logistics in tourism

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MINOR PROJECT REPORT ON
ROLE OF LOGISTICS IN TOURISM
Session: 2010-2013
SUBMITTED TO: - SUBMITTED BY:-
Mr. Heramb Nayak Megha Aggarwal
Assistant Professor Enrollment No.02514905010
Dept. of Business Administration Course: BBA (T&TM) 6th
Sem.
MAHARAJA SURAJMAL INSTITUTE
Affiliated to Guru Gobind Singh Indraprastha University
Recognized by UGC U/S2 (F)
C-4 JANAK PURI, NEW DELHI-58

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CERTIFICATE
This is to certify that the research project initiated to certify that is the innovative effort of
“MEGHA AGGARWAL” ROLL NO-02514905010 and it has been accomplished under my
guidance.
Certified that this project report “ROLE OF LOGISTICS IN TOURISM”
Is the bonafide work of "MEGHA AGGARWAL” who carried out the project work under my
supervision.
SIGNATURE SIGNATURE
Megha Aggarwal Mr. Heramb Nayak
BBA (TTM) 6th
Sem Assistant Professor
02514905010 Dept. of Business Administration

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ACKNOWLEDGEMENT
A project can never become a success with efforts of only one individual. it requires a group of
people to complete a project at its best. It may be your friend, your teacher and your family
member.
The present work is an effort to throw some light on “the role of logistics in tourism”. The
work would not have been possible to come to the present shape without the able guidance,
supervision and help to me by number of people.
With deep sense of gratitude I acknowledge the encouragement and guidance received by Mr.
HERAMB NAYAK, ASST. PROFESSOR, DEPT. OF BUSINESS ADMINISTRATION
and other staff members.
I convey my heartfelt thanks to all those people who helped and supported me during the course,
for completion of my Project Report.
MEGHA AGGARWAL
ENROLL. NO. 02514905010
Course: BBA (T&TM) 6th Sem.

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TABLE OF CONTENTS
S. No Particulars Page No.
1. Chapter 1 - Introduction
Introduction to Logistics 1-9
Objectives 10
Research Methodology 11
Source of Data Collection 12
Limitations 13
2. Chapter 2 – Profile
History of Logistics 15-22
The geography of transport systems 23-27
Logistics Management Function 27-32
Tourism & Logistics 33-38
Relevance of Logistics in International Marketing 38-40
The Indian Logistics Sector 40-45
Future Prospects 46-56
Global Logistics Scenario 56-58
Logistics Companies of India 58-61
Emerging Trends in Indian Logistics Industry 62-67
Indian logistics industry (a regional perspective) 68-69
3. Chapter 3 – Data Analysis and Interpretation
Analysis and interpretation of statistical data 70-81
4. Chapter 4 - Conclusion and Recommendation
Conclusion
Suggestions & recommendations
Bibliography
82
83
84

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INTRODUCTION TO LOGISTICS
Fierce competition in today’s market
has forced business enterprises to invest
in and focus on supply chains. The
growth in telecommunication and
transportation technologies has led to
further growth of the supply chain. The
supply chain, also known as the
logistics network, consists of suppliers,
manufacturing centers, warehouses,
distribution centers and retail outlets, as
well as raw materials, work-in-process
inventory and finished products that
flow between the facilities.
Logistics is the management of the flow of resources between the point of origin and the point of
destination in order to meet some requirements, for example, of customers or corporations. The
resources managed in logistics can include physical items, such as food, materials, equipment,
liquids, and staff, as well as abstract items, such as time, information, particles, and energy. The
logistics of physical items usually involves the integration of information flow, material
handling, production, packaging, inventory, transportation, warehousing, and often security. The
complexity of logistics can be modeled, analyzed, visualized, and optimized by dedicated
simulation software. The minimization of the use of resources is common motives.
The logistics management takes into consideration every facility that has an impact on cost. It
plays an important role in making the product conform to customer requirements. Also it
involves efficient integration of suppliers, manufacturers, warehouses and stores and
encompasses the firms’ activities at many levels, from the strategic level through the tactical to
the operational level.
Logistics is a challenging and important activity because it serves as an integrating or boundary
spanning function. It links suppliers with customers and it integrates functional entities across a

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company. With the ever-growing competition in today’s market place it becomes necessary for a
firm to use its resources to focus on strategic opportunities. This includes several internal factors
like management style, culture, human resources, facilities and several external factors like
technology, globalization and competition. This is where the concept of logistics plays a major
role, i.e. it helps to leverage certain advantages the firm has in the marketplace.
“Logistics is the art and science of management, engineering and technical
activities concerned with requirements, design and supplying, maintaining
resources to support objectives, plans and operation.”
--- Society of logistics engineers (sole) 1974.
ORIGINS
The term logistics comes from the late 19th century: from French logistique, from loger 'to
lodge'.
Logistics is considered to have originated in the military's need to supply itself with arms,
ammunition, and rations as it moved from a base to a forward position. In the
ancient Greek, Roman, and Byzantine Empires, military officers with the title Logistikas were
responsible for financial and supply distribution matters.
The Oxford English Dictionary defines logistics as "the branch of military science relating to
procuring, maintaining and transporting material, personnel and facilities." However, the New
Oxford American Dictionary defines logistics as "the detailed coordination of a complex
operation involving many people, facilities, or supplies", and the Oxford Dictionary online
defines it as "the detailed organization and implementation of a complex operation". Another
dictionary definition is "the time-related positioning of resources." As such, logistics is
commonly seen as a branch of engineering that creates "people systems" rather than "machine
systems".
According to the Council of Logistics Management, logistics includes the integrated planning,
control, realization, and monitoring of all internal and network-wide material, part, and product

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flow, including the necessary information flow, in industrial and trading companies along the
complete value-added chain (and product life cycle) for the purpose of conforming to customer
requirements.
Logistics is the process of planning, implementing, and controlling the effective and efficient
flow of goods and services from the point of origin to the point of consumption.
MAIN LOGISTICS TARGETS
Logistics is one of the main functions within a company. The main targets of logistics can be
divided into performance-related and cost-related targets. A few examples are high due date
reliability, short delivery times, low inventory level, and high utilization of capacity. When
decisions are made, there is a trade-off between targets.
LOGISTICS VIEWPOINTS
Inbound logistics is one of the primary processes of logistics, concentrating on purchasing and
arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to
manufacturing or assembly plants, warehouses, or retail stores.
Outbound logistics is the process related to the storage and movement of the final product and
the related information flows from the end of the production line to the end user.
LOGISTICS FIELDS
Given the services performed by logisticians, the main fields of logistics can be broken down as
follows:
Procurement logistics
Production logistics
Distribution logistics
After sales logistics
Disposal logistics

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Reverse logistics
Global logistics
Domestics logistics
Procurement logistics consists of activities such as market research, requirements planning,
make-or-buy decisions, supplier management, ordering, and order controlling. The targets in
procurement logistics might be contradictory: maximizing efficiency by concentrating on core
competences, outsourcing while maintaining the autonomy of the company, or minimizing
procurement costs while maximizing security within the supply process.
Production logistics connects procurement to distribution logistics. Its main function is to
use available production capacities to produce the products needed in distribution logistics.
Production logistics activities are related to organizational concepts, layout planning, production
planning, and control.
Distribution logistics has, as main tasks, the delivery of the finished products to the
customer. It consists of order processing, warehousing, and transportation. Distribution logistics
is necessary because the time, place, and quantity of production differs with the time, place, and
quantity of consumption.
Disposal logistics has as its main function to reduce logistics cost(s) and enhance service(s)
related to the disposal of waste produced during the operation of a business.
Reverse logistics denotes all those operations related to the reuse of products and materials.
The reverse logistics process includes the management and the sale of surpluses, as well as
products being returned to vendors from buyers.
Military logistics
In military science, maintaining one's supply lines while disrupting those of the enemy is a
crucial—some would say the most crucial—element of military strategy, since an armed force
without resources and transportation is defenseless. The defeat of the British in the American
War of Independence and the defeat of the Axis in the African theatre of World War II are

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attributed to logistical failures. The historical leaders Hannibal Barca, Alexander the
Great, Freighnk Nieman, and the Duke of Wellington are considered to have been logistical
geniuses.
Militaries have a significant need for logistics solutions and so have developed advanced
implementations. Integrated Logistics Support (ILS) is a discipline used in military industries to
ensure an easily supportable system with a robust customer service (logistic) concept at the
lowest cost and in line with (often high) reliability, availability, maintainability, and other
requirements, as defined for the project.
In military logistics, logistics officers manage how and when to move resources to the places
they are needed.
Supply chain management in military logistics often deals with a number of variables in
predicting cost, deterioration, consumption, and future demand. The United States Armed Forces'
categorical supply classification was developed in such a way that categories of supply with
similar consumption variables are grouped together for planning purposes. For instance,
peacetime consumption of ammunition and fuel will be considerably lower than wartime
consumption of these items, whereas other classes of supply such as subsistence and clothing
have a relatively consistent consumption rate regardless of war or peace.
Some classes of supply have a linear demand relationship: as more troops are added, more
supply items are needed; or as more equipment is used, more fuel and ammunition are
consumed. Other classes of supply must consider a third variable besides usage and quantity:
time. As equipment ages, more and more repair parts are needed over time, even when usage and
quantity stays consistent. By recording and analyzing these trends over time and applying them
to future scenarios, the US Armed Forces can accurately supply troops with the items necessary
at the precise moment they are needed. History has shown that good logistical planning creates a
lean and efficient fighting force. The lack thereof can lead to a clunky, slow, and ill-equipped
force with too much or too little supply.

