Understanding Logistics and Supply Chain Management

Q. Explain the components of
logistics.

Q. What are the factors affecting
logistics ?

Q. What is the goal of supply
chain management ?

Q. Explain about the paradim exist in
supply chain management.

Q. What is modularization in supply
chain management?

Q. What is modularization in supply chain
management?
• Modularizaton in supply chain management is a method of working
with suppliers to deliver products in a shorter time frame.
• Standardisation is essential to modularisation because it helps
simplify the complexity and bring uniformity.
• Modularisation helps to achieve homogeneity – a condition where
products and services start looking more and more similar.
Homogeneity, in turn, encourages substitution and/or switching
between suppliers and hence commoditisation of the relevant
market. This essentially leads to falling prices and growing volumes.

Q. What is the role procurement
in supply chain management ?

Q. What is the role procurement in supply
chain management ?
• Procurement means obtaining some things or services with
optimization of cost, time, space, other factors depends upon
requirement.
• In supply chain it's one the of very important things. As supply chain
consist of numerous chains at various points procurement needs
are different and different specialist may require at different point.
• For e.g. In supply chain of chemical industry for procurement of
raw materials can be performed by some chemical engineer but for
decision of it's logistics, transporter/shipping vendor will be
performed by other person having knowledge of shipping. The
procurement at warehouse activities (repacking, labelling, storing,
safety etc.) might be done by some other specialist.
• So procurement may look like small part of SCM but it occur at each
chain and is of great significance.

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Procurement
• Concerned with purchasing and arranging in-
bound movement of materials, parts, and/or
finished inventory from suppliers to
manufacturing or assembly plants ,
warehouses, or retail stores thereby ensuring
availability of materials/ assortments where
and when needed. -Inbound logistics.
• In a given marketing situation, manufacturers’
physical distribution is same as retailers’
procurement operations.

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Procurement Performance Cycles
Sourcing Order placement and
Expediting
S
U
P
P
L
I
E
R
S
TransportationReceiving

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• The procurement operations are identified as
inbound logistics.
• International procurement often requires large
shipments necessitating the use of barges, ocean
going vessels, trains and multiple truckloads for
transportation.
• The lower value of materials and components as
compared to finished product implies greater trade-
off between higher cost of maintaining inventory in
transit and the use of low cost modes of transport.
• As the cost of maintaining inventory in the pipeline
is less per day than the cost of maintaining finished
inventory, there is no benefit for paying higher
freight rates for faster inbound transport.

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• Procurement performance cycles are
invariably longer excepting in those cases
where the value of material or component
may justify paying higher freight rates for
faster inbound transport.
• A critical issue in procurement is uncertainty
in respect of price change, and/or supply
discontinuity.

Q. What is the role of distribution
management in supply chain
mmanagement?

• The "new" supply chain and distribution channel has several key
components, which fall under the supply chain management
"umbrella."
• These components include:
1. Distribution--the physical logistics of moving inventory along a
chain of distribution.
2. Inventory management--the entities that control how much is
moved and where it is stored.
3. Customers--identifying who the "real" customers are and keeping
their loyalty despite all of the changes to the supply chain and
distribution channel.

Q. What is the Difference Between
Logistics and Supply Chain
Management?

Q. What is the Difference Between Logistics
and Supply Chain Management?
• Logistics typically refers to activities that occur within
the boundaries of a single organization and supply
chains refer to networks of companies that work
together and coordinate their actions to deliver a
product to market.
• Also, traditional logistics focuses its attention on
activities such as procurement, distribution,
maintenance, and inventory management.
• Supply Chain Management (SCM) acknowledges all of
traditional logistics and also includes activities such as
marketing, new product development, finance, and
customer service

Q. How do we define supply
chain?

37
How do we define supply chain?
• A network of organizations that are having
linkages, both upstream and downstream in
different processes and activities that
produce and deliver value in the form of
products and services in the hands of
ultimate consumer.
Customers Retailers Shirt Manufacturer
Weavers
of Fabrics
Yarn/Fibre
mfrers
Downstream Upstream

Q. What is the influence of
network in supply chain ?

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Network Design
• Network design is the prime responsibility of
logistics managers since a firm’ facilities and
structure is used to provide products and materials
to the customers.
• Logistics facilities typically include manufacturing
plants, warehouses, cross-dock operations, and
retail stores.
• Determining the number and type of facility
required, their geographic locations, and the work
to be performed at each is an important part of
network design.
• In certain situations, some of the facility operations
may be outsourced to service specialists.

