LIS

The 6 important principles of Logistics Information System

1. Availability-rapid availability of required information
2. Accuracy-is defined as the degree to which LIS reports match actual physical counts /status
3. Timeliness it refers to the delay btw the occurrence of an activity & recognition of that activity
in the information system.
4. Exception based LIS the system should be able to recognize the exception situations and that
require quick attention of mgt associated with logistics & come up with solutions to the tackle
the situation .Some of the exception situations include delay in shipments, w r t to
replenishment of stocks, declining operating productivity. etc
5. Flexibility an LIS should be able to meet the needs of both system users & customers. It must
be able to provide data tailored to meet the requirement of a specific customer.
6. Appropriate format logistics reports & screens must contain right information in the right
structure& sequence

Logistics Information System

LIS is a subset of the firm’s total information system commonly known as MIS. The major purpose of
LIS is to collect, process, store & manipulate data within the firm, facilitating the decision maker to
overcome any logistical problems. .LIS is a set of computer hardware & software that gathers,
organizes, summarizes & reports any information for use by mgr’s, customers & others.
LIS consist of 4 distinct elements they are
-The inputs
-The data base & its associated manipulation
-The outputs
-The resources
 1. The inputs-
company stake holders existing external to the company as well as the published valuable data which
are made available from research sponsored by govt ,trade associations along with professional
journals are very important.
2. Data base mgt-
it converts raw data in to information useful for the company. It helps in selection,identification,
choice of methods of analysis of data,etc.In short the design of data base determines the nature of the
data to be retained /stored in computer memory for quick access. The selection of data to be stored
in the computer are judged on the following points of fact
-criticality of info in decision making
-how rapidly the info need to be retrieved
-how frequently the info has to accessed
-how much effort may be required to manipulate the info in to the form needed
3. The output
The output of any LIS is the processed & manipulated form of input data (information) which
facilitates decision makers to optimize the logistical resources & ensures a smooth flow of logistical
system. The outputs are generally in the form of reports like status report, summary reports, exception
reports etc or the output may be in the form of invoices, purchase orders, transportation bills, freight
bills etc.
4. The Resources

*HR includes
 Specialists –system analyst, programmers & computer operators
 End users -Anyone who uses an information
 Hard Ware Resources
 Machines-computers, video monitors, magnetic disc drivers, printers etc
 Media -Floppy discs, magnetic ape, etc

*Software Resources
• Programmes -operating system programmes, spreadsheet programmes, word processing
programs, SCM & ERP Solutions etc
• Procedures -data entry procedures, data processing procedures, error correction procedures ,
procedure for interface of LIS with MIS

*Data resources
• It includes product descriptions, customer records, inventory data bases etc.

The Major LIS Elements includes

1. Modules the important areas of logistics were LIS could be applied they are
-order entry
-order processing
-transportation & shipping
-Distribution operation
-Inventory mgt

2. Data files- This includes data & information base to support the communications activities. The
major database structures that are required for supporting distribution communication are;
-order file
-Inventory & warehouse file
-Accounts receivable
-Distribution requirement file
3. Management & data entry activities
-this is nothing but the data must be entered in to the system relating to any specific area, or the mg
must come up with a decision with regard to any aspects relating to logistics. The general instances of
data entry include :
-order entry
-Order inquiry
-Forecast development & reconciliation
-Freight rating
-Warehouse receipts & adjustments
4. Reports
They include numerous summary, details & exception l in the form of reports relating to # of areas in
logistics.

Integrated IT technology solution for L&SCM

 (EDI) Electronic Data Interchange-

EDI is an inter organization computer to computer exchange of standard business documents in a
structured & machine process able format with the objective to eliminate duplicate data entry &
improve the speed & accuracy of the information flow. The components of EDI are
- EDI standard
They are rules & guidelines that establish a basic syntax for formatting information electronically
- EDI Software
The main function of EDI software are data extraction, formatting & transmission of out going EDI &
receiving, formatting & integration of incoming EDI
-Communication medium
Communication of information electronically is basically carried out through a technology called
VAN (Value added Network)

The major benefits of EDI includes

 -Improving customer responsiveness
 -reducing transaction cost & time
 -increasing accuracy & productivity
 -enhancing sc relationship
 -increasing ability to compete globally
 -improving quality of decisions to exploit business opportunities.