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Business logistics
A forklift stacking a logistics provider's warehouse of goods on pallets. One definition of
business logistics speaks of "having the right item in the right quantity at the right time at the
right place for the right price in the right condition to the right customer". As the science of
process, business logistics incorporates all industry sectors. Logistics work aims to manage the
fruition of project life cycles, supply chains, and resultant efficiencies.
Logistics as a business concept evolved in the 1950s due to the increasing complexity of
supplying businesses with materials and shipping out products in an increasingly globalized
supply chain, leading to a call for experts called "supply chain logisticians".
In business, logistics may have either an internal focus (inbound logistics) or an external focus
(outbound logistics), covering the flow and storage of materials from point of origin to point of
consumption (see supply-chain management). The main functions of a qualified logistician
include inventory management, purchasing, transportation, warehousing, consultation, and the
organizing and planning of these activities. Logisticians combine a professional knowledge of
each of these functions to coordinate resources in an organization.
There are two fundamentally different forms of logistics: one optimizes a steady flow of material
through a network of transport links and storage nodes, while the other coordinates a sequence of
resources to carry out some project.
Production logistics
The term production logistics describes logistic processes within an industry. Production
logistics aims to ensure that each machine and workstation receives the right product in the right
quantity and quality at the right time. The concern is not the transportation itself, but to
streamline and control the flow through value-adding processes and to eliminate non–value-
adding processes. Production logistics can operate in existing as well as new plants.
Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and
new ones added, which gives the opportunity to improve the production logistics system
accordingly. Production logistics provides the means to achieve customer response and capital
efficiency.

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Production logistics becomes more important with decreasing batch sizes. In many industries
(e.g., mobile phones), the short-term goal is a batch size of one, allowing even a single
customer's demand to be fulfilled efficiently. Track and tracing, which is an essential part of
production logistics due to product safety and reliability issues, is also gaining importance,
especially in the automotive and medical industries.
LOGISTICS MANAGEMENT
Logistics is that part of the supply chain that plans, implements, and controls the efficient,
effective forward and reverse flow and storage of goods, services, and related information
between the point of origin and the point of consumption in order to meet customer and legal
requirements. A professional working in the field of logistics management is called a logistician.
Materials management
Channel management
Distribution (or physical distribution)
Supply-chain management
The Chartered Institute of Logistics and Transport (CILT), established in the United Kingdom in
1919, received a Royal Charter in 1926. The Chartered Institute is one of the professional
bodies or institutions for the logistics and transport sectors that offers professional
qualifications or degrees in logistics management.
LOGISTICS AUTOMATION
Logistics automation is the application of computer software and/or automated machinery to
improve the efficiency of logistics operations. Typically this refers to operations within a
warehouse or distribution center, with broader tasks undertaken by supply chain
management systems and enterprise resource planning systems.

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LOGISTICS OUTSOURCING
Logistics outsourcing involves a relationship between a company and an LSP (logistic service
provider), which, compared with basic logistics services, has more customized offerings,
encompasses a broad number of service activities, is characterized by a long-term orientation,
and thus has a strategic nature.
THIRD-PARTY LOGISTICS
Third-party logistics (3PL) involves using external organizations to execute logistics activities
that have traditionally been performed within an organization itself. According to this definition,
third-party logistics includes any form of outsourcing of logistics activities previously performed
in house. For example, if a company with its own warehousing facilities decides to employ
external transportation, this would be an example of third-party logistics. Logistics is an
emerging business area in many countries.
FOURTH-PARTY LOGISTICS
The concept of a fourth-party logistics (4PL) provider was first defined by Andersen Consulting
(now Accenture) as an integrator that assembles the resources, capabilities, and technology of its
own organization and other organizations to design, build, and run comprehensive supply chain
solutions. Whereas a third-party logistics (3PL) service provider targets a single function, a 4PL
targets management of the entire process. Some have described a 4PL as a general contractor that
manages other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking
responsibility of a complete process for the customer.
EMERGENCY LOGISTICS
Emergency logistics is a term used by the logistics, supply chain, and manufacturing industries to
denote specific time-critical modes of transport used to move goods or objects rapidly in the
event of an emergency. The reason for enlisting emergency logistics services could be a
production delay or anticipated production delay, or an urgent need for specialized equipment to
prevent events such as aircraft being grounded (also known as "aircraft on ground"—AOG),

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ships being delayed, or telecommunications failure. Emergency logistics services are typically
sourced from a specialist provider.
LOGISTICS AS A PROFESSION
A logistician is a professional logistics practitioner. Professional logisticians are often certified
by professional associations. One can either work in a pure logistics company, such as a shipping
line, airport, or freight forwarder, or within the logistics department of a company. However, as
mentioned above, logistics is a broad field, encompassing procurement, production, distribution,
and disposal activities. Hence, career perspectives are broad as well. A new trend in the industry
are the 4PL, or fourth-party logistics, firms, consulting companies offering logistics services.
Some universities and academic institutions train students as logisticians, offering undergraduate
and post graduate programs.

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OBJECTIVES
To study about the contribution of logistics in the GDP of the country.
To study about the impact of logistics in tourism industry.
To study about the current scenario of Indian Logistics Industry.
To study about the growth in logistics in the past few years.
To study about the role of global 3PL service providers in India
To study economic zone development for Logistics industry

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RESEARCH METHODOLOGY
Research can be defined as systematized effort to gain knowledge. A research is carried out by
different methodology, which has their own pros and cons.
Research methodology is a way to solve research problem along with the logic behind them.
Thus when we talk of the research methodology we not only take of research method but also
context of our research study and explain why we are using a particular method or techniques
and why we are not using other so that research result are capable of being evaluated either by
the researchers himself or by others. Research methodology means the method carried out to
study the problem.
Research methodology has following steps:
Step: 1 to decide the objective of the study.
Step: 2 to collect the required data.
Step: 3 to process and analyze the collected data.
Step: 4 to prepare the research report.

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SOURCE OF DATA COLLECTION
Secondary data:
Secondary data is any data, which have been gathered earlier for some other purpose. Among the
above mentioned types of data was used for the study and analysis of the objective of this
project, also the secondary to data proved to be helping hand in framing up the industry scenario
and also the relevant topics in the entire project report.
Advantages of Secondary data
1. It is economical.
2. It saves efforts and expenses.
3. It is time saving.
Disadvantages of Secondary Data
1. Accuracy of secondary data is not known.
2. Data may be outdated.

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LIMITATIONS
This project report suffers with some disadvantages which are written as follows –
RESEARCH METHODOLOGY – the research methodology being used in making
this project is secondary data, any leakages in data collected may affect the project
report.
LIMITED SOURCES – the proper information about few topics was not easily
available which caused a lot of inconvenience to me.
TIME CONSUMING – logistics is very broad in terms of transport industry and this
sometimes cause a huge problem since we can’t get it as to what information to pick and
which not.
INACCURATE DATA – As the data has been collected from secondary sources, the
information gathered may suffer with the problem of data inaccuracy

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HISTORY OF LOGISTICS
Logistics has been playing a fundamental role in global development for almost 5,000 years now.
Since the construction of the pyramids in ancient Egypt, logistics has made remarkable strides.
Time and again, brilliant logistics solutions have formed the basis for the transition to a new
historical and economic era. Examples of this fundamental progress include the invention of the
sea-cargo container and the creation of novel service systems during the 20th century. Both are
integral parts of globalization today.
Around 2700 B.C.:-
Material handling technology in pyramid
construction. Blocks of stone weighing
several tons were transported and
assembled at the construction site.
To build the Great Pyramid of Giza, which is 146
meters high and weighs 6 million tons, the Egyptians
needed sophisticated material transport equipment
capable of moving the massive building blocks and
putting them into place. Even today, we still cannot fully explain how this level of precision was
achieved using the hoisting equipment and means of transport available around 2700 B.C.

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Around 300 B.C.: -
Revolutionary Greek rowing vessels – the new
foundation of intercontinental trade.
The revolutionary invention of rowing vessels created the basis
for rapid travel across the high seas. This invention formed the
foundation for the creation of enormous logistics supply
systems required by mobile army camps. Using these logistics
capacities, Alexander the Great undertook campaigns with his
troops, their families and their weapons of war that extended all the way to India.
Around A.D. 700:-
Procurement logistics in the construction of the
Mesquite Mosque – pillars came to Spain from
all parts of the Islamic empire.
Construction of the famous Mezquita Mosque in Cordoba,
Spain, began in 756 under the Caliph of Cordoba in the
Umayyad dynasty. It is considered to be the largest mosque in Europe. Extraordinary
procurement logistics was required to transport the pillars of the mosque from all parts of the
Islamic empire.

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Around 1200:
The international network known as the
Hanseatic League – cooperation for transport
bundling and international sea transport.
In 1188, the city of Hamburg, Germany, was founded as a
base on the North Sea for the Hanseatic League to make
travel on the sea more secure and to represent business
interests abroad. Up to 200,000 fur pelts were transported by a single hanseatic cog ship.
Hanseatic trade extended from the Black Sea to Reval. From a modern-day vantage point, the
league’s cross-border trade bears strong similarities to the European Union.
Around 1500:
Progressive postal service in Europe – the first
time-definite mail shipping service.
Under an agreement with Philipp of Burgundy, Franz von
Taxis organized the first postal service with strictly defined
transit times. Letters were delivered to places such as Paris,
Ghent, Spain and the imperial court of Vienna. In view of
the infrastructure of the times and the political
fragmentation created by the array of small principalities, the mail reached its destination with
very little delay.

