transportation, warehousing and inventory decisions

provide in formation about transportation, warehousing and inventory decisions. helps in gaining basic knowledge on these topics.

1. TRANSPORTATION, WAREHOUSING AND INVENTORY DECISIONS Submitted By: Vivek Kumar (98) Yogesh (99) Zeba Khan (100) Rasmi (704) Shivani (705)

2. TRANSPORTATION “The process of moving an item from point A to point B”. “Safe, efficient, reliable and sustainable movement of persons and goods over time and space”

3. Transportation in Logistics The operation of transportation determines the efficiency of moving products. The progress in techniques and management principles improves the moving load, delivery speed, service quality, operation costs, the usages of facilities and energy saving. Transportation takes a crucial part in the Logistics Operations.

4. Importance of Transportation Without well-developed transportation systems, logistics could not bring its advantages into full play. A well operated logistics systems could increase both the competitiveness of the government and enterprises. Transportation system is the most important economic activity among the components of business logistics systems.

5. Transportation Functionality Product Movement Product Storage

6. Product Movement Temporal: Product is locked up during transit, hence inaccessible. Financial: Administration costs, salaries, Maintenance costs expended. Environmental: Fuel costs are high (creates air pollution, congestion, Noise pollution)

7. Product Storage When unloading and loading is more expensive then storage When storage space is limited (situation when inventory levels are high)

8. Types of Transportation Rail Transportation Road Transportation Water Transportation Air transportation+

9. Types of Transportation Rail Transport : Advantages It is convenient mode of transport for travelling long distances. It’s operation is less affected by adverse weather condition like rains, fog etc. Disadvantages It is not available in remote part of the country. It involves heavy losses of life as well as goods in case of accident.

10. Road Transport: Advantages It is relatively cheaper mode of transportation as compared to other modes. It is flexible mode of transportation as loading and uploading is possible at any destination Disadvantages Due to limited carrying capacity, road transport is not economical for long distance transportation of goods.

11. Water Transport: Advantages It promotes international trades. The cost of maintaining and constructing routes is very low most of them are naturally made Disadvantages It is a slow moving mode of transport so it is not suitable for perishable goods. It is adversely affected by weather conditions.

12. Air Transport: Advantages It is fastest mode of transport. It is the most convenient mode of transport during natural calamities Disadvantages It is relatively more expensive mode of transport. It isn't suitable for short distance travel.

13. Current Transportation Problems Financing Congestion Infrastructure Safety Population Increased truck weights

14. Conclusion Transportation contributes the highest cost among the related elements in logistics systems, the improvement of transport efficiency could change the overall performance of a logistics systems. Transportation plays an important role in logistics system and its activities appear in various sections of logistics processes.

15. WAREHOUSING

16. DEFINITION Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed. Means holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale. Creates time utility by bridging the time gap between production and consumption of goods

17. CONCEPT Term “Warehousing” is referred as transportation at zero miles per hour Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.

18. THE ROLE OF THE WAREHOUSE IN THE LOGISTICS SYSTEM The warehouse is where the supply chain holds or stores goods. Functions of warehousing include Transportation consolidation Product mixing Docking Service Protection against contingencies

19. OBJECTIVES OF EFFICIENT WAREHOUSE OPERATIONS Provide timely customer service . Keep track of items so they can be found readily & correctly. Minimize the total physical effort & thus the cost of moving goods into & out of storage. Provide communication links with customers

20. Benefits of Warehouse Management Provide a place to store & protect inventory Reduce transportation costs Improve customer service levels Complexity of warehouse operation depends on the number of SKUs handled & the number of orders received & filled. Most activity in a warehouse is material handling.

