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MODULE-7

DIMENSIONS OF LOGISTICS

Introduction. A Macro, Micro Dimension.

Logistics interfaces with other areas. Approach to anal!ing logistics sstems.

Logistics and sstems analsis.

"actors affecting cost and important of logistics.

Introduction

#ood logistics is $usiness power, %er appropriate $ecause it helps

$uild competiti%e ad%antage. At the end of the da, if ou can&t deli%er our

products to our customers, ou will not sta in $usiness %er long. 'hat

doesn&t appl that good (ualit products and mar)eting are not needed. *utthe must $e com$ined with effecti%e and efficient logistics sstems for long

run success and financial %ia$ilit.

*ig challenge is to manage whole logistics sstems in such a wa that

order fulfillment meets and perhaps e+ceeds customer e+pectations. At the

same time, the competiti%e mar)et place demands efficienc, controlling

transportation, in%entor and other logistics related cost centers effecti%eness

and efficienc are important in toda&s competiti%e en%ironment, at the same

time $alancing the added customer ser%ice at low cost to $ring down the

total cost of logistics.

erspecti%e on suppl chain management is that it is a networ) of the

logistics sstems and related acti%ities of all the indi%idual companies

organi!ations that are part of a suppl chain. 'he indi%idual logistics sstems

o$%iousl pla a role in the success of the o%erall suppl chain.

'he coordination or integration of logistics sstem in a suppl chain

is a challenge. In order to full appreciate the dnamics of the challenge, it is

necessar to e+amine and dissect an indi%idual logistics sstem.

In $ound part of a manufacturers logistics sstem interfaces with the

out$ound side of its %endors logistics sstem. 'he out$ound portion of the

manufacturer&s logistics sstem interfaces with the in$ound side of itscustomer&s logistic sstem.

'he growing appreciation of the %alue associated with good logistics

and the impro%ed management of logistic sstems ha%e resulted in

significant change and impro%ed efficienc.

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Supply Chain Pipeline

A MACRO, MICRO DIMENTION

A Macro erspecti%e

In the econom logistical acti%ities, increase the growth of econom

in terms of gross domestic product #.D./. 0ence, one need to measure

total logistical cost in terms of #D, which is a widel accepted $arometer

or metric used to gauge the rate of growth in the econom.

The ituation o!" lo#itic cot a percenta#e o! GDP $IN%S&

1222 2.23

1224 15.13

1226 15.3

1228 15.93

1225 11.93

1248 1:.3

1245 18.73

Source";o$ert Delane,

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1.

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Micro perspecti%e of logistics in a firm needs to e+amine the

relationship $etween logistics and other functional areas in a compan

Mar)eting

Manufacturing Operations

"inance and accounting ;ef. logistics interface with other areas/

Logistics interfaces with operations Manufacturing

a. Long s =hort roduction ;uns> Management to weight the

ad%antages and disad%antages. =hort ccle time is preferred $

industries nowadas. Bust in time is the approach towards

in%entor and scheduling. In%entor and scheduling ? trend is

towards CULL& sstem not CU=0&, to $e in response to demand

achie%ing lower in%entor le%els and decrease in logistics costs.

$. =easonal Demand> E.g. snow s)is or snow mo$iles,roduction manager is interested in producing well ahead of

season. Logistics department, in con@unction with production,

must $e prepared to accept seasonal in%entor, which can start to

accumulate three to si+ months $efore sales occur.

c. =uppl side interfaces> since the logistics manger is responsi$le

for the in $ound mo%ement and storage of raw materials that will

feed the production line, logistics and production also interface on

the suppl side. A shortage or stoc) out situation could result in

the shutdown of a production facilit or an increase in productioncost. Optimi!ation of in%entor le%els is nowadas rest with

logistics department.

d. rotecti%e pac)aging> 'he principle purpose of pac)aging is to

protect the product from damage. Another interface of logistics

and operations is pac)aging this is distinct from whate%er %alue

the product pac)age ma ha%e for mar)eting or promotional

reasons.

e. "oreign and third part alternati%es> certain raw materials and

other production inputs are nowadas needs to $e procured from

foreign sources. 0ence man firms toda resort to third partmanufacturer or co pac)ers ? to produce, assem$le. All or some of

firms finished products pre%alent in food industr, where man

firms manufacture onl food items to $e sold under someone

else&s la$el.