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Around1800:
Discovery of new road conveyances and the
railroad–
expansion of logistics tasks through new
technologies and means of transport.
The practical use of the steam engine, the invention of
vehicles, railroads and ships as well as the discovery of crude
oil ushered in a new economic era that generated new
missions, tools and opportunities for logistics.
Around 1940:
Military logistics during the world wars – transfer of
military logistics concepts to the business world.
During World War I, military logistics was the vital link in the
network that supplied troops with rations, weapons and equipment.
With the onset of World War II, logistics was further refined. As a
result, logistics gained an important place in the business world as
well.

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Around 1956:
Invention of the sea container – structural evolution of world trade and the
boom of international flows of goods.
The invention of the sea container by the American Malcom P. McLean changed production
conditions for nearly all industries around the world and, as a result, altered people’s
consumption habits. Even today, the sea container continues to ensure that harbors gain major
contracts, new countries and regions experience commercial booms, markets arise and products
from all parts of the world can be bought and sold at reasonable prices. In this way, the container
has significantly contributed to globalization.
Around 1970 – 1980:
Kanban and just-in-time – logistics
concepts with a special emphasis on
procurement.
The Kanban and just-in-time (JIT) concepts
were developed and introduced at Japan’s Toyota Motor Co. by Taiichi Ohno – with the
objective of effectively linking logistics to other operational functions. Special emphasis was
placed on procurement.

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Around 1990:
QR and ECR technologies – logistics
concepts with a special emphasis on
distribution.
The quick response and efficient consumer
response (ECR) technologies were developed
during the 1990s and applied by many retail and
wholesale companies. These technologies had a
major impact on logistics. As a result of this technology, distribution centers are tasked with
moving goods instead of storing them. This allows companies to accelerate reaction times to
market developments and to set up efficient goods-supply systems.
Today:
Supply chain management – a look at
the entire logistics chain from the
vendor’s supplier to the end
customer.
Supply chain management is a term that has
grown enormously in use and significance
since the late 1980s. Today, supply chain management is viewed as a holistic consideration of
key business processes that extend from the vendor’s supplier to the end user. Accordingly,
supply chain management is an extremely interactive, complex system requiring simultaneous
monitoring of many conflicting objectives.

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Today:
Advancing globalization –
efficient logistics as a
competitive edge in the
era of globalization.
Global competition began to
arise and spread in the 1970s
and accelerated in the 1990s.
Globalization is still moving
forward today. Efficient
logistics creates a crucial
competitive edge for companies
that are expanding in global markets. Successful logistics efforts in international supply chains
can fuel the development of global markets.
LOGISTICS HISTORY SHOWS THE BENEFIT AND
IMPORTANCE OF LOGISTICS
Logistics can be defined as providing the right type of products and/or services at the right price,
at place, time and in the right condition. A quick look back at some logistics history may prove
very enlightening.
The birth of Logistics can be traced back to ancient war times of Greek and Roman empires
when military officers titled as 'Logistikas' were assigned the duties of providing services related
to supply and distribution of resources. This was done to enable the soldiers to move from their
base position to a new forward position efficiently, which could be a crucial factor in

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determining the outcome of wars. This also involved inflicting damage to the supply locations of
the enemy and safeguarding one's own supply locations. Thus, this lead to the development of a
system which can be related to the current day system of logistics management.
During the Second World War (1939-1945), logistics evolved greatly. The army logistics of
United States and counterparts proved to be more than the German army could handle. The
supply locations of German armed forces were inflicted with serious damages and Germany was
not able to wreak the same havoc on its enemy. The United States military ensured that the
services and supplies were provided at the right time and at the right place. It also tried to
provide these services when and wherever required, in the most optimal and economical manner.
The best available options to do the task were developed. This also gave birth to several military
logistics techniques which are still in use, albeit in a more advanced form.
Logistics has now evolved itself as an art and science. However, it cannot be termed as an exact
science. Logistics does not follow a defined set of tables nor is it based on skills inherited from
birth. A logistics manager performs his duties and responsibilities based on his educational
experiences, skills, past experiences and intuition. These skills are nourished by a constant
application of the same by him for the betterment of his organization. The logistics manager
ensures that the company is benefited by an effective and efficient system of logistical
management. He also needs to ensure that the right kind of products and services are provided at
the right time and for a right price, whether inside the organization's premises or delivery of
shipments outside the premises of the organization.
Logistics has come to be a kind of relief for many organizations that formerly looked upon it as a
burden. Companies nowadays are hiring people with the requisite knowledge to deliver
sustainable enhancements in the field of supply chain management. As has been the case
throughout most of logistics history, the task of a logistics manager involves a clear vision and a
drive within to deliver results under strict deadlines in addition to his usual responsibilities

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THE GEOGRAPHY OF TRANSPORT SYSTEMS
THE NATURE OF LOGISTICS
The growing flows of freight have been a fundamental component of contemporary changes in
economic systems at the global, regional and local scales. These changes are not merely
quantitative with more freight in circulation, but structural and operational. Structural changes
mainly involve manufacturing systems with their geography of production, while operational
changes mainly concern freight transportation with its geography of distribution. As such, the
fundamental question does not necessarily reside in the nature, origins and destinations of freight
movements, but how this freight is moving. New modes of production are concomitant with
new modes of distribution, which brings forward the realm of logistics; the science of physical
distribution.
Logistics involves a wide set of activities dedicated to the transformation and distribution of
goods, from raw material sourcing to final market distribution as well as the related information
flows. Derived from Greek logistikos (to reason logically), the word is polysemic. In the
Nineteenth century the military referred to it as the art of combining all means of transport,
revictualling and sheltering of troops. Today it refers to the set of operations required for goods
to be made available on markets or to specific locations.
The application of logistics enables a greater efficiency of movements with an appropriate choice
of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available
goods, raw materials and commodities, fulfilling four major requirements related to order,
delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity
including production, location, time and control of elements of the supply chain. It represents the
material and organizational support of globalization. Activities comprising logistics include
physical distribution; the derived transport segment, and materials management; the induced
transport segment.
Physical distribution is the collective term for the range of activities involved in the
movement of goods from points of production to final points of sale and consumption. It must
insure that the mobility requirements of supply chains are entirely met. Physical distribution

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includes all the functions of movement and handling of goods, particularly transportation
services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines),
transshipment and warehousing services (e.g. consignment, storage, inventory management),
trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be
derived from materials management demands.
Materials management considers all the activities related in the manufacturing of
commodities in all their stages of production along a supply chain. It includes production and
marketing activities such as production planning, demand forecasting, purchasing and inventory
management. Materials management must insure that the requirements of supply chains are met
by dealing with a wide array of parts for assembly and raw materials, including packaging (for
transport and retailing) and, ultimately, recycling discarded commodities. All these activities are
assumed to be inducing physical distribution demands.
The close integration of physical distribution and materials management through logistics is
blurring the reciprocal relationship between the derived transport demand function of physical
distribution and the induced demand function of materials management. This implies that
distribution, as always, is derived from materials management activities (namely production), but
also, that these activities are coordinated within distribution capabilities. The functions of
production, distribution and consumption are difficult to consider separately, thus recognizing
the integrated transport demand role of logistics. Distribution centers are the main facilities from
which logistics are coordinated.
Distribution Center Facility or a group of facilities that perform consolidation, warehousing,
packaging, decomposition and other functions linked with handling freight. Their main purpose
is to provide value-added services to freight. DCs are often in proximity to major transport routes
or terminals. They can also perform light manufacturing activities such as assembly and labeling.
Since it would be highly impractical to ship directly goods from producers to retailers,
distribution centers essentially act as a buffer where products are assembled, sometimes from
other distribution centers, and then shipped in batches. Distribution centers commonly have a
market area in which they offer a service window defined by delivery frequency and response
time to order. This structure looks much like a hub-and-spoke network. The wide array of

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activities involved in logistics, from transportation to warehousing and management, have
respective costs. Once compiled, they express the burden that logistics impose on distribution
systems and the economies they support, which is known as the total logistics costs. Costs are
however not the only consideration in supply chain management since supply chains can also
be differentiated by time, reliability and risk level. The nature and efficiency of distribution
systems is strongly related to the nature of the economy in which they operate. Worldwide
logistics expenditures represent about 10-15% of the total world GDP. In economies dependent
on the extraction of raw materials, logistical costs are comparatively higher than for service
economies since transport costs account for a larger share of the total added value of goods. For
the transport of commodities, logistics costs are commonly in the range of 20 to 50% of their
total costs.
OBJECTIVE OF LOGISTICS MANAGEMENT
The primary objective of logistics management is to effectively and efficiently move the supply
chain so as to extend the desired level of customer service at the least cost. Thus, logistics
management starts with ascertaining customers’ needs till their fulfilment through product
supplies. However, there are some definite objectives to be achieved through a proper logistics
system. These can be described as follows:
1. Improving customer service:
An important objective of all marketing efforts, including the physical distribution activities, is
to improve the customer service. An efficient management of physical distribution can help in
improving the level of customer service by developing an effective system of warehousing, quick
and economic transportation, and maintaining optimum level of inventory.
2. Rapid Response:
Rapid response is concerned with a firm's ability to satisfy customer service requirements in a
timely manner. Information technology has increased the capability to postpone logistical
operations to the latest possible time and then accomplish rapid delivery of required inventory.

