Copy Of Logistics Management.....shahid Chavakkad

Presented in Elijah Institute of Management studies, Thrissur

“The practical organisation that is needed to make a complicated plan successful when a lot of people & equipment is needed” e.g. 1. Logistic support in the army 2. Organising famine relief presents huge problems i.e. Moving Right People & Right Equipment to the Right Place at the Right Time through the Right Methods.

 To

have competitive edge over others

 Marketing

mix (By McCarthy): Product, Price, Promotion, Place (4 Ps)

 Past

‘Place’ was a “dark continent” in marketing (Peter Drucker, 1992)

 In

the past, Distribution was not important. Because of manufacturers’ monopoly

E.g. 10 years waiting for Padmini Cars. 6 years waiting for Bajaj Scooters  Shift

from ‘Sellers’ Market to ‘Buyers’ Market

 Consumers

are now Bosses

 Now,

any product is available, that too on installment

 No

monopoly now

 Business

has become more Complex & Dynamic now

 Vibrant

market (Market is time & price sensitive)

 Everyday,

everybody is thinking about new market plans

 Survival  Saying

of the fittest theory

“People have your money in their pocket & You have their goods on your shelves”

 ‘Push’

is important than ‘Pull’ now

 Question

is how you push?

 To

give the best products & services than others

 To A

win customers’ loyalty & goodwill

satisfied customer will remain loyal

 Your

weakness is your competitor’s advantage

 More  E.g.

business competition & rivalry now Fuel efficiency claim by Hero Honda

(Now Bajaj claims 102 kmpl)  Fuel

efficiency & Economy: by Maruti Cars

(Tatas are now coming with mini Nano)

 Due

to rapid technology transfer

 Rivals

not only copy, they add more features & give more value for your money

 Now,

lower price strategy doesn’t work. (Because consumers have enough money)

 Now,

Promotion also doesn’t work (Because too much ‘advertisements’ will make the consumers confused and fed up)

 Hence

now

Place (out of the 4 Ps) is important

 Complicated  Rapid

business scenario

economic boom

 Globalisation  Liberalisation  Intelligent

consumers

 Heavy

Industrialisation

 Scientific  Hence  To

innovations

for more customer satisfaction now

be customer focused

 Quick  Hence

delivery & after sales service (24 hrs) the need of Logistics Management

 Logistics

from Greek word ‘Logisticos’ meaning “science of computing and calculating”

 First

used in military sense (Logistical Support) (World War II & other wars)

 Webster

(1963) defines Logistics as: “The procurement, maintenance & transportation of military materials, facilities & personnel”

 US

Airforce (1981) defines: “The science of planning out the movement & maintenance of forces”

CLM(Council of Logistics Management (1991) defines: “Logistics is the process of planning, implementing & controlling of efficient, effective flow & storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to the customer expectations”



Corporate vision & objectives – To turn it into winning edges over others



Strategic logistics analysis (i.e. finding alternatives, evaluation, selection etc.)



Logistics planning & evaluation



Managing change

 Firm 4

to dominate

Ps – Place more important

 Highest

level of customer satisfaction to maximize productivity & profitability at lower cost

Five ways for gaining it 

Low cost (To enhance Profitability)



Superior customer service



Value added services (e.g. training to customers)



Flexibility



Regeneration (i.e. to be innovative)



Product Design E.g.   

Plastic moulded water tanks Fully assembled automobiles Transportation of huge machinery (H & R Johnson)



Containers capacity and storage



Plant Location



Choice of sources/ markets



Production structure & planning



Distribution/ Dealer network design



Warehouse location/ operations



Plant layout



Allocation decisions



Inventory management/ stock levels



Transportation models/ Routing/ Capacity

E.g. Cement Transportation (wagon shortage) change in packaging (Jute, plastic) 

Packaging



Material Handling



Storage problems in monsoons



Plant/ warehouse near port/ Airport



Nearness of dealers to factory/ warehouses



Shippers



Suppliers  Carriers

(Rail, Road, Air etc)  Warehouse providers/ Freight forwarders  Terminal operators (port, stevedores) 

Government (Regulations & logistics)  Role

 CST, local sales tax, excise, octroi, modvat, road tax on vehicles



Inbound Logistics (Raw Materials)



Outbound Logistics (Finished Products)



Single v/s Multiple plants



Nature of the products e.g. various dimensions

- Bulk, perishable, non-perishable, refrigerated, non-durable, industrial v/s consumer products, packaged products (Fruits/ Vegetable exports)



