Physical Distribution and Channel Management

NIDHI SHARMA

Trends in Supply Chain

At

the heart of the organization are the operations that create and deliver its products. So we can view an organization as taking a variety of inputs ( the raw materials, people, equipment , information , money and other resources) doing operations ( the manufacture , serving , transport, selling , training , etc) and creating outputs . This view highlights the flow of material from suppliers through operations and on to customers . Material are everything the organization uses Both tangible ( raw materials, work in progress , finished goods, spare parts, etc) and intangible ( information, money and Knowledge , etc)

Definition Supply Chain

A

Supply chain is the series of activities and organizations that materials both tangible and intangible move through on their journey from initial supplier to final customer. Logistics is the function responsible for moving materials through supply chain . Alternatively by Definition of Chartered Institute of Logistics and transport Logistics is the time related positioning of resources or the strategic management of total supply chain The Supply chain is a sequence of events intended to satisfy a customer. It can include procurement , Manufacture , distribution and waste disposal together with associated transport , storage and IT

LOGISTICS COSTS
The

broad function of logistics embraces a series of related activities , including , procurement , transport receiving , warehousing , inventory management , material handling. Order processing, distribution , recycling , location decisions . Information processing and other related functions . At a national level the gross domestic product of United States was $12 trillion a year, so $2.4 trillion might be spent in logistics with half of this for transport. In UK the transport and storage contributes to 4.5 percent of the GDP

Development of Logistics
When

Managers Started to realize the importance of Logistics it developed very quickly . This pace continues , with pressure for change including Recognition that logistics is an essential function that must be managed properly Realization that decisions about the Supply chain have a strategic impact on performance Appreciation of the high cost of logistics and opportunity for many savings Growing emphasis on customer satisfaction and recognition that this depends on logistics Increasing competition for both users and providers of logistics

New type of operations such as just in time , total quality management , flexible operations, mass customization , lean operations , time compression etc. Sustained growth in international trade and free trade areas such as the European Union and North American free Trade Agreement Improved communication allowing electronic data interchange (EDI) , B2B, B2C and e-commerce More technology with vehicle telematics , Intermodal systems, identification and tracking systems, improved vehicle design etc. Integration of operations and organizations through strategic alliance , partnership and collaboration Changing pattern of power in the Supply chain with large organizations dominating certain areas and setting industrial standards

 Organizations

focusing on the whole process of satisfying customer demand , rather then simply making products Increasing concerns over risks to supply chains and their ability to respond towards pollution, waste, traffic congestion , road building etc. Changing government policies on the ownership , regulation , use , responsibilities and cost of transport

Definitions
Mass

customization, in marketing, manufacturing, call centres and management, is the use of flexible computer-aided manufacturing systems to produce custom output. Those systems combine the low unit costs of mass production processes with the flexibility of individual customization

Approach to Integration
Initially

all the organizations looked for improvements in activities by looking at functions in isolation like Procurement, Inventory control, transport, warehousing , material handling , Packaging and so on . But soon it became clear that there are no separate activities that can be held in isolation and any change to one activity inevitable effects the other . Planned improvement in procurements affects inventory management, Changes in packaging affects material handling , changes in transport affects warehousing and so on . So it can be best handled by viewing it into a single integrated function

 Generally 1)

2)

many organization have two functions Material management aligned with the production and concerned with the inward flow of raw material and their movement through operations Physical distribution aligned with marketing and concerned with the outflow of finished goods.

The benefits from the integrating logistics along the supply chain include Common objectives of all parts of the supply chain Genuine cooperation to achieve these objectives Sharing information and highlighting important features

 Faster

and more flexible response to customer demand Replenishment and movement triggered by actual demands Lower Stocks Less duplication of efforts , information , planning , stocks , etc Improved efficiency and productivity Easier planning Less uncertainty , errors and delay Elimination of activities that add no value to customer

Levels of integration
The

First has logistics as separate activities within an organization The Second has internal integration to bring them together into a single function The Third has external Integration when organization looks beyond their own operations and integrate more of the Supply chain Higher level of integration allow a supply chain to work together with quick response or efficient customer response ( ECR) allowing final customer purchase automatically to send a message back through the chain and trigger a response from upstream suppliers . The EPOS ( Electronic point of sales ) System sends

 Message

to the wholesaler to say that the stock needs replenishment then back to the manufactures to say it is time to make another pair of jeans and then back to the supplier to say that they should deliver materials to the manufacturer and so on

Logistics Strategy
With logistics as a single integrated function it is clear that some of the logistics have a strategic importance Such as the design of the supply chains , sourcing policies , alliance with suppliers, method of procurement , relations with customers , mode of transportation , location of facilities , size of operations , use of technology , recycling policy so on and so forth To design a successful logistics strategy managers need to understand and balance the competing demand of Higher strategies, including the mission , corporate and business strategies that set the context for logistics Business environment , which includes all external factor that affect logistics, but which managers cannot control . These include customer market conditions , available technology , economic conditions, legal restraints, competitors, shareholders, interest groups, social conditions , political conditions , and so on

 The

best rationale approach to improvement , such as the following steps Make everyone aware that to remain competitive changes are continuously y needed to the supply chain Examine current operations identify their aims see how well they achieve these identify problem areas and weaknesses Use benchmarks and other comparisons to identify possible improvements Design better procedures using the knowledge , skill and expertise of everyone concerned Discuss the proposals widely , make adjustments, negotiate agreements and get people committed to new methods

 Design

a detailed plan for implementation and improvement Prepare for new methods making necessary changes to the organization structure , system , facilities etc. , establishing milestones , giving appropriate training , setting challenges but achievable goals, making it clear how goals can be achieved Have a specific event to start a new method Monitor and control progress , checking the milestones are achieved giving support and encouragement updating plans and continuing discussion about the progress problems and adjustments Accept the new methods are only temporary and continually look for further improvement

The search for improvements has lead to many changes

Postponement- Traditionally manufacturers moved finished goods out of production and stored them in the Supply chain until needed Factory gate pricing One way to coordinate the flow of materials in a supply chain is for key players to take over management of logistics . With factory gate pricing a single organization often a retailer takes responsibility to deliver from factory gate to the final customer Cross Docking Cross docking coordinates the supply and deliver so that goods arrive at the receiving area are immediately transferred to loading area and put on to delivery vehicles no storage . A related concept uses drop shipping where warehouses do not keep stock themselves , but coordinate the movement of material directly from upstream supplier to downstream customer

 Small

deliveries such as just in time and agile and direct deliveries - inevitable leads to smaller and more frequent deliveries. IT has spurred the growth of parcels like FedEx, UPS Increasing vehicle utilization vehicle sometime travel empty or with partial loads .Methods for reducing this includes backhaul( where delivery vehicles find loads for their return journeys) , reverse logistics

 Outsourcing

- Organizations benefit from concentrating on core operations and outsourcing peripheral activities to specialists .The Logistics function is popular for outsourcing , with specialist service providers taking part or all of material movement and storage . Fewer Suppliers - Traditionally organizations have used a large number of suppliers to encourage competition , ensure they get the best deal and guarantee continuing delivery . However increasing cooperation within a supply chain particularly strategic alliance encourage organizations to kook for a small number of the best suppliers and work exclusively with them

Responding to changes in the business environment

Concentration of ownership Large companies can get economies of scale and efficient operations , so a few large companies often dominate industries . Movement of power to retailers Historically most power in the supply chain was with manufacturers in the way the Toyota is still the focal organization in its supply of cars. Several trends including the outsourcing of manufacturing of low cost regions and global sourcing have moved the power in many supply chains . Now retailer is often a key player Mass Customization It is the ability to personalize products to individual customer demands . The aim is to combine the benefits of mass production with flexibility of customized products with B2C giving direct communication between final customer and manufacturer and supply chain that can move materials reliably and quickly .

 Increasing

environmental concerns logistics is clearly moving towards greener practices. One aspect of this is reverse logistics which includes collection and recovery of end of life products and return and reuse of packaging. Risk Management Managers are increasingly aware that they have to assess risk both natural and artificial and plan their actions either to avoid risk or to mitigate the effects . A supply chain become longer there is more inevitably more chance of disruption and logistics managers have to take a proactive approach

Logistics Integration Program

Factory Road Transport Consolidation / Distribution Center Inland Road Transport Port of Loading Ocean Vessel RAIL Transport

Port of Discharge Road Transport ICD

Road Transport

15

Factory

Concept of Physical distribution

Business Logistics : Physical Distribution

Logistics

activities are among the most pervasive of all human activity and involve movement and storage of goods for the purpose of achieving the desired objective of making the right types of goods available at the right time and at the right place . The function is given the name physical distribution management

 Physical

distribution is specifically concerned with the flow of goods through the economic system. In the business firm , the logician is concerned with the inbound movement of goods to supply the production process of the firm . In this settings the firm is the customer and anticipates a certain level of distribution service from suppliers . The firm is also a supplier of finished or semi finished goods and the logisticians must provide a level of distribution service to the firms customers

This tour of Material primarily involves the functions shown

Transportation Inventories Packaging Warehousing Material

Handling Locational analysis Order Processing Customer Service

Transportation is an essential and one of the most important component of Physical distribution . Inventory Control A very high inventory level results in high inventory cost and potential obsolescence . A very Low inventory level results in high restocking and production costs as well as the risk of lost sales and customer goodwill . The level of inventory is related to such factors as transit time and storage space, Warehousing Warehousing is another important function of physical distribution particular when the manufacturer produces consumer goods .The optimal location of a warehouse or warehouses having regard to minimal transportation costs, customer public warehouses are some of the issues to be decided by logistics management . Packaging packaging is another function of physical distribution and its cost is an important element of the total cost of goods to the consumer

Material Handling - An important responsibility of physical distribution is material handling , excluding the production line. The development of material handling techniques in recent years has been phenomenal. The use of proper equipment can speed up operations in dispatch and receiving . It can also affect the use of storage space and reduce the cost . Order Processing- With the increase acceptance of the concept of customer satisfaction, management are now paying more attention to order processing .Credit check paper processing , retrieval from warehouse , assembly and packing dispatch by transporter , adjustment of inventory level and transmission of information to production planning these are functions which have to be effectively carried out . It is the responsibility of the physical distribution department to analyze the order flow and introduce improved procedures , whenever necessary

Locational Analysis With the continuous growth or individual growth of the company new plant location must be carefully chosen , Further the trend towards decentralization and industrial development of backward areas places increased emphasis upon a site location that best meets the needs of a company . An analysis of physical distribution aspects in plant location covers the market area, the existing transportation facilities and rates and warehousing. Physical Distribution as a link Each of the above functions covered under physical distribution is important by itself in move store activities . The decision in one area cannot be made in isolation , since any decision in one area leads to compulsory changes in one or the other areas Traditionally business is organized around the marketing and production function . Apart from production and selling a few other activities have necessary to be performed in the organization . Also it is evident that marketing executives are interested in increased efficiency of different goods because they are concerned about the customer service levels .

 It

is obvious that marketing and production are often in conflict . Under these circumstances the best alternative is to have a unit or a department which is able to make more integrated system approach to the problems to take a decision. A logistics manager who is wedded to the integrated approach serves a good monitor as to who can be a watchdog of interest of all departments in a manner which would be beneficial for entire organization .

 During

the early phase of industrial growth emphasis was laid on problems of production . Physical distribution function : Historical development - The development of the principles of scientific management in the latter half of the nineteenth century and its successful application to production problems resulted in revolutionary improvement in production techniques. Unless the goods and services that are produced are distributed the enterprise is unable to serve its objective

 The

below mentioned areas are the areas of neglect as given below For project requiring substantial investment a fairly serious and detailed storage and distribution of products is required. It has been generally observed that top executives themselves are ignorant of forecasting techniques . The delay in moving construction materials and machinery or raw material etc. . Usually delays the commission of the project .

Lack of attention to the movement of such intermediate product as effluents , slag, etc. often leads to a heavy loss of earnings to damage to environment and loss of production schedule.

Easy availability of spare parts and other maintenance materials right at commission stage is often overlooked on the facile assumption that they are not required when plant is new and may be obtained only later on . The relative location of the plant the suppliers depot and customer market largely determine the transit time for raw materials spare parts and finished products. If the need be transit time can be cut off . The existing bottlenecks in the field of transportation are almost always ignored and therefore no action is taken to eliminate delays due to this bottleneck. Since physical distribution planning requires specialized knowledge of different types of industrial activity and the use of complex quantitative techniques for the solution of admittedly difficult problems in various move store activities , executive generally regard these problems insoluble . Vary strangely shortage , delay and deficiencies of all kind are treated as normal in many organizations . Many industries have shut down because of the above mentioned examples

 One

witnesses a strange paradox in the our country plenty of raw material coal lie at the source but the user industry is starved. Similarly the warehouses of fertilizers are filled up to the brim but the farmer is unable to get the product when needed

Customer Service Oriented Approach

An

economy plagued by shortage and deficit is manufacturer oriented and in this area manufacture is the King On the other hand when the supply is more and the demand less then the customer has more choices to make and so here customer is the king . In this market a firm cannot afford to neglect the customers wants In this context four major factors in the recent past have influenced the emerging role of business logistics all over the world .

