A

RESEARCH PROJECT REPORT

ON

WAREHOUSE MANAGEMENT
Project Submitted To:
SWAMI VIVEKANAND SUBHARTI UNIVERSITY
MASTER OF BUSINESS ADMINISTRATION
Session- 2013-15

Submitted To:

Submitted By:

Ms. VISHAKA

MOHD. IMRAN KHAN

(Faculty of Management)

Roll No-1308253056
MBA IV SEM

SUBHARTI INSTITUTE OF MANAGEMENT

&COMMERCE
SUBHARTIPURAM, MEERUT

DECLARATION
The research report entitled WAREHOUSE MANAGEMENT is an authentic record of my
own work carried under Project Guidance Ms. VISHAKA the This work contains the necessary
requirements for the smooth functioning of the Project. This interim report contains secondary
data (detailed description of the project, organization profile, and service knowledge) carried
down.
I have tried my level best to satisfy specific work of the project.

MOHD. IMRAN KHAN

Roll No-1308253056
MBA IV SEM

ACKNOWLEDGEMENT
I, MOHD. IMRAN KHAN, hereby submit my research project. This report was made
possible under the timely guidance of Ms. VISHAKA . Merely words to thank these people
would be insufficient.

I thank my project guide Ms. VISHAKA for helping me settle all the

problems I had while my research project report underwent, for settling my queries and above all
telling me my possibilities as a project report, which inspired me to have the courage to take up
this research based project Finally, but definitely not the last, I thank my family for standing by
me in my confusions and apprehensions.

MOHD. IMRAN KHAN

Roll No-1308253056
MBA IV SEM

PREFACE
A student of management only with theoretical knowledge is just like a wandering ship in the
ocean, without compass. The exposure to real market scenario provides him the base and
practical experience, which serves him as a compass in the direction less ship to reach its
destination against all odds from all its Rivals.
The basic objective behind research for any reputed business organisation is not only to attain
Practical knowledge of real business environment but also to implement our own academic
knowledge to solve the real life business problems. I must admit that I really enjoyed the research
in the congenial and convivial environment of the market. I learn hard-core facts of life and attain
practical knowledge. I've tried my best to cover maximum in the minimum possible time
available.

CONTENTS

WAREHOUSE MANAGEMENT
INTRODUCTION
Warehouse can play a key role in the integrated logistics strategy and its building and
maintaining good relationships between supply chain partners. Warehousing affects customer
service stock-out rates and firms sales and marketing success. A warehouse smoothens out
market supply and demand fluctuations. When supply exceeds demand, demand warehouse
stores products in anticipation of customers requirements when Demand exceeds supply the
warehouse can speed product movement to the customer by performing additional services like
marking prices, packaging products or final assy. Etc
Warehousing can be defined as a location with adequate facilities where volume shipments are
received from production centre, which are then broken down in to particular order and shipped
onwards to the customer.
Warehousing is an integral part of any logistics system. The warehouse is a link between
producer and customer.
Out-bound warehouse help consumers buy on demand without a nearby production plant
warehousing cost are about10% of total integrated logistics costs for most companies.

TYPES OF WAREHOUSES
1. Private warehousing
2. Public warehousing
3. Contract warehousing
1. PRIVATE WAREHOUSING
A firm producing or owning the goods owns private warehouses. The goods are stored until they
are delivered to a retail outlet or sold. Potential advantage of using a private warehouse is the
ability to maintain physical control over the facility, which allows managers to address loss,
damage, and theft. When not in use they can rent in out.
The construction and maintenance of private warehousing can be extremely costly. All the
expenses have to be carefully analyzed and evaluated. These are:

i.

Fixed expenses and building and land acquisition costs which are high;

ii.

Expenses incurred on ensuring that warehouses are properly equipped with materialhandling equipment like conveyors, fork lifts, hand trucks, racks and bins, and dock
levelers;

iii.

The costs of salaries of staff required for peak activity periods which can be very high
since retrenchment during slack periods may not be possible;

iv.

Extra payment to be made for work on Saturday and Sundays and holidays;

v.

Janitor and other services charges are required to be taken into account;

vi.

The office and record-keeping equipment necessary for successful warehousing

operations has to be budgeted for;

vii.

To this must be added the cost of such item as fuel, air-conditioning, power, and light;

viii.

The cost of maintaining insurance records and of the premiums paid for fire, theft, and
also for workmens compensation.

ADVANTAGES OF PRIVATE WAREHOUSING

The advantages and disadvantages of private warehousing as against those of public warehousing
are:
i.

Private warehousing offers better control over the movement and storage of products as
required by the management from time to time;

ii.

There is less likelihood of error in the case of private warehousing since the companys
products are handled by its own employees who are able to identify the products of their
own company better;

iii.

If there is sufficient volume of goods to be warehoused, the costs of private warehousing

compares favourably with that of public warehousing. But private warehouse may not be
expected to be packed upto the brim all the while. Therefore the costs of private
warehousing per unit may actually higher.

2. PUBLIC WAREHOUSING
A public warehouse rents space to individuals or firm needing storage, some provide wide array
of srevices including packaging, labelling, testing, inventory, maintenance, local delivery, data
processing and pricing.
All the foregoing cost factors operate in public warehousing as well. But in public warehousing,
the expenses are distributed over several other consignments of other clients. In most instances
therefore the net result is lower cost for each. Warehousing has become a highly specialised
service and a public warehouseman can render better srevice with greater flexibility for the user.
A company running a private warehouse will have to compare costs incurred with the total figure
for the complete service through public warehousing.

ADVANTAGES OF PUBLIC WAREHOUSING

i.

It is generally less expensive and more efficient;

ii.

Public warehouses are usually strategically located and immediately available;

iii.

Public warehousing is sufficiently flexible to meet most space requirements, for several
plans are available for the requirement of different users;

iv.

Fixed costs of a warehouse are distributed among many users. Therefore the overall cost
of warehousing per unit works out to a lower figure;

v.

Public warehousing facilities can be given up as soon as necessary without any additional
liability on the part of the user;

vi.

The costs of public warehousing can be easily and exactly ascertained, and the user pays
only for the space and services he use.
4. CONTRACT WAREHOUSING

Contract warehousing is a specialised form of public warehousing. In addition to warehousing

activities such warehousing provides a combination of integrated logistics services. Thus
allowing the leasing firm to concentrate on its specialty. They provide customized srvices.
(Value-added services)

10

FUNCTION OF WAREHOUSE
Warehouses are basically intermediate storage points in the logistics system where raw
material, work in process, finished goods and good in transit are held for varying duration of
times for a variety of purposes. The warehousing functionality today is much more than the
traditional function of storage. The following are main function that warehousing serves today:

CONSOLIDATION: this helps to provide for the customer requirement of a combination of

products from different supply or manufacturing sources. Instead of transporting the products
as small shipments from different sources, it would be more economical to have a
consolidation warehouse. This warehouse will receive these products from various sources
and consolidate these into shipments, which are economical for transportation or as required
by the customers.

PLANT A

PLANT B

CONSOLIDATION
WAREHOUSE

PLANT C

BREAK BULK: as the name suggest, the warehouse in this case serves the purpose of
receiving bulk shipments through economical long distance transportation and breaking of
these into small shipments for local delivery. This enables transportation economies with
combination of long distance bulk transportation, break bulk warehousing, and short distance
small shipments in place of long distance small shipments.

11

CUSTOMER A

PLANT A

BREAK
BULK

CUSTOMER B

CUSTOMER C
BREAK BULK

CROSS DOCKING: this type of facility enables receipt of full shipments from a number of
suppliers, generally manufacturers, and direct distribution to different customers without
storage. As soon as the shipments are received, these are allocated to the respective customers
and are moved across to the vehicle for the onwards shipments to the respective customers at
these facilities. Smaller shipments accompanying these full shipments are moved to the
temporary storage in these facilities awaiting shipments to the respective customers along
with other full shipments.

CUSTOMER A

Company A/ Plant
A

Company B / Plant
B

DISTRIBUTION
CENTRE

Company C/ Plant

CUSTOMER B

CUSTOMER C

CROSS DOCKING

12

PRODUCT MIXING: products of different types are received from different manufacturing
plants or sources in full shipment sizes. These products are mixed at these warehouses into
right combination for the relevant customers as per their requirements. Some products which
are commonly required inmost product mixtures, are kept in constant storage at these
warehouses and continuously provided for the product mixture shipments requiring these.

PLANT A

PLANT B

WARE HOUSE
TRANSIT
MIXING POINT

CUSTOMER W
B
C
D

CUSTOMER X
B
C
D

PRODUCT D
CUSTOMER Y
A
B
C
D

PLANT C

CUSTOMER W
B
C
D

PRODUCT MIXING

STOCK PILING: this function of warehousing is related to seasonal manufacturing or

demand. In the case of seasonal manufacturing, certain raw materials are available during
short periods of the year. Hence, manufacturing is possible only during these periods of
availability, while the demand is full year around. This requires stockpiling of the products
manufactured from these raw materials. Am example is mango pulp processing. On the other
hand, certain products like woolens are required seasonally, but are produced throughout the
year, and thus need to be stockpiled as such.

POSTPONEMENT: this

functionality

of warehousing

enables

postponement

of

commitment of products t o customers until orders are received from them. This is utilized by
manufacturers or distributors for storing products ready up to packaging stage. These
products are packaged and labeled for the particular customer only on receipt of the order.

POSITIONING: this permits positioning products or materials at strategic warehouses near

to the customers. These items are stored at the warehouse until ordered by the customers
13

when these can be provided to the customers in the shortest lead-time. This function of
warehousing is utilized for higher service levels to customers for critical items and during
increased marketing activists and promotions.

ASSORTMENT: assortment warehouse store a variety of products for satisfying the variety
requirements of customers. For example, retailers may demand different brands of the same
product in small quantities rather than larger quantities of the single brand.

DECOUPLING: during manufacturing, operation lead-times may differ in order to enable

production economies. Thus, the batch size and the lead-time of production may differ in
consecutive operations. This decoupling of operations requires intermediate storage of
materials required for the subsequent operation.

SAFETY STOKING: in order to cater to contingencies like stock outs, transportation

delays, receipt of defective or damaged goods, and strikes, safety stocks have to be
maintained. This ensures that, on the inbound side production stoppages do not occur, and, on
the outbound side customers are fulfilled on time.

