LOGISTICS MANAGEMENT

 Recommended Book
 Strategic Logistics Management
 By James R. Stock & Douglas Lambert
COURSE OBJECTIVES
1. To identify how logistics affects the
performance of organizations
2. To understand how logistics contribute to value
creation
3. To understand the concept of systems
approach as it relates to logistics &
marketing, the total cost concept &
profitability
4. To show how to implement the integrated
logistics management concept using total
cost analysis
5. To show how to recognize areas in which
logistics performance can be improved
LOGISTICS – ROLE IN THE ORGANIZATION
 Business logistics
 Channel Management & Distribution

 Industrial Logistics

 Materials Management

 Quick-response Systems

 Logistic Management
DEFINITION OF LOGISTICS MANAGEMENT

Logistics Management is that part of the

supply chain management that plans,
implements & controls the effective flow of
the goods, services and related information
from the “point of origin” to the “point of
consumption” in order to meet customers’
requirements
 Management Actions
Planning Implementation Control
Inputs into Logistics Outputs of Logistics
Natural
Resources Competitive
advantage

Human
Resources Logistics Time & Place
Utility
Management
Financial
Suppliers Customers Efficient
Resources RM WIP FG Movement to
customer
Informational
resources Propriety
Asset

Logistics Activities
•Customer service •Parts and service support
•Demand Forecasting •Procurement
•Inventory Management •Plant and warehouse site
•Logistics Communication selection
•Material Handling •Reverse Logistics
•Packaging •Traffic and transportation
•Order processing •Warehousing and storage
 SYSTEMS APPROACH/INTEGRATION

All functions or activities need to be understood in

terms of how they affect and are affected by other
elements and activities with which they interact

The sum or outcome of series of activities are greater

than the individual parts
LOGISTICS’ ROLE IN THE ORGANIZATION

 Key element in improving both the

“profitability” and the “competitive
performance” of the firms
1. Logistics leads to competitive advantage

Customer Satisfaction
•Suppliers
•Intermediate customers
•Final Customers

Integrated effort Company Profit

• Product •Maximize long-term
•Price profitability
•Promotion •Lowest total costs given
•Place (distribution) an acceptable level of
customer service
 2. Logistics adds Time & Place Utility

 Place utility is the value created or added to a product by

making it available for purchase or consumption in the right
place
 Time utility is the value created by making something
available at the right time
 3. Logistics allows efficient movement to
the customer

 Five rights of a logistics system

 Supplying the right product at the right time at
the right place in the right condition for the right
cost to the customers consuming the product
 4. Logistics is a proprietary asset

 Logistics competency cannot be readily duplicated

 Can gain market share by providing products at low cost at
the right place
 Should be shown as an intangible asset
KEY LOGISTICS ACTIVITIES
1. Customer Service
Customer oriented philosophy that integrates and manages
all elements of the customer interface within a
predetermined optimum cost-service mix

It involves successful implementation of the

“integrated logistics management” concept in order
to provide the necessary level of customer
satisfaction at the lowest possible total cost
2. Demand Forecasting
Involves determining the amount of product and accompanying
service that customers will require at some point in the
future
3. Inventory Management
Involves trading off the level of inventory held to achieve high
customer service levels, with the cost of holding inventory,
including capital tied up in inventory, warehouse costs and
obsolescence
4. Logistics Communication
Effective communication is necessary
1. The organization, it’s suppliers and its customers
2. The major functions within the organization
3. The various aspects of each logistics activity such as
coordinating warehousing Raw Material, Work In Process
and Finished Goods
5. Material Handling
• Eliminate handling wherever possible
• Minimize travel distance
• Minimize work-in-progress
• Provide uniform free flow of bottle necks
• Minimize losses from waste, breakage, spoilage and theft

• Note: Cost is incurred every time an item is handled.

6. Order Processing
1. Operational Elements such as order entry/editing,
scheduling, order shipping, set preparation and invoicing
2. Communication Elements such as order modification, order
status inquiries, tracing and expediting, error correction and
product information requests
3. Credit & Collection Elements including credit checking and
accounts receivable processing/collecting
7. Packaging
Two basic functions:
a. Marketing:
 Form of promotion & advertisement. Size, weight, color and printed
information attracts customers and convey relevant information
b. Logistics
 Protects the product from damage
 Makes it easy to store and move thereby reducing material
handling costs
8. Parts & Service Support
Concerned with activities involved in the repair and servicing
of the products e.g. providing replacement parts when
product breaks down or malfunction.
9. Plant & Warehouse Site Selection
Assist firms in improving customer service levels
Allow lower volume-related transportation rates

