CHAPTER 2

INDUSTRY AND COMPANY PROFILE

2.1 LOGISTICS MANAGEMENT - INTRODUCTION
Logistics management is that part of the supply chain which plans, implements and
controls the efficient, effective, forward and backward (reverse) flow and storage of goods,
services and information between the point of origin and the point of consumption in order to
meet customers' requirements rather to the customers delight.
The term "logistics" originates from the ancient Greek "" ("logos""ratio,
word, calculation, reason, speech, oration"). Logistics, as a business concept, evolved only in
the 1950s.

2.1.1 Objective of Logistics Management:

The primary objective of logistics management is to effectively and efficiently move the
supply chain so as to extend the desired level of customer service at the least cost. Thus,
logistics management starts with ascertaining customers needs till their fulfilment through
product supplies. However, there are some definite objectives to be achieved through a proper
logistics system. They are as follows:

Improving customer service

Rapid Responses
Reduce total distribution costs
Generating additional sales
Creating time and place utilities
Price stabilization
Quality improvement
Movement consolidation

2.1.2 Logistics Management Function

Logistics is the process of movement of goods across the supply chain of the
company. This process consists of various functions, which have to be properly managed to
bring effectiveness efficiency in the supply chain of organization. The major logistical
function are shown in figure

Logistics
Functions

Material
Inventor
Transpor Handling
Ware
y
&
Manage -housing -tation
Storage
-ment

Order
Processi
ng

Packagin
g

Informati
on Flow

1. Order processing:
The starting point of physical distribution activities is the processing of customers
orders. In order to provide quicker customer service, the orders received from customers
should be processed within the least possible time. Order processing includes receiving the
order, recording the order, filling the order, and assembling all such orders for transportation,
etc. the company and the customers benefit when these steps are carried out quickly and
accurately. The error committed at this stage at times can prove to be very costly.
Order processing activity consist of the following

Order checking in any deviations in agreed or negotiation terms

Prices , payment and delivery terms
Checking the availability in of the material stocks
Production and material scheduling for storage
Acknowledge the order, indicating deviation

2. Warehousing:
Warehousing refers to the storing and assorting products in order to create time utility.
The basic purpose of the warehousing activity is to arrange placement of goods, provide
storage facility to store them, consolidate them with other similar products, divide them into
smaller quantities and build up assortment of products. Generally, larger the number of
warehouses a firm has the lesser would be the time taken in serving customers at different
locations, but greater would be the cost of warehousing. Thus, the firm has to strike a balance
between the cost of warehousing and the level of customer service.

Major decision in warehousing is as follow:

Location of warehousing facility

Number of warehousing
Size of warehouse
Design of the building
Ownership of the warehouse

3. Inventory Management:
Linked to warehousing decisions are the inventory decisions which hold the key to
success of physical distribution especially where the inventory costs may be as high 15 as 3040 per cent (e.g., steel and automobiles). No wonder, therefore, that the new concept of Justin-Time-Inventory decision is increasingly becoming popular with a number of companies.
The decision regarding level of inventory involves estimate of demand for the product. A
correct estimate of the demand helps to hold proper inventory level and control the inventory
costs. This is not only helps the firm in terms of the cost of inventory and supply to customers
in time but also to maintain production at a consistent level. The major factors determining
the inventory levels are: The firms policy regarding the customer service level, Degree of
accuracy of the sales forecasts, Responsiveness of the distribution system i.e., ability of the
system to transmit inventory needs to the factory and get the products in the market. The cost
inventory consists of holding cost (such as cost of warehousing, tied up capital and
obsolescence) and replenishment cost (including the manufacturing cost).
4. Transportation:
Transportation seeks to move goods from points of production and sale to points of
consumption in the quantities required at times needed and at a reasonable cost. The
transportation system adds time and place utilities to the goods handled and thus, increases
their economic value. To achieve these goals, transportation facilities must be adequate,
regular, dependable and equitable in terms of costs and benefits of the facilities and service
provided.

5. Information:

The physical distribution managers continuously need up-to-date information about

inventory, transportation and warehousing. For example, in respect on inventory, information
about present stock position at each location, future commitment and replenishment
capabilities are constantly required. Similarly, before choosing a carrier, information about
the availability of various modes of transport, their costs, services and suitability for a
particular product is needed. About warehousing, information with respect to space
utilization, work schedules, unit load performance, etc., is required.
In order to receive all the information stated above, an efficient management
information system would be of immense use in controlling costs, improving services and
determining the overall effectiveness of distribution. Of course, it is difficult to correctly
assess the cost of physical distribution operations. But if correct information is available it
can be analyzed systematically and a great deal of saving can be ensured.
6. Facilities:
The Facilities logistics element is composed of a variety of planning activities, all of
which are directed toward ensuring that all required permanent or semipermanent operating
and support facilities (for instance, training, field and depot maintenance, storage,
operational, and testing) are available concurrently with system fielding.
Planning must be comprehensive and include the need for new construction as well as
modifications to existing facilities. Facility construction can take from 5 to 7 years from
concept formulation to user occupancy. It also includes studies to define and establish
impacts on life cycle cost, funding requirements, facility locations and improvements, space
requirements, environmental impacts, duration or frequency of use, safety and health
standards requirements, and security restrictions. Also included are any utility requirements,
for both fixed and mobile facilities, with emphasis on limiting requirements of scarce or
unique resources.

