Logistics and Supply Chain Management

for III semester MBA , Marketing & Sales Sessions

Sales and Distribution Management

Prakash A Cell ph 93412 20241 Email : prakash_pspl@hotmail.com

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Syllabus - Unit V:
Physical Distribution Management Importance of physical distribution Logistic system analysis and design Organization and control, role and importance of warehousing, warehouse Type, Size

Reference Books:

Sales and Distribution Management -- Krishna K Havaldar and Vasant M Cavale

Sales & Distribution Introduction : Mgt

Market Logistics and Supply Chain Management

The origin of Logistics and Supply Chain Management (SCM) are from Materials Management Materials Management is function in a Co., for Co-ordination of Planning, Moving, Storing and Controlling materials in an Optimum manner so as to provide a pre-decided service to the customer at a minimum cost The Materials Management function include: Materials Planning and Control Purchasing Stores and Inventory Control Handling these functions independently could create a conflict of interest, hence an integrated approach was required. Before 1970: The functions ware fragmented as Transport, Warehouse Management, Materials Management and Inventory Control, parts and services and Return goods handling 1970s: Logistics came into practice in two broad areas of Materials Management and Physical Distribution 1980s: Logistics started getting integrated into inbound, conversions and outbound In 1990s the concept of Supply Chain Management (SCM) and integrated operations with suppliers and customers started getting focus

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

A leading automobile manufacturer in India has created spare parts hubs in Chennai, Delhi, and Mumbai to provide access to smaller markets also. The company also operates smaller warehouses from select number of prominent dealers. The objective is to provide quick, JIT (Just-In-Time) service to customer Definition:

The science of planning, organizing and managing activities that provide goods or services --- Logistics World 1997
A Business Planning framework for management of materials, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in todays environment -- Logistics Partners, Helsinki The process of planning, implementing and controlling the efficient, effective flow of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to the customer requirements -- Council of Logistics Management

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Market Logistics and Supply Chain Management

Key Words: Planning , The Focus flow of materials, Services and Information, Implementing, Controlling , and Communication are the Components of Logistics function CUSTOMER SERVICE

P L A N N I N G

I M P L E M E N T A T I O N

C O N T R O L L I N G

C O M M U N I C A T I O N

Key Tasks of Logistics Management

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Market Logistics and Supply Chain Management

Logistics Operations: Functions : Include planning, procurement, transportation, supply and maintenance. These are strictly operational details and have to be undertaken daily. Once the Co. is clear on its marketing and customer service strategy, the operating managers ensure that all these details are taken care of to achieve the objective Processes : include determination of the requirement, acquisition, distribution and conservation. This aspect includes all the co-ordination requirements of logistics with the functions of purchase, production and marketing. As part of operations, interaction with other functions to help the logistics function achieve its goals Business: Is the science of planning, design and support of business operations of procurement, purchasing, inventory management, warehousing, distribution, transportation, customer support, financial and human resources. -- Overall support of logistics to the business.

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Scope of Logistics : A Company choosing the markets in which it wants to operate Deciding on the plan location and layout. Also decision on whether whether to have own production facilities or outsource them All aspects of inventory management including costs and service levels Customer service policies Extent of distribution network to be built up Location and management of storage facilities Choices of mode of transport, selection and management of carriers Any packaging decisions that directly impact storage and transportation

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Key Logistics Activities : Customer Service consistent provision of time and place of utility. Logistics has to ensure that the product or service being offered by the company is available to the final consumer or end user when he/she wants it (time utility) and where he/she wants (place utility) Demand Forecasting decisions on how much to order from suppliers and when and how much to produce for customers. This activity normally starts with the sales forecasts given by the Mktg. & Sales function. This is normally the function of sales to develop the forecast at agreed frequencies for agreed geographies. The forecast tehn becomes the starting point of planning function which is the responsibility of logistics Distribution communication need for info. on distribution, which could be complex, automated and fast. This may include status of orders, shipment dates and likely delivery dates. Logistics is concerned with contract with the suppliers on the inbound side and the channel members and customers on the outbound side. Inventory control - is a trade-off between the level of inventory to be maintained and the expected service levels to be provided to the customers.