 Bar code system

Helps in identifying & tracking products specially during receipt at the warehouse & sales at retail
stores. The application of bar coding are mainly seen in
-(POS) point of sale in retail stores, receipts in ware house leading to accurate inventory control,
tracking of product sold by each SKU & at the time of replenishment of stock etc
-facilitating material handlers track product movement , storage location shipments & receipts.

 (ERP) Enterprise Resource Planning

ERP integrates the entire enterprise starting from vendor to the customer, including all resources such
as financial .hr, production logistics etc by means of an integrated workflow with a flexible assignment
of task & responsibilities to different locations ,positions, jobs groups or individual. In short it’s a
integrated business solution for the org.
The major benefits of ERP in L& SCM are
 -improving productivity & enhancing competitive edge
 -Bring out a trade off btw demand & supply
 -Ensuring a smoother flow of inventory & information at all levels & btw all parties, coupled
with ready access of up to date information
 -Reducing the replenishment cycle time & hence capital lock up
 -Ensuring a high level of customer service with flexibility
 -Overall improved org capability & control.

 Intranet
co ordination of the information with in an org & the information s no accessible to public.

 Extranet
the information with in the org is made available to the external interested parties of the org
 Internet

 (AI) Artificial Intelligence- AI describes technologies aimed at making computers imitate

human reasoning & are concerned with symbolic reasoning rather than numeric
processing .The application of AI are in
-carrier selection
-International marketing & logistics
-Inventory mgt
-Information system design.

 Satellite Communication

Procurement function
Sourcing
Procurement- is the process by which companies acquire raw materials, components, products,
services and other resources from suppliers to execute their operations

Nature & scope of sourcing /procurement

 Commodity analysis
 Market research
 Purchase order tracking & follow up
 Determination of needs & specifications fro internal customers
 Transmitting forecasts of future needs to supplier
 Supplier performance measurement
 Mgt of supplier quality
 Contract mgt & negotiation
 Mgt of inbound & out bound transportation ensuring that deliveries as scheduled & and are
on time

Price/cost analysis carrying out ongoing analysis of price & cost trends

Major activities typically associated with sourcing mgt include

 Supplier identification
 Supplier evaluation & selection
 Supplier mgt
 Supplier development & improvement
 Supplier integration in to ongoing process
Importance of purchasing
 Quality-
 Cost- cost of raw materials +logistical services including transportation cost.
 Supplier relationship- Purchasing function of the enterprise contribute significantly in
developing & maintain long run reliable & competitive supplier relationships against mere
transactional relationship that was carried out traditionally.
 Low inventories & smooth flow by way of IT new tools & technologies have arrived in
logistics & SCM .This has enabled the firm to improve a lot in the field of purchasing & sourcing
mgt for e.g. JIT keeping low inventory, uninterrupted production, reduced inventory cycle time etc
 Interface with other functions purchasing once considered as a sub unit of inbound logistics
now, have its interface with marketing ,finance, production & operation

Newer Trends in Purchasing Process

 -JIT just in time production whenever need arises for a particular material placing orders to the
supplier.
 -Information systems replacing paper work
 -Shift of R& D to suppliers -When R&D conducted internally by firm & result given to the
vendors the firm won get an immediate response from them. Shift to suppliers sets new trend
towards belongingness & more involvement of suppliers, leading to strong long term supplier
relationship
 -Outsourcing to third parties -procurement of raw material function is been assigned to 3rd
parties who are specialized in it E.g.: Third party logistics (3PL)

Contemporary Sourcing & Supplier Mgt

 Quality of suppliers supplier mgt often emphasizes TQM of goods supplied by a vendor to
meet the buyers/ companies expectations
 Supplier responsibilities
-making the supply of goods as per quality specification in a timely & reliable manner
-quality inspection b4 delivery to the buyer by SPC ( statistical process control) or any other control
tools with appropriate procedures to ensure control & consistence
-small & continuous supply
- Zero defect delivery in terms of right assortment, correct documentation, right qty etc

