Market Logistics & Supply Chain Management

Market Logistics & Supply Chain Management
Logistics Defined
Scope of Logistics
Logistics and SCM
The Value Chain
Logistics Focus Areas
Factors Which Drive Inventory
ABC Inventory Analysis

1. Chapter 15
Market Logistics & Supply
Chain Management
Prepared By:
Mr. Nishant Agrawal

2. Logistics Defined
•Logistics means having the right thing, at the right place, at the right
time
•Before 1970: function were garmented as transport, warehouse
management, material management and inventory control
•1970: Logistics came into practice in two broad areas of material
management and physical distribution
•1980: logistics started getting inbound, conversions and outbound
•1990: Supply Chain Management and integrating operations with suppliers
and customers started getting focus.

3. Logistics
•Functions: planning, procurement, transportation,
supply and maintenance
•Science of planning, design and support of business
operations of procurement, purchasing, inventory,
warehousing, distribution, transportation, customer
support, financial and human resources

4. Scope of Logistics
•Choice of markets
•Procurement
•Plant location and layout
•Inventory management
•Location and management of warehouses
•Choices of carriers, mode of transport
•Packaging decisions
•Relevant to all enterprises: manufacturing, Government, Institutions,
service organisations

5. •Natural
Resources
(land, facilities
Equipment)
•HR
•Finance
•Information
•Marketing
Orientation
(competitive
Advantage)
•Time and
Place utility
•Efficient move
to customer
Customer service
Demand forecasting
Distribution
Communications
Inventory control
Materials handling
Order processing
Parts and service support
Plants and warehouse selection
Procurement
Packaging
Return goods handling
Salvage and scrap disposal
Traffic and transportation
Warehouse and storage
Input Output
Logistics Activities

6. Logistics and SCM
•Logistics tends to focus on transportation and distribution,
•SCM focuses on purchasing and procurement, production planning,
demand management, from point of origin to point of consumption
•Supply chain management also logistics functions plus purchasing,
sourcing, procurement, manufacturing operations, location planning,
•All activities and flows from point of origin to point of consumption of
a materials

7. Links and Flows
Customer’s
customer
Supplier’s
supplier
SupplierLead FirmCustomer
General cash flow
Information flow
Information flow
General material flow/ service flow
Inbound / Upstream logisticsOutbound / Downstream logistics
Source: ICFAI

8. The Value Chain
Company Infrastructure
Organisation, people, methods
Systems & technology
Procurement
Inbound
logistics
Operations
Outbound
logistics
Marketing
& sales
Service
Primary activities
S
U
P
P
P
O
R
T
margin
margin
Source: Michael Porter

9. Inbound and outbound logistics
•Inbound logistics
•Receiving storing issuing inputs and taking care of
materials handling, inventory control, scheduling for
production,
•Interface with company’s suppliers, vendors and other
service providers

10. Continue….
•Outbound logistics
•Distributing finished goods to dealers/
stockiest/customers
•Interface with company's customers

11. Logistics Focus Areas
Customer service related Operations related
Packaging
Order processing
Spare parts and service support
After sales Customer service
support
Demand forecasting
Distribution communications
Return goods handling
Plant and warehouse site location
Procurement
Inventory control
Materials handling
Scrap disposal
Traffic and transportation
Warehousing and storage
Logistics may be confined to the company whereas SCM extends beyond

12. Supply Chain Management
•Business context:
–Globalization of the market place
–Advances in technology
–Increasingly demanding, informed customer base
–Purchase decisions on dimensions of quality, price and time
•Innovative supply chain:
–To meet customer driven challenges
–To reduce costs
–Improve service levels
–Enhance speed to market

13. Integrated
Supply Chain
Management
Manufacturing/
Re-manufacturing/
Assembly
Demand & Lead
Time Management
Storage &
Transportation
Materials
Management
Inventory Management and
control
Customer Analysis
Purchasing/Supplier
Partnering
Order Fulfillment
Supply Chain Integration
Inventory management…

14. Why Carry Inventory?
•Support production requirements
•Support operational requirements
•Maximize customer service – ensure availability when needed –
protect against uncertainty
•enclose against marketplace uncertainty
•Take advantage of order quantity discounts

15. Factors Which Drive Inventory
•Target service level parameters
•Lot sizing practices
•Safety stock and safety time conventions
•Volume discounts and purchase arrangements
•Seasonal build up needs

16. Categories of Inventory
•Anticipation – built in anticipation of future demand – peak
season, strike, promotion
•Fluctuation (safety) – to cover random, unpredictable
fluctuations in supply and demand and lead time – to prevent
disruption in operations, deliveries etc
•Lot-size – to take advantage of quantity discounts, reduce
shipping, set up – also called cycle stock

