Sales & Distribution Management Logistics of Distribution

Hamendra Dangi hkdangi@yahoo.com 9968316938

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Logistics Defined
Logistics management is generic term widely used for the management of the flow of goods and services from the point of origin to point of consumption

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Key Strategic Decisions

Location Decision Inventory Decision Transportation Decision Warehousing Decision

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Issues in Facility Location

Proximity to Customers Business Climate Total Costs Infrastructure Quality of Labor Suppliers Other Facilities

Issues in Facility Location

Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage

Method of Evaluations
Break Even Method Point Rating Method Centroid Method Analytical Hierarchy Process (AHP)

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Break Even Method- Example

A company has short listed two sites for setting up company owned outlet for its product . Site A requires a fixed investment of Rs 10 Crore while B is 1.2 times costlier than A . On the other the combined variable cost on location A is 80% of B while it is estimated that Variable cost per unit will be Rs 10 at Site B . Assuming the sales forecast of 10000 Unit . Suggest suitable Site

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Example
A firm is considering 4 alternative location for new retail store .It has attempted to study all cost at various location and finds that cost vary from one location to another .The firm will finance new store from bonds bearing 10% interest

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Example
A Labor /Unit Plant Cost (Mn) Material Cost Electricity /Yr Water /Yr Transport/ Unit 0.75 4.6 0.43 30000 7000 0.02 B 1.10 3.9 0.60 C 0.80 4.0 0.40 D 0.90 4.8 0.55 28000 7000 0.05

26000 30000 6000 0.10 7000 0.10

Taxes /Yr

33000

28000 63000

35000

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 Determine the most suitable location ( economically ) for output volume in the range of 50000 to 1,30000 unit per year

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Plant Location Methodology: Factor Rating Method Example

Two refineries sites (A and B) are assigned the following range of point values and respective points, where the more points the better for the site location. Sites Major factors for site location Pt. Range A B

Fuels in region Power availability and reliability Labor climate Living conditions Transportation Water supply Climate Supplies Tax policies and laws

0 to 330 0 to 200 0 to 100 0 to 100 0 to 50 0 to 10 0 to 50 0 to 60 0 to 20

123 150 54 24 45 4 8 5 5

Total pts. 418

544

156 100 63 96 50 5 4 50 Best Site 20 is B

Plant Location Methodology: Centroid Method

The centroid method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them This methodology involves formulas used to compute the coordinates of the twodimensional point that meets the distance and volume criteria stated above

Plant Location Methodology: Centroid Method Formulas

Cx =

d V V
ix i

Cy =

d V V
iy i

Where: Cx = X coordinate of centroid Cy = X coordinate of centroid dix = X coordinate of the ith location diy = Y coordinate of the ith location Vi = volume of goods moved to or from ith location

Plant Location Methodology: Example of Centroid Method

Centroid method example
Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom
Y Q
(790,900)

S ho wro o m

No o f Z-Mo b ile s s o ld p e r mo nth 1250 1900 2300

D
(250,580)

A D Q
X

A
(100,200) (0,0)

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

Plant Location Methodology: Example of Centroid Method (Continued): Determining Existing Facility Coordinates
To begin, you must identify the existing facilities on a twodimensional plane or grid and determine their coordinates.
Y
Q
(790,900)

D
(250,580)

A
(100,200) (0,0)

You must also have the volume information on the business activity at the existing facilities.

S ho wro o m

No o f Z-Mo b ile s s o ld p e r mo nth 1250 1900 2300

A D Q

Plant Location Methodology: Example of Centroid Method (Continued): Determining the Coordinates of the New Facility
You then compute the new coordinates using the formulas:
Cx =
Cy =

100(1250) + 250(1900) + 790(2300) 2,417,000 = = 443.49 1250 + 1900 + 2300 5,450

200(1250) + 580(1900) + 900(2300) 3,422,000 = = 627.89 1250 + 1900 + 2300 5,450

You then take the coordinates and place them on the map:
Y Q
(790,900)

D
(250,580)

A
(100,200) (0,0)

New location of facility Z about (443,627)

X

S ho wro o m

No o f Z-Mo b ile s s o ld p e r mo nth 1250 1900 2300

A D Q

AHP
The Analytic Hierarchy Process (AHP) is a technique for decision making where there are a limited number of choices, but where each has a number of different attributes, some or all of which may be difficult to formalize. It is especially applicable when decisions are being made by a team.
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 AHP can assist with identifying and weighting selection criteria, analyzing the data collected for the criteria, and expediting the decision-making process. It helps capture both subjective and objective evaluation measures, providing a useful mechanism for checking the consistency of the evaluation measures and alternatives suggested by the team. The process is based on a series pairwise comparisons which are then checked for internal consistency.
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The procedure can be summarized as: 1. Decision makers are asked their preferences of attributes of alternatives. For example, if the alternatives are comparing potential real-estate purchases, the investors might say they prefer location over price and price over timing. 2. Then they would be asked if the location of alternative "A" is preferred to that of "B", which has the preferred timing, and so on. 3. This creates a matrix which is evaluated by using eigenvalues to check the consistency of the responses. This produces a "consistency coefficient" where a value of "1" means all preferences are internally consistent. This value would be lower, however, if decision makers said X is preferred to Y, Y to Z but Z is preferred to X (such a position is internally inconsistent

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