 Supplier Categories
-Approved suppliers
those suppliers who are currently dealt with & have a record of meeting certain minimal stands of
acceptance

-Qualified suppliers
-firms that produce goods satisfactorily & are qualified by the buyers firm’s audit teams. Delivery &
responsiveness are excellent. Typically the supplier has the capability to produce excellent goods &
ship tem at a near perfect quality level with few minor exceptions

-Certified Suppliers
All goods are shipped 100% fit for use each & every time. This is the level attained when all the
previous criteria are successfully met. The suppliers in this category are usually given a special
recognition award.

 Comprehensive cost measurement

Rather than a narrow cost computation of purchase activity I e material price lowest, and the price
variance profit when compared to other suppliers, now the scope is being widened by including cost
such as scrap & production yield, long term warranty costs, shipping & transportation cost ,payment
terms, rework & other costs associated with low quality and external failure costs once the product is in
the customers hand

Creating & maintaining supply relationship

Traditional vendor relationship mainly focused around material price offered & quality, is now been
outdated as now the relationship is more than just price & qty which includes product modifications,
delivery etc.
To conclude the best practices in supplier- vendor mgt include the following aspects:
- Vendor rationalization by tiering vendors
-collaborative efforts for productivity improvements
-vendor selection on non price criteria like past performance & quick response capability
-Quick response & minimum replenishment cycle
-Extensive use of IT for quick information sharing
-transfer of technology & managerial skills for the development of a professional & an entrepreneurial
acumen
-have minimum sources for the same input (minimum # of vendors for the same component/material)
-local sourcing
-continuous performance measurement of vendors & communication of the same to them
-shared cost reduction drive.

Containerization
A freight container is rectangular in shape, weather proof, used for transporting & storing a number of
unit loads, packages /bulk materials. It confines & protects the contents from loss/damage, it can be
separated from the means of transport, handled as a unit load & transshipped with out rehandling the
contents
Advantages of container
-The risk of damage to the goods during the transportation is reduced
-The cargo arrive at a better condition & this creates better impression about the exporter in the mind
of importer. The perception of delivery of goods in good condition enables an exporter to gain an
edge over other competitors
-there are no damages due to mishandling of the cargo at terminal ports in case of transshipment

Classification of containers
 By raw material -of what the container is made of ,say it may be steel, aluminum, GRP glass
fiber reinforced plywood etc.

 By size- The ISO has worked a grt deal on standardization on container dimension &
published recommendations. Containers are defined in multiples of 10 ft ie 20 ft ,30 ft or 40 ft.
Presently 20 ft -40 ft containers are used pre dominantly & around 65-70 % of world fleet consist of
20 ft containers.

 By use
-the general cargo container to carry all types of general cargo both solid /liquid .This type of
containers it doesn’t require temperature control also called Dry cargo Container

 Thermal container
mainly designed for cargo requiring refrigerated/insulated storage They are classified in to 3 they are;
-Refrigerated containers -for food stuff like meat , fish, vegetables etc
-Insulated containers- for fruits /vegetables ,here dry ice is used as cooling agent instead of any
devices for cooling /heating.
-ventilated container- allows for the passage of air by means of apertures on sides of containers
.Cargos like fruits ,veg, which require respiration, tea coffee which may lose moisture etc are carried in
this type of containers.
Advancement In case of refrigerated containers
*In the controlled atmosphere computerized controller, the controller maintains ideal atmosphere by
sensing the products consumption of oxygen & production of carbon dioxide.
*In modified atmosphere system The desired atmosphere is created in container when it is stuffed
,the container is then sealed to prevent changes in the original atmosphere due to ventilation

 Special containers
-bulk containers - carriage of dry powders & gram substances in bulk

-Ventilated containers have full length ventilation galleries

-Half height containers – is designed for carriage of heavy dense cargo’s such as steel, pipes & tubes
-Tank containers - for specific product/range of products

-Open sided containers- these containers are designed to accommodate specific commodities such as
plywood, perishable commodities & live stock.