14

SQUARE ROOT LAW WITH EXAMPLE

In their aggressive effort to take cost out of logistics network, firms are searching for new ways
to reduce levels of inventory without adversely effecting customer service. A currently popular
approach is to consolidate inventories into fewer stoking location in order to reduce aggregate
inventories and their associated cost. Correspondingly, this strategy requires the involvement of
capable transportation and information resources to see that customer service is held at existing
levels and is even improved whenever possible.
Square root law:
The square root law helps determine the extent to which inventories may be reduced through
such strategy. Assuming the total customer demand remains the same, the SRL estimates the
extent to which aggregate inventory needs will change as a firm increases or reduces the number
of stocking location. In general, the greater the number of stoking locations, the greater the
amount of inventory needed to maintain customer service levels. Conversely, as inventories are
consolidated into fewer stocking locations, aggregate inventory levels will decrease. The extent
to which these changes will occur is understood through application of the square root law.
The square root law states that:
the total safety stock inventories in the future number of facilities can be approximated by
multiplying the total amount of inventory at existing facilities by the square root of the number of
future facilities divided by number of existing facilities.
Therefore
X2 = X1

N2
N1

Where:
N1= number of existing facilities
N2= number of future facilities
X1= total inventory in existing facility
X2= total inventory in future facilty
EXAMPLE:

15

A company presently distributing 40000 units of product to its customer from eight facility
location throughout India is located at A, B, C, D, E, F, G and H. the company is evaluating an
opportunity to consolidate its operations into two facilities. Using SRL find the total amount of
inventory in the two future facility.
Solution:
X2 = X1

N2
N1

Here,
X1= 40000
N1=

N2=

Therefore,
X2= 40000

2
8

X2= 40000*1/2
X2= 20000

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The Number of Warehouses:

The number of warehouses is another decision parameter impacting a number of cost variables
and customer service. If customer service is taken in cost terms as cost of customer
dissatisfaction, the number of warehouses will affect transportation, inventory, warehousing and
customer dissatisfaction costs.
Transportation costs initially decreases with increasing number of warehouses. This is due to the
transportation economies obtained by having large-volume long-range transportation from
consolidation warehouses and short-range small-volume transportation from break-bulk
warehouses. However, as the number of warehouses increases beyond a certain value, the
transportation cost starts increasing due to large number of transportation trips in between the
larger numbers of warehouses. Inventory costs continuously increases with the increasing
number of warehouses because the increased space available needs to be utilized and firms
increase the commitment of inventory at these warehouses beyond those actually needed. Transit
inventory costs continuously decrease with the increased number of warehouses due to the
shorter transportation times between the larger number of warehouses. The warehousing costs
increase with more warehouses due to the maintenance and facility costs associated with each
warehouse. For the same space, a single warehouse incurs less warehousing cost than two
warehouses.
The increasing number of warehousing leads to increasing customer service levels, thus,
decreasing customer dissatisfaction cost.

Warehouse Location
Warehousing is important to the firms since it improves service and reduces co9st improvements
in service are gained through rapid response to customer requests (time utility), which is a,
primary factor leading to increased sales. The location decision regarding warehouses is affected
by manufacturing plant, and, customer and market locations. A traditional classification by Edgar
Hoover classifies warehouse locations as market-positioned, manufacturing-positioned, or
intermediately-positioned.

17

Market-positioned warehouses
Market-positioned warehouses are located near to the customers and markets (point of product
consumption) with the objective of serving them. These generally have a large variety and low
volume of items to service local requirements. Such warehouses reduce cost by providing place
utility. A Market-positioned warehouses functions as a collection point for the products of distant
firms with the resulting accumulations of product serving as the supply source for retail inventory
replenishment. This approach allows large and cost-effective shipments from the manufacturer
with lower-cost, local transportation providing service to individual retailers. Market-positioned
warehouses may be owned by the firm or the retailer (private warehouses), or they may be an
independent business providing warehouse service for profit (public).

Manufacturing Positioned Warehouse

Manufacturing positioned warehouse are located near to the manufacturing facilities in order to
support manufacturing on the inbound side and to facilitate assortment-creation and shipping on
the outbound side. Improve customer services and manufacturing support achieved through type
of warehouse which acts as the collection point for products needed in filling customer orders
and material needed for manufacturing.

Intermediately- Positioned Warehouse

Intermediately- positioned warehouse are those located between manufacturing and marketposition warehouses. These help in consolidation of assortments for shipments from different
manufacturing facilities. A firm may have many manufacturing plant located, for economic
reasons, near the sources of raw material. Under these conditions the cost-effective warehouse
may be at some intermediate point.

A few of the factors governing the warehouse locations are:

18

availability of services;

land cost;

availability of transport linkages for example, to a rail siding;

availability of utilities of water and power;

taxes and insurance cost;

expansion space availability;

And soil strength and lay off land for drainage.

WAREHOUSE LAYOUT AND DESIGN

To understand layout and design, some background information on a typical warehouses base
space requirements is necessary. This discussion of space requirements relates quite closely to the
discussion of basic warehouse operations. Before looking specifically at eh types of space a firm
needs, we comment briefly about determining how much space a firm requires.
This first step in determining warehouse space requirements is to develop a demand
forecast for a companys products. This means preparing an estimate in units for a relevant sales
period (usually thirty days) by product category. Then the company will need to determine each
items order quantity, usually including some allowance for safety stock. The next step is to
convert the units into cubic footage requirements, which may need to include pallets and which
usually include an allowance of 10 to 15 percent for growth over the relevant period. At this
point, the company has an estimate of basic storage space requirements. To this the company
must add space needs for aisles and other needs such as lavatories and meeting rooms.
Warehouse commonly devotes one-third of their total space to non-storage functions. Many
companies make these spaces decision through computer simulation. The computer can consider
a vast number of variables and can help product more requirements good software packages are
available.
One additional warehouse space requirements provides an interface with the
transportation part of the logistics system- receiving and shipping. While this can be operate,
efficiency usually requires two separate areas. In considering these space needs a firm must
choose whether to use the dock area outside the building or to unload goods out of the vehicle
directly into the warehouse. The firm has to allow or turnaround space and possibly for
equipment and pallet storage. Also important are areas for staging goods before transportation
and for unitizing consolidated shipments. In addition this area may need space for checking

19

counting and inspecting. The volume and frequency of the throughput are critical in determining
receiving and hipping space needs.
Another space requirements in physical distribution warehouses is for order packing and
assembly. The amount of space these functions need depends upon order volume and the
products name along with the materials-handling equipment. This areas layout is critical to
efficient operations and customer service.
A third type of space is the actual storage space. In a warehouse, a firm must use the full
volume of the cubic storage space as efficiently as possible. A firm can derive the amount of
storage space from the analysis described earlier in this section and it will largest single area in
the warehouse. As with the order picking area, a firm has to consider storage area layout in detail.
We cover this topic in a subsequent section.
Finally a firm must consider three additional types of space. First, many physical
distribution warehouses have space for recouping- that is, an area to salvage undamaged parts of
damaged cartoons. Second administrative and clerical staff generally require office space.
Finally, rest rooms and, employee cafeteria, utilities and locker rooms require miscellaneous
space. The amount of space these last three categories require depends upon a number of
variables. For example, the average amount of damaged merchandise and the feasibility of
repacking undamaged merchandise determine recouping space needs. The space requirement for
a cafeteria and locker rooms depend on the number of employees.

LAYOUT AND DESIGN PRINCIPLES

While the discussion thus far has delineated a typical warehouses various space needs, we need
to consider layout in more details. We first consider some general layout design principles and
then examine layout in the context of the space category previously. The most commonly
accepted warehouse design and layout principles are as follows:
First, use a one story facility wherever possible, since it usually provides more usable
space per investment dollar and usually it is less expensive to construct. Second, use straight-line
or direct flow of goods into and out of the warehouses, to avoid backtracking.
A third principle is to use efficient materials handling equipment and operations. The
next section explores materials-handling fundamentals. Among other benefits, materials-handling
equipment improves efficiency in operations.
A fourth principle is to use an effective storage plan on the warehouse. In other words,
the firm must place goods in the warehouse in such a way to maximize warehouse operations and

20

avoid inefficiencies. Stated simply, we are trying to utilize existing space as completely and
effectively as possible while providing both adequate accessibility and protection for the goods
we are storing.
The fifth principle of good layout is to minimize aisle space within the constraints that the
size, type, and turning radius of materials-handling equipment impose. We must also consider the
products and the constraints they impose.
A sixth principle is to make maximum use of the buildings height-that is to utilize the
buildings cubic capacity effectively. This usually requires integration with materials handling.
Though vehicles capable of maneuvering in small aisles and stacking higher than conventional
materials can be very expensive, such equipment offers potentially large overall systems savings
because using height costs works best when items are regularly shaped and easily handled, when
order selection is the middle stage of activity and when product moves in high volumes with few
the

.
A company should not make warehousing decisions once and\d then take them for

granted; rather, the company should monitor productivity regularly during warehouse operations.
While monitoring methods vary widely, the company should set goals and standards for cost and
order-handling efficiency and then measure actual performance in a n attempt to optimize the
warehouses productivity. By improving productivity, a company can improve its resources uses
increase cash flow, profits and return on investment; and provide its customer with better service.
To begin a productivity program, a company should divide warehouse operations into functional
areas and measures each areas productivity, utilization and performance, focusing on
improvements in labor, equipment and making comparisons with standards if they exist.
Repeating measurements can show relative trends. There is no single measure of warehouse
productivity, but the method the company chooses must have the following attributes validity,
coverage, comparability, completeness, usefulness, compatibility and cost effectiveness.