Includes goods transportation & storage



Material handling & Information structure



We do mostly by road & rail



Pipeline is growing



Waterways unexplored



Air for emergency only



In India, a lot to improve



Government to take initiative



Suppliers to be cost conscious



Communication technology to improve



Suppliers & shippers are to be cost conscious



In short, the whole industry is unorganized



Like any other organisational Mission



Customer relationship to be closer



Goods to be faster & cheaper



Need for integrated Logistics Management



Organisational rigidity is a barrier (Both structural & personal)



Because Managers’ ego & territories



In conventional companies, even inbound & outbound transportation is differentiated



Too much paperwork & Red Tapism



Papers move even slower than the movement of cargo



A conventional company, shows multifaces to customers.  They

shunt them from table to table, department to department



Organisation to be horizontal



Organisation to be market facing/ market driven (Output focused)



Organisation to work together



Organisation to have cross functional teams



This is Flat Organisation system



To have customer order fulfillment system





By eliminating non-value added items e.g. delays in paperwork, idle times in transportation, storage, checking etc. Better management of order fulfillment groups like sales office people, accounting, Cr. control, transport department etc.

Reaching

Right Quantity

with

Right Quality

the

at

the

Right Price

at

the

Right Place

at

the

Right Time

to

the

Right People

with

the

Right Mode (of transportation)

(Quote from M S Banga, Chairman, HLL (FMCG) AGM 2004 Speech)

 To

touch customers in multiple ways

 To

create brand messages & to experience our brands

 To

offer tailored solutions to customers now

 Now

shopping is a new experience

E.g. Family and children taking leisure time

 Now

consumers are well informed through advertisements (Average 350 to 400 Ads/ week)

 Redistribution  HLL

partners are important to HLL

has 25000 outlets in key cities in India

 They

do superior display of HLL products

 HLL

introduced self service stores in India

e.g. HLL in Hyderabad Reliance Super Stores  Advantage

is consumers can “Touch & Feel”

 HLL

Sunsilk shampoo wash in stores

 The

key factor is product availability

 There

are 600,000 villages in India in the most remotest places

 HLL

creates ‘win-win’ partnership with consumers e.g. Surf Ad

 HLL’s

plan is to reach to 100,000 villages = 100 million people (rural)

 New

self help women group sell HLL products directly to the rural people

 They  e.g.

also spread the message of health & hygiene Lifebuoy for health

 Now

doing direct selling, generating Crores & growing at 20% pa

Rs. 2300/-

 Also

provides ‘customised’ offerings covering 11 categories in ‘Home & personal care & foods’

 HLL

has network of over 1500 towns in India covering 80% of urban population, with 250,000 consultants

 Direct

selling enables personalised communication & customized solutions, through demonstrations & product trials & brand experience

 Eating  Now

outside in European style

in India, due to busy family life and nucleus family

 HLL

adopts 3 ways



Product availability



Brand Communication



Brand experience

 HLL

re-inventing their distribution network

 HLL

distribution creates new employments

 HLL

has 7000 stockists, 6000 sub-stockists, employs 60,000 people

 Interface

means Connections

 Marketing

is the management of 4Ps (Product, Price, Promotion, Place)

 Right  The

product, ….Right Place etc.

competitive edge to be customer service

 Customer

awareness of Rights

 Customers

are too much demanding Customers know what is in the market

 No

‘brand image’ will work out. Neither the price, nor the quality  E.g.

 Now

Computer market

it is product availability & service (Product Sector)

 Service

in non-manufacturing is equally important now (Service Industry)

 Service

is an “added value” now

 Financial

loss due to ‘out-of-stock’ scenario

 Marketing

is inter-related with ‘Logistics’ & ‘Customer Service’

 The

concept of ‘Customer Retention’

i.e. “A satisfactory customer will remain loyal”  Will

also get references

 To A

sell & to service a loyal customer is less costly

loyal customer may not think of substitutes

 This  To

is “Relationship Marketing”

create & sustain & strengthen customer loyalty & relationship

 First,

to design ‘customer needs’ and then the ‘services’

 Then,

design a suitable logistics system

 Less

inventory but faster mode of transport for reaching the goods

 ‘Customer

logistics

Servicing’ through ‘better & faster’

 Procurement

& manufacturing management have to be market oriented, need oriented.