32
3. Reduce total distribution costs:
The cost of physical distribution consists of various elements such as transportation,
warehousing and inventory maintenance, and any reduction in the cost of one element may result
in an increase in the cost of the other elements. Thus, the objective of the firm should be to
reduce the total cost of distribution and not just the cost incurred on any one element.
4. Generating additional sales:
A firm can attract additional customers by offering better services at lowest prices. For example,
by decentralizing its warehousing operations or by using economic and efficient modes of
transportation, a firm can achieve larger market share. Also by avoiding the out-of-stock
situation, the loss of loyal customers can be arrested.
5. Creating time and place utilities:
The products are physically moved from the place of their origin to the place where they are
required for consumption; they do not serve any purpose to the users. Similarly, the products
have to be made available at the time they are needed for consumption.
6. Price stabilization:
It can be achieved by regulating the flow of the products to the market through a judicious use of
available transport facilities and compatible warehouse operations. By stocking the raw material
during the period of excess supply and made available during the periods of short supply, the
prices can be stabilized.
7. Quality improvement:
The long-term objective of the logistical system is to seek continuous quality improvement. Total
quality management (TQM) has become a major commitment throughout all facets of industry.
If a product becomes defective or if service promises are not kept, little, if any, value is added by
the logistics. Logistical costs, once expended, cannot be reversed.

33
8. Movement consolidation:
Consolidation one of the most significant logistical costs is transportation. Transportation cost is
directly related to the type of product, size of shipment, and distance. Many Logistical systems
that feature premium service depend on high-speed, small shipment transportation. Premium
transportation is typically high-cost. To reduce transportation cost. It is desirable to achieve
movement consolidation.
LOGISTICS MANAGEMENT FUNCTION
Logistics is the process of movement of goods across the supply chain of the company. This
process is consist of various functions, which have to be properly managed to bring effectiveness
efficiency in the supply chain of organization. The major logistical function are shown in figure
1. Order processing:
The starting point of physical distribution activities is the processing of customers’ orders. In
order to provide quicker customer service, the orders received from customers should be
processed within the least possible time. Order processing includes receiving the order, recording
the order, filling the order, and assembling all such orders for transportation, etc. the company
and the customers benefit when these steps are carried out quickly and accurately. The error
committed at this stage at times can prove to be very costly.
Logistics
Functions
Order
Processing
Inventory
Manage -
ment
Ware -
housing
Transpor-
tation
Material
Handling &
Storage
Packaging
Information
Flow

34
Order processing activity consist of the following
 Order checking in any deviations in agreed or negotiation terms
 Prices , payment and delivery terms
 Checking the availability in of the material stocks
 Production and material scheduling for storage
 Acknowledge the order, indicating deviation
2. Warehousing:
Warehousing refers to the storing and assorting products in order to create time utility. The basic
purpose of the warehousing activity is to arrange placement of goods, provide storage facility to
store them, consolidate them with other similar products, divide them into smaller quantities and
build up assortment of products. Generally, larger the number of warehouses a firm has the lesser
would be the time taken in serving customers at different locations, but greater would be the cost
of warehousing. Thus, the firm has to strike a balance between the cost of warehousing and the
level of customer service.
Major decision in warehousing is as follow:
 Location of warehousing facility
 Number of warehousing
 Size of warehouse
 Design of the building
 Ownership of the warehouse
3. Inventory Management:
Linked to warehousing decisions are the inventory decisions which hold the key to success of
physical distribution especially where the inventory costs may be as high 15 as 30-40 per cent
(e.g., steel and automobiles). No wonder, therefore, that the new concept of Just-in-Time-
Inventory decision is increasingly becoming popular with a number of companies. The decision
regarding level of inventory involves estimate of demand for the product. A correct estimate of
the demand helps to hold proper inventory level and control the inventory costs. This is not only

35
helps the firm in terms of the cost of inventory and supply to customers in time but also to
maintain production at a consistent level. The major factors determining the inventory levels are:
The firm’s policy regarding the customer service level, Degree of accuracy of the sales forecasts,
Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs
to the factory and get the products in the market. The cost inventory consists of holding cost
(such as cost of warehousing, tied up capital and obsolescence) and replenishment cost
(including the manufacturing cost).
4. Transportation:
Transportation seeks to move goods from points of production and sale to points of consumption
in the quantities required at times needed and at a reasonable cost. The transportation system
adds time and place utilities to the goods handled and thus, increases their economic value. To
achieve these goals, transportation facilities must be adequate, regular, dependable and equitable
in terms of costs and benefits of the facilities and service provided.
5. Information:
The physical distribution managers continuously need up-to-date information about inventory,
transportation and warehousing. For example, in respect on inventory, information about present
stock position at each location, future commitment and replenishment capabilities are constantly
required. Similarly, before choosing a 16 carrier, information about the availability of various
modes of transport, their costs, services and suitability for a particular product is needed. About
warehousing, information with respect to space utilization, work schedules, unit load
performance, etc., is required.
In order to receive all the information stated above, an efficient management information system
would be of immense use in controlling costs, improving services and determining the overall
effectiveness of distribution. Of course, it is difficult to correctly assess the cost of physical
distribution operations. But if correct information is available it can be analyzed systematically
and a great deal of saving can be ensured.
6. Facilities:

36
The Facilities logistics element is composed of a variety of planning activities, all of which are
directed toward ensuring that all required permanent or semipermanent operating and support
facilities (for instance, training, field and depot maintenance, storage, operational, and testing)
are available concurrently with system fielding.
Planning must be comprehensive and include the need for new construction as well as
modifications to existing facilities. Facility construction can take from 5 to 7 years from concept
formulation to user occupancy. It also includes studies to define and establish impacts on life
cycle cost, funding requirements, facility locations and improvements, space requirements,
environmental impacts, duration or frequency of use, safety and health standards requirements,
and security restrictions. Also included are any utility requirements, for both fixed and mobile
facilities, with emphasis on limiting requirements of scarce or unique resources.
DRIVING FORCES IN SUPPLY CHAIN MANAGEMENT
The emergence of logistics in contemporary supply chains is based upon continuous
improvements in transport and inventory management costs, which commonly results in lower
lead times; the time it takes for an order to be fulfilled. Lean supply chains, as a managerial
concept, is often labeled as seminal in the emergence of modern supply chains where inventory
levels are kept at a minimum and where a large share of the inventory is in constant circulation.
Typically the manufacturing sector has 6 to 8 inventory turns per year. In the electronics sector,
this can even be faster with 10 to 20 inventory turns per year. During the 1980s, the application
off low control permitted to reduce inventories in time-sensitive manufacturing activities from
several days' worth to several hours. Much of these efforts initially took place within the factory,
while supply and output flowed as batches from suppliers and to distributors. In the 1990s, with
the convergence of logistics and information and communication technologies (ICT), this
principle was increasingly applied to the whole supply chain, particularly to the function of
distribution.Another important requirement was containerization, which conferred substantial
flexibility to production systems in addition to the container being its own storage unit. The
expansion of standard transport infrastructure such as highways, terminals and airports was also
essential for the development of modern logistics. Logistics and integrated transport systems are

37
therefore related, particularly because of the container which has concomitantly become a unit
of load (transport), production and distribution. Thus, the physical as well as the ICT elements of
technological change are being underlined as it helps strengthen the level of control distributors
have over the supply chain. The technological dimension of logistics can thus be considered
from five perspectives:
Transportation modes. Modes have been the object of very limited technological
changes in recent decades. In some cases, modes have adapted to handle containerized
operations such as road and rail (e.g. doublestacking). It is maritime shipping that has
experienced the most significant technological change, which required the construction of an
entirely new class of ships and the application of economies of scale to maritime container
shipping. In this context, a global network of maritime shipping servicing large gateways has
emerged.
Transportation terminals. The technological changes have been very significant with the
construction of new terminal facilities operating on a high turnover basis. Better handling
equipment lead to improvements in the velocity of freight at the terminals, which are among the
most significant technological changes brought by logistics in materials movements. In such a
context, the port has become one of the most significant terminals supporting global logistics.
Port facilities are increasingly been supported by an array of inland terminals connected by high
capacity corridors.
Distribution centers and distribution clusters. Technological changes impacted over
the location, design and operation of distribution centers; the facilities handling the requirements
of modern distribution. They serve different purposes depending on the combination of
fabrication, storage and distribution functions they perform within their supply chains. Modern
distribution centers tend to consume more space, both from the site they occupy and the building
area. From a locational standpoint, distribution centers mainly rely on trucking, implying a
preference for suburban locations with good road accessibility supporting a constant traffic. They
service regional markets with a 48 hours service window on average, implying that
replenishment orders from their customers are met within that time period. They have become
one floor facilities designed more for throughput than for warehousing with specialized loading

