DEFINITION OF LOGISTICS According to the Council of Logistics Management (CLM) Logistics is the process of planning, implementing and controlling

the efficient and effective flow of goods, services and related information from point of origin to point of consumption in order to meet customer requirements. OPERATING OBJECTIVES OF LOGISTICS (Nov. 03, 06)

1. Rapid Response: Rapid response is concerned with a firms ability to satisfy customers requirement in a timely manner. Instead of stocking the goods and supplying on demand, orders are executed on shipment-to-shipment basis. Here IT helps to postpone the logistical operations to the latest possible time and then execute rapid delivery as when needed by customer. 2. Minimum Variance: Variance is any unexpected event that disrupts system. Logistical operations are disrupted by events like delays in order receipt, disruption in manufacturing, goods damaged at customers location and delivery to an incorrect location etc. Traditional solution to deal with variance was to keep safety stock or use high cost transportation. Such practices were expensive and risky and thus have been replaced by information technology to achieve positive logistics control. 3. Minimum Inventory: The objective of minimum inventory involves asset commitment and inventory turnover. Asset commitment is the financial value of inventory developed throughout the logical system and inventory turnover is the rate of inventory usage over time. The objective is to reduce the inventory without sacrificing customer satisfaction. 4. Movement Consolidation: One of the most significant logistical costs is transportation. Transportation cost depends on type of product, size of shipment and distance. Movement consolidation means grouping small shipments together in order to reduce transportation cost. 5. Quality Improvement: Logistics is a prime part of developing and maintaining continuous TQM improvement. If the quality of product fails, logistics will have to ship the product out of customers premises and repeat the logistical function again. This adds to cost and customer dissatisfaction. 6. Life-Cycle Support: Life cycle support is also called cradle-to-cradle logistical support. It means going beyond reverse logistics and recycling to include the possibility of after sale services, product recalls and product disposal. This means that firms must consider how to make a product and its package (cradle) and the how to remake and reuse them (to cradle). E.g. Cold drink industries use their glass bottle again and again whereas the cans are reused in making pf paper dishes. TYPES OF LOGISTICS 1. Reverse Logistics (May 06,07)

Reverse logistics is also known as Product Recall. It may be defined as a process of moving goods from their place of use, back to their place of manufacture for reprocessing, refilling, repair, and recycling or waste disposal. Reasons for Reverse Logistics 1. Rigid quality standards- it is critical in case of contaminated products, which can cause environmental hazard. 2. Rigid laws prohibiting unscientific disposal of items 3. Rigid laws making recycling mandatory 4. Transit damage e.g. leaking containers containing hazardous material. 5. Product expiration. 6. Erroneous order processing by supplier 7. Exchange of new product for the old ones. 8. Return for repair or refill. Drivers in Reverse Logistics (Nov. 03, May 04) The success of reverse logistics depends upon the efficiency of following subsystems: 1. Product Location: For product recall it is necessary to identify the product location in the physical distribution system of the firm. It is difficult in case of consumer goods but easier in case of industrial goods. 2. Product Collection System: After the product location is identified, product collection is to be done through companys field force or third party. 3. Recycling / Disposal Centers: This may be companys plant, warehouse or any other location. Called back products must be inspected before recycling or disposal etc. 4. Documentation System: Proper documents should be maintained at each level, this would help in tracing the product location. 2. Inbound Logistics (Nov. 06)

All the activities related to the material movement till the dispatch of the products out of the factory gate are called as inbound logistics activities. Creation of value in the products depends upon availability of inputs on time. Making available these inputs on time at minimum cost is the essence of Inbound Logistics. Activities of a procurement performance cycle come under the scope of Inbound Logistics. They are transportation during procurement operation, storage, handling and overall management of inventory of inputs.

3. Outbound Logistics (Nov. 06)

All the activities in which the value added goods are to be made available in the market for customers are called as outbound logistics activities.

Success of the firm depends upon the supply of products to the customer on time. Supplying the products of firm at marketplace at minimum cost is the essence of Outbound Logistics. Activities of distribution performance cycle come under the scope of Outbound Logistics. They are order management, transportation, warehousing, packaging, handling etc.

4. Third-Party Logistics (3PL) In order to keep the costs of inbound and outbound logistics activities under control, an outside agency appointed to perform these logistics functions is called Third Party Logistics. 5. Forth-Party Logistics (4PL) (Nov. 06) Forth Party Logistics is a complete outsourcing of manufacturing and logistics functions including selection of Third Party service provider. Need for 4PL: 1. 2. 3. 4. 5. Ever-increasing customer requirements. Competitive and complex market scenario Rising globalisation, liberalization and privatisation. Rising accessibility of supply chain technology. Inclination of companies to enter into higher margin business.

Services provided by 4PL 1. 2. 3. 4. 5. 6. 7. Procurement and storage of materials. Manufacturing of products. Selection of 3PL companies Transportation and warehousing management Collection of payment and cash flow management Risk management and insurance. Sharing of information, IT solution.

Barriers to Global Logistics

1. Marketing Barriers: This includes (i) entry restrictions by placing legal or physical barriers on importing (ii) poor information regarding market size, demographics and competition (iii) pricing fluctuation and tariff barriers. 2. Competition: Different rules in different countries concerning competitive governance also serve as global logistics barriers. 3. Financial Barriers: This includes (i) difficulties in forecasting in the global environment (ii) institutional infrastructure barriers result from differences in services offered by banks, insurance firms, legal counselors etc.

4. Distribution Channels: Lack of infrastructural standardisation such as differences in transportation and material handling equipment, warehouse and port facilities, communication system etc. also serves as global logistics barriers.

