Next 3 sessions------

Developing logistics strategy. Dependent and independent coordinates of logistics system.(Foundations of Logistical Integration) logistics system design.

Logistics

Logistical management is to do with design and administration of systems to control the flow of material ,WIP and FG to support business strategy. Involves ,Integration of Information, Transport, inventory, warehousing ,material handling and packaging. Prime responsibility -- to position R.M, WIP & FG where reqd at lowest possible cost. Logistical expenditure ranges between 3 to 35% of sales, depending on type of business, geographical area and weight/vol ratio. Cost second only to materials, sold in whole sale or retail. Key is in understanding how select firms position their logistical competency to gain competitive advantage. Logistically sophisticated firms are attractive suppliers and ideal business partners , by performing above average in terms of inventory availability as well as speed and consistency of delivery.

Outstanding or competitively superior logistical performance can become the cornerstone of overall enterprise strategy. Vast majority of essential work is performed outside the vision of direct supervision . Each task performed in logistics function is a potential target for work standardisation , simplification, or potential elimination during logistics reengineering. Logistics functions were often managed as end objectives in themselves, rather than contributing to achieving overall logistical goals. The performance cycle which happens both in time and across geography ,(Temporal & spatial), provides the operational structure for logistical integration. Logistical competency is dedicating logistical performance to supporting any or all marketing and manufacturing requirements in a manner that exploits delivery capability.

Superior logistics is charactarised by flexibility, time-based service , operational control, and commitment to perfect service performance. Logistics is an essential competency required to ensure -Creation of customer value. In final analysis logistical service is balance of service priority and cost. In most situations impact of logistical failure directly affects the customer ( intra or final) involved. Logistical service performance is measured in terms of :1. Availability:- Technology ( Web connectivity, Real time exchange of data, Satellite communications system) is providing new ways to achieve high availability of inventory of material or product , without high investment . 2. Operational performance:- Deals with time elapsed between order receipt to delivery. Involves speed and consistency, flexibility. Another aspect is salvaging-malfunction ..failure such as damaged product incorrect assortment, inaccurate documentation.. and time taken for recovery out of such situation 3. Service reliability:- Established by quality attributes through accurate measurement of 1 & 2 above. The attributes will be varying for different customers , and must be matched to accommodate unique preferences and purchase potential of the customer.

Lowest possible cost or the highest attainable customer service are extremes , and can not constitute a desirable logistics strategy. Formulation of a sound strategy requires capability to estimate cost required to achieve alternate service levels. Obviously alternate levels of service performance is to be viewed in terms of overall marketing and manufacturing strategy. Melding of human and physical assets , done with training and development over an extended period of time can not be duplicated by a competitor so easilylogistical competency is difficult to copy or replicate. In past era -- three things were deterrent to evolution of integrated logistics.. 1. Transport or purchase managers were sceptical @ organisational changes ( amenable) for implementation of the broader processes. 2. Basic idea that you can earn more profit by spending more on responsive transport was difficult to digest. 3. It was difficult to quantify hard core return on investment . General management could not quantify the real cost of inventory.

How Integrated logistics emerged :1. Advent of Computers and quantitative techniques , breeded thought of cross functional integration of logistics. JIT, QR-Quick response, CR- Continuous replenishment, ARAutomatic replenishment necessitated high responsiveness. 2. Continuous pressure of profit improvement along with erratic market conditions , and saturation of scope in reduction of production /product quality costs. 3. Wide spread adoption of Quality Initiatives.( Zero defect DOL supplies). 4. Growth of partnerships and alliances, increasing outsourcing and concentration on core competencies by all enterprises. Customers and suppliers became business partners, for reduction of duplication and waste of efforts by concentrating on ways of doing business that facilitated joint success.

Developing Logistics Strategy.

Alternative ways through which logistics can be deployed as a core competency.