38
and unloading bays and sorting equipment. Cross-docking distribution centers represent one of
the foremost expressions of a facility that handles freight in a time sensitive manner. Another
tendency has been the setting of freight distribution clusters where an array of distribution
activities agglomerate to take advantage of shared infrastructures and accessibility. This tends
to expand the added-value performed by logistics.
Load units. Since logistics involves improving the efficiency of flows, load units have
become particularly important. They are the basic physical management unit in freight
distribution and take the form of pallets, swap bodies, semi-trailers and containers.
Containers are the privileged load unit for long distance trade, but the growing complexity of
logistics required a more specific level of load management. The use of bar codes and
increasingly of RFID (Radio Frequency Identification Device) enables a high level of control
of the load units in circulation.
Information technologies / E-commerce. Consider the vast array of information
processing changes brought by logistics. The commodity chain is linked with physical flows
as well as with information flows, notably through Electronic Data Interchange (EDI).
Producers, distributors and consumers are embedded in a web of reciprocal transactions.
While these transactions mostly take place virtually, their outcomes are physical flows. E-
commerce offers advantages for the whole commodity chain, from consumers being exposed
to better product information to manufacturers and distributors being able to adapt quickly to
changes in the demand. The outcome is often more efficient production and distribution
planning with the additional convenience of tracking shipments and inventories.
For logistics, ICT is particularly a time and embeddedness issue, particularly because of ICT;
freight distribution is within a paradigm shift from inventory-based logistics (push) to
replenishment-based logistics (pull). Demand, particularly in the retailing sector, is very difficult
to anticipate accurately. A closer integration between supply and demand enables a more
efficient production system with fewer wastes in terms of unsold inventory. Logistics is thus a
fundamental component of efficiency improvements in a market economy.

39
TOURISM & LOGISTICS
Tourism Logistics aims to understand the relationships between tourism and transport in the
context of their development, organization and management.
For the organizations which are involved in tourism, efficiency is conditioned, among other
determinants, by the coordination and harmonization of all participants’ efforts from the specific
activities chain: tourism services suppliers, tour-operators, travel agencies and tourists
themselves. Among these participants, a special role is assigned to the tour-operators. Going
from certain tourism attractions, they take upon themselves the fabrication of those products that
are required by tourists, assembling the different basic and supplementary tourism services, that
are offered by numerous services suppliers, and further, distributing them to the retailers, or
directly to the tourists. The impact of their activity is very strong because through the realized
products they incorporate different types of tourist services. Going from these aspects and
analyzing in a similar manner the tourism activity as the material goods manufacturing activity
from logistical point of view, it can be said that, successful activity can be achieved when those
different participants’ categories act like a system, into a supply chain. On tour-operators’ level,
the supply chain management incorporates, among the others, planning and management
activities concerning purchasing suppliers selection, internal logistics’ management, as well as
collaboration with all marketing channel partners. Internal logistics involves activities that refers
to purchasing, operations’ support and some aspects that are similar with physical distribution,
the supply chain being structured by cooperation between a various number of participants, from
raw materials suppliers (their impact is visible especially in catering, foods or beverage suppliers
services), up to end consumers. Otherwise, the role of the last category is more important
because they lend the tourism activity specific nature, through there’s participation on a
successful holiday product.
Nowadays, the science of logistics appears to be very helpful and applicable, especially in the
tourist and recreation sector. Broad knowledge as well as practical experience in this field can
bring a lot of support not only in the creation of the supply chain, its realization and monitoring
processes but also in the efficiency analysis or even tendering procedures. It is beyond any
question that the process of forming a supply chain in the tourist and recreation sector requires

40
advanced and professional knowledge of both transportation systems and carriage of goods and
passengers. There is no need to emphasize the fact that, in the view of a very competitive and
modern market of tourism and recreation, high quality of tenders is still a priority.
However, there is one more factor that plays an important and decisive role in this very sector.
Strange as it may seem, it is the costs rather than the prices that determine our choices when
making important decisions. Therefore, in order to gain a strong market position, maintain it and
leave the competition behind, it is crucial to pay close attention to the cost analysis in particular
links of the supply chain as well as restructuring them. One of the methods that can be applied in
order to back up the implementation of the aforementioned policies is definitely benchmarking.
According to the definition” benchmarking is a process of comparing practices, procedures and
performance of one company with specially selected benchmarking partners”. In other words,
benchmarking is a process not only of deriving quantifiable goals and targets, but more
importantly, it is the process of investigating and documenting the best industry practices, which
can help to achieve goals and targets. What is more, it gives the external references and the best
practices on which to base the evaluations and to design the work processes. In the modern and
competitive market of today, all the activities mentioned above are really helpful, especially that
most of the companies are no longer evaluated in accordance with profits they make but more
often they are compared to their rivals. Since benchmarking is the process of identifying "best
practice" in relation to both products and the processes by which those products are created and
delivered, it seems to be a perfect tool for examining different strategies and general approaches
as well as creation of supply chains and other logistics systems.
Logistics and supply chain management: Strategies for reducing cost and improving
service. The market of tourist and recreational services is composed of the following:
- Hospitality services;
- catering services;
- Tour operating services;
- Tourism oriented services;

41
- Recreation oriented services.
Those segments of the market where many different firms, business entities or incorporated
companies operate can easily and successfully adopt the premises of logistics.
As a matter of fact the science of logistics combines both theoretical and practical issues. What is
more, all its theories can be easily implemented and confronted with reality in order to verify
whether they are efficient and applicable in real life. If we took the hospitality services sector in
consideration, we would find that there are quite a few areas where it is advisable or even
necessary to fall back on the science of logistics. Furthermore, the efficiency and quality of
hospitality services can be improved through effective logistics management of the following:
- Hotel management;
- Quality management;
- Information management;
- Marketing.
On the other hand, such an approach and division of hotel activities may seem a bit limited.
Therefore, if we looked at the hospitality sector from more detailed point of view we could
distinguish different processes that take place, such as:
- supply processes;
- Service production processes;
- Distribution processes;
- Storage and warehousing processes;
- Information transmission processes.
The areas listed above should be referred to in search for minimization of costs and finding best
solutions possible in order to gain a strong, competitive and leading position in the market.

42
Speaking more precisely, all these processes should be thoroughly examined from the point of
view of costs they generate and classified by genre and amount (e.g. 1 hotel guest, 1 room etc).
This would allow us to calculate both total and unit logistics cost, which have become very
important factors affecting the competitiveness of companies. What is more, total logistics costs
analysis is the key to managing the logistics function. That is why it is crucial these days that the
management consider the total of all logistics cost. Thus in the hotel industry the total logistics
cost include the following:
- cost of supply activities;
- cost of information;
- cost of operation;
- cost of marketing;
- cost of distribution;
- cost of additional services;
- cost of insurance;
- cost of transport activities;
- cost of personnel;
- Other financial costs.
The cost analysis performed in accordance with the above specification would help us to
calculate the total logistics cost of a particular hotel as well as it would indicate which
components generate the most costs and therefore should be minimized. Companies can easily
enhance their market competitiveness by reducing their logistics costs which eventually results in
lowering the total costs of goods and services.
However, due to the fact that it is really difficult to determine which individual component of
logistics costs should be reduced, companies should make attempts to integrate the logistics

43
system instead in order to lower total logistics costs. This solution is much safer especially that
wrong diagnosis of individual costs may lead to an increase of total logistics costs.
Therefore it is very important to remember that in hospitality business effective cost reduction
and the ability to manage the total logistics costs in the right way is a very helpful tool in
building a strong position in the market. The issue of costs is definitely one of the most important
problems and since its role in today’s economy is still growing they should be brought up to
everyone’s attention, classified, diagnosed, analyzed and finally used in the decision making
process.
Unfortunately, most of the companies are fitted with basic financial and accounting systems that
do not register the logistics costs which make it difficult to diagnose and analyze them. Keeping
track of all logistics costs that are borne by companies from tourist and recreation sector would
be easier if only:
- They were equipped with additional software aimed for logistics costs registration;
- They carried out regular research of their own initial costs.
Unfortunately, most of the a fore mentioned procedures would require extra expenses to be
made and some hotels as well as other entities operating within the tourist and recreational sector
cannot afford to bear them..Generally speaking, in order for the hospitality sector to operate
properly and with no objections, some of the following actions should be taken:
- Modern logistics solutions should be updated and implemented;
- supply chain costs should be analyzed;
- Wider spectrum of controlling system should be implemented;
- All decisions made should be consulted with professionals.
In order to better understand the full concept presented herein, let us have a look at the following
example:
1. Hotel provides services to its clients. All services have to meet certain quality
standards.

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2. The customer is considered as merchandise /efficient consumer response (ECR). All
costs that are borne have to be classified in accordance with logistics processes.
3. Controlling system of realization costs that are borne in logistics processes have to be
implemented.
4. Accurate and prompt decisions have to be made with regards to logistics processes
being executed. Although the instructions listed above might be expensive and time-
consuming, they also provide essential information for exact diagnosis of tourist and
recreational sector.
Last but not least, since nowadays logistics systems have the tendency to change dynamically, it
is of a great importance to do research on them on a regular basis.
RELEVANCE OF LOGISTICS IN INTERNATIONAL
MARKETING
Marketing experts have recognized that for developing a position of sustainable competitive
advantage, a major source is superior logistics performance. Thus, it can be argued that instead
of viewing distribution, marketing and manufacturing as largely separate activities within the
business, they need to be unified, particularly at the strategic level. One might be tempted to
describe such an integrated approach to strategy and planning as ‘Marketing Logistics’. Business
can only compete and survive either by winning a cost advantage or by providing superior value
and benefit to the customer.
In recent years, numbers of companies have become aware that the market place encompasses
the world, not just the India .As a practical matter, marketing managers are finding that they need
to do much work in terms of conceptualizing , designing , and implementing logistics initiatives
to market effective globally. Following are the reasons behind the extension of logistics activities
at global level to do business internationally.
The magnitudes of global business are:
Increase in the magnitude global business.

