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Presented in Elijah Institute of Management studies, Thrissur

The practical organisation that is needed to make a complicated plan successful when a lot of people & equipment is needed e.g. 1. Logistic support in the army 2. Organising famine relief presents huge problems

i.e. Moving Right People & Right Equipment to the Right Place at the Right Time through the Right Methods.

To

have competitive edge over others

Marketing

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

Past

Place was a dark continent in marketing (Peter Drucker, 1992)

In

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

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

from Sellers Market to Buyers Market are now Bosses

Consumers

Now,

any product is available, that too on installment


monopoly now

No

Business

has become more Complex & Dynamic now market (Market is time & price sensitive)

Vibrant

Everyday,

everybody is thinking about new market plans


of the fittest theory

Survival Saying

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

Push

is important than Pull now


is how you push?

Question To

give the best products & services than others win customers loyalty & goodwill

To

satisfied customer will remain loyal

Your

weakness is your competitors advantage


business competition & rivalry now

More

E.g. Fuel efficiency claim by Hero Honda

(Now Bajaj claims 102 kmpl)

Fuel efficiency & Economy: by Maruti Cars

(Tatas are now coming with mini Nano)

Due

to rapid technology transfer

Rivals

not only copy, they add more features & give more value for your money lower price strategy doesnt work. (Because consumers have enough money)

Now,

Now,

Promotion also doesnt work (Because too much advertisements will make the consumers confused and fed up) Place (out of the 4 Ps) is important
now

Hence

Complicated
Rapid

business scenario

economic boom

Globalisation Liberalisation Intelligent

consumers

Heavy

Industrialisation
innovations

Scientific Hence To

for more customer satisfaction now

be customer focused

Quick
Hence

delivery & after sales service (24 hrs)


the need of Logistics Management

Logistics

from Greek word Logisticos meaning science of computing and calculating used in military sense (Logistical Support) (World War II & other wars)

First

Webster

(1963) defines Logistics as: The procurement, maintenance & transportation of military materials, facilities & personnel Airforce (1981) defines: The science of planning out the movement & maintenance of forces

US

CLM(Council of Logistics Management (1991) defines:


Logistics is the process of planning, implementing & controlling of efficient, effective flow & storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to the customer expectations

Corporate vision & objectives To turn it into winning edges over others
Strategic logistics analysis (i.e. finding alternatives, evaluation, selection etc.) Logistics planning & evaluation

Managing change

Firm
4

to dominate

Ps Place more important

Highest

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

Five ways for gaining it

Low cost (To enhance Profitability)


Superior customer service Value added services (e.g. training to customers) Flexibility Regeneration (i.e. to be innovative)

Product Design

E.g.

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

Containers capacity and storage

Plant Location

Choice of sources/ markets


Production structure & planning

Distribution/ Dealer network design


Warehouse location/ operations Plant layout

Allocation decisions

Inventory management/ stock levels


Transportation models/ Routing/ Capacity

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

Packaging

Material Handling

Storage problems in monsoons


Plant/ warehouse near port/ Airport Nearness of dealers to factory/ warehouses

Shippers

Suppliers

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

Government (Regulations & logistics)

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

Inbound Logistics (Raw Materials)

Outbound Logistics (Finished Products)


Single v/s Multiple plants

Nature of the products


e.g. various dimensions

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

Includes goods transportation & storage

Material handling & Information structure


We do mostly by road & rail Pipeline is growing Waterways unexplored Air for emergency only

In India, a lot to improve

Government to take initiative


Suppliers to be cost conscious

Communication technology to improve


Suppliers & shippers are to be cost conscious In short, the whole industry is unorganized

Like any other organisational Mission

Customer relationship to be closer


Goods to be faster & cheaper Need for integrated Logistics Management

Organisational rigidity is a barrier


(Both structural & personal)

Because Managers ego & territories In conventional companies, even inbound & outbound transportation is differentiated Too much paperwork & Red Tapism

Papers move even slower than the movement of cargo A conventional company, shows multifaces to customers.

