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Unit 5Logistics of Distribution
By
Feroz Khan, Sunil Singh, Arun Kumar, Ajay Kumar, Indrajit, Vinoth Raj, BADON Maxime
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Content
Introduction Communication & Logistics Functions of Logistics Management Customer Service, Data Mining/Data Warehousing Modes of Logistics Application of Technology in Logistics & Channel
Information Systems Strategic Management in Logistics The Process of Logistics
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What is Logistics?
Logistics is the . . . “process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.“
Council of Logistics Management
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Is it different from SCM?
Not really!
“Supply Chain Management deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers.” (Stanford Supply Chain Forum)
So, Logistics and Supply Chain are equivalent terms.
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Introduction
• Commercial organizations started a logistics department with the responsibility of overseeing the journey of…
• the finished product from its facilities to its retail outlets.
• Organizations always focused more on ‘Outbound logistics’ than ‘Inbound logistics’.
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Video: Nike Logistics Centre
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Communication and LogisticsEffective logistics management requires that the actual status of goods and services be communicated in real-time to the various groups of people involved in the logistics process
This helps logistics service providers to improve their service by keeping a closer watch on inventory and taking the steps necessary to avoid losing customers
The various types of technology being implemented in logistics activities include Electronic Data Interchange, artificial intelligence, expert systems, communication technology in the form of satellite and wireless communication, and bar coding and scanning
Information technology has become an important dimension of third party logistics service providers (3PLs) business as their competitive advantage increasingly depends on the ability to create value for customers through ICT applications
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A framework for analyzing the impact of ICT on logistics & Supply Chain Management
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ICT applications for logistics and SCM
Function Activity ICTTechnology
Sharing of data and information
Access and use of data and informationby supply chain partners
DatabasesData warehouse
Information transfer Communication of information betweensupply chain partners
E-mailInternet
Information use for supply chainplanning
Data in decision making and operations planning of the supply chain
CADERPMRP
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The Use of Internet Applications in Managing Logistics Activities Among Palm Oil Industry
Participants in MalaysiaIn 2008, Malaysia is reported to be the second largest producer of palm oil in the world and accounts for approximately 42.0% of world palm oil production. Exported to more than 120 countries worldwide.
In 2007, Indonesia overtook Malaysia as the world’s top palm oil producer due to dramatically increased planting areas of oil palm in the country
Internet technologies such as e-commerce have the potential to provide Malaysian companies with the means and tools to better handle and manage their business activities .
E-commerce has created ‘new channels’ for information flow, goods flow and new partnerships across distribution channels
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Logistics Functions
Purchasing / Procurement
Inventory Control
Warehousing
Materials Handling
Facility Location / Network Design
Transportation
Customer Service
Order Processing
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…. Other Functions
Logistics plays a dominant role in SCM. ‘Supply Chain’ and the philosophies can create an
opportunity while ‘Logistics Mgt’ with its tools and processes, fulfils an opportunity.
• Right Time• Right Price• Right Quantity• Right Place• Right Quality
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A Sample Logistics Firm: EKOL
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Cross Docking
• A logistics activity that attempts to reduce costs , total lead time and eliminates need to place inventory in storage.
• Breaks down received items on the loading dock and immediately matches them with outgoing shipment requirements, instead of stocking the items in warehouse locations and returning to pick for orders at a later time.
• The idea is to transfer incoming shipments directly to outgoing trailers without storing them in between.
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Cross Docking…
• In a traditional warehouse, goods are received from vendors and stored in devices like pallet racks or shelves.
• When a customer (e.g., the consumer or perhaps a retail outlet) requests an item, workers pick it from the shelves and send it to the destination.
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Cross Docking…
• In a crossdock, goods arriving from the vendor already have a customer assigned, so workers need only move the shipment from the inbound trailer to an outbound trailer for the appropriate destination.
• Information system requirements--a chief obstacle to implementing crossdocking successfully.