45
Business is relying on foreign countries to provide a source of raw materials and markets
for finished goods.
Fall of global trade barriers.
Increase in Global competition.
PROSPECTS OF GROWTH IN THE INDUSTRY
In years gone by, the traditional warehousing and logistics facility was located by railroad tracks,
a water port, and/or freeways, usually in the least desirable parts of cities or large towns. This
stereotype then faded as gigantic, state-of-the-art facilities began to sprout in more rural areas on
the outskirts of transportation and population hubs. The World started beginning to see such
facilities showing up in even less "traditional" areas. Modern warehouses now are being located
in carefully manicured industrial parks that are sprouting as fast as the corn and wheat once did
in these open spaces-often in out-of-the-way places. Why the emphasis on such locations for
logistics companies?
Much of it is due to the great flux that the logistics industry has been undergoing in the first three
years of the 21st century. Most of these changes are being driven by a growing trend in the
manufacturing and retail sectors to form partnerships with companies to which they can
outsource non-core logistics competencies-3PL providers.
In turn, 3PL providers are continually looking to provide innovative supply chain solutions to
customers by focusing on value-added capabilities, differentiating themselves from the
competition. They focus on key objectives, such as implementing information technologies,
instituting effective management processes, integrating services and technologies globally, and
delivering comprehensive solutions that create value for 3PL users and their supply chains. This
need to partner with customers and become more integrated into their supply chain processes has
created the ancillary need to locate close to these customers.
That isn't to say the need for easy access to transportation hubs and different modes of
transportation won't continue to be important. But the above shift in business strategy, along with
the advances in technology and enhanced communication, has opened the door for logistics
facilities to operate effortlessly in a myriad of locations.

46
Profit warnings, share price pressures, mergers, reorganizations, relocations, disposals, painful
layoffs and great geopolitical uncertainties can sweep away even the most comprehensive
logistics strategies – and that’s despite outstanding management over many years. These are
exceptionally difficult times and it has never been more important to connect logistics and
freight planning to executive board thinking than now. It’s easy to lose sight of the bigger picture
in the rush to cut infrastructure cost and conserve cash. Hopefully organization succeed in
protecting the business, satisfying shareholders and analysts, but what about capacity and
flexibility, morale and momentum?
To be a logistics winner in the coming years organizations need to use the downturn to reshape
for growth, propelled by an unshakeable conviction that the mission is still important, that more
prosperous times lie ahead, and that in some way the company infrastructure is helping to build a
better kind of world.
Own passion for running the race matters most of all in a downturn, when people are insecure,
see only savage cost savings, and loyalty is tested. The corporation’s future will be dominated by
six factors, or faces of a cube, spelling F U T U R E.
Logistics is inevitable in the future and essentially the management policy also has a significant
role in the future of world. Generally the study is being featured with all aspects of management
in Logistics and Freight areas. (Logistics include Transportation, Warehousing, Network Design,
Cross docking, and Value Adding).
THE INDIAN LOGISTICS SECTOR
Wars have been won or lost on the strength of logistics capability or lack of it. Although quite an
old concept, logistics has been becoming efficient only since the globalization wave of the early
1990s and hence, the businesses supported by it, worldwide, have been pushed for competitive
balance-sheets, providing consumers a better product/service and yet adding value to its
investors.
Triggering intense competition, globalization, coupled with liberalization, forced both private
and public firms to commit themselves to making available to their customers the right material
of right condition, at the right time and place at the lowest cost — be it a product or a service.

47
The World Bank, in a recent survey Connecting to Compete: Trade Logistics in the Global
Economy, has developed a Logistics Performance Index (LPI) that can serve as a benchmarking
tool for measuring performance of businesses along a country’s logistics supply chain. The Bank
study asserts that countries that are able to connect to the global logistics web would not only
have access to vast new markets but also remain a part of the global trade growth. The report
avers that it is not the income of nations but their undergoing trade expansion that determines
their logistics efficiency, as the survey shows that nations with increasing trade (imports and
exports) to GDP emerged as the out-performers on the LPI scale relative to their income levels.
It also warns that those countries whose links with the global logistics chain are weak are bound
to face large and growing costs of exclusion from international trade. India trails behind China
on important indices such as customs procedures, overall infrastructure quality, international
shipment, logistics competence and tracking of shipments, but is ahead of the latter on the
domestic logistics efficiency front.
Healthy economic growth in India is increasingly supported by robust industrial growth. One of
the relatively lesser known but significant sectors that support almost all industrial activity - the
logistics sector - is also witnessing this growth as a follow through. However, not withstanding
its importance and size (INR 4 trillion), it has traditionally not been accorded the attention it
deserves as a separate sector in itself.
Table No- 2.1
Country LPI Score
USA 3.93
UK 3.90
Singapore 4.13
India 3.08
China 3.52
Mexico 3.06
Source-http://siteresources.worldbank.org/TRADE/Resources/2390701336654966193/LPI_2012_final.pdf

48
The level of inefficiency in logistics activities in the country has been very high across all
modes. With the evolving business environment creating a strong demand pull for quality and
efficient logistics services, core issues around enabling infrastructure, regulatory environment
and the fragmented nature of the industry are being overcome gradually.
The required pace of efficiency and quality improvement will demand rapid development of
capabilities of logistics service providers. And with logistics being a service oriented sector, skill
development will emerge as a key capability while skill issues exist in varying degrees in all
segments of logistics; those segments where the gaps are not only wide but also widening at a
relatively fast pace. The most severe and immediate requirement for skill development is found
to be in the road freight and warehousing segments.
India’s spend on logistics activities - equivalent to 13 percent of its GDP is higher than that of
the developed nations. The key reason for this is the relatively higher level of inefficiencies in
the system, with lower average trucking speeds, higher turnaround time at ports and high cost of
administrative delays being just a few of the examples.
These inefficiencies have arisen over the years from a combination of a non-conducive policy
environment, extensive industry fragmentation and lack of good basic infrastructure. India's
indirect tax regime discouraged large centralized warehouses and led, over time, to
fragmentation in the warehousing sector. At the same time, the absence of a single logistics
'champion' (whether in form of a ministry or otherwise) in the government (or industry) led to a
disintegrated approach to development of the sector.
Table No- 2.2
Country Logistics Cost/GDP
India 13%
U.S. 9.9%
Europe 10%
Japan 11.4%
Source-http://siteresources.worldbank.org/TRADE/Resources/2390701336654966193/LPI_2012_final.pdf

49
Extensive fragmentation meant the incapacity of industry players to develop the industry as a
whole and poor support infrastructure, such as roads, ports and telecom, led to a situation where
the opportunity to create value is limited.
However, much of this is changing with the government now demonstrating a strong
commitment towards providing an enabling infrastructure and creating conducive regulations.
There is significant current and planned investment in infrastructure to the tune of (INR 15
trillion) over the next few years and an increased emphasis on public-private partnership. At the
same time, regulations around rationalization of tax structures and prevention of overloading for
example are creating an environment of positive change. Players now have the opportunity to
leverage economies of scale, complemented with better infrastructure, to provide integrated
logistics solutions which are cost effective.
In addition, the evolving business landscape and increasing competition across industries, is
creating the need for more efficient and reliable logistics services than what exist today For
example, rapid growth of organized retail and the need to reach out to the large untapped rural
markets in India are necessitating development of strong back end and front end supply
networks.
Fundamentally, a fragmented industry with low average scale - and consequent limited
investment and market development capability - is worst placed to serve these needs. It is not
surprising therefore that there is a frantic pace of consolidation and organic growth that the
industry is witnessing. While logistics service providers are struggling to keep pace with the
growth, logistics service users with limited or no outsourcing are finding it increasingly difficult
and / or undesirable to manage this non-core activity in-house. The result is a wide need gap that
is seemingly widening much faster than it is being filled.

