1 What is Logistics Management? Theobjectiveistoplanandcoordinatealltheactivities necessarytoachievedesiredlevelofdeliveredservice and quality at lowest possible cost. Thescopeoflogisticsincludetheentiregamutof activities starting from the procurement and management ofrawmaterialsthroughtodeliveryoffinalproductto the customer. The ultimate purpose of any logistics system is to satisfy thecustomerbyestablishinglinkagesofpeopleatall levelsintheorganizationdirectlyorindirectlytothe market place. 2 Asitisgettingincreasinglydifficulttomaintaina competitiveedgethroughproductalone,customer servicehasstartedtoprovidethedistinctive differencebetweenonecompanysofferandthatof its competitors. TheunderlyingconceptisTheprocessof strategicallymanagingtheprocurement,movement and storage of materials, parts and finished inventory andtherelatedinformationflowsthroughthe organizationanditsmarketingchannelsinsucha waythatthecurrentandfutureprofitabilityare maximizedthroughthecosteffectivefulfillmentof orders. 3 Competitive Advantage Customers seeking benefits at acceptable cost Company A (Asset utilization) Company B (Asset utilization) Cost differential 4 Source of Competitive Advantage Competitiveadvantageistheabilityofan organizationtodifferentiateitselfintheeyes ofthecustomer,fromitscompetition,andto operateatalowercostandhencegreater profit. Competitiveadvantagehelpsorganizationsto achievecommercialsuccesswhichmainly dependsupontwofactorscostadvantage and value advantage.5 Commercial success Cost advantage Value advantage 6 Cost advantage or Productivity advantage - Characterizedbylowcostofproductiondueto greatersalesvolume,economiesofscaleenabling fixedcoststobespreadoveragreatervolumeand the impact of the experience curve. Valueadvantageisintermsofproductofferinga differential plus over competitive offerings. - Basedonmarketingconceptthatcustomersthat customers don't buy products, they buy benefits. - Benefitsmaybeintangiblesandmaynotrelateto specific product features. - Itcanbeanimageorreputationorevensome functional aspects. 7 Addingvaluethroughdifferentiationis extremelypowerfulmeansofachieving competitive edge in the market. Oneofthesignificantmethodofadding value is service. Service helps in developing relationship with thecustomersthroughprovisionofan augmented offer. Augmentationtakesmanyformssuchas deliveryservices,after-salesservices, financial packages, technical support etc.8 Productivity and Value Matrix

Commodity Market (1) Cost Leader (2) Service Leader (3) Cost and Service Leader (4) Productivity Advantage V a l u e A d v 9 Forcompaniesinquadrant(1),themarketis uncomfortableplaceastheirproductscannotbe differentiatedfromtheircompetitorsofferingsas theydonothaveanycostadvantage.Theseare commodity markets. Companiesinquadrant(2),adoptcostleadership strategies.Traditionally,thesearebasedon economies of scale gained through volume. Another route to achieving cost advantage is through logistics management. As logistics constitutes a major proportionoftotalcosts,reengineeringlogistics processes results into substantial cost reduction. 10 Companiesinquadrant(3),seekdifferentiation throughserviceexcellencesincemarketsare becoming more and more service sensitive. Customersexpectgreaterresponsivenessand reliabilityfromthesuppliers,reducedleadtimes, just-in-timedelivery,andvariousother valueadded services. Servicesstrategiescanbedevelopedthrough enhanced logistics management. Companiesinquadrant(4)aredistinctiveinvalue they deliver and are also cost competitive. Competitorsfindithardtoattackthesecompanies which try to excel in all the value chain activities. 11 Value Chain Activities

Value Chain Activities Primary Activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Secondary Activities Infrastructure Human Resource Management Technology Development Procurement 12 Primaryactivitiesrepresentthefunctional areaslikearranginginputsfortransforming themintooutput,andmanagingdistribution, marketing, sales, and services. Thesecondaryactivitiesfacilitatethe integrationofallthefunctionsacrossthe entire organization. Thecompaniescanachievecompetitive advantageandcreatedifferentiationby organizingandperformingtheseactivities moreefficientlyorinauniquemannerthan their competitors.13 Factors affecting value and productivity advantage A. Productivity advantage - Capacity utilization - Asset utilization - Inventory reduction - Integration with the suppliers. B. Value advantage - Customized services - Reliability - Responsiveness. 14 Underlying Philosophy Behind Logistics Concept

SuppliersProcurementOperation DistributionCustomers Materials Flow Information Flow 15 The objective of logistics is to link the market place,distributionnetwork,themanufacturing processandprocurementactivity,soasto providehigherlevelsofservicestothe consumers yet at a lower cost. Scopeoflogisticsmanagementencompasses management of raw materials and other inputs through the delivery of the final product.16 How do we define logistics management? Aprocessofsatisfyingcustomerneedsthrough coordination of materials and information flows that extend from the market through the firms operation and beyond that to the suppliers. Ashifttoanintegratedorientationfromthe conventionalmanufacturingormarketing orientation. Traditionally,manufacturingandmarketinghave beenconsideredasseparateactivitieseachhaving different priorities. 17 Manufacturingprioritiesandobjectivesare concernedwithachievingoperatingefficiencies basedonlongproductionruns,minimizedsetups and changeovers, and product standardization. Marketingprioritiesandobjectivesareconcerned withachievingcompetitiveadvantagebasedon varieties,highservicelevels,andfrequentproduct changes. Customerorientationandcostcompetitivenesshas beenintegratedbyintroducingflexible manufacturingsystems,practicinginventory managementpoliciesbasedonmanufacturing requirementplanningandjust-in-timeinventory policy,layingsustainedemphasisonqualityand integrating supply side issues in strategic plans. 18 How do we define supply chain? Anetworkoforganizationsthatarehaving linkages,bothupstreamanddownstreamin differentprocessesandactivitiesthatproduce anddelivervalueintheformofproductsand services in the hands of ultimateconsumer. CustomersRetailersShirt Manufacturer Weavers of Fabrics Yarn/Fibremfrers Downstream Upstream 19 A shirt manufacturer is a part of supply chain that extends upstream through the weavers of fabrics to the spinners and the manufacturers offibres,anddownstreamthough distributorsandretailerstothefinal consumers. Thougheachoftheseorganizationsare dependentoneachotheryettraditionallydo not closely cooperate with one another. 20 Is Supply chain management same as vertical integration? SCM is not the same as vertical integration. Verticalintegrationimpliesownershipofupstream suppliers and downstream customers. Earlier,verticalintegrationusedtobethedesirable strategybutincreasinglythecompaniesarefocusing ontheircorebusinessi.e.theactivitiesthattheydo reallywellandwheretheyhaveadifferential advantage. Everything else is outsourced. 21 Implementation of SCM through Logistics Management SCMraisesthechallengeofintegratingand coordinating the flow of materials from multitude of suppliers, including offshore, and similarly managing thedistributionofthefinishedproductbywayof multitude intermediaries. Transferringcostsupstreamordownstreamleadsto logisticsmyopiaasallcostsultimatelywillmake waytothefinalmarketplacetobereflectedinthe price paid by the end user. The prime objective of SCM is to reduce or eliminate thebuffersofinventorythatexistsbetweenthe organizationsinachainthroughsharingof information on demand and current stock levels. 22 How does Logistics differ from SCM? Logisticsmanagementisprimarilyconcernedwith optimizing flows within the organization. Supplychainmanagementdealswithintegrationof all partners in the value chain. Logisticsisessentiallyaframeworkthatcreatesa singleplanforflowofproductsandinformation through a business. Supplychainbuildsuponthisframeworkandseeks toachievelinkageandcoordinationbetween processesofotherentitiesinthepipelinei.e. suppliers and customers, and organization itself.23 Impact of Logistics and Customer Service on Marketing Traditionally,marketinghasfocusedonend-customerorconsumer,seekingtopromotebrand values and to generate a demand pull in the market place for companys products. Duetoshiftinpowerinmarketingchannels, companiesarerealizingtodevelopstrongrelations withsuchintermediarieslikelargeretailoutletsto createacustomerfranchiseaswellasconsumer franchise. Theimpactofbothstrongconsumerfranchiseand customer franchise can be enhanced or diminished by effectiveness of suppliers logistics system. 24

ConsumerFranchise Brand values Corporate image Availability Customer Franchise Customer Services Partnership Quick Response Supply Chain Efficiency Flexibility ReducedInventory Low cost supplier Marketing Effectiveness Market Share Customer Retention Superior ROI 25 Activities Included in Logistics Logisticscompetencyisachievedby coordinating the following functional areas. - Network design - Information - Transportation - Inventory - Warehousing,materialhandlingand packaging.26 Network Design Networkdesignistheprimeresponsibilityof logisticsmanagerssinceafirmfacilitiesand structureisusedtoprovideproductsandmaterialsto the customers. Logisticsfacilitiestypicallyincludemanufacturing plants, warehouses, cross-dock operations, and retail stores. Determiningthenumberandtypeoffacility required, their geographic locations, and the work to be performed at each is an important part of network design. Incertainsituations,someofthefacilityoperations may be outsourced to service specialists. 27 Networkdesigndeterminesthetypeofthe inventory and the quantity to be stocked at each facility,andtheassigningofcustomerorders for shipment. Networkoffacilitiesalsoincludesinformation andtransportationasapartofentirestructure fromwherelogisticaloperationssuchas processingofcustomerorders,maintaining inventory and material handling are performed. Thenetworkdesignmustconsider geographical variations. 28 Thefactorsinfluencingmodificationsof network design are: (a) Change in demand and supply (b) Product assortments (c) Changes in suppliers source of supplies. (d) Manufacturing requirements. The first step towards achieving competitive advantageliesinsuperiornetworkdesign, astherealcompetitionisnotbetweentwo companiesbutbetweenefficiencyand effectiveness in managing their supply chain network. 29 Information