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Cross Docking…(classification)
• One way to classify crossdocking operations is according to when the customer is assigned to an individual pallet or product.
• In pre-distribution crossdocking, the customer is assigned before the shipment leaves the vendor, so it arrives to the crossdock bagged and tagged for transfer.
• In post-distribution crossdocking, the crossdock itself allocates material to its stores.
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Video: Crossdocking
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Data mining
The Data Mining process is the extraction of valid and previously unknown information.
why do we need it ? To handle bulk of data in various enterprises,
thereby increasing the margin To turn incomprehensible data into usable
information
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Evolution Questions Technology Providers
Data collection 1960s
What was my total revenue in last five years ?
Computers Tapes Disks
IBM
Data access 1980s
What were unit sales in Mumbai last march ?
RDBMSSQL
IBMMICROSOFTORACAL
Data warehousing and decision support 1990s
What were units sells in Mumbai last march ?drill down to Bangalore ?
OLAPDATA WAREHOUSES
PIOLETARBOR
Data mining (emerging today)
What is going to happen to Bangalore unit sale ?why?
Algorithm DatabaseMultiprocessors computers
IBMPIOLET
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Process in data mining Preprocess :- Define objective
Select data
Prepare data
Data mining:-]
Clustering
Classification
Regression
Association rule learning
Results validation:-Validate the finding
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Scope of data miningAutomated prediction of trends and behavior
Eg:-targeted marketing .
Automated discovery of previously unknown patterns .
Eg :-retail
ApplicationRetail
Telecommunication
Security
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Data warehousing • Data warehouse is a subject oriented, integrated,
time-variant, non-volatile collection of data in support of management decision-making process.
• Data warehouse figure out what “we need before we need it “
• As it has both hardware & soft ware components, which facilitates in taking better decisions in massive companies
• It is also an architecture & tool to collect, query, analyze and present information
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Conceptual data warehouse
data information
acquisition analysis
Organization
External information
Data warehouse
Decision
Support tool
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Modes Of Logistics
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Modes of Logistics
Logistics consists of several elements that need to be considered and coordinated for successful results
Modes of logistics have been classified into two categories
One that is linked to operations and is responsible for undertaking the routine and regular responsibilities and the other that is linked to strategy and is responsible for policy making
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Modes of Transportation in Logistics
Rail Road Air Water Pipeline
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AIR
This mode of transportation is usually used for the delivery of goods from distant suppliers, usually the ones that are not connected by any other mode of transportation
Advantages
• Fast delivery, usually between 24 and 48 hours
• Faster fulfillment of customer orders
• Ideal for perishable and other products with short life
• Reduced lead time on supplier
• Lesser inventory
• Improved service levels
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Cont….
Disadvantages
• Flight delays and/or cancellations especially when direct connections are not available
• Customs and excise formalities leading to delays
High Cost• Suppliers/customers are not always located
near a rail freight depot and delivery to/from the depot can be costly and time consuming
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SEA
• Sea transportation is used by businesses for the delivery of goods from distant suppliers
• Most sea transportation is conducted in containers which vary in size
• Goods can be grouped into a container (LCL) or fill a container (FCL)
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Cont…
Advantages
• Ideal for transporting heavy and bulky goods
• Suitable for products with long lead times
Disadvantages
• Longer lead/delivery times.
• Problems arising due to bad weather.
• Difficult to monitor exact location of goods in transit.
• Customs and excise restrictions.
• High cost.
• Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming.
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RAIL
• Rail transportation is popular with businesses for the delivery of a wide range of goods including post, coal, steel and other heavy goods
Advantages
• Faster and quicker.
• Ability to carry high capacity.
• Cost effective.
• Safe mode of transport.
• Reliable.
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Cont…
Disadvantages• Subject to unforeseen delays and/or accidents
• Completely governed by timetable and schedule of railways
• Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming
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Road• A very popular mode of
transport used by suppliers and businesses to deliver orders. Many transport companies provide scheduled delivery days and next day delivery services, depending upon your needs
• Goods can be packed/grouped in box vans or in containers which are also used for sea transportation
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Cont….
