CUSTOMER-ORIENTED

LOGISTICS
MANAGEMENT
 LOGISTICS

The commercial activity of transporting goods to

customers.

LOGISTICS MANAGEMENT

It is a supply chain management component that is used to

meet customer demands through the planning, control
and implementation of the effective movement and
storage of related information, goods and services from
origin to destination.
 OBJECTIVES OF LOGISTICS

COST REDUCTION: It is usually achieved by tactics such as

altering the number and location of warehouses, altering the mode of
transport, route optimization for the transport function, and
optimizing the quantum of inventory.

CAPITAL REDUCTION: It is a strategy devoted towards

minimizing the level of investment in the logistical system. Also,
substantial capital reduction can be achieved by leasing and renting
facilities without affecting the service output to the customers.

SERVICE IMPROVEMENT: It involves giving better service across

the dimension of service without substantially increasing the cost of
logistics.
 FACILITIES DECISIONS
Three generic types of outbound logistics strategies are possible:

DIRECT SHIPMENT: In direct shipment strategies, goods once

manufactured are directly shipped to the point of sale without being stocked
anywhere.

WAREHOUSING: In warehousing strategies, however, goods once

manufactured are stored in warehouses waiting from orders from the retail
outlets or others point of sale.

CROSS-DOCKING: In cross docking, while warehouses do exist, the storage

time is reduced to a minimum. In this strategy, items are distributed
continuously from suppliers through warehouses to suppliers with the items
lying in the warehouses for just a few hours.
Cross docking is possible only when certain conditions are
satisfied:

i. The inventory destination is known when stocks are received

ii. Customer is ready to receive inventory immediately

iii. The number of locations to ship inventories are not high

iv. It is possible to pre-label the inventory

v. Inventory arrives at a state where it is immediately conveyable

 MAIN FUNCTIONS OF WAREHOUSING
OPERATIONS

The warehousing functions perform several specific

activities :

MOVEMENT

STORAGE

INFORMATION TRANSFER
 MOVEMENT FUNCTION
This function itself consists of several activities such as:

i. Receiving: the main activity at this stage involves the unloading of the
goods, updating of the inventory records, inspection of damage, and
verification of merchandise count against the orders and shipping records.

ii. Transferring: it involves transferring the shipment received to locations

within the warehouse specifically meant for the storage of that category of
inventory to enable easy access whenever required.

iii. Order picking or selection: this activity takes place whenever the
warehouse gets an order from the downstream recipient for the goods
stored.

iv. Shipping: once the order is received, the order is picked and packed to be
shipped after selecting the mode of transfer, after adjusting the inventory
records.
 STORAGE FUNCTION
Goods can be stored in a warehouse temporarily awaited an order from the
downstream intermediary or else, mainly in the case of seasonal products,
goods can be stored for a reasonably long period either to offset the seasonal
demand or on the basis of speculation or forward buying.

INFORMATION TRANSFER FUNCTION

Information on inventory levels, throughout levels, stock keeping locations,
inbound and outbound shipments, facility space utilization, order fulfillment
data, etc. are the are the type of information that a firm expects a warehouse
to provide.
 MAIN DECISIONS IN WAREHOUSING

I. The location of the warehouse

II. The number of the warehouse

 I. WAREHOUSING LOCATIONS
The location or site selection decision can be approached from macro and
micro perspectives.

MACRO PERSPECTIVES ON WAREHOUSE LOCATIONS: It examines

the issue of locating a warehouse within a broad geographical area and
concerns issues such as whether the warehouse should be located near the
production plant, the market, or the midway between both.

MICRO PERSPECTIVES ON WAREHOUSE LOCATIONS: The most

popular approaches are the-

Centre of gravity method: It considers the transportation rates and the

points volume for arriving at the exact location for the warehouse. It tries to
minimize the cost of logistics by selecting an appropriate site for locating the
warehouse when the transportation cost as well as the volume to be shipped to
various markets is known.

Cost-volume-profit analysis: it is a simple method which uses the break-

even analysis to select from a set of locations. In this we decide about a few
alternative locations and then select from this set of alternative locations.
 II. NUMBER OF THE WAREHOUSE
Four factors are considered in deciding about the number of warehouses are:

a) Cost of lost sales: It is the stockout cost when a customers order is not
fulfilled due to lack of availability of stock within the permissible waiting
time allowed by the customers. This is basically an opportunity cost, as
actual outflow of money does not take place.

b) Inventory cost: These are the cost incurred in procuring and holding the
inventory for the entire system. Since every warehouse will have a
specified safety stock for all the item stocked, the inventory cost are
estimated to go up with the number of warehouses.

c) Transport cost: These are the cost incurred in transportation in the

entire system consisting of the transportation from the production point to
the warehouses, as well as warehouses to the points of sale.

d) Warehousing cost: It consists of the cost of renting, leasing or owning the

warehouse as well as the maintenance of the warehouse.
INVENTORY MANAGEMENT
Inventory management is all about having the
right inventory at the right quantity, in the right
place, at the right time, and at the right cost.