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LOGISTICS INTERFACES (IT) OT)ER AREAS

Ma@or important internal areas

1. Manufacturing

:. Mar)eting

. "inance

Finance

'he impact logistics can ha%e upon return on assets ;OA/

;OA ;e%enue ? E+pense Assets O;

;OA #ross profit Assets

Logistics to impact on ;OA possi$ilit

;eduction in in%entor since in%entor is an asset-reducing in%entor

increases ;OA.

;OA also can also impro%e as long as increase in sales is not offset $

higher cost for customer ser%ice.

"inancial %ia$ilit of a compan is gauged $ its current ;OA or ;OI,

hence logistics gains importance, in terms of - reduced in%entories, -

and reduced customer ser%ices e+penses, - also utili!ation of

warehouses and less in%estment on transportation e(uipment.

'o sum up, logistics interface with other areas, in order impro%e ;OA ;OI

is directl related to the three logistics dri%ers namel.

L* Dri'er Lo#itic related action

1. In%entor> ;educed le%el for effecti%e operations.

:. are 0ouses> 'o optimi!e no. of ware houses, ensure

*etter utili!ation of the same.

. 'ransportation> A ma@or area of e+pense and hence to

;educe in%estment on transport, go more

"or L and 9 L consolidate material

Mo%ement etc.

+uality o! Lo#itic Analyi"

'hough, in earlier accounting sstems, the logistics related e+penses ware

included in the o%er head, the current product profita$ilit and the related

cost accounting sstem %i!. acti%it $ased costing A*

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Lo#itic inter!ace ith -ar.etin#

hsical distri$ution and a$ilit to pro%ide the product at the right time in

the right (uantities ma $e the critical element in ma)ing a sale. 'hese

acti%ities are the responsi$ilities of firms logistics sstem. Each principle

area of mar)eting mi+ i!> rice, product, promotion, places, apart from

interface area $etween logistics and mar)eting are rele%ant for discussion.

a* Price" ;ail road transportation econom as a logistics re(uirement

depends on the si!e of the shipments. Larger the si!e, lower the unit rate

charged, since the transportation compan e+periences econom if the

customer sends large shipments. 0ence price is directl related to %olume

hence price schedules are related to %olumes ordered logistics manager to $e

prepared for ad@ustment of in%entor re(uirements to meet pro@ected

demand.

/* Product" for $oth, the current products and new products, logisticssstem to economicall mo%e and store products, depends on ? si!e, shape,

weight, pac)aging etc. and such %ital data are %er rele%ant to logistics point

of %iew to plan for -

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Eg. "ood,

rimar logistics acti%ities responsi%e- transportation, warehousing, pac)aging, in%entor management

- material handling ? communication and information

ser%ice logistics acti%ities

- ;esponse time, order completeness, accurac, shipment and

deli%er.

Tranportation> deals with mo%ement of a product into, through and

out of the plant or warehouse, the product is mo%ed $ modes of

transportation ? air, motor'ruc)s/, pipeline, railroad and water

transportation is the most e+pensi%e logistics acti%it, accounting for

853 or more of total logistics costs.

(arehouin# and pac.a#in#> 'he strategic placement of ware

houses, ser%ice centres and plants throughout the suppl chain

includes decisions a$out the num$er and tpe of ware houses, their

location, pac)aging to suit product tpe and customer preferences and

operation etc.

In'entory -ana#e-ent> ;efers to efficient wa of optimi!ing the

stoc) of raw materials, wor) in process and finished goods also

holding $uffer safet stoc)s for supplier lead time, demand

fluctuations. Material )andlin#> is concerned with the efficient and effecti%e

mo%ement of products at different stages of manufacture inside plants

and warehouses includes tpes of containers, tpes of material

handling sstem, and the integration of material handling sstem

within the facilit structure.