21. WAREHOUSE ACTIVITIES Receive goods Identify the goods Dispatch goods to storage Hold goods Pick goods Marshal shipment Dispatch shipment Operate an information system

22. Accepts goods from Outside transportation or attached factory & accepts responsibility Check the goods against an order & the bill of loading Check the quantities Check for damage & fill out damage reports if necessary Inspect goods if required Receive goods

23. items are identified with the appropriate stock-keeping unit (SKU) number (part number) & the quantity received recorded Identify the goods Dispatch goods to storage goods are sorted & put away Hold goods goods are kept in storage & under proper protection until needed

24. Pick goods items required from stock must be selected from storage & brought to a marshalling area Marshal the shipment goods making up a single order are brought together & checked for omissions or errors; order records are updated

25. Dispatch the shipment orders are packaged, shipping documents are prepared, & goods loaded on the vehicle Operate an information system a record must be maintained for each item in stock showing the quantity on hand, quantity received, quantity issued, & location in the warehouse

26. TYPES OF WAREHOUSES

27. 1. PRIVATE HOUSES OPERATED by a company for shipping and storing its own products OWNED AND MANAGED- manufacturers or traders CONSTRUCTION- Farmers near their fields, Wholesalers and Retailers near their business centre's and Manufacturers near their factories COMPANIES – Stable inventory levels and long run expectations SUITABILITY - Firms that require special handling and storage features and want to control design and operation of the warehouse

28. 2. PUBLIC WAREHOUSES Provide storage and physical distribution services on rental basis Used by SMALL FIRMS and LARGE FIRMS Organizes to provide storage facilities to traders, manufacturers, agriculturists in return for a storage charge Licensed by Govt. In India OWNED and OPERATED – Central Warehousing Corporation and State Warehousing Corporation SUITABILTY – seasonal production or low volume storage needs, companies with inventories maintained in many locations, firms entering new markets OWNER –stands as an agent of goods

29. 3. GOVERNMENT WAREHOUSES OWNED, MANAGED AND CONTROLLED -Central or State Governments or public corporations or local authorities EXAMPLES- Central Warehousing Corporation of India, State Warehousing Corporation and Food Corporation of India If customer cannot pay rent within specified time authority can recover rent disposing of goods 4. CO-OPERATIVE WAREHOUSES Owned, Managed and Controlled – Co-operative societies Facilities at most economical rates to members Located-Punjab, Karnataka, Maharashtra and Andhra

30. 5. BONDED WAREHOUSES Licensed to accept imported goods for storage before payment of customs duty Imported merchandise is stored and released only after payment of appropriate taxes Cigarettes, Liquor, Other products are stored Owned and Operated – PORT TRUSTS Acts in two capacities viz LANDLORD and BAILEE OF GOODS As landlord provides storage facilities on rent As bailee of goods take reasonable care to handle and store goods as it has lien on goods under care for charges of its services Owner can sell goods wholly or in part by endorsing a warrant Facilitate enterpot trade- importer need not pay the import duty

31. 6. DISTRIBUTION CENTERS / WAREHOUSES Designed to move goods Large and highly automated Receive goods from various plants and suppliers, take orders, fill them efficiently deliver to customers quickly Located near the market owned or leased by manufacturers Access to transport networks

32. 7 . EXPORT AND IMPORT WAREHOUSES LOCATION –near ports where international trade is undertaken Storage facilities for goods awaiting onward movements Facilities- packaging , inspection, marking etc 8 . CLIMATE-CONTROLLED WAREHOUSE Handle storage of many products including need special handling conditions Freezers for frozen products, humidity controlled environment for delicate products , produce or flowers, etc

33. INVENTORY MANAGEMENT

34. What is inventory management Inventory is the raw materials, component parts, work-in-process, or finished products that are held at a location in the supply chain. The objective of inventory management is to strike a balance between inventory investment and customer service.

35. Inventory Terms Lead time : time interval between ordering and receiving the order Holding (carrying) costs : cost to carry an item in inventory for a length of time, usually a year (heat, light, rent, security, deterioration, spoilage, breakage, depreciation, opportunity cost,…, etc.,) Ordering costs : costs of ordering and receiving inventory (shipping cost, cost of preparing how much is needed, preparing invoices, cost of inspecting goods upon arrival for quality and quantity, moving the goods to temporary storage) Shortage costs : costs when demand exceeds supply (the opportunity cost of not making a sale, loss of customer goodwill, late charges, the cost of lost of production or downtime)

36. Objectives of Inventory Management Provide acceptable level of customer service (on-time delivery) Allow cost-efficient operations Minimize inventory investment

