The Supply Chain Management

Prof. V. P. Arora

Associate Profesor

Logistics term is derived from Greek word Logisticos meaning The Science of computing & calculating. Dictionary definitions of Logistics The branch of military science having to do with processing, maintaining & transporting material, personnel & facilities. Webster defines Logistics as The procurement, maintenance and transportation of military materials, facilities and personnel. Council of Logistics Management (CLM): Defines Logistics is that part of supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers requirements Transportation adds Place value to products / services

LOGISTICS

According to IMF, logistics costs average about 12% of worlds GDP. Logistics: is about creating value for customers and suppliers of the firms and the value for the firms stockholders. Good Logistics management views each activity in the supply chain as contributing to the process of adding value. Four types of Values in Products / Services
Form Time Value Value Mfg. creates Logistics through

Place

Value

- Transportation - Information flows - Inventories

Marketing, Engg. and Finance

Possession

Value

3 out of 4 values by Logistics

Germans lost the battle not because of lack of soldiers / equipment (they had more tanks than Britishers) but because of Britain having better logistics. Military Movement

Kuwait War Iraq War

Military Movement

Good Logistics by USA 2,00,000 troops deployed in 1 months in Iraq earlier Vietnam conflict took 9 months Treat soldiers as your customers
Pride for food, amenities Also equipment reqd. to fight

70% of all jobs are in services in USA so logistics principles

Logistical Mission 1. To make available the right quantity of right quality products at the right time & place in the right physical condition. 2. To offer best possible customer service for core competency. 3. To minimize total logistical costs logistical costs range from 15% to 45% of the price of the product next to cost of raw materials for most of the goods. Operational Objectives of Logistics 1. Right Response 2. Right Quality 3. Right Quantity 4. Right Value 5. Right Cost Trade-offs 6. Right Information

Logistics Strategy Three objectives 1.Cost reduction _____ variable costs with movement & storage 2.Capital reduction _____ maximization of the return on logistics assets (Shipping direct to customers, JIT supply, etc.) 3.Service improvement ____ Revenues depend on logistics services provided in contrast with competition.
Business Goals Attack Strategies Customer service Representatives

Logistics Planning tackles 4 Major Problem areas

Customer service levels Facility location Inventory decisions Transportation decisions

The above decisions affect firms profitability, cash flow and return on investment.
Services: TV channels Three major events happening in one week a. Princes Diana killed in an automobile crash b. Mother Teresa died of heart failure in Calcutta c. Major bombing incident in Jerusalem Three corners of the world --- also there is the problem of allocating Air Time - Directed CNN reporter from Paris to Middle East - Hong Kong correspondents to Calcutta

Logistics Management IT refers to designing, developing, producing & operating an integrated system which responds to customers expectations by making available the required quantity of required quality products as & when required to offer the best possible customer service at the least possible costs. Trade off between total logistical cost & required customer service level. India spends nearly 13% of its GDP on Logistics as compared to an average of 10% in developing economies. Transportation & Inventory costs constitute over 50% of value added in India.

Total Cost Analysis

The total cost analysis is essential in the development of an integrated logistics systems design & acts as a key to managing the logistics function Total costs comprise of:

Inventory cost
Transportation cost Storage & warehousing cost Material handling & protective packaging cost Order Processing cost Information cost Customer Service cost

Production lot Qty. cost

The Supply Chain The supply chain (SC) encompasses all activities associated with the flow and transformation of goods from the raw materials stage (extraction), through to the end user, as well as the associated information flows. Materials and information flow both up and down the supply chain.

Integrated Business Logistics Management (IBLM) and supply chain management (SCM) are used interchangeably.

Logistics / Supply Chain is a collection of functional activities (transportation, inventory control etc) which are repeated many times throughout the channel through which raw materials are converted into finished products and consumer volume is added.

The life of a product, from a logistics view point, does not end with the delivery to the customer. Products become obsolete, damaged or non-functioning and are returned to their source points for repair or disposition.

Environment USA produces 160 million tons of waste each year

In Germany Seller has the responsibility either for the recovery of the spent materials and their repackaging & re-use or for their deposal.

Packaging materials may be returned to the supplier due to environmental regulations or economic considerations to reuse them. This is

Reverse logistics channel. Log Fac summarizes world class logistics performance for domestic companies as: a) Error parts of less than one per 1,000 orders shipped b) Logistics costs of well under 5% of sales. c) Finished gods inventory turnover of 20 or more times per year. d) Total order cycle time of five working days.

e) Transportation cost of 1% of sales revenue.

Supply & distribution lines are lengthening with grater complexity produce locally and sell internationally. - Material & Labour costs may be reduced but logistics costs are likely to increase due to increased transportation & inventory costs. - Outsourcing adds value but it requires careful management of logistics costs.

Wal-mart used logistics as the core of its competitive strategy to become the Worlds number one merchandise retailer.
Example Presence 1987 No. of Stores Wal mart Rural X K Mark Urban 2X

Sales
Expansion

$ 16 Billion
Outside small towns

$26 Billion
Major cities

Concentration

Operations Company vide computer system Linking with cash registers

Marketing & Merchandising

Quick restocking of goods Investment on trucks & modern distribution centers No depleted shelves & price check delays Lowering prices

Law suit for overcharging because of no up to date information

Present size
Selling Administrative & overhead costs

6Y
17.3%

Y
22.7% went into Bankruptcy & reorganization

Return on Logistics Assets =

Contribution to revenue logistics operating costs

Logistics Assets

Goal (Long run) Maximizing the cumulative return on investment

Components of good strategy Addressing - Customers - Suppliers - Competitors - Company itself eg. GE vision to be number 1 or 2 in each market & get out if that is not possible
IBM Constantly reshapes itself to remain an effective competitor

Logistics / SC strategy Innovative strategies give competitive advantage (i) Replacing Broken down machines

Objectives a) Cost Reduction b) Capital Reduction c) Service improvement

Logistics / SC Levels Planning - Strategic - Long Range - Tactical - Intermediate range - Operational - Short Range (hourly/ daily basis)
Operational Plan Inventories for each item Strategic Plan Inventories not to exceed certain value limit. or Achieve certain inventory turn-over ratio

Logistics Planning Major Areas Major problem areas: a) Customer service levels b) Facility location c) Inventory decisions d) Transportation decisions i) Higher service levels will lead to disproportionate increase in costs. ii) All product movements from/to & associated costs from plant, vendor through intermediate stocking points and to customer location. iii) Perpetual inventory control iv) Mode, size of shipment, routing & scheduling

All above decisions have impact on firms Profitability Cash flow

When to plan? - Existing firm - New firm Factors affecting Planning Demand Customer Service / level Product characteristics: Product weight, volume, value, risk Logistics costs

For high logistics costs, frequent replanning can result in substantial cost reduction. High Logistics cost = Industrial chemicals, food products Low Logistics cost = Machine tools / computers
e) Pricing Policy Changes in pricing policy under which goods are purchased or sold will affect logistics strategy. Guidelines for strategy formulation Total cost concept.

Other Logistics System Trade Offs.

a) Setting the customer service level

b) Setting safety stock levels c) Determining the number of warehouses in a logistics

systems
d) Setting the sequence of production runs for multiple products Multiple distribution strategies based on Different customer service requirements

Different product characteristics

Different sales levels among multiple items

Not all products should be provided the same level of customer service Fast moving items Medium volume items Slow moving items A mixed distribution strategy would have lower costs than

pure or single strategy.

Selecting the proper channel strategy (i) Supply to stock (ii) Supply to order Supply to stock: Maximum efficiency is obtained through - Economic production runs - Purchasing in quantities - Batch order processing - Transporting in large shipment sizes. Supply to order: Set up for maximum responsiveness - Excess capacity - Quick changeovers - Short Lead Times - Flexible processing - Premium transportation - Single order processing

Measuring Strategy Performance: Three measures are useful and if all them are positive, strategies are probably working well. i) Cash flow: Decrease inventory, cash is released which can be used for various purposes. ii) Savings: Reduction in costs because of no. of locations of warehouses, inventory carrying costs etc. A strategy that changes number of locations of warehouses will affect transportation, inventory carrying, warehousing and production / purchase costs. These savings appear as a profit improvement. iii) Return on investment: Ratio of Annual savings to Investment required. It indicates the efficiency with which capital is used. Good strategies show a return greater than or equal to expected return on companys

Value chain of supply chain Management In the value chain of SCM, the flow of goods & value are in forward direction and flow of cash is in a backward direction to keep total business system alive whereas flow of information is in both directions for improvement of total supply chain system. Value Flow Each participant in supply chain adds some value in the goods or services received by him from his proceeding member before making delivery to the next party. If a product remains unsold due to late availability, its cost increases & value decreases due to gradual decrease in physical attributes.

Goods Flow Goods or inventory flow from suppliers or vendors as raw materials to producer. Better customer service with lower inventory is the aim.

Cash Flow
Money paid for goods & services received by a supply chain member Information Flow Flow is in both directions. Backward flow facilitates: -Quality Feed Back -Customer Order & specification -Procurement qty with specification & timings. -Production & Despatch planning

Forward information flow refers to:

-Availability of Goods
-Order processing & Management -Order Status -Transportation & shipping advices -Quality Assurance

-Warranty Card
Delay in information flow costs: -Higher Transportation Expenses

-Lost Sales
-Corporate Image

A speedier flow of goods from company to customer leads to a speedier flow of cash from customer to company Supply chain effectiveness & Indian infrastructure Key issues in supply chain (i) Movement of Products (ii) Movement of Information (iii) Timing of Service (iv) Total Logistics costs (v) External & internal integration of activities

Indian Infrastructure Bottlenecks - We have second largest Railway network in world but average speed is 22 km vs 75 km in world - Av. Speed on road is 25 km - Not many reputed companies in third party logistics management business - 10,000 km of superhighway requiring huge funds - Transportation & Distribution management business has a long gap to be bridged Three change engines in world I. Automobile Revolution II. Retail Revolution III. Container Revolution

Contributions / Functions of Supply Chain 1. Minimizing Uncertainty 2. Reducing lead times 3. Minimizing the number of stages 4. Improving flexibility 5. Improving Process Quality 6. Minimizing Variety 7. Managing Demand 8. Delaying Differentiation 9. Kitting of supplies 10. Focusing on A category 11. Planning for multiple supply chains 12. Modifying performance measures 13. Competing on service 14. Moving from functions to processes 15. Taking initiatives at an industry level.