Co--unication and In!or-ation> order processing, forecasting, this

acti%it holds the entire integrated logistics sstem together.

- refers to the time a customer must wait $efore the

ser%ice is rendered or product deli%ered.

Order co-pletene> accurac is the managing, scheduling and

staffing of people and e(uipment to meet the pre determined le%el of

customer ser%ice with pre esta$lished cost trade ? offs. =cheduling for

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little capacit ma lead to lost sales, scheduling too much ma

enhance customer ser%ice le%els $ut lower profits.

Ship-ent Deli'ery> choosing the distri$ution channels to deli%er the

product ser%ices to the customer.

'hese ser%ice response logistics acti%ities must operate together to meet thecustomer ser%ice re(uirements. If the do not operate as a sstem, the do to

ield the full $enefits. Also, ser%ice response logistics must coordinate with

the rest of logistics. Almost all products ha%e ser%ices attached to them.

Glo/al Inte#rated Lo#itic Acti'itie

1. 'ransportation

:. arehousing

. ac)aging

9. In%entor Management

8. Material 0andling6. Information sstems

7. ;esponse time 'hese re(uire special attention

4. Order completeness and Accurac from the glo$al logistics manager

2. =hipment condition and deli%er

Role o! Lo#itic in upply chain -ana#e-ent

;ole of logistics are co%ered in the following acti%ities.

- 'raffic and transportation ? material handling

- arehousing and storage ? in%entor control- Industrial pac)aging ? order fulfillment

- Demand forecasting ? plant and warehousing site location

- roduction planning ? return goods handling

- urchasing ? parts and ser%ice handling

- a %er important part of the logistics sstem. A

ma@or focus in logistics ? the phsical mo%ement flow of goods the

networ) that mo%es the product. Fetwor) is composed transportation

agencies that pro%ide the ser%ice for the mode or modes oftransportation used in mo%ing the raw material and finished goods or

for de%eloping pri%ate transportation as an alternati%e.

Stora#e> it as a trade ? off relationship with transportation in%ol%es

in%entor management and warehousing. Eg> A firm with slow means

of transport ma ha%e higher in%entor le%els and more space for

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warehousing. 'he can o%ercome these $ using faster transport.

arious options on ? in%entor le%els, location, si!e and num$er of

warehouses is essential to optimi!e the o%erall logistics sstem.

Pac.a#in#> Industrial/ tpe of transportation selected affects the

pac)aging re(uirements for $oth finished goods and in$oundmaterials. ;ail or water transportation usuall re(uires additional

effort in pac)aging. Air transportation ma re(uire economical

pac)ing. Eg> clothing is fre(uentl shipped on hangars

Material handlin#> is important t efficient warehouse operation in a

tpical manufacturing organi!ation. Logistics managers are concerned

with - Mo%ement of goods into warehouse.

- lacement of goods in a warehouse.

- Mo%ement of goods from storage to order pic)ing are and

- 'o doc) areas for transportation out of warehouse.

Materials handling mechanical e(uipment are ? usuall for shortdistance mo%ement ? such e(uipments are> con%eers, for)lift truc)s, o%er

head crane and containers. In production, managers use pallets and

containers. It is desira$le to ma)e those compati$le with material handling

e(uipment. Also it is $etter to deplo same tpe of for)lift truc)s in the

plants and in the warehouses.

Order Ful!ill-ent> Is acti%ities in%ol%ed in completing customer

orders. Logistics loo)s at phsical distri$ution factor is the time

elapsing from customer placing an order to fill those goods are

actuall deli%ered in a satisfactor condition i.e. the lead time. 'his is(uite important to the logistics function. 'o plan for economical

transportation and processing the orders $ speed communication.

Forecatin#> In%entor of raw materials, parts is an essential acti%it

especiall in companies practicing @ust- in-time or materials

re(uirement planning M;/ to control in%entor forecasting $

mar)eting reflect sales of product onl not in%entor.