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It is in this context that capability development of logistics service providers assumes critical
importance. While rapid development across all dimensions of organizational capability will be
required to achieve and sustain demand growth, logistics being a service industry, manpower
capabilities assume utmost 5 importance’s. The sector currently employs about 40 million
people, a number that will rise rapidly with exponential growth expectations in the sector. 6 A
look at the financials of a set of 80 logistics companies in India across sectors reveals that
manpower spends comprise 8-10 percent of overall sales of the sector.
This roughly translates to about an INR 500 billion spend on logistics manpower in the country
annually. Only about 13 -14 percent of the overall manpower costs are spent on non-salary,
manpower development items (welfare, training etc.). This share for the unorganized companies
would expectedly be much less.
Growth in
Outsourcing
logistics
Increasing
trade
Greater
outsourcin
g of
manufactur
--ing
Greater
Prosprensity
to
outsourcing
logistics
Better
enbling
environme
nt
Entry of
MNCs
Greater
economic
activity

51
As against this leading global logistics companies spend around 20 percent of their employee
expenditure on non-salary items. This lack of focus on developing manpower and skills for the
logistics sector has resulted in a significant gap in the numbers and quality of manpower in the
sector. This gap, unless addressed urgently, is likely to be a key impediment in the growth of the
logistics sector in India, and in consequence, could impact growth in industry and manufacturing
sectors as well.
This underscores the need for identifying areas where such manpower and skill gaps are critical,
and developing focused action plans to improve the situation. In the next section, we analyze
each segment of the Logistics sector in India to identify the skill gaps that exist in each. These
gaps are then prioritized to identify key focus areas, and the action that needs to be taken to
bridge the gaps.
SIZE OF LOGISTIC MARKET IN INDIA
Indian Supply Chain and Logistics Industry is more than USD 100 Billion in size and is the
backbone of Indian Economy. Our industry is growing at a rate of 8-10% annually and has been
a crucial contributor in the growth and development of the Indian economy. In the near future,
Traditional Logistics services like Transportation and Warehousing would continue to growth at
a good rate. However, the big ticket growth would come from the Value Added Logistics
services in the near future.
At present, Outsourced Logistics accounts for only one-third of the total Logistics market in
India, which is a significantly lower proportion vis-à-vis the developed markets. Growth in this
industry is currently being driven in India by over USD 300 billion worth of infrastructure
investments, the phased introduction of VAT, the development of organized Retail and Agro-
processing industries, along with a strong manufacturing growth. In addition, we expect strong
Foreign Direct Investment inflows in the Indian markets, which would lead to increased market
opportunities for providers of Third-Party Logistics in India.
Therefore, India possesses substantial opportunities for growth in the Supply Chain & Logistics
industry in the coming years, notwithstanding the temporary jolt due to the economic slowdown.

52
FUTURE PROSPECTS
Despite problems, The Indian logistics industry is growing at 20% vis-à-vis the average world
logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the
annual logistics cost, there is immense potential for growth of the sector. The major opportunities
are highlighted below.
 Many large Indian corporates such as Tata and Reliance Industries have been attracted
by the potential of this sector and have established logistics divisions. They started
providing in-house logistics services, and soon sensing the growth of the market, have
started providing services to other corporates as well.
 Large express cargo and courier companies such as Transport Corporation of India (TCI)
and Blue Dart have also started logistics operations. These companies enjoy the
advantage of already having a large asset base and an all-India distribution network.
Some large distributors have also forayed into the logistics business for their clients.
 Since logistics service can be provided without assets, there is growing interest among
entrepreneurs to venture into this business.
 Indian shippers are gradually becoming more aware of the benefits of logistics
outsourcing. They are now realizing that customer service and delivery performance are
equally important as cost to remain competitive in this global economy.
 The Indian economy is growing at over 9% for the last couple of years (compared to the
world GDP growth rate of 3%), which implies more outputs and more demand for
specialized logistics services.
 The Indian government has focused on infrastructure development. Examples include the
golden quadrilateral project, east-west and north-south corridors (connecting four major
metros), Free Trade and Warehousing Zones (FTWZ) in line with Special Economic
Zones (SEZ) with 100% Foreign Direct Investment (FDI) limit and public-private
partnerships (PPP) in infrastructure development. It is expected that infrastructure
development would boost investments in the logistics sector.
 In India, 100% FDI is allowed in logistics whereas in China, until recently, foreign
investment was not allowed in domestic logistics. Almost all large global logistics
companies have their presence in India, mainly involved in freight forwarding. For

53
domestic transportation and warehousing, they have tie-ups with Indian companies. As
the Indian logistics scenario looks promising, these MNCs are expected to play a bigger
role, probably forming wholly-owned subsidiaries or taking the acquisition route. The
latter may be the preferred route of investment since the target company is readily
acquired with its asset base and distribution network, and the need for building
everything from scratch can thus be avoided. The benefits for the acquired company
include the patronage of an MNC and access to the MNC’s global network. As an
example, DHL Danzas, the biggest logistics company in the world, has taken over Blue
Dart.
MODES OF TRANSPORTATION & WAREHOUSING:
ROAD
The road freight industry in India is worth about
INR 1.42 trillion and is growing at about 6-8
percent year on year. Manpower spends amount to
only about 4 percent of sales as against the overall
sector average of 8-10 percent. The industry has
traditionally been extremely fragmented - almost 75
percent of the trucking 'companies' are single truck
operators and almost 90 percent of trucking
companies have a turnover of less than INR 10
million
A majority of players in this industry have been small entrepreneurs running family owned
businesses. Given their small scale and limited investment capability, most of their investments
have been focused on short term gains - direct and immediate impact on the top line / bottom line
of the business being the key decision criterion. As a result, investments that pay off in the
longer term, such as those in manpower development, have been minimal historically. Also,

54
these businesses are typically tightly controlled by the proprietor and his / her family and as
such, making it unattractive for professionals. Poor working conditions, low pay scales relative
to alternate careers, poor or non-existent manpower policies and prevalence of unscrupulous
practices have added to the segment's woes creating the image of a segment that holds few
attractions for those seeking employment.
While industry players have been incapable of investing in manpower development, the
government has also not focused sufficiently on the same. There exist very few formal training
institutions for driver training and practically none for operational training on associated areas
like loading / unloading supervisory, proper handling practices etc.
The result has been that in the current scenario, there exist gaps in core technical skills of the
existing set of personnel. For example, the backbone of the trucking industry truck drivers lack
knowledge of good driving practices and areas associated with driving like understanding of
VAT. Taking a level-wise view of the skill issues, it is seen that in the road sector, skill issues
are widespread across the board with the situation being most severe at the operational level
Advantages:
 Road network of 3.3 million km is the second largest globally
 55% of total freight movement is via roadways
 Roads offer wide reach and easy accessibility to even small markets
Disadvantages:
 High cost of transportation
 National Highways account for only 2% of the total network but carries 40% of total
freight
Key Developments:
 National Highway Development Project to upgrade and modernise highways
 24,000 km of National Highways are to be upgraded to four/six lanes. Connectivity to
ports is also being improved

55
Railway
Rail freight traffic revenues stood at
around INR 350 billion in 2006 having
grown at around 8 percent in the recent
past with the growth in the last couple
of years being around 10 percent. It is
the world's second largest rail network
spread over 81,500 km and covering
around 7000 stations. Manpower
spends amount to about 45 percent of
revenues as against the overall sector
average of 8-10 percent. Also, non-salary expenditure comprises 36 percent of overall manpower
expenditure compared to the sector average of 13-14 percent.
With the government being the only employer, recruitment systems in the railways segment are
formalized and there exists an institutionalized training infrastructure and policy. Though the
employee numbers are high (around 1.4 million) there are no significant skill gaps owing to this
traditionally strong in-house training infrastructure. With technological up gradation, certain jobs
are made redundant every year with the people on these jobs being absorbed in newer areas
through training. However, the rapid introduction of modern technology that is creating gaps
even in technical areas such as signalling and telecom. Also, the Railways is facing increase in
attrition levels due to gradual opening of the sector.
To counter the emerging gaps, the Railways is overhauling the curriculum and infrastructure and
rolling out training to the lowest levels (Grade D) to increase productivity. With competition
from road and air, the Railways is focusing on making its large manpower more customer
friendly. In the overall assessment, therefore, the skill gaps situation in the railways segment
does not seem to be alarming.

56
The host of new players entering into the rail container services segment (15 licenses have been
awarded for the same) will however require skills that hitherto were only residing with the Indian
Railways. While the quantum of requirement at this stage would be small and the need would
likely be filled by the buffer created by the Railways, this could become a gap area going
forward
Advantages:
 Spread over 81,500 km, railways carries 25% of total freight movement
 Low transportation cost as compared to roads
Disadvantages:
 Bulk commodities account for 90% of total freight revenues
 Inflexibility to reach deep interiors
Key Developments:
 Phase 1 of dedicated freight corridor along Golden Quadrilateral to be initiated in 2008-
09
Water/Port
The growth in shipping has been even
higher than that of the railways driven by
strong growth in foreign trade both in bulk
and containerized cargo. Manpower
spends amount to about 8-10 percent; non-
salary expenditure varies greatly between
companies ranging from 3-20 percent of
overall man power expenditure.
The nature of liner shipping services to
and from India has undergone a sea

57
change in the last few years as a result of the growth in break-bulk and conventional cargoes.
With the nature of goods being shipped changing, the potential and opportunities for container
transport and logistics companies are enormous. Over the past few years the size and the number
of vessels that are being deployed by India has increased.
With increasing capacity and infrastructural support, the scope of the operations is set to
increase! India now has the largest merchant shipping fleet among the developing countries!
India ranks 17th
in the world in shipping tonnage. ! Indian share of maritime transport services is
1 percent of world market.! The container traffic has registered an impressive growth of 15 per
cent over the last five years.
The Government is responsible for creation of the trained manpower required for the country's
merchant navy fleet and also facilitation of training and employment of seafarers in foreign flag
vessels. .
In addition to the above, there are about 124 training institutes in the private sector approved by
the Director General of Shipping, imparting pre-sea and post sea training in various disciplines.
The Directorate General of Shipping maintains a system of inspections to ensure the quality of
training. India is globally recognized as a very important source of mercantile manpower.
Accentuating the situation is the inherent disadvantage to the Indian ship owners as employers
arising by virtue of extra burden of income tax on Indian seafarers' income. This makes the
employment on a foreign flag the first choice of any Indian seafarer, and thereby denies the best
talent to the local shipping industry.
Thus, in the core shipping industry, while the manpower situation in terms of quality fares much
better than the other segments of logistics, the issue here is that of quantity with an increasing
number of qualified people being attracted towards working on foreign vessels as they offer
better salaries and perks. However, if one were to look at the ports side, there is an increasing
lack of trained manpower for pilotage functions and equipment operators

58
Advantages:
 Cheapest mode of transportation
Disadvantages:
 Poor state of inland waterways in the country
 High turnover time
Key Developments:
 Cargo handling capacity of ports to be increased from 600 million tones in 2007 to 1500
million tones by 2015
AIR :
Though the air freight segment holds a small share
of India's freight market, it is growing at a fast pace.
While India accounts for meagre 3 percent of the
global air cargo market, the Indian air cargo industry
is expected to double in size by the year 2010, as per
an expert estimate.
As in the case of sea freight, the level of
formalization and standardization of operations in
the air freight segment is greater than in the road
sector. By virtue of the level of investments in assets, network and relationships required to be a
player in this segment, it has traditionally been relatively more organized leading to greater
regard for manpower development. The market leaders typically have established internal
structured training practices to train the staff employed at this level.