Nature of logistics / Supply Chain Product Product is composed of physical and an intangible part. The intangible part is: - After sales support - Company reputation - Communication to provide correct & timely information - Flexibility to meet individual customer needs - Recovery to rectify mistakes Classifying Products - Based on use Patterns - Consumer Products & Industrial Products (A) Consumer Products Convenience Products Frequently Purchased - Banking Services - Many Foodstuffs

Wide distribution required which increases sales potential as well as distribution costs. Customer service levels

have to be high to get patronage for products. -Pepsi & Coca-Cola vending machines -Public Telephones

Shopping Products
-Seek comparisons Price, Quality, Performance

etc.
-High Fashion clothes, automobiles, home

furnishings, medical care, etc.

Speciality Products Buyers willing to expend substantial effort & wait like custom made automobiles or management consulting advice. Physical distribution costs are lowest & it needs creating brand preference. (B) Industrial Products Industrial goods or services are directed to individuals or organizations that use them to produce other goods or services.

The Product Life Cycle Products follow a sales volume pattern over time going through four stages: -Introduction -Growth -Maturity -Decline

It has influence on distribution strategy

The 80 20 Curve

-Based on Paretos law -Bulk of sales is generated from relatively few products & useful in distribution planning. -ABC classification also used for stocking points inventories Product Characteristics Weight, volume, value, perishability, flammability, substitutability, etc in various combination would be affect needs. -Warehousing -Inventories -Transportation -Materials Handling -Order Processing

i) Weight Bulk Ratio: High weight bulk ratio (steel canned foods) show good utilization of transportation equipment & storage facilities. Low density (potato chips, lamp shades), bulk capacity utilized much before weight

ii) Value weight ratio Products having low value weight ratios (coal, iron ore) have low storage costs but high movement costs as a percentage of their sales price.

iii) Substitutability Higher substitutability means a greater chance for lost sales for a given average inventory, supplier can increase speed & dependability of product deliveries to avoid lost sales. iv) Risk characteristics -Perishability -Flammability -Value -Tendency to Explode -Ease of Being Stolen These force restrictions on distribution system & increase transportation & storage costs.

Product Packaging: There are various purposes for packaging. Changing product density & protective packaging are areas that fall under logistics. Product Pricing Pricing is a complex decision making problem involving economic theory, buyer behaviour theory & theory of competition etc. Geographic pricing methods Since customers are spread over, total cost to distribute varies with their location. Pricing categories could be fob, zone, single or uniform, freight equalization and basing point.

Fob Pricing FOB stands for Free on Board FOB Factory Means price is quoted at factory location. FOB Destination Means that price customers location or in the vicinity. is quoted at

FOB factory price is a single price established at factory location. Customers take ownership at that point & are responsible for transportation beyond this point. In practice, customers might utilize the services of suppliers because he is better equipped & can combine orders, etc.

Fob Destination or Delivered Price This is price at customers location or in vicinity. In this, transportation costs are already included in price. It assumes that supplier can handle transportation more economically. If buyer has large volume, it can secure same rates as suppliers

Zone Pricing Zone pricing reduces administrative complexity by establishing a single price within a wide geographic area. Any numbers of areas can be defined depending on the degree to which company wants geographic price differences.

Single or Uniform Pricing This pricing method appeals to customers since same price is charged everywhere (like books). In this case, the distribution costs are averaged out. Freight Equalization Policy If two firms produce the product at the same price, then competitive pricing is a matter of transportation costs. If markets are not equidistant from each factory location, the firm farthest may wish to absorb enough of Freight charges to meet the price competition. This practice is referred to as freight equalization. Transportation as well as production costs across a number of producing locations are averaged.

Basing Point Pricing Basing point pricing establishes some point other than the one from which the product is actually delivered as the point from which to compute price. Firms may use single or multiple basing points. It is applicable when (i) Product has a high transportation cost relative to its overall value. (ii) Little preference among buyers as to the supplier of the product. (iii) Few suppliers & any price cutting leads to retalition by rival firms. From customers perspective, industries are located at same points. Incentive Pricing Agreements (i) Quantity Discount (ii) The Deal

Quantity Discounts Economies of Scale pricing yiels lower cost per unit, due to spread over of fixed costs. This has led many firms to use purchase volume as a way of offering lower prices to buyers and increasing the supplier sales. The Deal A selling company may like to reduce inventories, maintain output levels, or encourage sales as the motivation for lowering price. Such companies offer reduced product prices for a short time in exchange for larger than normal purchase quantities from its customers. The buyer must weigh the effect of a larger than normal buying quantity with its benefit of lower price against common logistics costs of transportation, inventory carrying & storage.

Logistics / Supply Chain Customer Service Customers view the offerings of any company in terms of price, quality and service and respond accordingly with their patronage or lack of it. Customer service, when utilized effectively, is a prime variable that can have a significant impact on creating demand and retaining customer loyalty Logistics customer service for many firms is the speed and dependability with which items ordered (by customers) can be made available. Common Customer Service Complaints Late Delivery = 44% Product or Quality Mistakes = 31% Damaged Goods = 12% Frequently cut items = 6% Others = 7%

The most important Logistics customer Service Elements are: - On Time Delivery - Order Fill Rate - Product Condition - Accurate Documentation Customer Service

(i) Pre Transaction Elements

- Written Statement of Policy - Statement in Hands of Customer

- Organization Structure
- System Flexibility - Technical Services

(ii) Transaction Elements - Stockout Level - Ability to back Order - Elements of Order Cycle . Time . Tranship - System Accuracy - Order Convenience - Product Substitution (iii) Post Transaction Elements - Installation, Warranty, Alterations, Repairs, Parts - Product Tracking - Customer Claims, Complaints etc. - Product Packaging - Temporary Replacement of Product During Repairs.

Back ordering for out of Stock Item

- From Secondary warehouse

Order to plant stocks Not Available Production order Delivery From Plant to Customer - Marketing mix components of product, price, promotion & physical distribution do not contribute equally to market share. Distribution, when it provides the proper levels of service to meet customer needs, can lead directly to increased sales, increased market share & ultimately to increased profit contribution & growth.

Service Effects on Customer Patronage

- 65% of firms business comes from its present

customers.

- on the average, it is approximately six times more expensive to develop a new customer than it is to keep a current customer. Thus, from a financial point of view, resources invested in customer service activities provide a

substantially higher return than resources

invested in promotion and other customer development activities

Penalties for Customer service by purchase agents against suppliers service. Reduced volume of business = 29%

Called in Salesman / Manager

Stopped all purchases with supplier

= 26%
= 18%

Discontinued Specific items

Refused to purchase new items

= 16%
= 9%

Refused to support promotion

= 2%

Thus companies have realized that:

(i) Due shift of power, dealers / Retailers have become their business partners
(ii) Marketing acumen of intermediaries has to be exploited to bring in competitive competency (iii) Marketing Results depend on Dealer push.

(iv) Development of a new dealer is too expensive than keeping a current one
(v) Firms major business comes from its present customers.

Strategic Components

Corporate vision towards long-run customer services:

- Long run customer service objectives

- Continuous monitoring of environmental factors in terms of opportunities & threats

- Appropriate allocation of resources to exploit threats / opportunities

(i) Full assurance for the best return on investment (ROS) to customers (ii) Deploying customer friendly personnel eager to sort out customer complaints & grievances, cooperation during period of need, willingness to provide accurate information. If customer discontinues business, firm loses revenue, gross margin immediately & has to spend heavily to find new customers. (iii) Continuous improvement in quality of customer service by learning from past experiences of defective delivery, improving operating systems to achieve effective customer service. Firms should continuously evaluate customer service strategy formally & informally to ensure further improvement.

Logistical Customer Service Components (i) Availability of Components - Normal qty. & specifications on regular & well established basis - Prevent stock out situation - Handle extraordinary customer service requests ii) Reduce Fixed Replenishment cycle Time -Speedier delivery of goods so that less working capital & space is required.

iii) Zero Defect Delivery of Product - Right Quality & Quantity - Right Documentation

iv) In case of Defective delivery, prompt reverse logistics system be offered to earn goodwill. v) Point to Point information

Prompt & Accurate information regarding

- Status of inventory - Order - Tentative shipping & despatch schedules vi) Consistency: Ability to maintain normal logistics system & meet unexpected situations.

Non Logistical Customer Service Components These are basically value added services offered to a specific customer or a group of customers depending on individual requirements 1. Financial support to customers especially for infrastructural developments. It leads to A) Motivate customers for qualitative outcomes of marketing B) Better service facility to ultimate users eg. Refrigerated display units by firms. 2. Offer credit facility especially during high demand period. 3. Arrange training for customers & their sales force regarding technical know how of the products. 4. No tagging of new product with supply of premium products. Also, not too long waiting. 5. In warranty supported products, certain discretionary powers assigned to customers to

6.

If the company has exclusive territory operation norm, it should be properly followed.

80: 20 Rule 80% profit comes from 20% customers 80% costs recovered from 20% customers Total customer cost should include: (i) Inventory carrying costs (ii) Costs incurred in Reduction of replenishment cycle (iii) Costs involved in reverse logistics in case of defective delivery: . Movement of Defective Return Goods . Cost of Rectification, Re-documentation & Redelivery (iv) Costs for continuous evaluation of system (v) Fixed costs involved in development of information system, communication & logistical infrastructure

GAPS Analysis for customer service Measurement:

Three researchers defined service quality is a function of expectations Performance gap & also, service quality as the degree and direction of discrepancy between the customer service perception & expectations with the help of GAPS MODEL.

Service Quality GAP: On left hand side represents customers assessment of service quality. The four gaps on the right hand side represent organizational shortfalls that ultimately lead to customer perceived service quality gap. These organizational gaps are: 1. Market Information GAP The companys incomplete or inaccurate knowledge of customers service expectations.

2. Service Standards GAP The companys failure to accurately translate customers service expectations into specifications or guidelines for employees.

3. Service Performance GAP Lack of appropriate internal support systems (e.g. recruitment, training, technology, compensation) that enable employees to deliver to service standards 4. Internal Communication GAP Inconsistencies between what customers are told the service will be like & the actual service performance (e.g. due to lack of internal communication between the service promisers such as sales people) and service providers (such as after sales service representatives)

The focus of above research is more on internal organizational gaps evaluation whereas from Logistical perspective of core competency the focus should be on marketing intermediaries specifically.