Deficiencies in the quality of information Incorrect informationwith respect to trends may cause Inventory shortage Over commitment Incorrect information relating to a specific customers requirements leads to Processing of incorrectorders creating additional costs. Reduced sales 30 Forecastingandordermanagementarethe twoareasoflogisticalworkthatdependon information. (a) Forecasting enables to decide on positioning ofinventorytosatisfyanticipatedcustomer requirements. (b) Ordermanagementinvolveshandlingof specificcustomersrequirements,both external as well internal. - Externalcustomersarethosethatconsume theproductorservice,ortradingpartners thatpurchasetheproductsorservicesfor resale. 31 - Internalcustomersareorganizationalunits withinafirmthatrequirelogisticalsupport to perform their designated work.(c)The process of order management involves - Receipt of an initial order - Invoicing - Delivery, and - Collection. Incorrectinformationanddelaysinorder processingcancripplethelogistics performance; thus qualityand timeliness are the key issues in logistical operations. 32 Transportation Transportationistheoperationalareaof logisticsthatgeographicallypositionsthe inventory i.e. provides for place utility. Companiesaccomplishtransportationin three different ways: (a) A private fleet of vehicles may be operated. (b)Contractsmaybeenteredintowith transport companies. (c) Theserviceofdifferenttransport companiesmaybeengagedonan individual shipment basis. 33 Factors affecting transportation performance

Transportation performance Cost Speed Consistency 34 A. Cost of transportation - Thepaymentformovementbetweentwo geographicallocationsandexpensesrelatedto administrationandandmaintainingin-transit inventory. B. Speed of transportation - Thetimerequiredtocompleteaspecific movement. - Transportfirmscapableofprovidingfaster services normally charge higher rate. - Thefasterthetransportationservices,shorteris the time interval during which the inventory is in transit and unvailable. 35 C. Consistency of transportation - Referstovariationsintimerequiredto performaspecificmovementoveranumber of shipments. - Consistencyisameasureofdependabilityof transportation. - Inconsistencyintransportationleadsto inventorysafetystocksrequiredtoprotect against unpredictable service breakdowns. +Speedandconsistencycombinetocreate quality aspect of transportation. 36 Inventory Theobjectiveistoachievethedesired customerservicewithminimuminventory commitment, consistent with lowest total cost. Excessiveinventoriesmaybehelpfulin compensatingfordeficienciesinnetwork designbutultimatelyresultintohighertotal logistics cost. Thebestpracticeofinventorymanagementis to achieve maximum turnover while satisfying customer commitments. 37 Warehousing, Material Handling, And Packaging Merchandiseneedstobewarehousedatselected times,transportvehiclesmaterialhandlingfor efficientloadingandunloadingandgoodsaremost efficientlyhandledwhenpackagedtogetherinto shipping cartons or other type of containers. Thelogisticalactivitiescarriedoutinwarehouseare sorting,sequencing,orderselection,transport consolidationandsometimesproductmodification and assembly. 38 Withinthewarehouse,productsmustbe received,moved,sorted,andassembledto meetcustomerorderrequirementsandfor theseactivitiesmaterialhandlingbecomes significant. Productspackedincans,bottlesorboxesare handledmoreefficientlywhencombinedinto larger units such as Master Cartons. Masterunitscanfurtherbeconsolidatedinto large units such as pallets, containers etc.39 Inventory Management Policy Thefollowingfactorsarerequiredtobe consideredwhileformulatinginventory management policy. - Customer segmentation - Product requirements - Transport integration - Time-based requirements - Competitive performance. 40 Customer Segmentation Theprofitabilityofbusinessdependsuponthe products purchased by the customers, sales volumes, prices,value-addedservicesrequiredand supplementaryactivitiestodevelopandmaintainan ongoing relationship. Somecustomersarehighlyprofitableandhave growth potential, while others do not. Hence,highlyprofitablecustomersconstitutethe core market for an enterprise and inventory strategies needtobefocusedonmeetingrequirementsofsuch core customers. Inventoryprioritiesdesignedtosupportcore customers come out of effective segmented logistics. 41 Product Requirements ApplyingParetosprinciple,firms20%of allproductsmarketedaccountformorethan 80% of total profits. Offerhighavailabilityandconsistentdelivery on more profitable products, though sometimes highlevelsupportoflessprofitableitems becomesnecessarytoprovidefull-lineservice to core customers. Notadvisabletoprovidehighservice performanceonlessprofitableproducts purchased by non core customers. 42 Thus, it may be desirable to hold slow-moving or low profit items at a central distribution warehouse whereas core customers may be served by fast, reliable air services. Orders to fringe customers may be delivered by less expensive ground transportation. 43 Transport Integration Asoundinventorymanagementstrategy wouldbetostocksufficientproductsat warehousetobeabletoarrangeconsolidated shipments to a customer or a geographic area. Thecorrespondingsavingsintransportation maymorethanoffsettheincreasedcostof holding the inventory. 44 Time-Based Requirements Time-basedarrangementsreducetheoverall inventoriesbydevelopingthecapabilitytorespond rapidlytoexacttoexactmanufacturingorretail customers. Iftheproducts/materialscanbedeliveredquickly,it maynotbenecessarytomaintaininventoriesat manufacturing plants/ retail stores. Ifreplenishmentcanbeachievedrapidlylesssafety stock will be required and instead of stockpiling and holdingsafetystocktherequirementwillbeto receivetheexactquantityofinventoryatthetime required. 45 Time-basedprogrammestendtoreduce shipmentsizes,whichinturnincreasesthe number,frequency,costofshipmentsand hence higher transportation cost. Aneffectivelogisticalarrangementwillbeto achieveatrade-offresultingintodesired customer service at the lowest total cost. 46 Competitive Performance Soundinventorymanagementpolicyis designedtogaincustomerserviceadvantage or neutralize a strength that a competitor may be enjoying currently. As inventories exist across a logistical system forvariousreasons,thepolicyshouldbe viewed from holistic cost perspective.47 IntegratedLogistics Customers Physical distribution Manufacturing support Procurement Suppliers Inventory Flow Information Flow 48 Informationfromandaboutcustomersflows through the enterprise in the form of sales activity, forecasts and orders. Informationisthentranslatedintomanufacturing and purchasing plans. Thematerialsarethenprocured,valueaddition takesplacealongwiththeinventoryflow ultimatelyresultingintotransferofownershipof finished products to the customers. Theprocessofintegrationisnotrestrictedto manufacturingcompaniesalone,theretailingand wholesalingfirmslinkphysicaldistributionand purchasing since manufacturing is not required.49 Theentireprocessofintegrationcanbe viewed in terms of two interrelated activities. - Inventory flow, and - Information flow Inventory Flow Physical distribution Manufacturing support Procurement 50 Physical Distribution Establisheslinkageofmarketingchannelwithits customersfacilitatingthemovementofafinished producttothefinaldestinationofamarketing channel. Wouldneedapropermarketingeffortresultinginto desiredassortmentbeingdeliveredwhenandwhere needed.-Outbound logistics. Fulfillsobjectiveofimplementationoftimeand spacedimensionofcustomerserviceasanintegral part of marketing. 51 Manufacturing Support Concernedwithmanagingwork-in-process inventoryasitflowsbetweenthestagesof manufacturing. Formulates a master production schedule that subsequentlyfacilitatesarrangingfortimely availabilityofmaterials,componentparts, and work-in-process inventory. Isnotconcernedwithhowproduction occursbutratherwhat,when,where products will be manufactured. 52 Difference between Physical distribution and Manufacturing Support Physicaldistributionattemptstoservethe desiresofthecustomersandthereforemust accommodatetheuncertaintiesofconsumer and industrial demand. Manufacturingsupportinvolvesmovement requirementsthatareunderthecontolof manufacturing enterprise. 53 Procurement Concernedwithpurchasingandarrangingin-boundmovementofmaterials,parts,and/or finishedinventoryfromsuppliersto manufacturingorassemblyplants, warehouses,orretailstorestherebyensuring availabilityofmaterials/assortmentswhere and when needed. -Inbound logistics.In a given marketing situation, manufacturers physicaldistributionissameasretailers procurementoperations. 54 Information Flow A. Planning & Coordination Flows - Nature & Location of customers - Requiredproducts&servicesmatchingtoneedsof customers. - Limitationsorbottleneckswithinmanufacturing capabilitiesthushelpingtodecideoutsourcing requirements. - Requirementsoflogisticalfacilitiesbasedupon forecasting. - MPSandMRPtosupportmanufacturing /procurement requirements. 55 B. Operational Flow - Order management and processing - Procurement - Inventory management - Transportation and shipping +Advantages of effective operational flows - Allocatesandassignsinventory/assortmentsto customers according to predetermined priorities.-Useofinformationtechnologyindeploying inventorytoensureeffectiveperformanceof logistical system.- Consolidatingorderstoachievefreighteconomies and making correct documentation. - Facilitatepurchaseorderpreparation,amendments and release to ensure overall supplier compliance. 56 Logistical Performance Cycles The logistical integration through performance cyclesprovidesinterfaceandlinkthe suppliers, the firm and its customers by means of communication and transportation.

Performance Cycle Transaction creatingactivities Physical fulfillment activities Advertising & SellingPhysical distribution 57 Physical distribution performance cycle