-----Points covered----1. Logistics Reengineering- comprising of -Bench marking, Activity based costing ,and quality initiatives. 2. Environmental Assessment-Areas that firm should critically study while formulating strategy. 3. Time Based Logistics- Development of time based logistics, shifting to working based on response based rather than anticipatory. 4. Alternative Logistics Strategies- Structural separation for mixing and matching echeloned and direct logistical deployment in a flexible format. 5. Strategic Integration- Logistical practices to achieve internal and external integration. 6. Time Based Control Techniques-

1.Logistics Reengineering.
Reengineering is the process of identifying and studying the steps required to perform a specific work in order to increase likely hood of integrating performance. Activities under review need to be decomposed or de averaged to achieve effective integration. The decomposition can be achieved by activity based metrics. Functional trade-offs need to be evaluated when planning a strategic initiative. Synergism creates superior performance or VALUE, through , interaction of different functions of a system. E.G.- Transportation and Inventory when managed as separate organisational units, without attention to interrelationships , can create serious barriers to achieving operational goals. Benchmarking- It is a systematic procedure for identifying the best practice, and modifying actual knowledge to achieve superior performance. Activity Based costing- Most accounting practices generate averages that hide the true costs of performing specific activities or of providing a unique service to specified customers. The costs should reflect true metrics. Quality Initiatives- Improvement of quality on a continuous basis, based on above two actions.

Reengineering procedure is applicable to evaluation of large scale changes , that may radically modify the traditional way in which logistics is integrated.

2.Environmental AssessmentThe environmental assessment is concerning plans which include 1.How many, What type, where to locate distribution warehouses. 2. What inventory assortment to stock at each facility. 3.Philosophy and practice of purchasing. 4.Way of performing and integrating transportation function. 5. Mtl handling methods to be deployed. & 6.Basic methods of order processing. An important input to this planning is - assess, monitor and evaluate environmental changes ,trends related to following environmental factors. 1. Industry-Competitive assessment- opportunities /threats related to firms specific industrymkt size, growth rate, profitbility potential , critical success factors , off-shore competition , labour issues , leadership influence and control , rivalry and confrontation, customer and supplier power. 2. Geomarkat Differentials- Population density of geographical areas , traffic patterns. Mapping and understanding industry demographics are essential to effective logistics planning.

3. Technology Assessment- IT, Transportation , material handling, and packaging. 4. Channel structure- Channel structure determine logistical strategies . All enterprises need to conduct logistical operations within defined set of business relationships( referred as channels). Existence of whole salers in few cases such as pharmaceuticals , where as growth in mail order and telemarketing in various target mkt specific products . Thus changes in composition of demand , structutre of supply , no of channel participants , traditional channel relationships need to be regularly monitored to maintain logistical relevancy. 5.Economic-Social projections-Social attitudes, perceptions, lifestyle changes, level of economic activity and rate of change are important considerations. When interest rates increase there is pressure to reduce inventory, this may involve use of premium transportation to maintain service level. 6. Service Industry trends- Increasing contribution of service sector in GDP of countries has led to logistical activities like transport, warehousing, order assy, inventory fulfillment , computer based informtion systems gaining higher importance .Proliferation of logistical service providers needs to be reckoned as a trend .Thus logistical managers need to be abreast with knowledge of prevailing practices , and rate of growth in service sector.

7.Regulatory Posture- There is a need to evaluate and predict the most likely national ,state , and local regulatory changes that logistics managers can encounter.

3.Time based logisticsExploiting information technology to improve speed and accuracy of logistical performance. Information sharing between partners to improve forecasts . Reduce dependence on anticipatory deployment of inventory, safety stocks. The goal is to compress and control time from order receipt to order delivery and accelerate inventory turns. Reduction of uncertainties in forecast and improvement of certainty on delivery performance leads to inventory reduction . Selling merchandise before they take ownership and still qualify for prompt payment discounts . Replenishment arrangements that are highly responsive to customer requirements add value and reduce cost. Time based logistics is based on two concepts Postponement and consolidation. Postponement- The degree to which commitment to final manufacturing or distribution of a product can be postponed until receipt of customer order .this can be practiced in two types.