Major Gaps Major gaps have a direct impact on customer satisfaction as well as on performance and are crucial for loyalty & can effect sales revenue. Corrective actions are required at most appropriate time & ignorance / non-action can cost the company in a big way. GAP 1 This results into wastage of resources

GAP 2 Any discrepancy will have a negative impact on corporate image & customer motivation towards trade & business GAP 3 This results in lower commitment and loyalty of customers towards qualitative results of marketing GAP 4 This Gap adversely affects volume of sales & market share.

Minor GAPS

These gaps will not have immediate impact with regard to wastage of resource, customer loyalty, motivation, sales volume, market share, etc. & can become major factors if proactive actions are not taken for prevention.
Gaps analysis can be used to conduct comprehensive service quality audit to identify discrepancies & bring about improvements Customer Service Strategic Management Keeping customers satisfied firms need a proactively designed & strategically managed customer service portfolio so as to sustain a competitive advantage in the long run.

Step 1 Corporate vision about customer service Top management must be the driving force for reinforcement of expected levels of customer service & provide adequate resources & continual encouragement. The corporate vision should include: (i) Written statement of service policy & its circulation to customers. (ii) Adequate recognition to customer profitability in terms of return (iii) Transparency & uniformity in operations (iv) Commitment for long term association (v) Proper monitoring of service for continuous improvement. Step 2 Present customer service strategy Measure the discrepancies, validate it & find reasons behind poor performance so that corrective actions can be taken.

Step 3 Customer service needed for Product / Competitive Advantage With increasing competition, superior quality of service is required. Also there is demand uncertainty, seasonality, shorter life cycles requiring customer service standards eg. Demand for tractor is maximum during October November if not met, it will lie in stock till march april.

Step 4 strategy

Development of new customer service

Two aspects to be considered.

(i) Prevailing customer service standard in industry offered by competitors.

(ii) Service expectation of customers there has to be cost benefit analysis.

Step 5 Implementation of new strategy

An effective implementation policy should incorporate:

(i) Objectives & goals of the new strategy should be well defined, communicated to customers as well as to all people concerned with implementation & operational performance. (ii) Necessary resources should be allocated in time along with plans & policies. (iii) If required, proper re-structuring of organization be carried out. (iv) Simplification for speedier logistics functions. (v) Training & Education of all concerned executives & employees. (vi) Time frame for implementation.

Step 6 Evaluation & Appraisal for continuous improvement (i) Spotting out points of deviations in the strategy so as to take corrective actions in time.

(ii) Prevent wastage of resources in the wrong direction.

Establish CSMC: Customer Service Monitoring Cell FCSS: Formal Customer Satisfaction Survey CC: Customer Conference

IIWC: Informal Interaction with customers

CFS: Customer Feedback System

Impediments strategy

to

an

effective

customer

service

Sometimes, Sales people misuse customer service by committing faster delivery to obtain order for achieving higher targets. This requires speedier mode of transport as well expediting production. This can disrupt other customers orders & the logistics costs increase. Many companies have no effective customer service strategy. Warren Blanding identified following Costs of Customer Service Hidden Eleven

1. Misdefining customer service

2. Overlooking customer profitability

3. Using unrealistic customer service policies 4. Failing to Research 5. Blurring Customer Service Costs 6. Misusing customer service as a sales incentive 7. Blurring lines of Authority 8. Equalling the Number of warehouses with customer service 9. Adding Bodies Rather than systems 10.Employing personnel under trained, under compensated

11.Misreading the Sellers Market.

LOGISTICS INFORMATION SYSTEM

Role of Information in
- Increased focus on Reduce Response Time - Redesigning Business Processes and their continuous improvements - Streamlining Logistical activities across supply chain to reduce costs & improve efficiency

- High valued supply chain relationships

- Enhanced customer services for competitive advantage

- Attainment of a global standard and access to world market

Logistical Information - Must flow Internally among various deptts. Such as purchasing, manufacturing, marketing, finance, accounting & logistics, etc. - As well as between company and its suppliers, transporters, forwarders, warehouses and customers for 1.Handling customer orders 2.Production Planning 3 Materials requirements planning - Distribution requirements planning - Finance & Sales Forecasting Logistical Information System (LIS) LIS is a set of computer hardware & Software that gathers, organizes, summaries and reports any information for use by managers, customers & others

A General Logistics Information System A general LIS design consists of four distinct elements (i) The inputs (ii) The Database & its associated manipulation (iii) The Outputs & (iv) The Resources

Integrated Information Technology (IT) Solution for Logistics & Supply Chain Management Most of the Corporate Enterprises are investing in a probable integrated it infrastructural solutions for L & SCM in terms of - Computer Hardware - Software - Connectivity by Electronic Data Interchange (EDI) - Bare Code System (BCS) - Enterprise Resource Planning (ERP)

- Internet
- Extranet - Intranet

Electronic Data Interchange (EDI) EDI is an inter organization computer to computer exchange of standard Business documents in a structured & Machine processable format with the objective to eliminate duplicate data entry & to improve the speed and accuracy of the information flow Enterprise Resource Planning (ERP) ERP is a computerized integrated business process of the organization used by firms to derive competitive advantages in the production, distribution & financial areas along there have differences but of late ERP & L & SCM softwares are fast converging

Benefits of ERP

i. Improving Productivity & Enhancing a competitive edge by optimizing use of all its resources.
ii. Bringing about a trade off between demand & supply.

iii.Bringing together all who work/deal with suppliers, customers & third-party logistics Providers.
iv.Ensuring a smoother flow of inventory & information at all levels and between all parties, coupled with ready access of up-to-date information. v. Reducing the replenishment cycle time & hence capital lock-up. vi.Ensuring a flexibility. high level of customer service with

vii.Overall organizational look-ahead capability & control.

Benefits of Intranet, Extranet & Internet

i. Better collaboration by means of real time communication of information between functional deptts of the firm, suppliers, customers, third party logistics service providers, etc.
ii. Reduced transaction costs, communication costs & response time across the supply chain.

iii.Bringing about a proper balance between demand & supply resulting into lower inventory level and prevention of stock-out position. iv.Enhanced supply chain relationships, which ultimately lead to developing strategic capabilities for competitive advantages.

Emerging Technologies in Logistics & Supply Chain Management The following three emerging technologies promise to expedite the flow of goods i) Voice Systems ii) Memory Buttons

iii) Radio Frequency (RF) Tags (Transponders)

(i) Voice Systems

Voice recognition frees warehouse workers hands

Each unit had to be trained to recognize individual users speech patterns Voice Template to be created for every word an individual users during dialogue with computer

Helps low skill workforce to interact with computers & maintain high picking & receiving levels
In future, consignees will be able to pick up phone & check shipments status while on the other end would not be a person but a computer using a voice recognition system

ii) Memory in a Button In addition to bar codes, several pages of information can be stored in a button, which a reader must physically touch to extract the same. These are portable data bases. This technology can also be used by motor carriers and private fleets to keep main tenance records on individual vehicles. iii) Radio Frequency (RF) Tags A more promising alternative to bar codes are RF tags which communicate data via radio waves to a reader typically connected to a host computer system. Data is coded into tags & there are active & passive tags. Active variety has the power to send signals while passive relies on reader to initiate communication. Tags can be read only where data cannot be altered and read write version, which is more expensive, data can be changed easily like floppy disk, etc these tags have a reading range from 1 to 10 feet.

In USA, fleet operators have begun booking at transponders as a low cost alternative to satellites for shipment tracking. Strategic sites like customer sites would be equipped with readers which would scan each time vehicles entered a distribution centre. These are used as portable data bases which manifest information shipper, content, consignee & would be valuable in speeding up border crossings with customs authorities, RF tags are useful in tracking & traffic control. Bar code labels would be applied to individual boxes & read write tags would be on pallets, trailers & containers in warehouse.

Transportation To reduce logistical costs & improve customer service capabilities, corporates need, (expectations from transport industry)

Reduction in Transit inventory cost

time

for

minimization

of

Less damages, en-route handling & pilferages for minimum insurance charges Curtailment of protective packaging costs

Point To Point information regarding the status of the shipment.

For efficient supply chain performance, transportation plays a strategic role because of: i.Ensures speedier & timely physical movement of goods from point of inception to point of consumption. ii.It creates core competency by preventing stock out & customer annoyance

iii.It provides protective storage during transit

iv.It ensures cost-efficient & better customer service

v.Improves logistical capabilities of corporates & results in harmomous supply chain relations.

Elements of Transportation Costs i. Tariff of transport mode ii. Transit Time cost iii. Obsolescence and deterioration costs iv. Proactive packaging costs v. Transit insurance cost vi. Miscellaneous costs: Like local taxes, octroi, toll taxes, etc.

Modes of Transport Modes of Transport

Air

Water

Surface

Inland

Overseas

Road

Rail

Pipeline

Multi-Modal Transport Multi-Modal / Inter Modal Transportation is the use of more than one mode of transport for the movement of shipment from the origin to its destination. Inter-modal operators use multiple to take advantage of inherent economies of each & thus provide integrated service at the lowest total cost
Basics Rail Roads

Water

Air

Piggyback

Fishyback

Tranship

Airtruck

Inter Model Transport System

Piggyback

-Most widely used

-Co-ordination between railways & roads -Called Trailor on Flat Car (TOFC)

Or
Container in Flat Car (COFC) -Very popular from 1960s in USA & 1980s onward in India. Fishyback -Boxes loaded on trailor on road and re-loaded on a ship & vice-versa at destination -Widely used in Export / import freight Cargo

Trans-ship -Co-ordination between railways & waterways for bulk movement of freight cargo. Air Truck (Birdyback) Exchange of Containers/Boxes between Air & Road Carriers. Containerization A metal box / case that resembles a trailor without wheels measuring 8 feet / 8.5 by 20 feet / 40 feet although larger containers are becoming more common. 20 feet container has become standard unit (TEUs twenty-foot equipment units). 40` container equates to two TEUs goods of any kind are packed into a container & moved by truck or rail or to sea port & at destination, process is reversed.