Customer order Order transmission Order processing Order selectionOrder transportation Order delivery to the customer 58 Significance of physical distribution performance cycle Asitlinksafirmwithitscustomers,ithelpscreate marketingandmanufacturinginitiativesintoan integrated efforts. It resolves conflicting interface between marketing & manufacturing. - As marketing is dedicated to delighting customers, it wouldliketomaintainbroadproductlinewithhigh inventoryregardlessofeachproductsprofit potential.Bydoingso,anycustomer'srequirement, no matter how small or large would be satisfied. 59 - Traditionalmindsetinmanufacturingisto controlcost,whichisachievedbylong productionruns.Continuousmanufacturing processesmaintaineconomiesofscaleand reduceperunitcost.Therefore,anarrowline of products is mass produced. - Inventoriesarekepttoresolvetheinherent conflict between these two philosophies. - The above is achieved by forward deployment ofinventorythroughoutthelogisticalsystem inanticipationoffuturesalesonthebasisof forecasted information. 60 How to reduce physical distribution operational variance Improve accuracy of forecast Improveordermanagementand coordination with the customers. Have responsive and flexible cycle. 61 Manufacture Support Performance Cycle Itprovidesproductionlogisticsbeingpositioned betweenthephysicaldistributionandprocurement operations of a firm. Movementandstorageofproduct,materials,and semi-finishedpartsandcomponentsbetween enterprisefacilitiesrepresenttheresponsibilityof manufacturing support logistics. Incontextofwholesale&retailtrade,itimplies selectionofassortmentofinventorytobemovedto the next level of value chain. Basically,supportswhat,whereandwhenofthe production and not how. 62 Features of manufacturing support performance cycle. Initiatesprovisionofmaterialsandexternally manufacturedcomponentsataplaceandtime needed. Operationsarerestrictedtodock-to-dockmovement withinthefirmandwhereintermediatestorageis required. After completion of manufacturing cycle the finished goodsinventoryisallocatedanddeployedeither directlytothecustomersortodistribution warehouses for further customer shipment. 63 Procurement Performance Cycles Sourcing Order placement and Expediting S U P P L I E R S Transportation Receiving 64 The procurement operations are identified as inbound logistics. Internationalprocurementoftenrequireslarge shipmentsnecessitatingtheuseofbarges,ocean goingvessels,trainsandmultipletruckloadsfor transportation. Thelowervalueofmaterialsandcomponentsas comparedtofinishedproductimpliesgreatertrade-offbetweenhighercostofmaintaininginventoryin transit and the use of low cost modes of transport. Asthecostofmaintaininginventoryinthepipeline islessperdaythanthecostofmaintainingfinished inventory,thereisnobenefitforpayinghigher freight rates for faster inbound transport.65 Procurementperformancecyclesare invariablylongerexceptinginthosecases where the value of material or component may justifypayinghigherfreightratesforfaster inbound transport. Acriticalissueinprocurementisuncertainty inrespectofpricechange,and/orsupply discontinuity. 66 Reducing performance cycle uncertainties Use of electronic data interchange Monitoring daily changes in workloads Human resource availability Availability of specialized unloading and loading handling equipments Establishing safety stock/ buffer inventory to cover variances so as to avoid delays. 67 A few terms used in Inventory Management Buffer stock= {Average lead time}x{Average usage rate}. Safety stock= Average usage during the extension of lead time. Reserve stock= Excess usage requirement during the average lead time. Re-order level= B.S.+ S.S.+ R.S. Minimum Inventory Level= S.S.+R.S. Max. Inventory Level= {Minimum Level} + {Order quantity} 68 AverageInventoryLevel=(Min. level+Max.level)/ 2 In case of periodic review the buffer stock will bemodifiedto{Averageconsumption rate}x{Average lead time+Review period} 69 Inventory Planning Ideally, if the forecast is done accurately, there will not be any need for an inventory. Mostwarehousingwouldvanish,product wouldmovewithlesshandlingrequirements from warehouses to customers. However, in real life situations, the thrust is on reducinginventoryandmaintainproper customer service and optimal inventory levels.70 Inventory decisions-High risk & high cost Withouttheproperinventoryassortment,marketing may find that sales are lost and customer satisfaction declining. Overstocksincreasecostandreduceprofitability throughaddedwarehousing,workingcapital requirements,deterioration,insurance,and obsolescence. As the significance percentage of assets are inventory related,areductionoffirmsinventorybyafew percentagepointscanleadtodramaticimprovement in profits. ROI= (Profit/ Fixed assets +Current assets)71 Substantial improvement in the productivity of inventorycanbeachievedbyre-engineering supply chain processes. Poor inventory management may lead to stock outsandhencecancellationofcustomers orders,overstockingleadingtoinsufficient storagespaceandincreaseinthenumberand rupee value of obsolete products. Consequently,inventorymanagementhasa large financial impact on the firm. Investmentsblockedininventorycannotbe used to obtain other goods or assets that couldimprove the enterprise performance. 72 Types of Inventory Broadly there are three types of inventory - Manufacturing inventory - Wholesale inventory - Retail inventory (a) Manufacturing inventory - Manufacturersinventorycommitmentstartswith raw material and component parts, including work-in-process, and ends with finished goods. - Manufacturerneedstotransferthefinishedgoods inventorytowarehousesincloserproximityto wholesalers and retailers. - Manufacturers inventory commitment is relatively deep and has long duration.73 (b) Wholesale inventory - Wholesalerpurchaseslargequantitiesfrom manufacturers and sells small quantities to retailers in ordertoprovideretailcustomerswithassorted merchandisefromdifferentmanufacturersinsmaller quantities. - Thus wholesaler risk exposure is narrower but deeper and of longer duration than that of retailers. - In case of seasonal goods, the wholesaler is forced to commitinventory,farinadvanceofselling,thus increasing the depth and duration of risk. - Thecurrenttrendofexpansionofproductlineshas increased the width of inventory risk. 74 (c) Retail inventory - Retailer inventory risk is wide but not deep. - The emphasis is more on inventory velocity. - Inventory velocity is measured by inventory turnover.- The risk is undertaken on variety of products but for a givenproducttheriskisnotdeeprelatively.The exceptionisspecialtyretailerwherethedepthand duration will be longer as they handle narrower lines. - For instance, retailers risk is spread across more than 10,000SKUs,ageneralmerchandiseandfoodstore maycarryaround25,000SKUsandafullline department store may have as many as 50,000 SKUs. 75 Functions underlying inventory commitments A. Geographical Specialization - Itallowsforgeographicalspecializationfor individual operating units. - Theneedforgeographicalspecializationarises becausevariousfactorsofproductionviz.power, materials, water, labour, manufacturing facilities are locatedataconsiderabledistancefromthemajor markets. - Forinstance,tyres,batteries,transmission equipmentsandspringsforanautomobile assembly.Theproductionfacilitiesforeachofthe thesearetraditionallylocatednearthesourceof materials to minimize transportation cost. 76 -Thisstrategyleadstospecializationofmanufacturing each automobile component and hence economically. -Thiswillalsoinvolveinternalinventorytransferto completelyintegratevariouscomponentsintofinal assembly. -Thus,manufacturedgoodsfromvariouslocationsare collected at a single warehouse and then combined as a consolidated/ assorted shipment. -P&Gusesdistributioncentrestocombineproducts fromitslaundry,food,andhealthcaredivisionsto offer the customer a single integrated shipment. - Economiesgainedthroughgeographical specializationinvariablyoffsetincreasedinventory and transportation cost. 77 B. Decoupling - Providesforincreasingoperatingefficiencywithina singlemanufacturingfacilitybystockpilingwork-in-process inventory between production operations. - Decoupling enables manufacturing and distribution of economiclotsizesinanticipationofsalesthus ensuring large sized shipments with minimum freight cost. - Decouplingpermitsproductsmanufacturedovera period of time to be sold as an assortment. - Decouplingincreasestheoperatingefficiencyata singlelocationwhilegeographicalspecialization includes multiple locations. - However,JIT,DRPetchavereducedtheeconomic benefits of decoupling considerably. 78 C. Balancing Supply and Demand- Balancingisconcernedwithelapsedtimebetween consumptionandmanufacturingasbalancing inventory reconciles supply availability with demand. - Particularlyusefulinlinkingvariationsof consumptionwithmanufacturingincaseofseasonal products. - Balancingseasonalproductionandyearround consumptionsuchasorangejuiceoryearround productionandseasonalconsumptionofblanketsor knitting wool. - Incaseofsortsellingseason,manufacturers, wholesalersandretailersareforcedtotakean inventorypositionfarinadvanceofpeakselling season. 79 - From retailers perspective, an inventory position is planned six months prior to the peak selling period.- The main function of balancing supply and demand istoensurethatinvestmentinstocksisliquidated completely within the season. D. Buffer Uncertainties - Safetystockprotectsagainsttwotypesof uncertainties: - (a)Demandinexcessofforecastduringthe performance cycle. For instance, customers request of more or less unitsthan planned. - Delaysintheperformance-cyclelengthitself.For instance, delay in order receipt, order processing, or transportation. 80 Inventory Management Strategy Companiescanpostponepositioningofinventory bymaintainingstockattheplantsortheymay decide to place more products in local distribution centres to have it closer to the market. (a) Manageinventoryateachdistributioncentreindependently. (b) Considerinventoryinterdependenceacross distribution sites by managing inventory centrally. (c) Ensuremorecoordinationandcommunicationin case of centralized inventory management.81 Inventory Cost Consideration 1. Origin purchase consideration 2. Transportation cost. (a) Originpurchase means the buyer is responsible for freight cost and product risk when the product is in transit. (b) Dependingonthedeliveryterms,thebuyer assumesfullriskoninventoryatthetimeof shipment. (c) Depending on the payment terms, transit inventory wouldbeapartofenterprise'saverageinventory and therefore subject to an appropriate charge. (d) Transportationcostmustbeaddedtopurchase price to obtain an accurate assessment of the value of goods tied up in inventory. 82 Aftertheinventoryisreceived,theamount investedintheproductmustbeincreasedby transportation expenses. Thus,inventorycarryingcostshouldbe assessed onthecombinedcostoftheproduct plus transportation. 83 Inventory Control Procedures

Perpetual ReviewPeriodic Review 84 Perpetual Review Inventorystatusisreviewedtodetermine replenishment needs. Implementedthroughareorderpointand order quantity. +ROP= D x T + SS, where ROP= reorder point in units D= average daily demand in units T= average performance-cycle length in days SS=safety or buffer stock in units. 85 Thefollowingareconsideredinperpetual review: - Onhandinventoryrepresentsquantitythatis physically present in the particular distribution facility. - On-orderinventoryrepresentsquantitiesthat have been ordered from suppliers. - Ifon-handpluson-orderquantityislessthan orequaltotheestablishedreorderpoint, inventorycontrolprocesswillinitiateanother replenishment order.86 - Mathematically, this can be stated as - IfI+q s ROP then order Q, where (a) I= inventory on hand (b) q= inventory on order from suppliers (c) ROP = re-order point in units (d) Q= order quantity in units. Averageinventorylevelforaperpetualreview system is calculated as (a) I = Q/2 + SS, where - I= average inventory in units - Q= order quantity in units, and- SS= safety stock in units The assumption is that P.O. will be placed when the reorderpointisreachedandthereisacontinuous monitoring of inventory system.

87 Periodic Review Theinventorystatusisreviewedatregularintervals such as weekly or monthly. There-orderpointisadjustedtoconsiderthe extended intervals between reviews. Theformulaforcalculatingtheperiodicreview reorder point is +ROP= D( T + P/2) +SS, where - ROP= re-order point- D=average daily demand - T= average performance cycle length - P=review period in days - SS= safety stock 88 Average inventory for periodic review is represented as I= Q/2 + (P x D)/2 + SS, - I= average inventory in units - Q= order quantity in units - P= review period in days - D= average daily demand - SS= safety stock. Becauseofthetimeintervalintroducedby periodicreview,periodiccontrolsystems generallyrequirelargeraverageinventories than perpetual system.89 Inventory Planning Methods

Fair Share allocation DistributionRequirement Planning 90 Fair Share Allocation Plant Warehouse Inventory- 600 units Distribution Centre-1 Distribution Centre-2 DistributionCentre-3 Inventory= 50 units Daily use= 10 units Inventory= 100 units Daily use= 50 units Inventory= 75 units Daily use= 15 units 91 Fairshareallocationprovideseach distributionfacilitywithanequitableorfair shareofavailableinventoryfromacommon source such as a plant warehouse. Assuming that from a total inventory units of 600 it is desirable to retain 100 units at plant warehouse;500unitsareavailablefor allocation. Firstweneedtodeterminethenumberof days supply.

