54

Some important concepts continued

Inventory flow Physical distribution Manufacturing support Suppliers Procurement

Customer

Information flow

How can this be achieved?

By integrated performance of logistical functions # jigsaw puzzle # What is the big picture? What are the parameters needed to achieve this integrated performance? # Information flow, Inventory flow, organization, customers and suppliers
11/27/2012 55

 Concept of Integration in Logistics

Operation Internal & External Integration

Some important concepts continued

Internal Integration # First Stage of Internal Integration Materials management & Physical distribution Management # Second Stage of Internal Integration - Logistics Management [ External Integration - Supply Chain Management] # functions in coordinated fashion # One operational command Performance in isolation loses sight of overall picture.
11/27/2012 56

Some important concepts continued # Picture before you to solve the jigsaw puzzle # Links the enterprise with customers and suppliers # Information flowing into the enterprise is converted into schedules and plans & value added products reach the customers # Integrated logistics is interrelated efforts of managing information flow & inventory flow

11/27/2012

57

Some important concepts continued Value added role of Logistics # form utility, place and time utility and possession utility add value to a product Form Utility is given by Production How logistics also adds form utility processing postponement, mixing, unpacking Place and Time Utility is given by logistics functions Possession Utility: Marketing creates Possession Utility by promoting the product But logistics makes finally possession by customer happen 11/27/2012 58

Some important concepts continued * Logistical Information System. Primary activities of LIS data flow from external sources processing and storage of information within the firm communication to the decision maker in the form of reports communication to customers and suppliers and their feedback

11/27/2012

59