Major Features -Used repeatedly for packaging & transport -Specially designed to protect goods from breakages & pilferages -Equipped with fittings for easy handling from one mode to another mode of transport Major Advantages Logistics cost reduction by: i. Speedier Transportation ii. Lower inventory cost due to reduction of transit time. iii.Lower insurance charges due to less chances of damages, pilferages, deterioration, etc. during transit iv.Minimum handling, etc. during transit of en-route handling v. No protective packaging requirement vi.Less Documentation

Selection of Transportation Mode Factors to be considered: i. Strengths & weakness of company in terms of marketing, financial & production resources. ii. Market characteristics competitive scenario, geographical structure, etc. iii. Companys products in the eyes of customers to bear stock-out situation. iv.Product features & suitability to various modes of transport weight, size, shape, etc. v. Quantity to be transported each time vi.Distance to be covered vii.Total transportation cost of various modes of transportation

viii.Carrier performance in terms of -Speed -Availability -Frequency -Reliability -Safety -Versatility -Claim Settlement Procedure -Logistical Service Capabilities For example Hyndai is utilizing Railways for 30% of transportation needs saving Rs.6 lakhs/month. Chennai to Delhi by Rail = 5 days, by Road (trucks) = 7 days

Aspects for Transport Related Decisions 1. Economic Factors 2. Shippers Factors 3. Carrier Factors and 4. Alternative Pricing Strategies Economic Factors -Distance (Cost Directly Related)

-Volume (Affects per unit cost)

-Density (Weight & Space Aspects) -Stowability (Product Dimension affecting vehicle Space utilization) -Handling (Loading / Unloading specific facilities) -Liability (Risk covered by carrier during transit)

Shippers Factors Minimization of total logistical costs in terms of transportation, inventory, information, facility costs as well as maximization of customer responsiveness capability Carriers Factors -Cost of Procurement of vehicle -Fixed operational costs like salaries of drivers, attendants, vehicle insurance, registration & road taxes -Trip related cots such as cost of fuel, labour, road permit, toll tax, etc. -Value added service costs such as tracking of shipment, point-to-point information, doo -todoor delivery, express cargo facility, bar coding edi, cash management, etc.

Alternative Pricing Strategies

It is a trade-off between the cost of service rendered by the carrier & time value of service to the shipper. i) Cost of Service Strategy A rate based on cost plus a profit margin (build-up approach) widely used in case of competitive environment.

ii) Value of Service Strategy

Transportation charges based on value of service required by shipper transportation of high-value goods and shorter and fixed replenishment cycle time assured by firm. iii) Combination Strategy Establishment of transport price between cost of service & value of service maximum. Widely used. Minimum & max. rates should be known for negotiation purposes.

Warehousing & Distribution Centres In the present day competitive scenario of explosion of choice, no company can bear a stock-out situation as a large number of alternative products are available with additional features. Also, demand cannot be precisely determined & physical attributes of inventory items be preserved. Warehouse is more of a switching facility & less as a storage facility.

Inventories are maintained to: i. Improve supply-demand co-ordination ii. Better customer service & responsiveness iii. Market Dominance iv. Lower overall logistics cost
Channel members provide storage, make push efforts &

Storage, Warehouse & Distribution Centre Storage: Prior to finished products Warehouse: Storing finished goods Distribution Centre: Warehouse related to market & are situated near to markets. These serve regional markets, process & regroup products into customized order, maintain full line of products, consolidate shipments from different production points, etc. Types of Ware Houses 1. On the basis of ownership

2. On the basis of services

On the Basis of Ownership Private Warehouses Public Warehouses

Parameter i) Operating Costs ii) Initial Investment iii) Control iv) Risk

Public Warehouse Higher due to inclusion of profit None Good Minimal

Private Warehouse 10% to 25% lower if in sufficient volume Large Facility, equipment, trained personnel Direct responsibility over personnel & procedures Risk of obsolescence due to change of technology or demand Depreciation Allowance

v) Tax Advantages

No

vi) Economies of Scale

vii) Consolidation of shipments

Possible
Possible

Dependent on Company Volume

None

viii) Storage & handling

Know exact charges for

Generally only estimated

B) On the basis of services

Bonded Warehouse : Till import duty paid

Field Warehouse: In premises of a factory for bank borrowing.

Cold Storage : Preserve Perishability

Distribution Warehouses: Nearer to market for final products. Also called distribution centres.

Buffer Storage Warehouses

At strategic locations with adequate transport & Communication facilities in huge quantities & sent to distribution warehouses Export & Import Warehouses Near Ports where international trade is undertaken & provide transit storage facilities.

Functions of Ware-Housing Economic Functions & Operational Functions Economic Functions Consolidation: Receives & Consolidates goods from different plants & dispatches to customer in single shipment. Break Bulk Transshipment of goods from production plant in bulk quantity by low rate volume shipment (Railways) to distribution warehouse & then reshipment in small quantities to different customers (in road transport, etc)

Stockpiling Seasonal storage of goods to select businesses (Agricultural Products, woolen garments, etc) to serve round the year to support marketing efforts for regular / smooth availability Value-added Services

Like packaging & labeling for specific orders and thus keeping basic product to required level.

Operational Functions
-Receiving Goods -Up-to Date Recording of Goods

-Storing at appropriate place & in Minimum area.

-Preserving physical attributes -Proper handling during loading / unloading

-Order receiving, processing & filing

-Arranging assortment of goods -Dispatching of Goods -Preparation of documents pertaining to transactions, records & advices -Marketing intelligence as intermediary

-Other legal functions related to trade

Three Decisions

Centralized vs Decentralized Warehouses

Locations of the Warehouses The cost of the Warehousing 1. Centralized Warehouses (a) Strengths Can Carry less inventory No / less stock-out situation Demand variations can be met at a short notice

Centralized control of inventory

Bulk Transportation is cheaper Less warehousing costs

(B) Weaknesses

Distant markets demand can be met at short notice with costly mode of transport
Loss of customer service advantage

Poor market coverage & control

Transport Cost will be maximum unless in bulk quantity (2) Decentralized Warehouses (A) Strengths Market coverage will be maximum

Maximization of customer services creat a high level of loyalty & goodwill.

Transportation Moderate

Better Control over market intermediate

Weaknesses 1. Huge inventory investment 2. Huge warehousing development costs

3. Stock-out situation
4. Shortage of goods & replenishment from another warehouse require additional transportation costs.

Factors for selection of number and Location of Warehouse 1. Number of Geographical locations of the market targeted by the firm. 2. Location & facilities of production centers. 3. Transportation infrastructure facilities determine number & location of warehouses.

4. Nature & Quality of goods to be stored

5. Brand Loyalty among customers 6. Financial strength of the company

7. Change in the use of warehouse facility lease or sale of buildings

8. Customer service as a means of competitive advantage

Elements of Warehousing Costs (i) Warehousing Infrastructural Development Costs Costs of procurement of storage space Handling & Transfer cost Administrative Cost Costs incurred in direct and indirect physical facilities ii) Working capital costs include the cost of working capital involved in goods stored in warehouse as inventory iii) Miscellaneous Costs Tax to be paid Insurance pad for covering risks The risk of product obsolescence or deterioration Steps to be followed in Warehouse Design Purpose of facility (Present & Future) Layout of facility (Considering material system)

handling

Distribution Requirements Planning (DRP) DRP is application of MRP Logic to Distribution inventories. Distinction Between DRP &MRP is: 1. DRP deals with finished goods inventory whereas MRP deals with dependent demand items for finished goods.

2. MRP operates in a demand situation controlled by enterprise whereas DRP operates in an independent environment of uncertain consumer demand which is not in the control of enterprise. 3. Bills of materials are used in MRP whereas bills of distribution (The network) are used in DRP.
4. DRP uses time-based order point to replenish network whereas MRP applies time-phased logic to sub-assemblies & components of products in bill of material network 5. DRP is an impulsion process from lowest levels to central distribution centre whereas MRP is an explosion process from the master production schedule to detailed scheduling

Logic of DRP DRP anticipates the future requirements by forward planning at all levels of a distribution network. Periods of potential shortage can be identified early enough to develop alternative plans. To the net requirements, lead time is added to calculate planned release date; which becomes the gross requirement in the same time period for the parent supply centre at next higher level

Benefits of DRP (A) Marketing Benefits 1. Improved service levels that increase on-time deliveries & decrease customer complaints. 2. Improved & more effective promotional & new-product introduction plans. 3. Improved ability to anticipate shortages so that marketing efforts are not expended on products with low stock. 4. Improved inventory co-ordination with other enterprise functions since DRP facilitates a common set of planning numbers. 5. Enhanced ability to offer customers a co-coordinated inventory mgt. service

Logistics Benefits Reduced distribution centre freight costs resulting from co-ordinated shipments. Reduced inventory levels since DRP can determine what product is needed & when. Decreased warehouse space requirements because of inventory reductions. Required customer freight cost as a result of fewer back-orders. Improved co-ordination between manufacturing for inventory. logistics &

Enhanced budgeting capability since DRP can effectively simulate inventory and transportation requirements under multiple scenarios.

Constraints of DRP 1. Due to dynamic environment, there is possibility of forecasting error, which limits its effectiveness.

2. Inventory, planning requires consistent & reliable performance cycle but its uncertainty reduces planning system effectiveness.
3. Uncertainties such as delay in delivery schedule by vendors by in-transit delay affect the efficiency & effectiveness of DRP system.

Just-in-Time (JIT) Advantages of JIT 1. Inventory levels are drastically reduced. 2. Process time, space requirement & set-up time reduced considerably.

3. Elimination of waste by prohibiting:

-Over Production -Waiting

-Undue warehousing & handling facilities

-Defective Production 4. Improved customer service and commitments bringing competitive advantage 5. Improve productivity 6. Results through greater employees participation & motivation.

Disadvantages of JIT

1. High risk is involved due to short-term planning & a minimum level of inventory.
2. Suppliers of input materials need to be educated about the quality by company. 3. Needs continuous & close evaluation and follow-up of the whole process.

