Logistics System Design

and Administration

Module 3

Sulbha Nigam
Logistical Positioning
 Logistics Environmental Assessment
 Time-based Logistics
 Alternative Logistics Strategies
 Strategic Integration and Logistics
 Time-based control techniques

2009 PESIT MBA 2

What is Logistics Positioning?

 (Or “Strategic”) Logistics Positioning is the process to provide

policies and deploy facilities, equipment and operating system
to achieve performance goals at the lowest cost.
 The plan provides guidelines concerning
 How many, what type and where warehouses will be located
 What inventory assortment will be stocked at each facility
 Philosophy and practice of purchasing
 How transportation will be performed and integrated into other areas
 Which methods of material handling will be utilized
 Methods of order processing
 And so forth...

2009 PESIT MBA 3

Logistics Environmental
Assessment
 External factors limit the flexibility of logistics performance
and therefore it is important to assess them.
 They are
 Industry competitive assessment
 Geo-market differentials
 Technology assessment
 Material energy assessment
 Channel structure
 Economic social projection
 Service industry trends
 Regulatory structure

2009 PESIT MBA 4

Time-based Logistics
 Focus is on reducing time from order receipt
to order delivery
 Highly responsive Logistics add value and
reduce costs
 Time based Logistics builds on two concepts
 Postponement
 Consolidation

2009 PESIT MBA 5

Time-based Logistics:
Postponement
 It offers the strategy to reduce the anticipatory risk
of Logistics
 Risk is reduced to the degree to which commitment
to final manufacturing or distribution of the product
can be postponed until receipt of customer order
 There are two critical types of postponement
 Manufacturing or Form postponement
 Logistical or Geographic postponement

2009 PESIT MBA 6

Time-based Logistics:
Postponement
Manufacturing or Form postponement :In this postponement , the
standard or base product is manufactured to achieve economies of
scale while deferring finalization of features until customer
commitments are received.

Production plant Plant Optional levels Final Retailer/

or central of distribution warehouse customer
warehouse warehouses level

M aterials flo w In v e n to ry M a n u fa c tu rin g p ro c e ss R e t a il e r/c u s t o m e r o rd e r p o in t

2009 PESIT MBA 7

Time-based Logistics:
Postponement
 Logistical or Geographic postponement: Such a setup maintains
full manufacturing economies of scale while meeting customer
requirements using direct shipment capabilities. Focuses on time
by stocking differentiated products at a central location and
responding rapidly when a customer order is received.

Production plant Plant Retailer/

or central customer
warehouse

M ate rials flo w In v en to ry M an u fa ctu rin g p ro c e ss R e ta ile r/c u sto m e r o rd e r p o in t

2009 PESIT MBA 8

Time-based Logistics:
Postponement
Manufacturing Logistics
Postponement Postponement
Production Costs Mid – High Low

Inventory Costs Mid – High Low - Mid

Distribution Cost Low High

Customer Service Mid – High Low - Mid

2009 PESIT MBA 9

Time-based Logistics:
Consolidation
 Retention of transportation economies associated
with large size shipments.
 To get maximum transportation consolidation
advantage and minimize the effects of
unpredictable demand, managers use the following
consolidation ways
 Market area
 Scheduled delivery
 Pooled delivery

2009 PESIT MBA 10

Time-based Logistics:
Consolidation
 Market area: Small shipments of different customers
are combined based on the delivery area or region.
Drawback is that there may not be sufficient daily
volume for a particular area.
 Scheduled delivery: Limiting shipments for markets
based on predefined delivery schedule. The delivery
is guaranteed based on this schedule.
 Pooled delivery: Freight Forwarder, Public
warehouse, Transportation company – Together
arrange consolidation for multiple shipper

2009 PESIT MBA 11

Alternative Logistics Strategies
 There is no single best way that can service all
customers
 Structural separation
 Marketing and Logistics
 Separation in practice

 Logistical Operating arrangements

 Echelon Structure
 Direct Systems

 Flexible Systems
 Emergency Flexible Structure
 Routine flexible Structure

2009 PESIT MBA 12

 Distribution Channel: Logistical and
Marketing Separation
Logistical channel
Factory Company Regional Common Public Local
warehouse truck warehouse carrier warehouse delivery

(1) (2) (3) (4) (5) (6)

(7)

consumer
Marketing channel
(5)
General sales Direct sales
Distributor Retailer
office office
(1) (2) (3) (4)

Manufacturer - operated

Operated by other channel members 13

2009 PESIT MBA
 Distribution Channel: Echeloned
and Direct Structured Logistics
Industrial
Wholesalers or
Distribution or
supplier Consolidation
Manufacturer Distribution Retailers customer
center
warehouse

Industrial
Wholesalers or
Distribution or
supplier Consolidation
Manufacturer Distribution Retailers customer
center
warehouse

Direct plan delivery Direct store delivery

(DPD) (DSD)
2009 PESIT MBA 14
 Distribution Channel: Complex
Alternative Logistics Structure

Flow through Flow through

Service supplier Service supplier

arrangements arrangements

Industrial
Wholesalers or
Distribution or
supplier Consolidation
Manufacturer Distribution Retailers customer
center
warehouse

Direct plant delivery Direct store delivery

(DPD) (DSD)
2009 PESIT MBA 15
Strategic Integration and Logistics

 Integration of Logistics function with

material and suppliers is important to
achieve maximum synergy
 End result is a series of synchronized
capabilities that implement time-based
principles in a resource efficient format
based on customer-focused requirements