Advantages• Cost effective.
• Fast delivery.
• Ideal for any short distances.
• Refrigerated vans can be easily used for transporting perishables.
• Easy to monitor location of goods.
• Mass movement of goods.
• Point-to-point service.
• Easy to communicate with driver. Usually companies ask the driver to
call the company every couple of hours.
Disadvantages• Delays due to traffic jams, etc.
• Problems due to vehicle breakdown, accidents, etc.
• Goods susceptible to damage and losing quality.
• Heavy dependability on weather.
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Pipeline
Advantages
• Mass movement of liquids and gases
• Low operating costs
Disadvantages
• Limited applicability
• Not widespread
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Application of Technology in Logistics and Channel Information Systems
• The application of IT can support logistics and help in resolving several problems.
• Over and above assisting in managerial tasks such as planning, deciding on the optimal route of transportation and allocation, distribution.
• One of the major problems in logistics has been lost and untracked parcels thereby affecting inventory policies.
• Real time tracking of goods throughout the supply chain provides excellent opportunities for improving customer service.
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Continue
• Real time information on delivery time supports just-in-time manufacture and retail, enabling organizations to make strategic decisions with full confidence in the availability of goods.
• Several leading package delivery companies are offering parcel tracking via the Internet as a fundamental element of the service.
• For example, lost luggage is estimated to cost the airline industry in excess of $ 100 million annually.
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RFID AND ITS IMPORTANCE
• Radio Frequency Identification• Identifying a person or object using a radio
frequency transmission.• Serial number that identifies a person.• A microchip is attached to a Antenna.• The chip and antenna together are called RFID
tag.
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RFID Vs Barcodes
• Line of sight technology
• RFID is more Effective.
• Barcodes have limited Information.
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Advantages of using RFID
• Supply Chain Visibility
• Operating Cost Improves.
• Saves time.
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Applications of RFID
• Product Tracking• Inventory Control• Pricing and Promotion• Shipping and Receiving• Transportation• Return and Recalls management.
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Concerns Surrounding RFID
• High Investment.
• Limited Range.
• Health Concerns.
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SOURCING DECISIONS IN A SUPPLY CHAIN
• The Benefits of Sourcing decisions in a Supply Chain• In-House or Out Source
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• L e t s f i r s t l o o k a t d i s t i n c t i o n b e t w e e n o u t s o u r c i n g a n d o f f - s h o r i n g
• A f i r m O f f - s h o r e s a s u p p l y c h a i n f u n c t i o n i f i t m a i n t a i n s o w n e r s h i p b u t m o v e s t h e p r o d u c t i o n f a c i l i t y o f f s h o r e . ( e x : - D E L L )
• I n C o n t r a s t , a f i r m o u t s o u r c e s i f o u t s o u r c e s i f t h e f i r m h i r e s a n o u t s i d e f i r m t o p e r f o r m a n o p e r a t i o n r a t h e r t h a n e x e c u t i n g t h e o p e r a t i o n w i t h i n t h e f i r m . ( e x : - P & G ( P r o c t o r a n d G a m b l e h a s n e v e r a t t e m p t e d t o s e l l d e t e r g e n t d i r e c t l y t o c u s t o m e r s )
Dell outsources design and production of the processors in its pc’s to INTEL is
that Intel supplies many computer manufactures and gains economies of
scale that are not available to DELL if it designs and produces its own processors . The growth in surplus from outsourcing is highest when the needs of the firm are
significantly lower than the volumes required to gain economics of scale .
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The Benefits from effective sourcing decisions in Supply Chain Management
• Better economics of scale can be achieved if orders within a firm are aggregated
• More efficiency procurement transactions can significantly reduce the overall cost of purchasing . This is most important for items for which a large number of low-value transactions occur.
• Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. This factor is most important for supplier products that contribute a significant amount to product cost value.