4. Needs establishment of long-term business partnership with suppliers.

5. Not able to meet any unforeseen requirement / demand.

Order Processing A customer order is the message that sets the supply chain process in motion. Order processing starts with the receiving of a customers order and ends with the final delivery of goods to him along with the transfer of title. Order processing is the key to the customer service & satisfaction. Focus is on three key system outputs & three system characteristics. System outputs -Responsiveness or speed in order-handing fulfillment -Lowest possible delivered costs for products or services (in customers eye) -Minimal wastage in the system (inventory holding at various locations)

System Characteristics Targeted:

Continuous improvements of system (to handle demand under a variety of conditions)

Proficiency (to guarantee right-the-first-time shipping or invoicing) Efficiency related to minimizing the handling of paper work or products. Functions of Order Processing (i) Order Planning Designing an efficient order handling system i.e. who handles orders, whether centralized or decentralized system, etc. order placed to visiting sales people or by telephone, fax, mail order, e-mail or EDI (Computer to computer order)

ii) Order Transmittal Time between customer placing / sending an order & selling receiving the order. The need is real-time customer responsiveness to ensure better customer service & to minimize replenishment cycle time. iii) Order Handling Activities include i) Checking completeness / accuracy of order ii) Credit check by credit deptt. iii) Recording of transaction by accounts deptt. iv) Allocation of products by inventory deptt. & advice to pick the shipment and update the firms master inventory file. v) Transportation of shipment from the warehouse by the traffic deptt. Often, buyers also specify date by which order should reach supplier should try to meet this requirement

iv) Order Picking & Assembly Giving instruction to a specific warehouse to assemble a given order for a customer as per list of customer order. With the use of computers, in case of a stock-out item, information is made available to order handling deptt. so that original documents can be adjusted. A picking list is prepared for outgoing order with initials of individuals so that consignee can verify with the packing list on receipt of order & verify all items. v) Order Delivery Transit time i.e when a carrier picks up the shipment till it is delivered at customers place has a direct & major impact on sellers total order cycle time or customers replenishment cycle time. Hence proper load planning & fleet management are essential functions of total order processing system failing which, transportation cost per unit will go up.

Significance of Order Processing

- A late or inaccurate delivery can cost a customer more than the actual product cost.
- Researchers have shown that product quality, features and price factors are relatively less important than elements like i) Meeting committed delivery date ii) Intact delivery iii) Correct documentation iv) Accuracy in filling orders

v) Information regarding order-status

vi) Advance notice of shipping delays etc. Significance of order processing is:

(A) Achievement of Required Customer Level

- State-of-order customer service generates additional sales volume who passes on products to end users in time.

- Shift of power to re-sellers due to increased competition & firms view them as assets & business partners.
(B) Legal Significance

There should be transfer of title from seller to buyer as goods move by raising invoice / bill in name of customer. Other legal documents required are: shipping advices, road permits, challans, packing slips, documents related to payment of taxes & duties.

(C) Reduction of Order Cycle Time

Any reduction in order cycle time will require stream lining of total system & elimination of unnecessary administrative procedures in total order processing system EdI would result in reduced order processing time, less chances of error in processing, reduced inventory requirements & less chances of stock-outs
(d) Point to point information

A firms ability to provide accurate & timely information regarding status of order, availability of inventory, tentative shipping & dispatch schedules, back, order status, etc are critical measures. This would help customers to become aggressive in market place & meet further delivery commitments with the next level of customers/consumers.

Materials Handling

Tompkins & White defined materials handling as

A system which uses the right method to provide the right amount of the right material at the right place, at the right time, in the right sequence, in the right position, in the right condition and at the right cost Materials handling equipments improve productivity & in logistics, materials handling cannot be avoided but only minimized.

Objectives of Materials Handling

Reduction in machine & order picking times

Reduction in overall replenishment cycle time by quick marshalling & movement of goods. Uninterrupted production & distribution schedules for avoiding bottle necks such as loading and unloading problems

Protection or goods from breakages/damages during movements

Otter safety to workers and provide safe working conditions ensure better customer service & satisfaction Enhance productivity & efficiency by reducing handling costs

Principles of Materials handling

The college industry council on

Materials handling has developed 24 materials handling principles.

Orientation principle
Requirement principle Integrated system principle

Standardization principle
Just-in-time principle Unit-Load principle

Minimum travel principle

Space utilization principle Ergonomics principle

Energy principle

11)Ecology principle

12)Mechanization principle
13)Automation principle 14)Flexibility principle

15)Simplification principle
16)Gravity principle 17)Safety principle

18)Computerization principle
19)Systems flow principle 20)Layout principle

21)Cost principle
22)Maintenance principle 23)Obsolescence principle

24)Team solution principle

Factors Affecting the Selection of Materials Handling Equipment The selection of materials handling equipment requires consideration of and attaining of proper balance between the following factors: I. Production problem. II. The capabilities of the handling equipment. III.The human element involved.

The ultimate aim is to arrive at the lowest cost per unit of material handled. I)) The production problem factors are: a) Volume of production to be attained b) Class of materials to be handled c) The layout of plant and building facilities.

For example, the handling equipment that can be economically justified for the manufacture of 1000TV sets per day would be entirely different from the haling equipment needed in a plant manufacturing 20 steam turbine generators a year because the production rate, weight and class of materials needed are different.

II. Equipment factors to be taken into consideration include the following:

1. Adaptability: The load-carrying and movement characteristics of the equipment should fit the material handling problem.

2. Flexibility: Wherever possible, the equipment should have the flexibility to handle more than one material (class or size)

3. Load capacity: Equipment selected should have enough load-carrying characteristics to do the job effectively.

4. Power: The equipment should have enough power available to do the job

10.Speed: The speed of movement of the handling equipment should be as high as possible, within the limits of production process and plant safety. 11.Space requirements: The space required to install or operate materials handling equipment is also an important consideration. 12.Supervision required: The degree of automation in the handling equipment decides the amount of supervision required. 13.Ease of maintenance: Equipment selected should be capable of easy maintenance at reasonable cost. 14.Environment: Equipment selected must conform to environmental regulations. 15.Cost: The cost of the equipment (capita investment) is an obvious factor in the selection. The various kind of costs to be considered in addition to the initial purchase price of the handing equipment are

i) Operating costs

vi Space cost

ii) Installation costs

iii) Maintenance costs

vii Depreciation charges

viii Salvage value

iv) Power requirements

v) Insurance requirements

Ix Time value of money invested

x Opportunity cost.

What is meant by integrated materials management?

The complete integration of materials management functions like materials planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal for better operation of the system is known as integrated materials management having following advantages: Better accountability Better coordination Better performance Adaptability to computerized systems

The components of integrated materials management are: Materials Planning Inventory control

Purchase management
Stores management

Materials Planning

Sales forecasting and aggregate planning are the basic inputs for materials planning. The different tasks under planning are listed below: Estimating the individual requirements of parts.
Preparing materials budget. Forecasting the levels of inventories. Scheduling the orders and Monitoring the performance in relation to production and sales.

Inventory Control

This includes the following: ABC Analysis Fixing economical order quantity

Lead time analysis

Setting safety stock and reorder level. Purchase Management

The includes the following: Evaluating and rating suppliers. Selection of suppliers.

Finalization of terms of purchase.

Placement of purchase order. Follow-up

Approval of payments to suppliers.

Stores Management

The different tasks under stores are listed below: Physical control of materials. Preservation of stores. Minimization of obsolescence and damage through handling.

Disposal and efficient handling.

Maintenance of stores records. Proper location and stocking of materials. Reconciling the materials with book figures.

Equipments

Materials Handling
i. Mechanized handling systems

a) Forklift trucks
b) Tow tractors c) Cranes d) Hand powered equipment

ii. Semi Automated handling systems

a) Automated guided vehicle systems (AGVS) like mechanized tow tractor with trailer but with no requirement of operator). AGVS use optical or magnetic guidance system
b) Sortations: used in combination with conveyors The master carton must have a distinguishing code which are read by optical scanning devices & automatically routed to desired location c) Robotics: Human like machine that can be programmed by microprocessors & function as an expert system capable of implementing decision logic in handling process.

iii

Automated handling systems

Automated Storage/Retrieval System

Product arriving at distribution centre is nonpalletized & is moved by conveyor into a pattetizing machine, where unit loads are constructed before being moved into a high rise stacker crane. One or more radio controlled robot pallet movers are used for lateral movement in conjunction with one or more stacker cranes having storage rack Up to 67 high. Pallet loads are moved from this giant filling cabinet into depalletizers from which individual cases are moved on a pre-programmed basis into order picking chutes. Only where orders comprising boxes of different shapes are consolidated through manual labour for shipment by truck to retailers

Basic Materials handling considerations

a)Type of products to be handled

b)Types of production systems c) Types of buildings d)Materials handling cost

MRP (Material Requirements Planning)

The main purposes of a basic MRP system are:

a)To control inventory levels b)Assign operating properties for items c) Plan capacity to load the production system Inventory

Order the right parts, components & materials

Order in right quantity Order at right time

Priorities

Order with the right due date

Keep the due date valid Capacity Plan for a complete load Plan an accurate load

Plan for an adequate time to view future load

The theme of MRP is : Getting the right materials to the right place at the right time

The objectives of inventory management under an MRP system are the same as under any inventory management. system:
a) To improve customer service b) Minimize inventory investment c) Maximize production operating efficiency.

Thus objectives of MRP are:

1)To improve customer service by meeting delivery schedules promised and shortening lead times

2)To reduce inventory costs by reducing inventory levels

General over view of MRP Basically MRP consists of a set of computer programs that run periodically (once a week or once a month) to incorporate the latest schedule of production requirements. MRP performs three important functions, viz: 1)Order planning & control i.e. when to release orders & for what quantity 2)2Priority planning & control i.e. comparison of expected date of availability with the need date of each item. 3)Provision of a basis for planning capacity require ments & development of broad business plans. MRP is applicable primarily to companies that carry out the fabrication of parts and assembly of standard products in batch quantities.

Operation of MRP system

PROCESSING INVENTORY STATUS FILE INVENTORY TRANSACTIONS DATA

MPS FILE

MRP SYSTEMS PLANNED ORDER SCHEDULE

BOM FILE

EXCEPTION REPORTS

BOM = Bill of material or Product structure file MPS = Master production schedule (specifies what end products to produce & when) Inventory status file Net requirements for a period =gross requirement for a period (scheduled receipt for the period plus on hand inventory at the end of the period)

INFORMATION FLOW FOR PLANNING & CONTROLLING WITH MRP

BUSINESS PLAN

FORECAST

PRODUCTION PLAN

CURRENT CONDITIONS

TENTATIVE MASTER PRODUCTION SCHEDULE

ROUGHT CUT CAPACITY CHECK

MASTER SCHEDULE

INVENTORY STATUS FILE

PRODUCT STRUCTURE FILE

BY ITEMS

CRP

PURCHASE ORDER

VENDOR FEED-BACK

PRODUCTION ACTIVITY CONTROL

Information Flow for planning & Controlling with MRP CRP = capacity requirements planning MRP system outputs Two primary outputs 2. Planned order schedule

It is a plan of the quantity of each material to be ordered in each time period. The order may be a purchase order on the suppliers or production orders for parts & subassemblies on production deptts.
2. Changes in planned orders i.e. modification of previous planned orders.

