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Logistics Management. SECTION -V. Logistics Management.

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logistics management1
Logistics Management
  • The term Logistics Management is the part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer's requirements.

Planning implementing and controlling the physical flow of material and finished goods from point of origin to point of use to meet customer`s need at a profit-“Philip Kotler”


The word logistic has originated from Greek word ‘Logistikos’ and the Latin word ‘Logisticus’ which means science of computing & calculating

  • In ancient times it was used more in connection with moving armies.
  • During World War II logistics gained importance in army operations covering the movement of supplies , men & equipment across the border
  • Today It has acquired the wider meaning and is used in the business for the movement of material from suppliers to the manufacturer and finally the finished goods to the consumers
scope of logistic
Scope of Logistic
  • It is of critical importance to the organization how it delivers products & services to the customer , whether the product is tangible or intangible.
  • Effective & efficient Physical movement of the tangible product will speak of intangible services associated with the product and the organization which is delivering it.
  • In Case of intangible product , the delivery of tangibles at the right place & right time will speak about its quality.
logistic a system approach
Logistic –A system approach
  • Logistic recognizes that all the activities of material movement across the business process are interdependent and needs close coordination and these are to be maintained as a system and not as individual functions.
  • System is shown as logistic Mix including following functional Areas
  • Order Processing
  • Information Flow
  • Warehousing
  • Inventory control
  • Packaging
  • Transportation
order processing
Order Processing
  • Involve following activities…………………
  • Order checking for any deviation in agreed term
  • Technical details; price; delivery period; payment terms; taxes etc
  • Checking the availability of material in stock (material requisition)
  • Production & material scheduling.
  • Acknowledging the order, indicating deviation if any
  • It is routine operation but require great deal of planning training of people involved and investment to bring about efficiency & accuracy
  • In a large organization a system capable of handling thousands of voluminous orders with minimum human involvement or without human involvement is a must, involving shortened order fulfillment cycle to have edge over rivals.
information flow
Information Flow
  • It is basically information based activity of inventory movement across the supply chain. Hence role of information system plays a vital role in delivering superior customer service.
  • A warehouse is a commercial building for storage of goods.
  • Warehouses are used by manufacturers, exporters, wholesalers, retailers, transport businesses, exporters, Importers, etc.
  • They are usually large plain buildings, equipped with loading docks to load and unload consignment from trucks.
  • Based upon the size of the goods and volume of operation they also often have cranes and forklifts for moving goods.In simple words, warehouse is a facility where the supply chain holds or stores goods, until they are needed by the customers. Warehouse can be owned by manufactures, wholesalers, retailers to store the goods.

A warehouse is typically viewed as a place to store inventory. However, in many logistical system designs, the role of the warehouse is more properly viewed as a switching facility as contrasted to a storage facility. The function of warehouse is getting focused from storage-dominance to transaction dominance.

general functions roles of warehouses
General Functions / Roles of Warehouses

The warehousing functionality today is much more than the traditional function of storage. The following are main function that warehousing serves today: • Receiving goods – receive and accept responsibility by updating records• Identifying goods – place, label, color code (Normal stocks, Promotional stocks, Special customer stocks like CSD, Price changes, Batch etc). • Sorting goods- sort out the received goods based on identification for appropriate storage area. For example Special customer goods , Revised price goods, Promotional goods should be sorted out separately. • Dispatching/ put away the sorted goods to appropriate storage place- for temporary storage with easy accessibility• Holding goods- security against pilferage and deterioration


Selecting, retrieving, packing - items are retrieved and grouped according to customer order for dispatch• Marshalling goods- check the items of a single order for completeness and order records are updated. • Dispatching goods- consolidated order is packaged and directed to right transport• Preparing records- of stocks and replenishment requirements

economic benefits of warehousing cost savings
Economic benefits of Warehousing(Cost Savings):

Consolidation: Reduction in transportation cost by consolidating movement. Several plants supply their products for the same customer through a warehouse and from this warehouse the products are sent in bulk shipment to the customer. Instead of transporting the products as small shipments from different sources, it would be more economical to have a consolidation warehouse.

Break-bulk: The warehouse in this case serves the purpose of receiving bulk shipments through economical long distance transportation from plant and breaking of these into small shipments for local delivery to various customers. This enables small shipments in place of long distance small shipments.

Cross-dock: This type of facility enables receipt of full shipments from a number of suppliers, generally manufacturers, and direct distribution to different customers without storage. As soon as the shipments are received, these are allocated to the respective customers and are moved across to the vehicle for the onwards shipments to the respective customers at these facilities.