MRP 1 (Nov. 01, May 05) Material Requirement Planning is an integrated approach to the inventory management, taking into the account purchase and production programme. This is software that converts the Master Schedule to the requirement of raw material, components, subassemblies, etc. Structure of MRP1 - Three types of information are fed to the computer. 1. Master Schedule This is made up from sales forecast by marketing department and the actual orders already received by the company. It indicates which product is required to be delivered to the customer and when. 2. Bill of Material This is prepared from product design documents 3. Inventory details of each item - The MRP software processes the data and releases the output for ready use of the management in the following way: 1. For purchase components it releases Purchase Request, Purchase Order etc in the form of soft copy 2. For in-house manufactured components it releases Production Order 3. It prepares different types of reports for the use of management as required Benefits of MRP1 1. All the documents like purchase order, production order get ready as per required time. 2. All information is ready on the screen at any time, which is duly updated. 3. Making changes manually in Master Schedule is difficult task; this is done by MRP easily and accurately. 4. It prepares the reports related to inventory status, production outputs, latest sales figures. 5. MRP calculates and maintains an optimum-manufacturing plan, which will reduce cash flow and increase profitability. 6. Reduced inventory levels 7. Reduced shortage of components

8. Reduced overtime on shop floor and offices 9. Improved shipping schedule 10. Improved production schedule 11. Improved calculation of material requirements 12. Better manpower planning on shop floor 13. Reduction in lead time 14. Less scrap and rework Closed-Loop MRP: When MRP extended to include feedback from vendors and production operations it is called Closed-loop MRP MRP II (Manufacturing Resource Planning): When closed-loop MRP extended to include financial accounting, personnel, engineering and marketing information, it is called MRP II DRP (Nov. 01 03, May 05) Distribution Resource Planning is concerned with the distribution of material, warehouses, and transport arrangements. It is logically evolved from MRP and hence it is more recent concept. DRP needs demand forecasts for each warehouse and their current inventory level. MRP is concerned with inbound logistics whereas DRP is concerned with outbound logistics activities.

Benefits of DRP
1. 2. 3. 4. 5. Reduce distribution center freight costs resulting from coordinated shipments. Reduce inventory level. Coordinate inventory with organisational functions. Decrease warehouse space requirements because of inventory reduction. Improve service level by on time deliveries. DRP Guided by customer demand Not under control of the firm Operates in independent demand situation Coordinates demand between outlets and supply sources Controls inventory after manufacturing and assembly of finished goods

MRP Guided by production schedules Under control of the firm Operates in dependant demand situation Coordinates scheduling and integration of materials into finished goods Controls inventory until manufacturing and assembly is complete.

FUNCTIONS OF TRANSPORTATION (Nov. 06) 1. Product Movement: Transportation facilitates the movement of raw material, semi-finished items, WIP, finished goods, packaging material, rejected material. 2. Product Storage: Transportation provides temporary storage in stationary vehicles or Vehicles kept moving on a circuitous route. Though the product storage is expensive in a transport vehicle, but this is adopted in case of: 1. when unloading and loading is more expensive than storage. 2. when storage space is limited. SELECTION OF CARRIERS / MODAL CHARACTERISTICS (Nov. 04, May 07)

In selection of a transportation mode, the transportation managers consider the following criteria.
1. Cost: It includes freight charges, warehousing, buffer stick, broker fees, custom charges octroy etc. Generally cost per mile is considered which is should be economical. 2. Transit Time: It is the time from the shipment of goods to the receipt of goods at the destination. It should be as less as possible. 3. Speed: Methods of working for the delivery of goods to the customers place should ensure the on time delivery. 4. Safety: Safety of goods at every level from start to the end of delivery should be ensured. Proper packaging should be done to avoid any damage to quality or quantity of goods. 5. Claims Record: Claims against damages, pilferage or theft of goods should be available. Though the supplier gets money back but the customer remains unsatisfied in such cases. 6. Responsiveness: Transporter has to respond the changing needs of the supplier and he should be able to handle various products. 7. Capability: Transporter should be in a position to deliver the goods at any remote areas. He should have large number of geographic service points. 8. Accessibility: Transporter should be easily accessible by providing door-to-door pick up and delivery. 9. Reliability: It is the meeting of schedule on time as per requirement of the customer. Faster the mode reliability increases, but it has to be weighed against cost. MODES OF TRANSPORTATION (May 06 Transportation is an essential and major sub function of logistics that creates time and place utility in goods. Transportation management covers the area of Shipment Scheduling / Routing, Frei1ht Cost, Carrier Selection, Shipment Tracking and Parcel

Management. It helps us to make the best use of available resources and keeps informed on all transportation process.

1. Airlines Air transport is mainly used for international transport and in emergency rather than in normal times. Advantages: 1. 2. 3. 4. 5. 6. It is the fastest mode of transportation. Fixed costs are lower than rail or road or pipeline. It brings distant markets closer. It overcomes the hassle and cost of setting up depots and service centers overseas. Full potential of peak seasonal demand can be exploited. Makes test marketing easy Products can be shipped directly from the factory

Disadvantages: 1. 2. 3. 4. Most expensive Operating costs are highest. Generally used to transport small volume items. Certain categories of items are not allowed Require secondary mode of transport to deliver to ultimate customer

2. Water Transport
This mode of transportation is the link between countries separated by water. Water transport is classified into deep-water transportation and inland water transportation on lakes, rivers or canals. Advantages: 1. Water transport has low capital costs and low operating costs. 2. Heavy and bulk goods of large quantities are transported by this mode. 3. Private or for hire shippers available in water transport. Disadvantages: 1. 2. 3. 4. Water transport is limited due to availability of harbor. Water transport is the slowest mode of transportation. Require secondary mode of transport to deliver to ultimate customer. Deep-water ships designed for ocean and lakes are limited to shallow-water ports.