The secondary outputs are: 1) Exception reports which list items requiring management attention to control 2) Performance reports regarding how well the system is operating e.g. inventory turnovers, percentage of delivery promises kept and stockout incidences. 3) Planning reports such as inventory forecasts, purchase commitment reports, etc.

Capacity Requirements Planning (CRP) The process of reconciling the master production schedule to the available capacities of production deptt. (viz. machine & labour capacities) over planning horizon. MRP Computational Procedure

MPS FILE

INVENTORY STATUS FILE

MRP PROCESSING LOGIC

BOM FILE

ORDER RELEASE REQUIREMENTS (ORDERS TO BE RELEASED NW)

PLANNED ORDERS (FUTURE)

Closed Loop MRP When the material requirements planning (MRP) system has information feed-back from its module outputs, this is termed as closed-loop MRP. A system built around material requirements that include the additional planning functions of sales & operations (production planning, maser production scheduling and capacity requirements planning). Once the planning phase is complete and the plans have been accepted as realistic & attainable, the execution function comes into play. These include the manufacturing control functions of input-output (capacity) measurement, detailed scheduling & dispatching as well as anticipated delay reports from both the plant & suppliers, supplier scheduling, etc. The term Closed loop implies that not only is each o these elements included in the overall system, but also that feed-back is provided by the execution functions so that the planning can be kept valid at all times.

Closed loop MRP System Showing Feed Back

Closed loop MRP System Showing Feed Back

PRODUCTION PLANNING

MASTER PRODUCTION SCHEDULING

MATERIAL REQUIREMENTS PLANNING

CAPACITY REQUIREMENTS PLANNING

REALISTIC
NO W YE S

EXECUTE CAPACITY PLANS

EXEUTE MATERIAL PLANS

Manufacturing Resource Planning (MRP-II) Through closed-loop system, the initial intent of MRP II system was to plan & monitor all the resources of a manufacturing firm manufacturing, marketing, finance and engineering. The second intent was to simulate the manufacturing system. MRP II is applicable to any manufacturing organization regardless of its size, location, product or process. MRP II is a management process for taking the business plan and breaking it down into specific, detailed tasks that people evaluate, agree upon and are held accountable for. it involves all deptt. Both materials & time requirement (CRP) are integrated within MRP system (MRP-I). Beyond this, MRP-II has been coined to Close the loop by integrating financial, accounting, personnel, engineering & marketing information along with the production planning & control activities of basic MRP system. MRP II is the heart of corporate management information system

MRP-II-An Integrated System Of Planning & Control

BUSINESS PLAN

MANUFACTURING

PRODUCTION PLAN MASTER PRODUCTION SCHEDULE

PURCHASING ENGINEERING MARKETING FINANCE

ROUGH-CUT CAPACITY PLAN

MATERIAL REQUREMENTS PLAN

DETAILED CAPACITY PLAN

ACCOUNTING

SHOP FLOOR CONTROL, PURCHASE CONTROL

Manufacturing: Materials, capacity production schedules Purchasing: vendor order Engineering: process & product design

Marketing: Sales order, delivery projections Finance: Capital requirements Accounting: Bills payable & receivable

LOT SIZING IN MRP SYSTEMS Lot sizes are part quantities to meet requirements for one or more periods. For parts produced in-house, lot sizes are production quantities of batch sizes & for purchased parts, these are quantities ordered from the supplier. Four Lot Sizing Techniques 1. Lot for lot (L4L) 2. economic order quantity (EOR) 3. Least total cost (LTC) 4. Least unit cost (Luc) Lot For Lot (L4L) Most Common technique. Sets planned orders to exactly match the net requirements. Produces exactly what is needed Minimizes carrying cost Does not take into account set-up costs or capacity

EOQ It balances set-up costs & holding (inventory carrying) cost. In EOQ model, either fairly constant demand must exist or safety stock kept to provide for demand variability. EOQ model uses an estimate of total annual demand. The set-up or order cost and annual holding cost (carrying cost for the whole year) EOQ = 2 x Annual Demand x ordering cost per order unit Price x inventory carrying charges (%) 3. Least Total Cost The least total cost method (LTC) is a dynamic lot sizing technique that calculates the order quantity by comparing the carrying cost and the set-up (or ordering) costs for various lot sizes & then selects the lot in which these are most nearly equal

3. Least Total Cost

The least total cost method (LTC) is a dynamic lot sizing technique that calculates the order quantity by comparing the carrying cost and the set-up (or ordering) costs for various lot sizes & then selects the lot in which these are most nearly equal.
4. Least Unit Cost (LUC) This is also a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost. This method give more complete analysis & would take into account ordering or set-up costs that might change as the order size increases, if ordering/set-up costs remain constant, lowest total cost method is most preferred because of simplicity

Purchasing And Sourcing Management

In global competitive scenario, purchasing & sourcing management has gained importance since outsourcing of materials have become need of the hour for sustainable growth & competitiveness

Nature & scope

The type of activities most frequently carried out are:

1. Commodity analysis 2. Market research

3. Purchase order tracking & follow-up.

4. Determination of needs & specifications for internal customers

5. Transmitting fore casts of future needs to suppliers

6. Supplier exercise) performance measurement (on-going

7. management of supplier quality 8. contract management & negotiation 9. management of inbound/out bound transportation 10.Price / cost analysis

It is a cross-functional process of firms various activities such as engg., quality, design, Mfg, marketing, accounting and their integration with external organizations like vendors, in-bound transporters, etc. Some major activities include:

i. Supplier identification
ii. Supplier evaluation and selection iii.Supplier management iv.Supplier development & improvement v. Supplier integration into on-going

vi.Processes

Importance of purchasing

It has tremendous scope for cost curtailment, quality improvement, reduced replacement cycle time with small inventory, developing and maintaining reliable & competitive suppliers, cooperating & integrating with other functions.
1.Quality: Life time sourcing programmes with tier-I vendors so as to have economies of scale along with commitment to keep quality high (Bajaj Auto -60% components outsourced) 2.Cost 3.Supplier relationship

4.Low inventories & smooth flow

Reduce inventory cycle time without stock-out with IT achieve on time delivery, time to market & efficient use of resources for survival of firms

Interface with other functions

Purchasing must understand the needs of the ultimate consumers so that suppliers relationships can be developed. Production, marketing & logistics constitute the primary value creation chain in most firms. Purchasing process trends for improved Productivity
Purchasing process contributes significantly in valueAddition to the organization & should continuously improve purchasing productivity to improve overall logistics productivity through following steps: i) Management techniques for relationships Value analysis Standardized items Stockless purchasing but availing volume discounts

I. Information systems replacing paperwork

II. EDI, Bar Coding, ERP, internet, etc

III.Shift of R & D to suppliers

IV.Outsourcing to third parties

To take advantages of economies of scale, skills or technology, outsource to concentrate on core competencies

Contemporary sourcing & supplier management

i. Quality of suppliers
Total quality management of goods supplied by a vendor to meet buyers (company) expectations

Supplier responsibilities:
Supply goods as per specifications, quality in a timely & reliable manner Use of statistical process control (SPC) to ensure consistency Small & continuous supply Zero defects in terms of right assortment, correct documentation & right quantity, etc

Supplier categories

Qualified suppliers by firms audit team

Certified suppliers: Goods shipped are 100% fit for use.

Comprehensive cost measurement

Purchasing is increasingly being measured in terms of total cost including scrap & production yields, long-term warranty costs, shipping & transportation terms, re-work & other costs associated with low quality and external failure costs once the product is in customers hands

Creating & Maintaining supply relationship

The traditional three-bid & price driven approach to buying-acentury old practice has been replaced. Firm are increasingly seeking supply relation ship such as product modifications, delivery & other specific needs a more co-operative type of relationship has begun & not just the price. Supplier provides many products & services as per long-standing agreement & both firms gain benefit in market at the expense of outsiders ( rather than of each other) taking care of critical, product, technology or services.

Best Practices in Supplier/Vendor Management

Vendor rationalization by tiering of vendors

Long-term contractual relations improvements Vendor selection on non-price criteria performance & quick response capability like past

Quick response and minimum replenishment cycle time Extensive use of IT for quick information sharing

Transfer of technology & managerial skills

Minimum number component/material of vendors for same

Local sourcing
Continuous performance measurement of vendors & communication of the same to them

Shared cost reduction drive

Introduction Protective packaging has a great impact on the cost and productivity of a logistical system. It can optimize logistics and supply chain efficiency and effectiveness. Packaging affects the cost of every logistics activity. Transport and storage costs are directly related to the size and density of packages. Logistical functions
Packaging can optimize logistics efficiency and effectiveness by: Reducing the weight and material handling and transit, space and supply chain for

Protective Packaging

requirements

Ensuring product quality en route through the logistics system and supply chain, and

Selling the product.

Hence, the major functions of packaging in logistics and supply chain are to provide containment, protection, utilization and communication. However, logistical packaging provides no great value of its own but adds value only as its function in a logistical system. Containment Products must be contained before they can be transported from one location to another. Packaging provides space in which a product is contained. Protection Packaging protects its contents on its route form the manufacturer to the consumer and even during its life with the consumers. It protects the products from spoil, discolour, loss of fragrance, damage, break, contamination, or physical deterioration of the product. Take. Product Characteristics + Logistics Hazards = Package Protection

Utilization The utility function of packaging relates to how packaging affects the productivity and efficiency of the total logistical system. All logistical operations like truck loading, storage in warehouses and warehouses order and picking productivity are affected g package utility Communication The communication function of protective packaging is gaining importance due to wide and extensive use of the logistical information system.

Forms Of Protective Packaging The logistical/protective packaging materials and forms include: Wood pallets, crates, blocking and bracing; Corrugated fibreboard boxes, dividers, inserts and dunnage; Solid fibreboard slipsheets and boxes Multi-wall paper bags and drums; Steel cans, pails, drums, and straps; Steel racks and cages; Fabric (burlap and woven plastic) bags and blakets; Low-density plastic film shrink-wrap, stretch-wrap bags, and barriers; High-density plastic boxes, slipsheets, and pallets; Plastic strapping; and Plastic foam custioning and dunnage for fragile or irregular shapes (Twede, 1994).