Production plannin#> "or effecti%e in%entor control and to decide

on indicating product deli%eries $ased on current in%entor close

coordination of logistics and < is re(uired as an integratedapproach in large corporations.

Purchain#> logistics ? transportation costs directl related to the

geographic location of raw materials and parts purchased for an

organi!ation production needs. Aim is economical mo%ement during

75s G 45s certain companies added purchasing to logistics.

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Order ccle das/hrsminutes

=horter the ccle, less in%entor is re(uired. Order ccle is the time it ta)es

for a customer to recei%e an order once decided to place orders. 'he ccleincludes order transmittal time, order preparation time and transportation

time.

=u$stituta$ilit> the more su$stituta$le a product, higher the re(uired

customer ser%ice ? can spend more on in%entor or more on

transportation.

In%entor effect>

"low

'< 'otal costIF In%entor cost

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- "irms are generall willing to increase in%entor costs onl

until total costs start going up i.e. Marginal cost of carring

added in%entor.

'ransportation effect>

"low

A similar relationship e+ists with transportation.

'rade off ? increased transportation cost

Against ? decreased lost sales costs.

0igher transportation ma also $e as a result of shipping more fre(uentl in

smaller (uantities. At higher rates to impro%e customer ser%ice.

=trateg>- firms go up to the point where the marginal sa%ings in lost sales

costs e(ual to marginal sa%ings in lost sales costs e(ual to marginal

increment associated with increased transportation cost.

- "irms do spend more for in%entor and transportation

simultaneousl to reduce the cost of lost sales.

- Impro%ed transportation will result in lower in%entor cost $

means of smaller carring and faster transit times.

'here are other product related factors affecting cost and importance of

logistics.

i!> ;upee %alue, densit, suscepti$ilit to damage, and need for special

handling costs.

;upee %alue> tpicall affects> warehousing costs, in%entor costs,transportation cost, pac)aging cost and material handling costs.

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"low

IF In%entor cost ? including storage

'; 'ransport cost

# ac)aging costs0 are housing

As rupee %alue increases cost of each indicated area also rises. 'he lope and

cost functions %ar from product to product.

Impact on rates transportation costJ high %alue products are charged higher

rates. =ince firms can afford and will cost more to transport companies to re-

im$rues in the e%ent of damage to goods.

Impact on ware housing

roportionall warehousing and in%entor cost go up as rupee %alue of

product increase leads to ? higher o$solescence and depreciation cost.

- also storing high %alue goods re(uire special arrangements with

sophistication results in increased warehousing cost with more

;s %alue.

Impact on pac)aging

Use of protecti%e pac)aging increases pac)aging costs against damage or

loss increase of higher %alue.

ac)aging impact on material handling

Material handling e(uipment used to meet the needs of higher %alue

products is %er often sophisticated. "irms willing to use more capital

intense and e+pensi%e e(uipment to speed higher %alue goods through thewarehouse and to minimi!e chance to damage.

Densit> weight space ratio

Densit affects transportation costs. E.g. house hold furniture low densit.

As we go from low densit to high densit transportation costs tend to fall

since for gi%en space more material can $e stuffed and more efficient use of

ware housing space.

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=uscepti$ilit to damage

#reater the ris) of damage, the higher, the transportation and ware housing

costs.E.g. #lass items

=pecial handling re(uirements

=ome sophisticated products re(uire speciall si!ed transportation units.

E.g. refrigeration, heating or stepping in transit

=pecial handling re(uirements generall results in higher pac)aging

transportation and warehousing costs.

INTEGRATED LOGISTICS MANAGEMENT

During 1245s integrated logistics management concept $egan. 'o $e used in

a growing num$er of organi!ation. Logistics, in its simplest form, added

in$ound logistics to the out $ound logistics of phsical distri$ution. #lo$al

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transportation presents some special challenges for production scheduling.

0ence it is apparent that coordination with out$ound logistics sstem is

critical for success.

