Market Logistics & Supply Chain Management

1. Chapter
15
Market Logistics & Supply Chain
Management
SDM – Ch 15
Tata McGraw Hill Publishing
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2. Logistics Defined
• Logistics means having the right thing, at
the right place, at the right time
• The science of planning, organizing and
managing activities that provide goods or
services – Logistics World, 1997
SDM – Ch 15
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3. Logistics
• Functions: planning, procurement,
transportation, supply and maintenance
• : science of planning, design and support of
business operations of procurement,
purchasing, inventory, warehousing,
distribution, transportation, customer support,
financial and human resources
SDM – Ch 15
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4. Scope of Logistics
•
•
•
•
•
•
•
•
Choice of markets
Procurement
Plant location and layout
Inventory management
Location and management of warehouses
Choices of carriers, mode of transport
Packaging decisions
Relevant to all enterprises: manufacturing,
Government, Institutions, service
organisations
SDM – Ch 15
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5. Input
•Natural
Resources
(land, facilities
Equipment)
•HR
•Finance
•Information
SDM – Ch 15
Logistics Activities
Customer service
Demand forecasting
Distribution
Communications
Inventory control
Materials handling
Order processing
Parts and service support
Plants and warehouse selection
Procurement
Packaging
Return goods handling
Salvage and scrap disposal
Traffic and transportation
Warehouse and storage
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Output
•Marketing
Orientation
(competitive
Advantage)
•Time and
Place utility
•Efficient move
to customer
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6. Logistics and SCM
• Logistics tends to focus on transportation and
distribution, SCM focuses on purchasing and
procurement, production planning, demand
management, from popint of origin to point of
consumption
• Supply chain management also logistics functions
plus purchasing,sourcing, procurement,
manufacturing operations, location planning,
• All activities and flows from point of origin to point of
comsumption of a materials
SDM – Ch 15
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7. Links and Flows
General material flow/ service flow
Information flow
Information flow
Customer’s
customer
Customer
Lead Firm
Supplier
Supplier’s
supplier
General cash flow
Outbound / Downstream logistics
SDM – Ch 15
Inbound / Upstream logistics
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Source: ICFAI
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8. Source: Michael Porter
The Value Chain
S
U
P
P
P
O
R
T
Company Infrastructure
Organisation, people, methods
margin
Systems & technology
Procurement
Inbound
Operations
logistics
Outbound Marketing
logistics
& sales
Service
margin
SDM – Ch 15
Tata McGraw
Primary activities Hill Publishing
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9. Inbound and outbound
logistics
• Inbound logistics
• Receiving storing issuing inputs and
taking care of materials handling,
inventory control, scheduling for
production,
• Interface with company’s suppliers,
vendors and other service providers
SDM – Ch 15
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10. • Outbound logistics
• Distributing finished goods to dealers/
stockists/customers
• Interface with copmay’s customers
SDM – Ch 15
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11. Logistics Focus Areas
Customer service related
Packaging
Order processing
Spare parts and service support
After sales Customer service
support
Demand forecasting
Distribution communications
Return goods handling
Operations related
Plant and warehouse site
location
Procurement
Inventory control
Materials handling
Salvage and scrap disposal
Traffic and transportation
Warehousing and storage
Logistics may be confined to the company whereas SCM extends beyond
SDM – Ch 15
Tata McGraw Hill Publishing
11

12. Supply Chain Management
• Business context:
–
–
–
–
Globalization of the market place
Advances in technology
Increasingly demanding, informed customer base
Purchase decisions on dimensions of quality, price
and time
• Innovative supply chain:
–
–
–
–
To meet customer driven challenges
To reduce costs
Improve service levels
Enhance speed to market
SDM – Ch 15
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13. Supply Chain Integration
Customer Analysis
Order Fulfillment
Purchasing/Supplier
Partnering
Storage &
Transportation
Integrated
Supply Chain
Management
Demand & Lead
Time Management
Manufacturing/
Re-manufacturing/
Assembly
SDM – Ch 15
Inventory Management and
control
Materials
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Management
Inventory management…
13