The development of mass communication media including television has lead to the condition that the manufacturer directly or indirectly communicates with the customer. Alternative modes of transport have lately developed which have facilitated a more reliable transport of goods of a particular type to the particular market . With the development of economy , a rise in the standard of living of the masses and the market covering wider areas including foreign countries , the total consumption volume of goods and services increased and so there is a substantial increase in the volume of goods and services being stored The complexities of management of personnel and every other factor of production has lead to increasing specialization in the field of business Logistics and physical distribution as well

Manager Oriented Model

Managers assessment of goods and services required by Clients Managers assessment of resources and constrains of Organization Managers Design of goods and services Provision of goods and services to Clients

Rigidity Monopoly Lack of participation Lack of Feedback Satisfaction

Client Oriented design of goods and Service

Scientific assessment of level and quality of goods and services required
Managers Assessment of Organizational resources and constraints Modification of organizational resources and constraints

Assessment of clients satisfaction for feedback to organization

Design of goods and services with client participation

Flexibility Feedback Participation Satisfaction

According to this Model the chief manager undertakes the following actions
He

determined the level and quality of goods or services required by the customer Even if the customer has extremely diverse characteristics a common denominator with a certain commonly accepted level and quality of goods and services is scientifically determined Thereafter the resources available with the organization are assessed In so doing the constraints rules and regulations of the organization which come in the way of meeting effectively and efficiently the demand of the customer are specially identified. Then the available resources are so reorganized that the customers can get what they want

 If

the need be and if it is possible the organizations resources are augmented by levying a small additional fee on the goods and services specially designed for a particular group of customers , if it has the capacity to pay for the higher levels and quality of goods and services From time to time feedback is scientifically collected from the customers with regard to the level of satisfaction with the quality and level of service the clients have been provided. If need be the quality and level of services are improved in the direction indicated by the feedback from the clients

The main features if Customer Oriented Approach are

An organization's orientation towards customers is based on its general positive attitude towards customers It is recognized that a customers needs are more basic that the products itself or its design , howsoever efficient the design or howsoever elegant appearance . A product must be viewed in the context of its end use . It must not be merely palmed off to the customer somehow or the other so as to recover the cost of production and make a sizable profit . The increased volume of sales does not necessarily yield high profit . In fact higher sales may be effected at higher costs . This may be detrimental at the long term interest of the organization The customer is the starting point for determining the required levels of lead time service and satisfaction .

 Better

service to the customer need not cost more . In fact an organization's resources are often wasted on the activities which are avoidable and on services only a fraction of which are used by the customers. Some of the specifics desired by a customer are A) Lead Time This is the interval between the date of booking of an order for goods or services and the delivery date , or what is called as the order cycle time . The lead should not only be short but dependable as well . B) Dependability This represents consistency and reliability in meeting deliver schedules, in sending the right quality of goods without damage or rendering the right kind of service and following the special instructions given by the customer .

Communication The customer like to be told the status of delivery or non-deliveries . He needs this information for his own planning The quality of service is particularly dependent on the per se characteristics of the product and after sales service . A customer derives considerable satisfaction from these features of service A customer required a guaranteed quality and quantity of goods and services from dealers. Suppliers who in turn need a guaranteed quality of goods and services from the manufacturer It is necessary to guarantee satisfaction to distributor, agent, dealer , retailer and customer . Standards of desired levels of customer service have to be developed for planning , manufacturing and controlling the physical distribution function of the organization

 The

total cost of the physical distribution function has to be taken into account for determining customer service levels since all the move store activities are interrelated in a complex manner

Total Cost Approach

According

to an expert to remain competitive in todays marketing a firm has to offer almost as many conveniences in order processing and billing and distribution as in the design of the product itself. One customer may require goods in jute bags, others in woven plastic bags, the third in laminated paper and fourth in a loose condition Inventory costs Inventory costs are directly affected by such factors as the mode of transportation , the number of warehouses planned, the levels of inventory maintained to ensure certain level of services . Primarily these costs are incurred on Physical inventory and the inventory in transit the inventory costs are the costs in the money locked up in the cost of goods , insurance ,

 Occupation

of space, pilferage, losses , damage etc as well as the maintenance of inventory . These costs are increased by the costs of obsolescence of a product over a period of time especially when the company makes rapid changes in product models or where products are perishable. Any distribution decision with regard to transportation packaging material handling order processing etc in the finally analysis may affect the cost of inventory Also the cost of low inventory has to be taken into account as when the manufacturer is unable to deliver goods due to shortage of raw material and to supply goods due to inadequate finished product stock he looses sales

Warehousing costs
There

is always a gap between time of production and time of consumption due to which the goods have to be stored either in the production center or in marketing areas or somewhere in between

The warehousing of raw material steps up the cost of their supply or the cost of distribution of the finished products . Also to improve customer service to a certain level , it becomes necessary to increase the number of warehousing ( rasing costs ) it is obvious that if the number of warehouses increases the individual size of the warehouse decreases . At the same time the increased level of warehousing decreased the costs of transportation

Production or Supply Costs

Production

costs tends to decrease with an increase in the volume of production . Also these costs vary between various production point . If manufacturer has various plants producing the same products he has to make a decision to vary the supplies or production from certain plants a move that inevitably effects the cost of production itself as well as the costs of transportation , transit time , warehousing and inventory costs

Channels of Distribution

Various alternatives for distribution are available to a manufacturer . The distribution may be through a sole selling agent to the national level , or through regional distributor or through wholesale dealer or by direct supplies to dealer and retailers or even to customers. In traditional marketing concept the manufacturer is interested in scaling down the discount of the customer to reduce costs . But if the discount is low he may not because of his low profit margin , distribute the goods in sufficient volume or to critical markets , or may not render satisfactory customer service Similarly the changes in distribution system may take place by alternative use of space say for inventory for marketing and production centre

Communication and data processing

An

effective distribution system requires continuous monitoring of order pricing , inventory control , accounts receivable dispatches etc. An increased number of distribution points would certainly improve customer service but would make processing of information more cumbersome and expensive Also if the time taken to process information is decreased it is likely to lead to better customer service

Transportation Cost
The

cost of transport varies with the speed with which goods are transported . Water transport is the cheapest while air transport is the most expensive .Both rail and road stand in between water and air Cost of in transit inventory varies inversely with the speed . The cost of packaging , damage and losses , payment of claims etc are the other important factors to be considered while selecting a particular mode of transport

Material Handling Costs

A

suitable material handling system should be designed to reduce the cost of material handling to the minimum . The material handling operations have an impact on other distribution aspects such as the cost of packing as well as the damages and losses that result from material handling.

Packaging Costs
Decision

on the packaging are affected by decisions on such factors as the mode of transport and material handling equipment . On the other hand the selection of particular mode of transport determines the characteristics of packaging

Customer Service Costs

A

manufacturer or supplier cannot always ensure the availability of goods whenever they are demanded by the customer . One hundred percent of availability of goods would require a considerable inventory at each stocking point . The manufacturer or the supplier has to set certain limits up to which he will satisfy customer demand and trade off the cost of lost sales against inventory carrying costs Also the replacement of defective goods requires movement of such goods back getting it corrected and then resending them and the feedback by the customer can be used by the management to improve the areas required resulting in buying back the customer

On closer Scrutiny the following conclusions may be arrived at

The

real impact of distribution costs on profit is much greater than management usually perceives . ( Cost of lost sales etc.) Many of these costs are in no mans Land due to conflicting requirements of continuous and adjacent functional areas . The costs incurred in these areas and in general do not respond to usual cost cuttings methods because of the cost cutting approach In Order to apply the Total Cost Approach ( TCA) , it is necessary to examine the various costs closely which affects the distribution function

 It

is difficult to separate and identify all the physical distribution costs because historically the costs data are maintained by firms primarily for production and finance . These data do not become easily amenable to an analysis of distribution costs Very often cost data are not made available for critical study but it is very necessary to get these data in the form in which they can easily be analyzed for consideration of physical distribution management Big chunks of costs are added as administrative overheads or miscellaneous expenses without any proper identification

Emergence of Physical Distribution Management

In India and in other countries the employment of the physical distribution function has been neglected One witnesses a generally low level of professional management expertise at all levels of management . This is due to general lack of or a low level of development of management in an organization Even with high level development there had been a delayed development of the subject of physical distribution Because of the preoccupation of top level managers of organization with the production or manufacturing of issues this subject has not received adequate attention. Even minor changes to physical distribution function can result in substaintial profit

 Physical

distribution costs are generally hidden In India the subject of physical distribution management has not developed because of the localized nature of business operation The Operations of organizations in the country are relatively at a very low level But even in large scale operations physical distribution management had not received adequate attention because of the cost of bottlenecks giving rise to shortage and scarcity of even essential goods

Accounting methods have not been developed yet to evaluate and advise management on the costs of such shortage and sacrifice

 Because

of low level development of the economic system , alternative modes of transportation are not available to the organization . The only choice available to people is take it or leave it At the same time managers do not feel the urge to develop alternatives or look for them Since with the current methods that are getting profits do why adopt sophisticated techniques Because of the lack of sophistication on the part of manager in all areas including finance . Todays cost approximations are incorrect In general there is a lack of system approach to the problems partly because the individual managers find it easier to focus on individual subject

 Individuals

are encouraged to focus attention on their own performance and outshine in isolation to outshine in isolation Individuals and organizations have not got used to determining the value of loss of time , or completing a specific task or project within a given time frame

Logistic Information System

Logistics Information System

Information

is basic to decision making and decision making is the essence of the management function . A Manager relies on good information system to make decision pertaining to his function and level of management

Manager Information System ( M.I.S)

An

information system that enables the management to make decisions may be called management information system . The information received from a particular source should be viewed in caution because every source has its own bias and tends to report or convey information with a view to paint a rosier picture than is warranted by facts. ( District collectors )

Elements of MIS
A

management Information system which assists in the making of crucial decisions for the organization must guard against the usual , Natural and deliberate errors which are likely to occur in the very collection , transmission , reception and processing of information . It must also make allowance for deliberate and unconscious errors It is evident that every organization has an information system wherein the following organized operations takes place : Sources There are certain identified sources of information in a system . They may not be reliable resources or resources of authentic information

 These

sources of information for physical distribution management are sales orders , accounting data, published data in books and periodicals Collection of Information - Information from given sources in the environment which is required for the decision making purpose is collected either when available or when needed . The system may receive information from the sales staff ,periodicals , publications, letters , telegrams , telex from dealers , distribution , customer and research organizations Storage The data are collected from various sources in a form and in a manner which are found convenient for storage Retrieval The information which is collected from data sources , processed and stored has to be retrieved for the purpose of decision making

 Reports

: the collected stores and retrieved information has to be put up to the decision maker . In routine organizations, a letter , a report a noting by an official , instructions from seniors these trigger the process of decision making . A manager must be cautious that in all the foregoing five major elements of information processing in an organization , there is a likelihood of errors creeping in . It is essential that the retrieval of information from storage is without error , fast and prompt .

Computerized Information Systems

The

order processing system is only one aspect of the total logistics information system . The total information system includes mathematical and statistical modeling . It does not take decisions it is only a decision assisting system The second type of system is the control system . This system is based on given decision rules .Examples of Such systems are inventory control , computerized material handling and storage system , computerized order processing system etc. .There is a possibility that manager loses personal control over the management of certain low level function . A departure from established rules becomes impossible unless the manager himself is conscious of the need for change and wills it

 Under

the demand supply coordination , purchase order of raw material and sales order of finished products have to be processed . On the raw material side this involves a follow up of the indent upto the point of the issue of raw materials, including the issue of the purchase order with the vendor , the receipt of materials, the warehousing of materials . The maintenance of inventory and issues of materials , when required by the user department . On the Finished product side , it involves a follow up of sales order , the processing of sales orders received by the firm , the flow of information , inventory management policies , warehousing . Scheduling and allocation of finished products etc.