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• Network design determines the type of the
inventory and the quantity to be stocked at
each facility, and the assigning of customer
orders for shipment.
• Network of facilities also includes information
and transportation as a part of entire structure
from where logistical operations such as
processing of customer orders, maintaining
inventory and material handling are
performed.
• The network design must consider
geographical variations.

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• The factors influencing modifications of
network design are:
(a) Change in demand and supply
(b) Product assortments
(c) Changes in suppliers’ source of supplies.
(d) Manufacturing requirements.
• The first step towards achieving competitive
advantage lies in superior network design,
as the real competition is not between two
companies but between efficiency and
effectiveness in managing their supply
chain network.

Q. What is the influence of distribution
in supply chain management?

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Physical Distribution
• Establishes linkage of marketing channel with its
customers facilitating the movement of a finished
product to the final destination of a marketing
channel.
• Would need a proper marketing effort resulting into
desired assortment being delivered when and where
needed.-Outbound logistics.
• Fulfills objective of implementation of time and
space dimension of customer service as an integral
part of marketing.

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Physical distribution performance
cycle
Customer orderOrder transmissionOrder processing
Order selection Order transportation Order delivery
to the customer

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Significance of physical distribution
performance cycle
• As it links a firm with its customers, it helps create
marketing and manufacturing initiatives into an
integrated efforts.
• It resolves conflicting interface between marketing &
manufacturing.
- As marketing is dedicated to delighting customers, it
would like to maintain broad product line with high
inventory regardless of each product’s profit
potential. By doing so, any customer's requirement,
no matter how small or large would be satisfied.

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- Traditional mindset in manufacturing is to
control cost, which is achieved by long
production runs. Continuous manufacturing
processes maintain economies of scale and
reduce per unit cost. Therefore, a narrow line
of products is mass produced.
- Inventories are kept to resolve the inherent
conflict between these two philosophies.
- The above is achieved by forward deployment
of inventory throughout the logistical system
in anticipation of future sales on the basis of
forecasted information.

Q. How to reduce physical
distribution operational variance ?

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How to reduce physical distribution
operational variance
• Improve accuracy of forecast
• Improve order management and coordination
with the customers.
• Have responsive and flexible cycle.

Q. Explain PLC in supply chains ?

PLC Stages
• The new product development stage. This stage is very expensive for the
enterprise. The company experiences a lack of sales revenue and sustains
considerable losses that are commensurate with the scale and complexity
of the product to be launched.
• The introduction to the market stage. This period in the product lifecycle
is very costly, with relatively low volume and continued losses again within
the scale of the effort.
• The stage of growth. This stage is marked by a gradual reduction of
economies of scale, with a step-by-step increase in sales (assuming a
successful product), and the emergence and increase of profit.
• The mature stage. The mature stage is defined by very low costs. Sales of
the product are at a peak. A reduction in the product's price—possibly
through competitive pressures—and significant profitability can be seen.
• The stage of decline. This stage shows a reduction in sales, a continued
drop in prices, and a subsequent reduction in profit.

Q. Explain manufacturing
strategy stages in supply chain.

Decision Phases of a Supply Chain
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation

Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and what
processes each stage will perform
• Strategic supply chain decisions
– Locations and capacities of facilities
– Products to be made or stored at various locations
– Modes of transportation
– Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and expensive to
reverse – must take into account market uncertainty

Supply Chain Planning
• Definition of a set of policies that govern
short-term operations
• Fixed by the supply configuration from
previous phase
• Starts with a forecast of demand in the coming
year

Supply Chain Planning
• Planning decisions:
– Which markets will be supplied from which
locations
– Planned buildup of inventories
– Subcontracting, backup locations
– Inventory policies
– Timing and size of market promotions
• Must consider in planning decisions demand
uncertainty, exchange rates, competition over the
time horizon

Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating policies
are determined
• Goal is to implement the operating policies as effectively
as possible
• Allocate orders to inventory or production, set order due
dates, generate pick lists at a warehouse, allocate an order
to a particular shipment, set delivery schedules, place
replenishment orders
• Much less uncertainty (short time horizon)

Decisions in Planning Supply Chain:
Forecasting the demand for the coming year
Which markets will be supplied from which locations?
The inventory policies to be followed
The timing and size of marketing and size of marketing and pricing
promotions

Steps in Supply Chain Operations:
Set delivery schedules of trucks
and placing orders
Allocate a particular order to particular shipping mode
or shipment
Generate pick lists at a warehouse
Set a date that the order to be filled.
Allocate inventory or production to individual orders.

What are the factors affecting
supply chain?

Q. What are the types of models
in supply chain?

Management Information System 65
Modeling for SCM
• Forecasting Models
- These models allow prediction of demand based on past data or
other parameters that are independently available. They enable
better planning, given the lead-time necessary for response.
• Location Models
- These models identify the optimal location of facilities such as plants
and warehouses, considering the inbound and outbound transportation
costs as well as the fixed and variable costs of operation at the
locations under consideration. These are usually formulated as
Mixed Integer Programming Models.

Modeling for SCM (cont’d)
• Distribution Network Design Models
- These models are usually comprehensive in nature, deciding
between two, three and even four stages of distribution
network, location of warehouses and break-bulk points, and
sometimes even the transportation.
• Allocation Models
- These models help in optimally allocating commodities from
sources to destinations in a multi-source, multi-destination
environment. The costs considered for optimisation are
production costs and warehousing costs. The constraints
considered can be due to demand, capacity, route restrictions,
etc.

• Inventory Models
- Inventory plays a major role in SCM.
- Inventory can be of various types such as:
- Batching and shipment inventories
- Buffer stocks to take care of uncertainties
- Pipeline inventory ( primary and secondary
transportation )
These models minimize the total relevant cost, based on trade-offs
among, inter alia, inventory carrying cost, ordering cost, stock-out cost,
transportation cost, taxes & duties, etc.

• Routing Models
- These models allow optimal routing on a
transportation network from a given source to a
destination. The models used are the Shortest Path
Problem, the Traveling Salesman Problem and the
Vehicle Routing Problem. Decision Support Systems
that interactively use the expertise of the decision maker by
providing graphical support through a map (i.e., using a
Geographical Information System ) are also very
useful in such decisions.

• Scheduling Models
- These models enable allocation of resources to particular
activities. Depending on the criteria of interest and the
number of resources, the models are of aid in evaluating
appropriate rules for allocation.
• Alternative Analysis
- This model simply proposes the identification of
alternatives, criteria for decision making and analysis of the
alternatives across the criteria to arrive at the best choice.
Formal approaches such as simulation and analytic hierarchy
process could be used in assessing the implications of the
criteria.

Q. Explain about the evolution of
supply chain management.

Evolution of SCM
Stage 1: Vendor – Purchase – Production -
Distribution – Retailer
Stage 2: Materials Management -
Logistics Management
Stage 3: Supply Chain Management

Procurement
Planning
Manufacturing
Planning
Distribution
Planning
Demand
Planning
Sequential Optimization
Supply Contracts/Collaboration/Information Systems and DSS
Procurement
Planning
Manufacturing
Planning
Distribution
Planning
Demand
Planning
Global Optimization
Sequential Optimization vs.
Global Optimization

Q. Explain about supply chain
integration.

Introduction
Supply chain integration is a close alignment and coordination
within a supply chain, often with the use of shared management
information systems.
REASON BEHIND USING SCI
 Reduce time to market
 Reduce cost
 Increase service level
 Reduce the bullwhip effect
 Better utilization of resources
 Effectively respond to changes in the market place
 Managed Inventory

Types of using SCI
 Manually
 Technology (Through Software)
Reason Behind Using Software
 Total asset visibility
 Enhanced system Integration
 Effective collaboration