59
Nevertheless, there exist perceived gaps at the operational / front line level and are primarily to
do with soft skills, such as relationship management, interpersonal and managerial, and
supervisory skills.
Advantages:
 Fastest mode of transportation
Disadvantages:
 Low freight movement
 87% of total freight traffic being handled by airports in metro cities
Key Developments:
 Modernisation of 37 operational airports and development of new airports will increase
air cargo handling capacity
WAREHOUSE:
The warehousing segment consists of storage
warehousing related to distribution whether
inbound or outbound trans shipment
warehouses or 'terminals' used for bulking /
de-bulking, stuffing / de-stuffing cross
docking and temporary storage (including CFS
and ICD)
The warehousing segment is perhaps where the greatest growth potential exists. Like road
transportation, this segment has traditionally been extremely fragmented, small scale and
scattered geographically. A key reason for this has been India's indirect tax structure, with tax
paid on cross border (state border) sales not being fully set off against local tax liabilities. As a
result, most players resorted to setting up small warehouses across different states, rather than

60
large, centralized set-ups. This has led to the prevalence of small scale, fragmented warehouses,
with corresponding inefficiencies. This cause and effect cycle is depicted in
Increasingly, warehouses are being used to serve several important functions, beyond mere
storage of products
 Customer service
Increasingly, warehouses are being used as the customer service and repair centers. This ensures
quick availability of spare parts and offers low turnaround time
 Distribution
The goods are dispatched to the dealers/distributors from the warehouse. The warehouse, thus,
performs functions like invoicing and order processing.
Warehouse
Stockpiling
Product
Mixing
Addition
Value
Distribution
Customer
service

61
 Value Addition
Increasingly, warehouses are also being used to do higher end tasks associated with production
till now. These include MRP tagging, promotion bundling, repackaging , quality checking etc.
 Product mixing
A warehouse may be used as a place where material from different factories of an
organization is mixed and dispatched to common set of distributors.
 Stockpiling
A warehouse is often used as a stockpiling location to manage demand-supply gaps over a
longer term.
While no organized players have evolved in this segment, several trends are driving the need for
a more professional and organized approach to warehousing. Figure outlines the several
additional functions that warehouses perform today, apart from being physical storage points
such as Stockpiling, Product Mixing, Value addition, Distribution and Customer Service. These
functions require different skill sets and hence, warehouse service providers today need to
develop proficiencies in a diverse set of both core and non-core activities
The size of the warehousing segment is estimated to be INR 1.2 trillion in 2006; while the
overall sector growth may be estimated to be around the GDP growth rate of 8-9 percent, the
organized portion of this market is estimated to be growing at over 20 percent.
A majority of players in this industry are small / medium entrepreneurs running the warehouse as
a CFA for one or more companies. As mentioned earlier, the scale of these warehouses was
never large enough to tap scale economies or justify investments in higher standards.

62
However, going forward, while implementation of the VAT regime is expected to drive
consolidation and hence larger scale warehouses, the rapid growth of organized retail is expected
to drive sophistication and efficiency in warehousing practices.
These developments would drive the need for specialized warehousing skills like picking and
packing, inventory management, proper handling practices including usage of warehousing
equipment like stackers, pallet trucks etc. and ability to understand and use warehouse
management systems (WMS)
GLOBAL LOGISTICS SCENARIO
In a move to cut down costs, producers are exploring around the globe in search for the lowest
cost exporters/suppliers. Lured towards developing countries in south-east Asian region for
lower-wages, transportation industry is stretching its reach longer than ever before. Major
players are focusing overseas markets for outsourcing cheap manufacturing as well as expanding
their businesses, This result in outbound logistics. And acceleration in manufacturing capacity is
driving many producers to shutter superfluous plants. The rest of the plants are gaining the
developing rhythm, but must export overseas now to sustain their positions in the market.
Boom in the Internet based services made overseas suppliers capable to match foot with local
suppliers. Web-based sales, services and supplies are emerging vertically. The expanding reach
has compelled logistic industry to spur cross-border trade. Regardless-of this outbreak of
activity, it is commonplace also for expert managers of local logistics to get acquainted with the
complexity of international trade logistics. Global transportation and relevant services includes
much complex documentation than for domestic shipments. It almost includes longer delivery
times. Evaluation of the arrival times of international shipments is just a magic than solid fact.
The business players always look for just-in-time shipments, thus it aspires enhanced build to
order model and lot-size-of-one shipments, which results more pressure on logistics industry.
Logistics industry has usually been old-fashioned traditions. Usually, the shipping personals

63
would decide for carriers, customs agents and so on. Normally, their search doesn’t go beyond
the initial service providers who cover all the minimum requirements. Once the shipment kicks-
off its journey towards its destination, it is really hard to assume reaching time. For example, a
ship that started its journey from Asia could meet harsh weather, which may delay its reaching
on the West Coast for three days. On the other hand, the trucks at the West Coast would have to
wait and sat empty and ideal for the three days, which would certainly result in big loss. These
kind of unpredictable losses are usual in international logistics. Thus, even the largest multi-
national companies avoided logistic services on a worldwide basis.
They opt to establish their operations in each country and let them to manage logistics
individually. The boom in Internet services changed international logistics rapidly. At present,
vendors can cater massive numbers of global shipments. Complying with this, they create and
uphold substantial databases, which cover country-specific laws and regulations. Factually,
thousands of combinations of containers, ports, and so on are likely counted for moving a
shipment. International logistics vendors also maintains cost and route information on hundreds
of hundreds carriers, which are operational in dozens of regions, which offers both lower freight
bills and cutting of delivery times.
A biggest disadvantage in international logistics is the vagueness in arrival times. Materials
managers have had modest choice, so they had get around by adding more safety stocks. Thus,
the costs of inventory management in the overseas parts are naturally higher. The uncertainty of
delivery time is due to not tapping of international shipments closely and step by- step. This is
easier said than done. However vendors are now offering tracking system, which is necessary in
continuous tracking of both international logistics network, and electronic visibility in each yard
and carrier. Although there is much to be done to achieve this stage, the pieces of the puzzle are
gradually coming together.
Even though vendors are offering a worldwide network, significantly added and dedicated,
equipment is still required. For example, tracking completed products needs a yard management
system, which recognizes each container in the yard and its placement. The radio frequency
Identification (RFID) tags in containers, whose place is detected by antennas located in the yard.

64
Maintaining the clear vision also needs tracking the containers as soon as they leave the yard.
This tracking is possible by Global Positioning (GPS) systems and satellites, however, use of
these systems are not usual at present. As a result, the industry does not provide step-by-step
tracking of container.
An important trend among logistics services providers would aid the industry. Logistics industry
veterans unveil that logistics service providers are extending reach worldwide and expanding
their services too. Regardless of understandable limitation, global logistics should obviously
improve. Web-based companies and technically ground-breaking carriers such as UPS Logistics,
Ryder, and others will carry on showing the way. Global logistics in near future should be distant
more faultless and reasonably priced than ever.
SIZE OF THE GLOBAL LOGISTICS INDUSTRY
Currently the annual logistics cost of the world is about USD 3.5 trillion. For any country, the
annual logistics cost varies between 9% and 20% of the GDP, the figure for the US being about
9%. US-based Armstrong & Associates, Inc. tracks the issues and trends in the world logistics
market and in the US logistics market, in particular, in their annual surveys of top 25 global
LSPs. According to the firm, the global logistics market sizes in 1992, 1996 and 2000 were USD
10 billion, USD 25 billion and USD 56 billion, respectively. In 2003 and 2004, the
corresponding figures were USD270 billion and USD 333 billion, registering high growth rates.
Though most of the large LSPs are headquartered in Europe, the US logistics market is the
largest in the world capturing one-third of the world logistics market. In 2003, it was about USD
80 billion.
In 2004, it grew to USD 89 billion, and in 2005, it registered an impressive growth rate of 16%
to cross the USD 100 billion mark for the first time and reach USD 103.7 billion (Foster and
Armstrong, 2004, 2005, 2006). However, considering the fact that the logistics market in the US
is about 10% of its annual logistics cost (Foster and Armstrong, 2006), there is still immense
potential for growth of 3PL in the US in particular, and in the world in general.
LOGISTICS COMPANIES OF INDIA

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