5. Shallow water vessels like diesel-towed barges are flexible but are limited by their range of operations and speed. 3. Railways Advantages: 1. 2. 3. 4. Railways is comparatively fastest mode of transport Railways is an inexpensive mode of transportation Railways are suitable for large quantities. Railways provide door deliveries for industries.

Disadvantages: 1. Unreliable mode especially for high value goods and directly usable consumer goods. 2. Railways lack flexibility of high-speed delivery. 3. Railways require modal combination alongwith roadways. 4. Rail network needs a high capital investment due to right of way, switching yards, terminals. 4. Roadways Advantages: 1. 2. 3. 4. 5. Speedy Deliver the goods directly to the consignee very fast. Highly flexible handling different types of goods Ultimate mode consignment reaches the doorsteps of the customer. Low capital cost as compared to railways. Private or for hire shippers available.

Disadvantages: 1. Higher operating costs due to fuel requirement and higher labor requirement. 2. Occasional fuel shortages leads to delay in delivery. 3. Strikes of carriers due to disputes with government making the transportation idle. 4. Limited availability of trucks poses a constraint. 5. Octroi posts are notorious for delays and harassment of carriers. 6. Restrictive permits for licenses imposed by the government all over the country.

Pipeline (Nov. 01)

Pipeline mode of transportation facilitates the movement of liquids like oils; crude petroleum products and water etc. In India more than 5,000 km of pipeline exists for

crude and petroleum products. Slurries, gases, vapors and solids in powder form are also transported in pipelines. Advantages: 1. 2. 3. 4. 5. Pipelines are reliable mode pilferage and loss of product is not possible. Pipelines have low energy consumption. Pipelines being under ground, space occupation is minimal. Pipelines operate all the time except when it is shut down for maintenance. No need to bring back empty container or wagon.

Disadvantages 1. Highest fixed costs due to lying of pipeline but lowest operating costs. 1. Pipelines are fixed so the accessibility of product is limited on the rout. 2. Only liquid commodity can be transported.

INTERMODAL TRANSPORTATION (Nov. 03, May 05, 06)

Intermodal transportation is the use of more than one mode of transport to move a shipment to its destination. Intermodal movements combine the cost and service advantages of two or more modes in a single product movement. Benefits of long haul, short time & flexibility are optimized for achieving overall cost reduction Depending upon the type and amount of goods, time of delivery, and prices following three Intermodal combinations are available: 1. Piggyback: It is coordination between railways and road transport. It is also called as TOFC (Trailer on Flatcar) or COFC (Container on Flatcar). In piggyback the motor carrier trailer placed on rail flatcar, which moves the trailer by rail for a long distance. Then the motor carrier moves the trailer for short distance for deliveries. Here the placement of trailer on a railcar can lead to damages. 2. Fishyback: It is coordination between waterways and road transport. In fishyback the truck or trailer rides on the ship for small portion of its journey. This service is provided in coastal waters between Atlantic and Gulf ports. 3. Birdyback: It is coordination between airways and road transport. In birdyback the major portion of journey is covered by airways then the cargo is transported by trucks or trailers. 4. Others: Water and railways, air and railways, air and waterways, pipeline and water, pipeline and roadways etc.

INLaND CONTAINER DEPOTS (ICDs) ICDs are dry ports at a distance far away from the shoreline and handle all the import export formalities. This a large warehouse where exporter books his cargo and completes all export formalities. Then ICD moves the containers to natural seaport. The customs department, shipping companies, handling agencies, banks, customs house agents and clearing and forwarding agents are all based at the ICDs. Advantages / Uses 1. Connect major ports to hinterland i.e. land deprived of natural deep-water ports because of geography. 2. Handle containers from road and rail to a container yard. 3. Performing activities like weighing, inspection of scales, damages and safety stickers. 4. Facilitate customs clearance and export import formalities. 5. Increase the export potential of industries in the hinterland and also simplifies import of goods by hinterland. 6. Decongest major ports. JNPT is directly connected to the following ICDs: Ludhiana Kerala Nagpur Bangalore

Wadibunder Chinchwad Chennai Jaipur Baroda Mulund Hyderabad Muradabad Delhi Pune

Jodhpur Mirage Kandla Sabarmati Visakhapatnam

Kolkata Pitampur

TRANSPORTATION NETWORK OPTIONS 1. 1. Direct Shipping From shipper directly to retailers. 2. 2. Direct Shipping using Milk Runs Single supplier to a number of retailers, deliver like a milkman. 3. 3. All Shipping via CDC Suppliers send the supplies to Central Distribution centers and distribution center caters the needs of retailers. 4. 4. All Shipping via CDC Using Milk Runs Suppliers send the supplies to CDC and from CDC to large number of suppliers.

5. 5. Tailored Network - Tailor made network as per the company needs. One model for some logistical mission and another model for some other mission. CROSS DOCKING (Nov. 02) Cross Docking is a new logistics technique used in the retail and trucking industries which means receiving goods at one door and shipping to the other door almost immediately without putting them into storage. Advantages / Objectives 1. It helps to reduce operating costs by eliminating handling and storage of products. 2. It helps to reduce inventory level by direct shipment to the customers. 3. It helps to increase sales by providing on time delivery to the customers. It encourages the electronic communication between the supplier and retailers

LOGISTIC INFORMATION SYSTEM (LIS) Definition of LIS LIS is an interacting structure of people, equipment and procedures that together make relevant information available to the logistics manager. LIS is a part of Management Information System.

Objectives of LIS
1. 2. 3. 4. 5. Obtaining correct and prompt information. Maintaining and updating the information collected. Communicating the information to all the concerned as and when required. Taking proper decisions at all levels in the organisation. Supporting planning function.