Types of SCI Strategies
PUSH STRATEGY
PULL STRATEGY
PUSH-PULL STRATEGY

PUSH STRATEGY
 Production decisions based on demand
forecasts.
 Manual purchase orders and invoices are
employed.
 Ordering decisions based on inventory &
forecasts.
Challenges
 Forecast is rarely accurate as it is futuristic.
 Difficult to predict customer demand for a long period .
 Bullwhip effect.
Ex: cold drinks

PULL STRATEGY
 Production is demand driven.
 Coordinated with true customer demand rather than
forecast demand
 Faster information flow & acuuracy mechanisms
are used.
 Distribution facilities are transformed from
storage points to coordinators of flow.
Ex : Wal-Mart (using Automated Inventory Tracking )
Dell
Challenges
 Harder to take advantages of economics.
 When lead times are long that it is impractical to
react to demand information.

Push Type Pull Type
Initiated by supplier Initiated by customer orders
Demand is forecasted Work on actual demand
Respond to Speculated forecast Reactive to customer forecast
Require information for material
planning & master production
Information on actual demand is
transmitted throughout the entire
chain.

PUSH-PULL STRATEGY
It’s a two-in-one strategy using both push & pull strategies in
different stages of supply chain.
Back end process are operated in push manner & front end
process are operated in pull manner.
Ex : Dell computers.

Strategy Implementation
Depending upon the time line the company implement the
push-pull strategy at various stages of SC.
Example :
M&M company
Collaboration : is a process of decision making among
interdependent parties in the supply chain.

Internet & SC Integration
Reasons behind Internet in SC Integration :
In internet along with buying & selling servicing
customer & collaborating with business partners is
done with ease & speed.
IT helps business firm to redefine their Business model
to improve enterprise performance.
To gain the competitive advantages.

E-business SC integration
Information Integration
Synchronized Planning
Workflow Coordination
New Business Models

CPFR ( Collaborative Planning Forecasting & Replenishment )
A software systems allows retailers & manufacturer to share
information on past sales , future price & promotion measure .
Benefits of using CPFR
Improvement in sales.
System efficiency.
Cash Flow.
Return-on-asset (ROA) performance.

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Principals of Logistics Information
• Information flow is a key element of logistics information.
• The common forms of logistics information are:
- Customer and replenishment orders
- Inventory requirements
- Warehouse work orders
- Transportation documentation
- Invoices.
• Traditional paper-based information flow results in slow,
unreliable, and error-prone information transfer thereby
increasing operating cost and decreasing customer
satisfaction.
•

87
• As technology costs are declining and usage is
easier, logistics managers are managing
information electronically at reduced logistics
expenses with increased coordination resulting in
enhanced services by offering better information
to customers.
• The specific technologies include electronic data
interchange (EDI), personal computers, artificial
intelligence, wireless communications,bar coding
and scanning.

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• For effective logistics information, timely and
accurate information flow is critical because of
the following three reasons.
(1) Customers perceive that information about
order status, product availability, delivery
schedule and invoices is necessary element of
total customer service.
(2) Information can reduce inventory by minimizing
demand uncertainty.
(3) Information facilitates allocation of resources for
achieving strategic advantage.

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Information Functionality
• Logistics information system links logistics
activities into an integrated process that is
built on the following four levels of
functionality.
1. Transaction system
2. Management control
3. Decision analysis
4. Strategic planning

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Transaction system:
• Initiates and records the individual logistics
activities in a sequence as given under:
1. Order entry
2. Inventory assignment
3. Order selection
4. Shipping
5. Pricing
6. Invoicing
7. Customer inquiry

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Customer order
receipt
Inventory assigned
to the order
Directing material
handlers to
select the order
Movement, loading
and delivery of order
Printing of
invoice for
payment

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Management control
• Focuses on performance measurement and
reporting.The common performance
measures include:
1. Financial
2. Customer service
3. Productivity
4. Quality
• A few examples are:
(a) Transportation and warehousing cost per kg.-
Cost measure
(b) Inventory turnover-Asset measure

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(c) Case fill rate-Customer service measure
(d) Cases per labour hour-Productivity measure
(e) Customer perception-Quality measure.
Decision analysis
• Vehicle routing and scheduling
• Inventory management
• Facility location
• Operational trade-offs and arrangements
e.g. vertical integration versus third party
outsourcing.