Logistics Information System

 The

following four primary activities take place within the logistics information system Data flow from external sources Processing and storage of information within the firm Communication of data for storage and processing to the decision maker in the form of reports Communication of decisions to the customer and their feedback

External Information System

For

the purpose of a better planning of the logistics system. The customers cooperation is required to obtain information on the following Order Patter of the customer Material Handling system available with the customers Re-order point of the customer Ordering procedure of the customer The following information is desirable from various internal departments for the external information system

 Purchasing

: preference of the component parts purchased by the firm and the customer requirements for replacement of inadequate components parts Production: Information on product preferences competitor product performance and recommendation for product or packaging improvement etc. Marketing : Sales Structure , reaction to sales promotion efforts , adherence to market directives , management and manpower capacities and limitations , financial capacity , competitor market activity , customer service requirements etc Finance and Control : Sales Statistics , financial capacity , credit rating etc

 Physical

Distribution : Sales statistics , inventory control system , warehouse locations and capacity , re-order pattern and system , Material handling system , competitive and non-competitive products sold , receiving requirements and preferred carriers , specialized customer , service requirements , recommendation for customer service improvement , transporter performance

 Customer

order Pattern Not only the number of orders , the number of individual products ordered and total volume of product ordered by a customer but the time pattern of order too is important for a firm from physical distributor point of view . For Example the number of orders from a particular region , areas , district or location may be combined together to reduce the transportation cost . A customer may be persuaded to alter the order pattern to suit the firms inventory plan . If possible even concession can also be offered to induce him to agree to a particular plan

Material Handling System The movement of products for a number of customers can result in a substantial saving of material handling systems of supplier and customer itself . In many countries palletization has been resorted toby suppliers Stock Re-order point Stock out situation arise causing an emergency in a customers system . When the reorder time or the re-order cycle time exceeds the cycle time expected by the customer . For example a customers re-order point of 300 units may suffice with the order cycle of 10 days with a consumption rate of 30 items per day . If the cycle time is exceeded by the supplier and becomes 15 days for one or the other reason the customer will be out of stock for 5 days Various methods can be used to get information from the customer about the rate of the sale of goods or the inventory flow and the time at which suppliers good may arrive at his location

Order Procedures
Traditionally

, the ordering of goods may take place with a letter specifying the quantity and description of goods and the expected rate of delivery . In the past , therefore uniformity and certainty in orders was sought to be achieved by deputing the sales staff who were familiar with the wide range of products of the manufacturer and the individual characteristics of each . This system avoids considerable time and delay and hence investments in transit inventory on the. In case of consumer goods , which are standardized , the customer has to specify only a given code name or number .

 Another

method of getting the same result is to supply standard re-order forms to the customer who is required to only tick off or circle the quantity mentioned against each item in the printed product list. The Customer is only supposed to fill in order quantity and delivery period and sent back by the customer to the supplier . Moreover the dispatch orders are printed out automatically by the computer and compiled with by the warehouse as they are received

Internal Information System

The

internal information system is made up of the elements of information flow within the organization . This flow of information is between the department of purchasing , production , marketing , finance etc. on several important issues .

Purchasing
Total

logistics cost of purchasing from different suppliers and supply point Routing instructions for inbound material and suppliers Status of inbound materials and supplies Suppliers preference in meeting specified delivery periods Name addresses etc and other details about the purchasers

 Delivery

request deadline Supplier price and price discounts Alternative sources of supply and process

 Warehouse

Production

products Production quantity and planning Warehouse material handling system Alternative costs of logistics based on different schedules Delivery requirements from production line to warehouse Status of inbound movement of supplies and raw materials Logistical innovation Production Capacity Alternative course of production based on different production plans

capacity for raw material and finished

 Revised

party plans Production innovations Physical supply requirements and delivery deadlines

 Logistics

Marketing

service Performance in meeting regular customer service Standards Potential changes in logistics which may effect future sales efforts and programs Competitor logistics cost Customer complaints New products introduced and sales production plans Sales costs Customer service norms Prices and price adjustments Special customer service requirements

costs for alternative level of customer

Finance
Budget

for Physical distribution costs Various element of costs Projected capital investment requirements Order processing system to provide coordination with invoicing and accounts receivable Freight bill auditing procedure Customer credit rating Credit procedure Corporate financial condition and performance Capital availability Status of capital requests

Service Agencies
Proposal

for rate adjustments Rate information requirements Request for quotations for equipment's Freight rates Carrier rates, services and availability Request for rate adjustments, transportation equipment , transit time standards etc.

 Customer

Verbal Telephone Telex

Marketing or Distribution Department

Communication of order

Order processing/ Cell documentation

Credit Check

E-mail
order Form

Inventory check
Order for Dispatch Replenishment of Inventory

Elements

of order Processing

Intimation to Customer Dispatch of goods Receipt of goods Collection of payments

 The

Customer order is the one single document on which the whole physical distribution system is based . It gives information about the description of the finished products required to be produces at any point of time and dispatch to a particular place at a given time . Also by the compilation of the individual customer orders or order forms , it can prepare statistics for the past and forecasts about the future . Also so the computerized information becomes very pertinent , Even if the orders are taken on the phone the details are copied on the preprint order form . The order processing department converts these orders into specific instructions on the warehouse to dispatch the goods

 The

goods are dispatched after checking the customers credit rating

Document Processing
No

two orders document processing systems are alike . The actual characteristics of the background of the company , its product lines , customer characteristics , the nature of competition and the state of internal data systems . When documents are processes by the order processing system , two options are available to undertake the order fulfilment process as a sequential set of activities or to perform some of the operations in parallel

 Flow

Chart of a customers order processing in the organization

Sales Organization
Order Processing Cell
Inventory Check Credit Check Production Schedule Coordination
Customer Intimation
Dispatch to the customer Transportati on

Customer

Order

Invoicing

Shipping Document atation

Warehouse

Costs
Order

Processing is basically an administrative function . Its costs is represented by office expenses . These include employee remuneration and benefits , conveyance and travelling , expenses , postage , telegrams, stationary , rent , expenses , taxes , office equipment, repairs, etc. Once a system has been established and the staff recruited , there are no major variations in the year to year expenditure because of the small changes in the level of activity . Increase in the costs are generally due to inflanationary conditions additional government taxes and the annual increment given to the employees

Order Cycle time

This is the time interval which elapses between the time the customer order is received in the company and the time the goods are actually dispatched. For this the instructions to the warehouse should be carefully given in order to avoid delays Order Form To facilitate working and minimize the possibility of errors . Pre-printed forms are used to book orders . The sales of the items of a particular suppliers or manufacturer are directly recorded by the computer of the supplier or manufacturer while the cash memo is being prepared. It is necessary to reduce the discrepancies in the quantity description , destination , mode of transport , etc in the goods ordered or deemed to have been ordered . When the customer uses hos own purchase order format . The information must be transcribed in the form in which it can be used by the supplier of manufacturer Status reporting A customer would like to know the status of is order in a general manner . For example he would like to now that his demand will be satisfied in one week , one month or six months . He would always like an intimation on expected date of delivery

Internal Processing
Order

form data are utilized for the preparation of sales records. Credit status reports , billing schedules , manufacturing and purchase schedules, work schedules , product schedules all these have to be prepared from these data . It should be possible to supply duplicate copies of the order forms to respective departments, this would involve additional costs Alternatively the same form may be routed from one department to other which may cause delay . Similarly purchase order for raw material supply may be routed from one department to the other . The sequence may be so determined that the flow of information is expedited , and it is ensured that documentation takes place in all the relevant departments

Credit checking
An

important element of order processing is check on credit worthiness of the customer before the supply of goods is effected . There are conflicting requirements of , say the sales managers and the credit manager . A too detailed scrutiny of the credit worthiness may result in delay and eventually cancellation of order . So it should be performed as expeditiously as possible

Inventory Check and policy

After

the check on credit worthiness , the available stock of goods has to be checked Because First the existing inventory stock may not be adequate to meet the present demand of the customer . How much order to be fulfilled this decision has to be taken also a decision regarding the substitute to be offered are to be taken . Sales policy may have to be framed to offer a discount or insist on a linked sale , etc

Dispatch Communication After checking credit and price etc. Order must be transmitted to the warehouse for execution . This also should not take long as it might result on order cancellation . Explicit dispatch instructions should be given to the warehouse and simultaneously the customer should be informed about the status of the order Dispatch After an order has been received at the warehouse the warehouse staff have to order for transport , while simultaneously preparing document for dispatch , for the purpose of account of stock , billing and advise to the customer, billing of transportation and intimation to all concerned , including marketing , production , finance , purchase and other departments .

Logistics Information System Design

The following are the four major consideration to be taken into account for the design of the optimal design The Decisions to be made in the organization at each level of management The requirement of the system The requirement of control over the system Input and output data Organizational decisions 1) Some information may neither be essential nor desirable , but it might be good to have it for various other considerations . Therefore while designing an information system a line has to be drawn between what is essential , what is desirable and what is good to have

Second a judgment has to be made and a compromise struck between the tangible and non-tangible costs of the collection and processing of information and the quality of decision making required in the organization 3) IF some information is required by the manager once in a blue moon , it may not be worth the trouble and expense of collection and updating it may far outweigh the benefits of having it available only once The cost of information collection and processing ,including the cost of maintenance and updating is only one aspect. The other aspect is a consideration of how the quantity of decision making will suffer if no information is available to decision making on a particular subject . The information which is not duly processed and updated is as good as no information . Irrelevant information would only worsen the quality of decision making

 While

planning for a logistics information system design : two types of requirements are to be kept in view . The requirement of daily routing decisions and of those which are made only under certain exceptional circumstances . Vital decisions even if infrequently or seldom made require information to be collected and processed regularly in spite of the high costs involved and the system should provide for it The matrix of physical distribution management decision is given on the slide ahead

Nature of decision Frequency of decision Continuous Infrequent Rare Vital Important Trivial

System Requirements
The

source of information is very vital for the system , the volume and quality of information required and to be collected , the manner in which it may be collected , the size and quality of system as a whole .

Control Requirements

There are three Important control requirements of a system The system should include an arrangement for arriving at decision , given certain guidelines by management . For example indents may be raised and purchase order prepared and dispatched automatically . Specifying and arranging the parameters of such an automatic system is an important requirements of system design . But it should also be possible to change the parameters of automatic system so designs whenever a manager wishes to do so. For Example whenever the reorder level has to be decreased or increased it should be able to do so when called for Control is also required of the actual operation of the system to ensure that it does not make error , or degenerate , and if it does so temporarily , it corrects itself automatically and performs with error within a given and known limit

Total Information System in Logistics

The

Following costs can be taken into account under the TIS ( total information system) for physical distribution A) Transportation Costs 1) Common Carrier : a) Pool freight per ton per Km for small and wagonloads B) Truck freight for small and for truckloads C)Air freight rates D) Land and water or sea freight rates E) Forwarder and Shipping Charges 2) Private Vehicles a) Capital costs : capital costs , depreciation and interest on vehicles

b) Return on capital c) cost of transport equipment maintenance D) Equipment tools and structures Operating Costs 1) Maintenance of equipment 2) Maintenance labor and supervision 3) Replacement of parts 4) Maintenance tolls and equipment structure 5) Maintenance overheads 6) Supervision 7) Transport Labor 8) Fuel Oil 9) Transportation overheads

 Warehousing

costs Private Warehousing costs a) Land and building cost, depriciation and interest b) Insurance c) Equipment and material d) Personnel Cost e) Maintenance costs f) Overheads costs g) Fire and other safety and security costs h) Training cost of labor equipment i) Sundry overheads Public Warehousing costs a) Storage charges

B) Handling charges C) Other charges D) Insurance E) Fire ,theft , loss , compensation etc

Distribution administration Distribution management personnel and clerical personnel costs Inventory costs Return on inventory investment Inventory service costs Cost of space occupied Packaging costs a) Materials b) Personnel wages c) Equipment costs d) Equipment maintenance e) Tare shipping costs f) Weight of packaging g) damaged goods

 Material

Handling Costs Equipment a)Capital costs of equipment b) Return on income C) Cost of forklift trucks, hand trucks, conveyor belts etc and other handling equipment Labor costs a) Basic pay and DA etc b) Employment insurance scheme c) Pension, welfare fund etc

 Automated

Order Processing Order Terminal This is a part of the system which receives the sales order from customer. In a fully automated system, the terminal may be an electronic data processing terminal . Or the computers of the supplier and manufacturer might continuously communicate data pertaining to sales Order Display The order received have to be displayed for the purpose of editing or adding information prior to processing . Order Modification Display orders are Scrutinized and modified , if necessary can be done manually and it may be done automatically in a suitable manner

 Internal

Processing by computer An automated system necessarily involves a computer for an automated checking for an inventory files and determining the quantity to be dispatched . The decision to be made is whether the order to be filled partially or wholly and or on certain conditions The computer can process data from the following random access files : A) The customer Master Credit File - giving the limits of credit data, the present credit availability and the requirement of credit for the current order B) The inventory statistics file contains data on the inventory on hand and in sight at various locations . It will be updated automatically on receipt and issues.