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Cont……
• Goods procurement processes can facilitate coordination with the supplier and improve forecasting and planning . Better coordination lowers inventories and improves the matching of supply and demand.
• Appropriate supplier contracts can allow for the sharing of Risk, resulting in higher profits for both the supplier and buyer.
• Firms can achieve a lower purchase price by increasing competition through the use of auctions
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A firm Should consider outsourcing if the
growth in surplus is large with a small increase in Risk .
Performing the function in-House is Preferable if the Growth in surplus is small or the increase
in risk is large.
Outsourcing In-House
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
Here we can discuss various mechanism that third parties can use to
grow the surplus
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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A third Party Can increase the supply chain surplus by aggregating demand across multiple firms and gaining production economies of scale that no single firm can on its own .
Capacity Aggregation
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party can increase the supply chain surplus by aggregating inventories across a large number of customers.
INVENTORY AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party may increase the surplus by aggregating the transportation function to a higher level than any shipper can on its own
TRANSPORTATION AGGREGATION BY TRANSPORTATION INTERMEDIARIES
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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The Third Party That Stores inventory can also increase the supply chain surplus by aggregating inbound and out bound transportation .
TRANSPORTATION AGGREGATION BY STORAGE INTERMEDIARIES
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party may increase the supply chain surplus by aggregating warehouse needs over several Customers.
• The growth in surplus is achieved in terms of lower real estate costs as well as lower processing costs within the warehouse
• Savings through warehousing aggregation arise if a supplier’s warehousing needs are small or if its needs fluctuate over time
• in either case , the intermediary with the warehouse can exploit economies of scale in warehousing construction and operation by aggregating across multiple customers .
WAREHOUSING AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party increases the supply chain surplus if it aggregates procurement for many small players and facilitates economies of scale in production and inbound transportation
• Procurement aggregation is most effective across many small buyers
PROCUREMENT AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party may increase the surplus by aggregating information to a higher level than can be achieved by a firm performing the function in-house.
• All retailers aggregate information on products from many manufactures in a single location .
• This information aggregation reduces search costs for customers
INFORMATION AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A third party may increase the supply chain surplus if it can aggregate the receivables risk to a higher level than the firm or it has a lower collection cost than the firm.
RECEIVABLES AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• An intermediary can increase the supply chain surplus by decreasing the number of relationship required between multiple buyers and sellers.
• Without an intermediary , connecting a thousand sellers to a million buyers requires a billion relationships.
• The presence of an intermediary lowers the numbers of relationship required to just over a million.
RELATIONSHIP AGGREGATION
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How do third parties increase the supply
chain surplus
Inventory aggregation
Capacity Aggregation
Information aggregation
Procurement aggregation
Warehousing aggregation
Receivables aggregation
Lower Costs higher quality
Transportation aggregation by
storage intermediaries
Relationship aggregation
Transportation aggregation by transportation intermediaries
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• A Third party can increase the supply chain surplus if it provides lower cost or higher quality relative to the firm .
• If these benefits come from specialization and learning , they are likely to be sustainable over the longer term.
• A specialized third party that is further along the learning curve for some supply chain activity is likely to maintain its advantage over the long term .
LOWER COST AND HIGHER QUALITY
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• A common scenario ,however is one in which the third party has a low –cost location that the firm does not .
• In such situations, lower labor and overhead costs are temporary reasons for out sourcing, because if the wage differential is persistent and third party offers none of the other advantages discussed earlier, it is best for the firm to maintain ownership and off-shore production to the low –cost locations.
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Process of Logistics
Forward Logistics Reverse Logistics
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Forward Logistics
Inbound Logistics Outbound Logistics
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Inbound LogisticsReceiving, storing and disseminating incoming goods and material for use.
Physical Supply
Physical supply means linking of suppliers with the internal operations
Suppliers are scattered and have varying lead times, hence coordinating and synchronizing this activity becomes a tough job
From whom to order? How much toorder? When to order? Which mode of transportation should be used?Where to store the material? etc.