2009 PESIT MBA 16

Logistics Time Based Control
Techniques
 Supply Driven Techniques
 Just in Time (JIT) (Kanban)
 Requirements Planning (RP)
 Material Requirement Planning (MRP)
 Distribution Requirement Planning (DRP)
 Demand Driven Techniques
 Rules Based Reorder Point (ROP)
 Quick Response (QR)
 Continuous Replenishment (CR) ( or Vendor Managed
Inventory (VMI) )
 Automatic Replenishment (AR)

2009 PESIT MBA 17

Logistics Administration
 Organization
 Planning, Costing and Pricing
 Performance Measurement and Reporting

2009 PESIT MBA 18

 Logistical Organizational
Development Cycle

Fragmented Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Functional Functional Functional Functional Process Process Infor-
Structures groupings groupings groupings Functional Integ mation Integ

Fragmented Functional Aggregation Process Integration

PREVAILING PARADIGM

2009 PESIT MBA 19

Traditional Organization of Logistically Related
Functions
Chief executive

Finance Manufacturing Marketing

Material requirement Forecasting

planning
Inventory control
Customer sales
Purchasing
Order service
Order processing
Raw material
warehousing Finished goods
Credit authorization
Field warehousing
Finished goods
Management
Factory warehousing
information
system
Transportation
Facility planning
Industrial
engineering

Production scheduling
2009 PESIT MBA 20
Stages of Functional Aggregation:
Stage 1 Organization
Chief executive

Finance manufacturer Marketing

Finished goods Forecasting

Factory warehousing
Inventory control
Physical
Industrial
distribution
Order processing engineering

Production scheduling Transportation

Credit authorization
Finished goods
Management Materials
Inventory control
information management
system Order processing
Material requirement
Facility planning planning Finished goods
Field warehousing
Purchasing
Customer sales
Raw material Order service
warehousing
2009 PESIT MBA 21
 Stage 2 Organization
Chief executive

Finance Manufacturing Physical Marketing

distribution
Industrial
engineering Forecasting
Transportation
Inventory control
Production scheduling Order processing
Order processing
Materials Finished goods
Credit authorization management Inventory control

Management Material requirement Finished goods

information planning Field warehousing
system
Purchasing Finished goods
Facility planning Factory warehousing
Raw material
Customer sales
warehousing
Order service
Raw material
Credit authorization
Inventory control
Distribution system
2009 PESIT MBA 22
planning
 Stage 3 Organization
Chief executive

Logistic executive

Planning Controlling

Logistical Logistical resource planning

support

Product market
forecasting
Packaging
Order processing
Material handling
engineering Functional
Logistical operations planning

Warehousing Manufacturing Physical Requirement

Purchasing support distribution planning
Inventory control

Transport and traffic

Production Capacity Material
scheduling planning requirement
2009 PESIT MBA 23
planning
Stage 4 Organization: A shift in Emphasis from
function to process

2009 PESIT MBA 24

Stage 4 A shift in Emphasis from function to process

2009 PESIT MBA 25

Stage 5 Beyond Structure: Virtuality and
Organizational Transparency
 Trend has been to evolve from Functional Aggregation to
Process Aggregation (Stage 4)
 Process Aggregation has limited the control of
Functional owners over complex global logistics
 Solution may be a “virtual” organization where IT brings
together process organizations to execute logistical
functions and removes the need of Organizational
hierarchies creating bureaucracy.

2009 PESIT MBA 26

Virtual Organization

2009 PESIT MBA 27

Concepts having Logistical Significance

 Structural Compression
 Centralization/Decentralization
 Line and Staff distinction
 Matrix to Horizontal Structure

 Empowerment
 Teaming
 Learning

2009 PESIT MBA 28

Planning
 Operations Planning
 Performance Goals
 Budgeting
 Fixed Budgeting
 Flexible Budgeting
 Zero Level Budgeting (or Target Budgeting)
 Capital Budgeting
 Final Operating Plans
 Operating Plan Modification

2009 PESIT MBA 29

Costing
 Total Cost Analysis
 Logistics Activity Based Costing
 Cost Identification
 Cost Time Frame
 Cost Formatting
 Total Cost Presentation
 Outsource Considerations
 Cost Revenue Analysis

2009 PESIT MBA 30

Pricing
Pricing Methods
 F.O.B. Pricing
 Delivered Pricing
 Single Zone Pricing
 Multiple Zone Pricing
 Basing Point Pricing

2009 PESIT MBA 31

Various Pricing Issues
 Potential Discrimination
 Quantity Discounts
 Pick up allowances
 Promotional Pricing
 EDLP

2009 PESIT MBA 32

Logistical Performance Measure
 Dimensions of Performance measurement
 Objectives
 Monitoring
 Controlling
 Directing
 Perspective
 Internal Performance Measurement
 Cost
 Customer Service
 Productivity
 Asset Management
 Quality

2009 PESIT MBA 33

Logistical Performance Measure
 External Performance Measurement
 Customer perception measurement
 Best practice benchmarking
 Comprehensive Supply Chain Measurement
 Customer Satisfaction / Quality
 Time
 Costs
 Assets

2009 PESIT MBA 34

Levels of Measurement and
Information Flow

Policy Chief Executive Officer

Degree
Of Decision Vice President

Information
Selectivity Variation Department heads

Operation Databank Direction Line managers

2009 PESIT MBA 35

Reporting
Report Structures:
 StatusReports
 Trend Reports
 Ad-hoc Reports

2009 PESIT MBA 36

Thank
you