Introductionto Logistics Management

UNIT-
Chapter ntroduction to Logistics Management

SYNOPsIS
1.1 Meaning of Logistics
1.2 Importance of Logistics
1.3 Objectives of Logistics
1.4 Inbound and Outbound Logistics Scope of Logistics
1.5 Logistical Functions/Logistics Mix
1.6 Logistical Performance Cycle
1.7 Integrated Logistics
1.8 Logistical Competency
1.9 Reverse Logistics
1.10 Green Logistics
1.11 Logistics Mission
1.12 3 C's of Logistics
Review Questions

1.1 MEANING OF LOGISTICS

Logistics is a process of planning, implementing and controlling the flow of
goods and services from place of production to the place of consumption for
confiming to customer satisfaction. Logistics is concerned with getting the
products and services where they are needed and when they are needed. It is
difficult to carry out any marketing or manufacturing activity without logistical
support. Logistics involves integration of various functions such as transportation,
warehousing, packaging, material handling, inventory management, information
management, etc.
Definition of Logistics Management.
According to the Council of Supply Chain Management
Professionals logistics is the process ot planning, implementing and controlling
procedures for the efficient and effective transportation and storage of goods
including services and related information from the point of origin to the point of
consumption for the purpose of conforming to customer requirements and
includes inbound, outbound, internal and external movements.'
 Logistics and S C M (TYBMS Sem-
DABBAWALA
2 LOGISTICAL ACTIVITIES OF
A STUDY OF
Mumbai are trom one of the best examploe of
The Dabbawalas
of (Tiffin/lunch-boxes are
Neatly stacked dabbas a
a
logistics management. every morning in Mumbai A
the railway stations,
common sight at most of at the doorsten
illiterate/semi-illiterate delivers hot lunch p of
man who is system and virtually there are
no mismatches
subscribed. It is an error-free
is a 38 years old
Mumbai Tiffin Box Suppliers Association
"The
4500 members and a huge loyal customer base. Tho
organization with
includes office goers, students, shopkeepers etc. Instead of
customer base
lunch in early morning, they prefer to subscribe this
carrying their own
fee, the dabbawala picks up the fresh lunch
from
dabba service. For a small
office at lunch time. Once lunch
subscriber's house and delivers it to his/her
is over, the empty dabba is again
collected by the dabbawala. This is done
by the Mumbai's extremely efficient railway
system. Mumbai locals. There
are special trains known as the "Dabbawala Specials".
The dabbas change
many hands and off-loaded many time before the final delivery.

SUPPLY CHAIN OF DABBAWALA

Pick up Dabba from Journey in Local Unloading and

Residence/ Caterer Train Sorting at
and bring it to Destination Station
Andheri Station

Sorting at Collection of Empty Dlivery to Respective

Destination station| Customers
Dabba
Returning Dabba to
Residence / Caterer
Logistics management systematic
flow of products, services, resouurces
and information from date and place
of manufacturing to date and pia of
consumption by carrying out plannin9
warehousing, transportation various functions such as
and material handling at the most omic
cost and minimum possible
time whenever, wherever the
eo
need arises.
Introductionto Logistics Management

1.21IMPORTANCE OF LOGISTIcS
1. Logistics is the bedrock of trade and business:
Trade and business is not possible without buying and selling of
goods.
It is possible only when goods are physically moved into the
market or away from the market.
If there is no logistical support, trade and business will
collapse.
Hence, logistics is considered as a bedrock (fundamental support)
for trade and business.
2. Leads to customer satisfaction:
Customer satisfaction is an important consideration for any trade
or business.
The organisational objectives like productivity, good quality,
damage-free delivery, on-time delivery, etc are set to meet
customer's expectations and thereby lead to customer satisfaction
Thus, logistics management leads to customer satisfaction by
providing right quality of goods, at right time, at right place, in
right quantity and right condition.
3. Integrated Logistical Activities:
In the traditional management environment, various logistical activities
used to work in isolation under different departments. Each department
used to aim at achieving departmental objectives at the cost of overall
organisational objectives.
For example:
Purchasing department may purchase large quantity of raw
materials to enjoy economies of scale irrespective of what is
needed by production department.
Production department may produce large quantity of products to
enjoy economies of production irrespective of actual demand for
products.
Such a saving in purchasing cost or production cost on the other
hand would increase inventory carying cost as both situations
resulted in large inventory.
However, logistics brings all such activities/functions under one
umbrella (under one root) thereby overcoming inter departmental
barriers Thus, it aims at achieving overall organisational
objectives and minimising overall organisational costs.
4. Competitive Edge:
Logistics and
-
revolution, mostt of the
competition and technological
Due to increased commodity markets. A commodity markos
A commodity marke
entered into in terms of Drie
products have product differentiation
there is no at
the market where matters is the availability of the product right
what actually
quality,
right quantity. hus, a company that has its produet ts
place and in quantity will
place ana im ignt enjoua
available at right time, at right
competitive edge over its competitors.
5. Logistics wins or loses Wars:
British lost American war of independence
due to poor logistics

Rommel was beaten in the desert by superior

logistics of Allies.

6. Supports critical functions like Operations and Marketing

Supports to Operations: Logistics supports manufacturing
operations by maintaining adequate inventory of raw materials to
ensure uninterrupted production.
Supports to Marketing:
Logistical interface with marketing
Logistics makes the product accessible to the market by acting as an
interface between the function that produces it and the function that makes
the consumer buy it.
i. Product: The size and shape of the product affects the ability of
the logistics system to move and
transport the products. Moreover,
size and shape of the product
has a direct impact on logistical
costs of transportation, warehousing,
material handling, etc. 1nu
logistics manager must work
with the marketing manager to decia
size and shape of
the product so as to reduce the costs
transportation, warehousing,
material handling, etc.
ii. Price: The price of a
product includes all the direct and direct
costs incured in
manufacturing a product
ind
logistical costs of plus profit margin. f the
transportation, warehousing,
can be reduced it will material na
ultimately reduce
nus, the Customer the price of the p
will get the
product at a lower price i
this
will lead to customer
satisfaction. a
iii. Promotion:
Logistics manager
with marketing manager has to work in close co-o lination
required to ensure for promotional also
activities. He
undertake large that sufficient ilable to
inventory 15
a
by promotion. scale production to match reated
create
boost in sa
Introductionto Logistics Management 5
iv. Place: The place decision refers to the selection of distribution
channels. The selection of distribution channels by marketing
department has a great impact on logistical operations.
For example: Marketing decision to distribute goods directly to
retailers or through wholesalers has a great impact on logistical
operations. This is because demand placed by a wholesaler is in
larger quantity and less frequent whereas demand placed by a
retailer is in small quantity and more frequent.
7. Logistical Costs: For individual businesses logistics expenditures are
5% to 35% of sales depending on type of business, geographical areas
of operation, etc. This is an expensive operation. Improvement in the
efficiency of logistical functions results in savings in logistical costs as
well as customer satisfaction.

Importance of Logistics Management in India:

Liberalization and opening our door to competition.
Enables Indian company to operate at Global level.
Competition ensures that product differentiation in terms of quality
is difficult.

Product life cycles becomes smaller.

Our markets are shifting from sellers' to buyers.
Many consumer products are moving into commodities market.

India is a large country. Large distances separates production and

consumption centers. Essential commodities have to travel from
Food Corporation warehouses to consumers through PDS.
Products circulation is not impressive in India.
Makes products available from surplus to needy area.

Conclusion
Thus, Logistics is a bridge between customer demand and physical supply
of products and services and a proper logistical system is vital for the
success of the organisation.
 Logistics and S C M (TYBMS Sem Sem-
LOGISTICS
OBJECTIVES OF
1.3
Rapid Response:
concerned with the ability of the firm to.
to satisty
Rapid response is manner
order in a timely
thecustomer's requirement/customer's
the firm to respond to the customer's orde
rder
It refers to the ability of
in the shortest possible
time.
to Postpone the logistical
I.T. has increased the capacity
then too accomplish rapid
operations to latest possible time and
delivery of required inventory (product).

This results in elimination of excessive inventory which were

traditionally stocked in anticipation of customer's requirements.
Eg. Ola services when we order a cab or auto it reaches us in less
than 5 minutes.
2. Minimum Variance:
Variance refers to the difference between the actual logistical
performance and perceived (expected) logistical performance.

Variance may occur due to following reasons:

Customer order is received too late.

An unexpected disruption in production.

Goods reaching customer's location in a damaged condition.

Delivery to an incorrect location.

Delivery of incorrect goods,

etc.
One of the objective of logistics
is to minimise varianCe. Eg
Whenever you order from
Dominoes you get almost same aste
Pizza to satisfy their customer its
Dominoes is has standardized
operation.
3. Minimum Inventory:
The success of an
organisation to a larger extent depenas upon
how well they manage
their inventory level.
Moreover, inventory
is associated
such as transportation with a huge baggage of
uge bag
cost, warehousing cost, ndling
cost, etc. material
 Introduction to Logistics Management
An increase in level of inventory will lead to an increase in all the
associated costs and vice - versa.
Thus, one of the objective of logistics is to reduce inventory to the
lowest possible level consistent with achieving customer service
goals at the lowest overall logistical cost.

Movement Consolidation:
1RSPOkT
Movement Consolidation is concermed with transportation costs.
Since the transportationcosts are very high, the concept of
movement consolidation should be used in order to reduce the
transportation costs.
Movement consolidation involves grouping up of small shipments
into a single large shipment.

Movement consolidation helps to reduce transportation cost as

larger the overall shipment and longer the distance of
transportation, lower is the transportation cost per unit.
5. Quality:
One of the objectives of logistics is to make continuous
improvement in the quality of logistical performance/ logistical
activities.
When quality of product fails, the product needs to be removed
out of customers premises and fresh shipment needs to be made
again. This adds to the cost of Transportation.

Thus reworking a customer's order on account of incorrect

shipment or damage in transit is far more expensive than
performing it right in the first time.
L6. Life Cycle Support: A company has to support a product not only
while selling it but also after the product is sold out. This includes:

After Sales Service: This includes the service support needed by

a product once it is sold. For e.g. Warrantees, Guarantees,
repairs
and maintenance, etc,
Reverse Logistics: Reverse Logistics involves the process of
moving a product from its point of consumption
to the point of
origin. It involves flow of goods and services from
the customer to
the company. Thus, it is a situation wherein flow of
goods and
 services is
reversed.
Logistics and

Reverse logistics or
S C M (TYBMS Sem
product recall arises
ari
-
due
reasons:
to following
standards.
Increasingly rigid quality
Consequences in case of prod.
Responsiblity for Hazardous
environmental Hazards
that pose
returned to Company for Repairs or Exchange.
Product
(E.g. Medicines)
Product expiry date
Containers containing Liquid).
Transit Damage (E.g. Leaking

Incorrect Order Processing by suppiers.

Rigid Laws Making Recycling Mandatory.

Rigid Laws Prohibiting Unscientific Disposal of Items.

(E.g. European countries have to ensure proper disposal o

electronic goods like laptops).

1.4 INBOUND AND OUTBOUND LOGISTICS ScOPE OF

LOGISTICS
nbound Logistics (Upstream Logistics)
In order to produce a particular product, it is important to make the ra
materials available at right time, at right place and in right quantity. Thus
inbound logistics involves all the activities associated with procurement o
raw materials from the vendors.
The various activities involved in inbound logistics are:
Sourcing
Order placement
Transportation
Receiving
Storage
Issue
Inbound Logistics is also
known as Upstream Logistics. It is con erne
with procurement performance
cycle. Inbound logistics involve
preproduction logistics activities. It fron
suppliers to the company. involves movement of materia
The major functions performed
handling. warehousing, in inbound logistics are
inventory management, vehicle scheduling, e
Introduction to Logistics Management

Order Placement
Sourcing Expediting

Issue
Vendor
(for Processing)

Storage

Receiving Transportation

Outbound Logistics (Downstream Logistics)

Once the product is manufactured, it has to be made available to the
customers so that they can purchase it. Thus, outbound logistics involves all the
activities associated with physically distributing the product to the customers.
The various activities involved in outbound logistics are:
Customer order Order transmission
Order processing Order selection
Order transportation
Customer delivery
Outbound Logistics is also known as downstream logistics. It is
concerned with physical distribution performance cycle. Outbound logistics
involves post production logistics activities. It involves movement of finished
goods from warehouse to customer.
The major functions included in outbound are distribution of
logistics
finished goods, order processing, warehousing, material handling, vehicle
scheduling, shipping, etc.

Customer Order Order

order Transmission Processing

Customer Order Order

delivery |Transportation Selection
 Logs
10 Outbound Logistic
InboundLogistics the Outbound
logistics involves
the
logistics involves all
1. Inbound with activities associated with physically
associated
activities distributing the product to the
materials from
procurement of raw customerTs.
the vendors. The various activities involved in
involved in
The various activities
2. sourcing. outbound logistics are customer orde
inbound logistics are
transportation. ordeT transmission, order processina
order placement,
order transportation and customer
receiving, storage and issue.
delivery.
as | Outbound logistics is also known as
3. Inbound logistics is also known downstream logistics.
upstream logistics.
distribution
4. It is concerned with
procurement | It is concermed with physical
performance cycle. performance cycle.
It involves post production logistics
5. It involves preproduction logistics
activities. activities.
6. It involves movement of raw itinvolves movement of finished goods
material from supplier to company. from warehouse to customer.

Conclusion
The scope of logistics covers all the activities right from procurement of
raw material to delivery of finished goods to the customers. The mission
of logistics is to plan and co-ordinate all these activities in such a way so
as to achieve desired level of customer service at lowest possible cost.
1.5LOGISTICAL FUNCTIONS/LOGISTICS MIX
Logistics is a process of making goods available where they are needed
and when they are needed. This process consists of various functions:

Transportation
Warehousing
Material
Handling

Inventory
Management| Logistical Packaging
Fuctions
Order
Processing Information
Management

Customer
Service
Introductionto Logistics Managenment
11
Order Processing: In the first step, customer feels the need for certain
products and places an order to the supplier. Once the
customer order
1s received, many internal activities are undertaken. Order processing
includes:
Checking whether quantity ordered is available.
If not available start its production.

Checking whether customer's credit is satistactory.

Acknowledging the order given by the customer.
Order processing time can be shortened through the use of
computers.
Inventory Management:
Inventory management involves maintaining the required level of
stocks to meet customer requirements simultaneously ensuring
minimum inventory carrying cost.
The success of an organisation to a larger extent depends upon
how well they manage their inventory level.
Moreover, inventory is associated with a huge baggage of costs
such as transportation cost, warehousing cost, material handling
cost, etc.
An increase in level of inventory will lead to an increase in all the
associated costs and vice - versa.
Thus, one of the objective of logistics is to reduce inventory to the
lowest possible level consistent with achieving customer service
goals at the lowest overall logistical cost.
Without proper inventory management, the firm will not be able to
meet the demands of its customers.
3. Warehousing: Warehouse is a storage place where goods are stored
until they are sold. Thus, warehousing is basically holding goods before
dispatch after it is produced. Although warehousing is traditionally
considered to be a storage facility, it plays a much higher role from
logistics viewpoint. lt is perceived to be a switching facility rather
than a
storage facility.
MomBIW AND l- PUNE
A firm may have a private warehouse, public
warehouse or a contract
warehouse. Location of warehouse is an important consideration as in
order to provide good customer service, warehouse should be located
near the market. Warehouse provides a number of economic
and
service benefits to the logistical system.
 Logistics arnd S CM (TYBMS Se
Sem-V
12
to physical movementtent of
Transportation: Transportation refers
Since products are produced n
products from one place to another.
i

transports
a different area, portation
different area and are consumed in
they are produced to wk
physically moves the products from where .
they are needed. acts
It as a physical link that connects the companu
to
its suppliers and customers
Transportation is accomplished in three ways:
One's own fleet- Private carriage
Contract with specialists on long term basis- contract carriage
Contract on individual shipment basis- common carriage
Determinants of effective transport system
Cost: The cost refers to total cost for the movement of goods
between the two geographical functions and expenses related to
administration and maintaining in-transit inventory.
Speed: Speed of transportation refers to the speed with which
goods reach the destination.
Consistency: Consistency in speed means achieving the same
speed over a long period of time.
Material Handling: Material handling means providing
the right
amount of right material, in the right condition,
at the right place, at the
right time. Material handling involves
movement, protection, storage
and control of materials.
Material handling cycle starts
from receipt of materials, followed by
storage of materials, followed
by moving the materials to production
unit, followed by moving
of finished goods to the warehouse
reaches to final customer. and then t
Around 15% to 20% of the cost of tne
product is spent on material handling.
Material handling is an
important and specialised function of industria
activity. Even though
this activity does not
product, it is essential add to the value or
from the point of
space and time utility
Packaging: Packaging
is an important logistical
It has a significant management run on.
impact on the cost
system. Packaging and productivity of the logis
influences both
of logistical operations. the efficiency and the effectvee
eness

Basically there
are two
Industrial packaging. types of packaging: Consumer packaging and
convenience, market
Consumer
packaging focuses on
appeal and
product protection. Industrial
Introductionto Logistics Management 13
(Logistics) packaging includes individual units, master cartons and
containers. It focuses on handling, protection and communication.
Logistics packaging provides various benefits such as damage
protection, material handling efficiency, communication and storage
space economy.
Information Management: Information management is an invisible
element in the process of logistics management. Information plays a
crucial role in the process of logistics management.
Need for information
Demand forecasting and order processing are two areas of
logistical work dependent on information.
Information is needed by the organisation to make better tactical
and strategic decisions for the benefits of the organisations as well
as for the benefits of the customer.
In short, logistics involves various functions, like transportation,
warehousing, material handling, inventory management etc. but all these
functions depend upon availability of relevant information.
8. Customer Service: Customer service is series of activities designed to
enhance the level of custor er satisfaction customer satisfaction is
achieved when right product reaches the right customer at right place
and right time in right quantity and right condition at right price.

Conclusion
Logistics is a process of movement of goods from point of origin to point
ot destination. However, this process involves various functions that have
to be properly managed to bring efficiency and effectiveness in the entire
LSupplychain.

1.6 LOGISTICAL PERFORMANCE CYCLE

The performance cycle represents elements of work necessary to
complete various logistics related activities. In the performance cycle, the
suppliers, the firm and its customers are linked together by
communication
and transportation. The location that performance cycle links together
are
called nodes. All work related to logistics occurs at nodes. The
input to the
performance cycle is order for a product. The output is the
level of
perfomance expected from combined logistical
operations.
Basically, there are three logistical performance cycles.
They are:
i. Procurement Performance Cycle:
 (TYBMS Sem
Logistics and 8 CM -V
14 Perfomance Cycle:
.. Manufacturing Support
Performance
Physical Distribution
Cycle / Inbound logistics
ii.
Procurement Performance
i.
performance cycle involves all the activities
activ
Procurement vendors
of raw materials from
associated with procurement
operations performed under procurement performance cuel
The
Logistics
are also known as Inbound
The objective of
procurement performance cycle is to perfom
inbound logistics at lower cost.
The various activities involved in
procurement performance are:
a. Sourcing b. Order Placement
C. Transportation Receiving
e. Storage f. Issue
Procurement performance cycle involves pre production
logistical activities. It involves movement of materials from
suppliers to company.

Sourcing Order Placement

Expediting

Issue

Vendor
(for Processing)
Storage

Receiving
Transportation
ii. Manufacturing Support
Logistics Performance Cycle l In process
Manufacturing support
logistics. performance cycle provides iction
produe
This cycle can
be viewed as being
distribution and positioned between
between the physica
procurement
performance cycle.
 15
Introduction to Logistics Management
progress inventory as it
It isconcerned with managing work -in-
flows between stages of manufacturing.
occurs but rather what,
The real concern is not on how production
when and where products will be manufactured.
cycle are:
The major activities involved in this
Making timely availability of materials,
components, etc.
a.
b. Managing work - progress inventory.
in -

to factory
C. Transferring finished goods from manufacturing plant
warehouse once it is produced.
FACOTRY
INVENTORIES wORK IN FINISHED
WAREHOUSE
FROM STORES PROGRESss GOODS
logistics:
ii. Physical Distribution Performance cycle /Outbound
Once the product is Manufactured, it has to be
made available to
Physical distribution
the customers so that they can purchase it.
with
performance cycle involves all the activities associated
physically distributing the product to the customers.
performance
The operations performed under physical distribution
cycle are also known as Outbound Logistics.
cycle is to make
The objective of physical distribution performance
they are
goods available where they are needed and when
needed.
The various activities involved in physical distribution
performance
cycle are:
Customer Order. b. Order Transmission
C. Order Processing d. Order Selection
e. Order Transportation f. Customer Delivery
Physical distribution performance cycle involves post production
logistical activities. It involves movement of finished goods from
company to customers.
Customer Order Order
order Transmission Processing

Customer Order Order

delivery Transportation Selection
 Logistics arnd S CM (YBMS Sem
m-V
16
LOGISTICS
1.7 INTEGRATED
Introduction:
Integrated logistics is a technique
which utilises various source and
customer demand in time. Logistics is viewed ac
channels to meet
its customers and supplie
competency that links an enterprise with
Information from the customers flows in the form in the form of sales
is then translated into
activity, forecasts and orders. Information into

manufacturing and purchasing plans. Raw materials are procured and

converted into finished products. Thus, the process is viewed in terms of two
inter related efforts, inventory flow and information flow.
Concept of Integration in Logistics Operation

Inventory flow

Physical Manufacturing
Custormcr Proceurement Suppliers
distribution support

Information flow

The entire logistical process is viewed in terms of two inter- related

activities. They are:
a. Inventory Flow.
b. nformation Flow.
a. Inventory Flow:
i.The operations of logistics starts with a
purchase of raw matena
from supplier and ends when this
raw material is converted into 8
Finished Product sold to customers.
. This raw material
gets value at each stage of its development.
Stages of Inventory Flow:
. Procurement:- It basically involves
the finished product. purchase of raw material
2. Manufacturing Support:
It basically involves performing
various manufacturing raw
material into a finished activities and operations to conver
product.
3 Physical Distribution:- It basically nt of
finished goods
towards the customers
involves moveru
value
created. for utilization o
 Introductionto Logistics Management 17
b. Information Flow:
Logistical Information Flow involves two major types of flows:
.
i. Planning and Co-ordination flows:-It provides information
concerned with planned activities.
il. Operations Flow:- It is needed to direct day to day activities.

Information flow is on both the directions. Information flows from

customers in relation to their needs, wants, preferences, etc.
Infomation also flows within the various units of the organizal
such as manufacturing plant, warehouse, etc.

OrmT
1.8 LOGISTICAL cOMPETENCY 0m
Introduction
1. The two main objectives of logistics are:
To minimise overall logistics costs.
To provide superior customer service.
22. But the problem is that if company attempts to provide superior
customer service, then logistical cost will increase. In the same manner,
if the company attempts to reduce overall logistical costs, then customer
service is not satisfactory.
3. Thus, a company has to maintain a proper balance between its two
main objectives so as to provide superior customer service at a lower
logistical cost. This is possible through a proper logistical competency.
4. Thus, logistical competency is the arms capability to provide superior
customer service at lowest possible cost.
5. Its arms is to exploit logistical function to provide superior customer
service at lowest cost in order to gain market share.
6. In a tour made by product from raw material stage (supplier) to the
manufacturing firm, from manufacturing firm to the point of
consumption such as transportation, warehousing, material handling,
inventory management, etc are performed.
7. The WORK OF LOGISTICS is to co-ordinate functional areas like
transportation, warehousing, material handling, etc into Network Design
to achieve logistical competency.
 MSSem
Logistics and S CM (TYBMS Sem
-
18
Development of logistical competency

Market leader
State 4
Customer service
State 3
Market access
State 2

Gaining cost Effectiveness

State 1

SEVEN PILLARS/ SEVEN PARAMETERS to achieve logistical

competency.
1. Network Design: Logistical network includes various facilities
manufacturing plants, warehouses, distribution such as
centres and retail stores.
Logistical network analysis involves:
Determining which facilities
are needed (Plants, warehouse,
Distribution centres)
Determining how many of
each type of facility. (number
warehouses, distribution centres) of plants,
are needed.
Determining the geographical
location of each facility.
Detemining the work
to be performed at each facility.
All this analysis
of various facilities
Analysis. is known as Logistical Network

Proper network
analysis will result
network design which in establishing
will reduce an appropria
superior customer overall logistical
service. costs but yet provide
2. Information Management:
element in the Information Management
process of logistical is a invisio
crucial role management.
in the process Information play»
Forecasting of logistics management.
and order processing mand
depends on information. are two areas of De
Timely information logistical wot that
key to the better
logistical
performance. and accurate data ate the
3. Transportation:
products from Transportation
one place refers to physical movemen of
different area to another.
and Since products
physically moves are consumed are produ in a
they are needed. the products from
in a o
different area, transpoortation
It acts as where they
its suppliers a physical are produced to where
and customers. link that connects
the comp
 19
Introduction toLogistics Managemernt
Transportation is accomplished in three ways:

One's own fleet- Private carriage

Contract with specialists on long term basis- contract carriage
Contract on individual shipment basis- common carriage
Determinants of effective transport system
Cost: The cost refers to total cost for the movement of goods between
the two geographical functions and expenses related to administration
and maintaining in-transit inventory.
Speed: Speed of transportation refers to the speed with which goods
reach the destination.
Consistency: Consistency in speed means achieving the same speed
over a long period of time.
Logistical competency can be achieved by deciding proper mode of
transportation, deciding number and size of transport facilities, deciding
delivery routes to be followed, etc.
4. Inventory Management: Inventory management involves maintaining
the required level of stocks to meet customer requirements
simultaneously ensuring minimum inventory carrying cost. Inventory
Management involvès decision to be taken on various aspects such as:
Safety Stock
Lead Time
Replenishment of stock
Logistical competency can be achieved by accurate sales forecasting.
efficient order management, stock control, etc.
5. Warehousing, Material Handling & Packaging:
Warehousing: Warehousing is a storage place where goods are
stored until they are sold. Thus, warehousing is basically holding
goods before dispatch after it is produced.
Logistical competency can be achieved by deciding number of
warehouses, location of warehouses, types of warehouses, offering
specialized services, etc.
6. Material Handling: Material handling means providing the right
amount of right material, in the right condition, at the right place, at the
right time.
 Logistics and S CM (TYBMS
20 Sem-
by deciding the type of materie
mas
Logistical competency can be acnieved n
scheduling material handing activities and
d prope
handling equipment,
maintenance equipment.
management functioe
Packaging: Packaging is an important logstical
logisti
It has a significant impact on the cost and productivity of the logisticea
effectivene
system. Packaging intluences both the etficiency and the enes
of logistical operations.
Basically, there are two types of packaging: Consumer packaging anc
logistical packaging. Consumer packaging focus on custome
convenience, market appeal and product protection. Logistica
packaging includes individual units, master cartons and containers
focuses on handling. protection and communication. Logistica
competency can be achieved by decided proper type of packaging.
Conclusion
In the context of overall business performance, logistics exists to allow
inventory to achieve desired time, place and possession benefits at the
lowest total cost. If a firm does not consistently satisfy time and place
requirements, it has nothing to sell. Excellence in each aspect of
functional work is relevant only when viewed in terms of improving the
overall efficiency and effectiveness of integrated logistics.