Inte#rated lo#itic -ana#e-ent

"ragmentation E%ol%ing integration 'otal integration

1265s 1245s :555

Demand forecasting

urchasing

;e(uirements planning

roduction planning

Manufacturing industr

arehousing

Materials handling

Industrial pac)aging"inished goods in%entor

Distri$ution planning

Order processing

'ransportation

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'erminologK

E+tension of the logistics concept logicall is the suppl chain management

also )nown as ? demand chain management

- demand flow management

- %alue chain management

- %alue networ)s

- snchroni!ation management

Logistics ? suppl chain, demand chain, %alue networ), %alue chain

Syte- approach

Logistics sstem analsis re(uires different %iews or perspecti%e of logical

acti%ities. 'he $est perspecti%e to ta)e depends on the tpe of analsis that is

needed. 'here are four approaches for anal!ing logistics sstems>

1. Material management s phsical distri$ution

:. flow and simple out$ound flow. E.g.> *oeing ? on

completion Aircraft/

=impl deli%ered to customer ? no warehousing, no special transport

pac)ing etc. in$ound side re(uires detailed scheduling, coordination and

planning to get the parts in time. aring lead times post comple+ logistics

challenge. E.g.> Auto industr 1:,555 to 1,555parts car.

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c. 0ea% out$ound> tpe industr ? E.g.> chemical compan ? Dow.

In$ound ? crude oil, salt water, other raw materials from limited

sources low %olume. Out$ound side ? wide %ariet of industrial and

consumer products ? needs storage, pac)aging and transportation to

the final customer. 0ence MM G D is more comple+.

d. ;e%erse sstems> on the out$ound side ? in some companies. E.g.>

dura$le products> ma return for trade-in, for repairs, sal%age and

disposal computers, tel. e(uipments, cop machines etc. also re%erse

logistics re(uirement to dispose of pac)ing materials enroute

re(uirement where e+penditure is incurred ? on used products.

2* Cot centre> Acti%ities in logistics are i!> 'ransportation,

warehousing, in%entor materials handling and industrial pac)ing ? trade

off $etween these acti%ities could result in lower o%erall cost and or

$etter ser%ice. 'rade-offs> logistics into %arious cost centres or acti%it

centres for logistics sstem analsis reducing total logistics cost andimpro%ing ser%ice will occup $ trading off one acti%it center against

another. E.g.> shifting from rail to motor caries ma result in faster and

more relia$le ser%ice. Lower in%entor costs which offset higher motor

carrier rate. Another wa increasing ware houses, there $ increasing

ware housing and in%entor cost $ut possi$l reducing the cost of

transportation and lost sales total costs enough to lower.

Analsis of total logistics cost with a change to a higher cost mode

Mode of transport

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One node sstem ma use simple lin) is suppliers to a com$ined plant

arehouse and then to customers in a relati%el small mar)et area.

Other case> Large multiple product firms with multiple plant and

warehouse location logistics $eing a comple+ networ)s in%ol%ing or

9 different nodes and pri%ate transportation.

=stem Impro%ement ? where $asic elements form A con%enient

$asis for see)ing possi$le sstem impro%ement.

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A simple logistics channel

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small shipment transportation, conflict o%er mode choices, etc. contri$ute to

inefficienc in the channel apart from communications pro$lems. 'o o%er

come these pro$lems, the strategies adopted $ different firms are> - ertical

integration in order to control products o%er se%eral stages in the logistics

channel. ? =ome strong companies dominate channel to achie%e efficienc.

A Logistics de%elopment ta)en place along

with sstem analsis and sstem concept.

Syte- concept> is a set of interacting elements, %aria$les, parts, or o$@ects

that are functionall related to one another and that form a coherent group.

Eg> Engine design> the o%er all performance of engine as a sstem is more

important that the efficienc of indi%idual parts.