Importance of LIS 1. 2. 3. 4. 5. LIS is a key element to develop logistical competence. LIS integrates various activities of logistics. LIS is one of the three pipelines managed by logistical management. LIS is important to customer service. LIS underwent revolutionary change due to changes in technology.

Primary Activities of LIS

1. Receiving, analysing, processing and storing related information within organisation. 2. Communication of data to the decision makers. 3. Communication of information to the supplier, service providers and customers. 4. Receipt of feedback from external sources (supplier, service providers and customers) Information Functionality The organisation has different functional levels. Each level has different needs of information. 1. Operating level It is the lowest level. Generally data gets generated here which is transferred to further level to take decision in the form of information. 2. Control level Here the efforts are to be taken to improve efficiency of the operating level by analysing the information. 3. Decision level Here the manager has to evaluate the information to see the operations and customer needs are equalised 4. Policy level Manager has to decide the policy on the basis of factors warehouse, transportation system etc. Electronic Data Interchange (EDI) (Nov. 06) EDI is the electronic, computer-to-computer transfer of standard business documents between organisations. EDI is extensively used in ILIS (Integrated Logistics Information System) to enhance the speed, timeliness and accuracy of the information. EDI has replaced the traditional transmission of documents such as mail, fax etc.

Benefits of EDI
1. 2. 3. 4. 5. 6. Greater accuracy due to reduction in manual processing. Faster speed in order processing. Reduced clerical efforts in data entry, filing, mailing and related tasks. Reduced inventory due to reduced order cycle time. Increased productivity though faster information transmission. Improved channel relationships by reducing number of individuals involved in data entry. 7. Decreased operating cost by reduction of labour and material cost associated with paper work and telephone fax expenses. 8. Increased ability to compete internationally Role of Planning in Logistics Management (Nov. 02)

Role of planning is central to logistics management Mission of logistics management is to plan and coordinate all those activities necessary to achieve desired levels of service and quality at lowest possible cost.

Logistics is fundamentally a planning concept that seeks to create a framework through which needs of the marketplace can be translated into a manufacturing strategy and plan. To match the changing environment in the logistics due to the changes in the markets, competitors, suppliers and technology, there is a need for a systematic planning.

Factors for Selection of Location: 1. Availability of Land 2. Manufacturing Facility 3. Taxation and Regional Concession 4. Access to Transport 5. Power, Fuel, Water 6. Climate 7. Availability of Workforce 8. Union Activities 9. Political Pressure 10. Bank and Finance Facilities 11. Raw Material 12. Safety and Social Security 13. Supporting Industries 14. Market Site 15. People Culture and Site

DEFINITION OF INVENTORY
Inventory may be defined as usable but idle resource. Inventory management is the job basically done for maintaining the stock.

NEEDS OF INVENTORY
1. Smoothing out irregularities in supply: Inventory of raw materials provide a buffer to overcome the problems of uncertainties in supplies such as delayed deliveries and supply of short quantities by vendors. 2. Dealing with uncertainty of demand: The customer demand may increase suddenly, in such case an inventory of finished goods will act as a buffer against the uncertainties in demand. 3. Buying or producing in batches: When the demand for a good does not require its continued production, it is produced in batches. Thus during the period when the good is not being produced, demands are met from the inventory which is accumulated from the batch production. 4. To meet seasonal demand: When the demand is seasonal it may become economical to have inventory during period of low demand to ease the strain of peak period demand.

5. To take quantity discount: Inventories may also be built up take advantage of price discounts, as hedge against anticipative price rise in the future. 6. To maintain continuity in production process: It is necessary to maintain inprocess inventories or pipeline inventories at different stages in a manufacturing process to continue production process smoothly without any work stoppage and delay. 7. Stock built up for Scale of economy: Inventories may also be maintained to get the economy of scale so that total cost due to ordering, carrying and backlogging are minimized. TYPES OF INVENTORY 1. Raw Material Inventory Raw Material ITR = Average RM 2. Work-in-Process Inventory Work in Process ITR = Cost of Manufacture Average WIP 3. Finished Goods Inventory Finished Goods ITR = Cost of Product Sold Yearly Annual use of RM

Average Inventory of Product at Cost 4. Spares and Other Indirect Materials PIPELINE INVENTORY (Nov. 01) In any manufacturing organization the material undergoes different stages of processing from the supplier place to the buyers place. These stages are called pipeline. There is no problem when material moves from one department to another, but material waiting anywhere is not good. Indian industries have longer pipeline, as the organization is more sophisticated. Longer the pipeline, longer the time material waits. The value is added on the material only at stages where it is being processed, but no value is added where it waits. So it is referred as waste. Storage of material at any stage, inspection of any kind, packing, rejection, rework and lead-time etc. are the operations to be eliminated. That is exactly done in the process of JIT. These activities add to the cost of product and not to the value of the product. The customer is not willing to pay for these.