 This

is “Logistics Pipeline Management”

 Not

to produce at any cost

 Inventory  To

tied up is money tied up

produce the right product

 Production

schedule through better planning management

 Production

to be market oriented

 Procurement

of raw materials requires planning, lead time, mode of transportation, time, cost

 Co-ordination

between production and other

departments i.e. ‘Logistics’ the whole concept

These are ‘Quantitative’ models from operations research 

Forecasting Models 



Demand and Supply based on past data

Mathematical Programme Model a)

Location Model 



i.e. planning optimal & ideal location of plant & warehouses, both for inbound and outbound To minimize Transportation cost



Allocation Models 

b)

i.e. optimal allocation of commodities from ‘sources’ to destinations with a vast & multidimensional network e.g. a company with 15 plants & 30 warehouses

Distribution Network Design Model 



Involves location of warehouses & break bulk points, choice of transportation modes Distribution costs include transportation, ware housing, handling, inventory

1.

Inventory Models   

2.

Costs on buffer stock keeping for uncertainties Shipment & inventories of Finished products, its warehousing & retailing Pipeline inventory

Routing Models  



i.e. routing of transportation network to destinations The simplest model is called the shortest path problem e.g. Critical path method in Operations Research Can be done by using geographical maps

 JIT

(Just In Time) is a Japanese philosophy

i.e. nothing is produced/ moved until the need arises  Produces  ‘Push’  In

against advance firm order (Pull)

is in anticipation of the demand

pull, product flow is based on demand

ROP (Reorder point) 

At ROP, the new order is placed



The quantity to be ordered is based on EOQ

EOQ =

(2AS) √ i

A = Annual usage S = Set up ordering cost i = Inventory carrying cost

EOQ =

(2 x 1000 x 100) = 141 √ 40 x 25 %

A = Annual usage (e.g. 1000 units) S = Set up ordering cost (Rs 100/- per unit) i = Inventory carrying cost (e.g. 25% of unit cost = Rs. 40/-)

 Another

way to keep inventory management is a periodic review of stock/ replenishment levels

 Push  EOQ

& pull may lead to higher/ lower stocks

may create more carrying costs in the initial stages, then it gets decreased till the next EOQ ordered

 JIT

due to space shortage (especially in Japan)

 JIT

encourages small lot batches/ Quantities but often (To avoid stock out at manufacturers side)

 This

is against conventional system of mass production & storage

 JIT

requires strictest planning discipline

 JIT

requires firm orders from customers

 JIT

advocates for consolidated delivery

 Consolidation

can be done by 3rd parties. They collect, segregate for onward despatches

 JIT

requires a good co-ordination & communication between supplier & customer

 JIT’s

philosophy is “Quick Response” Logistics

(QR) P

& G uses QR. Their retailer Walmart gives them quick and fast sales data

 QR     

leads to less less less less less

inventory safety stock pipeline inventory lead time forecasting errors

 Developed

a technique ‘Industrial Dynamics’

 Developed

a special computer stimulated language known as ‘Dynamo’

 Built

3 models of inventory

 Retailer

Inventory  Distributors Inventory  Factory Inventory

 Each

of these models were connected through information flows & goods flows

 Information

flows like order processing time, factory lead time, shipping delivery time etc.

 Sometimes,

a surge/ a jolt is created during promotional activities i.e. retailers  wholesaler  manufacturers

 It

becomes a pressure in the chain

 This

surge can be minimized through better information exchanges in the chain

 Dell

& Hewlett Packard does the final assembly only after getting customers actual requirements

 ‘Mass

customization’ can be done with CAD/ CAM i.e. Computer Order Design E.g. Customer Foot shoe Co.  No inventory.  They take measurements – ‘make-to-order’  3 weeks delivery time

 Toyota’s

Strategy – make 80% of the total demand based on forecasting 20% on firm orders

What is distribution? Right goods, Right Place etc

a) Industrial Products 

Company  Customer

b) Automobile 

Company  Dealer  Customer

c) FMCG & Pharma 

Company  C&F Stockists  Retailers  Customers

d) FMCG 

Company  Distributors  Wholesalers  Retailers  Customers

e) FMCG 

Company  Depot  Stockists  Retailers  Customers

f) Consumer durables 

Company  Own Retail Outlet  Franchised showroom  Customers

g) Food grain, garments 



Company  CA  Wholesalers  Retailers  Customers

Note:- To have warehouse or not?



i.e. Company  Consumers (No Intermediary) e.g. Industrial products & services sectors, where the unit value of the product is very high, product technicality & product complexity



To have its 

Own sales force



Own retail outlets



Direct Mailing



Telemarketing



Websites

 Personal

Selling

 To

have trained sales force  Sales force locates customers  E.g. Insurance sector, Eureka Forbes  Telemarketing  Through

Telephone calls  Positive is, reduced selling costs

 Direct

Mailing

 Sending  Is

detailed brochures to prospective customers

a silent sales

 Negative  Firms

is, poor response

to have the right & vast data bank

 One-tier

Distribution system

 i.e.