17. Categories of Inventory
•Transportation – pipeline or movement inventories – to cover
the time needed to move from one point to another – factory to
distribution point for example
•Maintenance, repair and operating supplies (MRO) – to support
M and O – spare parts, lubricants, consumables etc

18. Performance Measures
•Inventory turns = Annual cost of goods sold /average
inventory in value
•Days of sales = inventory on hand / average daily
sales

19. Types of Classification
•ABC category – most common for all
•HML - high, medium, low - similar
•FSND – fast moving, slow moving, non-moving, dead –
spare parts / FG

20. ABC Inventory Analysis
•Based on Pareto’s law:
–A – 20% items worth 80% of value
–B – 30% items worth 15% of value
–C – about 50% items account for 5% of the usage
•Classify items based on the above criteria

21. Inventory Related Costs
•Unit costs – basic value of the item carried
•Ordering costs – generating and sending a material release,
transport, any other acquisition costs
•Carrying costs – capital, storage, obsolescence
•Stock-out costs

22. Approaches for Controlling Inventory
•Continuous review:
–Safety stocks and forecasting methods
–Excess and out of date inventory
•Part simplification and re-design
•On-site supplier managed inventory
•Use of supply chain inventory management systems, Materials Requirement
Planning, Distribution Requirement Planning etc
•Automated inventory tracking systems
•Supplier – buyer cycle-time reduction
Warehouse management…

23. Functions
Warehouses
Material
handling
Storage
function
Customer
service
Information
transfer
Temporary Permanent
Receive goods
Identify goods
Sort goods
Despatch to storage
Hold inventory
Recall, select goods
Marshal the shipment
Despatch the shipment
Prepare records and
advices

24. Purpose of Warehousing
•To provide desired level of customer service at the lowest
possible total cost
•It is that part of the firm’s logistics system that stores products
(RM, Packing Materials, WIP, FG) at and between point of
origin and point of consumption and provides info to
management on the status, condition and disposition of items
being stored
•Distribution warehousing relates mainly to FG

25. Warehouses
•Support manufacturing
•Mix products from multiple facilities for shipment to a single
customer
•Break-bulk
•Aggregate
•Used more as a ‘flow-thru’ point than as a ‘hoarding’ point

26. Distribution Warehousing
•The objective is to set up a network of warehouses closest to
the customer locations to service markets better and
minimize cost
•Could be C&FA s, or distribution centers
•Macro location strategies:
–Market positioned
–Production positioned
–Intermediately positioned

27. Transportation
•Very important in the Logistics function:
–Movement across space or distance adds value to products
–Transportation provides time and place utility
•Role of transportation includes:
–Provides opportunity for growth under competitive conditions
–Deeper penetration into markets
–Wider distribution means greater demand
–Can influence product prices favourably
Principles….

28. Transportation Principles
•Continuous flow
•Optimise unit of cargo - stackability
•Maximum vehicle unit – capacity utilization
•Adaptation of vehicle unit to volume and nature of traffic
•Standardisation
•Compatibility of unit load equipment
•Minimum of dead weight to total weight
•Maximum utilization of capital, equipment and personnel
Process….

29. Reverse Logistics
•Movement of goods from the market or customer back
to the company
•The need:
–Increased awareness of the environment
–For some it is part of the business
–Profitability of dealing with scrap, surplus

30. Advantages of Rail
•Economy – more so for goods over long distances
•Efficiency of energy
•Reliability – not affected by weather conditions

31. Disadvantages
•Uneconomical for small shipments and short
distances
•Not suitable for remote stations
•Costly terminal handling facilities
•Inflexible time schedules

32. Road Freight Advantages
•Through movement – direct from consignor to consignee, no
transshipment
•Flexibility – routes and loading routines can be easily altered, operate
day and night
•Less capital costs – for own fleet + immunity from industrial action
•Fast turn-around – if articulated units like tractors and trailers are
used
•Minimum delays

33. Disadvantages
•Susceptibility to weather and road conditions – in spite of the
best protection
•Unsuitability for heavy loads – rail transport more economical
for bulk loads
•Unsuitability for long distances – again the rail telescopic rates
are more favourable
Air transport….

34. Air Transport Advantages
•Faster mode
•Cost particularly inventory
•Increasing capabilities
•Disadvantages:
–High cost
–Weather affects flight conditions

35. Water Transport
•Advantages:
–Mass movement of bulk
–Lowest freight cost
–Preferred for long haul of low value commodities
•Disadvantages:
–Not for quick transit
–Suitable for certain types on commodities only

36. End of Session