Logistics Defined Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements. Council of Logistics Management Supply Chain Management Defined SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage. Handfield and NicholsThe Logistics/Supply Chain Mission Getting the right goods or services t the right place, at the right time, and 1 the desired condition at the lowest cos and highest return on investment.Evolution of Supply Chain Management ty tinge td ct etgraton 196010 208 so00e Demand forecasting Purchasing Requirements planning Purchasing! Materials Management Production planning Manufacturing inventory Warehousing Logistics ‘Material handling Packaging Finished goods inventory Physical Distribution ‘Supply Chain Management Distribution planning Order processing “Transportation Customer service ‘Svatege planning Information serves Markoting/sles FinanceEffect on Logistics Outsourcing Internal handling Outsourcing Profit. | | Profit ————L increase Marketing Market arketing Logistics ° Logistics ——| Lincrease } Overhead Tariffs Overhead Materials Materials Tanon + Reduction labor ———]Scope of the Supply Chain for Most Firms Business lo} oo Physical supply (Materials management) Physical distribution Sources of supply a —— | Plants/ operations ‘Transportation Inventory maintenance Order processing ‘+ Acquisition/ Procurement + Protective packaging '* Warehousing Materials handling ‘Information maintenance reo——aalip _ a a “Transportation Inventory maintenance * Order processing Product scheduling «Protective packaging *Warehousing Materials handling Information maintenance Focus firm’s internal supply chain CustomersKey Activities/Processes ¢ Primary - Setting customer service goals - Transportation - Inventory management - Location « Secondary, or supporting - Warehousing - Materials handling - Acquisition (purchasing) - Protective packaging - Product scheduling - Order processingThe Logistics Strategy Triangle Inventory Strategy « Forecasting « Storage fundamentals « Inventory decisions Purchasing and supply scheduling decisions, « Storage decisions Transport Strategy Transport fundamentals « Transport decisions ‘Customer service goals © The product * Logistics servi © Information sys. Location Strategy + Location decisions « The network planning processStrategic, Tactical, and Operational Decision Making Decision area Strategic Tactical Operational Transportation Mode selection Seasonal equip- _Dispatching ment leasing Inventories Location, Control policies Safety stock levels Order filling Order Order entry, transmittal, Processing processing and processing system orders, Filling design back orders Purchasing Development of supplier- Contracting, Expediting buyer relations Forward buying Warehousing Handling equipment Space utilization Order picking selection, Layout design and restocking Facility Number, size, and location location of warehouses 27Integrated Logistics Systems (ILS) * ILS is used by many firms, with the help of Information Technology for tracking and coordinating the following functions effectively: — Material management — Material flow systems — Physical distribution * Volvo operates their warehouse in Memphis with the support of third party suppliers, FedEx Logistics Services, to handle stocks of truck parts. If a Volvo dealer needed a part in an emergency, phones a toll-free number and the part is flown out the same day and delivered that night at either the airport or the dealer’s office.Market Logistics Objectives Situations where logistics planning may go wrong: The Traffic/ Logistics manager favours rail shipment over air shipment because of the less rail cost. However, because the rail transport are slower, it ties up working capital longer, delay customer payment, and might cause customers to buy from competitors who offer faster service. The Shipping department uses cheap containers to minimize shipping costs. Cheaper containers lead to a higher rate of damaged goods. The Inventory manager favours low inventory. This increases the possibility of ‘stockouts’, back orders, huge paperwork etc. Major objectives for any company logistics planning: On-time delivery Effectively meet emergency needs Careful handling of merchandise Willingness to take back defective goods and resupply them quickly.Indian Logistic System: Scenario IndustryOverview * Logistics functions are currently an in-house activity for companies that Aire discrete services such as transportation and warehousing while internally performing order processing, distribution, and Logistics planning for inbound and outbound logistics. * Outsourcing of entire logistics to third-party logistics service providers is highly limited. * The practice of complete logistics outsourcing is recent in India with multinational companies being the major users of this service.Indian Logistic System: Scenario * The logistics industry in India is highly fragmented. This is mainly due to the nature of the transportation industry. * In India, over 50 percent of goods are transported by road. The road transport sector is highly fragmented with vehicle ownership firmly in the hands of individual trucks owners with 67 percent of the owners with a fleet of less than five vehicles.Indian Logistic Scenario * Inventory carrying costs account for approximately 24 percent of the logistics cost. * Order processing and administrative costs account for a significant 10 percent of the logistics costs. * Stock filing and warehouse management in many cases is done manually increasing the administrative costs at the same time adding an element of inefficiency in warehouse management.Indian Logistic Scenario * Companies in India are slowly moving towards total outsourcing of logistics that provides access to logistics services to their production facility, warehouses, and IT systems. ¢ Ahigh level of integration is required between the company and logistics service providers to provide logistics services that fulfill the strategic objective of the companies.Indian Logistic Structure * The total logistics market consists of market participants from the unorganized seqment to highly technology savvy and process driven service providers with high levels of expertise in the area of logistics management. * The market participants in this industry can be broadly classified into three broad seqments, namely: — Pure transporters — Integrated transporters with warehousing facilities — Third-party logistics service providers (3PLs)Pure & Integrated Transporters * Transporters are involved only in the physical movement of goods. They can be classified as — small, medium and large based on the ownership pattern of vehicles and their revenue. * Transporters are considered to be highly unorganized although many large transporters form a part of the organized segment of the market. * Many large transporters are diversifying their operations to include total logistics management.Indian Supply Chain Scenario Some Facts * GDP : Rs. 27.55 Lakh Crores* * Inventory tied up : Rs. 1.17 Lakh Crores * Logistics Cost : 14% of our GDP * 1% Reduction inLC —: Rs. 27550 Crores * 2% Reduction inLC —: Rs. 55100 Crores * Economic Survey 2003-04Elements of Logistics cost * Transportation 35% * Inventories 25% * Losses 14% * Packaging 11% * Handling and Warehousing 9% * Customers’ shopping 6%