1.9 REVERSE LOGISTICS

1. Reverse Logistics involves the process of moving a product trom B

point of consumption to the point of origin. It involves flow of goods
and services from the customer to the company. Thus, it is a situation
wherein flow of goods and services is reversed.
2.
2. Traditionally, almost all manufacturing firms focused their attention
'Forward" logistics activities. However, during the past few yea
because of changes in environment laws,
increased consumerism an
stiff competition, increasing
rigid quality standards, Teveerse
logistics has gained importance.
3. Nowadays, reverse logistics
has become an important tool to gain
competitive advantage over
competitors. To remain competitive and
differentiated most of the companies everse
logistical services such as: offer speedy and reliable re
Replacement of defective
products.
Repairing the used products.
.Replacing the expired products.
 2
Introductionto Logistics Management
Refurbishing the returned products.
products.
Recalling substandard or harmful
Re-sel
Reverse Logistics Services

Recyde

TIHLLD Scrap
Inspect Sort
Transport Recelve
Retrieve

others

Scope of Reverse Logistics:

due to following reasons
Reverse Logistics or Product Recall arises
1. Return of Unsold Goods:
industries, goods are distributed to
downstream members in
In certain
the supply chain with the understanding
that the goods may be
returned back in case if they are not sold.
For Example: Newspaper and Magazines.
2. Refilling Reusable Packaging:
(GAS CHLIDER
/ Examples of reusable
Few products come with reusable packaging.
for soft
packaging include reusable bottles for milk, reusable bottles
for the
drinks, gas cylinders, etc. Thus, it has to be returned back
purpose of refilling.
3. Repairs and Refurbishing:
Products may also be returned back for purpose of repairs and
refurbishing. Refurbishing is done for the goods returned by customers
during the warranty period because of damage, defects or because of
poor performance. Almost all consumer durable products need such
repairs and refurbishing activities on a regular basis.
4. Product Recal:
Product recall is a situation wherein the sold products are called back
by the company due to the following reasons:
a. Manufacturing defects in the product.
Recent Example: 75,419 units of Maruti Suzuki Baleno and
1,961 units of Swift Dzire were recalled due to faulty airbags.
22
b. Defective products that can
Loglstics and S
cause harm to human life.
CM (TYBMS Sen
-
C. Expired products.
consequences in case of products that
d. Responsibility for hazardous
hazards.
pose environmental
5. Recycling:
magazines, and cans are refiim.
eturned
Few products like newspapers,
purpose of recycling. The left out
back to the company for the
wrapper wastes pose severe
materials, used products and
countries governments have
environmental hazards. Hence, in many
devised laws making recycling mandatory.
6. Scientific Disposal of Waste Products:
Rigid laws prohibiting unscientific disposal of items has
increased the
scope of Reverse Logistics. Thus, products need to be returned back
to

the company so as to ensure scientific disposal of product.

For example: European countries have to ensure proper disposal
of

electronic goods like Laptops.

Conclusion
Traditionally, all companies use to focus their attention on 'Forward'
Logistical Activities. However, nowadays due to increasing business
pressure and competition, revers logistics has become a necessity.

1.10 GREEN LOGIsTICS

Background:
Econormic growth industrialisation and new techinology
resulting in increased waste, dumping and poor disposal
Open economics/free trade-increased travel causing an
increasein the carbon foot print

ECONOMY

IMPACT

Green
SOCIETY Logistics
ENVIRONMENT

Poor health, less Alr pollution,

agricultural production, deforestation, reducea
climatechange, ect. air quality, land
degradation, bio
HMPACT
versity, waste, ete
Introductionto Logistics Manageme 23

Economic growth, industrialization and advancement of technology

have resulted in increased waste, poor dumping and poor disposal. This has
an adverse impact on the environment resulting in air pollution,
deforestation, reduced air quality, land degradation, etc. This also led to
adverse impact on the society leading to poor health, less agricultural
production, climatic change, etc.
Meaning of Green Logistics:
Green Logistics describes all the attempts to measure and minimize the
ecological impact of logistics activities. This includes all activities of the
forward and reverse flows of products, information and services between the
point of origin and the point of consumption. It is the aim to strike a balance
between economic and environmental efficiency. Thus, Green logistics refers
procedures and step instituted by a logistics company to minimize its
waste and other negative effects on the environment.

Econommy

Green
Logistics

Society Environment

Definition:
Green logistics is the process of minimizing damage to environment and
society due to logistics.
How to Achieve Green Logistics:
Network Optimization:DUBAI )
After studying the volumes and frequencies of each of the
transportation location, the company should adopt optimal transpot
network by aggregating the entire loads to be delivered. This will help
to achieve full capacity utilis ation of vehicles and reduce the
number of trips. This will help in reducing fuel consumption and
reducing the emissions.
 Logistics and S CM(TYBMS Sem
Sem
24 -V
2. Alternative Mode of Transportation:
Over the years, the share of rail transport has decreased drastiean tically
while the share of road transport has increased to a great exter tem
Restoring rail as a primary mode of transport, in cular
particu for freig
would be essential as rail emissions are at least five times lesser tha than
road emissions. Thus, in order to reduce emissions, we need to ado
intermodal transport. i.e. focusing more on railways with road ads
providing only the last mile delivery.
3. Alternmative Fuel:
Replacement of fossil fuel based technology with bio-fuel based one
o
even with alternatives like CNG, battery operated vehicles
electronically powered vehicles, etc.
4. Building Bypass Roads:/ BArIODA -NoRLI AEP
Building by pass roads for speeding up traffic is another solution.
This
helps in reducing emission due to optimal speed.
5. Paper Usage Reduction:
Paper usage reduction is another alternative to
adopt green logistics
Many of the e-retailers no longer provide
paper receipts to enhance
their green image.
6. New Fleet Induction:
Another initiative is to replace
older vehicles with higher emissions and
lower fuel efficiencies with newer
vehicles that are fuel efficient and low
on emissions.
7. Waste Recycling and
Scientific Disposal:
The left out materials,
used products and wrapper wastes pose sever
environmental hazards. Thus,
proper steps should be taken for recycu
of wastes. Hence, in
many countries, governments
making recycling have devised law
mandatory. Moreover, company should take
appropriate steps to ensure shoula
scientific disposal of
Example of companies product.
practicing green logistics
1. Kodak has employed such
can be reused and product design for its cameras that
ue
recycled. The packaging such
that it makes reverse of its cameras is
logistic easy and
materials. helps in extraction
2. Fed Ex courier delivery
giant used hybrid
delivery trucks.
Introductionto Logistics Management 25
UNIVERSITY CASE STUDYy ON GREEN LOGISTICS(INOV 2016

Read the following case carefully and answer the questions given
below. (15 Marks)
GUCCI, the world's leading brand, has voluntarily launched its
worldwide eco-friendly program to reduce the dependence on materials and
use 100% recyclable paper in packaging. These 90-years -old company
during its 90h anniversary in 2011 has taken this important action towards
environmental responsibility. The shopping bag is 100% recyclable and
Forest Stewardship council (FSC) certified. FSC certificate verifies that all
trees used to create paper bags and boxes come from well-managed forests.
All stages in production process comply to FSC standards. In addition,
GUCCI is also rationalizing its packaging to limit the excess. For example,
shoes will be packed in one flannel instead of two. Gift boxes will only be
given out be given out when requested. All mannequins will be replaced by
100% recyclable material. GUCCI took a leadership position in industry by
voluntarily initiating the process of certification for CRS (SA 8000)
Questions:
1. State the facts and analyze the above case.
2. What are the pros and cons of Green Logistics?
33. What is Green Logistics? How does Green logistics helps an
international brand like GUCCI to sustain in the global market?
Solution
Q.1. State the facts and analyse the above case.
Economic growth, industrialization and advancement of technology
have resulted in increased waste, poor dumping and poor disposal. This has
an adverse impact on the environment resulting in air pollution,
deforestation, reduced air quality, land degradation, etc. This also led to
adverse impact on the society leading to poor health, less agricultural
production, climatic change, etc. Thus, there is greater emphasis on concept
of Green Logistics.
GUCCI has adopted the concept of Green Logistics and has taken
appropriate steps to follow Green Marketing. They use 100% recyclable
paper in packaging. The shopping bag is 100% recyclable and FSC
Certified. They are also limiting the usage of packaging material to
minimum possible extent. They are also going to replace the mannequins
with 100% recyclable material. They have also initiated the process of
certification for CRS (SA 8000) i.e. Social Accountability Certification.
 Logistics
and
26 cons of Green Logistics?
pros and
Q.2. What are the
Pros: to reduce overall business costs,
sts
firm
Green logistics can
help the
wastes and improve disposal. It also
al
1. reduce
to
22. Green logistics helps improve fuel
efficiency.
emissions and company.
helps in reducing activities of the
CSR changing marketine
3.
3. It helps to enhance to Cope up Win
ting
helps companies
44. Green logistics
themselves from
from
environment. companies to differentiate
the
5. Green logistics can help distinction and recognition
competitors by creating brand
Cons:
Outlays:
1. Increased Capital require an initial cash outlay.
This Can
Some green conversions
earnings or annual profits. An investment in green
decrease your quarterly leaving less money for other
strain your budget,
technology might
or requiring you to take out an interest-bearing loan.
investments
2. Decreased Productivity:
on green logistics and green marketing can affect day
Too much focus
activitiesand thereby reduce the productivity of
to daybusiness
department is required to
organisation. For example, lf your purchasing
verify the green status of products and vendors, they will
search for and
just purchase the
spend more time purchasing than when they could
cheapest goods and services.
help an
Q.3. What is Green Logistics? How does Green logistics
international brand like GUCCI to sustain in the global market?
Meaning of Green Logistics
Green Logistics describes all the attempts to measure and minimize tn
ecological impact of logistics activities. This includes all activities of
the
the
forward and reverse flows of products, information and services between
point of origin and the point of consumption. It is the aim to strike a balan
fers
between economic and environmental efficiency. Thus, Green logistics rel
its
to procedures and step instituted by a logistics company to minimize
waste and other negative effects on the environment.
How Green Logistics helps to sustain in the global market
Any time you add a green initiative to your the
workplace, you can u
event to generate positive public relations. Many companies make a virue eof
their environmental awareness, building advertising campaigns aroun t in
the belief that customers prefer dealing with socially responsible businesse
Thus, adopting green logistics helps to the
about
mage abou
create a positive image
company in the mind of customers and thereby sales
it will help to increase
and turnover. Moreover, if you follow green logistics, sitive
it creates a po
Introduction to Logistics Management 27
outlook of the company in the eyes of key stakeholders like society,
employees, government, etc.
Example of Company adopting Green Logistics:
Nike:
The American sportswear brand has taken big steps to "green" its
supply chain. To have a positive impact on ecosystem, they have adopted a
seven stage process- Plan, Design, Make, Move, Sell, Use and Reuse.

1.11 LOGISTICS MISSION

Logistical Mission is to plan and co-ordinate all those activities
necessary to achieve desired level of customer service at lowest possible
cost. Logistical mission is divided into two parts.
1. Customer Service: One of the objectives of logistics is to provide
superior customer service. Customer service is measured in terms
of:
a. Availability: Availability means having necessary level of
inventory to meet customer requirements.
b. Operational Performance: Operational performance involves
time gap between order receipt and order delivery. Order delivery
should be done in a speedy and consistent manner.
C. Service Reliability: Service reliability involves the quality
ylal9tibu
attributes of logistics. It is the sense of satisfaction of the customer
as his requirements are fulfilled on time.
No
Total Cost: The total cost of the product involves all the direct
and indirect costs incurred in manufacturing a product. It involves
all logistical costs such as transportation, warehousing, material
handling, packaging, etc.
But the problem is that if company attempts to provide superior
customer service, then logistical cost will increase. In the same
manner, if the company attempts to reduce overall logistical costs,
then customer service is not satisfactory.
Conclusion
There are two main objectives of logistics:
To provide superior customer service.
Tominimise overall logistical costs.
Thus, a company has to maintain a proper balance
between its two
main objectives so as to provide superior customer
service at a lower
logistical cost.
 Logistics and S C M (TYBMS Sem.
28
m-
1.123 C'S OF LOGISTICS
logistics includes company, customer and comDottitor,
The three C's of economy
All the three C's are vital for healthy
business and prosperous
A customer always has a need
or want for the Drod.
roduct
1. Customer:
They always look for best quality
products at lowest prices.

2 Company: The company tries to satisfy their need by offering Varin.

products and services.
Competitor: The competitor tries to pull or attract the customers b
offering differentiated products and services.

"C" customers
Look for value, benefit at
lowestprnice

Value Value
Coma utilization of asscts tries
By effective "C"competitor
to influcnce customer to buy their By effective utilization of assets tries to
prodacts attract& pull customers by offering goods
lat lower cost
Cost differentials

Company as well as the

competitor have certain assets such as
manufacturing capacity, technology,
brand name, patents, warehouses, etc
Thus, both company as well
as competitor tries to attract
effective utilisation of assets. the customer by
Thus, the company needs
best" in order to retain to be "best of the
the existing customers.
provide certain benefits For this, company has
to its customers. These
benefits include:
Cost Advantage: Cost
involves all the direct
incurred in manufacturing and indirect co
all kinds of direct the product. The company must try to reau
and indirect costs.
possible through: This reduction in logistical costs
i. Economies of scale.
ii. Savings in production cost.
ii. Savings in transportation
costs
b. Value Advantage:
Value advantage
concept that customer is based on the marke n9
doesn't buy products.
Thus, the company They buy benefits.
service, technical must provide
support, and additional benefits sales
the existing customers. prompt deliveries like after-s
and so on in orderto retain
Introduction to Logistics Management 29

REVIEW QUESTIONS
Q.1. Objective type Question
(A) Multiple Choice Question
1. Four economic utilities that play a role in logistical management are
time, place, possession and
a. Inventory b. Damage Control
b. Form C.Cost
2. Logistics is the of trade and business.
a. Building b. Bed Rock C. System d. Process.
3. Logistics management can be defined as
a. Systematic flow of Products b. Manufacturing
C. Transportation
4. In the last decade the term has sometimes been used
interchangeably with logistics.
a. Military activities b. Co-ordinations
C. Supply Chain Management d. Logistics function
5. may lead to bad logistics.
a. Information b. Bull whip
C. Minimum lead time d. Minimum order cycle
6. In scope of logistics, outbound logistics deals with
a. Inspection of raw material b. Customer pick up
C. product quality d. None of these
7. Performance cycle structure includes
a. Inbound b. Production C. Outbound d. All of them
gives the flavor of green logistics.
a. More efficient packing b. Route optimization
C. Load optimization C. All of them
9. Logistics performance cycle includes procurement, manufacturing &

a.Physical distribution b. Packaging

C. Storing d. holding goods
10 involves the process of moving a product from its point
of consumption to the point of origin.
a. Backward flow logistics b. Rewind logistics
c. Forward logistics d. Reverse logistics
11. The upstream supply chain is,
a. Inside the organisation
b. Procurement of material
C. Distribution of products and services
d. Delivery of service to Customers
 Logistics and S C M (TYBMS Ser
Sem-
30
12. Logistical competencies = Internal integration +
Outward integration b. inbound integration
a.
c. External integration c. None of the above
13. is not component of logistics.
a. Warehouse b. Inventory
c. Reverse logistics d. Transportation
14. refers to the procedures and steps instituted by a logistin
company to minimize waste and other negative impacts.
a. Green logistics b. Business logistics
C. Integrated logistics d. Event logistics
Ans.1. c, 2. - b, 3. a, 4.
-
- a, 5. b, 6.
- b, 7. - d, 8. -G
-

9. -a, 10. - d, 11. d, 12 c, 13. c, 14. a.

- - -

(B) Fill in the Blanks

1. is concermed with getting the products and services where the
are needed and when they are needed.
2 refers to the difference between the actual logistics performana
and perceived (expected) logistical performance.
3. is concerned with the ability of the firm to satisfy the customer
requirement/customer's order in a timely manner.
4. involves grouping up of small shipments into a single large shipment
5. refers to procedures and step instituted by a logistics
compan
to minimize its waste and other negative effects
on the environment.
6 Logistics mix includes various functions like
transportation, warehousing
packaging, inventory management and
7 Logistics is an activity which is primarily
based on
8. Outbound logistics is also known
as
9 Inbound logistics is also known as
10. Logistics performance cycle
includes and
11. aims at providing superior customer
12.
service at lowest cost.
refers to moving product from
point of consumption to point of origin
13. refers to calling back defective
products again to company.
Ans.1. Logistics, 2. Variance,
3. Rapid Response, 4. Moveme
consolidation, 5. Green logistics,
6. Information, 7. Information,
logistics, 9. Upstream logistics, 8. Downstrea
10. Procurement performance
manufacturing support performance cyd
11. Logistical competency, cycle, Physical distribution cyce
12. Reverse logistic, 13.
Product recall.
(C) Answer in One
Sentence
1. What is Inbound
Logistics?
Ans. In order to produce a
particular product, it
the raw materials available at is important to ma
right time, at right place
Thus, inbound logistics and in right quan
involves all the
procurement of raw material activities associated wit
from the vendors.
Introduction to Logistics Management 31

2. What is Reverse Logistics?

Ans. Reverse Logistics involves the process of moving a product from
its point of consumption to the point of origin. It involves flow of goods and
services from the customer to the company. Thus, it is a situation wherein
flow of goods and services is reversed.
3. What is Green Logistics?
Ans. Green Logistics describes all the attempts to measure and
minimize the ecological impact of logistics activities. This includes all
activities of the forward and reverse flows of products, information and
services between the point of origin and point of consumption. Thus, Green
logistics refers to Procedures and step instituted by a logistics company to
minimize its waste and other negative effects on the environment.
4. What is Movement Consolidation?
Ans. Movement consolidation involves grouping up of small shipments
into a single large shipment.
Movement consolidation helps to reduce transportation cost as larger
the overall shipment and longer the distance of transportation, lower is the
transportation cost per unit.
5. Define Logistics.
Ans According to the Council of Supply Chain Management
Professionals 'logistics is the process of planning, implementing and controlling
procedures for the efficient and effective transportation and storage of goods
including services and related information from the point of origin to the point of
consurnption for the purpose of conforming to customer requirements and
includes inbound, outbound, internal and external movements.
(D) Match the following

1. Reverse logistics A. Reduction in freight cost

2. Green Logistics B. Repair, Recycle & Recall
3. Inbound logistics C. GUCCI
4. Outbound logistics Procurement Cycle
5. Integrated logistics Physical Distribution cycle
6. Movement Consolidation Internal& Extermal Integration
Ans. (1- B)(2- C)(3- D)(4- E)(5- F), (6-A)
Q.2. Answer the following questions
Explain the importance of Logistics.
Explain the objectives of Logistics
Write a note on Inbound and Outbound Logistics.
4 Write a note on Logistical Performance Cycle.
5. Write a note on Reverse Logistics.
6. Write a note on Green Logistics.
7. Explain the scope of Logistics.
8 Write a note on Logistical Competency.
 Logistics and S CM (TYBMS Sem
32
Introduction to Supply Chain
Chapter2 Management

SYNOPSIS

2.1 Meaning of Supply Chain Management

2.2 Objectives of Supply Chain Management
2.3 Functions of Supply Chain Management
2.4 Participants of Supply Chain Management
2.5 Role of Logistics in Supply Chain Management
2.6 Comparison between Logistics and Supply Chain Management
2.7 Channel Management & Channel Integration
2.8 Bullwhip Effect
2.9 Extended Enterprise
2.10 Evolution of Supply Chain Management or Stages of Supply
Chain Management or Phases of Supply Chain Management.
Review Questions

2.1 MEANING OF SUPPLY CHAIN MANAGEMENTT

I. Introduction
Supply Chain is a network of organisations that are having linkages
both upstream and downstream, in different activities and processes that
produce and deliver goods and services to the ultimate customer.
Supply Chain consists of all the stages that are required to satisfy the

customer's request. It starts with the supplier and passes through the

manufacturer, wholesaler, retailer and finally reaches the customer.

II. Definition
According to Council of Supply Chain Management Professionals
supply chain management may also be defined as "the integratet
management of all linkages and value added activities from the supplier
supplier to the customer's customer in such a way that enhanced custo
value is achieved at lower costs.
IlI. Three Flows
In supply chain management, there are mainly three flows:
to
Product Flow: It involves movement of goods from supplier
customer, through the manufacturer, distributor and retailer.
Introduction to Supply Chain Management 33
Information Flow: It involves transmitting orders and updating the
status of delivery. The information flow is vital for the success of supply
chain management.
Financial Flow: of credit terms, payment
It consists schedules,
payment of money for materials, products, etc.
In the supply chain the products flows towards the end customer,
information flows both the ways and the financial flow is towards the
suppliers i.e. customer pays to retailer for product, retailer to wholesaler,
and so on.
Iv. Example:
A shirt manufacturer is a part of supply chain that extends upstream
through the weavers of fabrics to the spinners and the manufacturers of
fibre, and the downstream through distributors and retailers to the final
consumers.
Manufacturers of Yarns/Fibres
Upstream

Weavers of Fabrics Supplierss

Shirt Manufacturers

Retailers
Downstream
Customers
Customers

V. Corporate Examples

Some of the Best Examples of Supply Chain Management:

1. The Coca-Cola Company
Main makers, marketers and distributors of drink concentrates and non-
alcoholic syrups. The main office is located in Atlanta, GA but their
products are distributed to virtually every country in the world. Their
preparation, distribution and transportation logistics are in line with a
segmentation strategy for their customers when it comes to the size and
presentation of their products. Aside from having an extremely
successful supply chain, Coca-Cola participates in
sponsorships, partnerships, and alliances; thus creating a great
management and marketing of their products.
 Logistics and S CM (TYBMS So
em-
34
2.
2. Colgate Colgate-Palmolive, dedicat
The main toothpaste brand made by
hygiene and home clean
producing. distributing and selling oral eanin
nra
century. Colgate keeps
products since the last part of the 19th
all aspects of product diversity, effectiveness,
optimization and cust
support and it uses an effective distribution channel that
encompas
asse
all aspects of care and maintenance. Their products are sold.
many venues such as pharmacies, supermarkets, convenionena
stores and small wholesalers, thus creating an excelle
llen
impact within their distribution channels and management.
7-Eleven
7-Eleven is an international chain of convenience stores, based out
Dallas, Texas. The currently have around 58.308 in 16 differen
countries, most of them franchises. They are mainly focused on selli
basic food items, medicine and toiletries and magazines, but this a
depends on their host country. Their main stores are located throughou
the United States and Asia. They supply a huge variety of custome
needs 24 hours a day in most locations. Their reach, capacit
and management have made 7-Eleven one of the biggest ani
most productive companies in the world.
Zara
Zara is one of the main clothing and accessory retailers international
based in Spain. They are mainly focused on new, trendy and
cutting edge fashion for men and women alike. Currently i
operates in 88 different markets worldwide, their mai
distributors are in Madrid and Zaragoza. Zara is known for i
energy saving efforts and techniques, as well as their minimization and
efficient waste management. This commitment with
the environment
paramount within their operations across all
plants and departmen
and has helped create a collective
conservation consciousness amo
members of the staff. In their fabrics, they
used environmentally friend
fabrics like organic cotton amongst
others. Their textile productio
comes from Spain, the Far East, India
and Morocco. Biodiesel fuel
used to transport their products,
according to their environmeenta
policies. They have a great concern
for animal treatment and under ne
circumstances, use animal products
that come from animals that
not treated ethically or sacrificed
for the sole purpose
commercializing their leather,
skin, homs, feathers, etc. While othe
retailers use third-party production,
Zara produces about 60% o
fabrics they use and use
cutting-edge technology to cut and measur
the handling of fabric so this is n
manne
done in a precise and efficient ma
thus reducing waste overall.
Introduction to Supply Chain Management 35
5. Amazon
Amazon is a US electronic commerce and cloud computing company.
Their headquarters are based in Seattle, Washington and they are the
largest internet-based retailer in the United States. Amazon was one of
the first companies that started selling book online. Currently their
range of products doesn't stop there; they also sell music, videogames,
shoes, clothing, luggage and many other accessories. Amazon offers
about everything you can think of and their variety in offers and
products along with their customer driven shopping and
recommendations is a hit with customers. One of the reasons why
Amazon can have such a wide spectrum of products is the fact that they
are not limited by physical spaces, since they don't have actual stores.
Their supply chain goes from the lowest levels of inventory,
through the logistics of the order itself all the way up to an
outstanding distribution chain of their products in an
international scale. Amazon can currently ship close to 10 million
different products. This diversity gives it an edge against competitors
and makes it a perfect example of what efficient supply chain
management can accomplish.

Conclusion
Supply Chain is a group of members including Suppliers of Raw
Materials, Manufacturers, Distributors, Wholesalers, Retailers and
Customers. Thus, success of a supply chain depends upon effective
coordination and cooperation among members

2.2 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT

1. To Maximise the Overall Profitability- The most important objective of

supply chain management is to maximise the overall supply chain
profitability. The supply chain profitability is the difference between the
amount paid by customer to purchase the product and the cost incurred by
organisation to produce and supply the product to the customer at right
time. Higher the Supply çhain profitability, more successful is the supply
chain. tCost f oouhonD-(unty
2. Enhancing Customer Service: One of the major objectives of supply
chain management is to provide superior customer service. It aims at
avoiding any kind of service failure and provides efficient services to
tomers thereby leading to customer satisfaction.
3. Reduce Inventory Cost: One of the objectives of supply chain
management is to reduce inventory cost. Due to efficient supply chain
management, there is greater co-ordination and co-operation among the
members which helps to reduce inventory thereby reducing Inventory costs.
 36 Logistics and S C M (TYBMS Sem
em -V
4. Reduce warehousing Cost: Due to reduction in level of inventory
will be a reduction in warehousing cost as there will be less heldup
inventory.
5.
5. Reduce Transportation Cost: Another objectives of supply ch
chain
management is to reduce transportation cost through proper plannino
network and by using transportation principles like Economies of scale and
Economies of Distance.
6 Reduce Lead Time: Efficient Supply Chain Management Should rec
the time required to convert orders into cash through prope
Communication, Co-Ordination, etc.
7. Minimising Variance Supply chain Management throug
throug
Standardization of activities and processes helps to reduce variance betweer
actual results and perceived results.
8. Ensuring On-time delivery to customers: All the Members of Suppk
Chain should work effectively and efficiently and thereby ensure On-time
delivery to customers.
9. Reducing working Capital: Effective Supply Chain Management w
help to reduce various costs such as inventory cost, warehousing costs, and
transportation costs thereby reducing working capital.