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Strategic planning
• Strategic alliances with various value chain
members.
• Development of firm capabilities and
scanning market opportunities.
• Customer responsiveness to improved
services.

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Principles of designing LIS
applications
• The principles underlying the designing of
logistics information systems applications are:
1. Availability
2. Accuracy
3. Timeliness
4. Exception-based LIS
5. Flexibility
6. Appropriate format

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1. Availability
- Rapid availability of information is extremely
necessary to respond to customers and improve
management decisions.
- Customers frequently need quick access to
inventory and order status information regardless
of managerial, customer, or product order location.
- Many times it warrants the need for decentralized
logistics operations so that information system is
capable of being accessed and information
updated from anywhere in the country or even the
world.
- Information availability reduces substantially the
operating and planning uncertainty.

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2. Accuracy
- Logistics information must accurately reflect
both current status and periodic activity for
customer orders and inventory levels.
- ‘Accuracy’ is the degree to which LIS reports
match actual physical counts or status.
- In case of low consistency between physical and
information system inventory levels, buffer stock
becomes necessary to accommodate the
uncertainty.
- Increased information accuracy reduces
inventory requirements.

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3. Timeliness
- Timeliness refers to the delay between the occurrence
of an activity and the recognition of that activity in the
information system.
- Logistics information must be timely to provide quick
management feedback.
- Timely information reduces uncertainty and identifies
problems, thus reducing inventory requirements and
increases decision accuracy.
- When a continuous physical product flow may exist
such as “work in process” to “finished goods”,
information system providing inventory status may be
updated on an hourly, shift, or daily basis.
- Real time or immediate updates are timelier but result
in increased record-keeping efforts.

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4. Exception-based LIS
- LIS should be strongly exception oriented and utilized
to identify decisions that require management
attention, particularly in respect of very large orders,
products with little or no inventory, delayed
shipments, and declining operating productivity.
5. Flexibility
- LIS must be able to provide data tailored to meet the
requirements of a specific customer.
- For example, some customers may want invoices
aggregated across certain geographic boundaries or
divisions or retailer.
- Retailer ‘A’ may want individual invoices for each
store, while Retailer ‘B’ may desire an aggregated
invoice that totals all stores.

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6. Appropriate Format
- Logistics reports and screens must contain right
information in the right structure and sequence.
- For example, LIS showing a distribution centre
inventory status with one product and one
distribution centre listed per screen.
(a) This format will require customer service executive
check inventory status at each distribution centre
when attempting to locate inventory to satisfy a
specific customer order.
(b) This implies that if there are five distribution
centres, a review and comparison of five computer
screens is required.

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(c) Appropriate format would provide a single screen
with inventory status for all fve-distribution centres.
(d) The combined screen makes it much easier for a
customer service executive to identify the best source
for the product.
(e) This can be considered as an appropriate format as
one single screen or report contains and effectively
presents all relevant information for a decision maker.
- An effective format should integrate past and future
information regarding on hand inventory, demand
forecast, and planned receipts for each single tem at a
distribution centre.

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Logistics Information Systems
Planning & Coordination
Flows
-Capacity Plan
-Logistics Plan
-Manufacturing Plan
-Procurement Plan
Operating Flows
-Order management
-Order processing
-Distribution operations
-Transport & shipping
-Procurement

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A. Planning & Coordination Flows
- Capacity Plan
• Developed keeping in mind the internal and external
manufacturing , warehousing, and transportation
resources.
• For each product, capacity plans determine the
“where”, “when” and “how much” for production,
storage, and movement.
• Capacity problems can be resolved either by
resource acquisition or alliances i.e. contract
manufacturing or facility leasing.
• Estimating production capacity requirements
through prior scheduling or contract manufacturing
helps in managing capacity constraints.