Inventory levels directly influence the

profitability of a firm.
Excess inventory Greater chance of damage, More
cost
Insufficient inventory- Missing out on sales, Missing
out on favourable prices.

So optimal level of inventories are required.

INVENTORY MANAGEMENT DECISIONS
4 main decisions:

1. Why do we need inventory?

2. Objective of inventory management

3. Inventory level decisions

4. Distribution resource planning system

WHY DO WE NEED INVENTORIES?
Improves customer service: In the absence of
inventory, many customer orders might have to
be turned down.

Smoothens the operations of logistics

system: Inventories reduces the pressure on
logistics system to cut the lead time.

Reduces cost: Inventory carrying capacity can

reduce transportation cost by reducing the less-
than-truckload shipments. Moreover discount on
large shipments can also reduce cost.
OBJECTIVE OF INVENTORY MANAGEMENT
Reduce inventory cost

Developing accurate forecasts

Reducing lead time

Accurately calculating the inventory levels at

various locations

Achieving customer service targets

Cost associated with inventory

1. Inventory procurement cost: These are fixed

costs which have to be incurred in setting up the
machinery, procurement of related materials,
transportation, order processing etc.

2. Inventory carrying cost: 4 categories

a) Capital cost
b) Storage space cost
c) Inventory service cost
d) Inventory risk cost
a) Capital cost: It is the cost of capital tied up in the
inventory. It is difficult to calculate.

b) Storage space cost: The storage space cost is a

combination of the warehouse rent or mortgage,
lighting, heating, air conditioning, plus the
handling costs of moving the materials in and out of
the warehouse.

c) Inventory service cost: These costs include

insurance paid on the inventory and taxes,

d) Inventory risk cost: It includes the cost

associated with obsolescence, damage, shrinkage of
the unsold goods
3. Out-of-stock costs: Out-of-stock costs are
incurred when an order is placed but cannot be
filled from the inventory to which the order is
normally assigned.

Two types:
a) Cost of lost sale

b) Backorder costs
INVENTORY LEVEL DECISIONS
Inventory level decisions are the decision related
to the quantity of inventory to be carried.

As these decisions directly affect the inventory

carrying costs

These decision mainly involve two main

decisions:
Push or pull inventory control decision
Order quantity decisions
 Push vs pull inventory control:
In push strategy, decisions about the
inventory levels are taken at the central level.
The storage points are replenished after a
fixed time.

In pull strategy, inventory levels are decided

in a decentralized manner.
Can reduce inventory if implemented properly.
Economies of scale is hard to achieve.
 Order quantity decisions: Decision related to the
quantity and time of reordering the product is taken
so that optimal inventory level is maintained

The effect of variability in demand can be reduced by :

1. Risk pooling- Reducing the number of storage

points.

2. Echelon inventory: It is defined as the inventory

between a stage in the supply chain and the final
customer.
DISTRIBUTION RESOURCE PLANNING
SYSTEM(DRPS)
It is a logistics information system innovation that
enables managers to plan effectively and efficiently

It controls the flow of goods from production facility to

retailers in time phased manner.

It helps manufacturers to make and ship just what is

needed for the current demand.

Helps to reduce inventory investment, safety stock

levels and transportation costs

Helps in improving customer service levels, flexibility

in the system, system-wide forecasts and the
utilization of manufacturing resources
TRANSPORTATION DECISIONS
3 decisions:

1. Mode selection: 5 modes of transport- air, rail, road,

water and pipeline.
Managers must consider cost, dependability and
possibility of loss and damage associated with the mode
available to them.