Company  Distributors  Customers (only 1 intermediary)  positive is, minimum distribution costs, maximum control  e.g.

Maruti  Sitaram  Customer

 Two-tier  E.g.

Distribution system

Company  Wholesaler  Retailer  Customer

 Multi-tier  E.g.

Distribution system

FMCG Firms

 i.e.

by adopting more than one channel system to reach to customers e.g. Auto component Manufacturers & HLL  Company

 Customers

 Company

 Wholesalers  Customers

 Company

 Retailers  Customers

 Manufacturing

firms prefer MCS for greater marketing coverage & penetration

 Drawback:

Rivalry & competition among agents in MCS resulting into unethical selling & loosing Corporate image

 MCS

is complex & expensive, but effective & profitable if managed well

 Channel

conflict may lead to loosing business opportunities

To look into the following 6 areas

1) Distribution Objectives Manufacturers

to know firms overall marketing objectives & strategies



Objectives include:

Greater market coverage, dominance, penetration



Higher growth, long term business plans



Sustainable competitive advantage



Control on channel relationships



Social care

2) Distribution system alternatives 

- To decide whether to have DDS (one-tier etc)

3) Determining intensity of distribution 

- i.e. how many channel numbers, length, width, etc.

4) Intensive distribution  

To dump products everywhere (When products are inexpensive)

5) Exclusive distribution 

- i.e. whether to give exclusive dealership or not, for a designated area e.g. readymades

6) Selective distribution  

i.e. to select high potential channel intermediaries (i.e. agents/ sellers) To bring maximum turnover & profits

 Storage

Warehouse

 For

keeping for a long time  E.g. Raw materials, components etc for production  Closer to factories  Warehouse  For

keeping finished products  Storage time varies

Module III

 Distribution

Centre

 i.e.

full service warehouse  It emphasizes on movement, then storage  Situated near to market  Warehouse

is a value added process now, than a necessary evil (if managed well)

 Warehouse

to be meant as a Switching/ Transit

facility  To

store goods scientifically & systematically to retain its value & originality

 Requires

a good information system

   

Ownership Based Private warehouses (company owned) + points Public warehouses (e.g. By government or by organisation) Bonded Warehouses  

Either private or government owned Under customs/ Excise control (Goods removal after paying duty)

1)

Cold Storage

2)

Export & Import warehouse

I. Economic Functions (i.e. logistical costs) 

If more warehouse is added, Transportation cost can be reduced



Consolidation  

a single warehouse receives goods from many plants e.g. A,B,C, etc. But despatches to one customer



Break Bulk  



Stock - Piling 



Entire lot is stored Then despatched to different customers i.e. seasonal storage of goods e.g. Garments

Value added services 

Packaging & labeling is done in the warehouse

II. Operational Functions 

E.g. receiving goods, storing, Record keeping, forwarding etc.



Based on demand pattern



Based on buying behaviour



Competitors warehousing strategies



Nature of the products



The cost



Availability of goods



Warehousing facilities required for the product



Now decide 

Whether to have warehouse or not



If owned, to centralize or not. (Centralised means very few, decentrailised means many)



Location, cost



Geographical location



Production centre v/s location



Transportation infrastructure facilities



Nature, quality, quantity of goods to be stored



Management philosophy



Land/ Space cost (Capital)



Handling/ Transportation costs



Administrative costs



Quantity based, product characteristics, shapes, sizes, weight



Warehouse design to be flexible & futuristic



Good material handling system

1.

Purpose

2.

Layout

3.

Warehouse space requirement & aisle layout

  



Layout for material handling Roof plan, floor plan for smooth material flow Windows, aisles, platforms, pillars, lighting, elevators, cranes, forklifts, trucks (loading platform) etc, palletized keeping, water, communication, road. Vast courtyard for parking

   

Space for office, security, compound wall For keeping damaged goods, refrigerated area Bonded space Computer usage



Improved customer service



Accurate inventory records



Better use of storage capacity & equipment utilizations



To know stock costs



Material availability



Visibility of inventory



Routine record keeping for verification



Is necessary for consumer products



Branding e.g. Glucose biscuit, Toothpaste (Colgate)



Design package



Usually squares (To save space)



Pencil like package (Lipstick) for utility purpose, easy to carry in handbags



Packaging for protection



Packaging for economy



Package for convenience



Packaging for promotional activities



Sometimes 5 Ps ( Price, product, place promotion, & Packaging)



For self services (it is self explanatory)



Consumer affluence



Company & Brand image



For cost efficiency (due to innovational packaging)

For 

Product protection



Containment



Attractiveness



Identification



Convenience



Effective sales tool



Easy display



Advertisement



Easy storage & transport



Easy to identify



Good memory & identification/ recognition

       

Earthenware China Jars Wooden/ hard boxes Straw baskets Gunny/ Plastic bags Glass bottles Tin containers Clothes, etc.