Summary Packaging is an art of designing and producing the package for a product with the objective to create demand, provide protection and convenience in handling. In the logistics and supply chain management perspective, packaging is required for protection and identification of goods in their journey in a supply chain network. Thus, the major functions of protective packaging are to provide containment, protection, utilization and communication. For maximization of logistical productivity and efficiency along with growing concern about environmental responsibility, today, firms are widely using film-based packaging, blanket wrapping and returnable containers. In order to have an appropriate packaging policy, for the attainment of both marketing and logistics objectives, strategists have to choose form among five alternatives, namely; packaging changing, family packaging, multiple packaging, reuse packaging, and ecological packaging, after taking into consideration various factors pertaining to consumers, resellers, company, economy, and logistic and supply chain management.

ORGANISATION FOR LOGISTICES & SCM An efficient & effective logistics organisation is a vital part of an enterprise in strategic management. There is no single best org. structure for logistics & SCM. With the growing nature & scope of logistics & SCM in the overall performance of enterprise. Over the years there has been change in logistics organizational structure from being a part of various functions like manufacturing, finance & marketing to a core function. While designing org. structure, firm need to follow certain principles of organization like unity of command, span of control, authority & responsibility, line & staff relationships, centralization & decentralization etc. The various factors like: Size of organization Corporate structure & strategy The role of logistics & supply chain management In the overall value-addition activities, availability of IT infrastructural resources and environmental uncertainty

Evolutionary Trends of Logistics & supply chain organization (Organisation of Development) Prior to 1950, logistics functions were generally viewed as supportive functions & scrattered throughout the org. structure without cross-functional co-ordination resulting in repetition & duplication of work & wastage of resources Between 1950 & 1960, firms started experiencing difficulties in market place mainly due to increase in competition & recession of 1958. The evolutionary trend and transformation in logistics & supply chain organization is shown in fig 13.1

Independent functional structure

Emphasis was on production related problems. Fig. 13.2 indicates a traditional org. structure of early stage of industrial revolution.
Limited internally integrated functional structure Between 1950 & 1960, firms started experiencing difficulties in market place mainly due to increase in competition & recession of 1958, This

compelled firms to control, costs for survival, Material management & Physical distribution management functions were created with org. structure in Fig. 13.3 Fully internally integrated functional structure
With liberlazition of economies of world, continued inflation & significant increase in price of fuel, etc. forced organizations to reduce costs and there was further

Externally Integrated Process Functional Structure

The beginning of 1990s revolutionized total business functions. In view of IT, JIT, MRP, DRP etc. there was mass scale globilisation of market. There was shift from functional structure to process structure so as to achieve quick response to customers. Org. structure adopted was to have smooth cross-functional co-ordination & approach.
Virtual supply chain org structure Links customers directly to suppliers & even suppliers suppliers so that suppliers can respond on a real-time basis to the changes in the market & a vendor managed inventory (VMI) system can be developed. This org. structure enables firms to capture benefits of integrated logistics system without command & control of org. structure. (Virtual Implies an underlying existence without a formal recognition)

Organizational choices i. Informal ii. Semi formal iii.Formal Informal Organization

No change in existing organization structure and reliance is on co-recon or persuasion to accomplish coordination & co-operation among those who are responsible for them.
Budget, sometimes, can be a disincentive to coordination between key activities like transportation, inventory control & order processing, etc although budget is a major control device. A possible incentive system could be to encourage cross activity participation is to establish number of cross-charges or

Semi Formal organization

The supply chain co-ordinator is assigned to co-ordinate projects that involve supply chain and cover other functional areas. This type of structure is called Matrix
Organization. SC co-ordinator shares decision authority & accountability with activity area manager & may even assist in co-ordinating logistics activities among member firms of supply chain beyond the boundaries of his firm. Matrix organization is a choice between informal & highly structured one but there can be conflicts because lines of authority & responsibility get blurred

Formal organization

The formal organization establishes clear lines of authority & responsibility for logistics / SC. Organisational orientation Organization design can follow three corporate strategies process, Market and Information i. Process Strategy Achieve maximum efficiency in moving goods from raw materials state through work in-process and on to a finished goods state. Focus is on activities that give rise to cost. Activities such as purchasing, production scheduling, inventory, transportation and order processing will be collected & managed collectively ii. Market Strategy Firms pursuing market strategy have a strong customer service orientation. Both sales & logistics co-ordination are sought by putting these under the same executive. The organization structure is likely to span across business units to a high level of customer service of course. However, Logistics costs may not be held at their lowest level.

Information strategy Such firms have a significant downstream network of dealers and distribution organizations with substantial inventories. In order to secure information, the organistion structure is apt to span functions, divisions and business units and even traditional legal boundaries of channel members Mixed strategies often exist within the same firm. A variety of designs will appear for essentially similar firms. ORGANISATINAL POSITIONING Organizational choice & orientation are first considerations. Next comes, positioning of logistics activities for most effective management. Positioning concerns where to place these activities in the organization structure which is decided based on: i. Decentralization vs. centralization ii. Staff vs. line iii. Large company size vs. small

DECENTRALISATION VS. CENTRALISATION A centralized organization group logistics activities at the corporate level for serving all product groups. The centralized form is to maintain close control over logistics activities and to benefit form optimum utilization of equipments. The forward haul of one divisions products might be back-haul for another which is not possible in case of de-centralisation similar efficiencies can be gained through shared ware-housing, shared purchasing & shared data processing. Decentralization, however allows quicker & more customized logistics to customer needs. Decentralisation makes sense if product lines are distinctly different in their marketing, logistics and manufacturing characteristics & only few economies of scale can be found. Computerized data processing has helped centralized order processing & inventory control. Fig 15.5

STAFF VS LINE An advisory organization (consulting role) is good when i. A line organization would cause unnecessary conflicts among existing personnel. ii. Logistics activities are less critical than selling, producing & other activities. iii. Planning is relatively more important than administration. iv. Logistics is considered as a shared service among product divisions. v. The logistics staff is located near top management. In fact, some corporate level logistics staff wields more authority than many divisional heads of line. Large vs. small The small firm does not benefit from volume purchases & shipments. As does large firm. Organizationally, the small firm has some form of centralized organization since no product divisions might exist. Also, logistics activities may not be so clearly defined & structured.

Alliances & Partnerships

Some firms share their logistics capabilities with other firms or to contract for logistics activities to be provided by specialized agencies called third-party providers (3PLs)
Benefits of Logistics partnering are:

Reduced cost & lower capital requirements

Access to technology & management skills Improved customer service

Competitive advantage such as through market penetration

Increased access to information for planning Reduced risk & uncertainty Maximum benefits are derived by way of reduction in transportation / distribution costs & freed-up capital in noncore areas.

Also there is reduction of manpower

The primary risk is loss of control over critical logistics activities that may result in potential advantages never being realized.
(Fig. 15.8 the outsourcing relationship continuum) Fig: 15.9 selection diagram of where to perform logistics activities. Alliances: (Sharing of logistics resources) A logistics alliance is built on trust, sharing of information, specific goals to achieve, operating ground rules for each partner and exit provisions for each partner. Although, there are benefits yet.

The following concerns are to be addressed:

Loss of control over logistics channel

Fear of being written out of logistics picture Concern about logistics failures & no direct way to handle

Adequate checks & balances not available

Difficult to identify economies Inadequate reporting system When partnering, sharing of profits may be difficult to identify Not enough trust to try

Partners may not be viewed equally

Difficulty of brining in trust & good faith

Contract Logistics

A primary motivation for a company to outsource some or all of its logistics activities is that third part provider is more efficient be caibe logistics is its primary business. While logistics is not the core competency of the buying firm. The most noted negatives to using 3pl were lack of understanding the clients business and over-promising service capabilities. Barriers to maintaining a successful long-term relationship are i. M & S alignment of company cultures
ii. Change in leadership at either the 3PL or the user iii. Unreasonable expectations of the out-sourced relationship

iv. Lack of good information

Partnering Through Collaboration

Partnerships among supply chain members occur as information is shared for their mutual benefit these partners collaborate to achieve their own organizational objectives, lower cost from reduced inventories & improved customer service due to higher fill rates. Collaboration improves supply chain performance by reducing uncertainty associated with demand & lead times.

Inter Functional Management Although organizing logistics activities as integrated function reduces conflicts amongst logistics activities, yet an additional area creates conflicts with other functions. Logistics Marketing Interface Plant Location

Purchasing
Production scheduling Logistic Operation interface Plant Location Purchasing Production scheduling Without co-operation, there is no guarantee that an optimum balance will be achieved between transportation, inventory & manufacturing.

Inter Organizational Management The supply & distribution policies of the firms (any one firm) in the distribution. Channel can affect the performance of other firms in the channel. The question is whether some advantages can be gained by viewing the channel as single entity or Super organization and managing it for benefit of all members. The superorganization is a group of firms related through their business processes and mutual objectives, but who are legally separate. They share a common interest in the individual decisions made by each, since the decisions of other firms can affect their performance & vice-versa. The cooperative efforts can yield proportionately greater returns to each member & these are distributed fairly. (Refer cost curves for buyer, seller & supply chain)

Managing The Conflict

Managing the super organization is not the same as managing within the confines of the firm. The reliance is more on bargaining and tacit arrangements than on formalized structural relation ships. Four steps are requried.

i. Establishment of metrics for identifying boundary-spanning opportunities & measuring performance due to co-operation
ii. Ways of sharing superorganization relevant information

among

iii. Application of strategy for conflict resolution.

iv. Method for distributing gains achieved form co-operation & maintain the coalition.

Need For Metrics Uncovering cost saving / service-improvement opportunities in the supply chain from managing across company boundaries & quantifying them require an accounting system multi-enterprise accounting would need to report such costs as inventory holding, transportation, order or production setup, product storage & handling. Channel members must be able to evaluate the effect of their decision-making on their performance as well of their members. Many of the metrics that firms use internally for their managerial purposes need to be extended to their supply chain partners. II. Information Sharing A. Each firm to adjust its controllable variables so that optimum profits are achieved need inputs information & its impact on profits of each member. B. It reduces uncertainties among autonomous members and contributes to their continued voluntary cooperation.

III

Distribution of Benefits

Equitable redistribution of the benefits achieved through co-operation b y coalition is important. So that members remain in coalition.
Strategic for Conflict Resolution A Formal Transfer

A formal transfer mechanism is one where a productflow variable under the control of one channel member can be altered in such a way to influence the action of another member to cause the system wise optimum to be achieved. Other mechanisms are less direct & obvious that is informal. Two major & distinct informal mechanisms, power & trust can be used in a supply chain power can be used if he is a monopoly supplier. Additional forms of power are:

Power Power:

Buyer as a preferred customer guaranteeing faster & easier transactions or guaranteed service regarding quality availability and delivery time. Seller providing training, information or problem solutions. name can be used for

Expert Power:

Referent Power: Sellers brand advertising. Trust:

One party has confidence in exchange partners reliability & integrity trust is central to achieving co-operative problemsolving. A major preceursor is communication which is formal & informal sharing of meaningful and timely information. Another precursor of trust is shared values i.e. common economic goals.