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• Postponement of production or delivery i.e. by
delaying production and shipment until specific
requirements are known and capacity can be
allocated is another method of solving such
problems.
• Sometimes, it may become necessary to offer
customer incentives such as discounts or
allowances in order to postpone delivery.
• Capacity constraints have a major influence on
monthly or weekly production for each
manufacturing location.

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- Logistics plan
• The future logistics requirements are based on
forecasts, customer orders and sales promotions.
• The forecasts are based on sales and marketing
inputs in conjunction with historical activity levels.
• Customer orders include current orders, future
committed orders, and contracts.
• Mathematically, logistics requirements can be
computed as
Forecasts(sales/marketing inputs, historical trends)
+ Customers orders(current orders, future
committed orders, contracts)+ Promotions(sales
promotion, advertising)= Period demand –
Inventory on hand- Planned receipts = Period
logistics requirements.

106
• Logistics requirements must be integrated with
both capacity constraints and manufacturing
requirements to achieve the best performance.
- Manufacturing Plan
• Facilitate scheduling of production resources and
resolve day-to-day capacity bottlenecks within the
materials management system.
• Primarily, bottlenecks may result from raw
materials shortages or daily capacity limitations.
• Manufacturing requirements determine the
master production schedule (MPS),
manufacturing requirement plan and
consequently material requirement plan(MRP-
I/II).

107
• MPS defines weekly or daily production and
machine schedules, whereas MRP coordinates
the purchase and arrival of materials and
components to support the manufacturing plan.
• Both logistics requirements and manufacturing
requirements must operate in parallel.
- Procurement Plan
• Procurement plan schedules material releases,
shipments, and receipts.
• The requirement schedule is used for purchase
negotiations and contracting.

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B. Operating Flows
Operating flows include the information
activities required to receive, process, and
ship customers orders and to coordinate the
receipt of purchase orders. These include:
1. Order management
2. Order processing
3. Distribution operations
4. Transportation and shipping
5. Procurement

109
- Order management
• Involves entry and maintenance of customer
orders using communication technologies
such as mail, phone, fax, or EDI.
• Offers information regarding inventory
availability and delivery dates to establish and
confirm customer expectations.
• Order management in combination with
customer service representatives form the
basic interface between the customer and
enterprise LIS.

110
- Order processing
• Involves assigning and allocating available inventory
to customer and replenishment orders.
• Allocation may take place on a real time basis or
batch mode.
• Batch mode means orders are grouped for periodic
processing, such as day or shift.
• Order processing also includes selection of order
from distribution centre or warehouse and pack it
for shipment.
• Order processing also includes selection of order
from distribution centres or warehouses and pack it
for shipment.

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- Distribution operations
• Distribution operations must have synergy with
inventory control and warehousing systems.
• LIS in distribution operation would include product
receipt, material movement, and storage and order
selection.
• In a batch environment, LIS guides tasks done by
each material handler handling forklifts, pallets etc in
the warehouse.
• In a real-time time environments, the technologies
like bar coding, automated handling equipment are
used to reduce time elapsed between the decision
and action.

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- Transport and shipping
• The activities include shipment planning,
scheduling, shipment consolidation, transport
documentation generation, and carrier
management.
• Historically, transportation and shipping
emphasizes generation of documentation and
rate generation.
• Modern LIS in transportation and shipping
lays more stress upon auditing, routing and
scheduling, invoicing, reporting and
performance monitoring.

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- Procurement
• Includes management of purchase order
preparation, amendment, release, vendor
evaluation and vendor rating.
• Procurement LIS must be able to track and
coordinate material receipt, facility capacity,
inbound and outbound movements, and
performance measurement.

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Application of Information
Technology
The specific technologies that have widespread
use in logistics are:
1. Electronic Data Interchange (EDI)
2. Personal Computers
3. Artificial intelligence
4. Communication technology
5. Bar coding and scanning

115
1. Electronic Data Interchange
• Intercompany computer-to-computer
exchange of business documents in standard
formats.
• Determines capability of communicating
information between two organizations
electronically instead of traditional mail,
courier or even fax.
• LIS would consist of real time data on
inbound material flows, production status,
product inventories, customers’ shipments
and incoming orders.