Site should :
 Be near target market
 Have abundant labor force
 Have proper infrastructure, transport system and utilities
available
 Have minimum legal concerns
 Have low land costs
10. Procurement
Process of acquiring materials and services to ensure
operating effectiveness of the firms’ manufacturing and
logistics processes
This function includes:
 Selection of supply source locations

 Determination of the form in which material is to be acquired

 Timing of the purchases

11. Reverse Logistics
An important part of logistics concerned with
 Handling of return goods
 Salvage & scrap disposal
 Removal and disposal of waste materials from the
production, distribution and packaging processes
 Effectively and efficiently handle the by-product
12. Traffic and Transportation
Involves managing the movement of products
Includes
 selecting the method of shipment (road, rail or air)

 Choosing the specific path (routing)

 Complying with various local, state and federal

transportation regulations
 Being aware of both domestic and international shipping
requirements
13. Warehousing & Storage
Involves the management of the space needed to hold or
maintain inventories
Includes:
 Deciding whether the storage facility should be owned,
leased or rented
 Layout and design of the storage facility
 Product mix considerations
 Safety and maintenance procedures
 Personnel training
 Productivity measurement
WHY SHOULD LOGISTICS ACTIVITIES BE
INTEGRATED?
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 Benefits of Integration:
1. Improves the flow of inventory
2. Improves transport and warehouse assets
utilization
3. Eliminates the duplication of efforts
4. Achieve economies of scale working with high
volumes
5. Forces cost trade offs to be made between and
among logistic activities
 TOTAL COST CONCEPT

 Aim should be to reduce overall costs of logistics

activities
 Place/customer service levels
•Cost of lost sale/ future sales
•Parts & service support
•Return goods handling

Inventory Carrying Costs Transportation costs

• Inventory Management • Mode
•Packaging •Inbound/Outbound
•Inventory of retuned goods
•Weight, Dimension etc

Lot Quantity costs Warehousing costs

• Materials handling • Warehousing & Storage
•Procurement •Plant and warehouse site
•Production setup costs selection

Order processing &

Information Costs
• Order processing
•Logistics communication
•Demand Forecasting/planning
RELATIONSHIP OF LOGISTICS ACTIVITIES TO
LOGISTICS COSTS
1. Customer Service Levels
 Key trade-off associated with varying levels of
customer service is the “cost of lost sales”.
 Customer service costs include:
 Order fulfillment costs
 Costs of parts and support services
 Cost associated with return goods handling
 Cost of lost sale includes not only the lost
contribution of current sales but also future
potential sales due to negative word of mouth
2. Transportation Cost
Costs can be categorized by customer, product line, by
type of
channel, by carrier, by direction and so on.
Costs vary with volume, weight, points of origin &
destination
and mode of transportation chosen
3. Warehousing Cost
These are created from warehousing & storage activities
and by the plant & warehouse site selection
4. Order Processing/Information System
Costs
These costs are related to
 Processing customer orders
 Distribution communication
 Demand forecasting
5. Lot Quantity Costs
These are production- or purchase- related costs that vary
with changes in production lot size or order size or
frequency. They include:
 Production setup costs
 Capacity lost due to downtime during changeover of line or
changeover to a new supplier
 Materials handling, scheduling and expediting
 Price differentials due to buying in different quantities
6. Inventory Carrying Costs
 Capital cost

 Inventory service cost

 Storage space cost

 Inventory risk cost

FUTURE CHALLENGES & AREAS FOR LOGISTICS
PERFORMANCE IMPROVEMENT
 Significant challenges will occur in the following
areas:
 Strategic Planning
 Total Quality Management
 Just In Time
 Quick Response
 Efficient Consumer Response
 Increasing skill requirements
 Outsourcing
 Reverse logistics
 Quick Response (QR)
This is a retail sector strategy that combines a number of
tactics to improve inventory management and efficiency while
speeding inventory flows.

QR applies JIT principles through out entire supply chain.

The concept works by combining electronic data interchange
with bar coding technology

Cross-docking: A process that involves unloading inbound

product, sorting products for individual stores and reloading
shipments onto trucks destined for a particular store
SCHEDULING
 WHY SCHEDULING?
 Scheduling determines what would be
shipped next where and when.
 Specifies the time each job starts and is
completed on each machine, as well as on
any additional resources needed for the
production.
 Optimize the best utilization of resources
of organization
WHY SCHEDULING IS IMPORTANT??