Manufacturing Postponement- Vision is to manufacture products an order at a time , with no preparatory work or component procurement until exact customer specifications are fully known, and purchase commitment is received. The catch word here is to achieve the responsiveness without sacrificing efficiency. However in manufacturing we can not ignore economic lot sizes. In such situation trade-off needs to be maintained between cost, risk associated with anticipatory manufacturing and loss of economy of scale This may require manufacturing postponement to facilitate overall enterprise efficiency. This involves maintaining products in neutral or non-committed status as long as possible . Manufacture standard, base product in sufficient quantities, to derive economies of scale. Impact of logistical postponement is twofold1. Variety of differentiated products moved in anticipation of orders is reduced. 2. There is increased use of logistical facilities , and channel relationships , to perform light manufacturing , product customisation , and final assy. With this many warehouses have changed to accommodate manufacturing postponement .

Logistical Postponement- Basic notion here is to maintain full-time anticipatory inventory at one or few logistical locations. Forward deployment is postponed until a final order is secured. Once the movement process is initiated every effort is made to move products to customers as rapidly as possible. This ensures elimination of anticipatory nature of distribution while maintaining manufacturing economy. This phenomenon is practised greatly in service supply parts , by maintaining critical and high cost parts in central inventory. The end result is improved customer service with lower inventory investment. Generally co.s adopting logistical postponement maintain full manufacturing economies of scale while meeting customer service requirements using direct shipping facilities.
Manufacturing Postponement Focuses on product form, by moving nondifferentiated products forward in logistics system for modification to customer specification prior to delivery time. Logistical postponement. Focuses on time, by stocking differentiated products , at a central location, and responding rapidly once customer order is received. This reduces amount of stock required to accommodate high service level

Consolidation- A major operational concern- retention of transportation economies of scale with large size shipments. Large consignments , over large distances.. Is the objective . Anticipatory logistics arrangements facilitate consolidation , while postponement strategies generate small shipments, in erratic patterns. From operational view point , there are three ways to achieve effective freight consolidation1.Mkt Area consolidation - Combine small shipments going to different customers in mkt area. This may not still ensure sufficient volumes Solution Consolidated shipments may be sent to intermediate breakbulk point. Individual shipments are separated and forwarded to their destination. 2. Scheduled Delivery- Firms may hold consolidated shipments for scheduled delivery on a specific day to given destination mkts . This will have to be backed up with rigid delivery appointments with logistical capability to match any size , This may not always lead to consolidation , but may work partially 3. Pooled Delivery-Utilizing services of logistics firm to pool delivery.

Time based Logistics operating arrangements The fundamental difference is in timing ,Anticipation Vs Response.
Sr.No. 1. 2. 3. 4. 5. 6. 7. Anticipatory driven value chain Financial forecast Mfg based MRP/DRP Build to anticipatory Inv. Mixed product shipment- from stk. ROP inv strategy.Forecast/safety stk Fixed replenishment schedule Profit centre philosophy. Response-driven value chain Customer focused forecast. Customer focused MRP/DRP. Build to customer reqts. Alternative shipment/ special packaging. Shared reqts/ continuous replenishment. Flexible schedule. Service centre philosophy.

8. 9.

Scheduled replenishment. Financial Measurement - Average ( aggregate) profitability.

Demand-based replenishment Product profitability performance.

When all members in a marketing channel synchronize their operations, opportunities exist to reduce total supply chain inventory, and eliminate duplicate practices that increase cost without generating customer value.

