You are on page 1of 8

Logistics Management An Introduction

Decisions
The various decisions in logistics management that need examination for an integrated system are: 1. Product Design 2. Plant Location 3. Choice of Markets/Sources 4. Production Structure 5. Distribution/Dealer Network Design 6. Location of warehouses 7. Plant Layout and Logistics 8. Allocation Decision 9. Production Planning 10. Inventory management-stocking Levels 11. Transportation-mode Choice, Shipment size and Routing Decision, and Transport Contracting 12. Packing 13. Materials Handling 14. Warehouse Operations

Key Actors
The key actors involved in ensuring an efficient and effective logistics system are: 1. Shippers (users of logistics) 2. Suppliers (of logistics services): (a) Carriers (rail, road, air, water, pipeline, rope-way)

(b) Warehouse Providers (C) Freight Forwarders (d) Terminal Operators (ports, stevedores ,etc.) 3. Government (regulator of logistics)*

Classification of logistics Applications


While examining and evaluating alternatives in logistics management, classifying the applications on various dimensions would help clarify the issues and focus attention. The above two sections have already provided two dimensions of classification: 1. Decision-wise and 2. Actor-wise Other important dimensions of classification are: 3. Inbound logistics and outbound logistics Most organizations have to manage their outbound logistics(that is, physically distributing the products to the customers from the factory) whereas inbound logistics are limited to the purchasing function. The logistics of purchased products are generally managed by the vendors. There are exceptions to this, like the steel industry which is backward integrated, thereby managing their inbound (raw material) logistics also. Managing inbound logistics to some extent has got other benefits such as better control of production planning and reducing uncertainties. A further advantage of managing both inbound and outbound logistics is the cost savings possible when the two movements are coordinated. The theme of coordinating or directly managing both inbound and outbound logistics forms one of the bases for the shift from logistics management to supply chain management. Elaborated later in this chapter and in Chapter 2. 4. Private vs public sector The nature of ownership of the organization would influence the objectives of the organization and hence, logistics management. The choice of modes, transport contracting, responses to socially oriented regulations, location choices, etc., could be on different considerations. 5. Single vs multiple plants

Certain decisions like allocation decisions, coordination in production planning across plants, product-wise specilisation of plants or not would be issues of significance in the multi-plant case. 6. Nature of the product There could be various sub-dimensions here like, bulk vs packaged products, perishable vs nonperishable products, durable vs non-durable products, single vs multiple products and industrial vs consumer products. Handling of bulk products (cement) is quite different from handling packaged products (cosmetics). While shipment size is an important decision for bulk products, both package size and shipment size are important decisions for packaged products. In the case of perishable products (fruits), the total time from production to consumption is critical and needs to be minimized while in non-perishable products(stationery), conventional practices of inventory management would suffice. Replenishment policies and stocking levels would be more important in non-durable products (pharmaceuticals) than durable products (twowheelers). An organization making multiple products (finished steel ) has a more significant problem in coordinating its production (television). In the case of industrial products (fork lifts), the availability of the product any time when the customer wants it may not be as critical as for consumer products(thread). Further, the distribution channels could be leaner since the number of customer would be lesser than for consumer products. 7. Made to stock vs made order Decisions related to inventory, transportation and the distribution network are more significant for an organization in which the products are made to stock rather than made to order. For made to order products, it is usually the scheduling of internal operations(typically using some specialized facilities ) that is the main decision area. Total Logistics Cost The important elements of logistics cost are: 1. Product inventory at source 2. Pipeline inventory 3. Product inventory at warehouses and dealers 4. Transit losses/insurance 5. Storage losses/insurance 6. Handling and warehouse operations

7. Packaging 8. Transportation 9. Customers shopping. Models in Logistics Management Various quantitative models from Operations Research can be used to address the decision areas in logistics. Some of these models are elaborated in Chapter 30. 1. Forecasting Models These models allow prediction of demand base on past data or other parameters that are independently available. They enable better planning, given the lead time necessary for response. 2. Mathematical Programming Models (a) Location Models: These models help in planning the optimal location of plants or warehouses, considering the inbound and outbound transportation costs and infrastructure costs at the locations. Such models can be solved as an integer programme or sometimes as a linear programme. (b) Allocation Models: These models help in planning the optimally allocating commodities from sources to destinations in multi-source multi-destination environment. For example, a product that is manufactured in 15 plants and distributed through 30 warehouses could use such a model for optimal allocation. The costs considered for optimisation are production costs, transportation costs and warehousing costs. The constraints considered can be due to demand, capacity, route restrictions, etc. (c) Distribution Network Design Models: These models are usually comprehensive in nature, deciding between a two, three or even four stage distribution network, location of warehouses and break bulk points, and sometimes even the transportation mode choice. The models optimize total distribution casts including transportation, warehousing and handling, and inventory. 3. Inventory plays a very key role in logistics management. The inventories that are directly affected due to outbound logistics are: Buffer stocks to take of uncertainties at finished goods, warehouse and retail, Shipment and batching inventories at finished goods, warehouse and retail,