21

VALUE ADDING
The warehouse serves several value adding roles in a logistics system. Companies will
sometimes face less than truckload (LTL) shipments of raw material and finished goods.
Shipping goods long; distances at LTL rates is more costly than shipping at full truckload or
carload rates. By moving the LTL amounts relatively short distances to or from a warehouse.
Warehousing can allow a firm to consolidate smaller shipments into large shipment: (a car load
or truckload) with significant transportation savings. For the inbound logistics system the
warehouse would consolidate different suppliers LTI shipments and ship a volume shipment (TL)
to the firm plant. For the outbound logistics system the warehouse would receive a consolidated
volume shipment from various plants and ship LTL shipments to different markets.
A second warehousing function may be customer order product mixing. Companies
frequently turn out a product line that contains thousands of different products if we consider,
color, size shape and other variations. When planning orders, customers often want a product line
mixture- for example, five dozen, four cup coffee pots, six dozen ten cup coffee pots with blue
trim and ten dozen red trim and three dozen blue salad bowl sets. Because companies often
produce items at different plants, a company that did not warehouse goods would have to fill
orders from several locations causing differing arrival times and opportunity for mix-ups
therefore a product mixing warehouse for a multiple product line leads to efficient order filling.
By developing new mixing warehouses near dense urban areas, firms can make pickups and
deliveries in smaller vehicles and schedule these activities at more optimum times to avoid
congestion.
In addition to product mixing for customer orders, companies sing raw materials or semi finished
goods(e.g. auto manufacturer) company move carloads of terms mixed from a physical supply
warehouse to plant. This strategy not only reduces transportation costs from consolidation but
also allows the company to avoid using the plant as a warehouse. This strategy will become
increasingly popular as increased fuel expenses raise transport costs and firm increase the use of
sophisticated strategies such as materials requirements planning (MRP) or just in time (JIT)
system.

22

Cross -Docking is an operation that facilitates the product mixing function. In cross
docking operations products from different suppliers arrive in truckload lots but instead of being
placed into storage for later picking they are moved across the warehouse area waiting trucks for
movement to particular customers. The incoming materials are picked from the delivering truck
from temporary storage locations to fill a specific order and moved across the deck to a truck
destined for the customer. The whole process is completed in a matter of hours. Excess product
and small items are stored temporarily to await scheduled deliveries and to permit sorting of
inbound loads of mixed products.
A third warehouses functions is to provide service. The importance of customer service
is obvious. Having goods available in a warehouse when a customer places an order, particularly
if the warehouse is in reasonable proximity to the customer usually leads to customer satisfaction
and enhances future sales. Service may also be a factor for physical supply warehouses.
However, production schedules, which a firm makes in advance, are easier to service than
customers while customers demands is often uncertain physical supply stock outs costs
sometimes seem infinite.
A fourth warehousing functions is protection against contingencies such as
transportation delays vendors stock outs or strikes. A potential truckers strike will generally
cause buyers to stock larger inventories than usual; for example this particular function is very
important for physical supply warehouse in that a delay in the delivery of raw material can delay
the production of finished goods. However, contingencies also occur with physical distribution
warehouses- for example, goods damaged in transit can affect inventory levels and order filling.
A fifth warehousing function is to smooth operations or decouple successive stages in the
manufacturing process. Seasonal demand and the need for a production run along enough to
ensure reasonable cost quality are examples of smoothing- that is preventing operations under
overtime conditions at low production levels. In effect, this balancing strategy always a company
to reduce its manufacturing capacity investment.
As we can see warehouse functions can make important contributions to logistics systems and
company operation. However, we must also view warehousing in a trade-off context; that is
warehousings contribution to profit must be greater than its cost.

23

PLANNING AND CO-ORDINATION OF FLOWS

1. Co-ordination is the backbone of overall information system architecture among the
participants of the value chain. Coordination results in plans specifying : (i) Strategic
objectives, (ii) Capacity constraints, (iii) Logistical requirements, (iv) inventory deployment,
(v) Manufacturing requirements, (vi) procurement requirements and (vii) Forecasting.
(i) Strategic Objectives detail the nature and location of customers, which are matched to the
required products and services to be performed. The financial aspects of the strategic plans
detail resources required to support inventory, receivables, facilities, equipment and capacity.
(ii) Capacity Constraints coordinate internal and external manufacturing requirements for
given strategic objectives, capacity constraints identify limitation, barriers or bottlenecks
within manufacturing capabilities and determine appropriate outsource requirements.
(iii) Logistics Requirements specify the work that distribution facilities, equipment and
labour must perform to implement the capacity plan. Based on inputs from forecasting,
customer orders and inventory status, logistics requirements specify value chain performance.
(iv) Inventory Deployments are the interfaces between planning/coordination and operations
that detail the timing and composition of where inventory will be positioned from an
information perspective, inventory deployment specifies the what, where and when of the
overall logistics process. From an operational viewpoint, inventory management is performed
as a day-to-day event.

24

(v) Manufacturing Plans are driven from logistical requirements and result in inventory
deployment. The primary output is a statement of time-phased inventory requirements which
drives master production scheduling (MPs) and manufacturing requirements planning (MRP).
The output from MRP is a day-to-day production schedule that can be used to specify
material and component requirements.
(vi) Procurement Requirements schedule material and components for inbound shipment to
support manufacturing requirements. Purchasing coordinates decisions concerning supplier
qualification, degree of desired speculations, third party arrangements and feasibility of longterm contracting.
(vii) Forecasting utilises fast data, current activity levels and planning assumptions to predict
future activity levels. The forecasts predict periodic (monthly or weekly) sales levels for
each product, forming the basis for logistical requirement and operating plans.

2. Operational Requirements : The second aspect of information requirements is concerned

with directing operations to receive, process and ship inventory as required to support
customer and purchase orders. Operational requirements deal with: (i) order management, (ii)
order processing,(iii) distribution operations, (iv) inventory management, (v) transportation
and shipping and (vi) procurement.
(i) Order Management refers to the transmission of requirements information between value
chain members involved in finished product distribution. The primary activity of order
management is accurate entry and qualification of customer orders.
(ii) Order Processing allocates inventory and assigns responsibility to satisfy customer
requirements. In technology-rich order processing systems, two-way communication linkage
can be maintained with customers to generate a negotiated order that satisfies customers
within the constraints of planned logistical operations.
(iii) Distribution Operations involve information flows required to facilitate and coordinate
performance within logistics facilities. The key to distribution operation is to store and handle
specific inventory ill little as possible while still meeting customer order requirements.
(iv) Inventory Management is concerned with using information to implement the logistics
plan as specified.
(v) Transportation and Shipping information directs the movement of inventory. It is also
necessary to ensure that required -transportation equipment is available when needed.

25

(vi) Procurement is concerned with the information necessary to complete purchase order
preparation, modification and release while existing overall supplier compliance.
The overall purpose of operational information is to provide the detailed data required for
integrated performance of physical distribution, manufacturing support and procurement
operations whereas planning/coordination flows provide information concerning planned
activities, operational requirements are needed to direct day-to-day work:]

26

TRANSPORTATION MANAGEMENT
Introduction
Transportation plays a key role in economic success by allowing for the safe and efficient
distribution of goods and services throughout the supply chain.
Transportation links the various integrated logistics activities. Without transportation, the
integrated logistics system breaks down. Some view transportation as the glue that holds the
entire system together. Without the transportation link raw material cannot flow into the
warehouses and plants, nor can be finished product flow out of the plant to field warehouses and
finally to the customer.
Transportation physically moves products from where they are produced to where they are
needed. This movement across space or distance adds value to products. This value added is
often referred to as place utility.
Time Utility is created by warehousing and storing products until they are needed.
Transportation is also a factor in time utility, it determines how fast and how consistently a
product moves from one point to another. This is known as time-in-transit and consistency of
services respectively.
If a product is not available at the precise time it is needed, there may be expensive
repercussions, such as lost sales, customer dissatisfaction, and production downtime, when the
product is being used in the manufacturing process. Transportation Ryder Integrated Logistics
and United Parcel Services (UPS) have achieved successes because they are able to provide
consistent time-in-transit and thus increase the time and place utility of their customer products.

27

Transportation Functionality
Transport functionality provides two major functions. Product Movement and Product Storage.
Product Movement
Where the product is in the form of materials, components, assemblies, work-in-progress or
finished goods, transportation is necessary to move it to the next stage of the manufacturing
process or physically closer to the ultimate customer. A primary transportation function is product
movement up and down, the value chain since transportation utilizes Temporal (time), financial
and environmental resources, it is important that items be moved only when it truly enhances
product value.
The major objective of transportations to move product from an origin location to a prescribed
destination while minimizing temporal, financial and environmental resource costs, loss and
damage expenses must also be minimized.

Product Storage
A less common function is 'temporary Storage. Vehicles make rather expensive storage
facilities. However, if the in-transit product requires storage but will be moved again shortly (say
in few days), the cost of unloading and reloading the product in a warehouse may exceed the per
day charge of storage in the transportation vehicle. In circumstances where warehouse space is
limited utilizing transportation vehicles may be a viable option.
1) One method may be involving loading product on the vehicle and then have it to take a
circuitous route or indirect route to its destination.
2) Another method is by way of diversion. This occurs when an original
shipment destination is changed while the delivery is in transit.

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Principles:
There are 2 fundamental principles guiding transportation management:
1) Economy of scale
2) Economy of distance
1) Economy of scale
This refers to the characteristics that transportation cost per unit of weight decreases when the
size of the shipment increases. It is also generally true that larger capacity transportation vehicles
such as rail or water are less expensive per unit of weight than smaller capacity vehicles like
truck and tempo. Transportation economies of scale exist because fixed expenses associated with
moving and loading can be spread over the loads weight. The more the load, the lesser will be
cost per unit weight. The fixed expenses include administrative cost of taking the transportation
order; time to position the vehicle for loading and unloading, invoicing and equipment cost.
2) Economy of distance
Refers to the characteristic that transportation cost per unit of distance decreases as distance
increases. These principles are important considerations when evaluating alternative
transportation strategies or operating practices. The objective is to maximize the size of the load
and the distance that it is shipped while still meeting customer service expectations.

Participants in transportation Decisions:

1) Shipper
2) Carrier
3) Consignee
4) Public
5) Government

Modes of transportation
There are five major modes of freight transportation, airlines, motor carriers, pipelines,
railroads and water carriers. Each of these modes has distinct characteristics that give them

29

advantage over the others. Which mode is the best depends on the freight hauled cost, speed,
reliability, capacity, length of haul and flexibility.