 Dry cargo container -is a box type with a door at one end ( std model)
-open top container- no roof its open on the top of the container, polithene lined tarpaulin to cover the
container
-Flat container -it has its base only cargo of odd size & weight are put on to this container
-Bulk container -fitted with manholes to facilitate loading & unloading of bulk cargo through gravity

Garment container -filled with hangers to help loading large # of garments on hangers in to the
containers

-Liquid containers -usually made of stainless steel & have manholes for loading & unloading liquid
cargo.

-Gas containers - are containers with fixtures & fittings for filling & emptying liquid gas.

 Other containers
-Insulated containers
-Fruit containers -they are also insulated containers with internal dimensions slightly longer

-Refrigerated containers -these containers are fitted with their own refrigeration units which require an
electrical supply for their operation

-Hanger containers -mainly for garments with inbuilt immovable beams in the upper part.

-Bin containers -These containers have no doors & are ideal for heavy dense cargo such as steel, pipes
etc.
Constraints in containerization
-Capital intensive

-Not all merchandise can be conveniently containerized

-The container in itself is a high capacity carrying unit & in consequence, exporters with limited trade
are unable to fill the container capacity & there by cannot take full advantage of an economical rate

-The container owning company has a complex task of monitoring & ensuring full utilization of such
equipment

-in some countries restrictions exist regarding internal movement of containers especially 40 footer

Benefits to trade
-No intermediate handling at terminal port, transshipment points
-low risk of cargo damage & pilferage
-Elimination of intermediate handling enables substantial labor savings
-less packing needed for containerized shipments
-Cargo arrives at better conditions
-Transit are much faster due to faster vessels, quicker cargo handling etc
-encourages trade development & provides quicker payment of export invoices
-Container vessels attain much improved utilization & are generally more productive
-Faster transit encourages many importers to hold reduced stock/spares
-Stimulates trade expansion through much improved service standard
-More reliable transit
-Emergence of new market
-Overall total quality service

In short containerization helps in saving time & cost while handling, loading, discharging, &
transporting .Cargoes are consolidated & made as huge a unit possible like (5 tons, 20 tones & 40 tons
etc). So that at every point of handling of the unit, time is saved hence cost is saved.

Transportation
Participants in Transportation Decision
1. The shipper (originator)
2. The consignee (destination party/receiver)
3. The carrier
4. The government
5. The public

 The shipper & the consignee

-Objective is to move good from origin to destination within a prescribed time at lowest cost
-service expectations include specified pick up & delivery time, predictable transit time, zero loss &
damage, accurate & timely exchange of information & invoicing
 The carrier
-objective is to maximize their revenue associated with the transaction while minimizing costs
,necessary to complete the transaction
-carrier would like to charge the highest rate the shipper /consignee will accept and minimize the
labor, fuel, & vehicle costs required to cover the product
- to achieve the above objectives the carriers desires flexibility in pick up & delivery time to allow
individual loads to be consolidated in to economic move

 The government
-desire a stable & efficient transportation environment to sustain economic growth
-Expects efficient movement of products to markets through out the country there by ensuring product
availability at a reasonable cost
-govt involvement may take the form of regulation, promotion/ownership
-may regulate carriers by restricting the markets that they can serve by setting the prices they can
charge
-May support carriers by providing R&D, by providing right of way such as roadways /air traffic
control systems.
-Govt control can have a major impact on the economic success of region, industries/firms
 The public
-concerned with the transportation accessibility, expense, & effectiveness as well as environmental &
safety stds
-determines the need for transportation by demanding goods frm around the world at reasonable prices
-Considers trade off btw the cost & environmental & safety stds

Legal classification of carriers

 Common carriers is a hire for carrier, operates for general public to serve, to deliver at
reasonable charges without discrimination
-common carrier must transport all commodities offered to them
-liable for damages
-the govt may intervene to safeguard public interest
-discrimination is when a carrier charges differential rate /provides differential service level for
essentially similar movement of similar goods
-permissible forms of discrimination are large volume movements over low movements & cost
differential of volume over weight shipments