92 +DS = (A +E Ij )

/ E Dj , where - DS=no.ofdayssupplyfordistribution centre inventories. - A=inventoryunitstobeallocatedfromthe warehouse - Ij= inventory in units for distribution centre j. - Dj = daily demand for distribution centre j +In the above example, DS = {500 + ( 50+100+75)} /(10+50+ 15) DS= {500 + 225} /75 =725/75 = 9.67 days 93 Thus,fairshareallocationmeansthateach distribution centre should be brought up to 9.67 days stock. Theamounttobeallocatedtoeachdistribution centre is determined as under: +Aj = (DS Ij /Dj ) x Dj, where - Aj = amount allocated to distribution centre j - DS=numberofdayssupplythateachdistribution centre is brought upto. - Ij = inventory in units for distribution centre j - Dj= daily demandfor distribution centre j - Thus,theamountallocatedtodistributioncentre1 will be +A1=(9.67-50/10)x10=(9.67-5)x10=4.67x10= 46.7 or 47 units.

94 +A2= (9.67-100/50)x50=(9.67-2.00)x50=383.5 or 384.00 +A3= (9.67-75/15)x15=(9.67-5.00)x15=70 units. However, does not consider site specific factors. - Difference in performance cycle. - Economic order quantity. - Safety stock requirements. 95 Distribution Requirement Planning Logicalextensionofmanufacturingrequirement planning (MRP). Operatesinanindependentenvironmentwhere uncertaincustomerdemanddeterminesinventory requirements. Requiresforecastforeachdistributioncentreand SKUaswellasadequatelead-timetoallowproduct movement. Errors may creep in because of prediction of demand at wrong location or at wrong time. Requiresconsistentandreliableperformancecycles for movement between distribution facilities.96

Plant Warehouse Regional warehouseRegional warehouse Distributioncentre Distribution centre Distribution centre Distribution centre Distrib ution centre Distribution centre CU S T O M E R S97

Raw Materials Warehouse Part APart B Sub-assembly A Part CPart DPart E Sub assembly B Sub assembly C Final Assembly (Manufacturing) Plant Warehouse 98 DRP/MRP system integrates finished goods, work-in-process, and materials planning. DRPprovidesascheduleforeachSKUandeach distribution facility. For each planning period, the schedule will report the following: - Gross requirements reflecting demand from customers being catered to by different distribution facilities. - Scheduledreceiptsi.e.replenishmentshipments planned for arrival at the distribution centre. - Anticipated week ending total deliveries. - Projected on-hand inventory i.e. prior weeks on-hand inventory-currentweeksgrossrequirement+ scheduled receipts.

99 Benefits of DRP Improvedservicelevelsbyincreasingontime deliveries and decreasing customer complaints. Better planning of new product launches. Improvedabilitytoanticipateshortagessothat marketingeffortsarenotexpendedonproductswith low stock. Reduceddistributioncentrefreightcostsresulting from coordinated shipments. Improvedinventoryvisibilityandcoordination between logistics and manufacturing. Reducedwarehousingspacerequirementsbecauseof inventory reductions. 100 Demand Forecasting Forecasting process comprises of two elements (a) Nature of demand, and (b) Forecast components Nature of Demand Dependent demandIndependent demand 101 Dependent versus Independent Demand Verticaldependentischaracterizedby sequenceofpurchasingandmanufacturing, suchasnumberoftyresusedforassembly of automobiles. Horizontaldependentoccursinasituation whereanattachment,promotionitemor operators manual is included with each item shipped. (a) Thedemandeditemmaynotberequiredto complete the manufacturing process but may be needed to complete the marketing process. 102 (b)Oncemanufacturingplanforbaseitemis determined,requirementsofcomponents/ attachmentscanbecalculateddirectlyandno separate forecasting is done. Independent demands are ones that are not related to the demand for another item. For instance, demand for refrigerator is not related to the demand for milk. Independentdemanditemsareforecasted individually.

103 Forecast Components 1. Base demand 2. Seasonal factors 3. Trends 4. Cyclic factors 5. Promotions 6. Irregular quantities. Mathematically forecast is expressed as +Ft+1= (Bt x St x Tt x Ct x Pt) + I, where - Ft+1= forecast quantity for period t+1 104 - Bt=baselevelsalesdemand(averagesaleslevel) for period t+1 - St= seasonal factor for period t - T= trendcomponent (quantity increase or decrease per time period) - Ct= cyclic factor for period t - Pt= promotional factor for period t - I= irregular or random quantity. + All forecasts may not include all components. A.Basedemandisbasedonaveragedemandoveran extended period of time. (a) Thereisnoseasonality,trend,cyclicor promotional component.

105 B.Seasonalcomponentischaracterizedbyupward anddownwardmovementindemandpattern, usuallyonannualbasise.g.emandforwoollen blanketsisatpeakduringwintermonthsand lowest during summer. (a) Seasonalityatwholesalelevelprecedesconsumer demand by approximately one quarter. (b) Anindividualseasonalityfactorof1.2indicates thatsalesareprojectedat20%higherthanan average period. C. Trend Component exhibits long range movement in sales over an extended period of time. (a) Trend may change number of times over the entire product life cycle. 106 (b) For instance, a reduction in birth rate implies reduction in demand of disposal diapers. (c) Trend component influences base demand as Bt+1 = Bt x T, where - Bt+1 = base demand in period t+1 - Bt = base demand in period t, and - T= periodic trend index. D.Cycliccomponentareknownasbusiness cycles. (a) Economiesswingfromrecessionto expansion every three to five years. 107 E.Promotionsareinitiatedbythefirmsmarketing activitiessuchasadvertising,andvariousother schemes. (a) Salesincreaseduringpromotionastheconsumers takeadvantageofpromotionalschemesthusleding to liquidation of inventories. (b) Promotioncaneitherbethedealsofferedtothe consumers or deals offered to the trade (wholesalers/ retailers). (c) Promotionsifofferedonregularbasisatthesame time every year will resemble a seasonal component. F.Irregularcomponentsincluderandomor unpredictable quantities that do not fit into any other category hence are impossible to predict. (a)Bytrackingandpredictingothercomponentsthe magnitude of random component can be minimized.

108 Forecast Approaches A. Top-Down ApproachPlant Distribution Centre FieldDistribution Centre# 1 Forecast 4000 units Field Distribution Centre#2 Forecast 3000 units Field Distribution Centre#3 Forecast 2000 units Field Distribution Centre#4 Forecast 1000 units 109 Assumethefirmhasanaggregatemonthly forecastfortheentirecountryas10,000units and it use four distribution centres to service the demand with a historical split of 40, 30, 20, and 10 per cent respectively. Forecasts for individual distribution centres will be projected to be 4,000, 3000, 2,000 and 1,000 respectively. Intop-downapproachanationallevelSKU forecastisdevelopedandthentheforecasted volumeisspreadacrosslocationsonthebasis of historical sales pattern. 110 B. Bottom-up Approach Decentralizedapproachsinceeachdistribution centre forecast is developed independently. Resultsintomoreaccurateforecastasittracks andconsidersdemandfluctuationswithin specific markets. Requiresmoredetailedrecordkeepingandis moredifficulttoincorporatedemandfactors such as impact of promotion. +Trade-offthedetailtrackingofbottom-up approachwithdatamanipulationeaseoftop-down approach. 111 Components of Forecasting Process

Orders History Tactics Forecast database Forecast Administration Forecast Technique ForecastSupport System Forecast Process Forecast Users Finance Marketing Sales Production Logistics 112 A. Forecast data base keeps information about Orders Order history Tacticsusedtoobtainorderssuchaspromotions, schemes, special promotional programmes. State of economy and competitive actions. B.Forecastprocessintegratesforecasttechniques, support system and administration. Twoprominentlyusedforecastingtechniquesare time series and correlation modelling. Forecast support system is the capability to gather andanalyzedata,evaluateimpactofpromotion, developforecastandcommunicatetotherelevant personnel. 113 Issues addressed by Forecast Administration Who is responsible for developing the forecast? Howisforecastaccuracyandperformance measured? Howdoesforecastperformanceaffectjob performance, evaluation and rewards? Dotheforecastanalystsunderstandtheimpact of forecasting on logistics operations? Dotheyunderstandthedifferencesinvarious forecasting techniques? 114 Transportation Transportationdecisionsaremorestrategicones closely linked with inventory decisions. Decisionsarebasedontrade-offbetweenthecostof usingaparticularmodeoftransportwiththecostof inventory associated with that mode. For instance, air shipments may be fast, reliable , and warrant less safety stocks; they are expensive whereasshipping by sea or rail may be much cheaper but they necessitateholdingrelativelylargeamountof inventorytoprotectagainsttheinherentuncertainty associated with them. 115 Customerservicelevelsandgeographic locations are important aspects in transportation decisions. Transportation accounts for roughly 30% of the logisticscostsandthereforeoperating efficiencies become important aspects . Shipment sizes i.e. consolidated bulk shipments versus smaller lot sizes; routing and scheduling ofvehiclesbecomeimportantpartof companys transport strategy. Transportationisoneofthemostvisible elements in the logistics operation. 116 Transportation Functionality Product Movement Product Storage 117 A. Product Movement - Primaryfunctionisthemovementupanddownthe value chain. - Astransportationusestemporal,financialand environmental resources, themovement ofmaterials should take place only when it enhances the product value.(a) Usestemporalresourcesbecausetheproductis inaccessible while in transit. - DuetoJITstrategiestransitinventoriesare becomingmoresignificanttherebyreducing manufacturing and distribution centre inventories. (b)Expensesincurredinternallyforprivatefleetof vehiclesorexternallyforcommercialorpublic transportation constitute financial resources.