Airlines
Airlines are the fastest terminal-to-terminal mode of transportation. That is the primary
advantage. They specialize in time sensitive movement of documents, perishable items, technical
instruments, medical supplies and high valued products. Also air transportation has the highest
percentage of revenues coming from passenger travel. While airlines are important for some
freight movement, their primary business has traditionally been passenger travel. Airfreight
services cost more than other modes, primarily due to their speed. Air carriers provide terminalto-terminal service, meaning that direct delivery to a consumer's door is the rarest of exceptions.
Airlines are reasonably reliable. While weather related flight delays might disrupt service, the
disrupted service is often still the fastest than the next fastest mode, the motor carrier. The
airlines, speed advantage is most apparent for hauls over 500 miles. For trips less than 500 miles,
motor carriers can often outperform airlines door-to-door.
Airlines transport small volume shipments rather than large volumes, and packaged products
rather than heavy bulk commodities. The physical configuration and cost of air service also limit
the variety of products shipped by air. Measured by weight airlines transport very little freight.
The percentage of total freight dollars shipped by air is relatively small although the revenue
growth rate is promising. As customer service expectations increase, so does the demand for
shorter transit times. As a result, many shippers have turned to air transportation
Most airline costs change over a short period of time and depend on output making airlines
predominantly variable cost carriers. When the initial cost of the air fleet is significant these fixed
costs are spread over the long useful life of the aircraft. Terminals represent a major fixed cost in
other modes, but airline terminals are publicly owned facilities for which the airlines pay user
fees. The significant start-up costs associated with an airline limit the number of competitors
creating an oligopolistic market structure, with only a few large carriers.

30

Motor carriers (Road)

Motor carriers are the most flexible mode of transportation. This means better direct access to
motor carriage for more shippers and final consumers. Motor carriers compete with airlines for
higher valued products as well as time-sensitive products (electronics perishable etc,) within a
500 miles radius. Motor carriage ranks as the second fastest mode of transportation, with the
additional advantages of door-to-door flexibility and broad geographic coverage. Because trailers
vary in length, temperature control and form motor carriers can carry a variety of products. In
fact, they can carry almost anything. As industry saying 'if it got there, a truck brought it' rings
very nearly true. Motor carrier rates are high compared with all other modes but air. They also
face gross weight and length restrictions, as well as other legal limits. Motor carriers are
susceptible to delays because of bad weather or traffic congestion. Almost, motor carriers are not
well suited to handle extremely heavy bulky products because the trailer is not properly
constructed to ship such significant weight efficiently even when permit allow the legal
restriction to be lifted.
Pipelines
Pipelines are unique mode of transportation. They are fixed in place, and the product moves
through them. This limits the type of products they can transport but within these limits they can
move more tons under a single shipment than any other mode of transportation (30,000 to
25,00,000 tons). They can transport product only in a liquid or gaseous state. Petroleum is the
number one product moved by pipelines. Pipelines are cost effective where large quantities of
liquid products need to be transported. Pipelines offer one advantage that none of the other
modes can offer. A pipeline is a continuous flow mode. When the pipeline is full the product
flows to the destination immediately and continues to do so almost without fail. Pipelines are the
most dependable mode of delivery unaffected by external factors like weather. However, pipeline
transportation is slow, rigid in terms of routes and product types and limited to terminal-toterminal service. A pipeline's average speed is usually between two and five miles per hour.
Pipelines can rarely deliver the product to the consumer's door and the origin and destination of
the mode are fixed-unless household water and gas lines are taken into account.
Many pipelines are built by private entities for private use. Different types of liquid can be
shipped through a pipeline at the same time separated by a batching plug. A batching plug is a
mechanism designed to allow for continuous flow through the pipeline while maintaining the
integrity of each individual product. Pipeline costs are predominantly fixed. Pipelines must build
31

their own right-of-way, an extremely expensive undertaking. Pipelines most often move large
quantities of a liquid product from a fixed origin to a fixed destination. The construction of a
pipeline becomes cost effective only when the high initial fixed cost can be spread over enough
volume to keep the unit transportation cost competitive with other modes.
Railroads
Railroads transport a significant amount of domestic freight. Railroads haul high-density lowvalued freight over long distances at rates lower than trucking and air, but higher than water and
pipeline. Products hauled include coal, stone, sand, metals, grain and automobiles. Their primary
competitors include domestic water carriers for large bulk products and motor products for
higher valued goods. Railroads can handle a wide variety of goods but generally have not. They
lack flexibility and high-speed delivery in their standard operation. Historically, railroads have
been unreliable due to poor scheduling, a substandard infrastructure and unreliable equipment.
Railroads argue that their assets are older because they must commit considerable resources to
build their own right of way. Rail companies have attempted to improve their reputation for
customer service by updating old equipment, installing current technologies and implementing
customer-oriented strategies.
Like other modes, railroads are classified by annual sales figures. Railroads operate in an
oligopoly, with a limited number of interdependent competitors. Fixed costs are high compared
with air, water and motor carriage. The higher percentage of fixed costs stems from ownership
and construction of the right-of-way. Rail transportation has benefited from significant level of
international inter modal freight, which currently provides the industry with its highest growth
and profits.
Water Carriers
Water carriers dominate international transportation because of their cost structure and ability
to transport large volumes. Their significant modal market share is derived from these
international operations. Advantage of water transport includes long haul capabilities-particularly
for low-valued products such as coal, stone, grain and ores-at low rates. They can and do haul a
broad range of products from ores and grains to Christmas toys. Since water carriers haul a wide
variety of commodities, they operate a variety of ships. Tankers primarily carry liquid products
like petroleum and crude oil. Measuring over 1.500 feet long and 200 feet wide, these vessels are
some of the largest on the ocean. Bulk carriers are constructed to haul commodities like coal, iron
ore, or agricultural products. Furthermore, significant growth in container ships shows the impact
32

containerization has had on water carriage. Standardized containers are loaded, placed on
container ships, and shipped across the ocean to their destination. A standard container measures
either 8' by'8 by 20' or 8' by 8 by 40'.One twenty-foot container is referred to as one twenty-foot
equivalent unit (TEU). A forty foot container is two TEUs.
Water carriers compete heavily with railroads along certain routes and with pipelines for the
movement of some products, particularly petroleum. Water carriers cost structure and volume
levels are such that they can charge very low rates. Water carriers are relatively slow, unreliable
and suffer from a high degree of variability in delivery schedules. Two main types of for-hire
carriers make up the deep-water industry. Liners have fixed sailing times and fixed routes, while
tramps sail when they reach capacity. Since liners must sail at a specific time, they are not always
filled to capacity. Tramps are usually the better choice when service dates and times are not
critical, and liners the better choice when these criteria are critical. Water carriers operate in an
oligopoly due to the large initial investment, which tends to limit the number of carriers.
However, over the life of the ship, variable cost dominates. The initial cost of the ship is
significant, but the volume transported over the useful life of the ship is so large that the cost per
unit is relatively low.

Mode Comparison- Dominant Traffic

MODE

% SHARE

NATURE OF TRAFFIC

Rail
Road/
Highway
Water

40%
30%

Agricultural products, ores, coal, heavy machines, etc.

Medium & Light manufacturing distribution

15 %

Pipeline
Air

10%
5%

Mining, cement chemicals, agricultural products, heavy

machinery, etc.
Petroleum products, chemicals, gas
Emergency requirements of any material, small lots

Cost Structure For Each Mode

33

FIXED COSTS

MODE
Rail
Road
Water
Pipeline
Air

VARIABLE COSTS

High
Low capital
High/ medium
Highest
Medium

Low
Medium- fuel, maintenance
Low
Low
High- fuel human operation

Relative operating Characteristics

OP.
CHARTS
Speed
Availability
Dependability
Capability
Frequency
Total score

ROAD

RAIL
3
2
3
2
4
14

2
1
2
3
2
10

WATER
4
4
4
1
5
18

PIPELINE
5
5
1
5
1
17

AIR
1
3
5
4
3
16

SCALE: 1 TO 5; 1 IS BETTER

Classification of carriers
Common carriers
The basic foundation of the public transport and system is the common carrier. They have the
right to transport any material within a specified zone. (Trucks and tempos).
Contract Carriers
Contract carriers provide transport services for selected customers. The basis for contract is an
agreement between a carrier and a shipper for a specified transportation service at a previously
agreed cost.
Private Carriers
A private carrier consists of a firm providing its own transportation. They are 'not for hire'.
Specialized carriers
a) Oil tankers
b) Trailers to carry container (8 ft. high, 20 or 40 ft. length & 8 ft.wide) loads and special

34

products material.
c) Special closed trucks/tempos.
d) Parcel services-blue dart, Fed-ex. Etc.

Value Added Services

These are as follows:
a) Electronic tracking
b) Advanced label imaging system (bar code)
c) Delivery confirmation service
d) On-call pick up service
e) Packaging and forwarding, etc.

Transportation Documents
a) Bill of lading
It is the basic document utilized in purchasing transport services. It serves as a receipt and
documents commodities and quantities shipped for this reason accurate description and count are
essential. In case of loss damage or delay, the bill of lading is the basis for damage claims. The
designated individual or buyer on a bill of lading is the only bona-fide recipient of the goods, a
carrier is responsible for proper delivery according to instructions contained in the document in
effect, and title is transferred with completion of delivery.
The bill of lading specifies terms and conditions of carrier liability and documents
responsibility for all possible causes of loss. Or damage except those defined as acts of GOD
(flood, earthquake. etc.)
b) Freight bill
The freight bill represents a carrier's method of charging for transportation services performed.
It is developed using information contained in the bill of lading. The freight bill may be either
pre-paid or collect.

35

c) Shipping manifest
The shipping manifest lists individual stops or consignees when multiple shipments are placed.
The objective of the manifest is to provide a single documentation that defines the content of the
total load without requiring the review of individual bill of lading.

Transportation Cost Structures

(1) Fixed cost (2) variable cost (3) joint cost (4) common cost
Fixed cost. Certain costs are constant regardless of the firm's activity. Example of this would
include the capital invested in railroad, tracks, airplanes, or tractors.
A variable cost changes as output changes. If a tractor is driven more miles, certain costs increase
proportionately. Fuel costs, wages, maintenance costs and tire replacement depend on output. As
miles increases so do these costs. Fuel usage for airlines varies with the number of flights as
week as the distance traveled. To determine if a cost is variable consider what happens if
operations shut down. The costs that disappear are variable and these that continue are fixed.
All cost in the long run are variable. For instance, a locomotive is eventually no longer useable
and must be replaced. For the twenty-five year life of the locomotive the cost is fixed. When a
new locomotive is purchased to replace it, the cost changes, it is no longer fixed. However once
the new engine is placed, it too will have a useful life of many years. The cost again becomes
fixed. For most decisions do not reach beyond its useful life. The benefits of increased volume
accrue more to high fixed cost carriers than to high variable costs carriers seek volume to spread
the fixed costs over more units greatly increasing profits.
A joint cost occurs when the production of one product or service requires or offers the
production of another product or service. For example, a railroad moves goods from New York to
Los Angeles. It now has engines available in Los Angeles to provide back-haul service to New
York or additional transportation from Los Angeles. The cost of placing the train in Los Angeles
is a joint cost with the New York to LA run and whatever run follows it. Fixed and variable costs
can also be joint costs. All modes incur joint costs to some extent.