The philosophy of JIT is based on the principle of less quantity in lesser interval resulting in more deliveries
Vendor-Managed Inventory (VMI) is the solution
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Inbound Logistics
SourcingOrder
Placement &Expediting
Receiving
Vendor Supplier
Transportation
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Objectives of inbound logistics
• Ensure that material received and related information are processed and made available promptly to production, store and other department
• Completely and accurately document goods received and goods returned• Accept only items that were properly ordered
• Accept only materials that meet purchase order specification
• Ensure that vendor, inventory and purchase order information is accurately updated to reflect receipt
• Return rejected items promptly
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Inbound Logistics Management
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Outbound Logistics
Movement of material associated with storing, transporting, and distribution a firm's goods to its customers.
The warehousing and distribution of finished goods.
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Outbound Logistics
Activities in distribution performance cycle
OrderProcessing
CustomerDelivery
OrderTransportation
Order Selection
CustomerOrder
Order Transmission
Objectives
Timely delivery
Meeting customer demand with perfection.
Balance between supply and demand.
Key Issues
expected level of customer service, cost associated With servicing the customer at the prescribed level
product to be stocked at each distribution facility
whether there is a stock-out situation when he delivers the material or whether adequate material is still available that could have lasted some more days,
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Business Logistics in a Firm
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Integrated Logistics Management
In India
AMUL
The DABBAWALLAHs of MUMBAI
ITC e-choupal
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Reverse Logistics Reverse Logistics
“Process of planning, implementing and controlling the efficient,
cost-effective flow of raw materials, in-process inventory,
finished goods and related information from the point of
consumption to the point of origin for the purpose of recapturing
value or proper disposal”
- Rogers and
Tibben- Lembke
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Reverse Logistics Activities
Handling of returned merchandiseDamageSeasonal inventoryResell via outletSalvage of outdated productsStock–balancing returns
Recycling and reuseMaterial reuseRemanufacturing / refurbishing
Hazardous materials disposition
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The Network of Reverse Logistics
Reverse Logistics Steps
containers
retailer
consumer
1. Collecting 2. selection and sorting
3. transport
4. disassemblingand crushing
5. transport
collecting point
production
Treatment centre
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REVERSE LOGISTICS CHALLENGES
• Retailer – Manufacturer Conflict
Inefficiencies that lengthen the time for processing returns: Condition of the itemValue of the itemTimeliness of response
They have to develop a working partnership to derive mutual benefit.
Problem Return Symptoms
Lack of information about the process.
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Examples U.S. Reverse Logistics Costs
Return Percentages
Reverse Logistics in UK
Very few Indian manufacturer across any sector has ever claimed responsibility for their faults
Total U.S. Logistics Costs
$1,006,000,000
Approximate RL cost %
4.00%
Estimated U.S. RL Costs
$40,240,000
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Cont…..
Nokia
Apple
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Repair Order Tracking System Reverse Logistics System
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Process of Logistics :- Value Chain Analysis
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Corporate Social Responsibility For each of Nike's regions to thoroughly understand and take responsibility for the climate impact of its logistics.
In FY09 our U.S. group realized more than $8.2 million in savings through better container utilization, eliminating unnecessary trips and air freight reduction.
Wal-Mart, The Coca-Cola Company, Nordstrom, Ikea, and Starbucks, all of which realize the value of improving shipping even without owning the fleet.
Carrefour Reducing road transport to warehousesCarrefour France achieved the goal it had set to ship more than 40% of its merchandise by river and rail, resulting in 3,300 fewer trucks on the roads.In Spain, Carrefour dispatches 100% of its import containers from the port of Barcelona by rail and 67% from Valencia.Preliminary studies show a saving of 25% in CO2 emissions per pallet transported (upstream/downstream)286 tonnes of CO2 saved by Carrefour thanks to the use of alternative upstream transport in France38 French hypermarkets supplied by combined rail-road transport from warehouses in Sarran and Vert-Saint-Denis
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Any Questions ???