 Contract carriers
-contract carrier is a hire for carrier that does not serve general public but rather serves one/limited #
of shippers with whom it is under specific contract.
-The contract contains terms pertaining to the carrier’s rates, liability, type of service *& equipment
-it provides specialized type of service to the shipper, it can tailor its services to meet specific shippers
needs by utilizing special equipment & arranging special pick ups & deliveries
-A contract carriers rate are lower than common carrier
-Contract carrier is available to a shipper with whom the carrier has signed the contract
 Pvt carrier
-it is essentially a firms own carrier
-the basic reason for a firm to enter in to pvt transportation is cost & service
-other advantages like increase in control & flexibility result in lower inventory levels, greater
customer satisfaction & greater efficiency at loading & unloading docks.
-Its major drawback is huge capital investment & problems in labor & mgt.
 Exempt carrier
-the exempt carrier is a for hire exempt from economic regulation regarding rates & services
-the law of market place determine the rates & services
-An exempt carrier gains this status by the commodity it holds/or by nature of its operations
-basically used for bulk movement like coal, grains etc.

Modes of Transportation
1. Rail (train)
Characteristic features
-It has a capability to transport large shipments economically with more speed/frequency
-rail road operations incur high fixed costs because of expensive equipment ,right of way (railways
maintain their own track) switching yards & terminals
-the replacement of system by diesel power & further by electrification has considerably reduced the
VC associated with this mode of transportation
-bulk industries & heavy manufacturing use railways more frequently
-Railways can improve the effectiveness of transportation by having alliances with other modes.

Considerations governing railway freight structure (Indian context)

 Ability to pay principle –differential rates are charged to different commodities ie for
essential commodities like pulses, grains, etc & heavy plant & machinery etc.
 Speed- freight carried by faster train will be naturally higher than those carried by slower train.
 Distance- longer the distance he higher will be the freight cost & visa versa
 Liability of risk- freight in transit risks carried by the railways risk will be more than owners
risk
 Frequency of service- frequency of services affects the forces of demand & supply of the
services & will have a bearing on the cost
 Types of wagon- special rates are applicable for different types of special wagons e.g.closed,
refrigerated, shock absorbing etc.
 Natures of commodity (bulk & qty) railways do give considerations for bulk booking of
freights. Of late the railways are offering advance booking of space by pvt parties.
 Nature of commodity - liability to damage a premium rate is attached to the freight of a
highly damage prone commodity
 Nature of commodity liability to inflammation/explosion-hazardous goods would also attract
special freight rates
 Nature of commodity- size & packing of consignment railways have stipulated packing
conditions for various items of goods & also dimensions & the freight charges applicable there to.

Classification of railway freight rates

1class rates-some 3000 commodities have been categorized in several classes & the freight rates
applicable thereon has been worked out.
2 wagonload rates- full wagonload quantities offered a better freight rate
3 smalls-less than wagon load consignments it will be 15 to 20% higher than for wagon load rates.
4 risk rates- owners risk or railways risk. Usually commodities of low value like perishable goods like
fruits etc risk is owned by owner.
5 trainloads rates trainload classification has come in to effect from 1982 for certain commodities
like pulses , grains, cola, cement etc. The train load rates are about 10% cheaper than wagon load rates
6 Station to station Rates-
7 Special rates- there are also special subsidized rates for defense materials, postal traffic etc as
mutually agreed upon from time to time

2. Road (motor vehicle)

-Compared to railways, motor carriers have relatively small fixed investments in terminal facilities &
operate on publicly maintained highways.
-Variable cost per km for motor vehicle is high because a separate driver & cleaner are required for
each vehicle
-the mode is best suited to handle small shipments moving short distances
-favor manufacturing & distributive traders ,short distances & high value products
-because of delivery flexibility ,motor transport has captured almost all freight moving from
wholesalers or warehouses to retail stores.

Limitations
-increase cost to replace equipment, maintenance ,driver & dock wages
-motor carriers being more labor intensive causes increased wages to be major concern.