 “ The two basic goals schedules are :

 Meeting customers delivery on time
 Meeting first objective with minimum
required resources
SCHEDULING & INTEGRATED LOGISTICS
 As we know that integrated logistics interface with
all department for getting maximum efficiency and
minimizing cost.
 Before production, during production and after
production the role of integrated logistic is most
important;
 Coming Material form Vendors / Supplier
 Movement of material between production facility to
warehouses
 Movement of finish products form production to
warehouses, distribution centre etc

“Integrated logistics needs to work with operation to

produce goods”
WAREHOUSE MANAGEMENT
 WAREHOUSE

“The warehouse is where the supply

chain holds or
stores the goods.”

‘A bounded wall area where receiving,

storage and shipping takes place.”
 WAREHOUSES VS DISTRIBUTION CENTERS

The purpose of warehouse is to store products until customers require

them. Mostly used for Raw, Packing, work in process materials and
finished products. Storage life of product may be as long as required
by company.

The purpose of distribution center is product through-put, storage.

Bulk shipments come into a distribution center, are broken down into
smaller shipments, and then are transported further in the supply
chain.
 IMPORTANCE OF WAREHOUSE MANAGEMENT

Better Inventory Control

 Better utilization of Space
 Reduce loss sales and Damages
 Improved Customer Service
 Great Visibility into supply Chain
 Improve safe working Environment
 THE ROLE OF WAREHOUSE
 Serve as a transportation consolidation facility.

 Plays vital role in backup seasonal product

availability.

 Smooth production depends on warehouses

space.

 Customer service, faster order fulfillment, timely

receiving and dispatching.

 Value Added activities and products support and

safety
 BUSINESS PRESSURE AND WAREHOUSE
ROLE Check and
Work Quality
Control
Improvement Improvement

Just in time Delivery Guaranteed Availability

 How can I improve the speed of  How can I improve order

warehouse operation? promise accuracy?

 How do I integrate operation to  How do I create a global

reduce order processing time? view of inventory.

Internal
Inbound Outbound
Processing

One Size Fits One Lowest Total Cost

 How can I manage SKU ?  Where can I reduce

inventory while maintaining
 How do I ensure labeling high fill rates?
compliance?
 How do I improve labor efficiency
 KEY FUNCTION
 The basic function of a warehouse include movement,
storage, and information transfer. It takes place in four
distinct areas:

1. Receiving inbound goods from the transportation carriers and

performing quality and quantity checks.

2. Transferring goods from the receiving docks and moving them

to specific storage, locations throughout the warehouse.

3. Order selecting the products for filling customer orders

including checking, packing, and transporting to the outbound
dock.

4. Shipping the goods outbound to customers.

 TYPES AND NUMBERS OF WAREHOUSE IS A
STRATEGIC DECISION ??
 The type & number of warehouses is a strategic
decision for the management considering the following
points:
 Location and Coverage
 Cost & Volumes
 Safety and Quality
 Check and Controls
 Current & Required Customer Service Level
 No of Customers, their location, and buying habits
 TYPES OF WAREHOUSE

 Private Warehousing

 Public Warehousing

 Contract Warehousing
 WAREHOUSE DESIGN / LAYOUT
 The five interrelated variables should be considered;

 Land and Building

 Management and Staff
 Storage and handling requirement
 Computers and Software
 Operating methods and procedures
 WAREHOUSE PRODUCTIVITY
 The warehouse effects profit of the organization and approximately
7 to 10 percent of sales value amount. The efficiency and
performance need to measure with certain KPI.

 Productivity

 Safety

 Cost

“The KPI always best to determine and find the actual result vs
targeted. Improving KPI mean positive contribution in
maximization of Profit.”
 PRIME IMPORTANCE FOR EFFICIENCY
 Improving forecasting accuracy.
 Reducing or eliminating labor bottlenecks.

 Smoothing out the variance in product flow in the warehouse.

 Decreasing the distances traveled in the warehouse.

 Increasing the size of the units handled.
MATERIAL HANDLING & PACKAGING
 MATERIAL HANDLING
 The art & science of material movement with in plant and finished
goods with in facility and out side.

 A properly installed material handling system can reduce costs

and labor, increase safety, increase productivity, reduce waste,
increase capacity, and improve service.