Practicalities :- In actuality logistics does not reflect the extreme of a anticipatory or fully response based arrangement due to:1. Need for publicly held corporations to report and project quarterly earnings to financial observers and investors . This means financial goals must be reflected in operating plans and forecasts . This need encourages co.s to load channels , in order to create timely sales volumes. The de loading activity which should happen in order to exercise response based environment is never timely. 2. It is easier to manage an advarsarial ,power dominated basis than to develop and leverage co-operative relationships . Most business managers lack training and experience for instituting cooperative arrangements designed to share both benefits and risks . Though there is a considerable amount of belief in the system, there is a frustration reported when it comes to get the job done. Thus foreseeable future indicates existence of both response based and anticipatory arrangements. There are cases where selectively response based relationship with some customers and suppliers are given priority. Thus need for firms to participate in variety of different arrangements has placed new performance demands on logistical strategy. No single best way exists to service all customers, individual customers require and expect suppliers to accommodate their unique requirements . Also performance demands of individual customer also constantly change

4.Structural seperation and Flexible logistical operating arrangements:Logistic operations can be specialised based on unique channel relationships and structures. Structure signifies the business relationships for performing work required to complete logistical process. Structural separation involves isolating efforts related to ownership transfer and logistical compliance. The efforts need to be co-ordinated without requirement of putting in same efforts by the same channel specialists or at the same time . This phenomenon is based on belief that typical channel arrangements are not normally ideal to accomplish both marketing and logistics performance. The streams are isolated , because of the fact that efficiency in logistics requires different skill set , normally contradictory to improve or hinder marketing performance . While advertising, promotions , credit , personal selling and other transaction creating elements of marketing have a significant effect on logistical requirements . Both functions can benefit from specialisation through structural separation.

Structural seperation is generally practised by products such as white goods, appliances , furniture , television sets etc. These products offer variety of options in colour , model , features .It is difficult for retailer to stock the items in full range.
Factory W/house Company Truck Regional W/House Common carrier Public W/House Local Delivery

Consumer
Gen.sales Office Direct sales Office

Distributor

Retailer

Logistics Channel

Marketting Channel General sales office works with District sales office to facilitate exchange of FG.

Products-FGs as per forecast are moved from factory to Regional warehouse.

DSO forecasts sales.

DSO attempts to sell products to distributors. Distributors seek commitments from retailers.

FGs are moved from Regional ware house to public ( 3PL) warehouse, instead of distributor investing in a pvt warehouse. Though transaction is initiated at retailers end, logistical support is provided by direct shipment to customers residence from public warehouse. Benefits of logistical specialisation result in low cost delivery and effective marketing.

Distributor takes legal title of the product upon sale. Retailer displays limited no of products ,and offers next day delivery to consumers. Products on display are on consignment from the distributor. Consumer sales typically include promise to deliver a specified model , color and style of the product to a designated location at a particular time.

Structural separation does not mean they can stand alone , both are essential to create customer value. There is increased opportunity for specialisation through separation . The benefits of separation are independent of combining organisation units with outside specialistswhether you involve outside partners performing different functions...or you dont. From ownership transfer view point ,the customer value creation process is not complete until logistical promises are fully performed . Depending on the products involved, logistics operations may start with anticipation of , or be simultaneous with, or follow transactional negotiation . Logistics performance must comply to specifications established during negotiations w.r.t. time, location , and terms of delivery .

Logistical Operating Arrangements(in structured seperation):Channel design is a complex task, basic system design offering accepable balance of performance ,cost ,and flexibility should be the first priority . There is hardly any structural similarity in variety of logistics systems used throughout the world to service widely diverse markets . However logistical arrangements have two common characteristics :1. They are designed to facilitate inventory management . The risks involved are directly related to inventory positioning and velocity. 2. Alternative systems are designed around the prevailing level of technology adopted within logistical functional areas. These two determinants of logistical structure result in somewhat common operating arrangements .listed below.

