Learning OutcomesUnderstand the origin and importance of

logistics as a functional area

The various functional Interface between

logistics and other areas

Understand the importance of logistics and

customer service along with other related

concepts.

The part of the supply chain process that plans, implements

and controls the efficient, effective flow and storage of

goods, services and related information from point of origin

to point of consumption inorder to meet customer

requirements

- Council of Supply Chain Professional and Management

“Logistics is the information based activity of material

movement from suppliers to manufacturer and finished goods

to the customer”.

Martin Christopher

Logistics System Components

LOGI STI CS

Customer Service

Transportation

Packaging Information System

Inventory Planning

Order Processing

Warehousing

Procurement

Reference: Supply Chain Management ; V.V. Sople, 2011

Logistics Chain

Reference: Supply Chain Management ; V.V. Sople, 2011

Logistics Chain

Inbound LogisticsOperation preceding manufacturing. This includes movement of raw materials and components from supplier to the plant.

Process LogisticsOperations directly related to processing. This includes storage and movement of raw materials and components within the factory premises as per the manufacturing schedule.

Outbound LogisticsOperations following the manufacturing. This includes warehousing, transportation and inventory management of finished goods.

Gulf war in 1991: largest military operation lasting for four

days.

- Planning processed months before actual war executed

- 1,25,000 ground troops to defend the area

- Area to defend stretching from 175 km long and 300 km deep into

the desert.

- 500 tactical cargo trucks and 200 wheeled vehicles

- 35,000 tones of ammunition / 5.6. million gallons of fuel, ration on

2million meals, 1 million gallons of water Class Activity : Logistics in Practice

Dominos Pizza The Kitchen

•Logistics : Connects the Source of Supply with the Source of Demand

•To achieve this, all components of the logistics system and supporting

information system are put into operation with the objective of delivering

the right product at the right place and at the right time with the least

cost

•Logistics makes it possible to deliver a product to the customer

anywhere, irrespective of its manufacturing location.

•When these gaps tend to be larger and the risk of dilution of service level

is high, an integrated system is needed to make the operations seamless

for product and information flow.

•Supply Chain Management helps to close this gap by enhancing and

the aligning the capabilities through enablers such as Technology

collaboration and human resource Skills. The Supply Chain banks on the

relationship with suppliers for performance cycle reduction, quality

improvement, freight minimization and reduction in cost of material and

transactions.

•The supply Chain tries to understand the demand signals and profiles

the target customer base to adjust itself for planning and execution of

customer requirement in accordance with desired service level.

•Logistics capabilities supplement supply chain operations

•The efficiency and effectiveness of inventory movement across the

supply chain is largely dependent on the capability of logistics

management.

•Cost reduction and customer service enhancement in the supply chain

are not possible without efficient logistics operations such as

warehousing, material handling, inventory control, etc.

•Thus the success of the supply chain is dependent on logistics

•The degree of success depends on the level of integration between

the enablers.

Logistics Integration

Reference: Supply Chain Management ; V.V. Sople, 2011

Physical supply Physical distributionmaterials management outbound logistics inbound logistics

Backbone of trade and business

Leads to customer satisfaction

Integrator

Competitive edge

Wins or losses wars

Logistical cost

Rapid Response: Satisfy customer response

Minimum Variance: Imperative to improve overall

productivity

Minimum Inventory

Movement Consolidation : Transportation cost

Quality : Consistent and continuous quality improvement

Life Cycle Support : Reverse Logistics.

COMPONENTS / FUNCTIONS OF LOGISTICS

LOGISTICS FUNCTIONSLOGISTICS

FUNCTIONS

Scope of Logistics

The logistics activities for which the logistics manager might be responsible are as under:TransportationWarehousing and storageIndustrial packagingMaterials handlingInventory controlOrder fulfillmentDemand forecastingProduction planning / schedulingProcurementCustomer serviceFacility locationReturn goods handlingParts and Service support

Business Process Impacted by Logistics

• Customer order fulfillment• Manufacturing flexibility• Product development • Reverse logistics• Customer relationship• Supplier relationship• Customer service• Demand management

Factors Influencing Growth of Logistics Industry

• Investment in infrastructure sector

• Streamlining of indirect tax structure

• Trade growth (National and Global)

• Globalization of manufacturing system

Customer Order Cycle and Order Processing CycleCustomer order cycle includes:

Order preparation

Order Transmit

Order entry

Order filling

Order status reporting

ORDER PROCESSING CYCLE

1- Need for a product

2- Place the order with supplier

3- Supplier: Quantity ordered is available in stock / start production /

4- Receipt of order given to the customer

5- Picking and Packaging instructions are issued

6- Products are transported and delivered to customer

7- Customer verifies the product.

Logistics and Manufacturing Interface:

•Relates to the length of the production run

•Manufacturing decisions requires managers to carefully weight the advantages and

disadvantages of long versus short production runs and their impacts on inventories.

•The trend is towards pull systems as opposed to push manufacturing systems inorder to

lower inventory levels

•Interface between logistics and manufacturing is critical due to global sourcing.