3. Water
-this mode helps in moving extremely large shipments
-fixed cost is moderate compared to rail & roads right of way is developed & maintained by the govt
-Typically bulk commodities such as mining ,chemicals, cement & certain selected agricultural
products are transported by ocean going vessels

Limitations
-speed & limited range of operations
-unless the point of origin & destination of movement are adjacent to a waterway it needs to be
supplemented by rail/trucks

The ships that operate generally are

 Container ships/box boats
 Tankers which carry crude oil, product. chemicals etc
 Bulk carriers
 General cargo ships
 Cable layers
 Off shore supply vessel
 DP Dynamically Positioned ship
 Ferries
 Gas carries
 Car carriers
 Tugboats
 Dredgers
 Barges

Classification of shipping services

There are 2 kinds of shipping services
-Liner service
-Tramp service

-Liner conference shipping service

A liner conference is a group of 2 or more vessels operating carriers which provides international
liner service for the carriages of cargo on a particular route/routes within specified geographical limits
on uniform/common freight rates & on other mutually agreed conditions. There are over 360 liner
conferences all over the world.
-Tramp shipping service
This one refers to chartering of ships on an ad hoc basis .Tramp ships operate in all parts of the world
with out a fixed shipping route & sailing schedule ,in search of primary bulk cargo carried
generally in ship loads .

Ships are chartered in one or other of the following forms;

- Voyage charter covering a particular voyage

-Time charter –for a particular period
-Demise charter- in the other two types of charter mentioned above the consideration includes
the rates for the crew, fuel & other operational requirements which are provided by the ship owner.
Where as in demise charter /Bare boat Charter the charter himself equips the ship’s consideration with
respect to personnel, fuel & other

Cargo shipments by ships

1. General cargo - are of high value, don require carrier of any special dimensions.
2. Containerisation- the goods suitable to carried out in a ship designed to carry a container.

4. Pipelines
-Operate on 24 hr basis & are limited only by commodity change over & maintainance
-unlike other modes there is no empty container/vehicle that must be returned
-Pipeline highest fixed cost cause of right of way, construction & maintenance requirements
-pipelines are not labor intensive, the variable operating cost is extremely low once the pipeline is
constructed.
Limitation
-This mode are not flexible & and are limited with respect to commodities that can be transported
through that mode
-the initial cost of laying the pipeline are very high
-prone to sabotage in distributed area.

5. Ropeways
The most important technical & economic advantage of a ropeway system as a mode of transport is
that it can connect 2 places with large differential of altitude without much difficulty.
The rope way is an ideal means of transportation in the following cases
-hilly otherwise inaccessible areas
-the long routes with streams & deep valley
-commodities capable of transportation in ropeway buckets
-short haulage say less than 50 km
Disadvantage
-heavy initial investment
-Limitation as to size & quantity

6. Air
- High speed
- Highly costly/expensive
- It is limited by the load size & air craft availability
- VC high as result of fuel cost maintenance etc.
- Fixed cost low since airways & air ports are generally developed & maintained by public funds

The role of IATA

The majority of air lines operating scheduled cargo services are members of International Air Transport
Association .IATA is best known as the medium through which air lines fix a common tariff. As far as
the domestic tariffs are concerned these are generally based on capacity available, market demand
,operational economies etc. These are generally approved by the government.

Air cargo tariff structure

 General cargo rates (GCR)-are applicable to shipments weighing below or abt 45 kg &
constitute the normal rates for cargo transportation.
 Class rates- are surcharged or discounted rates for certain classified items eg: valuable cargo
,live animals, news papers ,catalogues etc.

 Specific Commodity Rates (SCR)

are heavily discounted rates applicable directionally btw two points such as Mumbai to Frankfurt.
They are also called as co rates & accounts for 70% of the cargo carried out of India. These rates are
market oriented & take in to account demand requirements.
 Freight All kind Rates (FAK) here the carrier carries a combination of different commodities
along with co rates.
 Govt Mandatory Rates are those introduced by govt by mandatory orders to offer incentives
to export of certain commodities

MODE NATURE OF GOODS TRANSPORTED

Rail - extracting industries ,heavy manufacturing

,agricultural commodities

Road -medium & light manufacturing, distribution btw

wholesalers & retailers.