36

Common cost cannot be directly associated with a product or activity. Since this creates
confusion we normally assign activities percentage of these common costs. For instance a tractor
traveling from Dallas to Chicago with three shipments breaks down and requires $5000 in
repairs. How much of this repair cost should be allocated to the three different shipments? It is
based on space used, weight or both? Thats the problem with common costs. In transportation
common costs are significant and are found in all modes.
Airlines are variable cost mode because they do not own the right of way. Governmental entities
own the large airports the federal government operates the airways and airlines pay fees for the
privilege of using them. In keeping with the definition of variable costs airlines pay take off and
landing fees only when they take off and land. Other large variable costs include fuel, wages and
maintenance. Major fixed costs are the airplanes and salaries. Due to their type of operations
airlines have many common costs since they normally move freight in a single airplane for
multiple customers.
Motor carriers like airlines; do not own the way or path of travel. They are variable cost carriers.
Some estimate that 90 percent of the motor carrier industry's cost is variable. They pay user fees
(taxes etc.) to offset the road maintenance costs. Other major variable costs are fuel, driver
wages, and equipment maintenance. The major fixed costs are the terminals and equipment. LL
carriers have many common costs because of the number of shipments in a single trailer. TL
carriers have few common costs because the trailer is filled with product from a single shipper.
Pipelines are categorized as heavy fixed cost carriers. They own their right of way and their
terminals. In fact because of computerization, this mode is also classified as very capital
intensive. This leads to lower wages and maintenance costs. Because pipelines move a variety of
liquid products, they have significant common costs.
Railroads are fixed cost carriers because they own their equipment and tracks. Economic of scale
arise from increased volume which allow per unit costs to be kept low by spreading fixed costs
over more units. A significant portion of railroad cost is common because all traffic share
replacement costs.

37

Water carriers are variable cost carriers because they do not own the waterways. They ways are
not free. Channels must be maintained in major rivers and ports. In the United States, the U.S.
Army Corps of Engineers dredges the channels. Water carriers major variable costs are labor,
fuel and maintenance. Like railroads, significant portion of their costs are common because
multiple shipments often share a vessel.

Factors influencing Transportation Costs and Pricing

In general factors influencing transportation costs/pricing can be grouped into two major
categories: product related factors and market related factors. Many factors related to a products
characteristic influenced the cost/pricing of transportation. They can be grouped into the
following categories:
1) Density
2) Stow ability
3) Ease or difficulty of handling
4) Liability
Density refers to a product's weight to volume ratio. Items such as steel, canned Foods,
building products and bulk paper goods have high weight to volume ratios. They are relatively
heavy given their size. On the other hand products such as electronics clothing, luggage and toys
have low weight to volume ratios and thus are relatively lightweight given their size. In general,
low-density products-those with low weight to volume ratios-tend to cost more to transport on a
per pound (kilo) basis than high-density products.
Stow ability is the degree to which a product can fill the available space in a transport vehicle.
For example, grain ore, and petroleum products in bulk have excellent stow ability because they
can completely fill the container (e.g. railcar, tank, truck, pipeline) in which they are transported.
Other items such as automobiles, machinery, livestock and people do not have good stow ability
or cube utilization. A product's stow ability depends on its size, shape, fragility, and other
physical characteristics.

38

Related to stow ability is the ease or difficulty or handling the product. Difficult to handle
items are more costly to transport. Products that are uniform in their physical characteristics (e.g.
raw materials and items in cartons, cans, or drums) or that can be manipulated with materials
handling equipments requires less handling expenses and are therefore less costly to transport.
Liability is an important concern. Products that have high value to weight ratios are easily
damaged and are subject to higher rates of theft or pilferage, cost more to transport. Where the
transportation carrier assumes greater liability (e.g. with compute, jewelry and home
entertainment products) higher price will be charged to transport the product.
Other factors, which vary in importance depending on the product category, are the products
hazardous characteristics and the need for strong and rigid protective packaging. These factors
are particularly important in the chemical and plastic industries.

Market-Related Factors
In addition to product characteristics, important market related factors affect transportation
cost/pricing. The most significant are:
1) Degree of intra-mode and inter-mode competition.
2) Location of markets, which determines the distance goods, must be transported.
3) Nature and extent of government regulation of transportation carriers
4) Balance or Imbalance of freight traffic into and out of a market
5) Seasonality of product movement
6) Whether the product domestically or internationally
Customer service is a vital component of logistics management. Which each activity of
logistics management contributes to the level of service a company provides to its customers, the
import of transportation on customer service is one of the most significant. The most important
transportation service characteristics affecting customer service levels are:
-Dependability consistency of service
-Time and transit
-Market coverage- the ability to provide door-to-door service
39

-Flexibility- handling of a variety of products and meeting the special needs of shippers
-Loss and damage performance
-Ability of the carrier to provide more than basic transportation service i.e. (to become part of
shippers over all marketing and logistics programs)
Each mode of transport- motor, rail, air, water and pipeline- has varying service capability.

Service Choices And Performance Characteristics

The user of transportation has a wide range of services as his or her disposal all revolving
around the five basic modes, the variety is almost limitless (1) The five modes maybe used in
combination (2) Agencies, associations and brokers maybe used for their indirect services (3) A
single transportation mode maybe used exclusively. From among this plethora of service choices,
the user must select a service or service combination that provide the best balance between the
quality of service provided and the cost of the service. The task of service choice is not as
forbidding as it sounds because the circumstances surrounding a particular shipping situation
often reduce the choice to only a few reasonable service possibilities. To aid in solving the
problem of transportation service choice, transportation service maybe viewed in terms of
characteristics that are basic to all services. These criteria are:
(1) Cost of service (2) Average delivery time (3) Transit time variability (4) Loss and Damage.
It is presumed that the service is available and can be supplied with a frequency that makes it
attractive as a possible service choice.
Cost of service: The cost of service is simply the line-haul cost for transporting goods plus any
accessorial or terminal charges for additional service provided. In the case for- hire service, the
rate charged for the movement of goods between two points plus any additional charges, such as
pick-up at origin, delivery at destination, insurance or the cost of preparing the goods for
shipment makes up the total cost of service. When the shipper owns the service, the cost of
service is an allocation of the relevant costs to the shipment in question. Relevant costs include
such items as fuel, labor maintenance, depreciation of equipment and administrative costs.

40

Cost comparisons for the purpose of transportation-service selection must be made on the basis
of actual charges that reflect the specific commodity being shipped, the distance and direction of
the movement and any special handling required.
Delivery Time and Variability: There are many factors to be considered when selecting a
transportation service. Repeated surveys have shown that average delivery time and delivery time
variability rank at the top in importance. Delivery time is usually referred to as the average time
it takes for a shipment to move from its point of origin to its destination. The different modes of
transportation vary as to whether they provide direct connection between the origin and
destination points, for example, shipments move on air carriers between airports and on water
carriers between harbors. But for purposes of comparing carriers performance, it is best to
measure delivery time 'door-to-door' even if more than one mode is involved. Although the major
movement of shipment may be by rail, local pickup and delivery is often by truck if no rail
sidings are available at the shipment origin and destination points.
Variability refers to the normal differences that occur between shipments by the various modes.
All shipments having the same origin and destination points and moved on the same mode are
not necessarily in transit for the same length of time due to the effects of weather, traffic
congestion, number of stop offs, and difference in time to consolidate shipments. Transit-time
variability is a measure of the uncertainty in carrier performance.
In recent years there has been renewed interest in the idea of coordinating the service of more
than one transportation mode. The major feature of coordination is the free exchange of
equipment between modes. For example, a truck trailer is carried abroad an airplane or a rail car
is hauled by a water carrier. Such equipment interchange creates transportation services that are
not available to a shipper using single transportation mode. Coordinated services are usually a
compromise between the services offered by the cooperating carriers individually. That is, cost
and performance characteristics rank between those of the participating carriers.
MIXED MODES (MULTIMODAL/INTERMODAL TRANSPORTATION)
It is not always possible to transport the goods by only one mode of transportation due to
economy of transportation, long distance of transportation. So it is essential to have mixed modes
some of the most commonly used are

41

 Piggyback (road + rail )

Fishy back ( road + water )
Birdy back ( road + air)
There are ten possible co-ordinate services:
(1) Rail-truck (2) Rail-water (3) Rail-air (4) Rail-pipeline (5) Truck-air (6) Truck-water
(7) Truck-pipeline (8) Water-pipeline (9) Water-air (10) Air-pipeline. Not all of these
combinations are practical. Some that are feasible have gained little acceptance. Only rail truck
called 'piggyback' has seen widespread use. Truck-water combinations, refereed to as 'fishyback, are gaining acceptance especially in the international movement of high-valued goods. To
a much lesser extent truck-air and rail-water combinations are feasible but they have seen limited
use.
TOFC. Trailer on flatcar or piggyback refers to transporting truck trailers on rail board flatcars,
usually over long distances than trucks normally haul. TOFC is blending of the convenience and
flexibility of trucking with the long haul economy of rail. The cost is less than for trucking alone
and has permitted trucking to extend its range. Likewise, rail has been able to share in some
traffic that normally would move by truck alone. The shipper benefits from the convenience of
door-to-door service over long distances at reasonable rates. These features have made piggyback
the most popular coordinated service.
Piggyback (TOFC/COFC) In piggyback service, a motor carrier trailer or a container is placed on
a rail flatcar and transported from one terminal to another. Axles can be placed under the
containers so a truck can deliver them. At the terminal facilities, motor carriers perform the
pickup and delivery functions. Piggyback service thus combines the low movement with the
flexibility and convenience of truck movement. Since 1976 shippers have increased their use of
piggyback service by 200 percent. In 1994 there were 8.1million inter-modal shipments with
1995 and 1996 shipments approximating the same levels.
Truck and rail partnerships to support inter modalism such as the one begun in 1989 between
the Santa Fe railroad and J.B.Hunt Transport Services are relatively common. The railroad
carriers freight on the long haul and the trucking company picks up and delivers between the
customer and railroad.77% of inter-modal users agree that such alliances have a positive impact