Material Handling Movement and storage of raw and packing materials, WIP (work-inprogress) and finished goods. This is physical handling of goods within the firm and incase of finished goods till they reach the customer

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Market Logistics and Supply Chain Management

Key Logistics Activities : Order processing getting orders in time from the customers, checking the status of execution and delivery. Sales people get the order and pass it to logistics function for delivery After sales parts and service support during warranty and post warranty till the working life of the product

Plant and Warehouse location at optimized cost to the Co.

Procurement purchase of materials and services from outside Organizations

Packing primary purpose is that it is a form of Advt. & Mktg. effort. Logistics is concerned with providing protection for the product in transit and storage Returned goods handling In case of a problem, with product or the customer.

Reverse Logistics - Getting back the material for reuse, disposal, reprocessing or recycling purpose

Warehousing and storage to support the time and place of utility

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Market Logistics and Supply Chain Management

Types of Logistics Activities : Divided into Inbound and Outbound . Inbound or Upstream Logistics include- Receiving, Storing, and Issuing inputs and taking care of: Material Handling Inventory Control Inbound Quality inspection along with the quality control function Scheduling of production to manage issues Return of unacceptable materials back to the suppliers Inbound logistics is the interface with the Company Suppliers, Vendors and other service providers Outbound or Downstream Logistics include Collecting, Storing, Dispatching and physically distributing the finished goods to the buyers/ Distribution channels/Consumers include: Order processing of all the orders received through sales system Material handling of finished goods Warehousing both in the plant and in the field Delivery vehicle operations and scheduling Shipping and related documentation Outbound logistics is the interface with the Companys customers

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Supply Chain Management (SCM): SCM focuses on the processes linking the generation of demand to the fulfillment of the demand. Starting point is the customer and what he/she wants and all the activities are centered around this. SCM creates the process to fulfill customer service needs SCM is concerned with the physical infrastructure required to support these operations like, plants, warehouses and transport SCM manages this infrastructure to maximize service level to customers Need for Supply Chain Review Some visible symptoms in business that indicate the need for review and revamp or redesign the SCM process: Slowed down response to changes in market. If the competition launches a promotion on a particular brand/pack, the firm concerned is not able to react in time Large write-offs, since what the firm is producing, does not seem to be what customers are looking for In order to meet customer service needs and demands of customers which seem to be imposing stringent conditions of delivery, the company would be taking up easy way out by building up inventories The company is not able to commit on finished goods delivery dates There could frequent stock-outs and lost revenues as the planning seems to be not keeping pace with the market needs

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Market Logistics and Supply Chain Management

Influencing factor on Supply Chain Management (SCM): Globalization of market place is forcing Cos. to have world-class delivery systems to survive the competition Advances is Technology in Computing, Communication and Transportation have further made the situation more complicated An increasingly demanding customer base is forcing the Cos. to do things differently to keep customers happy. All purchase decisions are only on the dimensions of quality, price and time An innovative Supply Chain, therefore: Is able to meet all the customer driven challenges in terms of best price, excellent quality and delivery as specified by the customer Helps reduce costs of operation Improves service levels by maximizing time, place and possession utilities Enhances the speed. Companies can not only commit and meet delivery dates, but can take care of emergency requirements Planning and execution are synchronized in a manner as to provide consistent excellent service to the customer

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Market Logistics and Supply Chain Management

Supply Chain Integration: Optimizing Supply Chain requires supplier and customer involvement to integrate processes, policies, systems, database and strategies between diverse trading partners Supply Chain integration benefits: Reliable demand management - the forecasts are more accurate High customer service levels an efficient pull system works Reduced lead times shared planning efforts helps in this Optimum working capital costs there would be no need to keep additional inventories in anticipation of demand Optimum supply chain costs supply chain costs need not necessaritly be the lowest, they have to be optimum

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Market Logistics and Supply Chain Management

Differences between Logistics and Supply Chain Management: No clear differentiation made by experts on Logistics and SCM Few consultants view points: Pete Crossby SCM Consultant Logistics includes Physical distribution, warehousing, transportation (inbound and outbound from manufacturing plants) and in some industries customer service also (sale order processing, inventory planning and production planning Another Consultants view point: Logistics is generally concerned with strategy and co-ordination of flows between marketing and production (i.e transportation and distribution) A supply chain tends to focus on purchasing and procurement, but not necessarily so, It can include materials, inventory and production planning. There is also Demand Management which focuses on forecasting, but is sometimes included in either logistics or supply chain functions.