They shunt them from table to table, department to department

Organisation to be horizontal

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


Organisation to work together Organisation to have cross functional teams This is Flat Organisation system To have customer order fulfillment system

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

Reaching with at

Right Quantity Right Quality Right Price

the

the

at
at

the
the

Right Place
Right Time

to

the
the

Right People
Right Mode (of transportation)

with

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

To To

touch customers in multiple ways

create brand messages & to experience our brands


offer tailored solutions to customers now

To

Now

shopping is a new experience

E.g. Family and children taking leisure time

Now

consumers are well informed through advertisements


(Average 350 to 400 Ads/ week)

Redistribution HLL

partners are important to HLL

has 25000 outlets in key cities in India


do superior display of HLL products

They

HLL

introduced self service stores in India

e.g. HLL in Hyderabad Reliance Super Stores


Advantage

is consumers can Touch & Feel

HLL
The

Sunsilk shampoo wash in stores


key factor is product availability

There

are 600,000 villages in India in the most remotest places creates win-win partnership with consumers e.g. Surf Ad

HLL

HLLs

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

New

self help women group sell HLL products directly to the rural people also spread the message of health & hygiene
e.g. Lifebuoy for health

They

Now

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

Rs. 2300/-

Also

provides customised offerings covering 11 categories in Home & personal care & foods has network of over 1500 towns in India covering 80% of urban population, with 250,000 consultants

HLL

Direct

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

Eating Now

outside in European style

in India, due to busy family life and nucleus family

HLL

adopts 3 ways

Product availability
Brand Communication

Brand experience

HLL HLL HLL

re-inventing their distribution network distribution creates new employments

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

Interface

means Connections

Marketing Right The

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


product, .Right Place etc.

competitive edge to be customer service

Customer

awareness of Rights

Customers No

are too much demanding Customers know what is in the market brand image will work out. Neither the price, nor the quality
E.g. Computer market

Now

it is product availability & service (Product Sector)

Service Service

in non-manufacturing is equally important now (Service Industry) is an added value now loss due to out-of-stock scenario

Financial

Marketing

is inter-related with Logistics & Customer Service concept of Customer Retention


i.e. A satisfactory customer will remain loyal

The

Will

also get references

To

sell & to service a loyal customer is less costly

loyal customer may not think of substitutes


is Relationship Marketing

This To

create & sustain & strengthen customer loyalty & relationship

First,

to design customer needs and then the services design a suitable logistics system

Then, Less

inventory but faster mode of transport for reaching the goods Servicing through better & faster logistics

Customer

Procurement

& manufacturing management have to be market oriented, need oriented. is Logistics Pipeline Management

This

Not

to produce at any cost

Inventory
To

tied up is money tied up

produce the right product

Production

schedule through better planning management to be market oriented

Production

Procurement

of raw materials requires planning, lead time, mode of transportation, time, cost between production and other departments
i.e. Logistics the whole concept

Co-ordination

These are Quantitative models from operations research


1.

Forecasting Models

Demand and Supply based on past data Location Model

2.

Mathematical Programme Model


a)

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

b) Allocation Models

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

c) Distribution Network Design Model

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

3. Inventory Models

Costs on buffer stock keeping for uncertainties Shipment & inventories of Finished products, its warehousing & retailing Pipeline inventory i.e. routing of transportation network to destinations The simplest model is called the shortest path problem e.g. Critical path method in Operations Research Can be done by using geographical maps

4. Routing Models

JIT (Just In Time) is a Japanese philosophy


i.e. nothing is produced/ moved until the need arises

Produces against advance firm order (Pull) Push is in anticipation of the demand In pull, product flow is based on demand

ROP (Reorder point)

At ROP, the new order is placed


The quantity to be ordered is based on EOQ

EOQ =

(2AS) i

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

EOQ =

(2 x 1000 x 100) = 141 40 x 25 %

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

Another

way to keep inventory management is a periodic review of stock/ replenishment levels & pull may lead to higher/ lower stocks

Push EOQ

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

JIT JIT

due to space shortage (especially in Japan)

encourages small lot batches/ Quantities but often (To avoid stock out at manufacturers side)
is against conventional system of mass production & storage requires strictest planning discipline

This

JIT

JIT JIT

requires firm orders from customers

advocates for consolidated delivery

Consolidation

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

JIT

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

JITs

philosophy is Quick Response Logistics

(QR)
P

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

QR

leads to
less inventory less safety stock less pipeline inventory less lead time less forecasting errors

Developed

a technique Industrial Dynamics

Developed

a special computer stimulated language known as Dynamo


3 models of inventory

Built

Retailer Inventory Distributors Inventory Factory Inventory

Each

of these models were connected through information flows & goods flows flows like order processing time, factory lead time, shipping delivery time etc.