Pipeline inventory (primary and secondary transportation ). Similar inventories could be listed for inbound logistics. The typical cost trade-offs between inventory and other logistics would be: Inventory vs transportation costs, Inventory vs stock out costs, Inventory vs spoilage and material handling costs. Issues like (i) shipment size, (ii) supplying to one or many points in one shipment, (iii) single location vs multiple location stocking directly relate to inventory and transportation costs. A number of models like the Economic Order Quantity, Economic Batch Quantity, other lot sizing models, newsboy models and variants for optimal stocking levels under uncertainty, etc., are available. 4. Routing Models These models allow optimal routing on a transportation network from a given source to a destination. The simplest model is called the Shortest Path Problem. When deliveries or collections have to be made from multiple points, the model to use is the Travelling Salesman Problem or the Vehicle Routing Problem. Decision Support System that interactively use the expertise of the decision maker by providing graphical support through a map (e.g., using a Geographical Information System) are also very useful in such decisions. 5. Scheduling Models These models enable allocation of resources to particular activities. Depending on the criteria of interest and number of resources, the models help evaluate appropriate rules for allocation. 6. Alternatives Analysis This model simply proposes the identification of alternatives , crireria for decision making and analysis of the alternatives across the criteria to arrive at the best choice. Formalized approaches like analytic hierarchical process and simulation could be used in assissing the implications on the criteria.

Solution Framework
The general conclusions one could arrive at by broadly surveying the logistics scenario in India are:

1. The potential for cost reduction and service level improvement in logistics is substantial. Infrastructure development and reduction in regulation needs to take place to large extent. The government is the main actors for this. 2. Since complexities of coordination are large, logistics should evolve as a function in industry. Shippers are the main actors for this. 3. Communications technology, computing technology and problem solving technology are improving tremendously. This opportunity should be exploited in logistics management . The supply chain industry in logistics as well as shippers should act on this. With the above perspective, certain broad directions for solutions to logistics problems can be proposed for the three actors: shippers. Suppliers and government. We add industry as a fourth actor, especially represented by industry associations, since they can play a key role in addressing certain issues which are beyond the firm level. Shippers 1.Determine the significance of logistics by examining all logistics related costs as a proportion of value added. 2. Identify the important factors of customer service directly affected by logistics. 3. Work on the important decision areas of logistics to reduce costs and/or improve customer service. 4. Set up a management functionary at an appropriate level, with executive powers to coordinate logistics functions. Such a person/group should have a good appreciation of marketing, production and systems. 5. Integrate market related information system with production planning under logistics. Also there could be scope for reducing costs by combining inbound logistics. 6. Do not make an unwieldy logistics organization, since a well-organization, since a wellorganized logistics function will actually reduce the need for such a function, especially at the control level. Attention should be more on planning. Suppliers 1.Determine the importance of your role in the overall logistics chain of your customers. 2. Identify the important factors of your supply affecting your customers customer service.

3. work on the important areas of your supply, in coordination with your customers, thereby reducing costs and improving service, Information technology is a big help here. Government 1. policies and regulations that inhibit smooth product flow should be identified and evaluated in the context of overall national interest. 2. Privatizations of infrastructure development as well as implementation of regulations have a potential of bringing in more efficiency, since concepts of self interest are exploited. Industry 1. Organize the unorganized sector including vendors ,C&FAs and distributors, truckers, warehousing and retailing, which is a major support for logistics in India. 2. Lobby with government for streamlining taxes (say uniform sales tax across states, a simplified value added tax instead of excise and MODVAT), appropriate regulations, especially in the e-commerce era. Logistics management to Supply Chain Management In the next chapter, the evolution of the concept of supply chain management (SCM) in relation to logistics management is elaborated. Some key features of SCM are discussed and the changed decision-making framework of SCM is emphasized. The value chain framework provides a natural link between the concepts of logistics management and SCM. The former deals with the efficient management of a static gap between demand and supply in a localized sense. In contrast, SCM tries to capture the dynamic nature of the value creation itself (by looking at several competitive elements such as responsiveness, quality and design), and therefore aims for an effective management response over the longer run. In this context, profit maximization over the long run (with the flexibility of investments and restructuring, if required) emerges as the major goal in SCM, rather than cost minimization, which is really only one of the factors contributing to profit maximization. A general remark is that logistics management activity is supply driven (cost minimization with respect to known or specified demand targets and efficiency focused), whereas SCM is more demand driven (profit maximization with some resource constraints at a broad level and effectiveness focused.