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Differences between Logistics and Supply Chain Management: Few consultants view points: Council of Logistics Management: Definition of Logistics: Logistics Management is that part of the supply chain management process that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirement.

Definition of SCM: Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management Activities. Importantly it also includes co-ordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence SCM integrates supply and demand management within and across companies

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Market Logistics and Supply Chain Management

Integrated Supply Chain:

Customer Analytics Order fulfillment Purchasing/ Supplier Partnering

Storage & Transportation

Integrated Supply Chain Management

Inventory Mgt & Control

Manufacturing/ Re-Mfg. / Assembly Materials Management

Demand & Lead Time Mgt

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Market Logistics and Supply Chain Management

Major Areas of Interaction Logistics and Marketing: Product Design: Has a direct impact on the warehouse space and transportation utilization and related costs Pricing: The Co. has to decide on optimum service levels which the customers can expect the level of servicing the customer demand directly affects the product costs and also decides the pricing policies Market and Demand Forecast: These are critical in detailing the level of logistics resources that are needed to service the customers Customer Service policies: If marketing opts to provide a very high level of service to its customers, logistics resources like facilities (warehouse space, labour, transport arrangement). Marketing has to work closely with logistics to decide the service levels. Number and location of warehouses: Major area of contention between marketing and logistics. Inventory Policies: A careful balancing has to be done by marketing and logistics together, between the agreed level of customer service to be provided and the costs of holding inventory Order processing : This is the source of daily interaction between marketing/sales and logistics. Field sales responsible for providing the daily orders from the customers, which logistics has to process and dispatch

Sales & Distribution Mgt

Market Logistics and Supply Chain Management

Customer Service Elements:

Frequency of Delivery Time from Order to delivery Quality of sales presentations In-store merchandising

Consistency of Delivery
Emergency delivery when required Stock availability and continuity of supply Orders filled completely No SKU is missed out Order size constraints Order Status information Advice on non-availability Convenience of placing orders Acknowledgement of orders Invoicing procedures & Accuracy of Invoices Regular review of product range to keep abreast of customer needs Co-ordination between production, Marketing

Credit terms offered

Regular calls by sales representatives Manufacturer Monitoring of retail stock levels Customer query handling Quality of outer packing Well stacked pallets relates to outer packing Claims procedures need to be easy for customer Condition of goods when received by the customer Easy-to-use by dates on outer packaging Quality on inner packaging for in-store display Consultation on new product / package and Distribution

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Market Logistics and Supply Chain Management

Logistics Impact on Financial Health: Logistics impacts on both numbers which generates ROI profitability and capital employed ROI is the function of the profits generated on the capital employed. Profitability is a function of the revenue and the costs Logistics can help maximize customer service and hence increase the sales revenues Logistics efficiency helps costs, increased profitability the net effect of these two actions is the

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Market Logistics and Supply Chain Management

Distribution Warehousing: Objective is to set up a warehouses closest to the customer locations to service markets better at minimum cost
The warehouse location strategies could be Market positioned warehouses are located nearest to the final customer
Order Cycle Time - Time elapsed between the customer placing order and the receipt of the goods by him Transportation Cost Freight cost from nearest warehouse to the customer location Sensitivity of the product Perishable, goods which can not be kept for long time Order sizes Full truck loads Levels of customer services offered

Production positioned warehouses are located close to production facilities

Perishability of the raw materials Number of Product Mix Assortments ordered by the customers from the product mix Transportation consolidation rates Eg. Full truck load

Intermediately positioned mid point location between the final customer and the producer

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Transportation: An important part of logistics function Movement of products across space and distance add value to the products as it gets them nearer to the customers Transportation really provides the time and place utility Transport Modes & Selection parameters/Criteria:
Nature of goods, policy of the company and its customers which are all operational details Comparison with the alternative modes that are available The Cos and its Customers expectations on speed of delivery, quality of service & Cost Ability to track the movement Simplicity of the documentation other than the statutory requirements Handling of complaints and processing of the claims Parameter Speed Versatility Reliability Availability Continuity of service Distribution Cost Total score Weightage 30 10 20 10 10 20 10 Rail 5 6 6 7 6 4 5.4 Road 6 8 8 8 7 5 6.7 Air 8 5 5 5 5 2 5.3 Water 4 6 5 6 5 6 5.1 Pipeline 3 3 7 3 8 7 5.1 Ropeway 3 2 4 2 3 8 4.0