Echelon StructureFlow of products typically proceeds through a common arrangements of firms and facilities as product moves from origin to destination . Echelon implies stocking some amount of inventory at each consecutive level- justifies cost benefit trade-off . Echelon systems utilise break bulk and consolidation warehouses. These two are opposite in nature. Consolidation warehouses are required by manufacturing firms that have plants at different geographical locations . Break bulk is distribution of large vol. low variety in to high variety low volume to many destinations . Echelon systems utilise warehouses to create inventory assortments and achieve consolidation economies associated with large-vol transportation shipments . Inventories positioned in warehouses are available for rapid deployment in accordance with customer requirements. Direct SystemsDirect systems do not enjoy the consolidated volume necessary to support echeloned structure . They use premium transport combined with information technology to rapidly process customer orders and achieve delivery performance. This type of delivery system is common in manufacturing plants from suppliers.

Direct deliveries reduce anticipatory inventories and intermediate handling . With advances in IT systems this type of arrangement is quite suitable to many products now a days . As a result no. of warehouses have come down dramatically. Flexible systems- This is a design in which there is a combined structure involving Direct N echeloned arrangement . In this case fast moving inventories are located in forward warehouses , and risky/costly items are kept in centralised locations for direct distribution to customers . Basic service commitment and order size economics determine the most desirable and economical structure to service a specific customer. Case-1.Auto component suppliers Vs machine parts supply co.s.2. Automotive manufacturer sole supplier of spares behaves differently in warranty period and as cars grow older.pg.484/485.

Emergency flexible structures-Meeting customer requirements from alternate warehouses , based on importance of the specific customer and the critical nature of the product being ordered. Routine Flexible structure- This strategy is justified in at four situations. 1. servicing customer equidistant from two facilities. 2. Size of customer order creates an opportunity to use alternate channel arrangement. 3. Split deliveries in differentiated inventory stocking strategy( centralised for expensive and decentralised for routine items). 4. Cross docking flow through arrengementsOr use of 3PL to do job like done in cross docking.

Flow through

Flow through

Service Supplier arrangements.

Service supplier arrangements. C u s t o m e r

Supplier

Industrial Distribution or Consolidatio n warehouse.

Manufacturer

Whole saler or Distribution center

Retailer

Direct Plant Delivery

Direct store delivery( DSD)

To a significant degree , an effective , flexible logistics strategy can substitute for the safety stock maintained in a traditional anticipatory system.

5. Strategic Integration Expanding the strategic scope discussed in earlier chapters.

6. Time Based control techniquesSupply Driven-MRP & JIT . DRP- A sophisticated planning approach that considers multiple distribution stages and characteristic of each stage. For each site and SKU ,the schedule reports--- current on-hand balance , safety stock, performance-cycle length( LT for completing customer order cycle) , and order qty . Also for each planning period ,the schedule reports gross reqts , scheduled receipts , and projected on-hand inv. And planned orders. Benefits1. Improved service levels that increse on time delivery. 2. Effective promotional and new product introduction. 3. Ability to anticipate shortages. 4. Inv coordination with other functions, since DRP facilitates a common set of planning no.s 5. Ability to offer customers a coordinated inventory management service.

Demand Driven---- Techniques-QR- Quick Response-Monitoring retail sales for specific products and sharing information across supply chain to guarantee that right product assortment will be available when and where it is required. CR- Continuous Replenishment-Vendor managed Inventory, modification of QR, it eliminates the need for replenishment orders . Supplier assumes responsibility for maintaining retail inv in reqd qts ,colour , size and styleIT & sufficiently large vol of sales is a necessity to adopt this technique. AR- Extends QR & CR , by giving suppliers right to anticipate future reqts according to their overall knowledge of merchandise category . Supplier simplifies retailer involvement by eliminating need to track unit sales , and inv levels for fast moving products . This reduces retailer cost be shifting inv and replenishment responsibility to supplier.

Benefits of QR,CR,AREnhanced info flow thro exchange of reqts , order adjustments, and shipment schedules offers suppliers better inv visibility. Mfgrs & wholesalers can plan reqts knowing sales vol and FG inv ( Echelon). Supplier can determine whether an order surge is due to actual POP sales or otherwise. Supplier can establish production and distribution priorities between products and customers. Time based relationships and information improve coordination between all SC members, which leads to better efficiencies across. Alliance creates log term relationships with suppliers.