CUSTOMER-ORIENTED

LOGISTICS
MANAGEMENT

PRESENTED BY:

Devesh Yadav
2012BTMBA003
 LOGISTICS

The commercial activity of transporting goods to

customers.

LOGISTICS MANAGEMENT

It is a supply chainmanagementcomponent that is

used to meet customer demands through the
planning, control and implementation of the effective
movement and storage of related information, goods
and services from origin to destination.
 OBJECTIVES OF LOGISTICS

COST REDUCTION: It is usually achieved by tactics such as

altering the number and location of warehouses, altering the
mode of transport, route optimization for the transport function,
and optimizing the quantum of inventory.

CAPITAL REDUCTION: It is a strategy devoted towards

minimizing the level of investment in the logistical system. Also,
substantial capital reduction can be achieved by leasing and
renting facilities without affecting the service output to the
customers.

SERVICE IMPROVEMENT: It involves giving better service

across the dimension of service without substantially increasing
the cost of logistics.
 FACILITIES DECISIONS
Three generic types of outbound logistics strategies are possible:

DIRECT SHIPMENT: In direct shipment strategies, goods once

manufactured are directly shipped to the point of sale without being
stocked anywhere.

WAREHOUSING: In warehousing strategies, however, goods once

manufactured are stored in warehouses waiting from orders from the
retail outlets or others point of sale.

CROSS-DOCKING: In cross docking, while warehouses do exist, the

storage time is reduced to a minimum. In this strategy, items are
distributed continuously from suppliers through warehouses to suppliers
with the items lying in the warehouses for just a few hours.
Cross docking is possible only when certain conditions
are satisfied:

i. The inventory destination is known when stocks are received

ii. Customer is ready to receive inventory immediately

iii. The number of locations to ship inventories are not high

iv. It is possible to pre-label the inventory

v. Inventory arrives at a state where it is immediately

conveyable
 MAIN FUNCTIONS OF WAREHOUSING
OPERATIONS

The warehousing functions perform several specific

activities :

MOVEMENT

STORAGE

INFORMATION TRANSFER
 MOVEMENT FUNCTION
This function itself consists of several activities such as:

i. Receiving: the main activity at this stage involves the unloading of

the goods, updating of the inventory records, inspection of damage,
and verification of merchandise count against the orders and
shipping records.

ii. Transferring: it involves transferring the shipment received to

locations within the warehouse specifically meant for the storage of
that category of inventory to enable easy access whenever required.

iii. Order picking or selection: this activity takes place whenever the
warehouse gets an order from the downstream recipient for the
goods stored.

iv. Shipping: once the order is received, the order is picked and
packed to be shipped after selecting the mode of transfer, after
adjusting the inventory records.
 STORAGE FUNCTION
Goods can be stored in a warehouse temporarily awaited an order from
the downstream intermediary or else, mainly in the case of seasonal
products, goods can be stored for a reasonably long period either to
offset the seasonal demand or on the basis of speculation or forward
buying.

INFORMATION TRANSFER FUNCTION

Information on inventory levels, throughout levels, stock keeping
locations, inbound and outbound shipments, facility space utilization,
order fulfillment data, etc. are the are the type of information that a
firm expects a warehouse to provide.
 MAIN DECISIONS IN WAREHOUSING

I. The location of the warehouse

II. The number of the warehouse

 I. WAREHOUSING LOCATIONS
The location or site selection decision can be approached from macro
and micro perspectives.

MACRO PERSPECTIVES ON WAREHOUSE LOCATIONS: It examines

the issue of locating a warehouse within a broad geographical area and
concerns issues such as whether the warehouse should be located near
the production plant, the market, or the midway between both.

MICRO PERSPECTIVES ON WAREHOUSE LOCATIONS: The most

popular approaches are the-

Centre of gravity method: It considers the transportation rates and

the points volume for arriving at the exact location for the warehouse. It
tries to minimize the cost of logistics by selecting an appropriate site for
locating the warehouse when the transportation cost as well as the
volume to be shipped to various markets is known.