In the pipeline there are two types of periods involved: 1. Period in which the material is under the process on machine. Value addition activity. 2. Total period when material is kept in any form / place in the organization. The ratio of B to A should be 1, which is ideal, but it may be difficult. RE-RODER LEVEL (ROL) (Nov. 06) ROL is that inventory level at which an order should be placed to replenish the inventory. ROL = Lead Time x Average Usage If safety stock is present then reorder level becomes: ROL = Safety stock + lead time consumption SAFETY STOCK (May 07) Safety Stock is a component of average inventory that takes care of short-term fluctuations in lead-time and consumption. Factors Affecting Level of Safety Stock: 1. Value of Item: Safety stock for high value items need be low. 2. Criticality of Item: Safety stock for critical items that affect the business need be high. 3. Lead Time: Longer the lead-time more is the chances of fluctuation and hence more is the requirement of safety stock. 4. Number of Suppliers: If more number of suppliers is available for an item, there is no need to keep high level of safety stock, as it can be procured from any alternate source. 5. Availability of substitutes: Lesser safety stock can be kept for items where substitutes are easily available. 6. Risk of Deterioration: It is better to have low safety stock where the cost of deterioration is more then the cost of stock out. Role of Finished Goods Inventories in Physical Distribution System (May 07) Inventory Functionality and Principles (May 04, Nov. 04)

VED ANALYSIS
Principle: VED Analysis classify items into three categories depending upon the consequences of material stock out when demanded. Under VED Analysis:

Vital items are the most critical which can cause stoppage of the production, if not available, hence should be available in stock at large. Essential items are quite critical whose non-availability may not adversely affect production; hence a low stock of essential items should be available. Desirable items do not have very serious consequences if not available but can be stocked.

FSN ANALYSIS
Principle: FSN Analysis classify items into three categories depending upon the past consumption pattern. Inventory policies and models for these three categories have to be different. Under FSN Analysis:

Fast moving items are those which drawn frequently from stores. Slow moving items are those which drawn only once or twice a year from stores. Non-moving items are those which not at all drawn for the past two years from stores.

1. Fixed Order Quantity System (Q-System) Here the quantity to be ordered is worked out as the EOQ and the minimum stock level is also worked out. When the stock in hand reaches this level, an order is placed for q quantity equal to the EOQ.

Features of Q-System
1. Reorder quantity is always the same, which is equal to the EOQ 2. Time interval between the orders varies. 3. Reordering is done when the stock in hand is equal to safety stock plus the leadtime consumption. 4. Minimum inventory will be equal to the safety stock. 5. Maximum inventory will be equal to the safety stock plus order quantity. 6. This system is used for low value items where orders are placed infrequently. 2. Fixed Order Period (P-System)

Here the stock in hand is reviewed at periodic intervals and an order is placed which varies with level of stock in hand. It is also known as Periodic Review System and Order Cycling System.

Features of P-System
1. Review period is decided to minimize the sum of annual procurement cost and annual inventory carrying cost. 2. Quantity ordered is decided depending upon the stock in hand, so that it will take care of the requirement till the next review period. 3. The interval between two orders is fixed. This system is used for high value items needing a strict control ECONOMIC ORDER QUANITY (Nov. 02, 04) EOQ is the technique, which solves the problem of the inventory management. It is the order size at which the total cost; comprising ordering cost plus carrying cost, is the least. The cost of carrying inventories is called Inventory Carrying Cost and the cost of purchasing and processing the order is called Ordering Cost. One of the most important goals in materials department is to strike the most economic balance between ICC and OC in determining order quantity. The graph shows the relation of the ICC and OC. As the order quantity increases the ordering cost reduces. While the ICC goes on increasing with increase in the order quantity. But at a certain stage it is equal to the OC. This is shown by the crossing two lines, this is known as Economic Order Quantity (EOQ). 3. SMED (Single Digit Minute Exchange Die) SMED is a technique for performing setup operations in number of minutes expressed in a single digit. Mr. Shingo revolutionized the SMED method since 1950 in Japan. E.g. Bottling industries sometimes spend more than 20% of their planned production time on changeovers. These setup and changeover times can be reduced significantly when the changeover SMED system is applied. 4. JIDOKA (Automation) JIDOKA is the concept of adding an element of human judgment to automated equipment. So that the equipment can identify unacceptable items and the automated process becomes more reliable. JIDOKA means not allowing problems to pass from one workstation to the next. Such that the production of a defective part is detected immediately and machine responds by stopping and requesting help. E.g. In Toyota power loom the shuttlecocks would stick and create defects in the cloth being produced.

The Toyota loom incorporated a simple stopper that was activated by a sticking shuttlecock. The operator could stop machine when the shuttle would stick.

Objective of JIDOKA
1. Ensuring 100% quality. 2. Preventing equipment breakdowns. 3. Using manpower efficiently. 5. Total Productive Maintenance (TPM) In any factory it is necessary to run all the equipments on continuous basis to get maximum out put. It is found that generally that does not happen. There is loss if any tool or machine is not in use. Due to any reason like material not available or the machine is not working. In order to avoid such losses TPM is implemented. For this purpose following steps should be taken. 1. 2. 3. 4. All the reason for the loss of equipment should be avoided. Preventive Maintenance program is to be made. Operator should be given training to maintain his equipment when required. Autonomous maintenance by the operator is to be done.

6. Pokayoke (Mistake Proofing) Pokayoke invented by Shigeo Shingo in the 1960s. The term Pokayoke comes from the Japanese words poka(mistake) and yoke (prevent). Pokayoke suggest that people are human and cannot be expected to do everything like a machine, exactly the same each time. The basic principles of Pokayoke advocate developing tools, techniques and processes such that it is impossible or very difficult for people to make mistakes. E.g. a plate that must be screwed down in one orientation only could have the screw holes in non-symmetrical positions so that it can only be screwed in the right orientation. Vendor Managed Inventory (May 07) Management of inventory is passed on vendor. Purchase order is redundant. Strong mutual stake in each others business is a basic requirement. It is beneficial to both customer and supplier. Methods for Improving Inventory Management Performance (Nov. 06)
CHAPTER 17 PURCHANING AND PRODUCT SCHEDULING DECISIONS

PRINCIPLES OF PURCHASE (7-R RULE) The supply chain management is controlled by the purchase function. The purchase function is assuming the following seven principles known as 7Rs.