Cot perpecti'e> 'ransportation decision has to $e coordinated with related

areas such as in%entor, warehousing, pac)aging to optimi!e o%erall sstem,

not @ust transportation. 'he logic is we do not focus on indi%idual

optimi!ation/ %aria$les $ut now the interact as a whole. 'he o$@ecti%e is to

operate the whole sstem effecti%el, not @ust the indi%idual parts.

Le%el of optimi!ation functional relationship/

- Le%els of optimalit e+ists in the firm

- A firm should not optimi!e transportation at the cost of other

related logistics areas i!> ware housing, pac)aging.

- Also logistics $eing one of the sstems and hence it should $e

optimi!ed at the cost of another areas e+pense.

;aw

Materials=uppl

=ources

;awMaterials

=uppl

=ources

;aw

Materials

=uppl=ources

Mfg.lant

Mfg.

lant

are0ouse

are

0ouse

are

0ouse

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lanning, e+ecution, research and intelligence,

;eports and outputs.

ro%ide the logistics manager with timel and accurate information

for the $asic management functions> lanning, Implementation and control

Logistics information sstems>

endors

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'he functional scope of suppl chain> lanning and e+ecution.

=cope> In addition to identifing e+ample technologies that characteri!e each

of the elements of the logistics information sstem, this figure suggests thedecision scope and li)el time hori!ons rele%ant.

Operational

lanningdeci

-sion

scope

'actical

lanning

=trategic

lanning

Minutes 0ours wee)s (uarters ears

=econds das months

'IME 0O;IPOF

Module 3

DEMAND MANAGEMENT AND C%STOMER SER1ICE

Logistics

management

functions.lanning

Implementation.

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Out $ound to customer logistics sstems.

Demand management. 'raditional forecasting

which precede and facilitate %alue-adding acti%ities i!> manufacturing,assem$l etc. others include are materials management and phsical suppl

and generall co%ered under procurement and suppl management.

Out$ound to customer logistics sstem> Emphasis on attri$utes such asJ

product a%aila$ilitJ o%erall responsi%enessJ post sale customer support

'o assure customers an accepta$le le%el of ser%ice and following assuring

efficient and effecti%e flow of materials to successful companies, these das

gi%e emphasis for $oth in$ound and out$ound logistics.

Out$ound logistics ? need is customer insight>

E.g.

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#athering and anal!ing )nowledge a$out customers, their pro$lems

and their unmet needs.

Identifing partners to perform the functions needed in demand chain.

Mo%ing the functions that need to $e done to the channel mem$ers

that can perform them most effecti%el and efficientl. =haring with other suppl chain mem$er&s )nowledge a$out

consumers and customers, a%aila$le technolog and logistics

challenges and opportunities.

De%eloping products and ser%ices that sol%e customer&s pro$lems.

De%eloping and e+ecuting the $est logistics, transportation, and

distri$ution methods to deli%er products and ser%ices to consumers in

the desired format.

"irms while wor)ing on impro%ed demand management face pro$lems li)e -

I. Lac) of coordination $etween departments ? little response.II. Less attention on colla$orati%e effort and the strategic and operational

plans that needed to $e de%eloped from the fore casts.

III. Demand information used for tactical and operational purposes than

for Cstrategic purposes.used for short term $enefits instead of long

term/

;e(uired>

Demand Information should $e used to create collecti%e and

realistic scenarios of the future.

Emphasis on understanding li)el demand scenarios and

mapping their relationships to product suppl alternati%es.

'o Achie%e ? $etter match demand as it occurs with appropriate

a%aila$ilit of needed product in the mar)et place.

'o lin) demand management information to corporate strateg.

'o use demand data strategicall

i. 'o enhance a compan&s growth ? portfolio.

ii. ositioning and in%estment strategies.

'o help companies, to guide strategic resources in a num$er of

important was.

'he e+ample shows how suppl ? demand misalignment management

impact o%erall suppl chain effecti%eness>

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E.g. . AccentureJ =tanford uni%ersit G north western uni%ersit

1. 'rue end customer demand.

:. roduction not a$le to meet initial demand ? result shortages

.

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:. Anal!e to predict changes in product pricing

structure G mar)et economics $ased.