Materials handling refers to the total management of all materials

and processes involved in the entire manufacturing procedure.
This includes sourcing, delivery, movement, protection and
storage of product. Significant savings in time, labor and
materials result from effective materials handling achieved
through a series of well-coordinated and inter-related procedures
 MATERIAL HANDLING

“Material is the most valuable assets in the integrated logistics

management. Logistics takes the ownership for safe, efficient and
timely movement during Inbound, Conversion and Outbound. Value
Chain increase the value of material as it move through the supply
chain”.

“Materials Handling procedures, systems and equipments are not fixed

and same for all. It vary from industry to industry and depends on
product Type, Size, and Shape not only physical but also consider
chemical properties of products.”
OBJECTIVE OF MATERIAL HANDLING

“A good logistics system seeks to create a

mechanism to move equipment and
supplies in a time-bound manner, as and
when needed, to the place where needed,
at an economic cost. Since this movement
is not always from Point A to Point B but
often involves storage as inventory at one
or more intermediate points along the way,
the efficiency of management comes into
play.”
OBJECTIVE CONTINUE …
 The main objectives of material handling
are as follows:
 It should be able to determine appropriate distance to be
covered.
 Facilitate the reduction in material damage as to improve quality.
 Reducing overall manufacturing time by designing efficient
material movement
 Improve material flow control and tracking, status etc …
 Creation and encouragement of safe and hazard-free work
condition
 Improve productivity and efficiency
 Better utilization of time and equipment
 METHODOLOGY OF MATERIAL
HANDLING
 In the current competitive and globalized environment, it is important to
control cost and reduce time in material handling. An efficient material
handling process promotes:

 Design of proper facility layout.

 Promotes development of method which improves and simplifies the

work process.

 It improves overall production activity.

 TYPES OF MATERIAL HANDLING &
EQUIPMENT
 Three Types of Material Handling
 Manual
 Mechanized
 Automated

 Selection of Equipment depends :

What + Where +When = Equipment Specification

What refer to the type of material being

handled, Characteristics, size and shape etc.
 TYPES OF MATERIAL HANDLING &
EQUIPMENT
 Where refer to the everything involved in the routing the
material throughout the facility. This component includes:
 Type of Movement –
 Length of movement –
 Limitation of movement –
 Building limitation –
 Transfer Requirement
 The Associated in-transit operation

 When means the material must be in the right place at the

right time
 TYPES OF MATERIAL HANDLING &
EQUIPMENT
 Manual Material Handling systems tend to be labor –intensive.
Typical type of equipment would be hand dollies, drawers, low racks
and
pallet jack

Manual material handling system yield low output because of a lack of

handling speed. Also, they use cubic space poorly.

 Mechanized Material is the most common type. Its replace

some manual handling with mechanical movement. The forklift is the
backbone of the mechanized materials handling system. Others
equipment includes in this system includes Pallets, cranes, storage
rack systems and wheel conveyors etc ..
 TYPES OF MATERIAL HANDLING &
EQUIPMENT
 Automated Material Handling System is the most
sophisticated. Its uses automatic storage and retrieval system
(A system typically consists of high-rise shelving, multi-level conveyors
etc.), item picking equipment, optical scanners and robots.

 It can fully utilize the available cubic space in the facility, fast /
speedy, high productivity, accurate and easy to control.
But at the same time
 Its seems superior but costly.
 May require special types and sizes of facilities
 May be high risky when the system fail
 In case of low production very high fixed cost etc
 PRINCIPLES OF MATERIAL HANDLING

Material handling principles are as follows:

 Orientation Principle: It encourages study of all

available system relationships before moving towards
preliminary planning. The study includes looking at
existing methods, problems, etc.

 Planning Principle: It establishes a plan which

includes basic requirements, desirable alternates and
planning for contingency.

 Space Utilization Principle: Encourage effective

utilization of all the space available
 PRINCIPLES OF MATERIAL HANDLING
 Energy Principle: It considers consumption
of energy during material handling.
 Ecology Principle: It encourages minimum
impact upon the environment during material
handling.
 Mechanization Principle: It encourages
mechanization of handling process wherever
possible as to encourage efficiency.
 Flexibility Principle: Encourages of
methods and equipment which are possible
to utilize in all types of condition.
 PRINCIPLES OF MATERIAL HANDLING

 Standardization Principle: It encourages

standardization of handling methods and
equipment.

 Safety Principle: Encourages provision for

safe handling equipment according to safety
rules and regulation
 Computerization Principle: Encourages of
computerization of material handling and
storage systems
 PRINCIPLES OF MATERIAL HANDLING
 System Flow Principle: Encourages
integration of data flow with physical
material flow

 Cost Principle: Encourages cost benefit

analysis of all solutions available
THANK YOU