Copy of Logistics Management.....Shahid chavakkad

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

Consumers are now Bosses

Now, any product is available, that too on installment

No monopoly now

Business has become more Complex & Dynamic now

Vibrant market (Market is time & price sensitive)

Everyday, everybody is thinking about new market plans

Survival of the fittest theory

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

‘Push’ is important than ‘Pull’ now

Question is how you push?

To give the best products & services than others

To win customers’ loyalty & goodwill

A satisfied customer will remain loyal

Your weakness is your competitor’s advantage

More business competition & rivalry now

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

Now, lower price strategy doesn’t work. (Because consumers have enough money)

Now, Promotion also doesn’t work (Because too much ‘advertisements’ will make the consumers confused and fed up)

Hence Place (out of the 4 Ps) is important now

Complicated business scenario

Rapid economic boom

Globalisation

Liberalisation

Intelligent consumers

Heavy Industrialisation

Scientific innovations

Hence for more customer satisfaction now

To be customer focused

Quick delivery & after sales service (24 hrs)

Hence the need of Logistics Management

Logistics from Greek word ‘Logisticos’ meaning “science of computing and calculating”

First used in military sense (Logistical Support)(World War II & other wars)

Webster (1963) defines Logistics as:“The procurement, maintenance & transportation of military materials, facilities & personnel”

US Airforce (1981) defines:“The science of planning out the movement & maintenance of forces”

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 to dominate

4 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

SuppliersCarriers (Rail, Road, Air etc)Warehouse providers/ Freight forwardersTerminal 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 productse.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 Right Quantity

with the Right Quality

at the Right Price

at the Right Place

at the Right Time

to the Right People

with the Right Mode (of transportation)

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

To touch customers in multiple ways

To create brand messages & to experience our brands

To offer tailored solutions to customers now

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 partners are important to HLL

HLL has 25000 outlets in key cities in India

They do superior display of HLL products

HLL introduced self service stores in Indiae.g. HLL in Hyderabad Reliance Super Stores

Advantage is consumers can “Touch & Feel”

HLL Sunsilk shampoo wash in stores

The key factor is product availability

There are 600,000 villages in India in the most remotest places

HLL creates ‘win-win’ partnership with consumers e.g. Surf Ad

HLL’s 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

They also spread the message of health & hygiene e.g. Lifebuoy for health

Now doing direct selling, generating Rs. 2300/- Crores & growing at 20% pa

Also provides ‘customised’ offerings covering 11 categories in ‘Home & personal care & foods’

HLL has network of over 1500 towns in India covering 80% of urban population, with 250,000 consultants

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

Eating outside in European style

Now in India, due to busy family life and nucleus family

HLL adopts 3 ways Product availability

Brand Communication

Brand experience

HLL re-inventing their distribution network

HLL distribution creates new employments

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

Interface means Connections Marketing is the management of 4Ps

(Product, Price, Promotion, Place) Right product, ….Right Place etc. The competitive edge to be customer service

Customer awareness of Rights Customers are too much demanding

Customers know what is in the market No ‘brand image’ will work out. Neither the

price, nor the qualityE.g. Computer market

Now it is product availability & service (Product Sector)

Service in non-manufacturing is equally important now (Service Industry)

Service is an “added value” now

Financial loss due to ‘out-of-stock’ scenario

Marketing is inter-related with ‘Logistics’ & ‘Customer Service’

The concept of ‘Customer Retention’i.e. “A satisfactory customer will remain loyal”

Will also get references

To sell & to service a loyal customer is less costly

A loyal customer may not think of substitutes

This is “Relationship Marketing”

To create & sustain & strengthen customer loyalty & relationship

First, to design ‘customer needs’ and then the ‘services’

Then, design a suitable logistics system

Less inventory but faster mode of transport for reaching the goods

‘Customer Servicing’ through ‘better & faster’ logistics

Procurement & manufacturing management have to be market oriented, need oriented.