Stock piling: This function of warehousing is related to seasonal manufacturing or demand. In the case of seasonal manufacturing, certain raw materials are available during short periods of the year. Hence, manufacturing is possible only during these periods of availability, while the demand is full year around. This requires stockpiling of the products manufactured from these raw materials. An example is mango pulp processing. On the other hand, certain products like woolens are required seasonally, but are produced throughout the year, and thus need to be stockpiled as such.

service benefits
Service benefits:
  • Spot stocking:stocking of products in strategically located warehouses during demand sensitive period is called spot stocking. Agricultural implements are spot stocked during the growing season.
  • Safety Stocking: In order to meet contingencies like stock outs, transportation delays, receipt of defective or damaged goods, and strikes, safety stocks have to be maintained. This ensures that, on the inbound site production stoppages do not occur, and, on the outbound side customers are fulfilled on time.
warehousing decision
Warehousing Decision
  • Type of Ownership- Private , Public or Contractual.
  • Private- owned by the company for their exclusive use for storing the goods manufactured or traded by them for onward selling
  • Cost involved- fixed capital invested on building , maintains, insurance
private warehouse advantage disadvantage
Private warehouse – advantage & disadvantage
  • Better control on storage & movement of goods.
  • Disadvantage-lack of geographical flexibility,
  • Requires high & constant demand throughout
  • permanent liability & high large investment
  • Hired from other agencies goverment or private for storing the goods for specific period of time by paying the rent.
  • Advantages- strategically located near ports/market places
  • Low initial investment
  • Greater flexibility in terms of location change
  • Disadvantage- not good for specialized services
  • Special kind of warehouse managed by third party for giving all warehousing facility against a agreed rent.
  • Advantage-extensive geographical coverage
  • Availabilty of expert manpower

Disadvantage- performance of company depends on the performance of 3rd party

warehousing location
Warehousing Location
  • Location of a warehouse has a considerable impact on customer service as it-
  • Provides a edge on the competitors
  • Reduces the cost of distribution
considerations for selecting a warehouse location
Considerations for selecting a warehouse location
  • Closer to market/customers.
  • Production oriented (closer to plant)
  • Cost of warehouse
  • Nature of the product – perishable & seasonal
  • Market service area & cost of distribution
  • Availability of transport facility
  • Location of competitors warehouse
  • Availability of infrastructure facility
  • Labor supply situation and wage structure
  • Potential of further expansion of warehouse
  • Resale value in future
defining inventory
Defining Inventory
  • Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.
  • Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons.
  • From the above definition the following points stand out with reference to inventory:
  • All organizations engaged in production or sale of products hold inventory in one form or other.
  • Inventory can be in complete state or incomplete state.
  • Inventory is held to facilitate future consumption, sale or further processing/value addition.
  • All inventoried resources have economic value and can be considered as assets of the organization.
type of inventory
Type of Inventory

1.RAW MATERIAL: -They are required to carry out production activities uninterruptedly.

2.WORK-IN-PROGRESS:-It is a stage of stocks between raw material & finished goods.

3.CONSUMABLES:These are needed to smoothenthe process of production

4.FINISHED GOODS: These are the goods whichare ready for the consumers


purpose benefits of holding inventory
Purpose/ Benefits of Holding Inventory
  • Transaction Motive-to facilitate Continuous Production.
  • Speculative Motive-for taking advantage of price fluctuations, saving in re-ordering costs and quantity discounts, etc.
  • Precaution Motive-for meeting unpredictable changes in demand and supplies of materials
objectives of inventory management
Objectives Of Inventory Management
  • To ensure continuous supply of raw material, spares and finished goods
  • To avoid both overstocking and under stocking of inventory.
  • To maintain investments in inventories at optimum level.
inventory management1
Inventory management
  • Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory

Inventory management includes the understanding how long it takes for a supplier to process an order and execute a delivery.

  • Inventory management also demands that a solid understanding of how long it will take for those materials to transfer out of the inventory be established.
  • Knowing these two important lead times makes it possible to know when to place an order and how many units must be ordered to keep production running smoothly.
  • Calculating what is known as buffer stock is also key to effective inventory management.
  • Essentially, buffer stock is additional units above and beyond the minimum number required to maintain production levels. For example, the manager may determine that it would be a good idea to keep one or two extra units of a given machine part on hand, just in case an emergency situation arises or one of the units proves to be defective once installed.
  • Creating this cushion or buffer helps to minimize the chance for production to be interrupted due to a lack of essential parts in the operation supply inventory.

Inventory management is not limited to documenting the delivery of raw materials and the movement of those materials into operational process. The movement of those materials as they go through the various stages of the operation is also important. Typically known as a goods or work in progress inventory, tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low or is inflated to an unfavorable level.

  • Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. This often means posting the production of newly completed goods to the inventory totals as well as subtracting the most recent shipments of finished goods to buyers.
  • When the company has a return policy in place, there is usually a sub-category contained in the finished goods inventory to account for any returned goods that are reclassified as refurbished or second grade quality.
  • Accurately maintaining figures on the finished goods inventory makes it possible to quickly convey information to sales personnel as to what is available and ready for shipment at any given time.
inventory costs are basically categorized into three headings
Inventory costs are basically categorized into three headings:
  • Ordering Cost
  • Carrying Cost
  • Shortage or stock out Cost & Cost of Replenishment
ordering cost
Ordering Cost
  • Cost of procurement and inbound logistics costs form a part of Ordering Cost.
  • OrderingCost is dependant and varies based on two factors - The cost of ordering excess and the Cost of ordering too less.
  • Both these factors move in opposite directions to each other. Ordering excess quantity will result in carrying cost of inventory.
  • Where as ordering less will result in increase of replenishment cost .
  • These two above costs together are called Total Stocking Cost.