37. Functions of Inventory To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts

38. Effective Inventory Management To be effective, management must have the following: A system to keep track of inventory on hand and on order A reliable forecast of demand Knowledge of lead times and its variability Reasonable estimates of: Inventory Holding (carrying) costs Ordering costs Shortage costs A classification system for inventory items

39. Types of Inventory: How Inventory is Used Anticipation or seasonal inventory Safety stock: buffer demand fluctuations Lot-size or cycle stock: take advantage of quantity discounts or purchasing efficiencies Pipeline or transportation inventory Speculative or hedge inventory protects against some future event, e.g. labor strike Maintenance, repair, and operating (MRO) inventories

40. Inventory Counting Systems Periodic System Physical count of items made at periodic intervals Perpetual (continual) Inventory System System that keeps track of removals from inventory continuously, thus monitoring current levels of each item.

41. Classification system An important aspect of inventory management is that items held in inventory are not of equal importance in terms of dollar invested, profit potential, sales or usage volume, or stockout penalties. For instance, a producer of electrical equipment might have electric generators, coils of wire, and miscellaneous nuts and bolts among items carried in inventory. It would be unrealistic to devote equal attention to each of these items . Instead, a more reasonable approach would allocate control efforts according to the relative importance of various items in inventory. This approach is called A-B-C classification approach

42. ABC Classification System Classifying inventory according to some measure of importance and allocating control efforts accordingly. A - very important B – moderate important C - least important Annual $ value of items A B C High Low Few Many Number of Items

43. Models of inventory

44. Economic Order Quantity Models The question of how much to order is frequently determined by using an Economic Order Quantity (EOQ) model. EOQ models identify the optimal order quantity by minimizing the sum of certain annual costs that vary with order size . Three order size models are described: The basic economic order quantity model The economic production quantity model The quantity discount model

45. Economic Order Quantity (EOQ) model Assumptions of EOQ Model 1. Only one product is involved 2. Annual demand requirements are known 3. Demand is even throughout the year 4. Lead time does not vary 5. Each order is received in a single delivery 6. There are no quantity discounts

46. EOQ Model inventory cycle The inventory cycle begins with receipt of an order of Q units, which are withdrawn at a constant rate over time. When the quantity on hand is just sufficient to satisfy demand during lead time, an order for Q units is submitted to the supplier. Because it is assumed that both the usage rate and lead time don’t vary, the order will be received at the precise instant that the inventory on hand falls to zero. Thus, orders are timed to avoid both excess and stockouts (i.e., running out of stock). The following figure illustrate this idea.

47. The Inventory Cycle Figure 11.2 Profile of Inventory Level Over Time Quantity on hand Q Receive order Place order Receive order Place order Receive order Lead time Reorder point Usage rate Time

48. Economic Production Quantity (EPQ) Production done in batches or lots Capacity to produce a part exceeds the part’s usage or demand rate Assumptions of EPQ are similar to EOQ except orders are received incrementally during production

49. Economic Production Quantity Assumptions Only one item is involved Annual demand is known Usage rate is constant Usage occurs continually, but production occurs periodically Production rate is constant Lead time does not vary No quantity discounts

50. Quantity discount model Quantity discounts are price reductions for large orders offered to customers to induce them to buy in large quantities. In this case the price per unit decreases as order quantity increases. If the quantity discounts are offered , the buyer must weigh the potential benefits of reduced purchase price and fewer orders that will result from buying in large quantities against the increase in carrying cost caused by higher average inventories. The buyer’s goal with quantity discounts is to select the order quantity that will minimize the total cost, where the total cost is the sum of carrying cost, ordering cost, and purchasing (i.e., product) cost.

51. Total Costs with Purchasing Cost Annual carrying cost Purchasing cost TC = + Q 2 H D Q S TC = + + Annual ordering cost PD + Where P is the unit price . Recall that in the basic EOQ model, determination of order size doesn’t involve the purchasing cost. The rationale for not including unit price is that under the assumption of no quantity discounts, price per unit is the same for all order size. The inclusion of the unit price in the total cost computation in that case would merely increase the total cost by the amount P times the demand (D). See the following graph.

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