The Rule of seven Rs means, buying the material 1. 2. 3. 4. 5. 6. 7. at right price of right quality in right quantity at the right time from the right source at right place with right mode of transport

- This is basic factor in logistics management. - It is the link between the production unit and the customer directly or through the warehouses. - Logistic cost based mainly on customer service. Better service and supplies provides economic advantage to the customer. - The suppliers logistic manager has to balance the high service level that the customer desires and the belief that the supplier may gain from possible increased sales against the cost of providing that services. ORDER PROCESSING CYCLE (May 07) 1. Getting Requisition from User Departments: The department in need of a material presents a completed requisition form. Such requisition form includes details like department name, requisition reference number, description of the material, quantity required, suggested supplier, purpose and the approximate date when the material will be required, followed by the name and signature of the person preparing and authorizing the requisition form. 2. Sending Enquiries for Quotations: Purchase department invite suppliers to quote the rates materials. For this purpose a standard format is used which is similar to a purchase order, except that words such as this is only a request for quotation or this is a not a purchase order are printed so as to ensure that the supplier does not construe the request for quotation as a firm order. 3. Negotiating with Vendors to Fix the Price: If the presented cost does not match the companys budget, the purchasing department can negotiate with the seller price and terms are met with. Another method that can be adopted here is competitive bid method. This method is widely used by governmental purchasing departments because of statutory requirements but also applied by industrial purchasing department. 4. Preparation of Purchase Order and Placing the Order: Having selected the supplier and the rates agreed, the buyer places the purchase order; expressing terms and conditions. All orders should be in writing and should be on the buyers purchase order to avoid possibility of level difficulties. When order is placed by

telephone it is the practice to confirm the order by sending the supplier a regular order. 5. Follow Up with Vendor: After the order has been placed, the purchasing department has the responsibility of following-up of the order. Follow-up essentially holds the supplier to his promise of delivery. A follow-up procedure is must when the costs or risks resulting from delayed deliveries or non-deliveries are greater than the cost of follow-up procedures. 6. Receipt of Material, Inspection and Storing the Material: The material should be inspected properly, checked for its quality as well as quantity. In addition to this, it should be reserved in a proper room in a disciplined manner, so it is easy to recover it at any point of time. 7. Maintenance of Records: Purchase orders requisition and similar other legal contracts and documents should be preserved. Since they constitute the authority on which the purchasing department had taken its actions to a given item. SUPPLIER SELECTION (May 05) While selecting the suppliers, the following factors must be taken into account: 1. Lead times and on-time delivery:

What lead-time the supplier can provide. What procedures does the supplier have for assuring on-time delivery? What procedures does the supplier have for correcting delivery problems?

2. Price:

Are prices given reasonable? Is the supplier willing to negotiate prices? Is the supplier willing to engage in a joint effort to reduce costs by value analysis?

3. Qualities and Quality Assurance:

What procedures does the supplier have for quality control and quality assurance? Problems and corrective actions for quality are considered or not.

4. Product or Service Changes:

How much advance notification does the supplier give when changes are made in products or services? To what extent does the buyer have inputs regarding changes?

5. Flexibility:

How flexible is the supplier in handling changes in quantity, delivery schedules and product or services design changes.

6. Reputations and Financial Stability:

What is the reputation of supplier? How financially stable is the supplier

7. Location:

Is the supplier located nearby?

SUPPLIER EVALUATION (May 05) For rating the suppliers, following factors should be considered: 1. Reliability in all Fields:

Is the supplier reputable, stable and financially strong? Is the supplier going alongwith product development? Is the suppliers competitive strength proved by past experience?

2. Technical Capabilities:

Can he provide assistance as to the application engineering? Can he provide assistance as to the analytical engineering? Can he provide design assistance?

3. Convenience to deal with:

Can he help to reduce the acquisition cost? Is he qualified to help in solving difficult problems? Does he pack his product conveniently?

4. Availability:

Does he assure delivery in time? Are his stocks locally available at short time? Can he plan his supply to minimise the inventory.

5. After-Sales Services:

Does the supplier have a service organisation? Is an emergency service available? Are parts available when needed?

6. Sales Assistance:

Can the supplier help in building mutual market.

Will he recommend our products? Does his products enhance the appearance of our products.

OUTSOURCING
Outsourcing is the contracting companys business process to outside service providers for increasing firms profitability by primarily reducing overall operating cost and focusing on core competencies.

Objectives of Outsourcing
1. 2. 3. 4. 5. 6. 7. 8. To reduce operating costs. To focus on core competent functions. To acquire new skills. To avoid labour problems. To avoid financial risks To improve flexibility in functions. To enhance market credibility. To improve overall market performance.

Logistics Interface with Marketing (Nov. 01) Outbound logistics plays an important role in selling the product of the company through the distribution system. Relation of logistics with 4Ps of marketing can be explained as follows: 1. Price: Logistics enables marketing to quote a competitive price by providing discount opportunities on account of transportation cost savings. Logistics Management has to balance inventories to tackle anticipated price-triggered sales. 2. Product: Size and shape of the product are quite important for logistics. Weight/volume ratio plays very important role in deciding economics of logistics. 3. Promotion: Logistics Manager and Marketing Manager need to work closely in deciding promotional strategies for the product in order to manage inventory needed to match sales triggered by promotional activities in the market. 4. Place: Marketing decision to distribute the product directly to retailers or through wholesalers has a great impact on logistical operations. Retailers demand often requires time sensitive transportation methods, which are expensive. RESPONSIVE ORGANISATION (Nov. 06) The competitive scenario at marketplace necessitated the logistics organisation to be responsive. It seeks to put customer at the center of business and design new systems and procedure to improve the response. Logistics organisation should change its systems: 1. From function to process: emphasis on managing processes rather than managing resources.

