M.

COM part 2

SCM & Log – SEM IV

By – Himanshu R Lapashia
 Chapter 3 – Introduction to Logistics
• Logistics is concerned with getting products and services
where and when they are needed. It means planning and
managing the flow of commodities and services from the
point of origin to the point of consumption for meeting the
requirement of customers or corporations.
• A professional who works in the field of Logistics is known as a
Logistician'.
• The term 'Logistics stems from the Greek word Logisticos,
meaning the science of computing and calculating.
Definitions:

• Christopher (1998) defines logistics as "the process

strategically managing the procurement, movement and
storage of materials, parts and finished inventory and relate
information flow through the organization and its marketing
channels".
• Philip Kotler (2001) defines logistics as "planning,
implementing and controlling the physical flows of materials
and final goods from point of origin to point of to meet
customer's need at a profit".
• According to John J Coyle, "Logistics is about getting the right
product, to the right customer, in the right quantity, in the
right condition, at the right place, at the right time, and at the
right cost". (Seven R's of Logistics)
Types of logistics:

A) Classification on the basis of flow of material

1) Inbound logistics
2) Outbound logistics

B) Classification based activities involved in the process

1) Procurement logistics
2) Production logistics
3) Distribution logistics
4) Disposal logistics
5) Reverse logistics
6) Green logistics

C) Third party logistics (3PL)

D) Fourth party logistics (4PL)

Logistics management:

• Logistics management is the process which involves physical,

informational, managerial and other connected network in
order to ensure a proper goods distribution system.
• Logistics Management is a part of SCM that includes planning,
implementation, and controlling the well organized and
successful forward and reverse flow and storage of goods and
services and coordinating the flow of information.
Objectives of logistics management:

• Achieving objectives
• Inventory management
• Freight economy
• Cost reduction
• Efficient flow of manufacturing operation
• On time delivery practice
• Customer satisfaction
• Competitive edge
• Adoption lean practices
• Effective communication
Process of logistics management:

• Network design
• Order processing
• Procurement
• Material handling
• Inventory management
• Packaging and labeling
• Warehousing
• Transportation
Competitive advantages and three C’s of logistics management:

3 C’s model:

1) Customers
2) Company
3) Competitors
Changing logistics environment:

• Fast growing customer base

• Political and economical development
• Rise of various online vendors
• Use of driverless vehicles
• Flexibility
• Globalization
• Information technology
• Ecological changes
Reverse logistics:

• Remanufacturing the product

• Refurbishment
• Return management
• Recycle and waste management
• Servicing
• Warranty management
• Warehouse management
Reasons for reverse logistics:

• Reusable packaging
• Warranty return
• Return of unsold goods
• Short term rental return or long term lease return
• Refusing product on cash on delivery
• Product recall
• Product sent for upgrading
• Scientific disposal of waste
Advantages of reverse logistics for the organization:

• Allows the trader to receive unsold products back from the

consumers
• It helps in increasing the product life cycle
• It helps in increasing the speed of production
• More value can be extracted from used or returned goods
• It is a key factor of success in customer satisfaction
• It helps in gaining feedback to make improvements
Inventory:

• Key factor of success of a supply chain is the effective

management of inventory.
• It is found in warehouse, shop floor, transport vehicles, retail
stores, etc.

Types of inventory:

• Movement inventories
• Buffer inventories
• Anticipation inventories
• Decoupling inventories
• Cycle inventories
Inventory control:

It is part of inventory management. It is a planned method of

calculating how much to purchase and store so that the cost is lowest.

Definitions:

• Inventory Control is "the process of dividing what and how much of

various items are to be kept in stock" and also determining time
and quantity of various items to be procured.
• Inventory control thus, "Pertains to the implementing and carrying
out of policies which have been established by management".
• Inventory control is "a continuous process of regulating the inflow
of materials into the store in relation to materials move outs from
stock and maintaining a safety stock to avoid stock out."
Importance of inventory control:

• Reducing risk of production shortages

• Reducing order cost
• Minimize the blockage of financial resources
• Avoiding lost sales
• Achieving efficient production scheduling
• Gaining quantity discounts
• Taking advantages of price fluctuations
• Tiding over demand fluctuations
• Deciding timely replenishment of stocks
Bull Whip effect:

• Bull whip effect is distribution channel phenomenon which

predicts the inefficiency in supply chain.
• It refers to the drastic change in inventory with respect to
customer demand as one moves a step ahead in the supply
chain.
• The concept of bull whip first appeared in Jay Forrester's
"Industrial Dynamics" in 1961 and is also known as the
Forrester effect or whiplash effect.
• The bullwhip effect is a symptom of coordination problems in
a supply chain.
• It can be explained as an occurrence detected by the supply
chain where orders sent to the manufacturer and supplier
create large variance than the actual sales to the end
customer.
Causes of bull whip effect in the supply chain:

• Disorganization
• Lack of communication
• Shortage gaming
• Free return policies
• Order batching
• Price variations
• Demand information
Remedies / Strategies to overcome bull whip effect:

• Know customers
• Reducing uncertainty
• Reducing variability
• Lead time reduction
• Strategic partnering and buying
• Advanced information technology
• Free return policies
Transportation:

• A major focus in logistics is upon the physical movement or

flow of goods or upon the network that moves the product.
• Transportation cost is a significant component of the total
cost.
• Managers who are responsible for transportation in SCM
should be able to take strategic decisions.
• The logistics manager is responsible for selecting the mode of
transportation.
Role of transportation in logistics:

• Transportation creates time utility

• Transportation creates place utility
• Transportation ensures availability of products at the right
place in right quantity
• Role of transportation becomes significant in global supply
chain
• The design of supply chain should consider the flow of
material for competitive advantage
• Effective transportation is a key to the success of any online
business
Transport functions:

• Specialization and division of labour

• Maintains stability in price
• Provides benefits to consumer
• Development of agricultural sector
• Industrial development
• Creates place utility
• Creates time utility
• Product movement
• Economic development
Participants in transportation decision:

• The shipper / consignor

• The receiver / consignee
• The carrier (vehicle) and agents
• The government
• The public
• The internet
Transport infrastructure – forms:

• Road transport
• Rail transport
• Air transport
• Water transport
• Pipeline transport
• Ropeway transport
• Cableway transport
Warehouse:

• A place to store inventory

• A location with adequate facility where shipments are
received and distributed amongst customers
• Used by various organizations
• Usually large plain buildings in industrial parks outside the
cities
• Used for all kind of materials

Classification of warehouse:

• Private warehouse
• Public warehouse
• Contract warehouse
Functions of warehouse:

• Storage of goods
• Movement of goods
• Protection of goods
• Helps is information management
• Financing
• Risk bearing
• Creates time utility
• Processing
• Provides transportation facilities
• Grading and branding
Operation of warehouse:

• Receiving of goods
• Cross-docking of goods
• Organizing and storing inventory
• Attaching asset tracking solutions (like barcodes) to assets and
inventory
• Integrating and maintaining a tracking software, like a
warehouse management system
• Overseeing the integration of new technology
• Selecting picking routes
• Establishing sorting and packing practices
• Maintaining the warehouse facility
• Developing racking designs and warehouse infrastructure
Packaging:

• Product Packaging plays a very important role in logistics

management.
• Packaging influences both the efficiency and effectiveness of
logistics operations.
• Packaging is the activity of designing and producing the
container or wrapper for the product.
• It is an important and effective sales tool for encouraging the
consumers for buying.
• The ultimate function of packaging a product is to keep the
contents fresh, clean, untouched and safe while transporting.
Definitions:

• According to W. J. Stanton, “Packaging may be defined as the

general group of activities in product planning which helps in
value designing and producing the container or wrapper for a
product.”

• According to Pride and Farell, “Packaging involves the

development of container and a graphic design for product.“
Consumer goods packaging:

• Packaging design
• Labeling of the consumer goods
• Versatility
• Creating retail value
• Attractive
• Communication

Industrial goods packaging:

• Transfer to next point of production

• Protection and preservation of goods for storage
• International standard
• Customized material
Importance of packaging:

• Rising standards of health and sanitation

• Product identification
• Product protection
• Customer service
• Decreases overall cost
• Apportionment
• Salesmanship
• Product differentiation
• Innovation opportunity
Material management:

• In todays time, material is occupying an important place in the

industry.
• It adds value to the product.
• ‘Materials Management' is a term used to connote
"controlling the kind, amount, location, movement and timing
of various commodities used in production by industrial
enterprises".
• N. K. Nair, "Material management is the integrated
functioning of the various sections of an organization dealing
with the supply of materials and allied activities in order to
achieve maximum co-ordination.“
• Ballot defines material management as "the process of
planning, acquiring, storing, moving, and controlling materials
to effectively use facilities, personnel, resources and capital."
Materials planning:

Factors influencing material planning:

A) Macro factors:
1) Price trend
2) Business cycle
3) Policies of govt
4) Credit policy of the govt
B) Micro Factors:
1) Plant capacity utilization
2) Production plan
3) Inventory holding
4) Working capital
5) Communication
6) Seasonality
Preservation safety of material:

• Material should be stocked above the ground level

• Material should be stocked in appropriate place
• Daily cleaning should be done
• Periodical verification of stock
• Proper method of handling should be followed
• Preservation to protect the items
• Hazardous material should be segregated
• Safety appliances should be used
• Proper ventilation and lighting
• Workers should wear protective equipment's
Factors responsible for selecting material handling systems:

• Suitable
• Direction of movement
• Speed of movement
• Path followed
• Power required for operation equipment
• Supervision required
• Cost of equipment
• Plant facility layout