Carrying Cost- Inventory storage and maintenance involves various types of costs namely:

    • Inventory Storage Cost
    • Cost of Capital

Inventory Storage Cost

    • Inventory storage costs typically include Cost of Building Rental and facility maintenance and related costs. Cost of Material Handling equipments, IT Hardware and applications, including cost of purchase, depreciation or rental or lease as the case may be. Further costs include operational costs, consumables, communication costs and utilities, besides the cost of human resources employed in operations as well as management.

Cost of Capital-Includes the costs of investments, interest on working capital, taxes on inventory paid, insurance costs and other costs associate with legal liabilities.

  • The inventory storage costs as well as cost of capital is dependant upon and varies with the decision of the management to manage inventory in house or through outsourced vendors and third party service providers.
packaging is
Packaging is…………..
  • Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale and use.
  • Packaging is a coordinated system of preparing goods for transport, warehousing, sale and use.
  • Packaging helps the consumer quickly understand what the product is all about
  • Packaging is a silent sales man
  • For the movement of goods from supplier to buyer , transportation is the most fundamental and important component of logistic.
  • transportation cost component is 20% - 40%of the product cost.
  • Transportation management includes the decisions of:-
  • Mode of transportation ( Cost & time factor)
  • Own fleet or Outsourcing
  • Route Planning
  • Vehicle scheduling
importance of transportation
Importance of Transportation
  • Ensures Speedy & timely movement of goods.
  • Protective storage during transit
  • Prevents stock outs.
  • Cost efficient & better customer service
  • Is the link between various supply chain activities.
cost of transportation
Cost of transportation
  • Tariff of mode of transport
  • Transit time cost
  • damage & deterioration cost
  • Protective packaging cost
  • Transit insurance cost
  • Miscellaneous cost

The process of planning, implementing, and controlling the

efficient, cost effective flow of raw materials, in-process

inventory, finished goods and related information from the

point of origin to the point of consumption for the purpose of

conforming to customer requirements.

Reverse logistics includes all of the activities that are

mentioned in the definition above. The difference is that

reverse logistics encompasses all of these activities as they

operate in reverse. Therefore, reverse logistics is:

The process of planning, implementing, and controlling the

efficient, cost effective flow of raw materials, in-process

inventory, finished goods and related information from the

point of consumption to the point of origin for the purpose of

recapturing value or proper disposal.

classifying reverse logistics activities
Classifying Reverse Logistics Activities

Reverse logistics can include a wide variety of activities. These activities can be divided as follows:

  • whether the goods in the reverse flow are coming from the end user or from another member of the distribution channel such as a retailer or distribution centre ;
  • and whether the material in the reverse flow is a product or a packaging material.

If a product enters the reverse logistics flow from a customer, it may be a defective product, or, the consumer may have claimed it was defective in order to be able to return it. The consumer may believe it to be defective even though it is really in perfect order. This category of returns

is called “non-defective defectives.”

reasons for reverse logistics
Reasons for reverse logistics
  • Products that have failed, but can be repaired or reused.
  • Products that are obsolete but still have value.
  • Unsold products from retailers.
  • Recalled products.
  • Items that have secondary usage, i.e. items that have another usage after they have exhausted their original use.
  • Waste that must be accounted for and disposed of or used for energy production.
  • Containers that must be returned to their origin

In a celebrated case a few years ago, the McNeil Laboratories division of Johnson & Johnson experienced a very serious threat when someone poisoned several people by placing cyanide inside unopened bottles of Tylenol, a Johnson &Johnson flagship product. This horrible act happened twice in the space of a few years. The second time, Johnson & Johnson was prepared with a fine-tuned reverse logistics system and immediately cleansed the channel of any possibly tainted product. Because Johnson & Johnson acted so quickly and competently, a mere three days after the

crisis, McNeil Laboratories experienced an all-time record sales day. Undoubtedly, the public would not have responded so positively had Johnson & Johnson not been able to quickly and efficiently handle its recalled product through its existing system in reverse. Clearly, the Tylenol

incident is an extreme example, but it illustrates how reverse logistics capabilities can be strategic, and how they can dramatically impact the firm.

strategic use of rl
Strategic Use of RL
  • Competitive Reasons-Most retailers and manufacturers have liberalized their return policies over the last few years due of competitive pressures. Part of satisfying customers involves taking back their unwanted products or products that the customers believe do not meet needs. Generally, customers who believe that an item does not meet their needs, will return it, regardless of whether it functions properly or not.
  • Good Corporate Citizenship-Another set of competitive reasons are those that distinguish a firm by doing well for other people. Some firms will use their reverse logistics capabilities for altruistic reasons, such as philanthropy.

Clean Channel

Reverse logistics competencies are also used to clean out customer inventories, so that those same customers can purchase more new goods.

Recapture Value and Recover Assets

Legal Disposal Issues