Logistics and Finance Interface:

•Finance and accounting systems provides authenticate the quality of logistics data and

analysis. It is critical for measuring supply chain tradeoffs and performance

Logistics Interface

Logistics by nature focuses on processes that cut across traditional functional boundaries

Logistics and Marketing Interface:

• Place implies the right product at the right time. Logistics and

marketing interface is gaining importance due to the following reasons:

•Brand Loyalty is Decreasing

•Customers are willing to accept substitutes

•All about developing a client and retaining them

Logistics Interface

Logistics: Success Factors

• Close coordination with the suppliers• Reduce the inventory levels• Faster replenishment cycle• Flexible in the system• Innovations in value additions in customer service

Achievement of Competitive Advantage Through Logistics

Triangular linkages of the three C’s

Factors achieving commercial success

Seek Benefits at acceptable cost

Asset UtilizationAsset Utilization

Value

Cost Differential

Value

Customers

Commercial success

Cost Advantage

Value Advantage

Achievement of Competitive Advantage Through Logistics

Productivity and value advantage matrix

Value Chain activities

Value Advantage

Productivity Advantage

Secondary ActivityPrimary Activities

Value Chain Activities

•Inbound Logistics•Operations•Outbound Logistics•Marketing and Sales•Service

•Infrastructure•HRM•Technology Development•Marketing and Sales•Procurement

Achievement of Competitive Advantage Through Logistics

Factors affecting value and productivity advantages

Value Advantage:•Customized Services•Reliability•Responsiveness

Productivity Advantage:•Capacity Utilization•Asset Utilization•Inventory Reduction•Integration with Suppliers

The 7R’s of Purchasing / Customer Expectations

Right Material

Right Quantity

Right Condition

Right Time

Right Source

Right Service

Right Price

Concept of Lead Time

How long the customer has to wait

Characterized as speed and responsiveness

Volkswagen calls this time : Customer to customer

lead time

Lead times can vary from 0 to years

Customers are prepared to pay a premium for a

shorter lead time

Consequences: Stock out rates

3 components of lead time: Review time ;

manufacture time ; transit time

OutsourcingWarehousingTransportationInventoryOrder processing

Self-reliant Organization performing all

logistics operation

Alliance with3 PL Service providerIT OrganizationIT/Logistics Consultant

4 PartyLogistics

3 PartyLogistics

In-house logistics

Logistics Evolution

STRATEGIC ALLIANCES:3PL AND 4PL CONCEPTS

Third Part Logistics Service Provider

•3PL companies are strategic partners with the OEM’s

•External to the company

•3PL activities include: warehousing , multi modal transportation, inventory

management, packaging,etc

•The company which provides the complete logistics service is called the integrators.

•The objectives of 3PL are reduction in risk and liability ; value added services to

customer, Sources of process improvement; wider market coverage

Fourth Party Logistics Service Provider:

•Originated from Accenture consulting company

•Due to complex supply chain network no single company can manage the complete network.

•Need for an organization who comes together with the OEM to manage and integrate the

complete end to end supply chain.

•Key components of 4PL are as under:

•Architect / Integrator: Change Leaders / supply chain visionary/ Project management /

continuous innovation

•Control Room : Decision Makers/ continuous improvement/ manage multiple 3PL/ Experiences

Logistician

•Supply Chain Infomediary: IT System Integration/ Real time data capture/Convert data into

information/technical support

•Resource providers: Transportation asset provider / Warehouse / cross-docking / procurement

service / packaging Service

STRATEGIC ALLIANCES:3PL AND 4PL CONCEPTS

Logistics Performance Cycle Structure

Integrated logistics can be analyzed by means of performance cycle which emphasizes on the interface and

links between the suppliers, the firm and the customers. It is integral t marketing and sales performance since

it provides timely and economic product availability and delivery to customers

Material Source

Components parts Plant

Distribution Warehouse

Customer

Assembly Plant

Transaction creating Activities

Performance cycle

Physical fulfillment activities

Advertising and selling Physical distribution

Physical Distribution Performance Cycle Structure

Order ProcessingOrder

TransmissionCustomer Order

Order SelectionOrder

TransportationCustomer Delivery

Manufacturing Support Performance Cycle Structure

Manufacturing Support Performance cycle provides Production Logistics

Positioned between physical distribution and procurement operations

Objective is to facilitate the what, where and when of the production and not

how

After the completion of the manufacturing cycle the finished goods are

allocated and deployed directly to the customer or the distribution warehouse.

Procurement Performance Cycle Structure

Objective is to :

Conform to expected/ standard time as delayed performance results in disruption

To establish Safety stock

Ensure operational consistency by reducing the planned performance cycle, faster

order cycles, reduced inventory risk and improved inventory turnover performance.

Ways to reduce the Performance cycle uncertainty:

Use of EDI

Monitoring daily changes in the workload

Ensuring consistency in operations.

Procurement Performance Cycle Structure

SourcingOrder Placement and Expediting

Receiving

SUPPLIERTransportation

Summary of Chapter 1

Understand the concept of Logistics

Military Origin of the Concept of Logistics

Importance of Logistics

Operational Objectives of Logistics

Components of Logistics

Scope Of Logistics

Customer Order Cycle

Order Processing Cycle

Lead Time

Achievement of competitive advantage through Logistics

3PL and 4 PL concepts

Interface between logistics and other areas

7 R’s of customer expectation

Performance cycle Structure