Cost-volume-profit analysis: it is a simple method which uses the

break-even analysis to select from a set of locations. In this we decide
about a few alternative locations and then select from this set of
alternative locations.
 II. NUMBER OF THE WAREHOUSE
Four factors are considered in deciding about the number of
warehouses are:

a) Cost of lost sales: It is the stockout cost when a customers order is

not fulfilled due to lack of availability of stock within the permissible
waiting time allowed by the customers. This is basically an
opportunity cost, as actual outflow of money does not take place.

b) Inventory cost: These are the cost incurred in procuring and

holding the inventory for the entire system. Since every warehouse
will have a specified safety stock for all the item stocked, the
inventory cost are estimated to go up with the number of
warehouses.

c) Transport cost: These are the cost incurred in transportation in the

entire system consisting of the transportation from the production
point to the warehouses, as well as warehouses to the points of sale.

d) Warehousing cost: It consists of the cost of renting, leasing or

owning the warehouse as well as the maintenance of the warehouse.
 Inventory management
Inventory management is all about having the
right inventory at the right quantity, in the right
place, at the right time, and at the right cost.

Inventory levels directly influence the profitability

of a firm.
Excess inventory Greater chance of damage, More cost
Insufficient inventory- Missing out on sales, Missing out
on favourable prices.

So optimal level of inventories are required.

 Inventory management
decisions
4 main decisions:

1. Why do we need inventory?

2. Objective of inventory management

3. Inventory level decisions

4. Distribution resource planning system

 Why do we need
inventories?
Improves customer service: In the absence of
inventory, many customer orders might have to be
turned down.

Smoothens the operations of logistics system:

Inventories reduces the pressure on logistics system
to cut the lead time.

Reduces cost: Inventory carrying capacity can

reduce transportation cost by reducing the less-than-
truckload shipments. Moreover discount on large
shipments can also reduce cost.
Objective of Inventory Management

Reduce inventory cost

Developing accurate forecasts

Reducing lead time

Accurately calculating the inventory levels at

various locations

Achieving customer service targets

Cost associated with inventory

1.Inventory procurement cost: These are fixed

costs which have to be incurred in setting up the
machinery, procurement of related materials,
transportation, order processing etc.

2.Inventory carrying cost: 4 categories

a) Capital cost
b) Storage space cost
c) Inventory service cost
d) Inventory risk cost
a) Capital cost: It is the cost of capital tied up in the
inventory. It is difficult to calculate.

b) Storage space cost: The storage space cost is a

combination of the warehouse rent or mortgage, lighting,
heating, air conditioning, plus the handling costs of
moving the materials in and out of the warehouse.

c) Inventory service cost: These costs include insurance

paid on the inventory and taxes,

d) Inventory risk cost: It includes the cost associated with

obsolescence, damage, shrinkage of the unsold goods
3. Out-of-stock costs: Out-of-stock costs
are incurred when an order is placed
but cannot be filled from the inventory
to which the order is normally assigned.

Two types:
a) Cost of lost sale

b) Backorder costs
 Inventory level decisions
Inventory level decisions are the decision related
to the quantity of inventory to be carried.

As these decisions directly affect the inventory

carrying costs

These decision mainly involve two main

decisions:
Push or pull inventory control decision
Order quantity decisions
 Push vs pull inventory control:
In push strategy, decisions about the
inventory levels are taken at the central level.
The storage points are replenished after a fixed
time.

In pull strategy, inventory levels are decided

in a decentralized manner.
Can reduce inventory if implemented properly.
Economies of scale is hard to achieve.
 Order quantity decisions: Decision related to the
quantity and time of reordering the product is taken
so that optimal inventory level is maintained

The effect of variability in demand can be reduced by :

1. Risk pooling- Reducing the number of storage points.

2. Echelon inventory: It is defined as the inventory

between a stage in the supply chain and the final
customer.
 Distribution resource planning
system(drps)
It is a logistics information system innovation that enables managers
to plan effectively and efficiently

It controls the flow of goods from production facility to retailers in

time phased manner.

It helps manufacturers to make and ship just what is needed for the
current demand.

Helps to reduce inventory investment, safety stock levels and

transportation costs

Helps in improving customer service levels, flexibility in the system,

system-wide forecasts and the utilization of manufacturing resources
 Transportation decisions
3 decisions:

1.Mode selection: 5 modes of transport- air, rail, road, water and

pipeline. Managers must consider cost, dependability and
possibility of loss and damage associated with the mode available
to them.