2.3 FUNCTIONS OF SUPPLY CHAIN MANAGEMENT

When you need to buy something, you just head to the nearest store o
supermarket. You pick up the product, pay for it and return home. Have
you ever wondered how products reach the store shelves?
There is an entire
process called supply chain management behind it.
Supply chain management maintains the balance between the demand
d supply and involves activities right from procurement of materials and
converting them into finished goods to ensuring delivery at the right time to
reach the end-consumer. Hence, supply chain management is the lifeline o
an organization. It needs to be really efficient to keep
the operations running
like a well-oiled machine. A streamlined supply
chain management chan
can enhance customer relationship, lower down operational costs.
The supply chain management primarily comprises five functions
mentioned below:
1. Purchasing
This is the first function of supply chain management. It
pertains
procuring raw materials and other resources
are required
manufacture the goods. It requires coordination thatsuppliers
with to denv
the materials without any delays.
2. Operations
The operation team engages in demand planning
Before giving raw material purchase order, and forecastin
anticipate the possible market demand
the organization na
and number of units it needs
produce. Accordingly, it further sets the ball rolling for inventO
management, production and shipping. If
anticipated, then it could result in excess the demand isd
inventory cost. If the dene
Introductionto Supply Chain Management 37
is under anticipated, the organization wouldn't be able to meet
customer demand, thereby leading to revenue loss. So, operations
function plays a critical role in supply chain management.
3. Logistics
This function of supply chain management requires immense
coordination. The manufacturing of products has commenced. It needs
space for storage until it is shipped for delivery. This calls for making
local warehouse arrangements. Let's say; the products _are to be
delivered outside the city, state or country limits. This brings
transportation in the loop. There will also be a need for outstation
warehouses. Logistics ensures that products reach the end-point
delivery without any glitches.
4. Resource Management
Any production consumes raw materials, technology, time and labour.
However, all the processes need to be efficient and effective. This phase
is taken care of by the resource management function team. It decides
the allocation of resources in the right activity at the right time to
optimize the production at reduced costs.
5. Information Workflow
Information sharing and distribution is what really keeps all other
functions of supply chain management on track. If the information
workflow and communication are poor, it could break apart the entire
chain and lead to mismanagement.
2.4 PARTICIPANTS OF SUPPILY CHAIN MAMAGEMENT
Supply Chain Community

Ran Material Supply lanulaCTurer Distributors Wholesalers Retailers End Uer

Supply Chain generally includes:

1. Suppliers: These are the organizations that provide goods and services
(Raw Materials) to purchasing organization (usually a manufacturer).
Suppliers provide raw materials to manufacturers who need these to run
their operations or incorporate into the goods that they manufacture.
2. Manufacturers: These are the organizations that are engaged in the
production of goods and services. Manufacturers sell their goods to others
like distributors/wholesalers/ retailers in the supply chain for resale.
3. Distributors: Distributors are typically middlemen that purchase goods
from manufacturers with the intention of reselling them to others in the
supply chain.
4. Customers: Customers are the end receivers or users of the product or
service. They are an essential part of the supply chain as they are the
ultimate consumers of the products and services.
 Logistics arnd S CM (TYBMS Sem

MANAGEMENT
2.5ROLE OFLOGISTICS IN SUPPLY CHAIN
Logistics is basically concerned with making the goods available
1. t
vari
point of origin to point of consumption. In order to achieve this, riou
components of logistics such as transportation, warehousing, materiat
pe
handling, inventory management and information management are
into operation in order to make the goods available at right time, righr r

place and right quantity.

2. There is always a gap between point of demand and point of supply
Logistics is viewed as a competency that links an enterprise with i
ustomers (point of demand) and Suppliers (Points of Supply
Information from the customers flow in the form of sales activit
forecasts and orders. Information is then translated into manufacturina
and purchasing plans. Raw materials are procured and converted into
finished goods. Thus, Logistics is viewed as a process that bridges the
gap between point of demand and point of supply.
On the distribution side, supply chain is needed in order to make the
products available at right time and at right place. In order to achieve
this, there will be a need to establish proper
distribution network
proper co-ordination among various channel members, faster, reliable
and consistent freight movement, movement consolidation, etc.
Reduction in operating cost and delivery of superior customer service in
the supply chain will be possible only by performing
various logistical
operations like transportation, warehousing, material handling
packaging. inventory management, etc.
5. The success of supply chain management will
largely depend on
success of logistics management. Hence,
integration of the supply chain
anagement is not possible without efficient
and effective logistics
management.
Hence, for the success of both logistics
and supply chain managemen
following activities needs to be performed
in a planned manner:
Minimum inventory level.
Reduced transportation costs by
using principles like economies o
scale, economies of
distance, movement consolidation, full lo
capacity utilisation.
Reduced lead time and
order processing time.
High inventory turnover.
Close coordination and
cooperation among members of supp
chain
7. To conclude, we can say
that Logistics Management tof
success of Supply Chain is the key
Management. Moreover, SCM
Logistics and
Introductionto Supply Chain Management 39
should go hand in hand in order to achieve the mission of providing
superior customer service at thelowest possible cost.

Supply Chain
Management Logistics
Sourcing Inbound and outbound
Procurement Inventory Management
Collaboration Transportation
Integration Warehouse
Packaging
Order processing

2.6 COMPARISON BETWEEN LOGISTICS AND SUPPLY CHAIN

MANAGEMENT

LOGISTIcs SCM
It is concerned with getting goods&| SCM encompasses all the activities
services where they are required and associated with movement of goods from
when they are desired raw materials stage to end user.
Logistics is a narower concept. SCM is a broader concept.

Logisticsis concerned with inbound, SCM co-ordinates and co-operates

manufacturing and outbound process among value chain members.
Logistical activities are conducted within SCM functions outside organization
the organization.
It originated from Military logistics. SCM originated from Business Logistics.
Logistics mainly concened with
is SCM recognizes that internal integration
optimizing the cash flows within the by itself is not sufficient. So emphasize on
organization i.e. emphasize on Intermal Internal Integration as well as on external
Integration integration.
The objective of logistics is to minimize The objective of SCM is to maximize
cost. profitability.
There are 2 flows in logistics: Product There are three flows in SC Product
flow (i.e. Flow of goods and Services) flow, Information Flow and Financial
andInformation flow. Flow.
The focus of logistics management The focus of SCM depend upon the
depend upon the management of management of relationship in order to
resources within the organization achieve a more profitable outcome for all
parties in the chain.
 Logistics and S CM (TYBMS Sem
40 -y
CHANNEL MANAGEMENT & CHANNEL INTEGRATION
2.7
Channel Management
supply chain is a network of organisations that are having
linb
A tage
in different activities and prore
both upstream and downstream, ese
that produce and deliver goods and services to the ultimate customer
es
It starts with the supplier and passes through Manufacturer, wholesal.

retailer and finally reaches the customer. Thus, a supply chain invoh volve
large number of intermediaries.
Channel Management is all about Managing relationships with all the
intermediaries (channel members ) in such a way that it improves th
overall efficiency of entire channel.
Effective Channel Management will help in delivering superior custome
service at the lowest possible cost.
Thus, we can say that effective Channel Management is vital so ast
help the Material / Product reach the right place, in the right quantih
and at the right time.
All channel Member should aim at developing and Maintaining lon
term relationship with each other in order to Strengthen the channe
Effective Flow of information and proper communication among a
Members is vital to achieve it.

Supplier of Manufactures Wholesalers Retailer Custom

Raw Material

Channel Members
The above diagram illustrates an overall
supply chain (including variou
channel members focusing) on integrated
management of all logist
operations starting from procurement
of Raw Material from Suppliers up
delivery of finished goods to the
customers.
Channel Integration
Another way to achieve effective
channel management is by integta"
all channel members.
Channel integration is wherein
one channel members integralee
business with other channel
member within the supply cha
entering into any contract,
partnership or strategic alliances etc.
Thus, Channel integration
unifies all channel
supply chain into one. members witnuin
 Introductionto Supply Chain Management 41
Benefits of Channel Integration
Increase efficiency due to better co-ordination and co-operation.
Improved Profitability.
Reduction in Overall Costs
Best use of available resources.
Reduction in Quantity Gap and Time Gap between Production and
Consumption.

2.8 BULLWHIP EFFECT

Meaning of Bullwhip Effect
A supply chain has various stakeholders i.e. suppliers, manufacturers
wholesalers, retailers, distributors, etc. There must be a proper co-ordination
among all the members of the supply chain. This is mainly because action of
one member has an impact on actions of other member in the supply chain.
The bullwhip effect is a well known symptom of co-ordination problems
in a supply chains. The bullwhip effect can be explained as an incident
where orders sent to the manufacturer and supplier create larger variance
(difference) then the actual sales to end customers. These irregular orders in
the lower part of supply chain create larger variations in the upper part of
supply chain. This variance can interrupt the smoothness of the supply chain
process as each member in the supply chain will over or underestimate the
product demand resulting in extreme fluctuations.
Example of Bullwhip Effect

Suppliers
of Manufacturer Retailer Customer
Raw Materials 30 units 20 units 10 units

Let us take an example, an actual demand froma customer is 10 units,

the retailer may order 20 units from manufacturer. In turn manufacturer may
order 30 units of raw materials from the supplier. This variance in demand
orders is known as Bullwhip Effect.
Causes of Bullwhip Effect
1. Lack of communication between each member in the supply chain.
2. Lack of co-ordination between various supply chain members.
3 Demand forecast inaccuracies
4 Free Return Policies.
5. Delay in flow of information and material among chain members.
 Logistics and Serm.
S CM (TYBMS Sem-
42
Results/lmpacts of Bullwhip Effect
cost due of ev
to building up of exce
1 It increases manufacturing
1. inventory.
production capacity or holding excess
higher level of inventon,
2. It increases inventory cost due to carrying
the warehousing Sna.
3. The high level of inventory also increases paca

equirement and thereby warehousing cost.

It increases replenishment lead time due to excess productio tion
requirements.
It has a negative effect on performance at every stage and thus hun
the relationship between different stages of supply chain.
Remedies/Solutions of Bullwhip Effect
Know your customers: Some companies deal directly with their end
en
customers. This will enable the companies to know the actual requirement
of the customers and they can supply goods as per the requirements.
2. Proper forecast: One of the causes of Bullwhip effect was inaccura
demand forecasting. Thus, in order to avoid bulwhip effect, the compan
should undetake proper demand forecasting. The changing requirements o
the customer should be kept in mind and accordingly supply of the good
should be arranged.
3. Better flow of lnformation: The Bullwhip effect would not occur if orden
exactly meet the demand of each period. This can happen only when the
is proper flow of infomation in the supply chain.
4. Free Return Policies: Free Return Policies are another major cause fa
bulwhip effect. To avoid Bullwhip effect, such
policies simply must b
prohibited or limited.
Reducing the Lead time of the Supply: Lead
time is the time gp
between placement of an order and delivery
of an order. Lead time can b
reduced by measuring and
eliminating the erors made during
lead time process. Lead time can also
be reduced by using modem
techniques like Electronic Data lInterchange
(EDI), Just in time (JI)

2.9EXTENDED ENTERPRISE
Extended Enterprise is a self-organizing
network of fims that combines u
economic output to provide product
Firns in extended enterprise and service offerings to the market
may operate independently
The success of a firm
does not merely depend
or co-operativey
depends on performance of on its performance
network of firms.
Extended enterprise
work together to
company make one main product pare
of the pa
I consists of outsourcing
public relations, packaging, various activities like warehousing. techi log
transportation, etc.
Introduction to Supply Chain Management 43
a concept whereina company can gain competitive advantage when
It is
suppliers become partners.
The extended enterprise is same as supply chain, in which all parties
connect through a contract and work as Single Corporation.

Restaurants
Services
Franchisees

McDonalds's Food
Corporation Suppliers
Advertising
Cooperatives

Food
Purchasing
Distributors Cooperatives

The Extended Enterprise associated with McDonald's. Eg Eg.

McDonald's Corporation not only involves itself solely but also Franchisees,
Joint Venture Partners, food suppliers, food purchasing co-operatives etc.
This enables the McDonald's Corporation to conduct their business in more
efficient manner by outsourcing its activities.

2.10 EVOLUTION OF SUPPLY CHAIN MANAGEMENT

e OR STAGES OF SUPPLY CHAIN MANAGEMENT
OR PHASES OF SUPPLY CHAIN MANAGEMENT
Step one: Baseline
ateria
Flow

Material
Purchasing
Contol
Productian Distrbrtios

Step two: Functional integration

Materia
ow
Materials aManucturing Distribertsion
lanegsare Managamant

Step three: Internal integration

ateria
Flow

Materials
anegemment

Stap four: External Integration

Cstamer
Flow Sarvice

Source: Stages of Supply Chain Development (Stevens, 1989).

 44
Stage 1: Baseline:
Logistics and S C M (TYBMS Sem
-
like purchasing, production, materia
ma
In this stage, all the departments
departments focus on reducing
reducino
handling, etc work in isolation. Each of these the
individual departmental costs which results in increased inventory. Dueto this
turn inventory cost increae
individual departmental cost decreases but
in eases
whole.
thereby giving no benefit to the organisation as a
Stage 2: unctional Integration:
In this stage, all the similar and related activities were integrated into a sinoi
functional department. For example; purchasing and material control
integrated into Materials management. Sales and distribution got integrated inth t
Distribution Management.
Stage 3: Internal Integration:
It involves integration of all the functions within the organisation right fron
purchase of raw material till the distribution of finished goods to the customer.
Stage 4: External Integration:
It involvescomplete integration with all the upstream members like supplien
of raw materials and downstream members like distributors, customers, etc
order to establish a complete supply chain.

REVIEW QUESTIONS
Q.1. Objective type questions.
(A) Multiple Choice Questions
1. Following is a barrier to supply chain management
a. Sharing your skills b. Optimum information flow
c. Visibility/transparency d. None of these
2. is a loosely coupled, self-organizing network of firms tha
combines their economic output to provide product and service offering
to the market.
a. Extended enterprise b. value chain
c. bull whip d. Both a and c
Ans. 1.-d, 2. -a
(B) Fill in the Blanks
1. s a network of organizations
upstream and downstream, in different that are having processes
linkages bou
produce and deliver goods and services activities and
2. Supply chain management to the ultimate customer.
comprises of three flows product
information flow and
3. The three flows in supply chain are
is a symptom of coordination and
5. In terms of logistics, advertising firm, problem in supply chain.
supplier's
6 strategies bring together supplier,
manufactures, distributors and
sellers with the aim to lower cost
and increase efficiencies.
1. is an act of purchasing
your own suppliers.
Introduction to Supply Chain Management
45
8 The means demand variability increases as one move
up the supply chain.
Ans. 1. Supply Chain, 2. Financial flow, 3. Product flow, information
flow, financial flow, 4. Bullwhip effect. 5. Extended enterprise. 6. Channel
management, 7. Channel integration 8. Bull whip effect.
(C) Answer in one sentence
1. What is Outbound Logistics?
Ans. Once the product is manufactured, it has to be made available to the
customers so that they can purchase it. Thus, outbound logistics involves all the
activities associated with physically distributing the product to the customers.
2. What is Supply Chain Management?
Ans. According to Council of Supply Chain Management Professionals,
supply chain management may also be defined as "the integrated
management of all linkages and value added activities from the supplier's
supplier to the customer's customer in such a way that enhanced customer
value is achieved at lower costs.
3. What is Bull Whip Effect?
Ans. A supply chain has various stakeholders' i.e. suppliers,
manufacturers, wholesalers, retailers, distributors, etc. The bullwhip effect
can be explained as an incident where orders sent to the manufacturer and
supplier create larger variance (difference) then the actual sales to end
customers. These irregular orders in the lower part of supply chain create
larger variations in the upper part of supply chain. This variance can
interrupt the smoothness of the supply chain process as each member in the
supply chain will over or underestimate the product demand resulting in
extreme fluctuations.
4 Name the three flows involved in a supply chain.
Ans. The three flows involved in a supply chain are:
a. Product flow. b. Information Flow. C. Financial flow.
(C) Match the following
A B
1. Extended enterprise A. Three flow
2. Bullwhip effect B McDonald's
3. Channel management | C. Changes in demand
4 Channel integration D. Long term relationship
5. Integrated logistics E. Purchasing own supplier & customerS
6. Supply chain F. Intermal & External Integration
management
Ans. (1-B)(2- C)(3- D)(4- E)(5- F),(6-A)
Q,2. Answer the following questions
1. Differentiate between Logistics and Supply Chain Management.
2. What are the functions of SCM?
3. What are the objectives of SCM?
4. Explain the participants involved in a supply chain.
5. Write a note on Channel Management and Channel Integration.
6. Write a note on Role of Logistics in Supply Chain Management.
 Logistics and S C M (TYBMS Sem
m
46
Customer Service:
Key Elements of Logistics
3
Chapter

SYNOPSIS

3.1 Meaning of Customer Service

3.2 Objectives of Customer Service
3.3 Elements of Customer Service
3.4 Levels of Customer Service
3.5 Rights of Customer Service
3.6 Strategies to improve Customer Service / Customer Service
Strategy
3.7 Perfect Order
Review Question

3.1 MEANING OF CUSTOMER SERVICE Pr

Customer Service is a chain of sales activities and meeting custor
requirements, which begins with receiving the orders and ends with
delivery of the products to customers.

According to Jamier L Scott "Customer service is series of activit

designed to enhance the level of customer satisfaction-that is the feeling t
a product or service has met the customer expectation."
In the changing business scenario customer service is playing
prominent role. Customer dissatisfaction will lead to loss of business a
reputation.A good production function produces a product of high qua
but business will not take place unless various logistics activities physicd
take the product to the market. Hence, Customer satisfaction is the dir
result of superior logistical performance.
In general customer service is ovidi
defined "as a process for prov
competitive advantage and adding benefits to the supply chain in oru
maximize the total value to the customer.
Customer Service: Key Elements of Logistics 47
3.2 OBJECTIVES OF CUSTOMER SERVICE
1 Ensuring Perfect Order: When all the order processing activities are
performed in the most efficient manner with the ultimate goal of
achieving 100% customer satisfaction, it is termed as perfect order. The
main objectives of customers service is to do everything right and to do
it right the first time.

2. To Improve Customer Satisfaction: Customers today are not only

interested in the product that are offered to them but are also very keen
on all the additional elements of service that they are entitled to
receive. Thus, provision of accurate and effective customer service will
lead to satisfaction among the customer that the product has met their
requirements.
3. To Increase Sales: Efficient customer service wil also help to
increase/ boost sales. This is because a satisfied customer will passa
positive word of mouth to prospective customers thereby increasing the
sales.
4. To retain existing Customers: A Satisfied customer will not easily
switch over to a Competitor. Therefore, efficient customer service will
help to retain existing customers.
5. Improve Market Position: Efficient customer service will lead to
customer loyalty, customer confidence, customer satisfaction and
provide competitive edge to the company. All this will result in higher
sales, growth in market share and thereby improve market position of
the company.
6. To retain Customer Loyalty:-It is a proven fact that the customer
will repeatedly do business with companies that provide exceptional
customer service. The company always tries to retain their customers by
providing them best services, and thereby retaining customer loyalty.

3.3 ELEMENTS OF CUSTOMER SERVICE

Customer Service is a set of activities/elements/programs which are
designed and implemented by an organization to make customers' buying
experience more rewarding. These activities or elements enhance the value
of product or service that the customer gets from the seller.
Eficient customer service helps to build customer loyalty which
generates positive word-of-mouth communication and thereby results in
increased sales.
Customer service is a measure of how logistics creates time and place
utilities for products and services. Buyers look for value for money they
 Logistics and sCM(TYBMS
48 Sem
customer service and striking,
spend. The seller tries to deliver superior
balance between customer satisfaction and
costs.
The elements of customer service are divided into three phases.
1. Pre-Transaction Elements
II. During-Transaction Elements
. Post-Transaction Elements
I. Pre-Transaction Elements: The pre-transaction elements includa.
the activities to be performed before the transaction takes place
between the customer and the organization. These elements includo.
1. Customer Service Policy: The company must have a pro rope
customer service policy to provide proper direction to the
regarding customer service. Moreover, the customer service st
poli
should also indicate to the customers as regards to
wh
organization can offer. Eg. Mc Donalds has a policy to provide th
customer order in one minute.
2. System Flexibility: The environment within
which a busine
organization operates is ever-changing. Even
Customers taste
and preterences change from time to
time. Thus, the organizatio
should be able to respond to
changing business environment an
changing nature of customers.
3.
Organization Structure: The
organization must have a prop
organization structure to
facilitate internal and exterm
extern
communication of policies,
performance and corrective actions.
II. During Transaction
Elements: The during transaction elemen
include all the activities
to be performed when
the product. These elements include:
customers intendsto
1. Product Availability:
The product should
i.e. at the need of be available on tim
the hour. Timely
for customer satisfaction. supply of product is essentia
22. Correct order
status information:
provide accurate
and timely information The organization
to the customer. regarding the ord
a
stat
33. Consistency in order
time elapsed between cycle time: Order cycle
order.cycle order placement time re Th
to
time should and order delivey
4 Substitute products:be short and consistent.
products The organization should
in case of non-availability substin
of main product.
ote
Customer Service: Key Elements of Logistics 49
II. Post Transaction Elements: The post transaction elements include all
the activities to be performed after the purchase transaction takes place
between the customer and the organization. These elements include:
1. After Sales Service: It includes various activities like installation,
waranties/guarantees, repairs and maintenance, etc.

2 Product Tracing: It includes product tracing and product recall in

case of some quality problems in supplied products.
3. Customer Grievances Redressal: It includes attending customer
complaints/claims and taking proper steps to resolve them.
4 Product Loaning: Product loaning implies providing alternative
products during service/repairs of original products to avoid
inconvenience to customer.

Conclusion
Customer service requirements differ in the different phases of
transaction. Thus, a company must provide proper service to the customers
depending upon the phases of transaction so as to satisfy the customer.

3.4 LEVELS OF CUSTOMER SERVICE

Customer service is viewed in three principle ways.
1. Customer service as an activity: This level treats customer service
as an activity performed to satisfy customer's needs. Order processing
and invoicing are examples of such activities in a firm
2. Customer service as a performance measure: This level treats
customer service as logistical performance measure making such
measurements as perfect orders delivered
3. Customer service as a philosophy: This levels views customer service as
a commitment of the company. Customer service is included in company's
policy to deliver customer service through superior performance.

3.5 RIGHTS OF CUSTOMER SERVICE

The 7 R's include
1. Right Product: This principle states that the product should be able to
meet customers' requirements. It should satisfy customers' needs,
wants, tastes and preferences.
2. Right Quantity: This principle states that the product should be
available in right and required quantity. Right quantity helps in
avoiding stock outs.
50
Logistics and S C M (TYBMSSSem-
sho
the product should
3. Right Condition: This principle states that
available in a damage free condition. There should be no damage
dam
handline
the product during transportation, warehousing, material dling,
et
4. Right Place: This principle states that the product should be avail.
availat,
e
at the right place which will be convenient for the Customers and ea
accessible to the customers.
5. Right Time: This principle states that the product should be availa
vai
on time i.e. at the need of the hour. Timely supply of produc
essential for customer satisfaction.
6. Right Price: This principle states that the product should be availa
at a fair price to the customers. The product should not be overpri
or underpriced. Rather, it should be adequately priced.
7. Right Customer: This principle states that the firm must focus on s
right customers who can be best served with the available products. Th
firm must target appropriate market segments.

3.6 STRATEGIES TO
IMPROVE CUSTOMER
SERVICE/ CUSTOMER SERVICE STRATEGY
Having a well thought out and planned customer
service strategy
critical to the development of a strong service culture.
Organizations needt
incorporate customer service into their business goals,
and into employe
goals to help the organizations reach their corporate
objectives.
Strategies to improve Customer Service
1. Developing customer service vision: The organization mu
communicate the customer service vision to
need to understand vision and employees. Emplo
goals of customer serviced
understand their responsibility to
help to achieve that vision.
2. Assessment of Customer Needs: In
customers, organization must order to meet the needs of
have a good understanding of custo
needs and expectations. However,
customer needs and organizations must keep in min
expectations keep changing- tom
wants today will be very what a
different from what the
or 5 years later. customer wants
3. Hiring the right
employees who possess
employees: The organization
must e su
the disposition and skill
customer service environment. set to develop
hot
a-

4 Customer Service Goals:

After customer
identified, the next
step is needs and expe tations
goa"
Employees need to to develop customer
understand what servi
the organization to achieve can
the target is so that tney h
their corporate
objectives.
Customer Service: Key Elements of Logistics 51
5. Training: The organization should provide proper training to the
employees to ensure that customer services are in line with the
organization standards and requirements.
6. Accountability: Employees should be held accountable for achieving
customer service goals. Employees should have a clear understanding
of how their service to the customer affects the organization's overall
performance.
7. Rewards and Recognition: There should be a system for
acknowledging and rewarding employees for good customer service.
Employees should be motivated by providing rewards and recognition
when they demonstrate a strong customer service culture.

3.7 PERFECT ORDER

1. The ultimate goal of logistics is to do everything right and do it right the
first time.
2 When all the order processing activities are performed in the most
efficient manner with the ultimate goal of achieving 100% customer
satisfaction, it is termed as Perfect Order.
3 A Perfect order is a customer order which is fulfilled in all aspects such
as time, place, quality, quantity, etc.
4. A Perfect Order is an order where all 7 R's are satisfied. It includes:

Right Product Right Quantity

Right Condition Right Place PeRfEeT
Right Time Right Price ORDER
Right Customer
5. The perfect order should meet the following delivery:
Complete delivery of all the items required by customer.
On time delivery of all the items to the customer.
Complete and accurate documentation to support order.
Delivery in damage-free condition.
6. Common causes of failure in Perfect order are:
Order entry eror Picking error
Invoicing error
LateLate shipment
Late arrival Damaged shipment
Error in payment processing
 AS Sem.
Logistics and S C M(TYBMS Sem-
52 REVIEW QUESTIONS

Q.1. Objective type Questions

(A) Multiple Choice Questions
Lead time is the time gap between placement of order and
1.
b. Receipt of order
a. Delivery of order
of order d. None of the above
c. Processing
Perfect order includes Right Product, Right Quantity, Right Conditi
ition
2.
2.
Right Place, Right Price and
b. Right competitors.
a. Right Customer
d. Right Cost
C. Right Path
is an important consideration
for any business.
3
b. Quality of Goods
a. Customer Satisfaction
c. Organizational Objectives.
A process of providing competitive advantage and additional
benefits
4.
customer
the supply chain in order to maximize the total value to the
known as
a. Customer value b. Customer benefit

. C Customer service d. Customer loyalty

is a set of activities/elements/programs which are desige
and implemented by an organisation to make customer and use.
a. Packaging b. Warehousing
C. Transportation d. Material handling
6. Corugated Fiber board used for packaging is commonly known

a. Corrosive board b. Case board

c. Card Board d. None of the above
is reducing the space occupied by the product
reduce transportation cost.
a. Storage and Reuse
b. Cube Minimization
b.Weight minimization
d. Pilferage opportunities
8. _involves reducing weight of the consignment
ful
utilize capacity of the truck.
a. Weight Minimization
b. Cube Minimization
c. Grouping
d. Protection
Ans. 1. a, 2. a, 3. a, 4.
-
c, 5. a, 6. c, 7. b, 8. - b.
-
-
- - -
-

(B) Fill in the Blanks

1. When
all the order processing activities the
me
efficient manner with are performed CUstom
the ultimate goal
satisfaction, it is of achieving 100o
termed as
2 In the highest level
of customer service,
customer service is regardeas
Customer Service: Key Elements of Logistics 53
3. Employees should be held for providing customer service.
4 means providing alternative products during repairs to
avoid inconvenience to customer.
5. Product tracing is part of _ customer service element.
Ans. 1. Perfect Order, 2. Philosophy, 3. Accountable, 4. Product
loaning, 5. Post transaction.