118 (c)Transportationconsumesfuelandoilandalso createsenvironmentalexpensesthrough congestion, air pollution and noise pollution. Objectives of Transportation Move productfrom originallocation toprescribeddestination whileminimizing temporal, financial and environmental Costs. Minimize expenses incurred due to loss and damage. Meet customer demand regarding delivery and shipment information availability 119 B. Product Storage - Temporarystoragethroughvehiclesbecomes expensiveasin-transitstorageisrequiredtobe moved again in a short duration of time. - Sometimestemporarystoragebecomes advantageousasthecostofunloadingand reloadingtheproductinawarehousemay exceedthedailychargeofstoragein transportation vehicles. - Manytimeswherethewarehousespaceis limited,utilizingtransportationvehicles becomes a viable option.120 Theoptionsavailabletoatransporterincaseof warehouse space constraints are (a) Instructdrivertotakeacircuitousorindirectroute toitsdestination,asthetransittimewouldbegreaterascomparedtodirectroute.Thustransport vehicle is used as temporary storage option. (b) Changetheshipmentdestinationi.e.temporary storage is achieved through diversion. - Forinstance,productthatis,say,scheduledinitially fromMumbaitoHyderabadgetsdivertedmidway toVishakapatnam(Vizag)asVizagwarehousemay beingreaterneedofproductandhasthestorage capacity. 121 - Traditionally,thetelephonewasusedtodirect diversionbutnowadayssatellite communicationsbetweenheadquartersand vehicle handle such tasks more efficiently. - Thoughproductstorageinvehiclescanbe costly,itcanbejustifiedfromatotalcost perspectivewhenloading,unloadingcosts,orcapacity constraints are considered. 122 Principles of Transportation Economies of Scale Economies of Distance 123 A. Economies of Scale Transportation cost per unit of weight decreases whenthesizeoftheshipmentincreasesi.e. shipmentsthatutilizetheentirevehicles capacityliketruckload(TL)costlessperkg than less than truck load (LTL) shipments. Fixedcostsintransportationinclude administrativecostsoftakingtransportation order, time to position the vehicle for loading or unloading, invoicing and equipment cost. Itcostsasmuchtoadministerashipmentof1 kg as it does to administer a 1000 kg shipment.124 B. Economies of Distance Transportationcostperunitofdistance increasesatadecreasingrateasdistance increases. Also called Tapering Principle For instance, a shipment covering a distance of 800kilometerswillcostlessthantwo shipmentsofsamecombinedweightcovering 400 kms. Fixed expenses incurred to load and unload the vehiclegetspreadovermorekilometers resulting in lower overall per kilometer charges. 125 Tapering Principle Distance C O S T 126 Participants in Transportation decisions

Government Shipper CarrierConsignee Public 127 Role and Perspective of each party A. Shippers and Consignees Expectations Movethegoodsfromorigintodestination within a prescribed time at the lowest cost. Specifiedpickupanddeliverytimes, predictable transit time, zero loss and damage, accurateandtimelyexchangeofinformation and invoicing. 128 B. The Government Role Stable and efficient transportation environment to sustain economic growth. Product availability throughout the country at a reasonable cost. Providing right-of-way such as road or railways or air traffic control system. C. The Public concerns Accessibility, cost effectiveness and protection of environmental and safety standards. Development of transport infrastructure to have goods from global sources. 129 Features of Different Modes of Transportation

Modes of Transportation Rail HighwayWaterPipeline Air 130 A. Rail - Capabilitytotransportlargeshipments economically with more frequency. - Highfixedcostsbecauseofexpensive equipment, right of way, switching yards, and terminals. - Variable costper kg/km hasbeenconsierably reduced by electrification.- Bulkindustriesandheavymanufacturinguse railways more frequently. - Canimproveeffectivenessoftransportation by having alliances with other modes. 131 B. Highway - Growthofmotorcarrierindustryhasresulted intodoor-to-dooroperatingflexibilityand speed of inter-city movement. - Comparedtorailways,motorcarriershave relativelysmallfixedinvestmentsinterminal facilitiesandoperateonpubliclymaintained highways. - Variablecostperkilometerishighbecausea separatedriverandcleanerarerequiredfor each vehicle. - Labourcostisalsohighbecauseoftheneed for substantial dock labour. 132 Cost Structure in respect of Motor Transport Fixed costs such asoverheads and vehicle cost are low relative to railway Variable costs such as driver, fuel, tyres and repairs are high relative To railways. 133 Motorcarriersarebestsuitedtohandlesmall shipments moving short distances. Favourlightmanufacturinganddistributive traders,shortdistancesandhighvalue products. Havecapturedsignificantmarketshareof railwaysinmediumandlightmanufacturing industries. Because of delivery flexibility, motor transport hascapturedalmostallfreightmovingfrom wholesalers or warehouses to retail stores. Highercostinreplacingequipment,higher wages to driver and other dock labour.134 C. Water - Capacity to move extremely large shipments. - Fixedcostsaresomewherebetweenrailandmotor carriers. - Thoughwatercarriershavetodevelopandoperate their own terminals, the right-of-way is developed and maintainedbythegovernment,resultinginto moderate fixed costs compared to rail and highways. - Low variable cost makes this an attractive mode when lowfreightratesaredesiredandspeedissecondary consideration. - Typicallybulkcommoditiessuchasmining, chemicals,cement,andcertainselectedagricultural products are transported by ocean going vessel. 135 - Unless the point of origin and point of destinationare adjacenttoawaterway,itneedstobesupplemented by rail or trucks.D. Pipelines - Usedfortransportingnaturalgas,manufactured chemicals,pulverizeddrybulkmaterialssuchas cementandflourviahydraulicsuspensions,sewage and water within the cities and municipalities. - Operate on 24x7 basis are limited only by commodity changeover and maintenance. - No empty container or vehicle that must be returned. - Highest fixed cost an lowest variable cost. - High fixed costs due to right-of-way, construction and requirementsforcontrolstationandpumping capacity. - 136 - Aspipelinesarenotlabourintensive,variable operatingcostisextremelylowoncethepipelineis constructed. - Inflexibleandlimitedtoproductsintheformofgas, liquid or slurry. E. Air - Significantadvantageliesinthespeedwithwhicha shipment can be transported. - Though the freight cost is very high, the same may be trade-off with reduced warehousing or inventory. - Characterizedbyloadsizeconstraintsandaircraft availability. - Fixedcostassociatedwithaircraftpurchaseand requirementsforspecializedhandlingsystemsislow as compared to rail, water and pipeline. - 137 - Airways and airports are generally developed and maintained with public funds. - Airfreight variable cost is extremely high as a result of fuel,maintenance and intensity of in-flight and ground crew.- Airfreight is justified in following situations: (a) High value products (b) Perishables (c) Limited marketing period. (d) Emergency. 138 Nature of Traffic versus Mode of Transportation ModeNature of Traffic RailExtractingindustries,heavymanufacturing, agricultural commodities HighwayMediumandlightmanufacturing,distribution between wholesalers and retailers. WaterMining and basic bulk commodities, chemicals, cement, agro-based products. PipelinePetroleum, gases, slurry. AirEmergency, perishables, limited marketing period, high value premium products. 139 Cost Structure for Each Mode of Transportation