116
• Can be visualized in two different perspectives viz.
external perspective and internal prospective.
(a) External perspective includes need to communicate
order shipment and billing information with vendors,
financial institutions, transport carriers, and
customers.
(b) Internal perspective includes exchange of information
on production schedule and control data.
• Benefits of EDI are:
(a) Increased internal productivity though faster
information transmission as well as reduced
information redundancy.
(b) Better accuracy by reducing the number of times and
individuals involved in data entry.
(c) Improved channel relationship.
(d) Increase ability to compete internationally.

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(e) Reduced labour cost associated with
printing, mailing, and handling paper-based
transactions, telephone and other clerical
activities.
2. Personal computers
• Low cost and high portability with a capability
of bringing accurate and timely information to
the decision maker whether in office, at the
warehouse, or on the road.
• Responsiveness and flexibility offered by
decentralized PCs results in more focused
service capability.

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• The use of LAN , WAN and Client/server
architecture offers benefits of decentralization,
responsiveness and flexibility throughout the
enterprise.
• The client/server network can globally track
inventory in motion,provide shipment
information to the customers when desired and
also facilitate decisions regarding facility
location, inventory analysis, routing and
scheduling.
• The decisions are invariably in respect of
(a) Which markets to serve?
(b) Which product to pick next in the warehouse?

119
(c) Driver reporting and deliver information.
(d) Reporting vehicle location
(e) Identifying lowest-cost fuel stop.
3. Artificial Intelligence
• Aimed at making computers imitate human
reasoning and are more concerned about
rationalizing rather than numeric processing.
• The applications are:
(a) Carrier selection
(b) International marketing & logistics
(c) Inventory management

120
4. Communication technology
• Application of radio frequency, satellite
communications, and image processing
technologies can relate quickly to the product
movement and decentralization.
(a) Radio frequency:
- used within relatively smaller areas such as
distribution centres to facilitate two-way
information exchange
- Real-time communication with material
handlers such as fork lift drivers and order
selectors.

121
- Updating instructions and priorities to fork lift
drivers on real time basis.
(b) Satellite communication
- Useful for providing a fast and high volume
information around the globe.
- Communication dishes on the top of vehicles
allow communication between driver and
shippers.
- Provides up-to-date information regarding
location and delivery and allows dispatchers
to redirect trucks in response to need or
traffic congestion.

122
- Used by the retail chains to transmit quickly daily sales
to headquarters that helps in activating store
replenishment and also to provided input to marketing
regarding local sales pattern.
(c) Image processing
- Relies upon fax and optical scanning technology.
- Used in transmission of fright bill information
- Proof of delivery receipt
- Bills of lading.
• As the consignment gets delivered to customers,
supporting documents are sent to image processing
locations where it is electronically scanned and logged
onto the system.

123
• Electronic images of documents are then
transmitted to main data centre where they
are stored on optical laser disk and customers
can access the documents through computer
linkages or phone call to the service
representatives.
• As the customers experience the competitive
benefits of real time information transfer, there
will be increase demand for this
communication technology.

124
Warehousing
• The primary purpose of a warehouse management is
to control the movement and storage of materials
within an operation.
• Warehousing can be viewed as a place to store
inventory as well as a facility for switching the
inventory.
• Warehousing is becoming significant to achieve the
following objectives:
- To reduce inventory
- To reduced labour costs
- To increase storage capacity
- To increase customer service
- To increase inventory accuracy.

125
• Typically, the warehouses received
merchandise by rail or road and the materials
were moved manually to a storage area within
the warehouse and piled up on the floor in
stacks manually.
• Due to above, though different products were
stored in the same warehouse it was difficult to
identify the merchandise with respect to a
particular order.
• On the receipt of the customer orders,
products were handpicked and placed on the
wagons and these wagons were pushed out of
shipping area.

126
Role of Warehousing in Logistical
System
• Provision of strategic storage, though an effective
distribution system should not have the necessity
of inventory for an excessive length of time,
sometimes storage becomes inevitable.
• Acting as a switching facility
• Provision of economic and service benefits.