(C) Answer in one sentence

1. 7 R's of customer service? (Only names)
Ans. 1. Right Product 2. Right Quantity. 3. Right Condition.
4. Right Place. 5. Right Time. 6. Right Price
7. Right Customer.
2. What is a Perfect Order?
Ans. When all the order processing activities are performed in the most
efficient manner with the ultimate goal of achieving 100% customer
satisfaction, it is termed as perfect order. The main objectives of customer
service is to do everything right and to do it right the first time.
3. What is meant by Lead time?
Ans. There is always a time gap between placement of order by
customers and delivery of orders by suppliers. This time gap between order
placement and order delivery is known as order cycle time from supplier's
perspective and lead time from buyer's perspective.
(D) Match the following
A B
1. Perfect Order A. Convenient for the customers
2. Product loaning B. 100% customer satisfaction
3. Product tracing C. providingalternative products
4. Pre- transaction element D. Recall due to quality problem
|
5. During transaction element | E. Customer service policy
6. Lead time F. Product availability
7. Right place G. Difference between Order placement
& delivery time

Ans. (1- B)(2- C)(3-D)(4- E)(5- F),(6-G)(7-A)

Q.2. Answer the following questions.
1. Explain the elements of Customer Service.
2. Explain Categorisation of Customer Service Elements.
3. What is Customer Service? What are the objectives of Customer Service?
 54

Demand Forecasting
Logistics and S C M (TYBMS Sem
-
Chapter4

SYNOPS1s

4.1 Meaning of Demand Forecasting

4.2 Objectives of Demand Forecasting
4.3 Approaches to Forecasting
4.4 Forecasting Methods/ Forecasting Techniques
4.5 Numericals on Moving Average
Review Questions

4.1 MEANING OF DEMAND FORECASTING

"Pemand Forecasting is a projection/prediction made, on the basis d

relevant logical assumptions, of the volume likely to be produced
transported and sold".

4.2 OBJECTIVES OF DEMAND FORECASTING

1. Sales Planning: Demand Forecasting will help to create an estimation
of future sales. Thus, on the basis
of this estimation, all other sale
related activities can be carried
out effectively and efficiently. A
promotional efforts will be based
on sales forecasts made.
2. Production Planning: Demand
forecasting will help to create
estimation of future sales. On
the basis of this estimation, all proaue
related activities and resources
can be planned. This helps to overco
the problem of underproduction
or overproduction.
3. Adequate Purchasing of
inventory can be a serious
Materials: Buying too much or to litte
disaster. By forecasting wil
have a better idea of how your sales, yo
much
to add additional investménts. to buy and whether it will be adv
visable

4. Framing Proper
Policies: Effective
framing proper demand forecasting w help
policies with respect
production, sales, purchasing, to various fields ch
inventory, distribu l
warehousing,
5. Enables to make
relevant and reliable Sound Plans: Demand forecasting
This helps in designing
information
about the past and present
sound plans for
n
future
Demand Forecasting 55

6. Reducing Inventory Costs: Forecasting helps to predict how much

inventory should be on hand at any given point of time. By having the
right amount of inventory, your company will be able to save on
inventory costs.

7. Reducing Warehousing Costs: Proper inventory management will

helps to ensure proper warehouse management and thereby reduce
warehousing costs.
8. Tracking overall Performance: Every business firm needs to assess
its performance. This involves identification of areas where it performns
well and where it missed the mark. Demand forecasting helps to
compare actual demand with firm's expectations and helps to keep a
check.
9. Effective Labour Management: Demand Forecasting also helps in
labour management. It estimates number of workers required and plans
its training program.

4.3 APPROACHES TO FORECASTING

1. Top-Down Approach:
The top-down approach develops a national level forecast and then
spreads the volume across locations on the basis of historical sales
pattern. For example, suppose the aggregate monthly forecast for the
entire country is 10000 units. Assume that the firm uses four
distribution centers to serve the demand with the historical split of 40,
30, 20 and 10 percent, respectively. In this case, forecasts for individual
distribution centers are projected to be 4000, 3000, 2000 and 1000
nits respectively.
Total Demand
10,000

DC1(Mumbai) DC 2 (Delhi) DC 3 (Kolkata) DC 4 (Chennai)

4000 units 3000 units 2000 units 1000 units
56
2. Bottom-Up Approach: is decentralized since
sine
approach
On the other hand
the bottom-up
independently. As a e
distribution center forecast
is developed re
can more accurately track and consider andema
each torecast specific markets. However, the
bottom up
uD approa
fluctuations within
record keeping.
requires more detailed f
approach, each distribution centre will fore
Example: In bottom-up individual demands will will
demand individually. Addition of this g
its
overall corporate demand.
Total Demand
11,000 units

DC1(Mumbai) DC 2 (Delhi) DC 3 (Kolkata) DC 4 (Chenna)

3000 units 2000 units 2000 unis 4000 units

4.4 FORECASTING METHODS/FORECASTING TECHNIQUES

Forecasting techniques can be divided into two categories:

A. Qualitative Forecasting Methods: Qualitative methods
judgmental methods where expert opinion is used to make the forec
This method is useful when past data is unavailable. It is ideal
situations where no historical data is available. However, qualita
methods are time consuming.
Qualitative techniques involves following
methods:
1.
1. Jury of executive
methods:- Under this method, opino
small groups of high level
executives are taken in relation
future demand. The opinions provided by
then used to estimate the such execui
demand in future.
2. Consumer Survey Method:.
being made to collect Under this method, e rts
information from consursumer about th
purchasing plans in dire
the near future. This
approach to demand is one of the most
forecasting
3. Assessment by Sales
representative gives Personnel:- Under this metho theosak
the estimate of
territory/area. A thorough expected sales of n
review is done of this a
estimal so
Demand Forecasting
57
ensure whether they are realistic or not and later they are
combined to arrive at a forecast.
Naive Approach:- Naive Approach to demand forecasting is
based on the assumption that demand in the next period is
similar
to the demand in most recent period without major changes in
demand patterns.
5. Delphi Method: In Delphi method, an attempt is
made to
develop forecasts through "group consensus". This technique
relies on a panel of experts. Each expert is
asked to answer
questionnaires in two or more rounds.
After each round, a facilitator provides a
small summary of each
experts forecasts from the previous round as well
as the reasons
they provided for their judgment. Each
expert is asked to revise
and to reconsider their earlier answers. It is believed
that during
this process the range of answers will decrease
and group will
arrive at a consensus. The process is stopped after
a pre-defined
stop criterion. The criteria may be number
of rounds, achievement
of consensus, etc.
B. Quantitative Methods of Forecasting
Quantitative methods are based on analysis
of historical data. It is objective
in nature. Quantitative techniques include
the following methods:
1. Time Series Method:
Time Series Method is based on basic
will be similar to the past.
assumption that the future
This implies that existing demand
patterns will continue in the future.
This assumption is often reasonably
correct in the short tem.
Thus, these techniques are most
appropriate for short-range
forecasting.
When the rate of growth or the trend
changes significantly, the
demand pattem experiences a turning
point. Since time-series
techniques use historical demand patterns,
they are typically not
sensitive to turning points.
TimeSeries method includesS
1. Moving Average: Moving average
torecasting uses an average of the
most recent period's sales. The average
may contain any number
previous time periods. Three, four and of
five period averages
commonly used. are
The moving averages are easy
to calculate but there
limitations. They do not respond to are some
sudden market changes. Moreover,
a large amount of historical data
must be maintained and
calculate forecasts. updated to
 Logistics and MS Sem-
58 Average
Examples of Moving Average
Three-PeriodMoving
Actual Demand Forecast
Months 100
January 250
February 310
March 220
April
100 + 250 + 310 = 220
Forecast (April) 3
Four-Period Moving Average
Months Actual Demand Forecast
January 100
February 250
March 300
April 350
May 250
Forecast (May) =
100 +250 + 300 + 350 = 250
4

ii. Exponential Smoothing:

Exponential states that future sales can be estima
smoothing
(forecasted)on the basis of weighted average of the actual demand for!
previous year and forecasts for previous year
F =a dt-1+ (1- a) Ft-1
Where,
Ft = Forecasted sales for time period t
Ft-1 Forecast for time period t-1
dt1 = Actual demand for time period t-1
a Smoothing constant/ alpha factor
Example
Forecast for the year 2009-10 was
600000 units and actual sale
500000 units. Calculate forecast for pone
the year 2010-11 using ep
smoothing, a=0.800
F a dt-1t (1- a) Ft-1
(0.8)(500000)+ (1-0.8)(600000)
400000+ 120000
FFt 520000 units
Forecast for the year
2010-11 is 520000
units
Demand Forecasting
ili. Extended Smoothing:
The basic model can be extended to include trend and seasonality
considerations. These techniques are known as exponential smoothing with
trend and exponential smoothing with seasonality, respectively
The extended smoothing calculation is similar to that of the basic
smoothing model except that there are three components and three
smoothing constants to represent base, trend and seasonal components.
Extended smoothing = Basic Model + Trend + Seasonality
2. Causal Technique
a. They are based on the hypothesis that future demand of a product
depends on the past or current values of some variables.
b. They try to develop correlations between the future demand of some
products and past (or current) value of some causal variables.
Example: Coffee sales at a football match usually depend on
prevailing temperature. Lower temperature will increase the sales. If it is
possible to establish good relationship between the two variable i.e.
coffee sales & temperature, the information can be used for predicting
requirements.

4.5 NUMERICALS ON MOVING AVERAGE

Q.1 Determine the trend for the following data usi
1. 2 yealy moving averages 2. 3 yearly moving averages
Years
Years 1995 1996 19971998 1999 2000 2001
Sales (in 000's) 45 52 83 92 98 115 125
Solution
Years Sales 2 Yearly Moving 3 Yearly Moving
(in 000's) Averages Averages
(in 000 Rs.) (in 000 Rs.)
1995 45
1996 52
1997 83 48.5
1998 92 67.5 60
1999 98 87.5 75.67
2000 115 95 91
2001 125 106.5 101.67
120 112.67
 MSSem-
S C M (TYBMS
Logistics and Se
60 information, calculate 4 period movla
Q.2 From the following
for 2016.
averages. Also calculate forecast
Sales (in 000's)
Years 125
2009
140
2010
188
2011
2012 195
2013 205
2014 212
2015 23
Solution:
Years Sales (in 000's) 4 period moving average (in 000's)

2009 125
2010 140
2011 188
2012 195
2013 205 162
2014 212 182
2015 235 200
2016 211.75
Q.3 From the following information, calculate
1. 2- period moving average. 2. 5- period moving average
Years Sales (in 000's)
2000 180
2001 195
2002 200
2003
2004
211
222
2005
240
2006
269
2007
284
2008
300
2009
2010 305
315
2011
2012 322
2013 330
2014 335
20 340
350
 61
Demand Forecasting

Solution
Averages
Years Sales 2 Period Moving Averages 5 Period Moving
(in 000's) (in '000 Rs.) (in 000 Rs.)
2000 180
2001 195
2002 200 187.5
2003 211 197.5
2004 222 205.5
2005 240 216.5 201.6
2006 269 231 213.6
2007 284 254.5 228.4
2008 300 276.5 245.2
2009 305 292 263
C010 315 302.5 279.5
2011 322 310 294.6
2012 330 318.5 305.2
2013 335 326 314.4
2014 340 332.5 321.4
2015 350 337.5 328.4
2016 345 335.4
Q.4. You are given the following information about demand of an
item.
Months Demand
100
150
3 225
240
170
280
300
300
9 320
10 330
11 350

Calculate:
i 3 monthly moving averages
ii. 4 monthly moving averages
ii. Also calculate 4 monthly weighted moving averages with weights as
4:3:2:1. the largest weight being tor the most recent value.
iv. What will be the forecast for 12th month.
 Logistics and S C M (TYBMS Sen
Sem-
62
Solution 4 Monthly 4 Monthly
Demand 3 Monthly
Months Moving Weighted
Moving
Average Average Moving
Average

100
150
225
240 158.33
205 178.75 203.5
170
280 211.66 196.25 200

300 230 228.75 233.5

300 250 247.5 262

320 293.33 262.5 283
10 330 306.66 300 306
11 350 316.66 312.5 318
12 333.33 325 333

4x 240+3 x 225 + 2 x 150 + 1x 100

Weighted Moving Average
4+3+ 2 + 1
960+675 + 300+ 100
10
2035
10
4 Monthly Weighted Moving Average = 203.5 (for 5th Month)
Similarly, for 6th Month

Weighted Moving Average 4x 170 + 3 x 240 +2 x 225+ 1x 13

4+3+
1 2+
680+ 720+450+ 150
10
2000
10
4 Monthly Weighted Moving
Average = 200 (for 6th Month)
Forecast for the 12h Month:
i. Under 3 monthly
moving average is
Under 4 monthly moving
around 333 units.
ii.
average is around
ii. Under 4 monthly weighted 325 units
moving average is
333 units.
Demand Forecasting 63
Q.5. The demand for an item in the past few years is as follows:
Years Demandd
2006 1100
2007 1200
2008 1400
2009 1500
2010 1800
2011 2000
2012 2100
2013 2200
2014 2300
2015 2400
Calculate
i. Calculate 3 yearly moving average
-

ii. Calculate 4 yearly moving average.

-

ii. Calculate 3 yearly weighted moving average with weights as 3:2:1, the
largest weight being for the most recent value.
iiv. Also calculate forecast for the year 2016.

Solution
Years Demand 3-Yearly 4-Yearly 3-Yearly
Moving Average Moving Average Weighted
Moving Average
2006 1100
2007 1200
2008 1400
2009 1500 1233.33 1283.33
2010 1800 1366.66 1300 1456.66
2011 2000 1566.66 1475 1633.33
2012 2100 1766.66 1675 1850
2013 2200 1966.66 1850 2016.66
2014 2300 2100 2025 2133.33
2015 2400 2200 2150 2233.33
2016 2300 2250 2333.33
Weighted Moving Average 3x 1400+2 x 12001 1 x 1100
3 2 +
4200 +2400 +
1100
6
128.33 (for 4th Month)
3-Yearly Weighted Moving Average =

Similarly, for 5h Month

 S Sem
64
3 x 1500+ 2x 1400+1x120
Average 3 +2+1
3-Yearly Weighted Moving
4500 + 2800+ 1200
6
8500
6
1416.66 (for 5th Month)
=

Forecast for the year 2016:

2300 units.
Under 3- yearly moving average is

. Under 4 - yearly moving average is 2250 units.

ii. Under 3 yearly weighted moving average is 2333 units.

Q.6. For the following data calculate a 3 period and 5

moving average? Forecast demand for the 11th Month.
Period 1 2 3 65 789 10
Demandin 110 120 135 142 154 160173 180 190 210
Units
(M.U Oct-201
Solution:
Period Demand in Units 3 Months 5 Months
Moving Average Moving Average
110
120
135
4 142 121.67
5 154 132.33
160 143.67 132.2
173 152 142.2
8 180
162.33 152.8
9 190
171 161.8
10 210 181 171.4
193.33 182.6
Q.7 From the following
data calculate a 3
moving average, also
forecast period an riod.
Period demand for the 11" pe
Demand 100 110 4 9 10
in Units
110 125 139
125 132 145 6
151
9 19778164 188
170
20
(M.U. May
Demand Forecasting 65
Period Demand in Units
3 Period Moving 5 Period Moving
Average Average
100
110
125
132 111.67
145 122.33
151 134 122.4
7 164 142.67 132.6
170 153.33 143.4
188 161.67 152.4
10 197 174 163.6
11 185 174
Q.8 From the following data, calculate a 3 period weighted
moving average from 4th Month to 8th Month, with weights as
3, 2 and 1. The largest weight is being assigned to Most
recent period and current Demand Value.
Period (Month)
3 4 567 8
Demand in Units 160 180 190 210 230 240 250 ?
(April 2019)
Solution:
Period Demand Working 3 period
(Month) in Units WMA
160
180
190
210 (190 x3) + (180 x2) + (160x 1)_1090 182
3+2+ 1 6

230 (210 x 3)+ (190 x 2) +(180 x 1)1190 198

3 +2+1 6
240 (230 x3) + (210x 2) +(190 x 1)1300 217
3+2 + 1 6
250 (240 x 3) + (230 x 2) + (210 x 1) 1390 232
3+2+1
8 (250 x 3) + (240x 2) + (230 x 1) 1460 243
3+2 + 1 6

Q.9. From the following data calculate a 3 period and 5 period

moving average. Also forecast demand for 11th month.
Period
Demand 120
12 125 130
5 6
135 140 145 150 165 180 200
10 8 11
in Units
 Logistics and SCM YBMSSem-
Sen
b6

Solution
Average 5 Period Moving Average
Period Demand in 3 Period Moving
Units
120
125

130
135 130+ 125 + 120 12
3

5 140 135+130+ - 130

145 140+135 + 130 140+135+130+ 125 + 120

3
135 5

150 145+140+135 140 145+140+ 135+ 130+ 125

3 5 135
165 150145+140 975 150+145+140+1135+130
3 -14
180 165 +150 + 145 153 165+150+ 145 +140+135 = 147
5
10 200 180+ 165 + 150 165
180+165 +150 + 145 + 140
=156
5
11 2001800+165
3 182 200+180165+ 150+ 145

REVIEW QUESTIONS
Q.1. Objective Type questionns
(A) Fill in the Blanks
is a projection/ prediction
made on the basis of relevas
assumptions, of the volume likely
to be produced, transported
sold
2. In Delphi method,
an attempt is made to develop forecast throu
3 are based on analysis
of historical data.
4 Under efforts are being
consumers about their made to collect information T
purchasing plans in
5. Demand forecasting is the near future.
transported and sold. made for volume to be produa
approach to demand
forecasting is
that demand in the next
period is similar based on the assun ptio
1. to last year.
technique is used to
estimate demand ducts
Ans. 1. Forecasting. 2. for correlated proau
"Group consensus",
Consumer Survey, 5. Projection/prediction, 3. Quantitative metods.
6. Naive 7. Causal.
Demand Forecasting 67
(B) Multiple choice questions
1. The following is not qualitative method of demand forecasting

a. Jury of executive method b. Naive approach

c. Delphi method d. Time series
2. is a quantitative technique of forecasting.
a. Delphi Method b. Naive Method
C. Consumer survey d. Moving average
Ans. 1. -d, 2. - d.

(C) Answer in one sentence

1. Explain Delphi Technique.
Ans. In Delphi method, an attempt is made to develop forecasts
through "group consensus". This technique relies on a panel of experts.
Each expert is asked to answer questionnaires in two or more rounds. After
each round, a facilitator provides a small summary of each expert's forecasts
from the previous round as well as the reasons they provided for their
judgement. Each expert is asked to revise and to reconsider their earlier
answers. It is believed that during this process the range of answers will
decrease and group will arrive at a consensus.
(D) Match the following.
A B
Delphi
Approach A. Correlated product demand
1.
Qualitative Methods B Group consensus
2.
method C. Expert opinion
3. Time series
Top down approach D. Future similar to past
4.
Bottoms up Approach E. National level forecast

Extended Smoothing F. Developed independently

6.
G. Includes trend & seasonality
7. Causal Technique
consideration
F),(6-G)(7-A)
Ans. (1- B)(2- C)(3- D)(4- E)(5-
Q.2. Answer the following questions.
Explain any three methods of demand
1. What is Demand forecasting?
forecasting?
forecasting.
2 Write short note on methods of
 68 MS
Logistics and S CM (TYBMS
Sem-
UNIT-II
Chepter5 Transportation
SYNOPSIS

5.1. Introduction
5.2 Transportation Functionality
5.3 Principles of Transportation
54 Participants in Transportation
55 Railways
5.6 Roadways
5.7 Airways
5.8 Waterways
5.9 Ropeways
5.10 Pipeline
5.11 Factors Influencing Transportation Decisions
5.12 Transportation Infrastructure
5.13 Intermodal Transportation
5.14 Comparison between Rail and Road
S.15 Comparison between Waterways and Roadways
5.16 Factors influencing Transportation Costs
5.17 Importance of Transportation
5.18 Selection of Carrier
Review Questions

5.1INTRODUCTION
Transportation is derived from the Latin word Transportare, wh
Trans means "across' and Portare means 'to carry'. Transportation refers
physical movement of products from one place to another. Since produc
are produced in a different area and are consumed in a different are
uce
transportation physically moves the product from where they are prou
the
to where they are needed. It acts as a physical link that connec
company to its suppliers and customers. A good transportation system is o
of the fundamental pillar for growth of industry and commerce.
 69
Transportation
our
arrival of the British, trade of goods was carried
In India, betore the
of the finest
through land and sea routes. The port infrastructure was one
However, the British
and India accounted for almost 70% of world trade. After
introduced the railways and modernised the road infrastructure.
road, air, rail
independence, the Indian Government further developed the
In recent times, the Government has
and water transport infrastructure.
embarked upon projects such as the Golden Quadrilateral.
network
However, the degree of sophistication of transportation
infrastructural
depends upon the level of economic development and level of
development in that country.

5.2 TRANSPORTATION FUNCTIONALITY

Transportation is one of the most visible elements of logistics
operations.
products
Consumers are used to see the trucks and train moving
from one place to another.
Transportation Functonality

Product Product
Movement Storage

1. Product Movement:
1. Whether the product is in the form of materials, components,
work-in-process, assemblies, or finished goods, transportation is
necessary to move it to the next stage of the manufacturing
process or physically closer to the ultimate customer.
2. Hence, a primary transportation function of product movement is
moving the product up and down the value
chain. (i.e. from
supplier to customer).
3. Since transportation utilizes temporal (time), financial and
environmental resources, it is' important that items are moved only
when it truly enhance the product value.
a. Temporal (Time) Resources:
1. Transportation uses temporal resources because the product is
locked up during transit, hence inaccessible during the
inventory'.
transportation. The product is 'in-transit
resource) that is spent on
2. Time is a resource (temporal
transportation.
 Logistics and S C M (TYBMSSem-
Sem,
70
b. Financial Resources:
Expenses incurred within the company for private
1.
vehicle
vehi
externally for commercial or public transportation. (driver, vei
administrative costs.)
operating cost, general and
2. The cost and the money locked up in the transit inventory.

3. Expenses resulting from product loss or damage durin

3
transportation.
C. Environmental resources:
1. Transportation uses environment resources both directly an
indirectly
2 In direct term, it is one of the largest consumer of the energy (te
and oil) in world, it accounts for nearly 68% of total fu
consumption in world.
3. Indirectly, it creates environmental problems through congestion
air pollution, noise pollution.
2. Product Storage: Product Storage involves temporary storage i
stationary vehicle.
Product storage is expensive in transport vehicle. But sometima
keeping overall cost in mind this is adopted in situations such as
1. The cost of unloading and reloading the product in the warehous
is more expensive.
2. The destination warehouse has limited storage capacity, therefot
the transportation vehicle is being used as a temporary storag
option.
3 At other times, temporary storage is
used due to diversion. 1ns
occurs when an original delivery destination
is changed while t
inventory is in transit or movement.
Examples: Suppose a product is initially
scheduled to be deliver
from Mumbai to Hyderabad. But
during the delivery process it is determine
that Vishakapatnam warehouse
is in greater need of product, the produd
could be diverted to the alternative
destination of Vishakapatnam.
Conclusion
Thus, the major objective
of transportation is to move product rom a
origin location to a prescribed destination o
while minimising temporal, tina
and environmental resource costs. Loss
minimised. At the same time, and damage expenses must also
meets customers demand
the movement musttake
place in a manneer
tha
regarding delivery performance.
Transportation
71
5.3 PRINCIPLES OF TRANSPORTATION

Principles of Transportation

Economies Economies
of Scale
of Distance
1. Economies of Scale:
a. Economies of scale is a principle which states that transportation
cost per unit of weight decreases when the size of the shipment
increases.
b.
b. This is possible mainly because fixed cost involved in moving the
load gets spread over large number of units thereby reducing cost
per unit.
C. Fixed cost includes those expenses that do not vary with the
volume of shipment.
d. For Example, the fixed cost of delivering 10kg of goods and
1000kg of goods will be same. Hence when the size of shipment
increases, the fixed cost gets spread over a large shipment
reducing the cost per unit.
ee. Hence, in order to gain benefits of lesser transportation costs,
managers try to combine smaller items and then deliver them
rather than delivering half trucks loads.
2. Economies of Distance:
a. Economies of distance is a principle which states that transportation
cost per unit of distance decreases as distance increases.
b. For Example : A shipment of 800 kilometres will be less costly
than two shipments of (the same combined weight) of 400
kilometres
C. This principle is known as the tapering principle since rates taper
(reduce) with increasing distance.
d. This is mainly because the fixed cost incurred to load and unload
the vehicle gets spread over per unit of distance.
e. Thus, longer distances allow the fixed cost to be spread over more
kilometres resulting in lowering overall per kilometres charges.
Conclusion
These principles are important considerations when evaluating alternative
transportation strategies. The objective is to maximize the size of the load and
the distance that it is shipped while still meeting customer service expectations.
 Logistics and S C M (TYBMS Serm
72 n-
PARTICIPANTS IN TRANSPORTATION
5.4
Transportation network involves complex
relationship among var
transactions are influenced by
participants. Majority of transportation
parties. They are as follows:
Shipper/Originating Party/Consigner
1.
2. Receiver/Destination Party/Consignee
3. Carrier
4. Government
5. Public
1. Shipper/Originating Party/Consigner:
Shipper is the party who transports the product to the market ani
ultimately to the final customer. He is also known as consigner and the
are normally the businessmen who produce goods as per demand.
Role and Perspective of Shipper:
a. Moving the goods from origin to destination in shortest possiblk
time and lowest cost.
b. Delivering the goods without any damage or loss.
C Accurate and timely exchange of information relating to status d
goods.
d Proper Invoicing.
2. Recelver/Destination Party / Consignee: Consignee is the pers
to whom the goods are sent. They may be a wholesaler, retailer or the
final customer.
Role and Perspective of Receiver:
a. Receiving the goods from origin to destination in shortest possibl
ime and lowest cost.
b. Receiving the goods without any loss or damage.
C. Accurate and timely exchange of information relating to status
goods.
3. Carrier:
The carrier is the service provider or the
transporter who carries the
shipment from the shipper to receiver.
Role and Perspective of Carrier:
a. To maximise their revenue
and minimizing the co
b. Carrier would like to:
i Charge the highest rate that the shipper will accept.
i. Minimize the labour, fuel ove the
and vehicle costs required to mo
goods.
C. Carriers add value to the
supply chain by moving the product fro
one place to another.
 73
Transportation

4.
Government:
Government is a major participant in transportation decision.
Govemment desires a stable and efficient transportation environment
for economic growth. Government expects uniform movement
products to markets throughout the country.
Role and Perspective of Government:
a. Government should provide a good infrastructure to support
transportation.
b. Government may also regulate carriers by restricting the markets
they can serve
For Example: In India, regulation is done through permits.
Vehicles that require to go to locations outside their state ot
registration require All India Permit.
-

- way
C Government may support carrier by providing right of
infrastructures like:
i. Golden Quadrilateral provides a right of - way for roadways for
-

efficient transportation of goods.

ii. The Dedicated Freight Corridor provides a rail network exchusively
for transportation of goods.
d. Government should also provide appropriate government owned
transport modes.
5. Public:
General Public are the another party who have a large involvement in the
transportation transaction. Public demands for the goods produced not only
the country but also all over the world. Thus, Public creates the need for
transportation by demanding goods from all over the world.
Role and Perspective of Public:
a. Public is concerned with the transportation expenses and
effectiveness as well as environment and safety standards.
b. While minimizing transportation cost is important to consumers,
trade offs associated with environment and safety standard also
require consideration.
C. Air pollution and oil spills remain a significant transportation
issue
even though efforts have been made to reduce pollution andd
increase safety.