The open order and Batch order file contain data on the status of order in the system The price file contains data on the prices , discounts , taxes , duties , etc. That are applicable to each product and customer in the various locations The transportation file contains information in the various modes of transportation and helps to select the best mode for each order . It also helps in grouping orders to obtain lower rates of transport charges The History File Compiles data on all logistical aspects of the organization which can be utilized for future references and for forecasting demand, for logistical planning and for providing information for public relations and other management functions

 Physical

Distribution Command The physical distribution may issue command for various activities in the field of production, material management , finance or marketing . The department which receives instructions and details of such instructions depends on the requirements particular organizations , its logistical system , the capability of utilized equipment and the level of sophistication for which system had been designed House Keeping Some Documents are necessary to communicate with outside agencies. These documents include dispatch notifications , invoices, purchase orders , etc . An automated system makes it possible to prepare and dispatch all the documents simultaneously even while physical dispatch of goods is being effected

Monitoring and Control To ensure the system continues to be efficient aid , its functioning should be monitored . This monitoring has four features 1) The hardware of the system must be in order 2) The software of the designed operating system must continue to accept input data , to process them to give output data 3) The processing should be without errors and should be reliable 4) It must be possible for the manager to control and effect changes, if necessary , in the working of the system Corporate Data Link A Part of the total information on order processing has to be conveyed to the top level management . This type of information and its frequency has to be determined in consultation with the corporate office Also the corporate office may issue certain directions from time to time , either on its own or after monitoring the system or in response to the government stimuli , such as changes in the government policies

 On

taxes, the competitors , marketing strategies etc . Two way communication channel is provided so that the instruction is emanating for corporate office are automatically compiled with

Warehousing

Warehousing

A warehouse is a location with adequate facilities where volume shipments are received from a production center , broken down , reassembled into a combination a particular order or orders , and shipped to the customers location or locations . The earlier concept which led to the establishment of warehouse was , based on need for ensuring a continuous uninterrupted supply of goods in the market area for the following Ensuring protection against delay and uncertainties in transportation arising from a variety of factors Eliminating lack of sophistication in production control and consequent un certainties in the availability of product at the desired time and place Providing for adjustment between the time of production and the time of use because production and use can be seldom synchronized . Serving as a reservoir of goods , receiving surplus goods when production exceeds demand and releasing them when scarcity of goods is anticipated

Private and Public Warehousing

A warehouse may be privately owned and operated by a company making its own goods. This is called a private warehouse . A warehouse may be owned and operated by another organization including a government agency , and only used by a company on certain terms and conditions . This is called a public warehouse. A public warehouse can be owned by a company in the private sector but used by general public . The following factors have to be taken into account to work out the cost of storage . Interest on cost of buying the site Interest on the cost of furniture Depreciation on building and equipment Insurance If productivity or use of the warehouses can be increased there is an equivalent reduction in cost per unit handled

 There

are fixed costs in shape of cost of space per square meter per cubic meter , etc , which have to be borne , whether the warehouse is operating or not There are variable cost in the shape of cost per unit handled or processed , which must be added to the fixed cost .

Private Warehousing

The construction and maintenance of private warehousing facilities are extremely costly . For instance there are costs related to Fixed expenses and building and land acquisition costs are high Expenses which are incurred on ensuring that warehouses are properly equipped with material handling equipment like conveyor , fork lifts , hand trucks , racks and bins and dock levelers The cost of salary to the staff required for peak activities periods which can be very high since retrenchment during slack period may not be possible . Extra payment to be made for workers in Saturday , Sundays and holidays

 Generator

and other service charges are required to be taken into account The office and record keeping equipment necessary for successful warehouse operation To this must be added the cost of regular maintainence and repair and the cost if such items as fuel , air conditioning , power and light The cost of maintaining insurance records and of premiums paid for fire , theft and also workmens compensation

Public Warehousing
Advantages

of Public Warehousing It is generally less expensive and more efficient Public warehouses are usually strategically located and immediately available Public warehousing is sufficiently flexible to meet most space requirements for several plans are available for the requirements of different user Fixed cost of a warehouse are distributed among many users. Therefore the overall cost of warehousing per unit works out to be lower figure Public warehouses can be given up as soon as necessary without any additional liability on the part of the user

The cost of public warehousing can be easily and exactly ascertained , and user pays only for the space and service he uses Advantage of Private Warehousing Private warehousing offers better control over the movement and storage of products as required by the management from time to time There are less likelihood of error in the case of private warehousing since the companys products are handled by its own employees who are able to identify the product of their own company better If there are sufficient volume of goods to be warehoused the cost of private warehousing compares favorable with that of the public warehousing In some location for certain products or materials , public warehousing may not be available and only solution may be the establishment of private warehouse.

special design of warehouse facilities for automated handling etc , may lead to reduction in the handling cost and overall reduction in the cost of warehousing . In practice it is advisable to use both public and private warehousing

Warehouse Receipt
A

Receipt issued by a warehouseman , unless otherwise specified on it is transferable by endorsement and entitles the lawful holder to receive the goods specified in it on the same terms and conditions on which the person who originally asked for the goods would have been entitled to receive them . The warehouse receipt however is not covered by the Negotiable instruments act of 1881 . Section 2(4) of the sale of goods Act 1930

Warehousing Operations

Receiving Goods A warehouse accepts the merchandise delivered by a transporter or an attached factory and then accepts the responsibility for this merchandise Identifying goods The appropriate stock keeping units are identified and a record made of number of each item received . It may be necessary to identify the item by item code , tag , a code of carrier or container or by physical properties . Sorting goods - The incoming goods are sorted out for appropriate storage area in the warehouse. Dispatched goods to storage The goods are kept aside where they can be found later , when needed Holding goods the goods are kept under proper protection until needed in the warehouse Retrieving Selection or packing goods Items ordered by customer are taken out from storage and group in a manner useful for next step

 Marshaling

goods The several items making up a single order are bought together and checked for completeness and order records are prepared and modified Dispatching goods The consolidated order is packed suitably and directed to the right transport vehicle . The necessary shipping and accounting documents are also prepared Preparing record and Advices the number of orders received , the items received are recorded for replenishment action and stock control , and the demand and receipt data are forwarded to a control center located elsewhere .

warehouse may be used as a physical process station . For example goods may be stored for aging , a form of processing .

Receipt of Goods

The following operations are carried out before the acceptance of goods for storage and issue of warehouse receipt : The user of facility or depositor tenders the goods for storage The warehouseman obtains an introduction through another depositor or discretely verifies the bonafides of the depositor or his agent The technical assistant attached to the warehouse examines the goods visually to determine whether the stocks are worth the storage If on the face of it the goods are in good condition and can be stored , the depositor is required to submit an application for storage of goods , with details of his name and address , nature of commodity , number of packages , their weight and value etc. The depositor has to make a declaration that the goods are his bonafide property or of the principal on whose behalf he is tendering the goods .

If the goods or commodity require cleaning to bring them up to an acceptable standard , this must be done by the depositor The goods are sampled as per a set procedure of sampling depending on the nature of commodity The samples so taken are analyzed as per the specification provided by law The stock are graded on the basis of such characteristics as moisture content , foreign matter , shriveled grain, dirt , etc. If the packages or bags of the stock are not of a standard weight , they are standardized at the warehouse . If the packages or bags are already standardized, they are test- weighed usually up to ten percent of the quantity tendered. Grading and weightmen are done by licensed grader and weighers of the warehouse . Whose proficiency in these operations is established and a license is granted to them by the prescribed authority under the State warehouse Act .

Dunn age is an important factor for scientific storage . Normally wooden crates of say 5x2 and made of certain approved type of wood with four batons length wise and four breath wise made into a rigid frame are used for dunnage . Bags are packed are stacked on the wooden crates already spread The bags are counted if they are standardized before unloading form the truck and after stocking , to be doubly sure that the correct number of packages had been tendered After the receipt of packages , a stock or bin card is put on the stack and an application for the receipt of goods is dully endorsed with an acknowledgement by the godown- keeper or technical assistant relating to the number of packages received and the condition thereof On the basis of the grade thus indicated the warehouseman determines the value of goods with reference to the quality and market rate obtaining on that day The warehouseman prepares a warehouse receipt with all the particulars , such as name and locations of the warehouse , license number, name of the depositor and his address , description of the commodity , its quantity or grade , number of packages or lots , weight name of the weigher and his license number , condition of goods , rate of storage and other charges , name of insurance company and amount of insurance , the period of storage for which the goods are accepted , market rate and value, etc Together with the warehouse receipt , one sealed sample of the commodity , with the slip bearing joint signatures of the sampler and the tenderer of goods is handed over to depositor or his agent .

 Storage

in Warehouse A warehouse is responsible for delivery of goods in the same condition as regards quantity and quality as they were when they were brought for storage in the warehouse . In order to ensure that the quality remains the same and is well preserved , the following steps are taken One of the sample obtained after scientific sampling of the stocks is duly sealed with a signed slip put inside the bag and is handed over to the depositor for future verification . In the event of any dispute as regards quality of the commodity. The warehouse is demarcated into different sections for storage of different commodities or items according to their nature . These commodities are accepted in the specific section meant for such goods

Dunnage crates or pallets are used when goods are to be stacked on the floor . This is done to ensure that there will not be any sweating or that packages are not affected by any leakages in the walls or roofs etc . Different stacking methods are adopted depending on the size of the packages and duration of storage Quick moving goods are stored in a separate section generally close to the door and these goods which are likely to remain in storage for a long time are stored a little away in sections which permit periodical inspection and disinfestation treatment Aisels or gangways and operational spaces between stacks are left for necessary disinfestation operation , restacking , turn-over etc. The goods are periodically inspected to check that there has been no deterioration or damage during storage. Disinfestation measures , both of prophylactic and curative nature , are taken to preserve stocks in good condition .

The goods are normally accepted for a specific period of storage in the warehouse . This period may be three months, six months or even three years , depending on the nature of the commodity , its condition at the time of receipt and the period for which it can ordinarily be stored without deterioration or damage as per provision of law . It there is a deterioration of goods, or it is found that the goods are not capable of further storage, the warehouseman can take action to have them delivered or disposed of in terms of conditions of storage prescribed in the State warehouse act . But he must satisfy himself that the condition of the goods is such that remedial measures are considered necessary to arrest further deterioration until their disposal . He must give notification to the depositor to take delivery of goods within a stipulated period , indicating therein that the goods will be dispatched by auction at the risk and cost of the depositor of they are not taken delivery within the stipulate period

If the depositor indicated does not tale the delivery of goods in the stipulated period , the goods may be auctioned in the prescribed manner . A notification of the auction will be sent to the depositor indicating the date , time , place of the auction well in advance . The notice of an auction is published in at least one local newspaper and exhibited on the notice board of the local market committee. A copy of the notice is endorsed to the prescribed authority. In the event of sale of goods proper account thereof is maintained and amount kept in trust . After clearing the storage charges the net sales proceeds are paid to the depositor only when the warehouses receipt is dully discharged and surrendered. The warehouse man is absolved of the loss by shrinkage or driage but not of any willful shortage or pilferage of the goods in his custody

Delivery of goods

The delivery of goods is conditioned by the following factors The goods stored in the warehouse may be delivered in lot or in installments ,as required by the depositor. If the depositor is given an opportunity to examine his goods before taking the delivery and he finds on the time of taking delivery that the goods have been allowed to deteriorate or to get damaged , he may lodge a protest within 72 hours of his examination and defer taking delivery . He has also to advise the licensing authority under the act for necessary investigation and redressal. An application for delivery of goods has to be tendered by the depositor or his authorized agent The warehouse receipt is surrendered duly discharged. The specimen signature is verified before delivery is made The storage charges insurance charges etc , payable are worked out and collected before the delivery is made. If a part delivery is required , such a delivery is endorsed in the column provided for it in the warehouse receipt, and receipt is returned to the depositor or the bank which has produces the receipt for such delivery

 If

the goods are to be delivered in full the warehouse receipt , duly discharged , is surrendered to the warehouseman If any weighment is demanded by the depositor his request has to be complied with . Necessary entries in the stack-wise register , godown register , depositors ledger, stock register etc. are made after delivery is made The stocks are delivered against an acknowledgment of the depositor or his agent to the effect that the goods have been received in good condition and the sample kept in the warehouse are returned to the depositor at the time of delivery.

