Amity Business School

Amity Business School

MBA Class of 2010, Semester II Distribution & Logistics Management Ms.Vandana Gupta

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Physical Distribution decision areas

Locating Warehouses Number of warehouses Types of warehouses Materials Handling Equipments Mode of Transportation Routing

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Size of shipments
Inventory Levels protective Packaging

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Broadly, all the above mentioned areas can be grouped into four categories: 1. Order Processing 2. Inventory Control System 3. Warehousing 4. Transportation

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Order Processing
It includes the activities of receiving, recording, filling and assembling the orders for shipment.

An order cycle is the period between the time of the

placement of an order by the customer to the time of the arrival of the goods at his destination. The cycle is made up of the transmission of the order, document processing in the department and shipment of the goods.

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Insufficient goods In stock

Customer places An order Supplier Receives And enters order

Inventory on Hand checked

Sufficient goods In stock

Production Scheduled

Orders shipped to individual customers

Goods stored until enough orders are placed

Goods packaged, Sorted, tagged And sent to Local warehouse

Physical Distribution activities involved in a typical order cycle

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The following information is vital for accurate and timely order fulfillment: Order number, delivery date and address Product name and number, quantity and unit price of product Customer number, address and industry branch Sales and sales territory Means of transport, freight costs Special instructions, where necessary

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INVENTORY CONTROL SYSTEM

The main objective in maintaining any inventory is to meet market demands i.e. to make sales and fulfill customers orders.

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Basic elements of the Inventory Control System:

a) Ordering Cost b) Inventory Carrying Cost c) Cost of stock outs.

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Ordering Cost
This is the total ordering expenses for the
ordering or purchasing department

This cost includes: 1. Cost of staff posted for ordering of goods 2. Inspection cost of incoming materials

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3. Expenses incurred on transportation of goods

purchased
4. Cost of stationary, typing, postage, telephone charges etc

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Carrying Cost
This is the total cost of all the expenses involved in maintaining inventory. Such expenses include: 1. The cost of capital invested in inventories. An interest will be paid on the amount of capital locked up in inventories 2. The loss of material due to deterioration and obsolescence.

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Cost of spoilage in handling the materials Insurance cost Cost of storage which could have been used for other purposes (Opportunity cost)