ModeFixed CostVariable Cost RailHigh- equipment terminals, tracks etc.Low HighwayLow-highways provided by public fundsMedium- fuel, maintenance. WaterMedium- ships and equipmentLow-capability to transport large amount of tonnage. PipelineHighest-rights-of-way, construction, control stations, pumping capacity. Lowest-no labour cost of any significance. AirLow-aircraft and cargo handling system.High-fuel, labour and maintenance. 140 Transport Economies Distance Volume Density Stow ability Handling Liability Market factors 141 A. Distance - Costcurveincreasesatadecreasingrateasa functionofdistanceandisknownastapering principle. - Costcurvedoesnotbeginattheoriginbecauseof the fixed costs associated with shipment pick up and delivery regardless of distance. - Taperingeffectcomesintoexistence,asthelonger movements tend to have a higher percentage of inter-city rather than urban kilometers. - Frequentintermediatestops,typicalofurban kilometers, and additional loading and unloading add to the costs. - Inter-citymilesarelessexpensivesincemore distanceiscoveredwithsamefuelasaresultofhigher speed. 142 B. Volume - Transportcostperunitofweightdecreasesasload volume increases. - Fixedcostsofpickupanddeliveryaswellas administrativecostsgetspreadoveradditional volumes. - Smaller loads must be consolidated into larger loads.C. Density - Transportationcostperunitdeclinesasproduct density increases. - In terms of weight and space, an individual vehicle is constrainedmorebyspacethanbyweight.Onceis thevehicleisfull,itisnotpossibletoincreasethe amount carried even if the product is lightweight. 143 - Higherdensityproductsallowfixedcoststobe spreadacrossadditionalweight,asaresultthe productsareassessedatalowertransportcostper unit. - Attempts are made to increase product density so that more can be loaded in a vehicle to utilize its capacity.D. Stow ability - Refers to product dimensions and impact of the same on vehicle utilization. - Oddsizesandshapesaswellasexcessiveweights andlengthsdonotstowwellandtypicallywaste space. - Though density and stow ability are similar, products may have same density that stow differently. 144 - Items with regular shapes are easier to stow than odd shaped items. - Whilethesteelblocksandrodshavethesame density,rodsaremoredifficulttostowbecauseof their length and shape.E. Handling - Specialhandlingequipmentsmayberequiredfor loadingorunloadingtrucks,trains,orshipsandthe unitization/ palletization affects the handling cost. F. Liability -Productcharacteristicssuchassusceptibilityto damage,perishability,susceptibilitytototheft, susceptibility to explosion affect the risks and hence claims. 145 G. Market factors (a) Back-hauli.e.vehiclereturningbacktothe point of origin with load. (b) Deadheadtobeavoidedbecauseempty returnsincurlabour,fuel,andmaintenance costs. (c) Thusdesignoflogisticssystemmustadd back-haul movement wherever possible. 146 Multimodal Transport System MultimodalorIntermodaltransportrefersto journeysthatinvolvetwoormoredifferent modes of transport. Forinstance,ifmaterialsaremovedfrom Lanchow in central China to Warsaw in Poland goodsmaybeloadedontotrucks,transferring themontorailsforajourneyacrossChinato Shanghai,thenshiptoRotterdam,backinto railstocrossEurope,thentruckforlocal delivery. 147 ForLogisticsmanagersintermodalservicesbecome necessary because of their characteristics and costs. Forexample,limitedaccessibilityofairtransport requirescoordinationwithalandcarriertomakethe pick ups and deliveries. Similarly,inaccessibilityappliestorail,waterand pipelinebutnottothemotorwhichhasadefinite advantage here. Theintermodalservicesmaximizestheprimary advantagesinherentinthecombinedmodesand minimize their disadvantages. Thecombinedserviceswillhavebothgoodandbad aspects of the utilized modes. 148 Forinstance,coordinateofrailandwaterwill havealowertotalcostthananall-rail movement but higher cost than that of all-water. Likewise, combined system transit time will be lowerthanallwatermovementbuthigherthan all-rail. Thedecisiontousemulti-modalsystemmust consider the effect on total logistics costs. Theaimofintermodaltransportistocombine the benefits of several separate modes but avoid thedisadvantagesofeach,like,combiningthe low cost of shipping with flexibility of the road, or getting the speed of air with the cost of road. 149 However, each transfer between modes causes delays and adds costs of extra handling. Intermodaltransportworkswellwhentransfer can be done efficiently. Transferofmotorcarriertrailertoanother transportmodeisfacilitatedthrough containerization. 150 Choice of Mode Factors influencing the choice of mode are as under: - Bulkinessofthematerials;heavyitemswouldbe shipped by ocean going vessels.- Valueofmaterials;expensiveitemsraiseinventory costs and thus encourage faster modes. - Criticality of materials; even low unit value items that hold up the operations need fast and reliable transport. - Susceptibilitytomarketchanges;operationsthat respondquicklytochangescannotwaitforcritical supplies using slower transport. - Reliability with consistent delivery is important.151 - Cost and flexibility to negotiate rates. - Reputation and stability of carrier. - Susceptibility to loss, theft and pilferage - Schedule and frequency of delivery. - Special facilities available Limitations of Multimodal system - Sometimes carriers are reluctant to participate. - Willingness to coordinate in respect of moving the product is higher when any one carrier is incapable to transport in its entirety. 152 Containerization Containerislargerectangularboxintowhichafirm places commodities to be shipped. Afterinitialloading,thecommoditiesthemselvesarenot rehandleduntiltheyareunloadedattheirfinal destinations. Throughoutthemovement,thecarrierhandlesthe container, not the commodities. Theshippercantransferthecontainerfromonemodeto another,eliminatingtheneedtohandlethecommodities eachtimethusreducinghandlingcosts,damagecosts, theft,pilferageandthetimerequiredtocompletethe modal transfer. 153 Manyfirmsthatmodifytheirmaterial handlingsystemstoincludecranes,forklift trucks,andotherequipmentcapableof handlinglarge,heavycontainershavefound containerizationtobedesirableavenuesfor increasingproductivityandcontrolling materialhandlingcosts,especiallyinperiods of continually increasing labour costs. Astheobjectiveofintermodaltransport systemistoprovidevirtuallyseamless journey, the best way to achieve same is to use modular or unitized loads.154 Piggyback Trailer on Flat Car TOFCis a specialized form of containerization in which rail and motor transport coordinate. Carrierplacesmotorcarriertraileronarail flatcar,whichmovesthetrailerbyrailforlong distance. Amotorcarrierthenmovesthetrailerforshort distance pickups and deliveries. Thisservicecombinesthelong-haul,lowcost advantage of rail with accessibility of motor. Piggyback services mostly move under contract. 155 Material Handling Theprimarymaterialhandlingobjectiveisto efficientlymovelargequantitiesofinventoryinto and specific customers orders out of the warehouse. Thefunctionsperformedinawarehouseare classified as movement or Handling and storage. Movementorhandlingisemphasizedandstorageis secondary. Handling is divided into - Receiving - In storage handling , and - Shipping 156 Anextremelyimportantaspectoflogisticsisthe productivitypotentialthatcanberealizedfrom capitalinvestmentinmaterial-handling equipment. Specializedhandlingequipmentisrequiredfor unloading bulk materials such as for solids, fluids, or gaseous materials. The guidelines suggested in designing the material handling systems are: (a) Equipment for handling and storage should beas standardized as possible. (b) Wheninmotion,thesystemshouldprovide maximum continuous flow. (c) Investmentshouldbemadeinhandlingrather than stationery equipment. 157 (d) Handling equipment should be utilized to the maximum extent possible. (e)Inselectinghandlingequipment,theratioof deadweight to payload should be minimized. (f)Wheneverpossible,gravityflowshouldbe incorporated in the system design. Thehandlingsystemscanbeclassifiedas under: - Mechanized- Semi automated - Automated, and - Information directed. 158 Mechanized Systems A. Forklift Trucks Forklifttruckscanmoveloadsofmaster cartons both horizontally and vertically. Apalletorslipsheetformsaplatformupon which master cartons are stacked. Aslipsheetisathinsheetofsolidfibreor corrugatedpaperandareusedforsituations when product is handled only a few times. Aforklifttrucknormallytransportsa maximum of two unit loads i.e. two pallets at a time 159 Highstackingtrucksarecapableofupto40feetof vertical movement. Even trucks capable of operating in aisles as narrow as 56 inches ar also found in warehouses. Thesignificanceofnarrow-aisleforklifttruckshas increasedaswarehousesseektoincreaserackstorage density and overall storage capacity. Forklifttrucksarenoteconomicalforlongdistance horizontalmovementsbecauseofhighratiooflabour per unit of transfer. Mosteffectivelyutilizedinshippingandreceivingandplacingmerchandiseinapredeterminedstorage space. Commonsourcesofpowerarepropanegasand electricity.160 Manyforkliftoperationsareutilizingradio frequencydatacommunicationtospeedup load put away and retrieval assignments. Under the above system, workers receive their assignments through either handheld or vehicle mounted RF terminals. RFtechnologyprovidesreal-time communicationcapabilitytocentraldata processingsystems,andwhencombinedwith barcodescanningofcartonsandpallets,it allows fork lift operators to receive and update itemstatusinquiry,materialordersand movement and inventory adjustments. 161 B. Walkie-Rider Pallet Trucks Lowcost,effectivemethodofmaterial handling. Highlyversatilelow-liftpalletand/orskid handlerswithloadcapabilitiesfrom3,000to 8,000 lbs. Typicalapplicationsincludeloadingand unloading,orderselectionandshuttlingover longer distances throughout the warehouse. Popular in grocery warehouses. Electricity is the power source. 162 C. Towlines Either in-floor or overhead mounted drag devices. Themajoradvantageisthecontinuousmovementbut lacks flexibility of forklift trucks. Most common application is for order selection within the warehouse. Order selectors place merchandise on a four wheel trailer, which is then towed to the shipping dock.D. Conveyors Conveyorsareclassifiedaccordingtopower,gravity or roller/belt movement. Portablegravitystylerollerconveyorsareoftenused for loading and unloading. Insomecasesthesearetransportedontheover-the-road trailers to assist in unloading at the destination.163 Semi automated Handling + Semiautomatedsystemsupplementsamechanized systembyautomatingaspecifichandling requirements. + Semiautomatedwarehouseisamixtureof mechanized and automated handling. A. Automated-Guided Vehicle Systems Performssimilarkindofhandlingfunctionasa mechanized tow tractor with a trailer. TheessentialdifferenceisthatanAGVSdoesnot requireanoperatorandisautomaticallyroutedand positionedatdestinationwithinterventionofthe operator.164 TypicalAGVSequipmentreliesonanoptical or magnetic guidance system. Intheopticalapplication,tapeisplacedonthe warehouse floor, and the equipment is guide by a light beam that focuses on the guide path. AmagneticAGVSfollowsanenergizedwire installed in the floor. Theprimaryadvantageistheeliminationofa driverandnewerAGVSusevideoand information technology to follow paths without the need for fixed tracks. 165 B. Sortations Typically used in combination with conveyors. The products are selected in the warehouse, they are sortedasperspecificspecificshipmentdocksand taken onto the conveyors for moving out. Mastercartonshaveadistinguishingcode,theseare readbyopticalscanningdevicesandautomatically routed to the desired locations. Therateofflowiscustomizedtomeetchanging requirements. The benefits are (a) Reduction in labour, and (b) Increase in speed and accuracy.166 C. Robotics Humanlikemachinethatcanbeprogrammed bymicroprocessorstoperformvarious activities. Robotsareuseinwarehousestobreakdown andbuildunitloadstoaccommodateexact merchandiserequirementsofacustomers orders. Inbreakdownprocess,therobotis programmed to recognize stocking pattern and placeproductsinthedesiredpositionona conveyor belt. Similarly, robots are used to build unit loads. 167 Robotsareusedeffectivelyinwarehouses whereprevailingenvironmentsmakeit difficultforhumanstoworksuchashigh noise areas and extreme temperatures like cold storage freezers. Thecapabilitytoincorporateartificial intelligenceinadditiontospeed, dependability, and accuracy makes robotics an attractivealternativetotraditionalmanual handling systems.168 Automated Handling Substitutes capital investment in equipment for labour required in mechanized handling systems. Though operates faster andmore accurately, requires highdegreeofcapitalinvestmentandcomplexto operate. Mostautomatedsystemsarecustomdeignedand constructed for each application. Automatedhandlingconcentratesonorderselection systematthemastercartonlevelaswellasonhigh rise storage and retrieval system. 169 A. Order Selection System Thehandlingoffastmovingproductsinmaster cartonsisfullyautomatedfromthepointof merchandisereceipttoplacementinover-the-road trailers. Suchsystemsuseanintegratednetworkofpower and gravity conveyors linking the storage. Systemiscontrolledbycomputercoupledwith inventoryandorderprocessingsystemsof warehouse. Upon arrival, merchandise is automatically routed to storage position and inventory records are updated. Uponorderreceipt,merchandiseisunitizedto vehicle size and schedules made for selection. 170 Atanappropriatetime,allmerchandiseisselectedin loadingsequenceandautomaticallytransportedby conveyor to th loading dock. Theonlymanualhandlingofmerchandiseoccurs while stacking into transport vehicle.B. Automatic Storage and Retrieval System (ASRS) Highrisehandlingsystemsarefullyautomatedfrom receiving to shipping. Thecomponentsofthissystemarestorageracks, storage and retrieval equipment and control systems. Thehighrisearetheverticalstorageracksuptothe height of 120 feet. 171 Thestorageandretrievalmachinetravels back and forth with the primary objective of moving products in and out of storage. +Functions of storage & retrieval equipment (1) To reach the desired position rapidly. (2) To deposit or retract a load of merchandise. (3) Toensuremerchandiseflowingfrom production is automatically stacked to create a unit load. (4) Totransporttheunitloadtothehighrise storage area by power conveyor. 172 C. Information-directed Systems All material handling movements are directed andmonitoredbythecommandof microprocessors. Tobeginwithallrequiredhandling movementsarefedintothecomputerfor analysis and equipment assignment. Analysisofhandlingrequirementsand equipmentassignmentisdoneinsuchaway thatdirectmovementsareemphasizedand deadhead movements are minimized. Workassignmentsareprovidedtoindividual forklifts by terminals located on the truck.173 Communication between the computer and the truckusesradiofrequency(RF)waveswith antennaelocatedontheforkliftsandhighup in the warehouse. Information-directedsystemscanincrease productivitybytrackingmaterialhandler performance and allowing compensation to be based on activity level. A single handling equipment may be involved inloadingorunloadingseveralvehicles, selecting many orders, and completing several handlingassignments,thusincreasingthe complexity of work direction. 174 Packaging Packaging can be categorized into two types viz. (a) Consumerpackaging,whichhasamarketing emphasis, and (b)Industrialpackaging,whichhasmoreoflogistics emphasis. A. Consumer Packaging (Marketing Emphasis)- Consumerpackagingdesignfocusesoncustomer convenience, market appeal, retail shelf utilization, and product protection. - Largecontainersandoddsizesmayincreasethe consumervisibilitybutmakepoorlogistical packaging.175 Forexample,shippingproductsfully assembledsuchasmotorcyclesresultsin substantial reduction in density. Alowdensitypackagewouldmeanhigher transportationcostsandgreaterwarehousing requirements.B. Industrial Packaging (Industrial emphasis) - Individualproductsorpartsarenormally grouped into cartons, bags, bins, or barrels for handling efficiency.- These containers are used to group individual productsandarereferredtoasmaster cartons.176 Whenmastercartonsaregroupedintolarger unitsforhandling,thecombinationis referred to as containerization or unitization. Themastercartonandtheunitizedload providethebasichandlingunitinthe logistics channel. Theweight,volume,andfragilityofthe mastercartoninanoverallproductline determinestransportationandmaterial handing requirements. Ifthepackageisnotdesignedforefficient logisticalprocessing,overallperformanceof the system would suffer. 177 Standardizationofmastercartonfacilitates material handling and transportation. Standardization of master carton is beneficial even in context of retail backend operations.(a) For instance, in case of shoe store as the contents ofeachmastercartonareknown,itisnot necessarytosearchthroughmanycartonsfora particular style or size of shoe. (b) Allowsmastercartonstobemoreefficiently stacked, resulting in to less backroom congestion. (c) Completeidentificationofmastercartoncontents facilitatescompletionofretailinventoryand merchandise reorder. 178 Standardizedcartonsareselectedtoachieve maximum conformity in increasing the density in thetrailer thereby eliminating dead space in stacking. The end result of standardized master carton usage is substantialreductionintotalcostcombinedwithan effectivematerialhandlingsystematboth warehouse and the retail store. In situations, when master cartons of more than one sizearerequired,extremecareshouldbetakento arrive at an assortment of compatible units. These different sizes of master cartons should result into modular compatibility. 179 How to design an Ideal Package? Invariably,logisticalconsiderationsalone cannot fully dominate package design. Theidealpackageformaterialhandlingand transportation would be a perfect cube having equallength,depth,andwidthwith maximumpossibledensitybutsucha package does not exist in practice. Thus,logisticalrequirementsshouldbe evaluatedalongwithmanufacturing, marketing, and product design considerations when standardizing master cartons.180 Anothercriticalissuetobeconsideredinpackage designistodeterminethedegreeofprotection requiredtocopewiththeanticipatedphysicaland climatic environments. The package design and material should combine to achievethedesiredlevelofprotectionwithout incurring the expense of overprotection. In most cases the cost of absolute protection will be prohibitiveandthereforethepackageconstruction should be a proper blend of design and material. Three broad functions of packaging are -Damageprotection,Utility/efficiency,and Communication.181 A.Damage Protection Amajorfunctionofthemastercartonistoprotect productsfromdamagewhilemovingandbeing stored in the logistical system. Master carton also serve as a deterrent to pilferage. Achievingdesireddegreeofprotectioninvolves tailoringthepackagetotheproductandselecting proper material for package construction. The determining factors are the value and fragility of theproduct;higherthevalue,thegreateristhe justification for nearly absolute protection. If the product is fragile and has high value, then the cost of absolute protection can be significant. 182