. *uilding staffing models for merged compan

using demand data.

ortfolio =trateg 9. Manage maturit of products in current portfolioto optimall time o%erlapping life ccles.

8. create new product de%elopment production plans

$ased on life ccle.

6. *alance com$ination of demand of new products.

7. Ensure di%ersification of product portfolio through

demand forecasts.

ositioning =trateg

*ased on Demand/

4. Manage product sales through each channel $ased

on demand and product economics.

2.Manage positioning of finished goods at

appropriate distri$ution centres, to reduce wor)ingcapital

15. Define capa$ilit to suppl for each channel.

In%estment =trateg 11. Manage capital in%estments&, mar)eting

e+penditures, research and de%elopment $egets,

$ased on demand forecasts of potential products and

maturit of current products.

1:. Determine whether to add manufacturing

facilities.

TRADITIONAL FORECASTING

A ma@or component of demand management is Cforecasting& the amount of

product that will $e purchased $ consumers or end users. Most important

forecast is that of primar demand, as it occurs in the mar)et place.

'he figure $elow outlines one firm&s approach to sales forecasting and

its integration with production scheduling acti%ities.

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Integration of sales forecasting and production.

=tep I> De%elop 1: month forecast $ month/ $ appling traditionaldemand forecasting approaches, to a ears histor file of data on factors

such as demand, price, seasonalit, a%aila$ilit, deals and promotions.

=tep II> *rand and product mangers re%iew this forecast and recommend

changes result in agreed upon statement of gross mar)et re(uirements for the

succeeding 1 ? ears period.

=tep III> De%eloping aggregate production schedules for the ne+t 1: month

period and allocating specific production re(uirements to %arious

manufacturing facilities.

"inal =tep> Logistics function commonl assumes responsi$ilities forscheduling production on a short ? term $asis, in order to coordinate demand

for finished product with the timing and a%aila$ilit of needed production

inputs.

0istor file

ears ? demand,

price, seasonalit,

deals,

promotions.

"orecasting

model mo%ing

a%erage, $o+ ?

Ben)ins,regression

analsis

1: months

forecast *

month/

*rand and

product managers

re%iew and

recommend

changes.

;e%ised

forecast

#ross mar)et

re(uirements 1 to

ear periods/

Aggregate

production

schedules

1: months/

Allocation of

aggregate

re(uirements to

plants.

=hort term

production

scheduling

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Purpoe o! !orecatin#"

Long term "orecasts> Most important for operational logistics process

pro@ect demand, month ahead and forecast on shorter time inter%al.

"orecasts needed in units, $ actual items to $e shipped, and for finite

period of time.

'he strategic use of demand data can help to impro%e the o%erall

profita$ilit and mar)et positioning of the compan.

Also help to anal!e product portfolio and its new productde%elopment strategies.

COLLA4ORATI1E PLANNING, FORECASTING AND

REPLENIS)MENT$CPFRP&

Integration of suppl chain acti%ities resulted in efficienc and effecti%eness

increase. =ome of the initiati%es $ name are>

Q; Quic) ;esponse

EDI Electronic Data Interchange, short ccle manufacturing

MI endor managed in%entor

effort started

with Call Mart& with its supplier, warner ?Lam$ert. 'he product CListrine&

$rand used to $e Cout of stoc)& fre(uentl. 'wo companies colla$orate to

increase their forecasting a$ilities, so as to ha%e @ust the right amount of

in%entor, where G when it was needed.

'o $e more effecti%e- internet was used to facilitate colla$oration

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- MA;' G IM*E;L

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ii/ 'o ensure ? Fo wrong shipment correct order filling

is essential a to $e ensured.

. EDI IF'E;FE'

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information

iii/ communication

to respond in timel and accurate

manner to customer&s re(uests for

information

accurac, and

message detail

of response.

Distri$ution sstem

malfunction

Efficienc of procedures and time

re(uired to reco%er from distri$utionsstem malfunction i.e errors in

$illing, shopping, damage, claims./

;esponse and

reco%er timere(uirements.

ost sale product

support.