2. From profit to performance: emphasis on efficient performance, profit will follow. 3. From products to customers: emphasis on customer value and not on brand value. 4. Form transaction to relationship: emphasis on long-term relationships with customer and supplier rather than just having business transactions.
CHAPTER 19 LOGISTICS COSTING AND PERFORMANCE AUDITING

TOTAL COST ANALYSIS (Nov. 02) The expenses involved in logistics activities are: 1. 2. 3. 4. 5. 6. 7. 8. 9. Procurement Cost Inventory Cost Warehousing Cost Material Handling Cost Packaging Cost Transportation Cost Distribution Channel Cost Customer Service Cost Communication and Information Processing Cost

Activity Based Costing (Nov. 02, May 06, 07) Activity based costing is based on the concept that the expenses need to be assigned to the value adding activities rather than to budget unit. It suggests that business activities are made up of a series of activities that consumes costs. Advantages (May 06) 1. It provides better operational performance. 1. It provides information about cost drivers and the relationship of these drivers with resource consumption. 2. It gives more accurate picture of the expenses and helps managers to make strategic decisions about costs. 3. It identifies the activities to be improved in order to reduce the cost 4. It simplifies the internal audit operations Mission Based Costing (Nov. 02, 03, 06)

Mission based costing seeks to identify unique costs that are generated as a result of specific logistic activities with a mission to achieve certain

objectives in a specific market. It is the logistic costing which can identify the total costs of meeting a desired mission. Stages of Implementing MBC
1. 2. 3. 4. Define the customer service segment Identify the specific resource use to support that customer segment Identify the factors that produce variations in the cost of service. Attribute activity costs by customer segment.

LOGISTICS PERFORMANCE MEASUREMENT Performance measurement is a process of monitoring and evaluating activities to determines their conformance to the requirements. BENCHMARKING ((May 04) Benchmarking is a process of measuring organisations overall performance against the other organisation from the same industry or other industries. It is a part of external performance measurement.

History
In the late 1970s When the Japanese competitors Canon and Mitsubishi etc. entered into US market, the Xerox company pioneered the process of benchmarking its manufacturing costs against these competitors. This concept has become widely accepted in the late 1980s.

Steps in Benchmarking (May 07)

1. Identify the items to be benchmarked and define them categorically i.e. never take broad subject area. 2. Create a benchmarking team and define rules and responsibilities of each member. 3. Trace out the benchmark partners, who may be a world-class benchmark leader, articles from magazines or newspapers, publications of consultancies, trade literatures. 4. Identify the data collection process from different sources such as postal surveys, direct interviews, questionnaire, and research through Internet etc. 5. Finalise the benchmark study, after analyzing all the data discarding the irrelevant and inaccurate data. Compare your companys strength and weaknesses with those of benchmarking partners. If you find any performance gap between yours and the benchmarking partners, fill that gap. 6. Implement the findings into the task force of predetermined operation, function or service.

DEFINITION OF WAREHOUSING (Nov. 06) Warehouse is a location provided with adequate facilities, where bulk shipments are received from production centers, which are then broken into small order size for shipment to the customers as per their requirement. FUNCTIONS OF WAREHOUSING (Warehousing Operations) (Nov. 02) 1. 2. 3. 4. 5. 6. 7. Receiving finished goods from production centers Performing quality and quantity checks Sorting goods at specific locations Packing the products for executing customers order Shipping goods by selected mode of transport Preparing records and documents of stock. Information transfer to management

OBJECTIVES OF WAREHOUSING (May 04, 05, Nov. 04, 06) 1. To fulfill expected customer service level. 2. To achieve transportation economies by moving higher volume of goods. 3. To achieve economies of scale in production by accommodating additional quantity of produced. 4. To maintain steady source of supplies by balancing supply and demand. 5. To provide mixed products option to customers. 6. To provide temporary storage of materials to be disposed off (reverse logistics) WAREHOUSING DECISIONS (Nov. 03) 1. 2. 3. 4. 5. Type of Warehouses Location of Warehouses Size of Warehouses Layout Warehouses Number of Warehouses

TYPES OF WAREHOUSE (May 06, 07) 1. Private Warehouse

These are the warehouses owned by the company for their exclusive use of storing the goods manufactured or traded by them for onward selling in the market. Advantages:

1. 2. 3. 4.

Better control over storage and movement of goods Less chance of errors in handling the goods Customised design and flexibility in operations Cost effective and economic

Disadvantages: 1. 2. 3. 4. Lack of geographical flexibility Requires stable demand and high product throughput Requires initial larger financial investment Has permanent liability

2. Public Warehouses
These are the warehouses hired from other agencies for storing the goods for a specific period of time by paying agreed rent. E.g. Central Warehousing Corporation (CWC) Advantages: (Nov. 05) 1. Generally located near ports and market place and thus has fixed periodic operating cost 2. Great flexibility in location changeover. 3. No permanent liability. 4. Adjustments as per season are possible. Disadvantages: 1. Lack of flexibility in operations 2. Not suitable for specialised services. 3. Contract Warehouses It is a specialised form of public warehouses managed by Third Party Logistics companies for providing total warehousing services by paying the agreed charges. Advantages: 1. 2. 3. 4. Great flexibility in location changeover No permanent liability. Adjustments as per season are possible. Availability of expert manpower and dedicated resources.

Disadvantages:

1. Less control on operations 2. Performance of organisation depends on the performance on third party 4. Co-operative Warehouses These warehouses are owned, managed and controlled by co-operative societies. They provide warehousing facilities at the most economical rates to member of society.