Cost of Packaging L o s S B y D a m a g e 183 Thesusceptibilitytodamageofagiven packageisdirectlyrelatedtotheenvironment in which it moves and is stored. Productfragilitycanbemeasuredby product/packagetestingbymeansofshock and vibration equipment. Ifpackagingrequirementsandcostare prohibitive, alternative product designs can be evaluatedutilizingthesametesting equipment. Theendresultisthedeterminationofthe exactpackagingrequiredtoprotectthe product.184 Duringthelogisticalprocess,commoncauses ofproductdamagearevibrations, impact,puncture, and compression. Stackingfailurecanalsoresultindamage while the product is in storage. Thepotentialphysicaldamageofpoor stackingrangesfromsurfacescuffingand marringtocompleteproductcrushing, buckling and cracking. Typicalmethodsofsecuringthepackagesare strapping,tie-downs,anduseofvarious dunnagematerialsthatlimitvibrationsand shock. 185 B. Efficiency/ Utilization Logisticaloperationsareaffectedby packagingutilityi.e.fromtruckloadingand warehousepickingproductivityto transportation and storage space utilization. Logisticalactivityoutputcanbedescribedin termsofpackages,suchasnumberofcartons loadedperhourintoatrailer,numberof cartonspickedperhourinawarehouseor distribution centre. Materialhandlingefficiencyisalsostrongly influenced by the unitization of packages.186 Animportantpartofpackagingrelatingto storage and material handling is the concept of unitization. Unitization describes the physical grouping of mastercartonsintoonerestrainedloadfor material handling or transport. Concept of containerization includes all forms of unitization, from taping two master cartons together to the use of specialized transpotation equipment. Alltypesofcontainerizationhavethebasic objectiveofincreasingmaterialhandling efficiency. 187 +Benefits of Unit Loads - Unloadingtimeandcongestionatdestination is minimized. - Productsshippedinunitloadquantities facilitatematerialhandlingandinventorycan be positioned rapidly for order selection. - Damage in transit can be reduced by unit load shippingandspecializedtransportation equipment. - All above factors lead to reduction in logistical cost. 188 - A unit load can increase damage potential if it isnotproperlyrestrainedduringhandlingor transport. -Standard method of imparting stability to unit loadincluderopeties,steelstrapping, adhesives, wrapping- both shrink wrap as well as stretch wrap. C. Communication Critical to content identification, tracking, and handlingasthethesearebecomingnecessary to total channel success. 189 (a) Content Identification - Averyobviouscommunicationroleisidentifying package contents for all channel members. - Thetypicalinformationincludesmanufacturer, product,typeofcontaineri.e.canorbottle,count and product code number. - Thecartoninformationisusedtoidentifyproduct forreceiving,orderselection,andshipment verification. - Visibilityisthemajorconsideration,andmaterial handlersshouldbeabletoseethelabelfrom reasonable distances in all directions.- Highvalueproductsoftenhavesmalllabelsto minimize the temptation of theft. 190 (b) Tracking - Awellcontrolledmaterialhandlingsystem tracksproductasitisreceived,stored, retrieved, and shipped. - A good control on movement reduces productloss and pilferage and is useful for monitoring employee productivity. - Lowcostscanningequipment,and codification increases the tracking capabilities and effectiveness. 191 (c) Handling Instructions - Finalroleoflogisticspackageistoprovide handling and damage instructions. - The information should be provided about any specialproducthandlingconsiderationssuch asglasscontainers,temperaturerestrictions, stackingconsiderations,orpotential environments concerns. - Iftheproductisdangerous,suchasan explosivechemical,thepackagingshould provideinstructionsforealingwithspillsand container damage. 192 Channel Integration-PCM Packaging,Containerization,andMaterialhandling representintegralpartsofthelogisticaloperating system; as all three areas influence each other. Forinstance,automatedhandlingcannotbe efficientlydesignedwithoutahighdegreeofmaster cartonstandardization,whichinturnprovidethe opportunity to containerize individual products. The integration between material handling capability,transportation,warehousing,inventorypolicyand packagingcommunicationintocustomerslogistical systemleadstominimumhandlingduringthe exchange of merchandise. Thistypeofintegrationiscommonlyfoundin physical distribution. 193 Scrap/Waste Disposal