42

on transportation options available to them. In India Konkan Railway has started this typed
service.
Roadrailers. An innovative inter-modal concept was introduced in the late 1970s.Roadrailers or
trailer trains as they are sometime called, combine motor and rail transport in a single piece of
equipment. The road railer resembles a conventional motor carrier trailer. However the trailer has
both rubber truck tires and steel rail wheels. Over highways tractor power units transport the
trailers in the normal way, but instead of placing the trailer on a flatcar for rail movement, the
wheels of the trailer are retracted and the trailer rides directly on the rail tracks.
The advantages of this inter-modal form of transport are that rail flatcars are not required and
that the switching time to change wheels on the trailer is less than loading and unloading the
trailer from the flatcar. The major disadvantages of roadrailers are the added weighted of the rail
wheels, which reduces fuel efficiency and results in higher movement costs in addition to the
higher cost of the equipment. The disadvantages have tended to out-weight the advantages
resulting in very low usage of this Inter-modal option. If technology improvements can reduce
the cost of this transport option, usage is likely to increase.
Miscellaneous inter-modal issues. Any other inter-modal combinations are possible. In
international commerce for example the dominant modes of transportation are air and water. Both
include Inter-modal movements through the use of containers and truck trailers. Combinations of
air-sea, air-rail, truck-sea and rail-sea are used globally.
As an example 'By shipping cargo by ocean from Japan to Seattle, then transferring it to a
direct flight to Europe from Seattle-Tacoma Airport. Asian exporters reap substantial benefits.
They can cut their transit times from 30 days for all water service to about 14 days and slash
freight costs by up to 5 % compared with all services.

Third Party Logistics Service Providers

This sector is growing very rapidly. With the increasing emphasis on supply chain
management, more companies are exploring the third party option. For some firms dealing with

43

one third party firm who will handle all or most of their freight offers a number of advantages,
including the management of information by the third party, freeing the company from day-today interactions with carriers, and having the third party oversee hundreds or even thousands of
shipments. Third parties have administered activities such as freight payment and dedicated
contract carriage for many years. However, additional transportation and logistics activities are
being outsourced. In some instances, some companies have outsourced large parts of their
logistics operations to their parties.
Brokers, freight forwarders, shipper, associations, Inter-modal marketing companies and third
party logistics service providers can be available shipping options for a firm in the same way that
the give basic modes and Inter-modal combinations can. The logistics executive must determine
the optimal combination of transport alternatives for his or her company.
In addition to the preceding alternatives many companies find that other transport forms can be
used to distribute their products. Small package carriers and parcel post are important
transporters of many time sensitive products. These companies use a combination of transport
modes, especially air. The U.S. domestic airfreight market consists of 60% express, 25%
passenger carriers and 15% mail. The growth rate in this sector has been robust, averaging about
10% a year.

TRANSPORTATION NETWORK DESIGN OPTIONS:

Transportation Network Design Options
Classical economists neglected the importance of facility, location and overall network design
Economists, when originally discussed supply demand relationships, facility, location and
transportation cost differentials were assumed to be non existent or equal among competitors.

The number, size, geographical relationship of the facilities are used to perform logistics
operation directly affect customer service capabilities and cost.
Network design primary responsibility of logistics.
Typical logistics facilities are manufacturing plants, warehouses, gross dock operations
and retail stores.

The design of a transportation network affects the performance of a supply chain. This is
because a supply chain establishes an infrastructure within which operational decision regarding
scheduling and routing are made. A well-designed transportation network is very essential for an
organization. It allows the supply chain to achieve the desired degree of responsiveness at a low.

44

A) DIRECT SHIPMENT NETWORK: The retail stores chain network options for the direct
shipment network. As the name suggests, the retail stores chain network structures its
transportation network in such a way that the shipment of goods and materials come directly
from the suppliers to the retail stores.
In direct shipment network, the path or the route which each shipment has to take is
specified. The duty of the supply chain manager in this case is only to decide on the quantity of
goods that has to be sent to the retail stores and then, depending on the type and quantity of
goods, he has to decide on the mode of transportation. Here the supply chain manager has to
strike a balance. In other words, if be decides to reduce the number of trips of transportation to
minimize transportation cost, then he has to decide on larger inventories at a retail stores. But
maintaining large inventories have their disadvantages as well. Again to keep the inventory level
minimum at the retail stores, there will be more number of trips by trucks to the retail stores. This
will increase the cost of transportation. Hence, the supply chain manager has to decide in a
judicious manner between inventory cost and transportation cost.
B) DIRECT SHIPPING WITH MILK RUNS: A milk run is a route in which a truck either
delivers product from a single supplier to multiple retailers or goes from multiple supplier to a
single retailer. Hence, in direct shipping with milk runs, a supplier delivers directly to multiple
retail stores on a truck, or a truck picks up deliveries from many suppliers destined for the same
retail stores. When using this opinion, a supply chain manager has to decide on the routing of
each milk run. This is because if a supplier has to deliver to multiple retail stores, the supply
chain manager has to decide which retail stores are to be given priority and accordingly the
routes have to be decided. Similar decision about the route has to taken by the supply chain
manager when many suppliers have to be contacted by the truck to take deliver of goods meant
for the same retail store. Direct shipment of goods to the destinations provides the benefits of
eliminating the need of having intermediate warehouses. Further the milk runs help to lower the
transportation costs by consolidating shipments to multiple stores on a single truck. For example
if replenishment to each retail store is considered on a direct shipment basis, it may happen that
the lot size dispatched to that retail store may be small and the truck will not be loaded to its full
capacity. However, if milk runs are used instead, the deliveries to multiple stores can be
profitably, consolidated on to a single truck. This will result in the better utilization of the truck
and also helps to reduce cost.
For example, Toyota uses milk runs from suppliers to support its Just-in-Time (JIT)
manufacturing system in both Japan and the United State. However in Japan, Toyota has many of
its assembly plants located close together and thus uses milk runs from a single supplier for many
plants. Again in the United State, Toyota uses milk runs from many suppliers to its assembly
plant in Kentucky.
C) ALL SHIPMENTS VIA CENTRAL DISTRIBUTION CENTRE: In this transportation
network, the suppliers do not send the shipment of goods directly to the retail stores. The retail
chain divides the stores by geographical region. Each region bas Central Distribution Center. The
supplier sends the goods to the various central distribution centers. The Central Distribution
Centre, in turn sends the goods to the retail stores as per the requirement.
The Central Distribution Centre is an extra large between the suppliers and the retailers. It
can play two different roles. First role is to store inventory and the second role is to serve as a
transfer location. The presence of a distribution center helps to reduce supply chain cost when
suppliers are located far from the retail stores and the transportation cost are high.
Cross Docking of goods and products is taken advantages of when there are large
shipments on the inbound side and on the outbound side, goods and products have to be sent to
retail outlets replenishment lots. A major benefit of cross docking of products is that little

45

inventory has to be held at the central distribution center and the products flow faster in the
supply chain. Cross docking also saves handling costs, because the product does not have to be
moved in to and out of storage at the central distribution center.

Modal characteristics and selection

In choosing a transportation mode, the transportation managers consider the following criteria.
Cost
Transit time
Safety
Reliability
Claim records
Responsiveness
Speed
Capability

46

LOGISTICS INFORMATION
1. OPERATIVE LEVEL
The lowest level of pyramid refers to transactions and enquiries. Examples of this activities
are order enquiries, order processing, stock status checks, Bill of lading preparation and
Transportation rate. Only implemented guidelines are given they follow guidelines. Since
there are diverse people therefore extension of information is more .

2. SUPERVISORY LEVEL
Information of this nature is used by the supervisory staff . Say, warehouse supervisors
must exercise control over space utilization inventory and Labour Productivity in order
billing operations. They prepare shift plan, they keep assembly ready .
A truck fleet manager must have the necessary people, equipment and spare parts to
accomplish the transportation mission and schedule deliveries .

3. MIDDLE MANAGEMENT LEVEL

Here middle management level is concurred with evaluation of inventory control limits ,
supplier evaluation, Carriers selection, planning for seasonal space and transportation
needs etc are termed as Tactical Planning . They decide and supervisor follows. What is the
ROL, which inventory control system to follows. What should be the buffer stock of an
item.

4. TOP MANAGEMENT LEVEL

Strategic Planning & Long Term Planning are the areas where top management works .
There activities involve setting of goals, policies and objectives, deciding on the overall
logistical structure and determining the resources needed for the supply distribution
task . all policies , goals, next three years what to produce , supplier selection .

Following 4 primary activities take place within the logistic information system :-

1. Data flow from external sources .

2. Processing and storage of information within the firm .
3. Communication of data for storage and processing to the decision maker in the form
of reports.

4. Communication of decision to customers and their feedback .

1. External Information System
A sound external logistics Information system is based on enlisting the cooperation of
customers and providing adequate and relevant information for advance planning,

47

operation and control of Logistics activities . Co-ordinations is required both, both

within and outside the organization for the planning & control of logistics and other
functions of management .
The SOURCE of information are the customers themselves and information can be
collected through the sales staff . Information on the following aspects is collected :
A]
B]
C]
D]

Order pattern of customers

Material handling system available
Re-order point of the customers
Ordering procedure of the customers

Following information is desirable from various internal department for the external
information system .
A] Purchasing Components, customers requirements
B] Production Product preference, product performance, packing etc.
C] Marketing Sales structure, sales promotion efforts, man power, competitors
activities etc .
D] Finance and Control Sales statistics credit rating, financial capacity etc .
E] Physical Distribution Sales statistics, inventory control, Warehouse location,
material handling system etc .

2. Internal Information System

Information flow within the organization is termed on internal information system.
Following department- wise information is needed :

A] Purchasing :
i) Total logistics costs of purchasing from different supplier and supply points .
ii) Routing instruction for in-bound materials and suppliers .
iii) Status of in-bound materials & suppliers.
iv) Names, addresses etc .
v) Delivery request dead lines
vi) Supplier prices & price discounts
vii) Alternate sources of supply & process etc .