Information

Sometimes,

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

It

becomes a pressure in the chain

This

surge can be minimized through better information exchanges in the chain


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

Dell

Mass

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

Toyotas

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

What is distribution? Right goods, Right Place etc

a) Industrial Products

Company Customer
Company Dealer Customer Company C&F Stockists Retailers Customers

b) Automobile

c) FMCG & Pharma

d) FMCG

Company Distributors Wholesalers Retailers Customers Company Depot Stockists Retailers Customers Company Own Retail Outlet Franchised showroom Customers

e) FMCG

f) Consumer durables

g) Food grain, garments

Company CA Wholesalers Retailers Customers

Note:- To have warehouse or not?

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

To have its

Own sales force


Own retail outlets

Direct Mailing
Telemarketing

Websites

Personal

Selling

To have trained sales force Sales force locates customers E.g. Insurance sector, Eureka Forbes

Telemarketing

Through Telephone calls Positive is, reduced selling costs

Direct

Mailing

Sending detailed brochures to prospective customers Is a silent sales Negative is, poor response Firms to have the right & vast data bank

One-tier

Distribution system

i.e. Company Distributors Customers (only 1 intermediary) positive is, minimum distribution costs, maximum control e.g. Maruti Sitaram Customer

Two-tier

Distribution system

E.g. Company Wholesaler Retailer Customer

Multi-tier

Distribution system

E.g. FMCG Firms

i.e.

by adopting more than one channel system to reach to customers


e.g. Auto component Manufacturers & HLL

Company Customers

Company Wholesalers Customers


Company Retailers Customers

Manufacturing

firms prefer MCS for greater marketing coverage & penetration Rivalry & competition among agents in MCS resulting into unethical selling & loosing Corporate image

Drawback:

MCS

is complex & expensive, but effective & profitable if managed well conflict may lead to loosing business opportunities

Channel

To look into the following 6 areas

1) Distribution Objectives
Manufacturers

to know firms overall marketing objectives & strategies

Objectives include:

Greater market coverage, dominance, penetration

Higher growth, long term business plans


Sustainable competitive advantage Control on channel relationships Social care

2) Distribution system alternatives

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


- i.e. how many channel numbers, length, width, etc. To dump products everywhere (When products are inexpensive)

3) Determining intensity of distribution

4) Intensive distribution

5) Exclusive distribution

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

6) Selective distribution

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

Storage

Warehouse

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

Warehouse

For keeping finished products Storage time varies

Module III

Distribution

Centre

i.e. full service warehouse It emphasizes on movement, then storage Situated near to market

Warehouse

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

Warehouse

to be meant as a Switching/ Transit

facility
To

store goods scientifically & systematically to retain its value & originality a good information system

Requires

1)

2)
3) 4)

Ownership Based Private warehouses (company owned) + points Public warehouses (e.g. By government or by organisation) Bonded Warehouses
Either private or government owned Under customs/ Excise control (Goods removal after paying duty)

5) 6)

Cold Storage Export & Import warehouse

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

If more warehouse is added, Transportation cost can be reduced


Consolidation

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

Break Bulk
Entire lot is stored Then despatched to different customers

Stock - Piling
i.e. seasonal storage of goods e.g. Garments

Value added services


Packaging & labeling is done in the warehouse

II. Operational Functions

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

Based on demand pattern Based on buying behaviour Competitors warehousing strategies

Nature of the products


The cost Availability of goods

Warehousing facilities required for the product Now decide


Whether to have warehouse or not If owned, to centralize or not. (Centralised means very few, decentrailised means many) Location, cost

a) b) c)

Geographical location Production centre v/s location Transportation infrastructure facilities

d)
e)

Nature, quality, quantity of goods to be stored


Management philosophy

Land/ Space cost (Capital) Handling/ Transportation costs Administrative costs

Quantity based, product characteristics, shapes, sizes, weight Warehouse design to be flexible & futuristic Good material handling system

1. 2. 3.