Conclusion
The transportation relationship is complex because of the interaction
between the parties. This leads to frequent contlicts between parties
with
a microinterest shippers, consignees and cariers - as well as parties
with a macrointerest- government and the public.
 74 Logistics
and SCM
YBMS
5.5RAILWAYS
Sn
Introduction
Railways is one of the major mode of
transportation
and material. Railways play an important role
in a co chcarries
commerce activities. Railways act as the ntry
main Source s trade,
have pla ot transp
essential commodities. Across the world, railways
role in industrialization and development of ani
nations. Rail
capability to transport large shipments
economically with m
Railways incur comparatively high fixed costs more
because of high freque
down railway tracks, construction of railway cOst
wagons,
signaling systems, etc. railw of la
stati
Indian railways operate through:
A network of 6896 railway stations.
Route length of 62800 kilometres.
Advantages of Rail Transport:
1. High Speed -
Speed of Operation in rail transport
is high
to road transport because there is no traftic as com
and railways have tia
way. It is a quick and more regular form arigt
of transportation of good
speed and certainty
2. Large carrying Capacity Railway
have large carrying capach
compare to roadways and airways.
Railways can cary huge quani
of goods.
Example- On an Average 62 trucks will be
required to transport s
amount of goods transported by a single train.
3. Suitable for long Distance Railways are most suitablei
transporting goods to long distances
4. Protection to goods Rail Transport provides
complete protection
goods from sun, wind, air, etc. Goods
are free from damage
deterioration
5. Suitable for heavy and bulky products Rail Transport are U
for transporting heavy and bulky products
6. Economical Rail transport is cheaper as compared to other modes
transport such as roadways, Airways etc.
7. Less pollution - Railways create less pollution as comppared
roadways
Disadvantages of Rail Transport cap
1. Huge capital expenditure - Railways involve a nug
tracks
expenditure in construction of railway stations, railways
wagons etc
Transportation 75
2. Huge overheads cost Railways involve a huge overheads expense
on account of heavy maintainance cost.
3. No competition - Railways
do not have any competition as they are
owned and managed by government. Due to monopoly there is no
threat to railways and as a result they have very casual approach
4. No door to door service rail transport provides point to point
service I.e. from one station other station. They do not provide door to
door service
5. Lack Of flexibility
- rail transport is a highly inflexible mode of
transport. Its routes and timings cannot be adjusted to individual
requirements.

Conclusion
Railways are the principal carriers of men and material and play a
major role in country's trade and commerce activities. It is the main
source of supplying essential commodities, transporting them through
length and breadth of the nations. It has been the primary means for the
movement of raw material and finished goods. All the countries have
heavily relied on railways in the initial stages of industrialisation and
development.

5.6 ROADWAYS
Road transport is one of the oldest mode of transport. It involves all the
vehicles which move on the surface of the earth such as trucks, trailers, cars,
buses, etc. It is a ultimate mode of transport with highest flexibility. It
provides the basic infrastructure to bring trade and commerce from remote
rural areas to urban areas and vice versa. Road transport is suitable for
locations that are not easily accessible.
In road transport, major domestic cargo is moved on national and state
highways. Road transport involves less capital costs but higher operating
cost. It also acts as a feeder to the other modes of transportation as only
road transportation can provide door to door service.
Advantages of Road Transport:
1. Limited Capital Expenditure:
The capital requirements in road transport are less as compared to
other modes of transport. Road transport requires much less capital
investment as compared to other modes of transport such as railways
and air transport.
2. Door to Door Service:
The outstanding advantage of road transport is that it provides door to
door or warehouse to warehouse services. Road transport goes in the
 Sem
provides goods and services, Thi
is facility
interior areas
and transport.
other mode of is
available in any
Rexibility: transport. It .oes
highly flexible mode of
Road transport is a can be adjusted T
timings car
not
schedule. The
routes and
inconveniand iol
a fixed requirements without much ce. This
as per
individual
of transport
not available in other modes k
of fexibility is
distance:
Suitable for short Goods can be
is suitable for short distances. easily
Road transport
from one place
to other throk Toadway a
quickly transported
7

can be transported at a faster speed by bu road tr

Perishable goods
distance.
over a short
of transport:
Feeder to other modes ultimately ends by makin
goods begins and
The movement of as a feeder to the other modes
Thus, Road transport acts
roads aiways.
such as railways, waterways and
transport
Transport:
Disadvantages of Road
Iregular and unreliable: irregularity and unreliability in
roadwavs. T.
high level of
There is
rail transport.
are not as regular as
distance:
Not suitable for long to its high cost
suitable for long distance due
an

Roadways are not

slow speed as compared
to railways
conditions:
Bad and unsafe road chances for damages and
breakag
the
Bad road conditions increase
and causes delay.
rates:
Lack of uniformity in roadways as different carriers
chag
rates in
There is no uniformity in
different rates.
Low speed:
compared to railways and airways.
as
Roadways have a low speed
Conclusion
transportation due to dou
role in
Roadways plays an important movement. 1nus
flexibility and speed of intercity
are
door operating medium distances where other means trad
Suitable for short and infrastructure to brinversa
provides the basic
seach, Road transportation rural areas to urban cities and vice osition
commerce from remote as t
and is occupying a pre dominant
Presently, road transportation Thus, roadways is regaru
network in the country.
the transport logistical operations.
backbone of
 LogisticsS and S (YYBMS
Sem
for construction
78 Huge Investments: investment
2. requires huge
aircrafts.
transport and
Air airports products:
maintenanceof bulky
heavy and
suitable for transporting heavy and bulky
transportin ky goods.
o
3. Not
not
suitable
transport is carrying
for
perishable goods, a0d
light weight and val h
Air for
suitable only diamond, etc.
gold, gems,
items like
Carrying Cost:
Limited carrying ity as compared to all
capacity
lowest
transport has
Air transport.
modes of
Weather:
5.
Affected by
and unreliable because theseadversled
are co.
ont led
uncertain by adverse weath
Air transport
is
is seriously affectedd by
condition. It
weather
conditions. may cause cancellati.
ation
heavy rain weather
Eg: Fog, snow
and
flights.
products:
6. Restricted to be transported throus
categories of items are not allowed
Certain IATA)
(Hazardous goods as specified by
Air transport.

7. Narrow coverage:
throughout the country, becas
Air transport facilities are
not available
big cities.
Airports are located only in the
Conclusion
is les
other modes of transport, Air transport
As compared to all
hazardous in nature. Air transport is the costliest mode
and hence it
the carge
used only for perishable and high value items. Even though
has shown a growth of about 15 to 16% in past few years
handled by Air
it is still insignificant as compared to all other modes of transport.

5.8 WATERWAYS

Water transport is one of the oldest modes of transport. The m

feature of water transportation is its capacity to move extreme B
shipment at a very low cost. In water transport, capital cost and peratis
costs are high. It has large carrying
capacity to carry huge shipments. *
transport can be broadly divided into groups:
1. Sea Transport: (which includes coastal shipping and overse
shipping)
 Transportation 79
Sea transport acts as huge waterways for transport of goods from one
country to other. Sea transport comprises of tankers, container snips
and special vessels. Crude oil, oil products, coal, iron ores, food grains
and steel are major products transported through sea. India ranks 6th in
Asia and 15th in the world in sea trade.
2. Inland Water Transport:
Inland water transport involves transport over a body of water, such as
a river, canal or lake which is deep and wide enough for a vessel to
pass. Inland water transport involves natural modes such as navigable
rivers and artificial modes such as canals. In India, Inland water
transport operations are currently carried out in few rivers like Ganga,
Brahmaputra, rivers in Goa, etc.
Advantage of Water Transport
1. Largest carrying capacity:
Water transport has largest carrying capacity as compared to any other
mode of transport.
2. Long distance:
Water transport is suitable for long distance and large volume
shipments which is not possible for other modes of transport.
3. Protection to goods:
Water transport provides complete protection to goods from sun, wind,
air, etc. Goods are free from damage or deterioration.
Cheapest mode of transport:
Water transport is one of the cheapest mode of transport. It has the
capability to carry very high cargo goods at an extremely low variable
cost
5. Flexible mode:
Water transport has high level of flexibility. It is possible to make
necessary changes in routes and timings, if situation demands.
6. Natural Highways:
Waterways are natural highways.
Disadvantage of Water Transport
1. Huge capital expenditure:
The cost of construction of ports, ships, cargo, etc are very high.
2. Huge overhead cost:
The cost of maintenance of ports, ships, vessels, cargo, etc is also very
high.
3. Slow speed:
The speed of water transport is lowest as compared to all other modes
of transport.
 Logistics and i BMS
YBMS
Sem

80 additional has by
Alliance needed:
4. not adjacent, rail or
destination are shipment.
f port and
to complete the th
is
requined in order
packaging:
Specialized as to be done it
consignment has
5. it isto
packaging of the
Specialized waterways
transported through
Conclusion
transportation. The
oldest mode of extrem mai
Waterways is the capacity to
move
ve extremely
advantage of
waterways is the
disadvantage of
waterways is slo
low speed a
shipments. The main between.
role in cargo movement
Waterways plays an
important
waterways.
railway and

5.9ROPEWAYS materials in hil

used for transporting
Ropeways transport is
otherwise inaccessible area. h
hilly area are brought to low land for furth
Fruits produced in
centers.
transportation to consumption
when gradients (slope) are steep.
Ropeways transport is suitable
connect point of supply and demand by shortest route.
Ropeways
total area is hilly, Currently in India nearly 178
.In India 16% ofthe
transportation.
rope ways are used for
Advantages of Rope Ways Transport:
transports Bulk Material over Short Distance.
1.Rope ways
1.

Ropeways have lower Capital costs compared

to other modes of transpot
2.
Ropeways are ideal for Hilly Areas.
3 it does
4. Ropeways cause least damage to the environment because
pollute the environment.

Disadvantages of Rope Ways Transport:

it can
1 Ropeways transport has Limited Scope of Operations because
funcion in hily areas.

2 Ropeways transport is a Slow Mode of Transport.

Conclusion
plays
In India, 16% of geographical area
is hilly. Thus, Ropeways uma
mmodities,
crucial role in transportation of goods, essential commodites rove
beings and defence materials in such hilly areas. Ropeways can n

be more economical and faster than road transport in hilly areaa

Transportation 81

5.10 PIPELINE
Generally liquids like oils, crude, petroleum products are transported in

a pipeline.
In India pipelines are extensively used for transporting crude and
petroleum products.
More than 6350 km of pipeline exits in India for crude and petroleum
products.
Currently 27% of the petroleum products are moved by pipelines in
India.
As compared to other modes of transportation pipelines is an "eco-
friendly" mode of transportation.
Advantages :-

1. Continuous:
Pipelines offer an advantage that none of the other modes can offer. It
is a continuous flovw mode. It can be used 24 x 7.

2. Unaffected by Weather:
Pipeline is suitable for all weather. It stays unaffected by the weather
conditions such as heat, rain, snowfall, etc.
3. Cheap
It is the cheapest mode of transportation. As the operating cost is low,
energy consumption is also low.
4. Eco Friendly:
It is an environment friendly mode of transportation as it doesn't harm
the environment by creating pollution.
5. No Empty Wagons
No empty wagons/containers have to be bought back in case of pipeline
transport.
6. Suitability:
Pipelines are suitable for transporting liquids and gases. Many types of
liquids can be shipped at the same time separated by batching plug.
Disadvantages of Pipeline Transport:
1. Cannot Carry Solids:
Pipeline transport is suitable only to transport liquids and gases. It
cannot carry solids.
S2 Logistic andndSCM
SCM(TYBMS
BMS
2. Inflexibility: Serm-
Sen

It is an inflexible mode of transport. There is lack of flexibility.

flexihil
3. Continuous caution is required regarding any leakage.

Conclusion
The main advantage of pipeline is that it reduces the
opera
cost, though the initial investment is high. Thus, it is an eco-frie
endly
cost effective mode of transportation for liquids. and

5.11 FACTORS INFLUENCING TRANSPORTATION DECISION

Goods can be transported from point of origin to the Doi

point
consumption using various modes of transportation. Certain fac
affect selection of mode of transportation are as follows:
1. Nature of Goods
The nature of goods that are to be transported is an important fach i

that affects selection of mode of transportation.

For Example: the goods that are to be transported are expent
If
ensi
like Gold, Diamonds, etc. then fastest mode of transport i.e. Airya
may be selected so that the goods are delivered quickly and safely.
For large and bulky products, seaways and railways may be select
For liquids and gases, pipeline transport is most preferred.

2. Availability/ Accessibility
In order to satisfy the consumers, the goods should be made
availati
mode
when they are required and when they are desired. Hence the
transportation should be such that it is easily accessible.

3. Distance
For eg. t Ir

Depending upon the distance, the mode can be chosen.

road transport
goods are to be transported to short distance,
whereas for long distance, rail or water or air transport
convenient,
be chosen.

4 Cost utmos
of u
transport, the cost factor is
Before selecting a mode of ted
allocat
check out the money
importance. The transporter should ode d
transport is the cheapest n nodea
transportation. For eg. Water
it is the
slowest n
transport, but it should not be forgotten that
n
It is
well. Hence the delivery of the
goods may be delayed. with a
goes
h
for an organization to use it. The same thing
advisable
the costliest.
transport. It is fastest but at the same time
Transportation 83
5. Delivery Time-
Before selecting the mode, the transporter should check out the details
of the delivery such as scheduled delivery time, date of delivery, etc. If
the goods have to be transported urgently, air transport can be selected.
If not then it can be transported by other
modes.
6. Frequency
While selecting mode of transport its service frequency has to be
analyzed as to the number of times the carriers go to and fro towards
source and destination. A good frequency is always desirable as we can
rely upon that mode.
7. Capabilities of Mode
It refers to the
ability of a given mode to accommodate goods. Railways
and waterways are the best means in carrying capacity. They can
transport huge and heavy loads. Road transport has medium carrying
capacity whereas Airways has lowest carrying capacity.
8. Speed
The time taken by the means of transport in transporting goods is
called
speed. The means of high speed takes shorter time
to transport goods
or people to the destination, but the means of
slow speed takes longer
time. Thus, speed of various modes of
transportation should be taken
into consideration before finalizing the mode.
9. Reliability-
The task of carrying goods to destination at
right time regularly is called
reliability. Pipeline transport system is
the most reliable means as
compared to another means.
10. Safety and Security-
Itensures arrival of goods at destination in
same condition as they were
perceived to arrive. It takes into consideration
arrival of goods without
any damage, deterioration, loss during
transit etc.
Conclusion
The selection of mode of transportation
depends on the product
characteristics and customer service
requirements. In case of high value
items, faster and costly modes like Airways
are preferred. In case of low
value products, modes like Railways
and Waterways are preferred.
Speed and Reliability are most important Cost,
factors in selection of
appropriate mode of transportation.
 yBMS
Logistics and S C M (TYBMS
Sem
84 INFRASTRUCTURE
TRANSPORTATION
5.12 infrastruct
take place, a strong ure is primary
Prim
to transportation gets slowed
For transportation
inadequate, business. resui
thisinfrastructure is
the growth of
trade and
obstacle in Infrastructure:
into a major Transportation
Elements of
Facilities:
a. Terminal defined as any facility where goods (freight)
Terminal may be
It is the location where goods ori
assembled or dispersed. process. A termh
is handled in the transportation ninal
terminates or
and unloading facilities,
cilities, platfoa
platform m
well maintained loading
have spes
etc.
equipments to handle goods,
b. Vehicles:
in movement of goods ffrom
It includes all the vehicles involved
trucks, ships, train, etc. the select
place to another. It includes
cost
vehicle depends on various factors such as speed, cost, caryjn
capacity, etc.
C. Right of Way:
Right of the way is an easement (privilege) to pass over the land i
transportation purposes.
Prime movers:
In engineering prime movers is an engine that converts fuel to usa
seh
work. Prime movers are the powerhouses moving the vehicle
transportation. For examples, in locomotives, the prime movers are
t
source of power for its movement
e. Carier Organization:
Carrier organizations are the transportation services
providers in busines
Transportation of goods is the core business
of such services providers.

5.13 INTERMODAL TRANSPORTATION

a. Intermodal transportation is
also known as Multimodal transportation.
involves using more
than one mode of transportation
b.
at the same time.
The main aim of inter
modal transportation is
of various modes of to take the advantag
transportation and avoid
their disadvantages.
C. Inter modal
transport takes the
mode and thus provides advantage of the economies of ead
the best service
Significance at a lowest possible cost.
ofInter Modal Transportation:
1. Minimising Time
3. Less Documentation 2. Minimising Cost
Formalities 4.
5. Reduces Loss Reduce Difficulties
or Damage to
the Cargo.
 Transportation 85
The main intermodal combinations are:
1. Piggy Back 2. Fishy Back
3. Birdy Back 4. Land Bridge
1. Piggy Back:
Piggy back is a combination of rail and road. The consignment is placed on
the rail car at the railway station of origin and then transported by Railways upto
the Railway station of destination. After reaching there, the consignments are
placed on a truck and transported to exact destination by roadways
TOFC- Trailer on Flat Car
In this technique the trailer is placed on a rail flat car and is transported
from station of origin to station of destination through railways. Then after
reaching the station of destination, the trailer is placed on the truck and
transported to the actual destination.

cOFC-Container on flat Car

In this technique, the container is placed on a rail flat car and is
transported from station of origin to station of destination through railways.
Then after reaching the station of destination, the container is placed on the
truck and transported to the actual destination.

P&O
TTX

2. Fishy Back:
a. Fishy back is a combination of water and road transport. The
consignment is placed on the ship or vessel at the port of origin
and then transported by waterways upto port ot destination.
is placed
b. After reaching the port of destination, the consignment
on a truck and transported by roadways to the exact destination.
 Logistics and S CM (TYR
BMS

To
S
Sen
3. Birdy Back: combination of air and
Birdy back is a
Air truck/Air ran
transpon
consignment is
placed on the Airbus/
then
Ai
transported by Airways upto Airport of a he
destinat im
of origin and destination, the consign
airport of
b. After reaching the roadways to dee.t
isis place,
the exact stination.
transported by
a truck and
Land Bridge: of Intermodal logistics distributio
a. Land Bridge is a part em
happens over wator
In Land Bridge,
transportation
nd -
route.
Land Bridge involves:
by shipping a product across water.
Beginning
to surtace transportation.
Transfering the shipment
water.
Finishing the move across
provided between two water movema. ents.
d. Thus, a land bridge is
It is a service in which
a foreign cargo croSses a countrytry enroute
another country.
Mini Land Bridge:
port-to-port transportation.
A mini land bridge involves
For Example, the cargo from Europe has to be deliver
if ivered
received at the Mumbai
Chennai port, the cargo might be i porta
r

Chennai.
then transported through rail to
It is termed as mini land bridge as the foreign cargo
originates,
country.
terminates at the point within the same
b. Micro Bridge:
A microbridge involves transportation between port city and a m
- port city.
For Example, Europe has to be delivered
If the cargo from
New Delhi (a non port city) then the cargo might be
-
received
rail
the Mumbai port (a port city) and then transported through
New Delhi.
Air
Rail
Piggyback Birdy back
Truck

Fishyback
Pipe
Water
 Logistics BMS Sem
and d M (TYBMS
WATERWAYS AND ROA WANS
COMPARISON BETWEEN
5.15
Roadways
Waterways
broken i units
bulk transportation can be 1. Bulk has to be a
1. Heavy loaded into carriers which have lower
lot.
done effectively in one capacitythan waterways.
(cheapest 2. It is less cost effective due to
2 it is very cost effective volatile prices of fuel.
mode) due to large carying
capacity.
3. Waterways has to depend
on 3. It does not depend on other mode
nodes
as it provides door-to-door services &
roadways for ultimate destination
is ultimate mode of transport.
delivery. Nodoor-to-do0or
transportation possible.
4. The carying capacity is low as One
4. It has huge carying capacity.
truck can cary maximum 30 tons.
5. It is suitable for short distance
5.t is suitable for long distance journey.
jOurney.
6. It is comparatively faster than
6. t is the slowest mode of
waterways.
transport
7. No such specialised packaging is
7. requires specialised packaging
t
required in roadways.
ofcargo.
8. Roadways has comparatively less
8. Waterways has huge capital capital expenditure.
expenditure.
TRANSPORTATION COSTS
5.16 FACTORS INFLUENCING
Factors Infiuencing
Transportation Costs
and Pricing

Product Market
Related Related
I. Product Related Factors:
1. Density:
a. Density refers to weight and space aspects.
intuen
b Weight and space of a product are important factors
transportation costs and pricing. thus
light weight but occupy more
space
C.Some product may be acity
is not possible to load more products as vehicle's
space capa
utilised
Transportation 89
d. ome products may be heavy weight but occupy less space, then
too it is not possible to load more products as vehicle's weignt
capacity is utilised.
e. Thus, weight and space of a product has an impact on associated
transportation cost.
For example: Hitachi placed an order for oil reservoir which had
to be delivered to Australia. The oil reservoir being heavy was sput
in parts but no caier was ready to take the consignment due to
the shape. Only the AFL cargo division in Pune delivered the
shipment in right time without any damage and they charged a
huge amount for the transportation.
2. Stowability:
a. It refers to product dimensions i.e. size and shape of the product
and how dimensions affect vehicle space utilization.
b. Odd size and shapes of products do not stow well and typically
waste space. Thus, the cost of transportation increases
C. On the other side, items with standard rectangular shapes are
much easier to stow and make optimum use of vehicle space.
3. Handling:
a. Handling of a product also depends on shape and size of the
product.
b. Products with odd size and shape may create difficulty in handling
This increases the cost of transportation.
c. On the other side, items with regular size and shape are much
easier to handle. This decreases the cost of transportation.
4. Liability:
a. Liability refers to probability of theft or damage to the products
during transportation of products.
b. Some products are subject to damage of goods, perishability,
susceptible to theft, etc.
C. Carier must either have insurance to protect against possible
claims or accept responsibility for any damage.
II. Market Related Factors:
1. Location of Markets:
The cost of transportation also depends upon the location of
market. If the goods are to be transported to a longer distance,
transportation cost will be higher and vice versa.
2. Nature and extent of Government Regulation:
The cost of transportation also depends upon the extent of
government regulation imposed on the transport carriers.
 and S CM
LogisticsandS C MvBMS
S
Transportation
iOvement CARRIER]
SELECTION OF
seasonal in nature 18
Seaonality of
Product movement
seasona fruits
seasonal
agricultural ph
produ
5 Following care is to be taken
while selectinga carrier t
the
routes, producing highduring season's pealk tne consignee. to get an9
some negions very consignment to or business tumover,
For wzll be Volume of business
example, in
transportation
cost off-season. functioning in the last years.
during 1ransportaion: business is
the length and
breadth of busines:
thevery lowternational
domestically
domestically or inte
nternationa Area ot operation,can reach the goods in the country.
wilbe ansported
transported which the carrier
Domestic/In cost. Branch offices or
associates Office. the ca
of fleet owned by
iS
product
transportation
4. Whether the Strength ot tleet. The sizeany given time.
eftect on committed to business at
opinion c
t has
an Competition: extent also depends clients list for seeking the
certain Ask for up to date
Degree of a many
any transport ca ascertaining reliability.
5.
transportation to there are the carrier, tor the carrier is doing will indicate if the
Cost of competition. vice versa
ersa. Type of business
low and
degree of would be for the shipper. carrier tor
transportation costTRANSPORTATION
The average transit time given by the
destination. hov
IMPORTANCEOF by carrier. To known
the
the
scope or market
scope Record of claims settlement settlement.
5.17 to widen
wIden
carrier is whenever there
is a claim
Transportation helps banks, carriers,
Wider
Market- business. from Reference rom other shippers
1. the
scope of moves products from where measure ot confidence.
thereby widen Transportanon pngsicalig Surplus an
Utility- 1.e. rOm the s REVIEW QUESTIONs
Place are needed
2 to where they unlity.
reproducedIransportation creates place
area. 1hus, internatonal Division of abo Objective type questions
Division Of Labour-
In Q.1.
it can produce at
thee le
International commodines wnich lo (A) Multiple choice questions
3 produces Such countmes with the hep refers to mode of transportation
which
each county to otner
then suppliest or river.
the hills or across the valley
possible cost and
transportaton. b. Rope ways c. Roadway
pnce stability by ensuh
ens
a. Pipelines
Iransportaton helps to maintain transportation where no empty wago
4. Price Stability-
demand and suppl. 2. A kind of
between brought back is_
proper balance demand a
leads to large scale b. Roadway C. Waterwa
Development- Iransportation more indust a. Railway
5. Industrial 1nus, more and
thus the need for large scale production.
3. Following is not type of piggy-back
enter it which leads to all
round industnal development. a. TOFC b. COFC C.LASH
up of more and more industries
Which of the following is the cheapest mode of tr
6. Employment opportunities- Setting 4.
in the county b. Rail C. Air
increase the employment opportunites a. Road
opportunities, à 5. The first parties intluences the transportation tram
7. High standard of living- Due to employment of a h a. Sender, receiver, mover, Government and
P
purchasing power of people increase. This leads to adaptation
b. Shipper, Receiver, Carrier, Government and
standard of living
C. Consignor, Consignee, carrier, Government
8. Distribution of perishable goods- Due to efficient transport syse
d. Consignor, Receiver, Carrier, Governmenta
penshable goods can be quickly transported from one area to the other de - -
Ans. 1.-b, 2. d, 3. c. 4. -d, 5. c. -