LOCATION OF WAREHOUSE
The primary considerations while locating the warehouse are: 1. Cost Warehouse may be located near production plant to reduce operating cost. 2. Customer Service Warehouse may be located near market to serve the customer well. Steps in Site Selection of Warehouse (Nov. 02) While deciding the location of warehouse following factors are to be considered: 1. Desired level of customer service 2. Nature of product i.e. seasonal, perishable etc. 3. Presence of Competitors warehouse 4. Marketing oriented closer to market 5. Production oriented closer to plant 6. Cost of distribution to market area 7. Availability of transportation facilities and its cost 8. Availability and cost of basic infrastructure i.e. power, water, gas, sewerage etc. 9. Availability and cost of labour supply 10. Local taxation levied by the local authority in the area. 11. Potential for further expansion of warehouse. 12. Geographical hazards like floods, earthquake etc. DESIGN AND LAYOUT OF WAREHOUSE (Nov. 05) Steps in Design / Layout of Warehouse (Nov. 02) 1. Number and nature of activities to be performed 1. 2. 3. 4. 5. 6. Nature of products to be stored Frequency of in and out movement of the products Storage and handling equipments to be used Total space availability Statutory requirements Safety and security of people and products

NUMBER OF WAREHOUSES
Factors Deciding Number of Warehouse (May 04, 05, Nov. 04) 1. 2. 3. 4. 5. 6. 7. Desired level of customer service Nature of the products Presence of Competitors warehouse Size of the market Number of customer and their buying habits Current and potential demand Total operating cost of warehouse

CLASSIFICATION OF MHS 1. Manual System

Manual handling of materials is done when the weight of materials is low and distance to be traveled is less. It is the cheapest option for material handling. Equipments required are manual trolleys, racks, drawers, lockers etc. 2. Mechanical System Mechanical handling of materials is done when the weight of materials is high and distance to be traveled is more. It is the safest option for material handling.

Material Handling Equipments (Nov. 01, 05)

1. 1. Forklift Trucks: They are lifting devices, can move loads both horizontally and vertically. 2. 2. Cranes: They are drag devices, either floor mounted or overhead mounted. 3. 3. Conveyors: They eliminate re-handling before and after each function. 4. 4. Carousels: several bins on an oval track keep rotating. The operator can choose required bin to pick from. The system saves space and reduces walking time and distances. 3. Automated System

Automated handling of materials is done when the weight of materials is very high and distance to be traveled is more as well as the warehouse space is limited. It is the best and effic PRINCIPLES OF MHS
1. Planning: All material handling should be as a result of a deliberate planning.

2. Work Principle: Avoid unnecessary movement the products. 3. Ergonomic Principle: Human capacities and limitations must be recognized. 4. Unit Load Principle: Load should be of uniform size to have smooth material flow. 5. Standardisation: Methods, equipments, controls and software should be standardized. 6. Space Utilisation: Available space should be used efficiently. 7. Automation: Operations should be automated wherever feasible to improve efficiency. 8. Systems: All activities should be integrated to form a coordinated operational system. 9. Environment: Environment impact and energy consumption should be considered. 10. Preventive Maintenance: Materials handling equipments should be regularly maintained.

PACKAGING
Packaging though an integral part of logistics, also affect marketing and production function. Packaging helps in promotion of products and size, shape, material of the package affects production labour efficiency. Logistical Functions of Packaging (May 06, Nov. 06) How packaging helps reducing overall costs and value addition? 1. Containment: Packaging provides containment for products. 2. Protection: Protection from environment, pilferage, shocks of handling and moving. 1. Cube Minimization: Reducing the space occupied by the product to cut the freight charge. E.g. Round containers, oval shaped containers and square shaped bottles, etc. 1. Weight minimization: Reducing the weight of the consignment to fully utilize the capacity of the truck. E.g. Liquids are packed in plastic bottles rather than glass bottles. 2. Apportionment: Grouping goods into convenient unit for distribution. E.g. mangos in boxes, milk bags in crates. 3. Facilitating handling & using: fruit juices in tetra packs, handling and consumption by users 4. Convenience: Facilitating handling, storage & reuse. E.g. ink cartridges for printers, reusable corrugated boxes, bottles and refill packs. 5. Communication: 1. Content Identification Product, manufacturer, universal code etc. 2. Tracking: Bar codes and scanners.

3. Handling Instructions: Fragile, This side up, temperature restrictions, environment concerns, potential dangers etc Consumer Oriented Packaging V/S Logistics Oriented Packaging (May 07) 1. Consumer Oriented Packaging: Focuses on consumer convenience and appeal, marketing consideration and display. 2. Logistics Oriented Packaging: Focuses on handling convenience and protection during transpiration, material handling and storage.

CONCEPT OF SCM
According to Martin Christopher; Supply Chain Management is defined as the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at lesser cost. OBJECTIVES OF SCM 1. 2. 3. 4. 5. To solve suppliers problems To improve customers service performance To reduce pre and post production inventory To minimise total cost of operations and procurement To achieve maximum efficiency in utilisation of labour, capital and plant.

ADVANTAGES OF SCM

For Customers
1. 2. 3. 4. Improve customers service performance. Reduce product cost Improve delivery performance Provide quick response to change in demand

For Company
1. 2. 3. 4. Reduce pre and post production inventory Minimise total cost of operations and procurement Facilitates efficient utilisation of labour, capital and plant. Sustained growth of sales SUPPLY CHAIN MANAGEMENT

LOGISTICS

Logistics is concerned with getting goods SCM is concerned with movement of goods and services where and when they required from raw material stage to the end user It works within a single organisation It works in a coordination of various

It is a part of supply chain management The concept of logistics is relatively old It is a narrow concept

organisations. It is an extension of logistics management The concept of SCM is relatively new It is a broader concept

Milk Run
Milk Run is a transportation network, in which Suppliers send the supplies to CDC and from CDC to large number of suppliers. Milk Run reduces out bound transportation costs by consolidating small shipments.