127
Economic Benefits
Consolidation Break-bulk Cross-docking Postponing
Stock
piling

128
Consolidation
Plant A
Plant B
Plant C
Consolidation
warehouse
Customers
A B C

129
• The benefits and features are
- Realization of lowest possible transportation
rate.
- Reduction of congestion at a customer’s
receiving dock.
- Manufacturing plants can use warehouse as a
forward stock location or as sorting and
assembly facility.
- Combines the logistical flow of small
shipments to a specific market area.
- A single firm may use consolidation
warehousing or a number of firms may join
together and hire the consolidation service.

130
Break-bulk
Plant A Break-bulk warehouse
Customer A
Customer B
Customer C

131
• Break-bulk operations receive combined
orders from manufactures and ships them to
individual customers.
• Break-bulk warehouse splits individual orders
and arranges for local delivery.
• Cross-dock facility is similar to break-bulk
except that it involves multiple
manufacturers.
• In transit-mixing and release as well as
manufacturing support are also included in
cross dock facility.

132
Cross-docking
Company A or Plant A
Company B or Plant B
Company C or Plant C
Distribution
centre
Customer A
Customer B
Customer C

133
In Transit mixing and release
Plant A
Plant B
Plant C
Warehousing
Transit
mixing
point
Product D
Customer X
Customer Y
Customer Z
Customer W

134
Manufacturing Support
Vendor A
Vendor B
Vendor C
Manufacturing
warehouse
Assembly
plant

135
• The features and benefits of cross-dock
facilities are:
- The full trailer loads of product arrive from
multiple manufacturers and as the product is
received it is sorted and allocated to
customers.
- The product is then moved across the dock to
be loaded onto the trucks destined for
appropriate customer.
- The trucks are then transported to retail
outlets once the same have been filled with
the mixed product from multiple
manufacturer.

136
Warehouse Design
• Principles to be considered in warehousing
designing are:
1. Design criteria
2. Handling technology
3. Storage plan
A. Design criteria
- Factors to be considered are:
(a) Number of storeys in the facility
(b) Height utilization, and
(c) Product flow

137
Design of a typical warehouse
Receiving area
Bulk storage
area
Rack storage
area
Order picking area
Packaging or unitizing area
Stacking area
Finished product flow

138
(b) Economies of scale in movement.
- Warehousing activities should be designed to move a group of
cases such as master cartons or containers, as grouping or
batching reduces the number of activities and hence the cost.
C. Storage plan
• High sales volume or fast moving products should be stored in
a location that minimizes the distance it is moved such as low
height storage racks.
• The objective is to minimize the travel distance and also the
need for extended lifting.
• Low sales volume or slow moving product can be assigned
locations that are distant from the centre or higher up in the
storage rack.

139
Storage plan based on product
movement
Storage space
for low volume
products
Storage space
for low volume
products
Storage space
for low volume
products
Storage space
for low volume
products
Storage space
for low volume
products
Storage space
for low volume
products
Storage
Space
For
High
Volume
products
Primary
gangway

140
Warehousing strategies
Private Public Contract

141
Private Warehouses
• Operated by the firm owning the product i.e.
facility may either be owned or leased.
• Quite often the warehouses requiring specific
material handling activities designed to fit
exact needs of the firm may not be available on
hire.
• Generally efficient warehouse should be
planned around a material handling system in
order to encourage maximum efficiency of
product flow.
• Firms with specialized customers or products
often develop their own warehouse.

142
Public Warehouses
• Classified on the basis of range of specialized
operations performed, as under
(a) General merchandise e.g. paper, small home
appliances and household maintenance
goods.
(b) Refrigeration facilities to preserve food
products, pharmaceutical medicines and
certain chemicals requiring specific ambient
temperature.
(c) Bulk commodities requiring specialized
material handling systems such as liquid
chemicals, tres, and textile fabrics.

143
Contract Warehouses
• Contract warehouses provide all logistics
activities such as
(1) Transportation
(2) Inventory control
(3) Order processing
(4) Customer services, and
(5) Returns
• Assume total responsibility for enterprises
that desire only to manufacture and market.

Understanding Logistics and Supply Chain Management

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