9. Special benefits during emergencies- Transportation prOves

helptul during emergency situations like
(B) Fill in the Blanks
floods, earthquakes, etc for S
of vital requirements
like tood, medicines,
is the only mode that provides doom
etc
has the largest carrying capacity.
 Logistics d SS CM (TYBMS
and MS
Sen
Movement:
Product
Seaonality of seasonal in nature.
movement is fruits/agri.
routes, the seasonal
For some
regions
producing
high during on
al
produg
example, in will be
very s peak
transportation cost season.
the off -
low during Transportaion:
wl be very
DomesticInternational
domestically or
transported tiona
product is
Whetherthe transportation cost.
effect on
it has an
Competition:
5. Degree of certain extent also d nds
transportation to a many transn u
Cost of are ort carti
competition. If there versa.
degree of vice
cost would be low and
transportation
TRANSPORTATION
IMPORTANCE OE
5.17 ma
widen the scope of
Transportation helps to
tket
Wider Market-
a
of business.
theneby widen the scope
moves products from where
Transportation physicaily
Place Utility are needed i.e. from Surplu
plus area to the s
where they
are produced to utility.
Thus, Transportation creates place
area. Division of labo
Labour- In International
International Division Of
such commodities which it can produce at the we
each country produces
possible cost and then supplies it to other countries
with the heh e
ransportation.
Transportation helps to maintain price stability by ensur
Price Stability-
proper balance between demand
and supply.
Development. Transportation leads to large scale demand a
5. Industrial
production. Thus, more and more indust
thus the need for large scale
development.
which leads to all round industrial
enter it
and more industries
wi

6. Employment opportunities- Setting up of more

country.
the employment opportunities in the
increase
employment opportunities,
7 High standard of living- Due to of a hg
power of people increase. This leads to adaptation
purchasing
standard of living
sya
Distribution of perishable goods- Due to efficient transport ale
other
perishable goods can be quickly transported from one area to the
proves
9 Special enefits during emergencies- Transportation
tor s
helpful during emergency situations like floods, earthquakes, etc
of vital requirements like food, medicines, etc
 Logistics and BMS s
SCM(TYBMS Sem-
transport.
costliest mode of
is the
useful for
ation ofliquids.
transportatio
nd gases
transportation in hilly areas,
transportation is
for
is suitable mode of
transport.
is the
cheapest transport.
slowest mode of
is the mode oft transport at the
tho sam
more than one
involves using road. ime
8. combination of rail and
9 is a
of water and road transport,
is a
combination transport.
10.
combination of air and road
11. is a over . route.
bridge, transportation happens
12. In land cost, companies adopt
reduce transportation petroleum
13. To
most reliable mode oftransportation of Juct
14. is the goods
costs for distribution of
15. Transportation transport.
is the combination of Rail and Road
16. Pipelines 5,. R
Roadways 2. Waterways 3. Airways 4.
Ans. 1.
8. Intermodal
transportation 9. Pin
7. Waterways
6. Waterways Water-land-water 13,. lnt
Back 12.
10. Fishy back 11. Birdy warl
Increases with increase in number of
Transportation 14. Pipelines 15. oUs
16. Piggy back.
(C) (i) Match the following
B
A
Slowestmode A. Railways
1. Fastest mode
B. Waterways
C. Airways
3. Door to Doorhilly
service
areas D. Roadways
Suitable for
5. Suitable for transport of oil & petrolE. Ropeways
6. Suitable for Bulky products F. Pipeline
Ans. (1- B)(2- C)3- D)(4- E)(5- F),(6-A)

(ii) Match the following

A B
1.Piggy Back A. Consignor
2.Fishy back B. Road +Rail
3. Birdy back C. Road+ Water
4.Land bridge D. Road +Air_
5. Transportation E. Water-land- Water
6. Shippers F. Place utility
(1- B)(2- CX3- D)(4- E)(5- F),(6-A)
Q.2 Answer the following Questions
Explain the advantages and disadvantages of Railways/ Roadwa
Airways/Waterways/ Pipelines/ Ropeways.
2 Write a note on Intermodal Transportation.
3. Explain principles of Transportation.
4 Explain Transportation Functionality.
5. What are the factors influencing Transportation Decisions.
6. Explain the participants involved in Transportation.
 Logtatics ond. C M TYEMS

FUNCTIONALITY
WAREHOUSING
6.2 OR LONGER A
STORAGE PLACE BUT
WAREHOUSE IS NO VALUE,EXPLAIN,
A CREATES
PLACETHAT
warehouse should receive and
goods: The delivered to it
1. Receving goods that are
responeibility of the
goode: The goods that
are received should ha .
dente
ldentifying
label, color code
as per place, appropriat
received goods for
3. Sorting goods:
Sort out the
used mostly should be
s
be stored
stot
are going to be
area. The goods that available.
is easily
the place from where
it
The goods that are sorted shed.
ould
Dispatching goods to storage: accessibility.
temporary storage with easy
dispatched for
goods that are received should be given ser.
burs,
5. Holding goods: The
gainst pillerage (Theft) and
reduction in value. t must be stored
damaged
such a place that it does not get
are stored are selecte
6. Selecting, retrleved, packing: The items that cte
retrieved and grouped according to customer order for dispatch.

7. Marshalling goods: Marshaling means checking whether all the goo

ordered by customer are dispatched properly or not. Check the item
of a single order for completeness and order records are updated

8. Dispatching goods: As per requirements order is packaged ar

directed to right transport.
9. Preparing records and advices: The number of orders received, t
items received and on hand inventory, etc. are recorded
replenishment action and stock control

6.3BENEFITS OFWAREHOUSING
Benefits of Warehousing

Economic
Benefits Service
Benefits
Warehousing
95
Economic Benefits
Economics benefits

Consolldation Brea kbulk Crossdock Processing/Postponement Stockpling

1. Consolidation:
The word consolidation means combining together small shipments.
Shipment consolidation is an economic
benefit of warehousing. In this
arrangement, the consolidating warehouse
receives materials from a
number of manutacturing plants and then consolidates materials into a
single shipment for delivery to a customer.
Plant A

Customer
Consolidation
PlantB Warehousse

PlantC
BenefitsS:
a. Reduction in transportation cost.
b. Reduced congestion at the customer's receiving dock since he is
receiving single shipment instead of number of shipment from a number
of manufactures.
2. Break Bulk:
Break bulk and cross dock are similar to consolidation except that no
storage is performed. A break bulk warehouse receives large shipment
of products from manufacturer. After receiving the large consignment, it
is broken into small consignments (order) and is ultimately delivered to
the customer. Thus, a break bulk warehouse distributes or divides
orders and arrange for local delivery.
CustomerA

Plant A Break Bulk CustomerB

Warehouse
CustomerC
 Logistics and 5 CM(TYBM
aMS
Serm-

Benefits: transportation costs

Reduction in difference hat
Dock: The only
3. Cross bulk. manufacturers, RBut hal
similar to break multiple ci
in case
Cross dock is shipments from single mar
nanufactur
received from
dock receivesshipments are large qua
break bulk, materials arrive in tity
warehouse, which ived in bulk are tton
arrive
Dock
In Crossmanufacturers. materials
The nd mixed as per Customer
and
multiple shipments, assorted released for transn
smaller sport to
down into
smaller shipments are then tetaj
order. The requirements.
outlets as per their Customer
A
A
Plant A

Cross Dock Customer B

B
Warehouse
Plant

Customer
C
Plant C

Benefits: to warehouse andar

movements from manufacturers co
from
a. Full trailer in transportation.
results in reduction cost.
warehouse to retailers. This stored.
Reduced handling cost as product is not
b. fully loaded.
facilities are fully utilised as vehicles are
c.
C. Dock
Processing Postponement: delay production Dro.
Warehouses can also be used to postpone, or oces
a.
activities.
and ease manufacturing capability allows delau.
warehouse with packaging and labeling
bb. A
is known.
final production until actual demand
processed and canned at at the
Examples: Vegetables can be
th

manufactures end without putting any labels. No

pre attached labe
delivered to a specific custome
means the product does not have to be
Once a specific customer order is received, the
warehouse can complet
final processing by adding label and finalizing the
packing.

Economic Benefits of Processing/Postponement:

is not completed until a
a. Risk is minimized because the final packaging
order for specific label and package has been received.
b. The required inventory level can be reduced by using the basic product wi
no pre attached labels.
5. Stockpling:
a. Seasonal storage becomes essential to some selected business.
Warehousing
97
Blankets and nitting wool are
b. produced year-round and primarily sold
during a very short period.
In contrast agricultural products
are harvested at specific times w
consumption ocuring throughout
the year.
In both the situations, stockpiling becomes
d. necessary to support se
efforts.
Stockpiling provides tor a excess inventory
e.
availability of materials and the allowing for balance between the
market demand.
Service Benefits
Service Benefits

|
Spot Stock Assortment Mixing Production Suppo Market Presence

1. Spot Stock:
selected amount of a firm's product line is
A
placed or "spot stocked" in
a warehouse to fill customer orders during a critical marketing period. Spot
stocking involves placing inventory close to key
customers just prior to a
maximum period of seasonal sales.
For Example, Suppliers of materials related to agriculture like fertilizers,
pesticides, tractors, sprays, etc. may position their products
in areas closer to
the farmers especially during in areas closer to the farmers especially
during
the crops growing season. This is spot stocking.
Once the sales season ends, the remaining inventory is withdrawn to a
central warehouse.

2. Assortment:
An assortment warehouse stocks product combinations
in
anticipation of customer orders. The assortment may represent multiple
products from different manufacturers or special assortments as
specified by
customers.
For example, an athlete may require shirts, pants, shoes, etc. Thus,
an
athletic wholesaler may stock such products from different suppliers
or may
CTeate a special assortment of shirts, pants, shoes to serve
that athletic
Customer.
Benefits:
a. Assortment warehouses improve service by reducing the number of
Suppliers that a customer must deal with.
b. The combined assortments also allow larger shipments which in turn
reduce transportation cost.
 Logistics and S C M (TYBMS.
98 Sem-
Mixing:
In a typical mixingsituation, truckloads of product are
manufacturing plant to warehouses. Each large
shipment enjoys ed
at the lo
mixing wareho.he lowey
pOssible transportation rate. Upon arrival
combination of each ,farfacton
shipments are unloaded and the desired
each customer or market is selected. When plants are
geproduCt
separated, overall transportation charges and warehouse requirophica
entsCan
be reduced by mixing.
4. Production Support:
Production support warehousing provides a continuous supplu r
parts and materials to the manufacturing plants. Production spate
suppr
warehouse maintains a safety stock of items purchased from outside Pbo
(suppliers). Production support warehousing is used to supply mado
components and sub assemblies into assembly plant in an econom:
-

timely manner. c and

5. Market Presence:
The market presence factor is based on the
perception or belief
that loca
warehouses can be more responsive to customer
needs and offer quicker dot
1

than distant warehouses. As a result, it is also veny

thought thata local warehouse
enhance market share and potentially increase wil
profitability.

6.4WAREHOUSE OPERATING PRINCIPLES

Once it has been determined
to use a warehouse,
the warehouse. There are three the next step is to desig
principles involved in designing
1. Design Criteria:
the warehouse.

While designing
a warehouse, three factors
are to be considered.
a. Number of storeys
b. Height
a. Number of storeys:
C. Product Flow

ldeally, warehouse
design should be limited
so that the product only to a single storey
does not have to
warehouse has more be moved up and down.
than one floor,
elevator to move it might require use
the product from
one floor to another.
The elevator is
often a problem
material handlers in product flow
are usually since ma
elevators competing for limited numoc rd
a
Thus, as far
as possible, warehouse
storey. should be limited to a ingle

b. Height: u
Warehouse design should
utilisation
of space of be such that optimum
warehouse. it results in oP
 BMS
100 Economies: Ser
b. Movement Scale
means movementi n NC
Movement Scale Economies large
arehouse qua
moving individual products, warehouso activities
Instead of
products such as containers
designed to move group of
be
Grouping of products reduces number
of activiti
ities and
resdl
reduction of cost.

3. Storage Plan:
characteristics
While deciding the storage plan, various of the
such as volume, weight, etc should be considered. pro
1. High volume sales or fast moving products should be stored
no-
location that minimizes the distances it iS moved, such as
prima
aisles. They should be stored in lower racks.
Low volume or slow moving product can be assigned locations
that
distant from the centre. They should be stored in higher racks.
4 Heavy goods should be kept in the lowest racks.
5. Hazardous items stored at safe distance to reduce damage dura
dangerous situation.

Receiving docks

Storage space for low volume Storage space for low volume
Products
Products

Storage space for high

Volume products

Primary Aisle

Shipping docks
Warehousing 101

6.5 TYPES OF WAREHOUSES

Types of Warehouse

Private Public Contract

1. Private Warehouse:
a. Private warehouse are operated by the firm owning the product.
b. Often, it is not possible to find a warehouse that meets the exact
requirements of a firm. Hence, the organisation opts for its own
warehouse which is designed to meet its exact requirements.
Advantages:
a. Private warehouses have greater operational flexibility as operations
can be controlled as per the requirement.

b Private warehouses have greater control over its operations.

C. Owner of a private warehouse enjoys tax benefit as he can claim
depreciation.
d. Private warehouse is suitable for long term.
e. Private warehouse is suitable if your requirements are very specific.

Disadvantages:
a. Private warehouse lacks geographical flexibility.
b. In private warehouse, operating cost is high as all costs are to be borne
by the company itself.
C. Private warehouses do not enjoy economies of scale,
2. Public Warehouse:
Public Warehouse is a type of warehouse which is owned and operated
by a third party. On the basis of the range of specialised operations
performed, public warehouses are classified as under:
a. General Merchandise (goods) warehouse is most common

warehouse and is used to store any kind of product.

6. Refrigerated warehouse provided a temperature controlled
environment to handle and maintain food, medical items.
chemical products, etc. which require a
temperature controlled
environment.
102 Logistics and S C M (TYBMS Sem-ul

C. Special commodity warehouse are used particularly for agricultural

products.
d. Bonded warehouses are licensed by the government to store
re
goods prior to payment of taxes or duties.
e Household goods warehouse are designed to handle and store
large bulky items.
Advantages:
a. In public warehouse, geographical flexibility is high.

b. In public warehouse, operating cost is low as cost gets divided

among many users.
C Public warehouses can enjoy economies of scale because it serves
to a large number of customers.
d. Public warehouses provide greater operating and management
expertise since warehousing is their core business.
Disadvantages:
a. In public warehouse, operational flexibility is low.
b Public warehouse has less control over operations as compared to
private warehouse.
C. User of a public warehouse cannot enjoy tax benefit as he cannot
claim depreciation.
d. Public warehouse is suitable only for short term.
Private Warehouse v/s Public Warehouse
Sr. Private Warehouse Public Warehouse
no.
Ownership: Private Warehouses are Public Warehouses are
Owned by the company owmed by the third party.
owning the product.
Operational In Private Warehouses, |In Public Warehouse
Flexibility: operational flexibility is operational flexibility is low.
high.
Geographical |In Private Warehouses, |In Public Warehouses
Flexibility: geographical flexibility is geographical flexibility
low. high.
Control: Private Warehouse has Public Warehouse has lesser
greater control. control
Operating In Private Warehouse, |In Public Warehouse
Cost: operating cost is high as operating cost is low as cos
all costs are to be borme |gets divided among mal
by the company itself. users.
Warehousing
103
Tax Benefit: Owner of a Private User of a Public Warehouse
Warehouse enjoys tax cannot enjoy tax benefit as
benefit as he can claim
depreciation. |he cannot claim
Economies Private Warehouses depreciation,
do Public Warehouses can
of Scale: not enjy economies of enjoy economies of
scale. scale
because it serves to a large
number of customers.
Term: Private Warehouse is
Public Warehouse
suitable for longterm.
Suitability: |suitable for short term.
9. Private Warehouse is Public
Warehouse is
suitable your suitable if your requirements
requirements are specific. are general.
3. Contract Warehouse:
a. Contract Warehouse combines the best
features of both the private
and the public warehouse operations.
b. Contact Warehouse is a "long term,
mutually beneficial
arrangement which provide unique and customized (as
per needs)
warehousing and logistical service for a single client"
Benefits:
a. They provide expertise, flexibility and economies
of scale.
b. Contract Warehouse assumes total logistics responsibility for
a firm that
desire only to concentrate on manufacturing and marketing.

6.6 WAREHOUSING STRATEGIES

There are five qualitative decision factors that are to be considered
while deciding the type of warehouse to be used.
1. Presence Synergies:
Fresence synergies refer to marketing benefits of having stocks located
near by the market. Customers are generally more comfortable
when
Suppliers maintain inventory in nearby location. Local warehouses can
e more responsive to customer needs and offer quicker delivery than a
aistant warehouses. This requirement is best served by private
warehouses or contract warehouses.
2,
Industry Synergies:
ndustrial synergies refer to operating benefits of co locating (sharing
ne locations) with other firms serving the same industry.. For Example,
irm in grocery business often receive many benefits when they share
Olc warehouses facilities with other suppliers serving the same
industries. Reduced transportation cost is a major benefit since joint use
104 Logistics and S CM (TYBMS Sem-V
of the same public warehouse allows delivery of consolidated loads
from multiple suppliers. This requirement is best served by public
warehouse or contract warehouse.
3. Operating Flexibility:
Operating flexibility refers to the ability to adjust internal policies and
procedures to meet product and customers' needs. Since private
warehouses operate under the complete control of the enterprise, they
usually have more operational flexibility. On the other hand, a public
warehouse often has standard policies and procedures that have to be
followed by all the clients. Thus, it has less operating flexibility. Thus,
operating flexibility is best served by private warehouse.
4. Location Flexibility:
Location flexibility refers to the ability to adjust warehouse location and
number in accordance with seasonal or permanent demand changes
For example, in-seasonal demand for agricultural materials like
chemicals, pesticides, etc. may require warehouses to be located near
markets that allow customer pickup. Outside the growing season,
however, these local warehouses are unnecessary. Thus, the desirable
strategy is to be able to open and close local facilities seasonally. This
requirement is best served by public warehouse or contract warehouse.
5. Economies of Scale:
Economies of scale refer to the ability to reduce material - handling and
storage cost through application of advanced technologies. High -
volume (large quantity) warehouses generally have a greater
opportunity to achieve these benefits because they can spread
technology's fixed cost over larger volumes. Public and Contract
warehouses are generally perceived to offer better economies of scale
since they serve multiple clients and that too in large quantities.

Private Contract Public

Presence Synergy

Industry Synergy

Operating flexibility

Location flexibility

Scale economics
 Warehousing
105
Any specific commitments made by
the company to any 'A' category
customer.
Local taxation levied by the local
9 authority in the area
10. Local residents' attitude towards business from
outside
11, Restrictions associated with warehouses. In some areas
some type of
products are not permitted to be stored.
12. Future expansion. Whether the location is
able to match organizations
plan to expand in future as per their strategy.
13. Cost of land.
14. Topography and soil condition: If the
warehouse needs special and
heavy equipment for material handling and if
the incoming loads are
heavy then firm soil and flat topography are ideal. If
these conditions
are not available, large amount of money is required to be invested.
15. Possibility of title change to the land: Are the title
change formalities
straight forward? E.g. In some situations this is complex, like
title to
MIDC land.

6.9 FACTORS AFFECTING WAREHOUSING COST

Warehousing Cost includes various fixed and variable cost elements.
The fixed cost includes capital costs, rent, wages
and salaries, cost of
utilities, etc. On the other hand, variable cost includes
transportation cost,
material handling cost, packaging cost, cost of repairs and maintenance,
etc.
The various factors affecting warehousing cost are as follows:
1. Size of Warehouse:
The area and size of warehouse is an important factor that affects the
cOst of warehouse in terms of rent, capital cost, etc. Larger the size
of
warehouse, higher will be the warehousing cost.
2. Type of Product:
The type of products stored in the warehouse also affects the
warehousing cost. For Example: Few products may require use of rust
preventive oils and greases in order to protect the products. This will
increase the cost of preservation and in turn increase the warehousing
cost.
3. Transportation:
Transportation costs initially decreases with increasing number of
Warehouses. This is due to the transportation economies obtained by
having large volume transportation. However, as the number of
106 Logistics and S CM (TYBMS Sem

warehouses increases beyond a certain level, the transportation ost

co
-
starts increasing due to large number of transportation trips in betwe
veen
the large number of warehouses.
4. Inventory:
The level of inventory which is stored in the warehouse also affects the
warehousing cost. Higher the level of inventory, higher will be the
warehousing cost and vice - versa.
5. Customer Service Level:
Customer Service level is another factor that affects the warehousino
cost. This is because if the company intends to give superior customer
service then it will increase the number of warehouses which in turn will
increase the warehousing cost. This is mainly due to the maintenance
and facility costs associated with each warehouse.
6. Degree of Automation and Type of Equipment: used in

Warehousing:
Degree of automation adopted in warehouse operations and types of
material handling equipments used in the warehouse also affects the
cost of warehousing. Moreover, the equipments require regular
maintenance which increases repairs and maintenance costs.

REVIEW QUESTIONS

Q.1. Objective Types Questions

(A) Multiple choice questions
1. Combining several small shipments into one large shipment is termed
as
Sorting b. Assortment
C. Consolidation d. Mixing
is the storage place where goods are stored until they are
sold.
a. Warehousing b. Transportation c. Labelling
3. A warehouse which are owned and
managed by the manufacture
traders to store exclusively their own stock
of goods are know

a. Public Warehouse b. Bonded warehouse

c. Private Warehouse d. Cooperative warehouse
 107
Warehousing
is a disadvantage of private warehouse.
4
Benefit b. less costly in long run
a. Tax
C.
Flexibility d. Lacks Geographical flexibility
is an advantage of public warehouse.
5.
a. Lacks specialized services b. Space may not be available
C.
Economies of scale d. Communication problem
a service benefit ofwarehousing.
is
6.
Mixing
a. Consolidation b. Break bulk C. Cross dock d.

The factor is based on the perception that local warehouse

7
can be more responsive to customer needs.
a. Mixing b. Production support
C. Assortment d. Market presence

8. An stocks product combination in anticipation of customer's

orders.
a. Spot stock b. Assortment warehouse
C. Mixing d. Market presence
c, 2.
-
a, 3. c, 4. d, 5. c, 6. d, 7. d, 8. - a.
Ans. 1. - - - - -

(B) Fill in the Blanks

1. Gap between placing the order and delivery of order is known as

2. can be viewed as positioned between physical distribution

and procurement cycle.
3. is a combination of both private and public warehouse.

4 Organisation should offer productin case of non-availability of

main product.
5 Warehouse operations is greatly affected by
Public warehouses do not provide any scope for of
storage and material handling facility.

refers to the storage of products in excess to avoid

7.

uncertainties.
8. is a switching facility in logistics network rather than only
a place to store goods in order to fulfill customer's requirement.
9.
is used in relation to time bound storage of products in the
warehouse.
108 Logistics and S CM(TYBMS Sem -V
10. are licensed by the government to store goods prior s
payment of taxes or duties.
Ans. 1. Lead Time 2. Manufacturing Support cycle 3. Contract warehoDuse
4. Substitute 5. Material handling system 6. Customization 7. Stockpili
8. Warehouse 9. Cross dock 10. Bonded warehouse.
(C) Match the followingg
A B
1. Warehouse A. Mixing
2. Private warehouse B Time utility
3. Public warehouse C. Operationalflexibility
4. Contract warehouse D. Geographical flexibility
5. Presence Synergy E. Unique & customized
6. Consolidation F. Stock located near markets
7. Service benefits G. Reduction of transportation cost
Ans. (1-B)(2- C)3- D)(4- E)(5-F),(6-G)(7-A)
Q.2. Answer the following
Questions.
1. What are the functions of
Warehousing?
2 What are the benefits of Warehousing?
3. What are the principles
of Warehousing?
4. Explain the various types
of Warehouses.
5. Explain the various factors
to be considered while
location. choosing warehoux
6. Explain the various
Warehousing Strategies.
7. Explain the criteria
for selecting number
of warehouses.
 Handling
Material
109
Chapter 7 Material Handling
SYNOPSIS
7.1 Introduction
7.2 Material Handling does not
add value to the product; it only
increases its cost
7.3 Objectives of Material Handling
7.4 Principles of Material Handling
7.5 Systems of Material Handling
7.6 Equipments used for Material Handling
7.7 Factors affecting Material Handling Equipments
Review Questions

7.1 INTRODUCTION
Material Handling means providing the right amount of right material,
in the right condition, at the right place and at the right time. Material

handling involves movement, protection, storage and control of materials.

Materials handling System decides the speed of movement of goods,
service& information within organization& between the seller and
Customer. It determines the company's response level to internal & external
Customer's requirements. Before product reaches to the final customer, it
passes through series of handling processes.

Material handling cycle starts from receipt of materials followed by

IOrage of materials followed by moving to production followed by moving
OT
finished goods to the warehouse and then it reaches to final customer.
Around 15-20% of the cost of the product is spent on Material
Handling.

Material handling is an important & Specialized Function of Industrial

evity. Even though this activity does not add to the value of the product,
utility. (When & Where it is
"S essential from the point of Space & Time
required)
 Logistics and S C M (TYBMS Sem
Sem -
110 TO
HANDLING DOES NOT ADD VALUE
7.2 MATERIAL
PRODUCT; IT ONLY INCREASES ITS COST
THE
involves following stages:
The process of material handling
transported from supplier to the plant (unloading
Materials are
unpacking/ inspecting).
are moved to storage spaces & stacked (loading
Unloaded inputs
sorting).
stacking, storing, weighing, counting,
Inputs are moved to manufacturing location (loading/ unloadino
Stored
moving/ inspecting)
Semi finished products are moved from
one location to another within
processing units (loading
the plant or from plant to another outside
unloading/ moving/ inspecting)
packing/ stacking
Finished goods are moved to warehouses for
(loading/ unloading/ stacking).
Finished goods are dispatched to customers (moving, loading i
&

required unloading).
only
Thus, Material Handling does not add value to the product; it
increases its cost.

7.3 OBJECTIVES OF MATERIAL HANDLING

1. Increase the Storage Capacity of Warehouse:
The material handling system should be such that it results in optimum
utilization of space of warehouse. The focus should be on utilising the
cubic space rather than floor space. Thus, the space of warehouse
should be utilised properly and avoid blockage of space.
2. Reduction of the number of times product is handled:
The material handling systems should be such that number of times the
product is to be handled gets reduced to minimum. The more th
product is handled by different workers, the more will be the risk o
damage to product and will increase material handling cost.

3. Development of Effective Working Conditions:

The working condition should be favourable
for the worker.
working conditions should be safe for the
workers and should ens
that workers are not exposed to any kind
of potential dangers
injuries.
Material Handling
111
Reduction of Movement Involving
Manual Labour:
The maternal handling equipment
should be such that movement
manual labour is reduced
to minimum. Mechanisation of
o
handling should be adopted as material
far as possible.
5. Improves Logistics Service:
Material handling system should
be such that it improves overau
logistical performance during pre
production activities, during
production activities and post production
activities. Effective material
-

handling system helps to improve efficiency

of entire organisation.
6. Reduction of Cost:
Cost is one of the main factor in material handling. The material
handling system should be such that it helps to reduce overall logistical
costs and helps to increase profitability.