Warehousing Services

There is no readily available slide rule for application to all commodities . A cost which is considered reasonable for warehousing of one type of product may well be considered prohibitive for another . Some of the factors contributing to cost differences are : Space utilization in warehouse Stacking or non-stacking qualities of the product that is warehoused. Handling techniques required in the warehouse and distribution The size and weight of individual products and packages Every successful warehousing must ask the following questions What needs should it fulfill ? What services is it expected to provide Do they supplement the services provided by other sources? Repacking for instance might be inexpensive if performed in a field warehouse

 Some

of the services that can be provided in a warehousing program are Temporary storage Quick delivery Balancing of supply and demand Manipulation in transit ( marking , bottling , packing, grading) Maintenance of stick inventories for emergencies or regular program me Specialized services for particular commodities such as cotton , tobacco, chemical and liquors, etc . Refrigeration or cold storage Bonded warehousing services Invoicing and collection Payment and distribution of transportation charges

 Elimination

of consignment selling Protection against temporary factory shutdown Sales promotion activities

Types of warehouses

Bonded Warehouse private and public warehouses can be bonded under the Customs and Excise Act and Municipal Corporation regulations, facilitating deferred payment of customs, excise or octrio duty . The warehouseman releases only those goods on which duty is paid on production of proof of such payment and release order is issued by appropriate authority . Field Warehousing Field warehouses are those which are managed by public warehousing agency in the premises of factory or company which needs the facility of borrowing from a bank against the certification of goods in storage or in process by an independent professional warehouseman . Cold storage cold Storage facilities are provided for perishables against payment of storage charges for the space utilized by different parties . In a cold storage it is essential that the temperature is regulated and temperature variation controlled to a degree particularly necessary for certain sensitive items .

Agricultural Warehouses- These warehouses are meant for storing agricultural produce grown in a certain area and are locked in assembling or regulated market . They also encourage speculative trading Distribution Warehouses These warehouses are located close to the manufacturing concerns or consuming areas. Their location depends upon the nature of the product , the time taken for the transit , operating cost and the need to make the product available in the market in obedience to the demand for it Buffer Storage Warehousing- These warehouses are built at strategic locations with adequate transport and communication facilities . They store food grain or fertilizers , etc. by or for the government for easy marshaling and supply to various far-off or nearby consuming areas in response to the order of the government or government agencies Export and Import Warehousing These warehouses are located near the ports from where international trade is undertaken . They provide transit storage facilities for goods awaiting onward movement . Facilities for break bulk , packaging, inspection, marking , etc., are available at these warehouses. Import warehouses also provide customs bonding facilities and facility of deferred payment duty.

Warehouse Location
The

following considerations determine the location of a warehouse Market service area and cost of distribution from warehouse to the market area Satisfaction of the transport requirements and facilities available in the form of rail spur, link roads and road vehicles Transportation costs prevailing in the area and distribution cost per unit Competition by rival companies whether they have warehouse in the same area Availability of power, water, gas , sewerage disposal and their costs Labor supply and labor costs in the area.

 Industrial

relations climate and labor productivity Pricing arrangements and the level of services desired to be rendered in terms of availability of the product to the customer Individual company requirements and constraints , including commitments, if any, made to employees and others about a particular location which may influence a decision Real estate , excise and government taxes assessed in the area Attitude of local residents and government towards establishment of the warehouse Restrictions associated with the warehouse Potential for later expansion

Cost of land of the warehouse and the other costs Possibility of the use of land at a later date if the company so desires , and leases or sale of land and buildings An ideal warehouse location has the following characteristics It protects the stock against ground moisture , rain , objectionable odours, insects, rodents, birds, poultry, cattle , thieves , wind , fire , etc. It provided the necessary facilities for manual and mechanical operations , inspection , disinfestation , cleaning, reconditioning , packaging etc of the commodities It is an economic unit close to the market or railway siding with adequate covered platforms and connected by good motor able roads. It offers the necessary amenities such as water for drinking and fire-fighting , office and residential accommodation etc .

As far as possible it is located away from grain mandis , grocery or shopping centers, grain fields , garbage dumping grounds , sewerage tanks, disposal plants , dairies , poultry farms , tanneries , slaughter houses , factories and similar other places , because their close proximity is detrimental to healthy storage facilities Within a given area chosen for a warehouse , the choice of a particular site depends on access, availability of transportation to and out of the site and its proximity to major customers The site is not cut off from any part of the total service areas by river or other geographical barriers The area is adequate for inside requirements of receiving , storage, order processing , order requirement of shipping , receiving vehicles and equipment's etc.

Location of Depots
1)

Location of a Single depot Location at center of gravity of Area A map of the market area , may be balanced . The point where the sheet balances gives the center of the area. This point is expected to be at minimum average distance from all the locations in the area.

Stock Location Principles

Functionally

related items may be grouped together for eg- Hardware items , electronic repair parts etc Physically small items may be grouped together . For example soft goods or small packaged items may be grouped together and heavy items may be grouped together Fast moving items may be grouped together Working stocks and reserve stocks may be kept separately

Warehouse Order picking and Assembly Principles

The Area System The merchandise is stored with inventory of each item together . Items are arranged in some logical pattern . The modified area System This system operated like the area system except that the inventory is divided between working stock and reserve stock . The Zone System Each picker or group of pickers works within a specified warehouse or goods zone . The order is divided up in zones and each portion is sent to the appropriate zone for selection and transportation to a marshaling area . The Sequential Zone System - Each portion of the order is picked up in the appropriate zone and the order is transported from zone to zone in a sequence . The multiple- Order Explosion or Schedule System A group of orders are collected and tickets or other indications of the items required are prepared and sorted out by zone .

Warehousing Building Plan

Site To provide against the ravages of floods, sites situated in low lying areas should be avoided . The selected site should have proper drainage facilities in and around it to avoid the likelihood of water accumulation within a radius of say , 100 feet Cleanliness A proper check to maintain hygienic conditions around the godown are necessary . All branches of trees within a radius of 10 feet should be cut off , and wood and other articles may be removed which may provide a path or jumping ground for rats . Foundation The foundation should be preferably three feet below the ground with leveled surroundings . Normally buildings constructed in the area with a high sub soil level of water must not be selected for storing agricultural commodities without a high plinth .

Pavement - One foot ledge at the upper edge of the plinth projecting and sloping horizontally outwards to be prefferred Plinth The plinth of the godown should be quite high , for an ordinary type of construction would not prevent the entry of water Roof When galvanized corrugated iron sheets or asbestos cement sheets are used for roofing , it is advisable to cover the space between the wall and the sheeting with wire netting to prevent entry of birds. A warehouse with plastered ceiling is useful for fumigation under air-tight conditions . Floor and Walls Cement concrete , stones or bricks must be used for floor walls . It should be ensured that there are no cracks or crevices and that no portion sags. A moisture roof is preferable . Door Door should be single fitting and made preferably of a single piece without any gaps between the frame and the floor . Windows Windows should be about three feet above ground level with snugly fitting leaves . If this is not possible , half an inch wire fitting should be fitted . Shades should be provided if there are no verandahs to check the entry of rain water Ventilators - Ventilators to be well- fitting and provided with shades and sills sloping outwards so as to prevent the entry of water. Drain Pipes All the drain pipes in and around the warehouse should be kept clean . The lower opening of drain should be covered with wire netting and kept in good repair to check the entry of rats from the top of the roof .

Capacity of warehouse

The term capacity of the warehouse refers to overall cubic content of the warehouse building , as well as its length , width, and height . The volume content of the warehouse building is affected by a number of factors like Type of materials to be handled Handling system to be used Aisle requirements Stock layout arrangements Dock requirements Local building codes Office area required Product through-put both at the present time and in the future

 Space

requirements in square feet of the floor may be worked out by converting the inventory units into square feet of floor space by dividing the volume by designed height which will take into account the following factors The height of the warehouse permitted in a particular location by municipal rules The height feasible to operate , taking into account the possibility of stacking of the materials in bags or cartons Specification of material handling machinery proposed to be installed and used . Convenience in and time taken in handling goods stacked at the top .

The warehouse Security

The hazards for the goods stored in the warehouses are of the following nature Theft and house-breaking Fire Floods Riots and Civil Commotion Moisture inspection and rodents To protect the warehouse against the above the following steps are taken Locational & Structural Unity A warehouse is constructed on a site away from colonies which breed anti-social elements . These selected site is also away from low lying areas, rivers, etc. so that flooding might be avoided when the river is in spate. A warehouse is constructed away from dumping grounds , garbage pits, etc, to ensure that insects , which normally breed in warehouses do not damage the goods in the warehouse .

Internal Security The owners of goods , their agents and others dealing in the warehouse are screened so that entry is permitted to only such person as come on genuine business and do not indulge in pilferage or other adverse activities of sabotage , etc. Watch and ward Watch and ward arrangements are organized , keeping in view the location and construction of the warehouse , the nature and value of the goods stored . It is always desirable that the security staff are well trained. Fire Fighting As for the precautions against fire, goods are stored in separate warehouses or compartments , depending on whether they are hazardous , extra-hazardous or nonhazardous . The insurance premium is higher for Hazardous and extra-hazardous goods.. Depending on the nature of goods stored , adequate fire fighting equipment's such as fire buckets filled with sand and water , fire extinguishers of soda acid, dry chemical or foam type , are installed at placed which are easily accessible in the event of fire. Information System A warehouse must have efficient and comprehensive communication lines with the controlling and distribution office with the customers it serves.

 Material

Handling in warehouse - Material handling makes intensive use of manpower for transfer of goods . Mechanical equipment's such as fork lifts , conveyors , tractors , pay loaders etc may be used to supplement human power and assistance .

Development of warehouse in India

There

are about 1,500 central and state warehousing corporations in the country today with a total capacity of 10 million tonnes . The state warehousing corporation are subsidiary of the central warehousing cooperation which has a subsidiary 50 percent of share capital of each state warehousing corporation

Licensing of the warehouses

Each state has passed a warehouse act which governs the working of the warehouse of central or state warehousing corporation or any private warehousemen .Under this act every warehouseman has to obtain a license .

The following are the terms The warehouse must be suitable for proper storage of goods intended to be stores The applicant must be competent to conduct such a warehouse The applicant must fulfill any other conditions that the state government may notify from time to time The applicant may pay the fees prescribed for the issue of a license and also furnish security .

 Under

the state warehouse act , a warehousemen takes such cares of goods stored with him as a man of normal prudence would take of his own The warehousemen should keep his warehouse clean and hygenic .

Channel of Distribution

Introduction
Before

the product is ready to be marketed , the management should determine the ways which will be used to send the product to the market. Distribution channel is the first part of the place mix . Distribution Channel distribution channel comprises a group of people and firms involved in the transfer of ownership ( of the product) as, the product moves from producer to ultimate consumer or buyer . American Marketing Association defines distribution channel as the structure of intra company agents and dealers , wholesalers and retailers , through which a commodity , product or service is marketed .

In Words of Kotler , channel is a set of independent organizations involved in the process of making a product or service available for use of consumption . For example , when wheat is reaped from farm , the distribution channel are different , but when it is grounded into flour , the product form changes , and thus channel requirements will also change . The channel for wheat is Farm Middleman Flour Mill Channel for flour will be Flour Mill Retail Outlet Consumer Other intermediaries that can participate in distribution channel are banks, insurance companies, Storage firms and transportation companies . But as they do not take the title/ownership of the goods , they are not formally considered as the distribution channel

Role of Marketing Channel

Why people have intermediaries operating the various reasons for it listed below 1) Many producers lack the distribution outlets required to sell the products directly to the consumers. For example General motors sells cars through more than 8,100 dealers in North America alone , as it lacks resources to reach the consumer on a large scale directly 2) Intermediaries facilitate smooth flow of products and services to the market , creating time , place and ownership utilities . They sort out goods and efficiently bridge the gaps between goods offered by the manufacturer and the one demanded by the consumers 3) Intermediaries normally help the firm achieve more that it can on its own by providing contacts , experience and specialization and scale of operation . Thus an intermediary allow a producer greater access to his target market

Channel Function

The channel works as a means of moving goods from producer to the consumer . Main functions performed by a channel are Information Gathering- Information about potential and current customers , their behavior Consumer Motivation- Channel develops and disseminate persuasive communication to motivate consumers. Being in touch with the consumers Bargaining They reach agreement on price and other such terms with the consumer on the behalf of the producer Placing order Intermediaries place order with the producers on behalf of consumers , for the products they need . Later they sell these products to the consumers on the terms acceptable to the producer Financing Intermediaries finance inventories at different levels of marketing channels . They provide funds to the producers by decreasing the time to convert the inventory into cash Risk bearing Intermediaries also carry out the risk connected with carrying out channels work , thereby reducing the burden on the consumer . Inventory management intermediaries also provide sucessfive storage facilities and movement of physical products to the producers . This enables a producer to redirect their limited factors of production towards other systems

Services
Two

main category in which services are provided by the intermediaries are Pre-sale service Channel members reduce the number of contacts of manufacturer needs to make with the customer before the sale of goods. An Intermediary may perform functions like pricing , packaging, grading or assembling products to suit the requirements of the customer . Post Sale Service Channel members facilitate exchange by undertaking tasks such as transporting goods to their ultimate destination and disbursing money to different systems in an organization. Gives after sales services as well.