2.1.3 INDIAN LOGISTICS INDUSTRY OVERVIEW :

The Indian logistics industry was valued at an estimated US$ 130 billion in 2015-16. It
has grown at a CAGR of over 16 per cent over the last five years. The industry comprises the
following main segments:

Freight and passenger transportation via road, rail, air and water
Warehousing and cold-storage

The contribution from the movement of goods including freight transportation and
storage is about 90 per cent. Aggregate freight traffic is estimated at about 2-2.3 trillion tonne
kilometres. Road dominates the mode of freight transport mix and constitutes about 60 per
cent of the total freight traffic. Rail and coastal shipping account for about 32 per cent and 7
per cent, respectively, while the share of inland waterways transportation and air is less than 1
per cent each.

Fig 2.1 Total Freight model Mix

Warehousing comprises industrial and agricultural storage. Of the total warehousing
space of about 1,800 million sq ft, the industrial and agricultural segments constitute about 86
per cent and 14 per cent, respectively. Government organisations including Food Corporation
of India, Central Warehousing Corporation and the state warehousing corporations account
for about two-thirds of the agricultural warehousing segment1. Warehousing also includes
cold storage, comprising over 5,300 units; most of which are concentrated in the states of
Uttar Pradesh, Punjab and West Bengal. According to the Ministry of Agriculture, at present,
the cold chain capacity is about 9 million tonnes.

2.1.4 Air transport

Air cargo volume grew at a compound annual growth rate (CAGR) of about 8.5 per
cent from 0.7 MMT in 1998-99 to 2.53 MMT in 2015-16. International traffic accounts for
about 64 per cent of the total air cargo traffic and domestic cargo accounts for the remaining
36 per cent. Between 1998-99 and 2015-16, domestic and international cargos have grown at
a CAGR of 10.4 per cent and 7.6 per cent, respectively. Expanding cargo-handling
infrastructure at airports, demand for speedy delivery, greater trade and commerce and
increase in the number of flights operating are some of the key reasons for this growth.

Fig. 2.2 Air freight in India

Future growth in international cargo traffic is expected to be fuelled by trade
agreements, especially, with the Asia-Pacific region, and trade in sectors like electronics,
garments and pharmaceuticals. Growth in domestic cargo traffic is expected to be led by
expansion of industrial activity beyond existing centres. Investments in airport and logistics
infrastructure are also expected to drive demand of air cargo.

2.1.5 Water transport

Shipping routes through coasts and inland waterways are primarily used for
transportation of bulk freight. India possesses about 14,400 km of inland waterways. Over
3,600 km are navigable by large vessels, of which about 55 per cent is being used. To exploit
the potential of this mode of transport, six national waterways have been declared; three of
which are operational while three are being developed. In 2015-16, the estimated cargo
movement via inland waterways was at around 120 million tonnes.

Fig.2.3 Water freight Transport in India

The coastal-cargo traffic at major Indian ports has grown at a CAGR of about 2.6 per
cent from 76 MMT in 1998-99 to 106 MMT in 2011-12. The freight via water is expected to
grow further in the light of the Maritime Agenda 2010-2020, increasing contribution from
non-major ports and growing focus on ports on the east coast.

2.1.6 Rail transport

Rail freight segment contributes over 60 per cent to the total rail revenue. Freight
movement via railways has grown at a CAGR of around 5.1 per cent from 794 million tonnes
in 2007-08 to 969 million tonnes in 2011-12. As per the Railway Budget 2013-14, the
government targeted freight volume of 1,047 million tonnes in 2013-14.

Fig .2.4 Rail freight transport in India

Development of dedicated rail freight corridors: Dedicated Freight Corridor
Corporation of India Limited (DFCCIL) was founded in 2006 by the Government of India to

undertake planning, development and operation of the dedicated freight corridors to lower
unit cost of transportation to urban centres. The project involves the construction of two
corridors in the west and east, spanning a total length of about 3,300 km. Post the completion
of the DFC project in 2016-17, DFCCIL expects freight traffic via the DFCs to increase from
140 MMT in 2016-17 to 182 MMT in 2021-22.

2.1.7 Road transport

Unlike other modes of transport, roads address the demand for goods to cities as well
as remote areas of the country. Since 2000-2016, road freight has increased from 467 billion
tonne kilometres (BTKM) to1, 250 BTKM in 2014-15, at a CAGR of 8.6 per cent. It is
estimated to have grown to 1,315 BTKM for 2015- 16. According to the Ministry of Road
Transport and Highways, road freight is expected to reach 1,835 BTKMs by 2019-20.

Fig 2.4 Road Transport Freight in India

Development of national highways: National highways account for more than 40 per
cent of the total road traffic. In the 12th Five-Year Plan period, the Government of India has
set a target to construct 36,632 km of national highways in the period 2012-17, i.e., 2.65
times the target set in the previous plan period. Launched in 1998, the National Highways
Development Programme (NHDP) aims to develop 50,000 km of National Highways by
2015 in seven phases and with an investment of US$ 600 billion. Once completed, this is
expected to further fuel the demand for road transport.