Water -mining & basic bulk commodities ,chemicals, cement some

agricultural products
Pipeline -petroleum, perish ability, limited marketing period, high value premium
products
Air - Emergency, perishability, limited marketing period, high value premium
products

 Package carriers
-Very popular in US Postal service, transportation companies like fed ex & UPS carry out small
packages ranging from letters to shipments weighing abt 150 pounds. Package carriers use air truck &
rail to transport time critical smaller packages
-Very expensive
-Rapid & reliable delivery also provide value added services that allow shippers to speed inventory
flow & track order status
-Package carrier are preferred mode of transportation for e- business like Amazon.com, Dell etc.
 Truck
TL Truck Load- full charge for operation irrespective of the qty carried ,rates vary with distance
traveled.
LTL Less Than Truck Load -charge based on qty loaded & distance traveled
-door to door delivery
-Shorter delivery time
-No transfer btw pick up & delivery
-Good in case of transfer btw manufacturing facilities & warehouses/btw suppliers & manufacturing
plant.

Transportation Network
#1 Direct shipment network
Advantages
-Elimination of warehousing & related infrastructural facilities
-widely used by cement, fertilizer & petroleum co’ s for those customers which are very near to their
plant.
Limitation
-this method may prove to be highly costly when the qty to be shipped is not equal to the load
capacity of the vehicle
-It is also not suitable to ensure better customer service in the case of replenishment of lot sizes.

#2 Direct shipments with milk runs ,companies which follow this network design is Frito lays,
Toyota etc
Advantages
-Milk runs lowers transportation cost by consolidating shipments to multiple stores on a single tuck
-This method prove to be less costly as the inventories accumulated to fill the load capacity of
vehicle/truck
-Better customer service
-No investment in warehousing & related infrastructure facilities

Limitation
-Only suitable in case of cluster of customers/plant concentrated in & around near by places.

#3 Direct shipment Via DC -the company which follows this network is Wal-Mart

Advantages
-lower plant to warehouse transportation cost by way of bulk transportation
-consolidation ensures better service by lowering inventory requirement at customers end resulting
in to better return to them
-cross docking helps in saving handling cost ,storage cost & CD is good for products having large
,predictable demand
Disadvantages
-higher logistical cost due to increased inventory cost & warehousing infrastructure & facility costs to
the company.

#4 Shipping Via DC using milk runs -company to follow this network includes Pepsi Co, Coca cola
-soft drinks
Advantages
-lower plant to warehouse & ware house to customer transportation costs
-milk runs lowers transportation cost by consolidating shipments to multiple stores on a single tuck
Disadvantages
-Increase in inventory & warehousing costs along with complexity of co ordination if cross docking
is also entertained.

Inventory mgt
Stock valuation method
The two important valuation methods used for materials issue are
1First in first Out( FIFO)
2Last in First Out( LIFO)

1First in First Out- under this method materials are used in which they are received in stores. In other
words, materials received first will be issued first as a result closing stock those remaining will be
valued at latest purchase prices & will represents current conditions as far as possible.
Advantages
-Simple to understand & easy to operate
-Materials cost represent old (earlier )price which should be charged to a product
-When prices are falling this method will give better result

Disadvantages
- When the prices rise ,it will give low charge to production so that product cost will be under
stated which will invite many problems which effects the profitability of the company etc.
- If the price fluctuates frequently this method may lead to clerical error

2 Last In First out-

In this, materials received last are issued first .Here the closing stock /the stock remaining in the stores
are valued at earlier prices.

Advantages-
- material cost will represent current prices as far as possible
- In times of rising prices it will show high charge to production there by increasing cost of
production/product & in turn the margin of the product.
- This method will iron out the fluctuations in prices, over a period of changing price levels.

Disadvantages
-When prices are falling it will lead to low charge to production /product in turn less margin earned
-Closing stock is valued at a cost which doesn’t represent current conditions .As a result there will be
understatement of current assets In the balance sheet
-Frequent fluctuations in prices may lead to clerical error