14. • Inventory Management
SDM – Ch 15
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15. Why Carry Inventory?
• Support production requirements
• Support operational requirements
• Maximize customer service – ensure
availability when needed – protect
against uncertainty
• Hedge against marketplace uncertainty
• Take advantage of order quantity
discounts
SDM – Ch 15
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16. Factors Which Drive Inventory
• Target service level parameters
• Lot sizing practices
• Safety stock and safety time
conventions
• Volume discounts and purchase
arrangements
• Seasonal build up needs
SDM – Ch 15
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17. Categories of Inventory
• Anticipation – built in anticipation of future
demand – peak season, strike, promotion
• Fluctuation (safety) – to cover random,
unpredictable fluctuations in supply and
demand and lead time – to prevent disruption
in operations, deliveries etc
• Lot-size – to take advantage of quantity
discounts, reduce shipping, set up and
clerical costs – also called cycle stock
SDM – Ch 15
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18. Categories of Inventory
• Transportation – pipeline or movement
inventories – to cover the time needed to
move from one point to another – factory to
distribution point for example
• Hedge – for materials where prices are
volatile
• Maintenance, repair and operating supplies
(MRO) – to support M and O – spare parts,
lubricants, consumables etc
SDM – Ch 15
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19. Performance Measures
• Inventory turns = Annual cost of goods
sold /average inventory in value
• Days of sales = inventory on hand /
average daily sales
SDM – Ch 15
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20. Types of Classification
• ABC category – most common for all
• HML - high, medium, low - similar
• FSND – fast moving, slow moving, nonmoving, dead – spare parts / FG
SDM – Ch 15
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21. ABC Inventory Analysis
• Based on Pareto’s law:
– A – 20% items worth 80% of value
– B – 30% items worth 15% of value
– C – about 50% items account for 5% of the usage
• Classify items based on the above criteria
• Apply degree of control in proportion to the
importance of the group
SDM – Ch 15
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22. Inventory Related Costs
• Unit costs – basic value of the item carried
• Ordering costs – generating and sending a
material release, transport, any other
acquisition costs
• Carrying costs – capital, storage,
obsolescence
• Stock-out costs
• Quality costs – non-conforming goods
• Other costs – duties, tooling, exchange rate
differences etc
SDM – Ch 15
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23. Approaches for Controlling
Inventory
• Continuous review:
– Safety stocks and forecasting methods
– Excess and obsolete inventory
• Part simplification and re-design
• On-site supplier managed inventory
• Use of supply chain inventory management
systems, Materials Requirement Planning,
Distribution Requirement Planning etc
• Automated inventory tracking systems
• Supplier – buyer cycle-time reduction
Warehouse management…
SDM – Ch 15
Tata McGraw Hill Publishing
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24. Functions
Warehouses
Material
handling
Customer
service
Information
transfer
Receive goods
Identify goods
Sort goods
Despatch to storage
Hold inventory
Recall, select goods
Marshal the shipment
Despatch the shipment
Prepare records and
advices
SDM – Ch 15
Storage
function
Temporary
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Permanent
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25. Purpose of Warehousing
• To provide desired level of customer
service at the lowest possible total cost
• It is that part of the firm’s logistics system that
stores products (RM, Packing Materials, WIP,
FG) at and between point of origin and point
of consumption and provides info to
management on the status, condition and
disposition of items being stored
• Distribution warehousing relates mainly to FG
SDM – Ch 15
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26. Warehouses
• Support manufacturing
• Mix products from multiple facilities for
shipment to a single customer
• Break-bulk
• Aggregate
• Used more as a ‘flow-thru’ point than as
a ‘hoarding’ point
SDM – Ch 15
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27. Distribution Warehousing
• The objective is to set up a network of
warehouses closest to the customer
locations to service markets better and
minimise cost
• Could be C&FA s, depots or distribution
centers
• Macro location strategies:
– Market positioned
– Production positioned
– Intermediately positioned
SDM – Ch 15
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28. Transportation
• Very important in the Logistics function:
– Movement across space or distance adds value to
products
– Transportation provides time and place utility
• Role of transportation includes:
– Provides opportunity for growth under competitive
conditions
– Deeper penetration into markets
– Wider distribution means greater demand
– Can influence product prices favourably
SDM – Ch 15
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Principles….
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29. Transportation Principles
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Continuous flow
Optimise unit of cargo - stackability
Maximum vehicle unit – capacity utilization
Adaptation of vehicle unit to volume and
nature of traffic
Standardisation
Compatibility of unit load equipment
Minimum of dead weight to total weight
Maximum utilization of capital, equipment and
personnel
SDM – Ch 15
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Process….
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30. Comparison of modes……
Reverse Logistics
• Movement of goods from the market or
customer back to the company
• The need:
–
–
–
–
Increased awareness of the environment
Stringent legislation
For some it is part of the business
Profitability of dealing with scrap, surplus
• Surplus, obsolescence can result due to:
– Over optimistic sales forecasts, change in product
specs, errors in estimating material usage, losses
in processing or overbuying based on incentives
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31. Advantages of Rail
• Economy – more so for goods over
long distances
• Efficiency of energy
• Reliability – not affected by weather
conditions
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32. Disadvantages
• Uneconomical for small shipments and
short distances
• Not suitable for remote stations
• Costly terminal handling facilities
• Inflexible time schedules
Road transport…..
SDM – Ch 15
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33. Road Freight Advantages
• Through movement – direct from consignor to
consignee, no transshipment
• Flexibility – routes and loading routines can
be easily altered, operate day and night
• Less capital costs – for own fleet + immunity
from industrial action
• Fast turn-around – if articulated units like
tractors and trailers are used
• Minimum delays
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34. Disadvantages
• Susceptibility to weather and road conditions
– in spite of the best protection
• Unsuitability for heavy loads – rail transport
more economical for bulk loads
• Unsuitability for long distances – again the
rail telescopic rates are more favourable
Air transport….
SDM – Ch 15
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35. Air Transport Advantages
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•
•
•
•
Faster mode
Reduction in cost particularly inventory
Broad service range
Increasing capabilities
Disadvantages:
– High cost
– Weather affects flight conditions
– Limitations on heavy consignments
SDM – Ch 15
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Water transport……
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36. Water Transport
• Advantages:
– Mass movement of bulk
– Lowest freight cost
– Preferred for long haul of low value commodities
• Disadvantages:
– Not for quick transit
– Suitable for certain types on commodities only
Pipeline….
SDM – Ch 15
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