Scrap Material Input Material Processing Material Output RecycleDisposal 194 A. Scrap Scrapisawastecreatedwhileprocessingthe materials. Theprocessscrapisunavoidableextramaterial removedfromthestockofmaterialwhile generating a component. For example, while making a machined component somematerialhastoberemovedintheformof chips. Quiteoften,whilemanufacturinganycomponent some dimensions are not maintainedand the lot is scrapped as these cannot be used in the assembly of the product. 195 B. Surplus When the project or product needs a specific quantity oftheitem,extraleftovercannotbeusedandthis quantity is called surplus. The surplus quantity has to be disposed off. C. Obsolete When the item cannot be used in the product/ project due to changes that might have taken place in respect ofdimensions,shape,colouretc,thesearecalled obsolete items. Changes ay occur due to defect in product design, or shelf life etc. These components have to be scrapped/ disposed off. 196 Wastivity of a System Wastivity of the system is defined as the ratio of the waste to the input. Wastivity= Waste / Input Gross wastivity= Total waste generated/Total input. Allwasteisnotthewaste,somepartofitcanbe recycled. Net waste={Total waste generated}-{Waste recycled within the system}. Netwasitivity=Wastewhichcannotberecycled/ Total input. Wastivityassessestheproductivityforeachtypeof input.Bothwasitivityandproductivityare complementary to each other. 197 Issues to be addressed Quick identification of the waste generated. Separation of different types of waste. Economic reduction. Efficient collection and handling. Recycling,andeffectivedisposalwithout affecting the environment. Designingasuitablewastecontrol programme. 198 Recycling /reusing/ disposal of waste/ surplus/ scrap. - Recyclingreferstotheuseofbadqualityoutputs (rejects)orwastesasinputstothesameprocessor system e.g. reusing plastic scrap. - Use the scrap for producing by-products. - Transfer the surplus from one department to another. - Sellthescrap/surplusasrawmaterialstootheruser factories, external agents, or even to the employees. - Sell scrap through advertisement and auctioning. - Return the surplus to the vendor, if possible. - Donate rejected material to charitable organizations to gain social respect. 199 Warehousing The primary purpose of a warehouse management is to controlthemovementandstorageofmaterialswithin an operation. Warehousingcanbeviewedasaplacetostore inventoryaswellasafacilityforswitchingthe inventory. Warehousingisbecomingsignificanttoachievethe following objectives: - To reduce inventory - To reduced labour costs - To increase storage capacity - To increase customer service - To increase inventory accuracy. 200 Typically,thewarehousesreceived merchandisebyrailorroadandthematerials weremovedmanuallytoastorageareawithin thewarehouseandpileduponthefloorin stacks manually. Duetoabove,thoughdifferentproductswere stored in the same warehouse it was difficult to identifythemerchandisewithrespecttoa particular order. On the receipt of the customer orders, products were handpicked and placed on the wagons and these wagons were pushed out of shipping area. 201 As the labour was inexpensive, human resources were usedextensivelyandnoconsiderationwasgivento efficiencyutilization,workmethods,ormaterial handling. Inspiteofpoorefficiency,warehousescontinuedto provideanecessarybridgebetweenproductionand marketing. Withtheimprovedtechniquesofforecastingand production scheduling the need to build up inventory was considerably reduced. Also, delays during manufacturing process reduced as the production became more coordinated. Seasonal products continue to require warehousing. Theoverallneedtostorematerialstosupport manufacturing has been reduced.202 Incontextofretailing,thedepartmentstores facethenecessityofstockinganincreased varietyofproductsandareunabletoorderin sufficientquantitiesfromasinglesupplierto enjoy the benefits of consolidated shipment. Directorderingfrommanufacturersbecomes prohibitivelyexpensiveduetohighcostof transporting small shipments. Thisnecessitatestheneedforwarehousingto providetimelyandeconomicalinventory assortments. Atwholesalelevel,thewarehousebecomesa support unit for retailing.203 Incontextofmanufacturing,companies producingproductsatmultiplelocations, efficientwarehousingbecomesamethodfor reducingmaterialandpartsstorageand handling costs while optimizing production. ForimplementingJITandstockless production strategies warehousing becomes an integral part of entire value chain. AsthebasicobjectiveofJITistoreduce work-in-processinventory,manufacturing needstosupportedbyhighlydependable delivery.204 InacountryaslargeasIndia,thisispossible onlybyhavingstrategicallylocated warehouses. The stocks can be held at a central warehouse therebyreducingtheneedtomaintain inventory at each assembly plant. Usingconsolidatedshipments,materialsare purchasedandtransportedtothesupply warehouseandthendistributedto manufacturing plants as and when needed. Afullyintegratedwarehouseisavital extension of manufacturing.205 Incontextofoutboundlogistics,warehouseshave madepossiblethedirectshipmentofmixed/ assortedproductstothecustomersthereby enhancing the service capabilities. The direct assorted shipments have two advantages, namely, (a) Reducedlogisticalcostbecausethefullproduct assortmentcanbedeliveredwhiletakingthe advantage of benefits obtained through consolidated transportation. (b) Morecompetitiveadvantageforthemanufacturers due to speedier shipments and mixed lots. Recently,warehouseshavebeenabletoincrease productivityduetoeffectiveuseofInformation Technology. 206 Role of Warehousing in Logistical System Provisionofstrategicstorage,thoughaneffective distribution system should not have the necessity of inventoryforanexcessivelengthoftime, sometimes storage becomes inevitable. Acting as a switching facility Provision of economic and service benefits. 207 Economic Benefits

ConsolidationBreak-bulk Cross-dockingPostponing Stock piling 208 Consolidation Plant A Plant B Plant C Consolidation warehouse Customers ABC 209 The benefits and features are - Realizationoflowestpossibletransportation rate. - Reductionofcongestionatacustomers receiving dock. - Manufacturingplantscanusewarehouseasa forwardstocklocationorassortingand assembly facility. - Combinesthelogisticalflowofsmall shipments to a specific market area. - Asinglefirmmayuseconsolidation warehousingoranumberoffirmsmayjoin together and hire the consolidation service. 210 Break-bulk

Plant A Break-bulk warehouse Customer A Customer B Customer C 211 Break-bulkoperationsreceivecombined ordersfrommanufacturesandshipsthemto individual customers. Break-bulkwarehousesplitsindividualorders and arranges for local delivery. Cross-dockfacilityissimilartobreak-bulk except that it involves multiple manufacturers. Intransit-mixingandreleaseaswellas manufacturingsupportarealsoincludedin cross dock facility. 212 Cross-docking Company A or Plant A Company B or Plant B Company C or Plant C Distribution centre Customer A Customer B Customer C 213 In Transit mixing and release

Plant A Plant B Plant C WarehousingTransit mixing point Product D Customer X Customer Y Customer Z Customer W 214 Manufacturing Support

Vendor A Vendor B Vendor C Manufacturing warehouseAssembly plant 215 Thefeaturesandbenefitsofcross-dock facilities are:- Thefulltrailerloadsofproductarrivefrom multiplemanufacturersandastheproductis received it is sorted and allocated to customers. - Theproductisthenmovedacrossthedockto beloadedontothetrucksdestinedfor appropriate customer. - The trucks are then transported to retail outlets once the same have been filled with the mixed product from multiple manufacturer. 216 Processing/Postponement Warehousescanalsobeusedtopostpone,ordelay productionbyperformingprocessingandlight manufacturingactivities. Awarehousewithpackagingandlabellingcapability allowspostponementoffinalproductionuntilactual demand is known. +For example, vegetables can be processed and canned at themanufacturersendwithoutpre-attachedlabels.No pre-attached labels means the product does not have to becommittedtoaspecificcustomer.Onceaspecific customerorderisreceived,thewarehousecan completefinalprocessingbyaddinglabeland finalizing the packaging.217 Stockpiling Useful for seasonal storage such as: - Blankets and Knitting wool are produced year round andprimarilysoldduringaveryshortmarketing period. - Agriculturalproductsareharvestedatspecifictimes with subsequent consumption throughout the year. Inboththeabovesituations,stockpilingbecomes necessary to support the marketing efforts. Stockpilingprovidesforabufferinventoryallowing forabalancebetweentheavailabilityofmaterials and the market demand. 218 Service Benefits Spot StockAssortmentMixing Production support Market presence 219 Spot Stock Used often in physical distribution particularly in case of seasonal products. Selectedamountoffirmsproductlineisplacedor spotstockedinawarehousetofillcustomerorders during a critical market period. Spotstockingallowsinventoriestobeplacedina variety of markets adjacent to key customers just prior to a peak selling period of season. Forexamples,suppliersofagriculturalproductsto farmersoftenusespotstockingtopositiontheir productsclosertomarketduringgrowingseasonand once the sales season is over,the remaining inventory is withdrawn to central warehouse.220 Assortment Assortment warehouse stocks product combinations in anticipation of customer orders. Assortment represents multiple products from different manufacturersorspecialassortmentsasspecifiedby the customers. +Forinstance,awholesalerofathleticclothingwould stockproductsfromnumberofclothingsuppliersso that the customers can be offered assortments. +Wholesalerswouldcreateaspecificuniformforthe team including shirts, pants, and shoes.221 Advantages of Assortment warehouses - Improvesservicesbyreducingthenumberof suppliers thatcustomer must deal with. - Thecombinedassortmentsallowlarge shipmentquantitiesleadingtoreduced transportation costs. 222 Mixing Severalshipmentsfromdifferentmanufacturersare involved. Quite similar to break-bulk process. Truckloadsofproductsareshippedfrom manufacturingplantstowarehousesandeachlarge shipment enjoys lowest possible transportation cost. Uponarrivalatthemixingwarehouse,factory shipmentsareunloadedanddesiredcombinationof each product for each customer is selected. Aneffectiveservicebenefitbecauseinventoryis sorted to precise customer specification. 223 Production Support Productionsupportwarehousesprovidesa steadysupplyofcomponentsandmaterialsto assembly plants. Thesafetystocksofitemspurchasedfrom outsidevendorsarejustifiedbecauseoflong lead time or variation in usage. Productionsupportwarehousingisusedto supplyprocessedmaterials,components,and subassembliesintoassemblyplantinan economic and timely manner.224 Market Presence Perceivedbymarketingmanagersasan advantage of local warehouses. Localwarehousesandhencelocalinventory canbemoreresponsivetocustomerneedsand offerquickerdeliverythanmoredistnt warehouses. Localwarehousemayenhancemarketshare and potentially increase the profitability. 225 Warehouse Design Principlestobeconsideredinwarehousing designing are: 1. Design criteria 2. Handling technology 3. Storage plan A. Design criteria - Factors to be considered are: (a) Number of storeys in the facility(b) Height utilization, and (c) Product flow 226 (a) Number of storeys in the facility Ideally, the warehouse design should be limited to a single storey so that the product is not required to be moved up and down. Useofelevatorstomoveproductfromonefloorto the next requires time and energy and hence cost. Elevatorscanalsobecomebottlenecksinproduct flowsincemanymaterialhandlersusuallycompete for a limited number of elevators. Hence,asfaraspossible,warehousesshouldbe limitedtoasinglestoreyunlessitissituatedin CentralBusinessDistrictwherelandisrestrictedor expensive.227 (b) Height utilization Maximum usage of available space by allowing fortheoptimumutilizationofheightoneach floor Maximum effective warehouse height is limited bysafeliftingcapabilitiesofmaterial-handling equipmentsuchasforkliftsandfiresafety regulations.(c) Product flow Designshouldallowforstraightproductflow i.e. product should be received at one end of the building, stored in the middle, and then shipped from the other end. 228 Design of a typical warehouse

Receiving area Bulk storage area Rack storagearea Order picking area Packaging or unitizing area Stacking area Finished product flow 229 B. Handling Technology Focusesoneffectivenessandefficiencyofmaterial handling technology and primarily takes into account the following: - Movement continuity, and - Economies of scale in movement. (a) Movement continuity - Itisbetterforamaterialhandlerorahandling equipmenttomakealongermovethantohavea numberofhandlersmakenumerous,individual, short length moves. - Exchanging the product between handlers or moving itfromoneequipmenttoanotherwastestimeand increases the potential for damage. 230 (b) Economies of scale in movement. - Warehousingactivitiesshouldbedesignedtomovea group of cases such as master cartons or containers, as groupingorbatchingreducesthenumberofactivities and hence the cost.C. Storage plan Highsalesvolumeorfastmovingproductsshouldbe storedinalocationthatminimizesthedistanceitis moved such as low height storage racks. Theobjectiveistominimizethetraveldistanceand also the need for extended lifting. Lowsalesvolumeorslowmovingproductcanbe assignedlocationsthataredistantfromthecentreor higher up in the storage rack.

231 Storage plan based on product movement

Storage space for low volumeproducts Storage space for low volumeproducts Storage space for low volumeproducts Storage space for low volu