Ideally 3 types of channel perform function

Sales

Channel This is used to perform motivational, informational , bargaining and finance functions Delivery Channel This involves transfer of physical products i.e , possession of products Service Channel This channel performs after sales service

Channel Structure
Channel

structure consists of number of outlets that may be adopted in moving goods from manufacturer to consumer Direct / Indirect distribution Channel Vertical marketing system Horizontal Marketing system Multi channel marketing system Direct / Indirect distribution Channel A company may distribute its goods without any intermediaries . This is referred to as direct channel eg Amazon etc. Manufacture Consumer Most of the FMCG manufacturers have indirect distribution channel . For example Manufacturer Retailer Consumer

Here goods passes through one or more intermediaries . Vertical Marketing systems (VMS) In conventional channels which comprises of direct and indirect distribution methods , none of the channel members has complete or substantial control over other members . In VMS ,there is nothing as one marketing function gaining more importance over the other . Instead each function is performing its best in unity. Corporate vertical Marketing system A firm at one level of channel , owns a firm at next level or subsequent level or it may own an entire channel . For example Sears obtain over 50 percent of goods it sells from companies that it partly or wholly owns . Administered vertical Marketing Systems - This channel coordinates distribution activities through market and gain economic power from one channel or from shared power of two channel members for eg Kodak, Gillete , Pepsi are able to command a high level of cooperation from their intermediaries . Contractual vertical marketing systems Under this system , independent producers , wholesalers and retailers operate on contractual basis specifying how they will try to improve effectiveness and efficiency of their distribution

Contractual VMS

Wholesale Sponsored Voluntary chains

Retail Corporative

Franchise organizations

Manufacturer Sponsored retail franchise

Manufacturer sponsored Service firm Wholesaler Franchise Sponsored retailer Franchise

Wholesaler sponsored voluntary chains Wholesalers organize voluntary chains of independent retailers to help them compete with large companies Retailer co-operatives Retailer take initiative and organize a new business entity to carry on business Franchise Organization this can further be divided into three categories Manufacturer sponsored retail franchise- Ford and chrystler license dealers to sell cars Manufacture sponsored wholesaler franchise Coke and Pepsi license bottlers in various markets to buy its syrup concentrate and then carbonate , bottle and sell it to retailers in local market Service firm sponsored retailer franchise In this service firm organizes a whole system for bringing its services efficiently to the consumer

Horizontal Marketing Systems

In

this channel two or more unrelated companies join together , so as to have pooled resources to exploit the emerging marketing opportunities

Multi channel Marketing system

Multi

channel marketing occurs when a company uses different channels to reach same/different marketing channels . Multi channels are used when Same product is sold to different markets Unrelated products are sold within a single market Size of market varies greatly Geographical concentration varies across different parts of the market .

The Internet
Two business models of electronic marketing needs an understanding Business to Business - In this particular areas the use of internet has significantly grown . So direct distribution channel has now come into play in this domain Business to consumer -. This is another domain where now the internet is coming as people have now started shopping online as well .

Designing a distribution Channel

An efficient distribution channel can be planned on the basis of four steps 1) Specifying the role of distribution channel We would have to define the role as per the marketing mix . A company must decide whether the distribution will be used defensively or offensively . Under the defensive approach a firm will strive for a distribution that is as good as the competitor but not necessarily better. 2) Selecting the type of the channel Companies need to decide they need a middle man or not . Manufacturer can make this decision with the help of Gart L. Fraziers distribution channel matrix , this model involves six basic steps Listing the factors that could potentially influence the direct / indirect decision Picking out the factors that will have the best impact on the channel design like market concentration, customer service level, asset specificity and availability of working capital. Deciding on how each factor is related to the efficiency of a distribution channel for example , market concentration refers to size as well as geographical dispersion of customer . Customer service level includes three sub factors like a) Delivery time b) Lot size c) Product availability The more customer service required less requirement of direct distribution The more certain the environment the greater is the asset specification so direct distribution The higher the availability of working capital the more likely is direct distribution. 3) Level of INTENSITY

Level of Intensities
There

are three main degree of intensity possible Intensive distribution Distributing through every possible market Selective Distribution Distribution through multiple but not all outlets Exclusive Distributing through a single wholeselling middlemen or retailers in the market .At the wholesale level such an arrangement is termed as distributorship

 5)

Choosing a specific channel member If a manufacturer has decided to sell a music product through IDC, then he can choose between two channel members Departmental or specialty stores

Factors effecting choice of distribution channels

Market Consideration Type of Market - The characteristics of ultimate consumer is different for different users , and thus different distribution channels are used to reach different type of markets . Number of potential customers A manufacturer with low potential may use its own sales force to sell directly to ultimate consumer . Boeing uses this approach . Geographical concentration When most of the firms customers are concentrated in a few geographical areas , direct sales is practical. Order Size - When either the size or total volume of a business is large, direct distribution is economical

 Product

Consideration 1) Unit Value A company can employ its own sales staff for high end products but not necessarily so for low end 2) Perishability- Perishable items need shorter channels 3) Technical nature of the product A business product which is highly technical is often distributed directly. Middlemen consideration 1) Services provided by middlemen Generally producer choices such middlemen who can provide such services which the producer cannot provide or is unable to provide to the customer

 Availability

of desired middlemen the middlemen preferred by the producer may not be available. They may promote the competing products Attitude of the middlemen towards producers policy - When middlemen are unwilling to join a channel because they consider a manufacturers policy to be unacceptable Company consideration Desire or channel control companies who want to control their product distribution may go for direct channel even though it is costly Service provided by the seller Some producer make decision about their channel based on the distribution function required by middlemen for eg high profiled advertising creates direct demand due to which retailers are ready to stock the products

 Ability

of management Marketing expertise and managerial capabilities of a producer influence decisions about which channel to use Financial resources- A business with adequate finances can establish its own sales force, grant credit to its customers and warehouse its own products

Transportation

Transportation cost element

The

following are the vital elements of transportation to be taken into account Transportation mode Transit time or time lapse between production and sale . Level of transportation costs. The lower the transit time higher the transportation cost. Inventory cost higher inventory higher costs Transit time if the time lapse between sales or production is longer the level of inventory becomes higher Sales pattern if the pattern of sales is erratic , higher inventory levels are caused

 Production

pattern - if the production pattern is erratic higher inventory levels to be maintained . Assuming that the sales and production pattern are largely fixed , the Important variables that can influence stock level is transit time . Transit capital Capital can be released by changing the proportion of the total output in transit . This can be done by adjusting the transit time . Obsolescence when a slow and erratic mode of transport is employed , a high level of inventory is necessary to ensure continuous prompt delivery to the customer. So to remove obsolescence faster modes of delivery are required Packaging The nature of packaging of a product is often determined by the mode of its transport .

Transport Elements

Whether the movement of material and equipment is by rail, sea , air or road , adequate facilities for free flow to and from factory must be ensured . Terminal facilities - Are not adequately provided leading to the delay in processing . Storage loading and unloading facilities , arrangements foe conveyance of products and packing materials, adequate circulating areas for vehicles and wide, good quality roads which are usable throughout the whole year and suitably designed yard for railway yard have to be planned as a part of terminal facilities . IT has not been recognized by the planner of individual projects that considerable saving can be effected by providing adequate terminal facilities because of the low quotation rate by the terminals who come in and go out faster due to terminals

Vehicles - An important feature of movement of finished product of major projects is the type of vehicle used for movement . The vehicle dimensions , capacity ,type and its special characteristics have to examined with reference to the quality and quantity of the goods to be moved. In case of road movement , capacity ,moving dimension and speed of the truck are of great significance . While moving raw material and finished products . It must be recognized that some section of the road or railways in the country have limited capacity Prime mover The motive power utilized for internal handling of vehicles and transportation to destinations is another important component of the total movement system Routes and Sectional capacity Another important aspect of transport planning is the routed for streams of traffic , viz roadways , railways , waterways and airways

It is generally taken that the capacity of the routes is unlimited . Chartering or berthing of vessels for seas is not the final solution to the problem of movement by sea Transit time The relative location of plant and customer or suppliers determine largely the transit time for raw materials . Rough estimated of transit time are used by technical experts for planning movement of goods . So it is necessary to know the following Normal transit time under normal conditions Normal transit time under abnormal conditions Optimal transit time Most optimistic transit time Most pessimistic transit time Desirable transit time Generally due to the lack of projection here no action is taken to check the delays arising from these bottlenecks

 Distribution

pattern The pattern movement of products by roads by rail should be planned properly . Nature of products Another aspect that is often disregarded by project management as well as common carriers is the variability arising out of the specialized nature of the products to be moved .

Freight Rate Structure

Freight

rates for any mode of transport are based on the following principles : Freight should cover the actual cost of transport operations which depends on the following factors Fixed costs Freight should cover interest on capital depreciation , registration and insurance expenses of a vehicle, if applicable , general upkeep of the vehicles , administrative overheads and expenditure on other fixed facilities Semi fixed costs Freight should cover the salary of the driver , cleaner , conductor and miscellaneous maintenance expenses , which vary partially with the running of vehicles

Variable costs Freight should cover the cost of fuel , lubricating oil and accessories which is incurred when a vehicle is on the move and cost of repair and maintenance directly attributes to a particular journey. Freight must take into account damage to the vehicle and consignment in route . ( Hilly roads command higher freight rates). Sea rates passing through hazardous or war torn areas are also higher Vehicle utilization A transporter is interested in getting maximum mileage out of his vehicle . If the consignment loaded or the route covered is not conducive to this objective for whatever reasons the transporter would quote higher freight rates . Higher freight rates are also quoted when vehicles are detained at terminal either for certain formalities or due to terminal congestion . Terminal detentions are invariably accounted for in freight rates themselves but they are normally not noticed at all .

Freight rates take into account the expectation of obtaining a return trip with a load. If considerable empty movement of vehicles is involved after loading or if vehicles have to wait for another load , higher freight rates are quoted. Vehicle utilization is affected by the nature of goods . Hazardous goods which are prone to damage or which are likely to cause damage to other consignment or the vehicle itself attract higher freight rates . Moreover consignments that can be loaded less by weight in a vehicle attract higher unit freight rate since they yield poor utilization of vehicle Traffic bearing capacity An age old consideration for quoting freight rates is what the traffic can bear . After the addition of all cost of transport , the price of goods should be such that it is still attractive to the buyer . This will depend on the nature of the commodity.

Public Use Freight rates all over the world are governed by the consideration that consignment required for public use will be carried for lower rates than others . For example foods grains and salt are carried at rock bottom prices Government policies Freight rates are often legislated upon or framed on the basis of government directives which aim at serving one or the other stated objectiveIn such a case freight rates are either depressed to promote a particular traffic or hiked to discourage a particular traffic Reasonable profit The transporter must provide for a reasonable profit after covering the cost of operations and capital investments . The margins must give not only a reasonable return in the investment and compensate him for the entrepreneurial time and effort he puts but also provide sufficient funds for future development of his enterprise

Problems of Road Transport

Road

transport , faces a number of problems . This is evident from the following facts: There is occasional shortage of diesel fuel in the country. Vehicle availability in the country has been problematic . With the recent entry of a number of manufacturers, the situation has improved to some extent . The cost of compound and accessories such as tyres and batteries has escalated tremendously. The octrio and police check posts are too many , resulting in heavy detention to road vehicles. The present Motor Vehicles act regulated the issue of licenses and permits and movement of vehicles is very restricted .

 Conditions

on Indian roads are very bad and hazardous .They tend to reduce speed of vehicles which leads to wastage of national transport capacity. Road side maintenance and services have not been developed though found necessary . The system of national , zonal and state permits restricts free growth of road transport but the system is sought to be perpetuated

Booking of goods by road

As in any other mode of transport , an owner of goods has to declare his intention of goods transported by a carrier by executing a document called the forwarding note . This forwarding note calls for information on the consignor and consignee , originating and destination addresses , nature of goods and their quality , selected routes for dispatch , packing conditions etc . The carrier is supposed to examine the forwarding note and the nature of goods offered for dispatch , work out the distance he would have to cover to deliver the goods, and quote a freight rate for transportation. If the freight rate and other terms and conditions are acceptable to the owner of the goods and the forwarding note is accepted by the carrier a contract is deemed to be arrived at.