Market Logistics and Supply Chain Management

Overall ranking

10

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Market Logistics and Supply Chain Management

Logistics / Supply Chain: Cost of Service:

Total Cost of Service involves all the move-store activities of the product and includes:

Inventory Cost unit costs, storage and working capital lock-up Warehousing costs Production or supply costs Distribution channel costs Communication and data processing costs Transportation of finished goods Materials handling cost Packing related to logistics Customer service based on policies on customer service levels committed Cost of lost sales as a result of stock-outs Any allocated administrative or overhead costs

Supply chain costs are confined to: Inventory costs Warehousing Transportation Special packing Cost of lost sales if it can be worked out Cost of losses and damages Insurance costs

Logistics / Supply Chain: Performance Measurement:

Performance of the logistics or supply chain functions can be measured both on internal and external performance. A brief view on measurement is here:

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Market Logistics and Supply Chain Management

Internal Measurement
The cost incurred to accomplish the objectives of customer service Customer service status seen as a combination of sales achieved, order numbers received and executed, rate of stock returns, stock-outs, orders cancelled, damage claims settled and the order cycle time Customer service delivered in terms of satisfying customers and could include: o Fill rates ability to supply the full order in-time also referred as OTIF = On Time In Full o Orders shipped complete ability to supply the full order every time o Speed of response o Consistency delivery every time as per expectations o Stock-out frequency number of times as demand exceeded availability o Reliability ability to meet customer of service Productivity measures, which show the relationship between input (effort, time, cost) and output (service provided) Asset utilization equipment, transport facilities and inventory Concept of perfect order quality of the fulfilled order in terms of customer specifications, service goals, error free invoicing and zero defect performance

External Measurement

Customer perception obtained through regular feedback or surveys Normally rank customers service parameters in relation to competition parameters like order cycle time, feedback status, after sales service and support systems Best practice benchmarking to search for the overall practice outside the Co. and adopt it. The systems is broken down into variables affecting it and then compared Cost, quality, Order processing effectiveness, transpiration and warehousing efficiencies

Market Logistics and Supply Chain Management

Logistics / Supply Chain Performance : Popular Measurement Ratios:

Inventory in number of days sales (FG) or production (Raw Materials or packaging materials) Inventory levels against agreed norms. Eg: a target may be set for Finished Goods levels as 7 days sales in the plant and 3 weeks stock in the C&FA or Distis center Customer service levels in orders fulfilled OTIF On Time In Full. Each order which is filled with 100% of the ordered SKUs and on the delivery date promised is considered as complete in all respects and gets ONE mark. Any order which is not executed OTIF gets ZERO Warehouse capacity utilization. Utilization of the space for the tonnage handled is the measurement Warehouse labour utilization the number of loads handled per day Warehouse cost per ton handled Freight cost per ton kilometer against budget

Market Logistics and Supply Chain Management

Summary
The support of logistics function to an organization and its marketing efforts has evolved from a system of just managing materials to logistics and to supply chain management which extends its activities beyond organization boundaries Logistics is a critical function in providing the time, place and possession utilities to the products and services of the company. Its customers are production (for Raw Materials), Packaging materials, Consumables and Production scheduling) and Marketing (Finished Goods). Logistics has got a major role to play in providing customer service. The Common and regular interface of logistics is with the production and marketing. Logistics has a direct impact on the financial performance of the company it directly affects the ROI and the Balance Sheet while also helping improve profitability if managed effectively Three important functions of logistics are Inventory Management, Warehousing and Transportation management Warehousing provides the place utility for the product. It provides balance between production and requirements of utilizing capacity and meeting customer requirements regularly. Distribution warehousing has special meaning to the marketing person as it is directly concerned with finished goods Transportation management has developed as a useful supplement to the logistics function, in ensuring materials are available at short notice. Various modes of transport like rail, road, air and water are available with advantages and cost considerations. Logistics managers can use the most suitable mode in every case while keeping costs in check but ensuring customer service