1.

Consumer Package e.g. Toothpaste

2.

Family Package

3.

Reuse Package e.g. glass jar

4.

Multiple Package e.g. Make-up set, Baby care



To protect contents



To be attractive



To identify



For convenience



To identify



For convenience



To occupy less space



Image of the brand



To have a clean look



Proud to possess



Status (e.g. Damas packs)



Minimises sellers job



To resist soiling



Labels pasted



Eye-catching



Simple in design



Easy to handle

Module III

Movement of one product from one location to another location  i.e. Distribution of products to various locations  because products are not consumed in one place  An important factor in Supply Chain especially, transportation cost 



It is 6% of the GDP in USA



E.g. Home delivery etc.



So manage transportation effectively



E.g Pooling in Metropolitan cities



So, aggregation of product to different customers while delivering



Walmart uses cross docking system i.e. exchanging products based on where shortages & surpluses occur



To establish the cost effectiveness of the transport mode

1)

Vehicle related costs i.e. purchase, lease, charter costs 



Fixed costs even if vehicle is not used

Fixed Operating Costs: E.g. Vehicle parking, trucking facility, terminal facility for aircrafts, hangers, driver’s salary, etc.

1)

Trip-related Costs: Labour, Fuel. 

Labour cost/ Day or fixed salary.

2)

Quantity-related Costs: For loading – unloading

3)

Overhead costs: i.e. Costs involved in information technology used in transportation network 

E.g. Truck Drivers with Walky Talky – Wireless

   

Air Land (Road, Rail) Sea Pipeline



Carrying Passenger & Carg, incur high fixed costs in infrastructure and equipment



Labour and Fuel costs



Hence, Airline to maximize the daily flying time



Hence, airline to maximize seating capacity with different priced classes



Fast but expensive



Carry costly airfreight items

E.g. FEDEX, UPS, DHL 

They use Air, Truck, Rail transportation systems (Intermodal)



Expensive mode of despatch



Can carry fairly small consignments



Have their own aircrafts, trucks etc.



Rates according to distances



More expensive than rail



Delivery door-to-door



Shorter delivery time



More reliable



Less pilferage and theft



More economical



Bilk Carriers



For long distances



Could be delayed due to shunting of bogies



Ideal for heavy, low value shipments



More pilferage and theft



Less reliable



E.g. to carry coal, rice, wheat, cement



Uncertain deliveries



Few Famous lines: Maersk, American President Lines (APL), Scindia Steam Navigation Company, Shipping Corporation of India (SCI)



For large bulk to carry



Slow & delay



Carries cars, grains, iron and steel etc.



Cheapest mode



For transporting crude petroleum, natural gas etc



E.g. India-Pakistan-Iran Gas Pipeline (under consideration)



By using more than one mode of transportation



E.g. Rail + Road (To carry containers)



E.g. Sea + Rail + Road (To carry containers)



High network is required for information passing

There are five factors 

Company Characteristics and Philosophy (Airline, DHL, L& T, etc)



Market Structure (e.g. Geographical/ Territorial) e.g. Russia with no sea port



Product Characteristics (weight, height, size, shape, shelf-life etc)



Customer Characteristics (Delivery Specifications)



Environmental Issues (Govt. policies, at times subsidized transportation etc)



i.e. Inter-Company computer-to-computer communication



No Human Intervention is required



This is an automation facility



It is inter-organisational



Consists of standardized Electronic Message Formats



Can Communicate from one company to another through computer



Becomes paperless communication



Can prepare and send invoices, purchase orders etc. (computer-to-computer)



Best for inventory management



E.g. Dell’s marketing with customers (Direct ordering via Internet)

Intranet

is a means of distributing information.

Establishes

complete network flow of information from department to department, to warehouse, to shop-floor etc.

In

intranet, the access is restricted to outsiders

When

access is given to outsiders (e.g. suppliers and customers), it becomes extranet

 Data

mining is exploring data stored already, for transforming it to useful and meaningful information (e.g. for forecasting purposes)

 Data

warehouse is a store house, built to contain enterprise-wide information, collected from multiple operational sources



i.e. Electronic commerce or paperless office



Everybody will transact business electronically (e.g. Zurich in Dubai)



It is a wide business



Reduces time, money, and speed up supply & service



E.g. By Internet we can reach anywhere



So cheap cost wise