2. Vehicle routing and scheduling: It tries to find out the

best path a vehicle should travel through a network of
roads, rail lines, shipping lines, etc so that the time and
distance travelled is minimized

3. Freight consolidation: It is mainly intended to reduce

the cost of transportation through bringing together
smaller quantities of inventory in order to create a higher
quantity for transportation
FACTORS AFFECTING TRANSPORTATION
COST

1. Product related factors:

a) Density of the product:

b) Stow ability:

c) The ease or difficulty in handling

2. Market related factors:

a) Degree of intermode or intramode competition

b) Location of the market

c) Seasonability of the product movement

SUPPLY CHAIN MANAGEMENT
Supply Chain Management includes every effort
involved in producing and delivering a final
product or service, from the supplier to the
customer.
Supply Chain Management includes managing
supply and demand, sourcing raw materials,
manufacturing and assembly, warehousing and
inventory tracking, order entry and order
management, distribution across all channels,
and delivery to the customer.
THE SCM NETWORK
PRINCIPLES OF SUPPLY CHAIN
MANAGEMENT

The four principles of SCM are:

1. Efficiency
2. Reliability
3. Flexibility
4. Innovation
1.EFFICIENCY
The principle of efficiency requires that any
supply chain should be conscious of cost
reduction in all the activities. Efficiency leads to
reduction in the wastage of resources, including
wastage of time. The principle of efficiency is
reflected in initiatives such as JUST-IN-
TIME(JIT).
2.RELIABILITY
Reliability is associated with consistency.
Consistency should be measured mainly in terms
of the consistent delivery time achievement,
accuracy in order fulfillment, consistency and
accuracy in payment processing time, installation
support and after-sales service.
3.FLEXIBILITY
Flexibility is associated with the ability of the
entire supply chain to adapt to changes in the
demand or supply pattern. Flexibility is also
termed as the agility of the supply chain.
4.INNOVATION
Innovation is important as it could generate a
sustainable competitive advantage for the firm.
Supply chains that do not innovate will slowly
erode their comparative advantage with regard to
their competitors.
GENERIC SUPPLY CHAIN MANAGEMENT
STRATEGIES
Four different Generic Supply Chain
Management Strategies are:

1. Rationalization strategy
2. Synchronization strategy
3. Customization strategy
4. Innovation strategy
1.RATIONALIZATION STRATEGY
Rationalization strategy places greater emphasis
on process rationalization that eventually leads
to better net margin. This strategy involves
closely assessing the process and working about
ways of reducing wastage wherever possible.
2.SYNCHRONIZATION STRATEGY
Synchronization strategy involves elements such
as collaborative inventory management, perfect
order fulfillment and optimal inventory
placement. One of the most popular supply chain
practices that follows from synchronization
strategy is JIT inventory management.
3.CUSTOMIZATION STRATEGY
Customization strategy involves developing
specific Strategies for profitable customers and
executing it with a view to establishing a long
term relationship with them. The elements of
customization strategy involves mass
customization, lifetime relationships, customer
profitability management, customer knowledge
management and value analysis.
4.INNOVATION STRATEGY
Supply chain innovation strategy involves
exploiting the competitive advantage generated
by a strong supply chain to introduce successful
new products in the market at a much higher
rate than competitors. For a company like apple
developing a constant stream of new product
involved working closely with their partners in
research and development (R&D).
SUPPLY CHAIN TECHNIQUES
Supply chain techniques are the bunch of
activities that the SCM process should
incorporate, in order to achieve the objectives set
in the SCM strategy. According to Jacoby (2010)
the essential supplies and techniques are as
follows:
1. SUPPLY CHAIN NETWORK DESIGN
Network design is probably the most critical part
of supply chain management. To achieve the
optimum supply chain performance it is
necessary to establish a powerful network design.
Fairness and transparency contribute to the
sustainability of a network design.
2. CAPACITY PLANNING
Capacity planning is associated with the ability
of the network to respond to change in demand
patterns and market conditions. Capacity
planning requires both long term as well as short
term orientation. For instance capacity planning
should address issues such as- if the demand
increases gradually how the requirements for
additional inventory storage limit after 2 years?
In the short term how the short term dip in
demand affect storage space productivity?
3.RISK MANAGEMENT
Environmental factors such as sudden increase
in cost of certain components or disruptions to
the physical flow of goods due to natural
disasters could create tremendous disruption in
the whole system. Risk management is therefore
very critical in SCM strategies.
4.ORGANIZATIONAL CHANGE
MANAGEMENT

SCM is also an Organizational process involving

organizational players including departments,
teams and informal groups. SCM involves a
continuous adaption to market changes, the
organization will also need to change constantly.
An organization that refuses to change will find
it difficult to adopt SCM.
5.PERFORMANCE MEASUREMENT AND
MONITORING

Developing and implementing performance

monitoring process is also very crucial to success
of a SCM strategy. Performance metrics and
measurement provide the crucial feedback that
guides the SCM strategy. Lack of proper
feedback or faulty feedback leads to faulty
implementation of the strategy.