B] Production
i) Warehouse capacity for raw materials & finished products .
ii) Production quantities & planning product.
iii) Warehouse material handling system .
iv) Delivery requirements.
v) Status of inbound supplies .
vi) Logistical innovations
vii) Production capacity & scheduling etc .

C] Marketing

48

i) Logistical costs of alternate levels of customers service, say number of warehouses

nearer to customer .
ii) Performance in meeting customer service standards viz. quantity, quality, timely
delivery etc.
iii) Competition logistics costs .
iv) Customer complaints
v)
Sales cost (salary, facilities, and expenses)
vi)
Prices & price adjustments (discounts)
vii) Special customer requirements viz. special feature color, design etc .

D Finance
i) Budget for physical distribution costs
ii) Various costs estimate
iii) Capital investment requirements
iv) Freight Bill - auditing
v) Credit procedure
vi) Financial performance etc. (profits)

E] Service agencies
i) Rate adjustments
ii) Request for quotation for requirements
iii) Freight rates
iv) Carrier rates, service 7 availability etc

LOGISTICS INFORMATION SYSTEM DESIGN

Following 4 major considerations for designing the LSi)
ii)
iii)
iv)

The decision to be made in the organization at each level of

management
The requirements of the system the input requirements & sources,
volume, quality of data, manner in which data to be collected.
The Requirements of control over the system operation for the
system, no. of copies to whom information to be sent etc.
Input & Output Data Identify points of collection of data, design
formats, arrange data entry & prepare various reports for various
depots .

49

Principles of Logistics Information

(1) Availability
Logistics information should be readily and consistently available .
Rapid availability is necessary to respond to customers and improve management decisions.
e.g. order and inventory status.

(2) Accuracy
Accuracy is defined as the degree to which LIS reports match actual physical count for status.
Logistics information must reflects both current status and periodic activity for measures such as
customer orders and inventory levels.

(3) Timeliness
Information should be timely provide quick management feedback .Timeliness refers to the
delay between when an activity occurs and when the activity is visible in the information
system .
Timely information reduces uncertainty and identifies problems, thus reducing inventory
requirements increasing decision accuracy .

(4) Flexibility
It should be flexible for both customers and company .One wants invoices for all his retail store
and another wants one invoice for all retail stores .

(5) Appointment format

Logistics information should be appropriately formatted so that they contain the right information
in the right form and in the right orders .

(6) Exceptional
If there is large order all of a sudden, product having little or no inventory, delayed shipments,
decreased in operating productivity, LIS should take care of all this factors .

Types of Information System

i) External Information system
A sound external logistic information system is based on enlisting the co-operation of customers
and providing educate and relevant information for advanced planning, operation and control of
logistics activities .
The source of data for the external information system for customers service are no doubt the
customers themselves, and information can be collected from them through the sales staff .
50

(ii) Internal Information system

Made up of the elements of the information flow within an organization .It is between the
department of purchasing, production, marketing, finance, etc on several important issues .The
internal information system covers, data processing, data analysis, and completion of control
reports are of various types status reports, exemption report and summary reports on the basis
of which decision may be made by respective managers in the organization.

Advantages
1. Lower inventory caring costs, more efficient replenishment, more accurate
forecast, more on time delivery, fewer documentation errors, avoiding the
purchase of unnecessary equipment, etc .
2. Its ability to better plan and control traffic management .

Disadvantages
1.

Inflexibility to change, difficulty of integrating old and new systems, higher

cost, estimation of system capability etc.

2.

Expectation of the company from LIS is to high ! some company things that
using logistics information system will solve all the logistics problems they
have faced .

51

MATERIAL HANDLING
Definition of material handling
Material handling is defined as the art and science of moving, packaging and storing of
substances in a form.
Other definitions include:
a) Creation of time and place utility
b) Movement and storage of material at the lowest possible cost through the use of proper
methods and equipments.
c) Lifting, shifting and placing of material which effect in a saving in money, time and
place.
d) Art and science of conveying, elevating, packaging and storing of materials.

SCOPE OF MATERIALS HANDLING

The scope of materials handling activity within an organization depends on the type of product
manufactured, the size of organization, the value of the product and the value of the activity
being performed and the relative importance of materials handling to the enterprise.
There are three perspectives about materials handling viz:
a) The traditional point of view.
b) Plant wide concern for overall flow of materials.
c) The system point of view.

52

In the traditional point of view of materials handling, the emphasis is on the movement of
materials from one location to another within the confines of the individual plant. The concern is
to find the best way to move the materials from one place to another within the planrt.
Plant wide concern focuses the attention on the overall flow of materials in the plant. The main
concern is te hinter-relationship between all the handling problems and the possibility of
establishing an overall materials handling plan.
The systems point of view of material handling requires visualization of material handling
problems, the physical distribution activities, and all closely related functions as one, an all
encompassing system. This point of view involves a much broader considerations of materials
handling activities involving the movement of material from all sources of supply (vendors), all
handling activities witin and around the plant and the activities involved in the distribution of
finished goods to all customers of thr firm.

IMPORTANCE OF MATERIAL HANDLING

1. Efficient materials handling is important to manufacturing operations. Materials sent by
vendors must be unloaded, moved through inspections and production operations to
stores and finally to the shipping departments. This movements donot add value to the
product but, they do add to the cost.
2. materials handling analysis is a subset to plant layout and materials handling are all part
of design of a production facility and can hardly be treated as separate. Materials
handling system and plant, enhance effectiveness of each other. A good plant layout
enables an operation to use the most effective handling method. Efficient operation of
appropriate materials handling methods reduces costs and enables maximum capabilities
to be derived from a given production facility.

53

OBJECTIVES OF MATERIALS HANDLING

Even though the best solution to the materials handling problem, is no handling, it is hardly
practicable in the manufacturing process. Hence, the main objective of materials handling is to
reduce the number of handling equipments and reducing the distances through which the
materials are handled.
Other objectives of materials handling are:
1. lower unit materials handling costs.
2. reduction in the manufacturing cycle time through faster movements of materials and by
reducing the distance through which the materials are moved. Reduction in manufacturing
cycle time results in reduced work in progress inventory costs.
3. contribution towards a better control of the flow of materials through the manufacturing
facility.
4. improved working conditions and the greater safety in the movement of materials.
5. contribute to better quality by avoiding damage to products by inefficient handling.
6. increases storage capacity through better utilisation of storage areas.
7. higher productivity at lower manufacturing cost.

MATERIAL HANDLING PRINCIPLES

Certain principles have evolved to guide facility layout to ensure efficient handling of
materials. Although, there are no hard and fast rules, they do provide effective guidelines for the
efficient movement of materials in most facility layouts.
Principle 1: Materials should move through the facility in direct flow pattern, minimizing
zigzagging or backtracking.

54

Principle 2: Related production processes should be arranged to provide for direct material
flows.
Principle 3: Mechanized materials handling devices should be designed and located so that
human effort is minimized.
Principle 4: Heavy and bulk materials should be moved the shortest distance during
processing.
Principle 5: The number of times each material is handled should be minimized.
Principle 6: Systems flexibility should allow for unexpected breakdowns of materials
handling equipments, changes in production system technology, etc.
Principle 7: Mobile equipments should carry full loads all the times.
These seven principles can be summarized as follows:
1. Eliminate Handling: If not, make the handling distance as short as possible.
2. Keep Moving: If not, reduce the time spent at the terminal points of a route as short as
possible.
3. Use simple patterns of material flow (the simplest path is a straight line path of flow
which minimizes the handling distance between two points). If not, reduce
backtracking, crossovers and other congestion producing patterns as much as possible.
4. Carry pay loads both ways: If not, minimize the time spent in transport empty by
speed changes and route locations.
5. Carry full loads: If not, consider increasing the size of unit loads, decreasing carrying
capacity, lowering speed, or acquiring more versatile equipment.
6. Use Gravity: if not, try to find another source of power that is reliable and inexpensive.

55

In addition to the above guidelines, there are certain other very important aspects of materials
handling, such as the following:
a. Materials handling consideration should include the movement of men, machine,
tools and information.
b. The flow system must support the objectives of receiving, sorting, inspecting,
inventorying, accounting, packaging and assembling.
Since the consideration and objectives do conflict, it is essential to take a systems decision
followed by delicate diplomacy to establish a material movement plan that meets service
requirement without subordinating safety and economy.

MATERIAL HANDLING COSTS

The costs of materials handling arise from two sources:
1. the cost of owning and maintaining equipment.
2. the cost of operating the system.
While the costs of owning the equipment are generally known since entries are available in the
books of accounts, the cost of operating the handling system are hard to pin down as records are
not generally maintained.
Every effort has to be made to reduce materials handling costs, particularly because they do
not add any value to a product. The product will not be worth any more toi the consumer simply
because it was moved, but it will still cost the consumer more.
How to reduce handling costs?
There are three fundamental ways of minimizing the costs:
a) eliminating the handling itself whenever and wherever possible.

56

b) Mechanizing, largely by conveyors and power driven trucks, whatever handling still
remains.
c) Making the necessary handling more efficient.
Primary requisite for any action to be taken towards minimizing handling costs is to have a
record maintained for them. It is here that majority of the companies are not doing the right thing.
Factors affecting the selection of materials handling equipments
The selection of materials handling equipments requires consideration of and attaining of proper
balance between the following factors:
i.

Production problem.

ii.

The capabilities of the handling equipment available.

iii.

The human element involved.

The ultimate aim is to arrive at the lowest cost per unit of materials handled.
(i) The production problem factors are:
a. Volume of the production t obe attained.
b. Class of materials to be handled.
c. The layout of plant and building facilities.
For example: the handling equipment which can be economically justified for the manufacture of
1000 TV sets per day would be entirely different from the handling equipment needed in a plant
manufacturing 20 steam turbine generators I na year as the production rate, weight and class of
materials needed are different.
(ii) Capabilities of the handling equipments available are:
a. Adaptability: The load carrying and movement characteristics of the equipment should
fit the material-handling problem.