Conclusion
In logistical operations,
material handling activities cannot be
avoided but can certainly be minimised. Appropriate material handling
equipments and systems help to improve the overall performance level of
the warehouse. An efficient material handling system will enhance the
Speed of material movement throughout the supply chain.

7.4 PRINCIPLES OF MATERIAL HANDLING

1.Planning Principle: Material handling system should be designed
after analysing needs and performance objectives of the organisation.
The material handling system should be designed in such a manner that
it helps the organisation to fulfill its needs and achieve its objectives.

Standardis ation Principle: Material handling methods, equipments

as far as possible.
controls and software should be standardised
Standardisation implies to the size of containers as well as to operating
procedures and equipments.
3. Work Principle: Material handling equipment should be such that
without sacrificing productivity
human efforts gets reduced to minimum
or level of service required for operation.
4. Ergonomic principle states that human
Principle: Ergonomic
recognized and material handlinga
capabilities and limitations must be
way that it should be human
system should be designed in such a
equipments should be such that it ensures safe
rlendly. Moreover, the
and effective operations.
 Logistics and S C M TYBMS Sem-
112
can be Stored or moved
5. Unit load principle: A unit load is one that d
as a single unit at one time. The size of cartons or
package should bo

uniform which helps in easy handling.

6. Space Utilization Principle: The material handling system should be
such that it results in optimum utilisation of space of warehouse. The
focus should be on utilising the cubic space rather than floor space
Thus, the space of warehouse should be utilised properly and avoid
blockage of space.
7. Systems Principle: Material movement and storage activities should
be fully integrated to form a proper operational system. A systematic
operational System will result in less confusion and congestion in work.
8. Automation: Material handling operations should be Mechanized and
/or automated as far as possible. The automation in system results in
improved operational efficiency, increased consistency, etc.
9. Environmental Principle: Environmental impact and energy
consumption should be considered as criteria when designing material
handling systems. The material handling system should be set keeping
in mind its adverse effect on environment.
The system should not create
any damage to environment.
10. Life Cycle Cost: The cost of Material handling
should be analysed in
advance and should favour the organisation.
The cost of material
handling should prove beneficial and
economical for the company.

7.5 SYSTEMS OF MATERIAL HANDLING

1. Manual Material Handling System:

It is the cheapest and
most commonly used material
this system, the workload is handling system. In
solely dependent on the labour. The labour
has to carry the material from
one place to another. This
consuming and not suitable method is time
to carry large volume
in this method there of goods. Moreove
are high chance of
goods. errors and damage too the
2. Mechanised Material
Handling System:
Mechanised Material
material handling Handling System
involves usage
equipments. In this of wide range of
material handling system, some
system which
was initially
aspects of mannual
mechanised through
the use of various done by labour a
This method involves material
both manual efforts handling equipmen
The human effort involved as well as mechanised ork.
lesser as compared in mechanised w
to manual material material handling system s
handling system.
Material Handling
113
Some of the equipments used in mechanised
material handling system
are forklift trucks, conveyors, cranes etc.

3. Semi Automated Material Handling system:

The Semi Automated system supplements a Mechanised system by
-

automating specific handling requirements. In

this system, some aspects
of mechanised material handling system are completely
automated.
Thus, the Semi Automated system is a mixture of mechanised and
-

automated handling.
Typical equipments utilised in semi automated
-
system are automated-
quided vehicle systems, computerised sortations, robotics etc.

4. Automated Material Handling System:

Automated Material Handling System is the system which substitutes
human requirements with automation. Computerisation is an essential
aspect of automation. Automated system increases productivity and
enhances the speed and accuracy of material handling. It reduces the
risk of human errors.

Some of the equipments used in automated material handling system

are Carousels and Automatic Storage and Retrieval System (ASRS).
Conclusion
Manual material handling system most traditional method and
is the
involves tremendous human effort. The Mechanised system shifts the
fatigue to machine and brings effectiveness to human efforts. More
sophisticated systems like semi automated and automated facilitate|
speedy material movement.
HANDLING
V.6 EQUIPMENTS USED FOR MATERIAL
Types of Material Handling Equipments

Variable Path
Fixed Path Equipments
Equipments
can be classified into two broad
aterial handling equipment
categories:
Fixed Path Equipments:
equipments which move in a fixed
Fixed Path Equipments are those
to a fixed point and their route
direction. They move from a fixed point
cannot be changed
Cxample Conveyors, Elevators.
:
 Logistics and S C M (YBMS Semn -V
114

I. Variable Path Equipments:

Variable Path Equipments are those
equipments which have no
can move in any desire
restrictions in the direction of movement. Ihey red
direction.
Example Trucks, Automated Guided Vehicle.
:

Some of the material handling equipments are as follows:

usedfo
1. Conveyors: These are gravity or powered devices, commonly
types o
moving loads from point to point over fixed paths. The various
conveyors are Belt Conveyor, Chain Conveyor, bucket conveyor, screu
conveyor, pipeline conveyor, vibratory conveyor, trolley conveyor,
and

chute or gravity conveyors. Advantages of

conveyors are that they do
less
not require operators, will move a large volume of products and
costly to operate.

ADJUSTMENT

BEFOR
ADJUSTME

Belt Conveyor Chain Conveyor

Wheel Conveyor
2. Cranes: Cranes are devices mounted on overhead rails or groound
level wheels or rails. They lift, swing and eavy
transport large and
materials. Examples are Gantry Crane, Jib
Crane and Elect
Operated Overhead Crane (EOTC).
MaterialFandling
Elevators: Elevators are a type 115
3. of cranes that lift materials usuaiuy
hotween
be floors of buildings. They usually serve only limited area.
a

4. Hoists: Hoists are devices, which move materials vertically and

horizontally in a limited area. Examples are Air Hoists, electric hoists
and chain hoists. They usually serve only a limited area.

Industrial Trucks:
different kinds of transportation items and
industrial Trucks refer to the
In material handlina.
materials and products in
enicles used to move characteristics to make them suitable for
These trucks have a variety of ted by electric, diesel,
be operated
trucks
different operations. These Examples are fork
Examples forklift trucks, pallet
petroleum. trolleys.
gasoline or liquefied trucks and power
hand
uCks, tractor with trailers,
 116 Logistics andS C M (TYBMS Sem
mean
6. Pipelines: Pipelines are closed tubes that transport liquids by ans o
pumps or gravity.
7. Automated Guided Vehicle: Automated Guided Vehicle (AGu.at
battery powered driverless vehicles that are controlled by compule
AGV are often used in automated warehouse operations. AGV systen
follow a magnetic path for destination. They stop if they find any
obstructions in their path. The main benefits of AGV include lower
handling cost, less damage to products, improved safety, etc.

8. Industrial Robots: Industrial robot is an automatically contrlle

reprogrammable mechanism that can perform a variety of functions
Robots are useful in warehouses where, an extreme condition oi
temperature and noise exists.
9. Forklift Trucks: One of the most widely used and extremely helpfu
equipment in materials handling has been the forklift truck. This coud
be battery operated or diesel operated. It has a fork which can be
inserted into the pallet and thus the load is lifted.

Conclusion
For moving the material in and out o
of the warehouse, various kinnds
material handling equipments are used and
depending upon type of producs
volume of products. Appropriate material
handling equipments and sy
help to improve the overall performance level of
the warehouse.
 1.7
CTORS AFFECTING SELECTION OF MATERIAL
ANDLINGEQUIPMENTS
HA.
Frequency of Material Movement: It refers to the
1.
number of times
materials,are to be moved from one place
to another in case of lower
frequency; manual system should be used. In case of higher frequency
Mechanized or automated material handling
system should be used.
of Material Movement: It
2. Distance refers to the distance between
origin and destination of material movement. Distance depends upon
various factors such as size of warehouse, manufacturing process,
distance between order picking and packaging etc. If the distance is
lower, manual system can be used. But in case of higher distance,
Mechanized or Automated material handling system should be used.

3. Quantity of Materials: Type of Material Handling equipment to be

used also depends upon the quantity of Material to be transferred from
one location to another. If the quantity is lower, manual system can be
used but in case of higher quantity mechanized or automated material
handling system should be used.
4 Time Constraint: It refers to the time available for completing the
material movement process. In short it refers to the time available for
shifting material from one location to another. If the time available is
more, Manual system can be used but in case time available is less,
Mechanized or automated material handling system should be used.
5. Cost: Cost basically involves the initial investment and cost of
maintenance. If the organisation has cost constraints, then it should use
spend more taking into
manual system. But if organization is willing to
term advantages, then it should use mechanised or
consideration long
automated material handling system.
Handling Equipment also
Engineering Factors: Selection of Material as size of warehouse, type
factors such
epends on various engineering heights of warehouse structural
of warehouse, floor size and condition,
strength, etc.
Standards: Workers/ labour safety is a
Compliance with Safety
responsibility of the employer. Ihus, selection of material
Prime
upon compliance of equipment with
nandling equipment also depends
as emergency stop, audio/visual warnings.
satety standards such
adequate guarding, etc.
maintenance should be
8. Low Maintenance costs: The cost of
should favour the organisation. The cost of
companu
analysed in advance and for the
prove beneficial and economical
dintenance should
 Logistics and S C M (TYBMS em
118 -

readily available in the marl.

9. Moreover, the Spare parts should be arket
mater
plays an important role in selecting
After sales service also eria
handling equipment.
Conclusion
ona
The initial cost of an automated system will be higher than for
that is mechanized. However, the key benefit from automation is reduce
operating cost. An Automated system, if properly designed and controlled
will outperform all other systems of material handling.
UNIVERSITY CASE STUDY ON MATERIAL HANDLING AND
CUSTOMER SERVICE (May 2017)
Read the following case study and answer the following questions
given below:
For flight passengers the greatest worry is their baggage-damage-free
loading and unloading and with no time delay. At the Frankfurt Airport, the
baggage handling system with its automatic baggage conveyor facility is

unique in the world. It differentiates itself from the baggage-handling system

in any other airport in the world with regards to size, functionality and
performance. It guarantees the airport staff a minimum connecting time of
45 minutes. Hence, the Frankfurt hub is at a true competitive advantage.
The conveyors are automated and have 70 kilometers of conveyor
routes. During the peak hours, the system handles more than 99,000
baggage items per day. These items are transported with speed and
reliability to their destination points. On the hourly basis, the system takes
care of 18,000 baggage items with a transport speed of 2.5 meters per
second. The automated system ensures very short transfer times keeping a
reliability rating of 99.65%. It is a unique system,
which differentiates i1s
in terms of scale, speed and reliability. The luggage
is safely transported "
coded plastic tray-type containers, which are subject
to 100% X- ray
screening of baggage into the baggage conveyor
system. The end resul
customer satisfaction via eliminating baggage
worries of air travelers W
well-designed and organized airport logistics
system.
Questions:
1. What is material handling? Explain the
various objectives of mate ia
handling discussed in the above case.
2. As a logistical manger of Frankfurt,
highlight the various elemen s
customer service.
1. What is Material Handling? erial
Explain the objectives of mate
handling discussed in the above
case.
Meaning of Material Handling:
Material Handling means providing
the right amount of right material
in the right condition, at aterial
the right place and at
the right time. Ma
 Handling 119
Material

lina involves movement, protection, storage and control of materials.

handling
rials handlir
Materials handling System decides the speed of movement of goods, service
formation within organization & between the seller and customer.
&informatio ner. It
"
termines the company's response level to internal & external customer's
dormines
uirements. Betore product reaches to the final customer, it passes
requirements.
series of handling processes. Material handling cycle starts from
ugh ser
through
of materials followed by storage of materials followed by moving to
ereipt of
receipt
then
oduction followed by moving of finished goods to the warehouse and
prod
to final customer. Around 15-20% of the cost of the product is
reaches
re
spent on Material Handling.
Objectives of Material Handling:
1 Reduction of the number of times product is handled:
of times the
The material handling systems should be such that number
The more the
product is to be handled gets reduced to minimum.
will be the risk of
product is handled by different workers, the more
handling cost.
damage to product and will increase material
2. Development of Effective
Working Conditions:
favourable for the worker. The
The working condition should be
the workers and should ensure
working conditions should be safe for or
any kind of potential dangers
that workers are not exposed to
injuries.
Manual Labour:
3. Reduction of Movement Involving
equipment should be such that movement of
The material handling material
reduced to minimum. Mechanisation of
manual labour is
as far as possible.
nandling should be adopted
4. Improves Logistics Service:
should be such that it improves overall
Material handling system activities, during
during pre production
ogistical performance production activities. Effective material
production activities and post
-
organisation.
improve efficiency of entire
andling system helps to
Reduction of Cost: handling. The material
factor in material logistical
COst is one of the main it helps to reduce overall
such that
nandling system should be profitability.
costs and helps to increase Frankfurt, highlight the various
2 manager of
alogistical
elements of customer service.
ng custome
eaning of Customer Service: of sales activities and meeting customer
Custmer Service is a chain receiving the orders and ends with the
with
equiro with
deliven ents, which begins
customers.
very of
the products to
 MS Sen
Logistics and S C M (TYBMS Sem -
120
Elements of Customer Service
The elements of Customer
Service that are followed in the the above
a

case are:
The Frankfurt airport focuses on redue
1. Reduced Lead Time: cuch
lead time for the customers by providing efficient stome
the
system at rrankrurt ditterentiat iates
service. The baggage handling in
any other airport
itself from the baggage-handling system
in the
functionality and performance.
world with regards to size,
passengers, the greatest worry is damas
2. Safe delivery: For flight Frankfurt aitn
free loading and unloading of their baggage.
ensures safe and reliable delivery of baggage to customers
throunk

its automated material handling system.

The luggage is safely transported in coded tray-type
container
which are subject to 100% X -ray screening of baggage into the
baggage conveyor system.
o
3. Correct Orders: The Automated material handling system
Frankfurt airport ensures corect delivery of baggage thereby ensuring
delivery of right baggage to right customer. The automated system
works witha very good reliability rate of 99.65%.
4. Consistency: The automated material handling of Frankiurt
airport ensures consistency in delivery of baggage. The end result
is customer satisfaction via eliminating baggage wories of air
travelers with well-designed and organized airport logistics system.
Conclusion
Customer Service is a set of activities/elements/programs which are
designed and implemented by an organization to make customers' buying
experience more rewarding. These activities or elements enhance the
value of product or service that the customer gets from the seller.
Efficient customer service helps to
build customer loyalty wn
generates positive word-of- mouth
communication and thereby results "
increased sales.
REVIEW QUESTIONS
Q.1. Objective type questions
(A) Multiple choice questionss
1. A good material handling
system will enhance
a. Productivity the in logistics
C. Delivery Reliability
b. Efficiency
2. Public warehouses do not d. Speed
provide any scope storag
and material facility. for of
a. Customization
C. Functional improvement b. Maintenance
d. Productive
Ans. 1.- b, 2. a.-
Usage
Material Handling
121
(B) Fill in the Blanks
involves movement, protection, storage
materials. and control or

2.
Around of the cost of the product is spent on materlai
handling.
In the workload is solely
3. dependent on labour.
involves both manual efforts as well mechanized
4. as work.
5. In some aspects of mechanized material handling system are
completely automated.
6. AGV stands for
7. According to principle, material handling equipment should
be human friendly.
8. system substitutes human requirements with automation.
Ans. 1. Material handling 2. 15-20%, 3. Manual Material handling system 4.
Mechanized material handling system 5. Semi-automated material handling
system 6. Automated Guided Vehicles System 7. Ergonomic 8. Robots.

(D) Match the following

A B

1. Automation principle A. Convenient for the customers

System principle B. Operational consistency &
2.
efficiency
Less confusion & congestion in
3. Ergonomic principle
work
D. Human limitation to be considered
4. Work principle E. Human efforts to be minimised
5. Manual Handling system Cheapest & time consuming
6. Automated Handling system F. Computerized & reduced human
|7. Right place G.
eror
(1-B)(2- C)(3- D)(4- E)(5- F),(6-G)(7-A)
Ans.
.2. Answer the following questions.
material handling?
What are the objectives of
1.

material handing
Explain the principles of affecting selection of material handling
xplain the various factors
3.
handling?
equipments. used for material
4 Wh are the various equipments
5 at of material handling.
ndling.
Explain the various systems
 Logistics and S C M (TYBMS Sem
122 -V
Packaging
Chapter

SYNOPSiS

8.1 Introduction
8.2 Functions/ Benefits of Packaging
8.3 Design Consideration in Packaging
8.4 Types of Packaging Material
8.5 Packaging Costs
8.6 Types of Packaging
8.7 Concept of Unitisation
Review Questions

8.1 INTRODUCTION

Packaging is an important logistical management function. It has a

significant impact on the cost and productivity of the logistical system. Packaging
influences both the efficiency and effectiveness of logistics operations.
This chapter covers packaging from both consumer and logistis
perspectives. Consumer packaging focuses on customer convenience market
appeal and product protection. Logistics packaging includes individual units
master cartons and containers. It focuses on handling, protection anu
communication.
Logistical packaging provides various benefits such as damage protectol
material handling efficiency, communication, etc.

8.2 FUNCTIONS/ BENEFITS OF PACKAGING

1. Physical Protection: A major function of he

product from any kind of damage while packaging is to protechthe

logistical system. The objective of moving and being stored in to
packaging is to provide proteco. ion
the product from shocks during
shocks of handling transportation, vibration, compeession.
and moving, etc.

o SEREOcosn
Packoging
123
onmental Protection: The
product may also require protection
environmental factors
such as temperature, humidity
contamination. Thus, packaging
also provides environmental
cotection.
prote For example, in order to keep the
contents of the product
clean, fresh and safe for the expected shelf life, it may have to be
rotected from
Pro om oxygen, water vapour, dust, etc.
This is possible because of packaging
Helps to Improve Material Handling Efficiency: The packaging
must assist the processes ot loading and unloading. Proper packaging
facilitates easy material handling during transportation, warehousing
and storage. Thus, all logistical operations are affected by packaging
Cube Minimisation: Cube Minimisation involves reducing the space
occupied by the product/packaging thereby improving utilization of cubic
space and cutting the freight charges.
For example: It may happen that the truck is cubed out, that means the
truck is fully utilised space wise, but not fully utilised weight wise. This may
be due to inappropriate packaging. For Example, Round Shape
containers,
round bottles. Cube minimization is possible through appropriate packaging
Example: square shaped bottles.
reducing weight of
5. Weight Minimisation: Weight minimisation involves
truck.
the consignment to fully utilise capacity of the
is fully utilised weight wise but
For Example, it may happen that the truck
liquid in glass bottles. Weight
not fully utilised space wise. For Example,
packaging.
minimisation is possible through appropriate
plastic bottles in order to reduce the
Example: Liquid may be packed in
weight.

handling
Packaging facilitates easy
6. F
Handling and Using:
clitates
and usage for the users. cans instead of oil packets.
packs, oil
mple: Fruit juices in tetra
El. yl.jul

X
Packaging

DESIGN CONSIDERATION 125

B3 IN PACKAGING
Packaging plays a crucial role in
making the goods
of
t
origi to point of destination. It
is
available from point
an important logistical management
function. has a signiticant impact on
ystem. Packaging influences the cost and productivity of the
logistical syS
both the efficiency and effectiveness
of logistics operatio
tions. Thus, logistics packaging is designed
following objectives: kee
keeping in view
the
1. Material Handling:
The Physical distribution of products
involves a number of
activities such as Warehousing, Transportation
of products and
Material handling. Most of the damages
occur to the product at the
time of loading/ unloading the product at point of
origin,
transporting the product from one place to another place, loading/
unloading the product at point of destination. This damages to the
product ultimately result in loss for the organization and leads to
customer dis-satisfaction. Thus, packaging should be such that it
should provide complete protection to the goods during loading/
unloading, transportation, warehousing, etc. Moreover, packaging
should help to improve material handling efficiency. Proper
packaging facilitates easy material handling during transportation,
warehousing and storage.
Others factors that leads to product damages are poor loading and
unloading facilities and improper handling by workers. Thus, in
order to avoid product damages, proper loading unloading
be given to
facility must be provided and proper training should
the workers as regards to method of handling products.
2. Transportation:
of overall logistical cost
Transportation cost is a major component
Tor the company. The cost
of transportation depends on the
following factors:
Density i.e. Weight and Space.
Stowability i.e. Size and Shape. to reduce
material should be lightweight so as mangoes
nus, the packaging For example,
initially alphonso
ne cost of transportation. which considerably
increased
crates
were packed in heavy wooden result of which it
is now been
As a
ne cost of transportation. boxes so as to reduce cost of
cardboard
placed with and shape
transportation.
space of the vehicle, the size because
full crucial role. This is typically
for utilizing
Similarly, fo plays a
of ne consignment
package stow well and
packages do not increases. On the
and shape of transportation
S1ze cost of
waste space, Thus, the standard rectangular
shapes are much
n with
oher side, packages
 Logistics and S C M(TYBMSSem-
Sem
126
optimum use of vehicle space. This ho alp
easier to stow and make
reduce the cost oftransportation.
3. Warehousing:
manufactured, it needs to be stored in he
Once the product is
warehouse till they are dispatched
to the end users. The durat"tion
is not fixed and depends upon tyDe d
of stay in the warehousing
demand.
it should occupy minimnum
Thus, Packaging should be such that
storage capacih
space in the warehouse. This help to increase the
of warehouse.
Odd size and shape packages cannot be stacked one upon tho
other. Thus, they require more space for store which leads to an
increase in warehousing cost. On the other hand, packages with
standard rectangular shapes can be easily stacked one upon the
other. This results in utilization of cubic space of warehouse rather
than floor space, thereby reducing the warehousing cost.
4. Communication: Packaging plays a crucial role of
communication during its journey from point of origin to point of
consumption.
Packages and labels communicate how to use, transport, recycle,
or dispose of the package or product. With pharmaceutical, food
medical, and chemical products, some types of information are
required by governments.
Content identification what does this contain? Produc
manufacturer, universal code etc. with high visibility.
Tracking: bar codes and scanners.
Handling instructions: fragile, which side
up? T'emperatue
restrictions, environment concerns, potential
dangers etc.
8.4 TYPES OF PACKAGING MATERIAL

Various types of Packaging materials

follows: used for logistical packaging are
1. Corrugated Fibreboard (Cardboard):
Comugated Fibreboard boxes
(commonly known
used in retail packaging. They as cardboard) are wid
durable products such as are typically used for packing consumer
washing machines,
etc. Comugated boxes are lightweight refrigerators, television
handle while packaging, and thus they are very convenie to
loading and unloading.
in various shapes, sizes,
designs and colours These boxes are availia
product. Most importantly, as per the requirements fthe
Cormugated
nature which makes them boxes are completely recyclab
eco
-friendly.
Packaging
Plastics: 127
2.
This is the most common
packaging material
the most difficult to dispose of. and, at the same time, one or
packaging material is due to The commercial success of plastics
a combination of flexibility, as a
stability and ease of sterilisation. strength, lightness,
packaging material for all sorts These features make plastics
an ideal
of commercial and industrial
bags and plastic containers are uses. Plastics
widely used in logistical packaging.
plays a very crucial role especially Plastic
in food packaging
Plastic strapping is used to contain
or unitize
containers can be handled as a single large a load so that multiple smaller
container.
3. Steel:
Steel is a unique packaging material
having exceptional performance
capabilities and tremendous environmental
benefits. Strong, formable and
long lasting steel offers numerous benefits for the safe packaging
wide variety of products. Steel is basically used for packing
of a
such products
which require greater protection during transportation, warehousing and
material handling. This is because due to higher strength of steel, damage
during transit gets avoided. Steel is also used for making containers which is
widely used in inter-modal transportation. Steel is the most recycled
packing material. Only steel has a recycling rate of over 70% highest level
-

of al. Steel can be used and recycled infinitely.

4. Wood:
Wood is one of the most common packing material. Wood is basically used
for construction of boxes, crates, pallets and other load handlers. It is
basically used to protect goods and to stop them from shifting during transit.
Wooden boxes or pallets are often used for heavy duty packaging when
high strength is needed for heavy and difficult loads. Wooden pallets are
widely used for unifying the dry cargo load during transportation,
warehousing and material handling.
5. Glass:
for foods, especially liquids. It is
Glass is an an ideal packing material
recycle. Glass is 100% recyclable and can be
inalterable, strong and easy to Glass as a
in quality or purity.
Tecycled endlessly without loss
packaging material has gained huge importance in past few
phamaceutical packaging material for health, taste
years.Glass is the trusted and proven
and environment.

8.5PACKAGING COSTS
material handling during transportation,
Packaging facilitates easy overall efficiency and effectiveness
effic effectiveness
helps to improve
warehousing ng ànd storage. It verall operating
the overal operating
packaging helps to reduce
of cs operations. Effective
logisticsop manutacturer
acturer also need:
needs
Coe However, the
Cost of transp warehousing.
nsportation and Packaging includes:
to pla packaging. Cost of
ne cost of
 Logistics and S C M (TYBMS Sem-n
128
of Packing Material Cost of Storing empty packages
Cost
Cost of handling empty packages.
Obsolescence and deterioration cost
Package damage, etc.
However, the cost of packaging to a greater
extent depends upon the
type of products, physical dimensions of product,
etc.

8.6 TYPES OF PACKAGING

Packaging may be looked at as several different types.
1. Primary packaging: Pimary packaging is the material that first envelops the
product and holds it. This usually is the smallest unit of distribution or use
and is the package which is in direct contact with the contents.
2. Secondary packaging: Secondary packaging is outside the primary
packaging perhaps used to group primary packages together.
3. Transit packaging: Transit packaging is used for bulk handling,
warehouse storage and transport shipping. The normal form is a unit
load that packs tightly into containers.
ypes of
Packaging

Primary Secondary
packag in9 packaging Transit
packaging

8.7 CONCEPT OF UNITISATION

Unitisation basically means
large package for the grouping of several
purpose of transportation, small packages into a Sing
handling. warehousing and maten
Literally speaking,
in unitization the
cartons, bags and barrels products are grouped
used to group individual
for handling efficiency. together in
products are called But specifically,
cartons are grouped together master cartons. the containe
it
box. This is called the individualis called unitization. For When these ma ster
combined package package. But e.g. pears comes a
it is delivered
master cartons are
of 100 or more
soaps. to the dealer a
then grouped together This is called master cartons. se
one unit for shipment purposes. in a box, 1n
This is called by some rope form
unitization. etc. to T
Forms of
Unitisation
Palletisation
Containerisation
Packaging

Pallisation: A pallet is a flat transport 129

ept. The allets represent an attempt structure on which
be upon which several small articles to unify dry cargo loads.goods can
It is a flat
tray can be placed
handled as one article. Thus, all goods which can be then
entire
pallet ill be handled as one article.are placed on the pallet and the
This is known
as Palletisation.