 Goods

Consignment Note ( G.C.Note) or lorry receipt On the receipt of goods and their acceptance the carrier issues a Goods consignment note also called the lorry receipt . The G.C gives the details of goods accepted for dispatch , the rate of transportation charges the total freight and other charges . It also mentions whether transport charges are pre-paid or payable at destination. On the back of GC note are generally printed the terms and conditions on which the goods are to be transported by the carrier . The minimum weight for the charges is taken as 37 Kilogram

General Terms and conditions

The following are some of the most important general terms and conditions for the transport of goods by road A carrier is not bound to move goods by any particular schedule or vehicle or gurantee that the goods will reach in time for any particular market . At the most he may be expected to dispatch the goods reasonably expeditiously . The goods may be dispatched from a particular vehicle from the original point but may be delivered at the destination in another vehicle . The carrier can entrust the goods to any other vehicle or transportation service. In the event of delay in the receipt of goods at destination , the carrier cannot be held responsible for any loss to the consignor or consignee as a consequence of this delay . In other words the carrier is insured against any loss of market as a result of delay in the receipt of goods Even in the event of goods being lost or damaged enroute , the value of the claim payable is restricted to the actual value of goods or the invoiced value as mentioned in dispatch document or beejuk . In the event of a road obstruction due to rains , breeches , accidents etc , the carrier is not responsible for any delay and consequent loss of , or damage to goods. However the carrier must prove that that he made every effort to ensure that such loss, damage etc did not take place due to his negligence . The decision of the carrier to carry the goods by the next shorter open route on the same conditions of the carriers liability and freight is final

The carrier can refuse certain goods or certain class of goods tendered for dispatch The responsibility of the carrier for the goods tendered for dispatch and lying at the carriers godown till the loading on to the vehicle is that of the bailee or a warehouseman . He is expected to take care of such goods as a person of normal prudence would take care of his own During the period of transit from the time the goods are loaded in to the vehicle to the time they reach the destination , the responsibility of the transporter is that of common carrier . In transit the transporter is fully responsible for the loss , damage , or deterioration except if this occurs due to act of god , an act of public enemy , civil restraints , default in the part of consignor or consignee or the natural inherent quality of goods After the termination of transit ,the delivery of goods should be taken within a week .During the period the goods lie in the godown of the transporter at the destination , the responsibility of the transporter

 Is

again that of a bailee or a warehouseman. After a free period of one week , if the delivery of the goods are not taken they are subject to warehouse charges . No enquiry is entertained in respect of goods after the expiry of thirty days from the date of delivery . In the case the goods are subjected to quarantine the transporter is expected to hand over the goods to authorities concerned and thereafter the responsibility of the transporter ceases If after the termination of the transit the goods are not removed within the free time they may be moved at the owners risk . A written notice may be given by the transporter to the owner of goods for this purpose.

 If

the goods are of perishable nature and if the delivery is refused by the consignee or consignor for over 48 hours the carrier may dispose of the goods by private or public auction , or if the auction is not possible sell the goods and recover the outstanding dues therefrom . This may be done without any notice to the consignee or the consignor If the goods are of non- perishable nature and if the consignor or consignee refuse to take delivery of the goods within thirty days , the carrier may sell the goods by public auction after giving due notice The carrier is authorized to apply the sale proceeds of the goods sold or auctioned to the payment outstanding freight , demurrage, storage or any other lawful charges

Whenever goods are dispatched form the owner to the freight office of the carrier and whenever there is no regular appointed freight agent the goods lie entirely at the risk of the owner The delivery of the goods can be effected only after the surrender of the G.C note , duty discharged by the bank through which the G.C note may have been negotiated The carrier may levy special charges to carry the goods at the carriers risk The delivery can be made by the carrier only after the recovery of all the from the owner It is the responsibility of the owner to declare the explosive nature and dangerous goods in full . The owner must also indemnify the carrier for the loss or damage to such goods and warehousing of such goods takes place at the owners risk and expense

 The

carrier has the right to reweigh and re-measure the goods at destination if it is found that some errors has been committed at the original station . Also the goods can be reclassified and freight recalculated if the carrier finds that the nature of goods is actually different from that which has been declared in the forwarding note , and an error has taken place as a result thereof

Claims
The

following are some of the important conditions for setting claims for road transport A claim must be filed in writing within seven days after taking delivery of goods . The claim may be filed with the carrier issuing the G.C note of the receiving or delivery carrier In case of non-delivery , the claim must be filed within sixty days after a reasonable time for delivery has elapsed. This implies the claim must be made within sixty days after the time the normal transit time expires , or after the date of delivery of goods tendered for dispatch or the date of issue of G.C note . Suit for claim must be filed in the appropriate court

 Within

9 months and one day from the date of notice in writing is given by the carrier that the claim has been disallowed A claim must be filled within six months of booking , No suit lies against the carrier in respect of consignment without a claim in writing has been filled first In deciding the claims for damages , the carrier gets the benefit of any insurance that may have been taken by the said goods in transit the premium of the goods will be paid by the carrier The value of the goods to be paid is equal to the actual value of goods of their invoiced value or that written in dispatch document .

 The

storage of goods in the transporters warehouse is at the owners cost except when the negligence of the carrier is proved . The carrier is authorized to recover the cost of cooperage or repair to package except when the negligence of the carrier is proved

Selection of Carrier

The following factors have to be considered in the scrutiny of firm to be selected as a carrier Constitution of the carriers firm Carriers business turnover Carriers area of operation Carriers branch officers or associates office Destination of consignment Number of trucks owned by the carrier The names of clients currently served by the carrier The nature and value of contracts with other companies Enquiries need to be made in the market about the reliability of contractor and specially from the existing customer of the contractor Normal transit time quoted by the carrier Expedition with which claims for damages/shortages etc are settled . References from other companies , banks , goods transporter associations etc .

Road transport Infrastructure

Barring 29,000 Kms of national highway and to a lesser extent , about 120,000 Kms of state highway , the typical roads in India are built to low specifications . In rural India , even an inferior type of all weather link road is absent for every seven out of ten villages . Indian road system has remained undeveloped and is poorly maintained mainly because of recurrent underfeeding of funds . The 20 year Road development Plan , 1961-81 contemplated an expenditure of Rs , 5,200 crores against which hardly Rs 3,500 crores were spent According to a data furnished in a report of the national transport policy commits between 1971-72 and 1977-78 the number of trucks per 100kms of the surface road declined from 85.7 to 67.4 and the number of buses fell from 23.4 to 21.5 . Currently each vehicle is required to be covered by permit to operate in a public place .

Incoterms
The

INCOTERMS (International Commercial Terms) is a universally recognized set of definitions of international trade terms, such as FOB, CFR and CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance, and other costs and risks . The Incoterms mentioned below are from the site Copyright EXPORT911

EXW {+ the named place} Ex Works

Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee. In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works.

FCA {+ the named point of departure} Free Carrier The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance centre. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll on/roll off) services. In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.

FAS {+ the named port of origin} Free Alongside Ship Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels. Free On Board The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight

In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB Destination. FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).

CFR { + the name of port and destination) Cost and Freight The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.

CIF {+ the named port of destination} Cost, Insurance and Freight The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight

CPT Carriage Paid To

The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka. CIP {+ the named place of destination} Carriage and Insurance Paid To The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens

DAF { + the named port at frontier) Delivered At Frontier The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland.

DES {+ the named port of destination} Delivered Ex Ship The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm.

DEQ(+ the named port of destination) Delivered Ex Quay The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.

DDU {+ the named point of destination} Delivered Duty Unpaid The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena.

DDP { + the named point of destination) Delivered Duty Paid

The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane.

Air Transport

Air transport provides the following advantages in the market exploitation Air transport creates new markets or brings new markets within reach . For example air cargo and made it possible to tap the market for perishables in the gulf countries Air cargo extends markets . In the past the expenses of setting up depots and service centers overseas acted as deferent against market extension . With the speedy service. Direct from the factory of warehouse , air cargo has changed this picture Air transport spreads seasonal demand . As Many products have a seasoned demand , the manufacturers are often faced with the problems of over investment and they cannot take full advantage of the peak demand . With the introduction of air cargo , the whole

The whole world can be regarded as the home market and the peak demand spread over a longer period. Air transport extends the use of mobile production facilities . There are instances when it is more economical to move a production facility from one distribution area to another than it is to move bulky goods from a central production center . Thus a pattern can be moved from one area or even one country to another to meet a sudden local demand. Air cargo takes the risk out of new markets . Full scale testing markets can be made directly form manufacturers warehouse without laying any stock at all in the receiving country . Air cargo assists in realizing the early earning potential of capital products . The advantage of bringing a machine into production earlier can mean substantial profits which can be shared by the customer and supplier. Air cargo offers the advantage of flexibility , security and regularity in comparison of sea transport .

Air cargo tariff structure

The

tariff structure for cargo can be assessed separately from domestic and international angle . The domestic tariff are introduced by domestic carriers with the due consideration of capacity available . Domestic rates are approved by the government formally or tacitly The Indian government has tried to asses its interior demand particularly after the acquisition of additional capacity by the Air Bus It is the international environment that the cargo rating structure has manifold complexities of farreaching impact. There are different pricing concepts , changes in rate levels are normally negotiated through IATA machinery .

The major constituents of the current IATA rate structures are as follows General Cargo Rates ( GCR) Constitute normal rates for cargo transportation . They are applicable to a shipment weighing below or about 45 kg . These rates have become obsolete in catering to market demand . The emergence of new markets offers a spate of marketing opportunities . Shifting the trend and balance of world trade and the evolution of new marketing concepts has lead to considerable rethinking on General cargo rates. Class rates are surcharge or discounted rates for certain classified items , e.g valuable cargo, live animals , newspaper , catalogues etc. Specify commodity rates( SCR) are heavily discounted rates applicable directionally between two points such as Bombay and Frankfurt. SCR also called co-rates account for 70 % of the cargo carried out of India . These rates are market oriented and take into account actual demand requirements . They recognize the varying ability of user to pay for air transportation according to his requirements.

Inland water transportation

Mechanical Inland water transport (IWT) started in India as early as in 1823. It has been established that this mode consumes the least amount of energy per tonnekm. Therefore the interest in the inland water transport is continuing to develop rapidly even in developed countries which have higher developed road and rail system as well The reason for the decay of inland water transportation in India and other developing countries have a potential for growth. These countries have no coordinated transportation policy which may ensure that their total transport needs will be met with an optimal cost and under which the allocation of traffic and distribution of resources are made on this consideration There is a lack of awareness of the role which IWT can play in national , regional and rural development and in the reduction of costs of handling at ports by making use of LASH vessels , containers etc

 Administrative

responsibility for the development of waterways is not clearly defined , say between the center and the state In these countries the allocation of resources for ensuring the year is based in the allocation and expenditure in the previous year . Therefore all other well established mode of transportation which have enjoyed resources support continue to get major share in resources . These is moreover a lack of proper administrative organization and infrastructure in the field of IWT There is scarcity of technical knowledge of the principles of waterways conservancy and maintenance and operations of vessels and mechanized equipment's

 The

working of prospective IWT is judged without regard to the fact that they have on many occasions to compete with railways which indirectly subsidies the freight of bulk commodities and that a major portion of railways and roads was set up at old and much cheaper rates than the rates on which the new infrastructure of IWT can be built now . Waterways are generally classified . The designs of vessels and equipment have. Therefore not been standardized . As a result there are higher capital and operational costs There is general inadequacy of operationally useful information and regular statistics which are required if available waterways resources are to be efficiently used and extended.

The national transportation policy committee, submitted its report in May 1980 and recommended the following Certain important rivers must be declared national waterways The constitutional position of navigable waterways particularly the national waterways must be amended so that they may for all practical purposes be brought under one unified code A statutory authority named the Indian waterways authority of India ( IWAI) may be set up with the responsibility of conducting economic surveys to assess future potential of traffic and provide infrastructural overhead facilities in this sector Initial funds to set up the IWAI and to purchase equipment for hydrographic surveys, dredging and track work must be provided by the central government as an outright grant The pricing policy and the fare and freight rates charged by transport operators of all modes must cover the operating cost of the service

 The

working expense of IWT operations are presently higher than they should be because of lack of investment in infrastructure.

Ropeways

The real economic and technical value of a ropeway system as a mode of transport is the fact that it can connect two places with a large difference in altitude without much difficulty The ropeways is an ideal means of transport for the following regions Hilly and otherwise inaccessible areas Long and circuitous routes with streams and deep valleys When a commodity can be easily be fed into a ropeway bucket Where the haul is short , less than 50 KM Where other means of transport are either uneconomical or not practical In plains where surface transport is already congested.