2.Vehicle routing and scheduling: It tries to find out the best path
a vehicle should travel through a network of roads, rail lines,
shipping lines, etc so that the time and distance travelled is
minimized

3.Freight consolidation: It is mainly intended to reduce the cost of

transportation through bringing together smaller quantities of
inventory in order to create a higher quantity for transportation
Factors affecting transportation cost

1.Product related factors:

a) Density of the product:

b) Stow ability:

c) The ease or difficulty in handling

2.Market related factors:

a) Degree of intermode or intramode competition

b) Location of the market

c) Seasonability of the product movement

 Supply Chain Management
Supply Chain Management includes every
effort involved in producing and delivering
a final product or service, from the
supplier to the customer.
Supply Chain Management includes
managing supply and demand, sourcing
raw materials, manufacturing and
assembly, warehousing and inventory
tracking, order entry and order
management, distribution across all
channels, and delivery to the customer.
The SCM Network
 Principles of Supply Chain
Management

The four principles of SCM are:

1. Efficiency
2. Reliability
3. Flexibility
4. Innovation
 1.Efficiency
The principle of efficiency requires
that any supply chain should be
conscious of cost reduction in all the
activities. Efficiency leads to
reduction in the wastage of
resources, including wastage of time.
The principle of efficiency is reflected
in initiatives such as JUST-IN-
TIME(JIT).
 2.Reliability
Reliability is associated with
consistency. Consistency should be
measured mainly in terms of the
consistent delivery time
achievement, accuracy in order
fulfillment, consistency and accuracy
in payment processing time,
installation support and after-sales
service.
 3.Flexibility
Flexibility is associated with the
ability of the entire supply chain to
adapt to changes in the demand or
supply pattern. Flexibility is also
termed as the agility of the supply
chain.
 4.Innovation
Innovation is important as it could
generate a sustainable competitive
advantage for the firm. Supply chains
that do not innovate will slowly erode
their comparative advantage with
regard to their competitors.
Generic Supply Chain Management
Strategies
Four different Generic Supply Chain
Management Strategies are:

1. Rationalization strategy
2. Synchronization strategy
3. Customization strategy
4. Innovation strategy
 1.Rationalization strategy
Rationalization strategy places
greater emphasis on process
rationalization that eventually leads
to better net margin. This strategy
involves closely assessing the
process and working about ways of
reducing wastage wherever possible.
 2.Synchronization strategy
Synchronization strategy involves
elements such as collaborative
inventory management, perfect
order fulfillment and optimal
inventory placement. One of the
most popular supply chain practices
that follows from synchronization
strategy is JIT inventory
management.
 3.Customization strategy
Customization strategy involves
developing specific Strategies for
profitable customers and executing it
with a view to establishing a long term
relationship with them. The elements of
customization strategy involves mass
customization, lifetime relationships,
customer profitability management,
customer knowledge management and
value analysis.
 4.Innovation strategy
Supply chain innovation strategy involves
exploiting the competitive advantage
generated by a strong supply chain to
introduce successful new products in the
market at a much higher rate than
competitors. For a company like apple
developing a constant stream of new
product involved working closely with
their partners in research and
development (R&D).
 Supply chain techniques
Supply chain techniques are the
bunch of activities that the SCM
process should incorporate, in order
to achieve the objectives set in the
SCM strategy. According to Jacoby
(2010) the essential supplies and
techniques are as follows:
1. Supply chain network design

Network design is probably the most

critical part of supply chain
management. To achieve the
optimum supply chain performance it
is necessary to establish a powerful
network design. Fairness and
transparency contribute to the
sustainability of a network design.
 2. Capacity planning
Capacity planning is associated with the
ability of the network to respond to change in
demand patterns and market conditions.
Capacity planning requires both long term as
well as short term orientation. For instance
capacity planning should address issues such
as- if the demand increases gradually how the
requirements for additional inventory storage
limit after 2 years? In the short term how the
short term dip in demand affect storage space
productivity?
 3.Risk management
Environmental factors such as
sudden increase in cost of certain
components or disruptions to the
physical flow of goods due to natural
disasters could create tremendous
disruption in the whole system. Risk
management is therefore very
critical in SCM strategies.
 4.Organizational Change
management
SCM is also an Organizational
process involving organizational
players including departments,
teams and informal groups. SCM
involves a continuous adaption to
market changes, the organization will
also need to change constantly. An
organization that refuses to change
will find it difficult to adopt SCM.
 5.Performance measurement and
monitoring
Developing and implementing
performance monitoring process is
also very crucial to success of a SCM
strategy. Performance metrics and
measurement provide the crucial
feedback that guides the SCM
strategy. Lack of proper feedback or
faulty feedback leads to faulty
implementation of the strategy.