However, none of the above methods can guarantee conflict resolution of force a particular channel member to perform in a particular manner that will benefit the channel as a whole. These are some guidelines. Logistics / Systems: Supply Chain Control Model & Control

Supply Chain control process is one of comparing actual performance to planned performance && initiating corrective action to bring the two closer. Auditing provides the necessary information. Control Process frame work The basic need is because of uncertainties that alter plans performance. There could be one time, extraordinary occurrences (strikes fires, Floods, etc) and also changes in economic conditions, technological changes, shift in customer attitudes, etc. that has not been foreseen.

A Logistical / Control Model

Management control process mechanism called thermostat. could be compared to a

Standards & Goals

The control function requires a reference standard against which logistics activity performance can be compared. The manager, consultant or a computer program compares performance with standard which could be a cost budget a customer service target level or a contribution to profit.
Type of Control Systems 1.Open loop

2.Closed loop
3.Modified Feed-back In modified control system, the manager may at times substitute for the decision rules. He can over-ride the automatic decisions based on customer service complaints, inventory cost reports, marketing promotional announcements, transportation service charges and production schedule changes. This adds flexibility but also acts as a safety value when the automatic system breaks down.

Control System Details i.Tolerance of the system for error a. b. The nature of system response The setting of goals

c.

The nature of control information

i. Error Tolerance The best control system is one that will detect fundamental errors. ii. Response Mass determines the rate at which needed change can be made. If inventory levels are to be raised, time required will depend on at what rate production levels can be changed. Information time lags are a second important factor in the pattern of response.

respective information system, or possibly a more responsive production and delivery system, will need to be designed. Process response is also influenced by the form in which corrective action is taken. Two modes of control are common. The most popular is the on-off, or two-position, mode. When an error is detected, full and constant corrective action is taken until it is observed by the monitor that the desired level has been reached. If the mass of the system and information lags are great, the on-off control mode promotes overshooting of the desired process performance level.

The proportional control system is the second familiar control mode. Corrective action here is in direct proportion to the observed error. When the error is great, so is

Two modes of control are common i.On Off or Two position Mode ii.Proportional control system Control In Practice

Decision support systems such as budgets, service targets, profit centre concepts, etc. are used.
A. Budgets Widely used & serve as reference standard & ensure the profitability of the company through cost control. B. Service Targets The customer service target focuses on the revenue side of the profit equation. Approach is reasonable in cases where product sales are highly service-sensitive e.g. low-valued, highly substitutable products.

Profit Centre Concept Since logistics function employs capital, incurs cost and adds value by distribution, it is treated as a separate business entity. It is difficult compared to A & B above because of pricing the services. Once prices are fixed (like transfer prices), logistics manager can improve profits in any way. Top management reviews performance periodically. Control Information, Measurement & Interpretation An effective logistics control system requires relevant & timely information or function performance through audits & various logistics reports. Audits: Establish new reference points for comparison to make it effective.

Total Function Audit

Evaluation of all personnel

Organizational structure Overall network design

Substantial changes in demand, customer service, product characteristics, logistics costs & pricing policies can indicate the need for strategy revision.
Demand: Shifting demand patterns require re-location of warehouses. Growth of few percentage points only indicates re-planning may be economical. Customer Service

The costs of transportation, warehousing, inventory carrying and order processing rise disproportionately as service levels are increased. Replanning is required when service levels are changed due to competition, policy revisions or arbitrary service goals different from original.

Product Characteristics

Logistics costs are sensitive to product weight, volume, value & risk. These characteristics can be altered through package design or finished state of the product during shipment & storage. Logistics Costs
The amount spent by a firm on logistics of ten determines how often its strategy should be replanned. If costs are high, small changes in inventory carrying costs and transportation rates can make reformulation of logistics strategy worthwhile. Pricing Policy There are various types of pricing decisions and any change in delivered arrangement (Transportation included), the supply firms incurs transportation charges this can add warehouses & inventory cost to logistics system.

Inventory Audits

Cycle counting (Peretual system) should be used inventory audits are essential in inventory systems to avoid disparities between inventory records & actual inventories.
Freight Bill Audits Errors in rates, product, description, weights & routing are few of many errors. Companys traffic deptt. can audit these are it can be done by outsourcing on commission basis for checking details. Bench Marking to other Firms Costs & customer service data sought for similar business. Other data are inventory turn-over ratios, on-time delivery statistics & logistic activity costs etc.

Other Audits

Warehouse space utilization

Transportation fleet utilization Inventory policy performance

Productivity Reports
Logistics cost to sales Activity cost to total logistics cost

Logistics cost to industry standard and / or average

Logistics cost to budget Logistics resource budget to actual

Contingency Plans Then there are dramatic changes in activity performance level like warehouse is shut down due to fire, when computer failure renders computerized inventory control system inoperative, when labors strike changes availability of transport services, the companies customer service is severely zeopardised. Minor adjustment will be of no avail. time for replanning. Major changes require

Many companies develop contingency plans to take of such shocks. Contingency plans represent pre-determined courses of action to be implemented when a defined event occurs.

COLD CHAIN The term cold storage refers to a refrigerated chamber for storage of perishable commodities such as fruits, vegetables, fish, eggs, meat, dairy products etc. In these storage structures, the temperature is controlled so that the stored perishable products may not deteriorate in quality. In cold storage the temperature is maintained in the range of 1 to 10oC and in freezers the temperature is at sub-zero level. Due to inadequate cold storage infrastructure in the country, the post harvest losses of agricultural perishable products like fruits and vegetables is to the extent of 33-35 per cent. Currently the available capacity of cold storage in the country is 9.7 million tones (6-7 per cent) as against fruit and vegetable production of 127 million tones in the country. The other users of the cold chain infrastructure are the pharmaceutical, processed food products, fast food, and floriculture industries. Road-blocks in the development of cold chain infrastructure in India are:

High capital cost in setting up the facility

Low returns with a longer payback period

High operating cost due to high power tariff High import and excise duties on cold storage equipment

There is huge potential for cold chain as a service industry in India. Immediate measures need to be taken by the government to boost the cold storage industry. Stored Cold and Fresh Snowman Frozen Food Limited, a joint venture between Hindustan Lever, Amalgamated Food, and Mitsubishi, operates a cold chain in India for marine products, processed food products, and fruits. Each of their cold storage facilities have storage capacity of more than 1000 mT. are built at the cost of Rs. 3.5 crore and are equipped with ultra modern storage and material handling facilities. They operate chillers at 2o c and freezers at 10o 18o C. for different product applications.

The cold supply chain is a multi-billion dollar business with more companies in Asia now positioning themselves to be part of the industry. The growth of retail sector throughout the region has driven the demand for cold storage facilities, and 3rd Party Logistics (3PL) companies focusing on cold storage and distribution.

For the Asia Pacific region, this industry is still in its infancy, although one can see changes quickly being implemented traditional wet markets being replaced by new super- and hyper-markets; life styles and eating habits changing; and as Asian economies grow more affluent, retail spendings set record highs. However, the cold supply chain industry falls behind other industries when it comes to the provision of modern warehouse systems and logistics. Cold-storage For a start, the investment cost to build and run a cold-store can be up to 10 times higher than the cost of running an ambient temperature warehouse. Since variables such as higher operating costs are inevitable, the common approach is to try to reduce the initial set-up outlay. Further, space optimization and higher productivity due to using modern storage systems will pay for themselves with lower running costs and increase profit margins.

Cold-stores in the retail trade and food processing industries carry a wide variety of products that are time sensitive with limited shelf life. Thus, stock rotation is a fundamental requirement in the industry. With the high costs of building and running a cold store, it is essential that storage solutions offer maximum volumetric utilization.

BULL WHIP EFFECT AND SUPPLY CHAIN

The phenomenon of the bullwhip effect in the supply chain occurs when information about demand becomes increasingly distorted as it moves upstream in the manufacturing process. This distortion leads to excessive inventory throughout the system, poor forecasts, insufficient or excessive capacities, product unavailability, and higher costs generally.

 The bullwhip effect distorts demand information within the supply chain, with different stages having a very different estimate of what demand looks like. The result is a loss of supply chain coordination. Each stage of the supply chain is trying to optimize its local objective and, accordingly, takes actions that ultimately result in a poor performance of the entire supply chain.

 Another traditional business that leads to the bullwhip effect, is batching order at certain times of the month or year. Companies make a practice of batching it saves time and money. Yet another cause of the bullwhip effect, is a practice known as gaming intentionally presenting manufactures offer bargains, retailers stockpile inventory and dont order again for months. This is not the way to keep the supply chain running smoothly.

 A final strike against the bullwhip effect, would be to minimize price incentives. When manufacturers offer bargains, retailers stockpile inventory and dont order again for months. This is not the way to keep the supply chain running smoothly. The bullwhip effect in various components of logistics and supply chain are as follow:

Manufacturing Cost
The bullwhip effect increases the manufacturing cost in the supply chain mainly due to a variation or gap in the real quantity demanded and quantity for which order placed by the customer. The result in increased variability, either in building excess capacity or in holding excess inventory, both of which increase the manufacturing cost per unit product.

 There is an increase in the inventory cost and a replenishment in the lead time in supply due to bullwhip effect, mainly as a result of variability in demand. There are mainly due to the fact that the firm has to maintain a highest level inventory than the required one, also having impact on dispatch schedule for finished goods by the firm for component / raw materials to be supplied to the firms because available capacity and inventory level might not meet the order quantity, resulting into higher replenishment lead time.

Inventory Cost and Replenishment Lead Time

 Within the supply chain, transportation cost increase due to bullwhip effect, which is mainly due to a significant fluctuation in the transportation requirement over a period of time. This has an impact of raising transportation cost due to requirement of maintenance of surplus transportation capacity to meet high demand period requirement.

Transportation Cost

Product Availability
The bullwhip effect decreases product availability. Due to a lack of trade-off between the actual demand and order quantity, firms will always face problems of stock out at some selling points, whereas over stock at others, resulting into both loss of sales and increase in the cost of the product. Thus, the bullwhip effect reduces the profitability of a supply chain immediately and conflicting relating to long run.