Purpose Layout Warehouse space requirement & aisle layout

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

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

Improved customer service Accurate inventory records Better use of storage capacity & equipment utilizations To know stock costs Material availability Visibility of inventory

Routine record keeping for verification

Is necessary for consumer products Branding e.g. Glucose biscuit, Toothpaste (Colgate) Design package Usually squares (To save space) Pencil like package (Lipstick) for utility purpose, easy to carry in handbags

Packaging for protection Packaging for economy Package for convenience

Packaging for promotional activities


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

For self services (it is self explanatory) Consumer affluence Company & Brand image

For cost efficiency (due to innovational packaging)

For

Product protection
Containment

Attractiveness
Identification

Convenience
Effective sales tool

Easy display Advertisement Easy storage & transport

Easy to identify
Good memory & identification/ recognition

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

1. 2. 3.

Consumer Package e.g. Toothpaste Family Package Reuse Package e.g. glass jar

4.

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

To protect contents

To be attractive
To identify For convenience To identify For convenience

To occupy less space Image of the brand To have a clean look

Proud to possess
Status (e.g. Damas packs) Minimises sellers job

To resist soiling Labels pasted Eye-catching

Simple in design
Easy to handle

Module III

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

It is 6% of the GDP in USA


E.g. Home delivery etc. So manage transportation effectively E.g Pooling in Metropolitan cities So, aggregation of product to different customers while delivering

Walmart uses cross docking system i.e. exchanging products based on where shortages & surpluses occur To establish the cost effectiveness of the transport mode

1)

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

Fixed costs even if vehicle is not used

2)

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

3)

Trip-related Costs: Labour, Fuel.


Labour cost/ Day or fixed salary.

4) 5)

Quantity-related Costs: For loading unloading Overhead costs: i.e. Costs involved in information technology used in transportation network

E.g. Truck Drivers with Walky Talky Wireless

Air Land (Road, Rail) Sea Pipeline

Carrying Passenger & Carg, incur high fixed costs in infrastructure and equipment Labour and Fuel costs Hence, Airline to maximize the daily flying time Hence, airline to maximize seating capacity with different priced classes

Fast but expensive


Carry costly airfreight items

E.g. FEDEX, UPS, DHL

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


Expensive mode of despatch Can carry fairly small consignments Have their own aircrafts, trucks etc.

Rates according to distances

More expensive than rail


Delivery door-to-door Shorter delivery time More reliable Less pilferage and theft

More economical

Bilk Carriers
For long distances Could be delayed due to shunting of bogies

Ideal for heavy, low value shipments


More pilferage and theft Less reliable E.g. to carry coal, rice, wheat, cement Uncertain deliveries

Few Famous lines: Maersk, American President Lines (APL), Scindia Steam Navigation Company, Shipping Corporation of India (SCI) For large bulk to carry Slow & delay Carries cars, grains, iron and steel etc. Cheapest mode

For transporting crude petroleum, natural gas etc


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

By using more than one mode of transportation

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


E.g. Sea + Rail + Road (To carry containers) High network is required for information passing

There are five factors

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


Market Structure (e.g. Geographical/ Territorial) e.g. Russia with no sea port Product Characteristics (weight, height, size, shape, shelf-life etc)

Customer Characteristics (Delivery Specifications) Environmental Issues (Govt. policies, at times subsidized transportation etc)

i.e. Inter-Company computer-to-computer communication No Human Intervention is required This is an automation facility It is inter-organisational Consists of standardized Electronic Message Formats

Can Communicate from one company to another through computer Becomes paperless communication Can prepare and send invoices, purchase orders etc. (computer-to-computer) Best for inventory management

E.g. Dells marketing with customers (Direct ordering via Internet)

Intranet

is a means of distributing information. complete network flow of information from department to department, to warehouse, to shop-floor etc. intranet, the access is restricted to outsiders access is given to outsiders (e.g. suppliers and customers), it becomes extranet

Establishes

In

When

Data

mining is exploring data stored already, for transforming it to useful and meaningful information (e.g. for forecasting purposes) warehouse is a store house, built to contain enterprise-wide information, collected from multiple operational sources

Data

i.e. Electronic commerce or paperless office Everybody will transact business electronically (e.g. Zurich in Dubai)

It is a wide business
Reduces time, money, and speed up supply & service

E.g. By Internet we can reach anywhere


So cheap cost wise