This is “Logistics Pipeline Management”

Not to produce at any cost

Inventory tied up is money tied up

To produce the right product

Production schedule through better planning management

Production to be market oriented

Procurement of raw materials requires planning, lead time, mode of transportation, time, cost

Co-ordination between production and other departmentsi.e. ‘Logistics’ the whole concept

These are ‘Quantitative’ models from operations research

1. Forecasting Models Demand and Supply based on past data

2. Mathematical Programme Modela) Location Model

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 networke.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

4. Routing Models i.e. routing of transportation network to

destinations The simplest model is called the shortest path

probleme.g. Critical path method in Operations Research

Can be done by using geographical maps

JIT (Just In Time) is a Japanese philosophyi.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

Push & pull may lead to higher/ lower stocks

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

JIT due to space shortage (especially in Japan)

JIT encourages small lot batches/ Quantities but often (To avoid stock out at manufacturers side)

This is against conventional system of mass production & storage

JIT requires strictest planning discipline

JIT requires firm orders from customers

JIT 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

JIT’s 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’

Built 3 models of inventoryRetailer InventoryDistributors InventoryFactory Inventory

Each of these models were connected through information flows & goods flows

Information flows like order processing time, factory lead time, shipping delivery time etc.

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

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

‘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

Toyota’s 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

b) Automobile Company Dealer Customer

c) FMCG & Pharma Company C&F Stockists Retailers

Customers

d) FMCG Company Distributors Wholesalers

Retailers Customers

e) FMCG Company Depot Stockists Retailers

Customers

f) Consumer durables Company Own Retail Outlet Franchised

showroom Customers

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 SellingTo have trained sales forceSales force locates customersE.g. Insurance sector, Eureka Forbes

TelemarketingThrough Telephone callsPositive 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

Drawback: Rivalry & competition among agents in MCS resulting into unethical selling & loosing Corporate image

MCS is complex & expensive, but effective & profitable if managed well

Channel conflict may lead to loosing business opportunities

To look into the following 6 areas

1) Distribution ObjectivesManufacturers 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)

3) Determining intensity of distribution - i.e. how many channel numbers, length,

width, etc.

4) Intensive distribution To dump products everywhere (When products are inexpensive)

5) Exclusive distribution - i.e. whether to give exclusive dealership or

not, for a designated areae.g. readymades

6) Selective distribution i.e. to select high potential channel

intermediaries (i.e. agents/ sellers) To bring maximum turnover & profits

Storage WarehouseFor keeping for a long timeE.g. Raw materials, components etc for productionCloser to factories

WarehouseFor keeping finished productsStorage time varies

Module III

Distribution Centre i.e. full service warehouse It emphasizes on movement, then storageSituated 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

Requires a good information system

1) Ownership Based2) Private warehouses (company owned) +

points3) Public warehouses (e.g. By government or

by organisation)4) Bonded Warehouses

Either private or government owned Under customs/ Excise control

(Goods removal after paying duty)

5) Cold Storage

6) 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) Geographical location

b) Production centre v/s location

c) Transportation infrastructure facilities

d) Nature, quality, quantity of goods to be stored

e) 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. Purpose

2. Layout

3. 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. Consumer Package e.g. Toothpaste

2. Family Package

3. 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, driver’s salary, etc.

3) Trip-related Costs: Labour, Fuel. Labour cost/ Day or fixed salary.

4) Quantity-related Costs: For loading – unloading

5) 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. Dell’s marketing with customers (Direct ordering via Internet)

Intranet is a means of distributing information.

Establishes complete network flow of information from department to department, to warehouse, to shop-floor etc.

In intranet, the access is restricted to outsiders

When access is given to outsiders (e.g. suppliers and customers), it becomes extranet

Data mining is exploring data stored already, for transforming it to useful and meaningful information (e.g. for forecasting purposes)

Data warehouse is a store house, built to contain enterprise-wide information, collected from multiple operational sources

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