57

b. Flexibility: Wherever possible, the equipment should have the flexibility to handle more
than one material, class or size.
c. Load Capacity: Equipment selected should have enough load-carrying characteristics to
do the job effectively.
d. Power: The equipment should have enough power available to do this job.
e. Speed: The speed of movement of the handling equipment should be as high as possible,
within the limits of production process and plant safety.
f. Space Requirements: The required to install or operate materials handling equipment is
also an important consideration.
g. Supervision required: The degree of automation in the handling equipment decides the
amount of supervision required.
h. Ease of maintenance: Equipment selected should be capable of easy maintenance at
reasonable cost.
i. Environment: Equipment selected must conform to any environmental regulations.
j. Cost: The cost of the equipment (capital investment) is an obvious factor in the selection.
The various kinds of costs to be considered in addition to the initial purchase price of the
handling equipment are:
a. Operating Costs
b. Installation Costs
c. Maintenance Costs
d. Power Requirements
e. Insurance Requirements
f. Space Cost
g. Depreciation Cost
h. Salvage Value
i. Time Value of money invested
j. Opportunity Cost
(iii) The human elements/factors cannot be overlooked in the selection of materials handling
equipment. They are:
a. The capabilities of the available manpower to operate the equipment.
b. Safety of personnel (those who operate it or come in contact with it)

58

TYPES OF MATERIAL HANDLING SYSTEMS

The materials handling systems can be classified according to the type of handling
equipment used, type of material handled and the methods, need or functions performed.
The Classifications are:
1. Equipment oriented systems depending upon the type of equipment used. They are:
a) Overhead Systems
b) Conveyor Systems
c) Tractor Transfer Systems
d) Fork-lift Truck and Pallet Truck Systems
e) Industrial Truck Systems
f) Underground Systems
2. Material oriented systems consisting of the following types:
a) Unit handling Systems
b) Bulk Handling Systems
c) Liquid handling Systems
3. Method oriented systems can be of the following types:
a) Manual Systems
b) Mechanized or automated Systems
c) Job-Shop Handling Systems
d) Mass Production Handling Systems
4. Function oriented Systems:
a) Transportation systems
b) Conveying Systems
c) Transferring Systems
d) Elevating Systems

59

The materials handling equipments are classified into four basic types, viz. conveyors, cranes and
hoists, trucks and auxiliary equipment.

TYPES OF MATERIALS HANDLING SYSTEMS

1. CONVEYORS
These are gravity or powered devices, commonly used for moving loads from point to point
over fixed paths. The various types of conveyors are:
a)

Belt Conveyor: Motor driven belt, usually made of rubberized fabric

or metal fabric on a rigid frame.

b)

Chain Conveyor: Motor driven chain that drags materials along a

metal slide base.

c)

Roller conveyor: Boxes, large parts or unit lands roll on top of a

series of rollers mounted on a rigid frame.

d)

Pneumatic Conveyor: high volume of air flows through a tube,

carrying materials along with the airflow.

The other types of conveyors are bucket conveyor, screw conveyor, pipeline conveyor,
vibratory conveyor, trolley conveyor, and chute or gravity conveyors.
Advantages of conveyors are that they do not require operators, will move a large
volume of products and inexpensive to operate.
2. CRANES, ELEVATORS AND HOISTS
These are overloaded devices used for moving various loads intermittently between points
within an area, fixed by supporting and binding rails.
a) Cranes are devices mounted on overhead rails or ground level wheels or rails. They
lift, swing and transport large and heavy materials. Examples are Gantry Crane,
Jib Crane and Electrically Operated Overhead Crane (EOTC).
b) Elevators are a type of cranes that lift materials usually between floors of buildings.

60

c) Hoists are devices, which move materials vertically and horizontally in a limited
area. Examples are Air Hoists, electric hoists and chain hoists.

3.

INDUSTRIAL TRUCKS

These devices are used for moving mixed or uniform loads intermittently over variable
paths. They are electric, diesel, gasoline or liquefied petroleum, gas powered vehicles
equipped with beds, forks, arms or other holding devices. Examples are forklift trucks,
pallet trucks, tractor with trailers, hand trucks and power trolleys.
4.

AUXILIARY EQUIPMENTS

These are devices or attachments used with handling equipment to make their use more
effective and versatile. Examples are ramps, positioners, pallets, containers and turn-tables.

MISCELLANEOUS HANDLING EQUIPMENTS

1. Pipe Lines, which are closed tubes that transport liquids by means of pumps or
gravity.
2. Automatic transfer devices, which automatically grasp materials, hold them firmly
while operations are being performed and move them to other locations.
3. Automated guided vehicle (AGV) Systems: These devices do not require operations
and provide a great deal of flexibility in the paths they travel and the functions they
perform and the AGVs are controlled by signals sent through the wires embedded in
the floor or inductive tape on the floor surface. A remote control computer is needed
to control the movement of AGVs.
4. Industrial Robots: a robot is a mechanism that has a movable armlike projection with
a gripper on the end that can perform a variety of functions with the control that
can be reprogrammed and hence they are very versatile.

61

The process design and the principles of efficient materials handling provide the
framework for selecting specific materials handling devices as the core of the
materials handling system. Each of the handling devices has its own unique
characteristics and advantages and disadvantages.
WHAT IS MRP?
MRP [Materials Requirement Plan]
Popular concept in 1960&1970. Consists of a computer system, a manufacturing information system,
building on inventory, production scheduling and administering all inputs to production and a concept and
philosophy of management.
Definition Of MRP SYSTEM
MRP system consists of a set of logically related procedures, decision rules, and records designed
to translate a master production schedule into time phased net inventory requirements and the
planned coverage of such requirement for each component item needed to implement schedule. An
MRP system re plans net requirements and coverage as a result of changes in either the master
schedule, demand, and inventory status or product composition. MRP systems meet their objective
by computing net requirements for each inventory item, time-phasing them, and determining their
proper coverage
OBJECTIVES
1.

Ensure the availability of materials components and products for planned production and
customer delivery.

2.

Maintain the lowest possible inventory level.

3.

Plan manufacturing activities, delivery schedules and purchasing activities.

HOW? PROCESS
MRP starts with customers demand for the quantity of end product and the time when the products are
needed.
Then MRP explodes the time and need for components based upon the end product need. MRP
System focuses on inbound logistical area
MRP System uses following key elements:
1.
2.
3.
4.
5.

Master Production Schedule

Bill of Materials
Inventory Status Files
MRP Program
Outputs & Reports

62

MRP system has developed into its current incarnation in phases. First phase is called MRPI
or Materials Requirement Planning and the second phase is called MRPII or Manufacturing
Resources Planning
MRP I is a computer based production and inventory control system [soft ware] that attempts to
minimize inventories while maintaining adequate materials for production process.
WHEN DOES IT GET APPLIED?
MRP I is applied when
1.
2.
3.

The process follows an intermittent system.

Demand is dependent
Purchasing dept., their suppliers and companys own manufacturing system is flexible enough
to handle deliveries on weekly basis

ADVANTAGES OF MRP I
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Improved business results [ROI, profits]

Improved manufacturing results
Better manufacturing control
More accurate and timely information
Less inventory
Time phased ordering of materials
Less materials obsolescence
Higher reliability
More responsiveness to market demand
Reduced production costs

DISADVANTAGES OF MRP I
1.
2.
3.

Due to small lot purchases high material acquisition costs and high ordering costs
Stock out costs are more as safety stock protection is low
A limitation of software as adapting to specific situations is difficult. So modification of
the software is necessary

MRP II
MRP I is updated and expanded to include financial and marketing and logistics elements.
This newer version is called Manufacturing Resources Planning or MRP II. Includes entire
set of activities involved in planning and control of production.
It consists of a variety of functions of modules and includes production planning, resource
requirements planning, master production scheduling, materials requirement planning [MRP
I], shop floor control and purchasing

63

Benefits of MRP II
1.
2.
3.
4.
5.

Inventory reductions of one fourth to one third

Higher inventory turn over
Improved consistency in on-time customer delivery
Reduction in purchasing costs due to less urgent purchases
Minimization of workforce overtime

DISTRIBUTION RESOURCE PLAN [DRP]

Distribution Resource Plan is a widely used powerful technique applied to outbound logistics to
help determine appropriate level of inventory
Distribution requirement planning [DRP I] is defined as the application of MRP principles to the
distribution environment [out bound logistics], integrating the special needs of distribution. It is a
dynamic model that looks at the time phased plans of events that effect inventory.
Distribution Resource Planning [DRP II] is an extension of DRP I. Distribution resources planning
applies the time phased logic of DRP I to replenish inventories in multi echelon warehousing
systems. Distribution resources planning extends DRP I to include the planning of key resources in a
distribution system ware house space, man power levels, transport capacity [e.g. trucks, rail cars]
and financial flows.
As an extension of DRP I, DRP II uses the needs of distribution to drive the master schedule,
controlling the bill of materials and ultimately materials requirement planning. In essence, DRP I &
DRP II are outgrowths of MRP I & MRP II, applied to logistics activities of a firm.

Uses of DRP generated information

Coordinate the replenishment of SKUs coming from the same source [e.g. a company owned
or vendors plant.]

Select transportation modes and carriers and shipment sizes more cost efficiently.

Schedule shipping and receiving labour

Develop a master production schedule for each SKU Accurate forecasts are essential ingredients for
successful DRP II system.

MARKETING BENEFITS

Increased service levels - improved OTD, reduced Customer Complaints

64

Effective new product introduction plans

Ability to anticipate shortages
Improved inventory coordination

LOGISTICS BENEFITS

Reduced distribution costs

Reduced inventory levels
Decreased warehouse space requirement as inventory is low
Lesser back orders
Improved inventory visibility & coordination between manufacturing and logistics

CONSTRAINTS

Needs accurate forecast

Sources of errors in the system

- Inaccuracy in forecast quantity

- Inaccuracy in forecast location
- Inaccuracy in forecast time

Variable performance cycles

System nervousness
Uncertainty buffers

65

COMPARE DRP & MRP

1.scope
2.dependence for planning
inputs

DRP
Outbound logistics
Market

3. Coordination
responsibility

Once the finished goods

are produced.

4. Nature of plan
5. What is forecast?
6. Planning Tool

Short term and accurate

Finished goods
Schedule prepared for

MRP
Inbound logistics
Production Schedule worked
out based on past data in the
organization
[Forecast based on past data]
Up to Finished Goods
starting from raw materials
production.
Dependent demand
Production schedule

delivery of supplies in the

outbound logistical
network.
7. Inventory management
of?
8. Planning availability of
stock at?

SKUs

Raw Materials, components

Market [retailers] &

warehouses

Raw material stores,

Conversion process &
finished goods store

66