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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
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