Pipeline Movement
A

pipeline is an ideal means of transporting a large quantity of liquids and gasses over a long distances Advantages Reliable and continuous all weather means of transport Low energy consumption and hence attractive from the point of view of costs The pipe line is usually underground and hence take up no space A pipeline can traverse difficult terrain Transit loss in transportation by pipeline in minimal Uses The pipeline is an ideal means of transport not only for

 For

crude oil and petroleum products but also for coal, iron ore and limestone

Marine Insurance Policy

A

policy is obtained to cover the approximate value of consignment to be received by sea, air and post in a year , plus 70 percent of the value to cover custom duty , freight and other overhead expenses The following particulars are sent to the company against a specific policy number Purchase case number and date , the number of packages, the name of vessel, the port of shipment, the number on the bill of lading, the Air way bill number and date, description of material , the FOB value of foreign currency , in case of sea and air consignments and C&F plus 50% in case of postal consignment covering custom duty , freight and other incidental charges

For indigenous consignments , the amount for which goods are insured is calculated on the basis of cost of material , freight and octroi duty in transit Imported Consignments If there is any suspicion of loss or damage, an application to the steamer agent must be made for the survey . Such a steamer survey must be called for and conducted within 3 days from the date of landing of goods Filling claims with carriers After the steamer survey report has been obtained a claim can be supported by the following documents Claim bill in triplicate Invoice and packing list Bill of lading Steamer survey report Landing remark certificate from the Port Trust

 The

claim against streamer agent becomes time barred after one year from the date of arrival of the steamer The steamer agents who are signatories of the Gold clause Agreement are bound to extend the time period to another six months . Under the bill of lading clause the maximum liability of a carrier is 100 but the signatories of the Gold have consented to extend their liabilities to maximum 200 per package

Filling Claims with Insurance Companies

The document that are to be sent to the insurance company in the connection are Bill of lading Invoice and packing list Correspondence with steamer agents Survey reports When a consignment is landed but missing in docks a claim must be lodges against the port trust and Landed but Missing Certificate should be obtained the insurance company too , should be advised immediately with the following details to institute a search in docks Name of the steamer Bill of lading number and date Number of packages missing Marks and numbers

Item number in manifest IGM( Import general manifest) number Date of discharge Invoice value Policy number A joint survey must be arranged for all packages which are found missing and subsequently traced before clearance Together with claim the following information should be furnished D.R number Suppliers name and address from where the consignment was dispatched Purchase order number and date Brief description of material Bill of lading number , AWB mailing receipt number and date of the RR/GC/AC note number and date Date of arrival of goods at the customers godown Date of examination of content by customer External condition of box at the time of clearance Whether Ship survey was conducted Exact discrepancy noticed

 In

case of damage whether the damage could be repaired and if so repairing charges and whether the items to be replaced completely The insurance company does not admit any claim below Rs 50/ The consignee must claim the refund of custom duty on all Short landed and Landed but missing cases and must recover the custom duty proportionately from custom authority

Claims for package in Sound condition

In

the event of shortages noticed in package received condition , the consignee must refer the matter immediately to the supplier to make good the loss since the loss is not a result of the operation if insured peril

Claims for Air Consignment

In

the case of air consignment , the airline is responsible for any loss or damage to the goods whilst under its custody Steps should be taken accordingly to protect the right of recovery in the same way as the steamer agents

Claims for postal consignments

As far as postal consignments are concerned a certificate of loss should be obtained from postal authorities at the destination and claim should be lodged with them in case of damage within one month from the date of delivery of the parcel A monetary claim should be submitted to the company as soon as and with the following documents A copy of the Bill of Entry The ship survey report The landing remark certificate The customs examination certificate Copies of correspondence exchange with the streamer company and the latters reply in original

 Short

landed and landed but missing certificate from the port trust in case of non- delivery Survey report Official stamped receipt of the survey fee paid Copies of correspondence exchange with the suppliers in case of short receipt and short packing A copy of bill of lading Invoice and packing list Claim bill Insurance certificate Documents showing exact value in loss The bill showing repair charges if any if damaged material is repaired

 Generally

speaking , claims against insurance company in respect if imported consignments may be categorized as follows Claim for damages Claim for shortages Claim for short-landed consignments Claim for landed but missing consignments

Indigenous consignments
In

respect of indigenous consignments action has to be initiated in the same way as for imported consignments . The suppliers documents to be furnished to the insurance company are Invoice Copies of correspondence with the carriers Survey report Official stamp receipt from Surveyor Insurance particulars such as policy number , certificate number and serial number of monthly statements Claim Bill Documents showing exact value of loss

 In

addition to the description , marks , weight , freight charges etc. for which specific columns are provided in the railway receipt , the following remarks are sometimes incorporated in it L/U indicates loading and unloading of the sender and consignee respectively OR/RR Indicates the freight has been charged at the owners risk or railway risk rate S/C said to contain receipt which is issued when loading operations are not supervised by the railway staff and the content not know to the railways SWA- indicates Senders weight accepted for the purpose of calculating the freight at the forwarding station

The following information should be incorporated in a claim lodged with the railways
Full and correct particulars of booking , namely the name of forwarding and destination stations, the number and date of RR or PWB ( Parcel way Bill) Copy of original RR/PWB Full particulars of the consignment which are adequate to identify it such as dimension and description of the packages , private marks on them , if any etc If the entire consignment has not arrived at the destination for over two months after the date of booking , the consignee should write to railways under whose jurisdiction the destination station is situated to trace out and deliver the consignment in question

Rail
With

a network of about 61,000 Km railway in India are the largest system for transportation of passengers and goods in the country Railway Board Railway board is the apex administration and executive body which assists the ministry for day to day control and operations . Its functions as a ministry of the government of India and exercises the power of central government in relation to the railways Railway board consists of 5 members chairman, financial commissioner and three members , one each in charge of traffic , civil engineering , Mechanical engineering and staff Note the network is divided into 9 zonal railways

Freight operations
The

original freight tonnage , both revenue and non-revenue which was only 93 million during 195051, rose to 246 million in 1981-82 A) Predominance of bulk freight - the pattern of revenue earning tonnage lifted by Indian railways shows that bulk commodities like coal, food grain , iron and steel , cement etc account for as much as 86.8 percent of revenue earning tonnage in 1981-82 B) Improvement in Freight Services In order to handle increased freight traffic and expedite its movement , Indian railways have introduced a number of technological and operating innovations

Freight rate Structure

In the railway freight structure , the following factors are taken into account while fixing freight rate for a commodity Cost of service Social costs and benefits of a particular commodity Ability of a particular commodity to bear a certain level of freight Transportation and loading characteristics of a commodity The railway freight structure has evolved over a period of time Class rates In the existing structure , some 3000 commodities have been classified into several classes which are shown in the class rates . The class rate start from 60 which is the lowest and end at class rate 300, which is the highest

 Wagon

Load rates The wagonload scales from class 60 to class 300 . To obtain the advantage of wagonload rates , the commodity should be offered in full wagonload quantities and minimum weight condition should be complied with Small rates the small rates range from 60 to 300 . The small rates are 15-20 percent higher than wagon load rates Trainload rates the trainload rates are approximately 10 percent cheaper than the wagon load rates Special rates Special rates for defense material, postal traffic etc. exist at subsidized rates as mutually agreed upon from time to time

 Station

to Station Rates The railway administration can also quote station to station rates No reduction is permitted in the rates of commodities chargeable at lower class rates No reduction is permitted in the rates of livestock as well as in the rates of petroleum and other hydrocarbon oil, dangerous and non-dangerous No reduction is permitted in respect of movement of less than 150 Kms for wagonload traffic and in respect of movement of less than 300 kms for small traffic

 Station

to Station Rates The railway administration can also quote station to station rates No reduction is permitted in the rates of commodities chargeable at lower class rates No reduction is permitted in the rates of livestock as well as in the rates of petroleum and other hydrocarbon oil, dangerous and non-dangerous No reduction is permitted in respect of movement of less than 150 Kms for wagonload traffic and in respect of movement of less than 300 kms for small traffic

Procedure for Booking and delivery

The goods and traffic on the railways can be classified into two categories , namely smalls and wagonloads . The traffic offered in small quantities not required exclusive use of full wagon is referred to as small .On the other hand the traffic in large quantities requiring exclusive use of full wagon is known as wagonload traffic Wagon registration Fee While offering traffic in full wagonload , the consignee is required to place an indent for the wagon and to make a deposit of the wagon registration fee at the current rates Forwarding note- the consignor or his agent is required to execute the forwarding note with the station master concerned . The forwarding note gives information on the description of goods , commodity for charge , station from, station to , selection of route , value of goods and remarks in regard to compliance of packing conditions etc . It assists the station staff in despacthig goods and in the preparation of railway recipt (RR)

 Packing

conditions Packing conditions are prescribed by railways for various commodities in order to ensure that they withstand the normal strains of transit without damage . Packing conditions are both internal and outer. If required the packing conditions not complied with the remark to this effect is entered in the railway receipt . The railways do not accept the liability for damage and payment of claims when packing conditions are not complied with Marking of ConsignmentCorrect marking of consignment is essential for dispatch of goods to correct destination . Packages carry private marks as well as railway marks

1761 WB --------- SHM 11 Here the code WB stands for wadi buder and SHM stands for Shalimar : 1761 denotes the last digits of railway receipt number and figure 11 denotes the number of packages in consignment booked. In respect of wagonload consignment 10 percent of packages are required to be marked Weighment- Small consignments are weighed on the railway weighing scale , and full wagonload consignments are weighed on wagon weigh bridge Routing of goods Goods are normally booked and carried by the shortest open route if however the shortest routes are not available it might be routed by alternative routes as well

Owners Risk and railways Risk rates the class rates for certain commodities are quoted under owners' risk (OR) and under railway risk (RR ) . The owners risk rate are 20 percent lower than the railway risk rate Railway receipt ( RR) After the consignment has been accepted for booking , it is weighed , marked and loaded and a railway receipt is prepared . The RR is handed over to the party . The railway receipt is normally prepared in four copies . One copy is given to the consignor , one is sent to the destination station as an invoice , one is sent to the account office and fourth copy is retained as station records . It is often used as a negotiable instrument and changes hands before it finally at destination for delivery . When the railway receipt is lost or in not forthcoming , the delivery of goods at destination is made on execution if indemnity bond by the consignee

Demurrage is charged when a consignor or consignee fails to load or unload a wagon within the free time of 5 days . The rates of demurrage are revised from time to time Wharfage is levied when a consignment received at the destination is not taken delivery of within the admissible free time . It has been noted that the railways do not undertake to issue a notice of arrival of the consignment Under exceptional circumstances when a consignee is not able to remove his goods from station premises owing to difficulty beyond his control , railway officer have powers to suitably waive the wharfage charges Open delivery Assessment When a consignment on receipt at destination shows signs of damage or pilferage , open delivery or assessment is granted. The railway staff gives a copy of the assessment memo to the consignee , which enables him to prefer a claim against the railways . When goods are delivered under clear signatures the

The railways do not usually entertain a claim which the party may prefer at a later date . The consignee should therefore satisfy himself regarding the damage, deficiency etc. before the goods are removed from the railway premises Overcharge and Undercharge it may be mentioned that the description of goods, rate and freight etc as entered on the railway receipt are subject to recheck at the destination; and if there are undercharges these are recovered from the consignee before the goods are delivered. In case of overcharge the party can apply to chief Commercial Superintendent for refund Payment of freight Except for goods for which prepayment of freight is compulsory for like perishable goods and goods of low value etc. consignment can be booked paid or to pay . Freight charges have to be paid in cash . Under special arrangements , however freight cab be paid by credit notes after fulfilling records

The required conditions and entering into an agreement with the railway Quick transit Service The quick transit services transit goods in wagonloads and smalls between pairs of station with in a specified target transit time . Ninety to 95 percent of the consignments under the QTS arrive within the target time . The scheme is very popular with the trade Container Services Container service provides door to door integrated services and avoid multiple handling. The commodity now moving by container services include soaps and detergents , transistors radios and television equipment etc. Container are carried to the consignors premises by road units and a railway receipt is given at the door step . Some of the advantages of the service are as under Door to door service Safe , fast and guaranteed service

No handling , repacking or transshipment en route Competitive rates Reduce packing and insurance costs Railway receipt at doorstep and avoidance of loading delays No damage or pilferage Service without normal railway restrictions Freight Forwarder Scheme Under this scheme reputed road transportation contractor collect goods from the consignee and dispatch them as full wagonloads . The railway offers lump some wagonload rates which are competitive with those offered by other modes of transportation . At the destination goods are carried to partys godown by contractor . This service has proved to be very popular with trade

 Railway

Industry Sidings Industry sidings are laid between railway station and industry premises to facilitate direct loading and unloading of goods at factory . Sidings are either private or assisted A party using private siding has to pay the following charges to the railways Freight upto serving stations Maintenance charges on the capital costs of siding Shunting charges for movement of wagon to and from the factory Cost of staff for supervising and loading