Efficienc in pro%iding product

support after deli%er, including

technical information, spare parts

e(uipment modification as

appropriate

;esponse time

and (ualit of

response.

erformance measures of customer ser%ice

Orders recei%ed on time

Orders recei%ed complete

Orders recei%ed damage free

Orders filled accuratel

Orders $illed accuratel

Deli%er time windows

o 283 orders deli%ered on time.

o 23 orders filled completel.

o 273 orders

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E6PE6TED COST OF STOC7O%TS

A principle $enefit of in%entor a%aila$ilit and hence, of customer ser%ice

is to reduce incidents of stoc) outs. Once, cost of stoc) out is calculated, it is

eas to arri%e of e+pected stoc) out costsN. e can anal!e alternati%e

customer ser%ice le%els directl $ comparing e+pected cost of stoc) outs

with the re%enue enhancing $enefits of customer ser%ice.

E!!ect i! toc. out"

A stoc) out occurs when desired (uantities of finished goods are not

a%aila$le when and where a customer needs them. In that situation, one of

these e%ents ma occur,

1/ since, customer goes for alternate source, where su$stitute

product is a%aila$le. In such case stoc) out has caused a lost sale. =eller lose

is the loss of profit on the item that was una%aila$le when the customer

wanted it, seller can determine direct loss $ calculating profit on one item

and multipling it $ the num$er the customer ordered. E.g. "or ;s 1555

worth item, if ;s. 155 is profit, then for the customer re(uirement of 155

units, the loss is, 155 155 ;s. 15,555 this lost profit, has to $e compared

with %arious com$inations of carring e+cess in%entor.

9/ Lost customer> cost H i.e. when customer permanentl switches o%er to

another supplier. A supplier who loses a customer loses a future stream of

income. Estimating the customer loss that stoc) outs can cause is difficult.

Deter-inin# e8pected cot o! toc. out"

=tep I> for a product worth ;s.:55> information a%aila$le> $ac) order, lost

sale/

=tep II>

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753 of all stoc) outs results in lost sale of an itemJ and $ac) order re(uires

;s.6 as special handling cost.

:53 result as in a lost sale for the item and e(uals to ;s. :5 in lost profit

margin.

153 result in lost customer.

O%erall Impact

753 of ;s. 6- ;s 9.:5

:53 of ;s. :5- ;s 9.55

153 of ;s.:55- ;s :5.55

;s :4.:5

i.e. ;s :4.:5 is the a%erage amount a firm can sa%e $ a%erting stoc) out to

carr additional in%entor as long as that carring cost is less than ;s.:4.:5

or wor)out :5; more logistics options.

C)ANNELS OF DISTRI4%TION"Distri$ution channel decisions are critical to o%erall success of an

organi!ationJ it is a priorit area for corporate managers. In the logistics

area, understanding and appreciating the area of channels is a prere(uisite to

effecti%e strateg formulation, operations and control.

Logistics channel refers to the means $ which products flow phsicall

from where the are a%aila$le to where the are needed.

Mar)eting channel refers to the means $ which necessar transactional

elements are managed. E.g. customer order, $illings, two channels are

illustrated $elow>

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Logistics and Mar)eting

Logistical channel Mar)eting channel

*asic functions of logistics channel mem$ers are>

=orting out

Accumulating

Allotting

Assorting

;etail store

E ? rocurement

Fational accountsales

holesaler distri$utor

;etail customer

'ransportation

'ransportation

'ransportation

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Fote > Each indi%idual channels represents a uni(ue path from geocer

manufacturer to consumer, and a set of effecti%e logistics strategies must $e

de%eloped for each channel.

channel o! ditri/ution !or !ood product -anu!acturin# indutry

O%er a period, there had $een growth and importance of channel of

distri$ution

1225&s logistics related strategies were de%eloped in response to

consumers.

Anticipate retail demand and eliminate storage.

Distri$utors and third part logistics are )e mem$ers of =