Containerisation: Containerisation is a form of Unitisation. In

Cantainerisation, several small articles are placed into a single large
tainer for the purpose of transportation and material handling.
REVIEw QUESTIONS
Q.1Objective type questions
(A) Fill in the Blanks
1 involves reducing the space occupied by the
product/packaging thereby improving utilization of cubic space and
cutting the freight charges.
2 involves reducing weight of the consignment to fully utilize
capacity of the truck.
is 100% recyclable packing material.
is an ideal packing material for food items, especially liquids.
transport.
packaging is used for bulk handling during
product.
6.
packaging is the material that holds the
Glass 4. Glass
Ans. 1. Cube Minimization 2. Weight Minimization 3.
5. Transit
6. Primary.
(B)
Match the following
B

A. Plasticbottles
1. Corrugated Fiberboard Eco friendly
2. Plastic B & ease of sterilization
3. Glass C. Flexibility, light
recyclable
4.Wood D. 100%
5. Steel E. Pallets
Environmental benefits
6. Cube Minimisation F Increase space
utilization
7.WeightMinimisation G.F),.(6-G)(7-A)
Ans. (1-B)(2-0C)(3- D)(4- E)(5-
B)Ane
8) Answe questions.
the following
xplain the nctions of Packaging.
What are the objectives of
Packaging.
Write Costs. Material.
4. W a note on Packaging Packaging
a note on types of
130 Logistics and S CM (TYBMS Sem
-
UNIT -II1
Chapter Inventory Management

SYNOPSIS o
9.1 Meaning of Inventory
9.2 Objectives of Inventory Management
9.3 Functions of Inventory / Inventory Functionality
9.4 Importance of Inventory Management
9.5 Selective Inventory Control Techniques
9.6 Modern Inventory Control Techniques
9.7 Q and P Systems / Replenishment Systems
9.8 MRP
9.9 DRP
9.10 MRP V/s DRP
9.11 EOQ
9.12 Problems on EOQ and Total Inventory Cost
9.13 Reorder Level with Numericals
9.14 What do you mean by Safety stock? Explain factors
influencing the level of a safety stock
Review Questions

9.1 MEANING OF INVENTORY

Inventory is a stock of any item or resource used in an organisa

These items or resources can include raw materials, finished produc
component parts, supplies, etc.

9.2 OBJECTIVES OF INVENTORY MANAGEMENT

1. Avoid Stock-outs: The main objective of inventory management is
maintain inventory at appropriate level so as
avoid shortag
to omer
inventory. Inventory management helps us
to ensure that custo
have access to products as and when they
need them.
2. Avoid Excess Inventory: Another objective
of inventory manag
is to maintain inventory at optimum
level (i.e. neither high nor
as to avoid excess inventory. Nowadays, id
dopted
companies have d
InventoryManagement 131
moder systems like just-in-time to avoid having excess
inventory while
to meet demands. This is because
carrying excess inventory
s
results in increasing all inventory related costs like warehousing cost,
material handling cost, etc.

3.
Goods
Move Efficiently: Efficiency in inventory means
the ability to
iklu receive and store product as they come in and retrieve and ship
uwhen they go out. Every extra second spent in these processes adds to
the cost of inventory management. Plus, efficient distribution is a
customer satistaction I5Sue tor trade channel sellers and retailers.
Retailers expect suppliers to meet prescribed delivery timetables. Even
customers expect products to arrive on time.
4. Maximise Profit Margins: Well managed inventory is often the key in
meeting profit margin objectives. If the inventory level is appropriate, it
willresult in lower inventory management cost. Moreover, it will result
in smooth overall functioning of the organisation thereby resulting in
higher efficiency and profitability.
5. Other Objectives
To ensure that the supply of raw material and finished goods will
remain continuous so that production process is not halted and
demands of customers are duly met.
To minimise inventory carrying cost.
o
keep investment in inventory at optimum level.
To reduce the losses of theft, obsolescence and
wastage, etc.
To minimise inventory ordering costs.

Conclusion
organization would have to
is a necessary evil that every
ventory
"" Ior various purposes. Under
stock of inventory can affect
stock of inventory increases
acturing and production process. Over
the of the organisation. Over inventory
profitability
or under and reduces the
or
cause financial impact and affect health of the
inven
inventory both goal of every
iness. Thus, Optimum inventory management is the
businese
organisation.
FUNCTIONALITY
93FUNCT OF INVENTORY/
INVENTORY
IONS
the functions served by managing
entory unctionality refers to inventory.
entory.
Rntory Ideally organisations prefer to maintaina zero-level inventory.
customers requirements by
Practica"y,
practically,, to serve
aintaining it is not possible organisations have to maintain
tainin ", Thus,
certain zero-level inventory.
be understood that inventory is an
lev or inventory. Hence, it can
 Logistics and S C M (TYBMS Sem-l
132
it gives the maximiun
asset that should be deployed in such a way that um
refurn for the capital invested.

The four prime functions served by inventory are:

1. Geographical Specialisation
Inventory allows geographical specialisation for individual
operating units.
The need for geographical specialisation arises because various
factors of production like power, materials, water, labour, etc. are
located at a considerable distance from the major markets.
Hence, for economical gains, manufacturing operations are usually
located close to the sources of these factors of production.
Such geographical separations will require internal inventory
transfer to completely integrate components into a final product.
Thus, the manufactured goods from various locations are collected
at a single warehouse to assemble into final product.
For example, Procter & Gamble uses distribution centres to
combine products from its laundry, food and health care divisions
to offer the customer a single integrated shipment.
When geographical specialisation is utilised, inventory in the torm
of materials, semi-finished goods, components and finished goods
is introduced to the logistical system.
Economies gained through geographical specialisation will
invariably offset increased inventory and transportation cost.
2.
2. Decoupling
The economic lot size of manufacturing (or
transportation) may De
different from the market requirements. Decoupling
process permit eacn
product to be manufactured & distributed in
economic lot sizes that ae
greater than market demands. For example,
let us consider a ty
manufacturing unit. This unit, once the
production operations begin, will
continue to produce a certain type of tyre
till an economic lot size
produced. There may not be market
demand for the entire lot of producto
But the production of the lot was
carried out keeping in mind the futu
demand as well as the economies of
production. This is sent to n
large shipments with full load the market
transportation. This results in the economies o
capacity to achieve economies
need to hold excess
inventory.
3. Balancing Demand and Supply
There is a time gap between
products. the demand and supply for the
InventoryManagement
133
Some products are produced throughout
during a short market period. the year but are sold only

e.g. Woollen clothes.

Similarly, some products are
produced only during a short period
but are consumed throughout the year. e.g. Agricultural
product
In both cases, holding inventory is very
important.
4. Buffer uncertainties
Safety stock is also known as Buffer uncertainties
The purpose of safety stock is to facilitate continuity in operations.
Holding inventory as safety stock protect against two types of
uncertainties:
a. Demand in excess of forecast during the performance cycle. For
example: customer request for more or less units than planned.
b. Delays in the performance cycle length itself. for example: Delay in
order receipt, order processing or transportation.

MANAGEMENT
9.4 IMPORTANCE OF INVENTORY
1. Avoid Stock Outs:
inventory at
Inventory management is required so as to maintain
of inventory. Inventory
appropriate level so as to avoid shortage
have access to products as
management helps us to ensure that customers
and when they need them.
2. Avoid Excess Inventory:
Inventory management is also
required so as to maintain inventory at
low) so as to avoid excess inventory.
optimum level (i.e. neither too high nor
have adopted modern systems like just -in time to
-

Nowadays, companies This is because

inventory while trying to meet demands.
avoid excess like
results in increasing all inventory related costs
carying excess inventory cost, etc.
warehousing cost, material handling
, Move Goods Efficiently: store product
the ability to quickly receive and
iciency in inventory meansand ship when they go out. Every extra second
as they come in and retrieve management. Thus,
to the cost of inventory
pent in these processes adds efticiently.
required to move goods
Entory management
is
4. Maximise Profit Margins: meeting profit margin
objectives
often the key in
inventory
e managed inventory is appropriate, it wil result in lower
is
"the inventory level
134
Logistics and S CM (TYBMS em -
functionin
management cost. Moreover, it will result in smooth overall ingot
etticiency and profitability.
the organisation thereby resulting higher
in

5. To ensure continuity in Production Process:

of
Inventory management is required so as to ensure continuous supply Taw
material so that the production process is not halted and demand
customers are duly met.
6. To Minimise Inventory Carrying Cost:
Inventory is associated with a huge baggage of costs such as transportation
o
cost, warehousing cost, material handling cost, etc. An increase in level f
inventory will lead to an increase in all the associated costs and vice- versa
Thus, inventory management is required to minimise inventory camrying
cost.
7. To keep investment in inventory at optimum level:
Inventory Management is necessary to keep inventory at an optimum level
This is necessary to avoid excessive blockage of funds in inventory.

Conclusion
Inventory is a necessary evil that every organization would have to
maintain for various purposes. Under stock of inventory can affect
manufacturing and production process. Over stock of inventory increases the
costs and reduces the profitability of the organisation. Over inventory or under
nventory both cause financial impact and affect health of the business. Thus,
Optimum inventory management is the goal of every organisation.

9.5SELECTIVE INVENTORY CONTROL TECHNIQUES

Selective Control means variation in method of control from iterm
item based on selection basis. The criterion used for this purpose may De
cost of item, criticality, lead time consumption, procurement difficulties o
something else.
Classification Criterion employed
1. ABC analysis.
Usage value (i.e. consumption per
period x price per unit).
2. HML analysis (High-Medium-Low). Unit price (i.e. it doesn't take
consumption into account).
3. VED analysis (Vital-Essential- Critically of the
Desirable) item (i.e. loss
production).
4. SDE analysis (Scarce-Difficult-Easy).
Procurement difficulties.
5. GOLF analysis (Government-Ordinary-
Source of procurement.
local-Foreign).
6. SOS analysis (Seasonal-Off-Seasonal). Seasonality.
7. FSN analysis (Fast-Slow-Non Moving).
Issue from stores.
8. XYZ analysis.
Inventoryinvestment.
Inventory
Management
135
ABC Analysis
1.
ABC
Analysis:
The inventory control technique known
as ABC analysis is based on
vital few vere
Pareto's law. i.e. vital few versus trivial many. In ABC analysis, company
reviews
ntory and sorts all items into three categories,
inventory
its called 'A' items, 'B items
items,
and 'C'
Statistics reveals that just a few number of items
account for bulk of annual
sonditure
expen on materials. These few items are called 'A' items. On the contrary,
no are
some numerous in numbers but their contribution is less significant.
A-items:
usually found that hardly 5 to 10% of the total items account for 70 to
It is
75% of total money spent on the materials. Such items are called 'A' items.
These items require very tight control. These items should be procured
frequently.
B-items:
These items are generally 10 to 15% of the total items and represent 10 to
15% of the total expenditure on the materials. These are intermediate items.
The control on these items need not be as tight and as rigid as A items.
C-items:
These are numerous as many as 70 to 80% of the total items and
inexpensive as it represents hardly 5 to 10% on total annual expenditure on
materials. These items should be procured infrequently and in sufficient
quantities.

100 C

90-
B
70

60

50

40

30

20

10

60 70 80 90 100
10 30 40 50
10 20
Number of items (in 6)
 136 10%% of items accounted for
70o
reveals that
a. The above diagram
classified as A items.
cost. Such items are
for 20% of costs. Such items are classified.
ssified as B
b. 20% of items accounted
items costs. Such items are classi
for only 10% of ified
C 70% of items accounted
as C items.
Distribution of ABC Class:
ABC Number of items Total cost
incurred
Class
10% 70%
20% 20%
70% 10%
Total 100% 100%
CONTROL ITEM
High
Moderate B
Low C
2. X-Y-Zz Analysis

X-Y-Z analysis approach is similar to A-B-C analysis.

In X-Y-Z analysis, classification of inventory is based on value of
the stocks on hand (i.e. inventory investment)
Items whose inventory values are high are called X items while

those whose inventory values are low are called Z items. Y items
are those who have moderate inventory value.
CONTROL | ITEM
High
Moderate Y
Low Z
3. HML Analysis
In HML analysis, classification
of inventory is based on unit price
of items.
The items under this
analysis are classified into three group
H: High-value items
M: Medium-value
items
L: Low-value items
 gene
Inventory Mandge
Ta
To classify the items into High-Medium-Low, 137
the items are listed in
he descending order ot unit price. The
management may then tix
the Cut-off lines of unit prices for deciding
the three categories.
The management may decide to
categorise:
Items with unit price > Rs 10000 may
be classified as H items.
Items with unit price between Rs 5000 to Rs
10000 may be
classified as M items.
Items with unit price < Rs 5000 may be classified as L items.
CONTROL | ITEM
High H
Moderate M

Low L

4. VED Analysis
In VED Analysis, classification of items is based on criticality of the
item.
The analysis classifies the items into three groups:

V:Vital items
E: Essential items
D: Desirable items
which production would come
Vital items are those items without
items are not available on time, production
to a halt. If these is to
halt. General policy of the companies
WOuld come to a
of vital items so as to avoid delays in
maintain good inventory
production. high.
whose stock out cost is very
ESsential items are those items causes
whose stock out or shortage
Desirable items are those items duration in the
production
for a short
only a minor disruption nominal.
incurred is very
The cost
edule.
CONTROL ITEM
V
High
E
Moderate
D
Low
 S
Logistics and S C M (TYBMS Sem-
138
5. FSN Analysis
FSN analysis, classification of items is based on
In the
consumption of the items.
3 groups:
The items under this analysis are classified into
F: Fast moving items
S: Slow moving items
N: Non-moving items
Fast moving items are those items whose consumption is very
high.
Slow moving items are those items whose consumption is ven
low.
Non-moving items are those items which are not consumed since
past two years.
F-S-N analysis helps to avoid investments in non-moving or slow
items. It also helps to identify active items which need to be
reviewed regularly.

CONTROOL ITEM
High F
Moderate S
Low N
6. G-NG-L-F Analys is/ GOLF
Analysis
In the G-NG-L-F (GOLF)
analysis, classification of baseu
on nature of suppliers. items is
The items under this
analysis are classified
G: Government into four groups
NG: Non Government
L: Local Suppliers
F: Foreign Suppliers
G group covers all
and public sector items procured pliers
from Government
suppliers involve
undertakings.
Transactions with upo
long lead time. this categ
NG' group covers all
ordinary suppliers. items procured
Transactions from Non-Governmnent
involve moderate
delivery time. with this category of suPpple
 Managen
nventory
139
L' group contains items bought from Local
suppliers
F group contains those items
which are purchased from Foreign
Suppliers.
cONTROL ITEM
High G
Low NG
High F
Low L

7. SDE Analysis
.In SDE analysis, classification is based on the availability of items.
The items under this analysis are classified into three groups:
S: Scarce
D: Difficult
E: Easy
Scarce classification comprises of those items which are not
easily available. It normally includes imported products or
products channelized through government agencies.
Difficult classification includes those items which are available
items which
indigenously but are not easy to procure. Moreover,
reliable source do not
come from far off distance and for which
exist fall into this category.
which are readily available.
Easy classification covers those items,
local market fall into this group.
Items which are readily available in
CONTROL ITEM
High D
Moderate
E
Low
8.
S-0S Analysis
seasonality or otherwise of the items.
-OS analysis is based on seasonal)
item into two groups:S (1.e.
analysis classifies the identifies items which are:
he
and Os (off-seasonal).
The analysis
for a limited period. For example,
available only a limited
Seasonal and are like raw
mangoes, is available for
year.
agricultural products are procured to last the full
items
ume and therefore such
 Logistics and S Se
C M (TYBMSSem-V
140 year. Their
Seasonal but are available throughout the o price
(b)
harvest time. The quantity such
however, are lower during the lower
items is fixed after
comparing the cost saving due to r prices
inventories.
against higher cost of carying
Non-seasonal items quantity is
decided on different
(c)
considerations.
CONTROL ITEM
High Seasonal and
Limited
Moderate Seasonal but
available
throughout the
year.
Low Off-Seasonal
9.6 MODERN INVENTORY CONTROL TECHNIQUES
1. Just in Time (JIT)
a. The just in time inventory management is a Japanese philosophy which
has been applied and practiced since early 1970's in many Japanese
organisation.
b. The concept of JIT has been developed by
Taiichi Ohno of Toyoa
Motors Corporation in 1950.
C. Just in time is an inventory management
philosophy aimed at reducis
waste and redundant inventory by
delivering product just when aan
organisation needs them.
d. "Just in Time" means making
"Only what is needed, when it is neee eded
and in what amount needed".
e. This concept states that
an activity should be
there is need for it. Hence, undertaken only wvhen
inventory should be brought into >ystem
only when it is required.
f. Traditionally, organisations
used to keep large amount
protect against uncertainties. ot inve tory
But this leads to entor
related costs. increase in all inven
However, JIT sees
inventory as waste the
materials available and focuses on g
quantity.
at the right time,
at the right place, maithe rig
in u
 Managennent
fnventory
trengthens the organisations 141
JIT strengthens competitiveness by reducing
h improving
and overall efficiency. wastes
Zero
Inventory

Zero JIT Zero

Failures Just in Time Lead Time

Reduced
Costs
Benefits of JIT:
a. Transportation cost gets reduced.
b. Warehousing cost gets reduced.
C. Material handling cost gets reduced.
d. Inventory level gets reduced.
e. Processing time gets reduced.
Examples of Companies following JIT:
a. Dell:
Dell has followed JIT principles to make its manufacturing process a
Success.
b. Toyota:
for JIT success.
Oyota considered by many to be the poster child
is
he Toyota production strategy is highlighted by the
fact that raw
until an order is
aterials are not brought to the production tloor
received.

dust In Time 2 (JIT - 2)

Bose
JIT 2
a customer- supplier partnership concept pioneered at the
Corpors
poration many companies and their suppliers.
and now practiced by
In this me of the supplier works in-house with the
Custom ethod, the employee takes all the
responsibilities
ibilities of
The employee of the supplier
inventory ne em firm, he
works full time in the customer's
Though he
isbeinaanagement.
being
paid supplier. This employee keeps an eye
on the stock and
orders by the supt
products as and when necessary.
 and S C M (TYBMSSem
Logistics Sem
-
142 from all the paper
wor
firm's staff is free and
Thus, the customer materials as it is done bu
administrative tasks relating to
purchase of the
Supplier relationshi
2 is a customer
-
ship
supplier's staff. Thus, basically JT customer's operations.
where suppliers have been given authority in

Benefits
1. Inventory level of firm gets reduced.
2. Inventory level of suppliers also gets reduced.

33. Improved relationship with the supplier.

the customer and supplier.
4 JIT II reduces administrative costs for both
Replenish Strategy/CR
3. Vendor Managed Inventory/ Continuous
It is also called as Continuous Replenishment
strategy/ Vendor
Managed inventory.
Traditionally the customer has to place order before the supplier
for the
places order but
goods. But in this revised model, the customer no longer
instead shares information with the vendors
current
This information relates to the actual usage of their products,
stock on hand & anticipated demand.
for
On the basis of this information, the supplier takes responsibility
replenishment of customer's inventory.
on
No orders are received but an indication is given by the customer
maximum & minimum limits of stocks that they wish to keep in stock.
It is the responsibility of the supplier to maintain customer's inventory
within the stipulated stock levels.

Purchase Order On demand Info

sUPPLIER cUSTOMER sUPPLIER cUSTOMER

Product Dellvery Product Dellvery

Normel Replenishment Vendor Managed
Syetem Inventory
 Management
inpentory
143

Sales Stock

Delivery Goods

VENDOR D010
010 dataanalysis Delivery
Notice

4. Quick Responsse
When a retailer places an order for replenishment, the supplier with the
help of EDI [Electronic data interchange] finalizes the delivery details and
communicates them to the customer in advance.
This facilitates scheduling labour and other facilities.
This reduces inventories as uncertainties are reduced and total
cost
resulting into better performance.

With a fast and dependable response inventory can be ordered

as
equired resulting in increased turnover and improved
availability.
efforts from suppliers
Quick response is a technology driven cooperative
and retailers to increase the inventory velocity.
. Automatic or Profile Replenishment or AR
R enables the supplier to anticipate
the customer's requirement in
advance to make replenishment.

The respons inventory management is placed directly on the

supplier
nsibility for

between customer and supplier that

There should be information flow
makes ld
ventoryi availability visible.
management from the customer
While
e this takes away the inventory visibility
and the benefit of inventory
gives it supplier gets
the supplier, total costs.
ore effective management to reduce
144
Logistics and S CM (TYBMSSem -
-V)
9.7 Q AND P SYSTEM /REPLENISHMENT SYSTEMS
An important aspect of iventory management is to decide when to plac
lace
an order and how much quantity to order. Depending upon the type o
inventory two different methods are used. These are,
Fixed Order Quantity System (Q system or Perpetual review system)
Fixed Order Interval System (P system or Periodic review system)
Fixed order quantity system or Q Fixed order Interval system orP
system system
In Q system, the order quantity is In P system, the review period is
fixed. fixed.
2 The review period is variable. The order quantity is variable.
3 It is also known as fixed order It is also known as fixed order period
quantity system or perpetual review system or periodic review system.
system.
4. It is best suitable when continuous It is best suitable when periodic
monitoring is possible. review is necessary.
5. It is well suited for bought out itemns, It is suited to non-critical items and
i.e. A category items. easily available items, i.e. B and C
category.
6. Less chance of stock out. High chance of stock out.
7. No safety stock required. High safety stock required.
8. The suppliers will not know exactly The suppliers will know when the
when the orders will be placed. orders would be placed.
Therefore, the supplier is forced to Accordingly, the production
hold more inventory. planning is made. The inventory is
expected to be low.
9. There is a continuous surveillance of Normally, the stock level is checked
the stock level. The moment the stock at regular interval and the order is
in hand touches ROL, order equal to placed fora quantity to replenish to
EOQ, is placed. the maximum pre-determined level.

9.8 MRP
MRP (Material Requirement Planning)
Introduction
1. The concept of MRP was introduced
by Dr. Joseph Orlicky in the y ar
1960
2. Material requirement planning (MRP)
is a production planni
scheduling and inventory control system
used to manage manufactuiring
processes.
 Managenment
ntory 145
computer based inventory management system
is a
Itroduction designed to assist
3.
3.
prod duction anagers
mar in scheduling and placing orders for raw
components, sub-assemblies, etc.
materials,
the MRP system calculates requirement for each inventory item,
. the
Thus,
4 plans their timing and undertakes proper fulfilment.

MRP is a tool that provides answers to the following questions:

5 What items are required?
How many are required?
i.
ii. When they are required?

Objectives
1 To ensure that materials are available for production and products are
available for delivery to customers.

2 Tomaintain the lowest possible inventory level

manufacturing activities, delivery
3. To plan purchasing activities,
schedules etc.

MRP Inputs
input into MRP system comes from three main
The information
resources
raw
The bill of materials is a list of all the
Bills of Materials: one
sub-assemblies, etc required to produce
materials, components,
unit of a product.
The master production schedule
Master production schedule:
production activities of the plant.
uunes the anticipated file provides
The inventory records
Inventory Records File: on hand and thus should
inventory is already
Omation on how much requirements.
be subtracted from the materials
MRP
Process bills of aterials, master
mater
from the
Using the information obtained
MRP system determines net
file, an sub-assemblies, etc.
ule and inventoryry records
equirements for raw
components,
materials,
aw materia requirements, then
gross materials
MRP proca first determines to compute the net
btracPOCessing order
subtracts
inventory on hand in
Tequirements. the
proper reports consisting of
The from MRP include
aln outputs
main
anned order
order releases,
schedules,
 Logtstics and S CM (TYBMS S
em
146 Planning)
MRP II (Manufacturing Resource
create a new ann
1980, MRP technology was expanded to approach
1. In the
manufacturing resources planning or MRP I.
called
I is updated and expanded
to include financial, marketine an
2. MRP
MRP is known as MRP
elements. This updated version of
logistics
Inventory Control Soci
33. According to the American Production and ciety

Inc. (APICS), MRP 1l is method tor the etfective planningoff all

a
resources of a manufacturing company. This
includes entire set of
activities involved in planning and control of production.
4. MRP II is also known as 'CLOSED LOOP MRP".
5. It consist of a variety of functions such as:
Production Planning.
Resource Requirements planning.
Master Production Schedule.
Materials Requirement Planning (MRP 1).
Advantages of MRP (MRP I AND MRP I):
MRP leads to improvement in overall business performance. It
provide
greater returns on investment, greater
profitability, etc.
It helps to minimize inventory levels
thereby reducing invenoy
carrying costs.
MRP leads to improved
customer service level by providing quick an
consistent response in terms
of delivery time.
MRP leads to reduction
in production costs better
manufacturing results. and provides
Disadvantages of MRP (MRP
I and MRP I):
MRP relies upon accurate
result in improper information. Inaccurate can
planning. overstock, informa n
appropriate resources. under stock or ack of
MRP systems
can be costly and
time-consuming
Stocks out costs
are high. to set up
The master schedule
lengths of time must be accurate Driate
for production. in order to provide app
 Management
Mang
nventory
147
DRP
9.9
(Distribution Requirement Planning)
DRP
DRP is one of the latest
IT tools for controlling
entory in distribution
sUstem of the
organisation.

DRP is guided by customer demand as against MRP which is based on

b.
production requirement.

DRP allocates inventory from mother warehouse to various distribution

rentres on the basis of demand patterns, safety stock, order quantity,
reorder point, etc.

The success of DRP system depends on accuracy of forecast with

respect to location and time requirement.
MRP
e.
It similar to materials requirements planning (MRP) except that
is
is used in manufacturing companies and DRP is used in logistics
companies.
process of completing
. DRP tries to efficiently carry out the whole
reducing the overall cost.
customer orders by minimizing shortages and

DRP I1:
is an extension of DRP
I.
a. DRP II (Distribution Resource Planning)
warehouse space, manpower
planning of key resource -

t includes (e.g.: trucks, rail cars) and financial

flows.
evels, transport capacity
Marketing Benefits: reduce
delivery to customers and helps to
DRP enables on - time
Customer complaints. functions of
b.
co-ordination with other
DRP
facilitates better inventory
enterprise.
products.
It helps in introduction of new
t
Logistics helps
Benefits required and when, it
a. Sind what products are
Since DRP can n anticipate
an
O
reduce level of inventory. to coordinated
costs due
b. DRP distribution
helps to reduce
Consolidated) shipments
C. DRP helps to reduce warehousing costs due to lower inventory level

d. DRP leads to reduction in back orders.

Constraints
a. Needs accurate forecast
b. ccuracy in forecast quantity
C. Inaccuracy in forecast location
d. Inaccuracy in forecast time
e. Variable forecast cycles
f. Buffer for uncertainty

9.10 MRP VSDRP

MRP DRP
1. Guiding MRP is guided by Master DRP is guided by customer
Factor production schedules demand
2. Control of MRP is under the control of DRP is not under the control of
the firm the firm the firm since it depends upon
customer demand
3. Demand MRP operates in dependant DRP operates in independent
Situation demand situation. demand situation.
4. Area of MRP involves movement DRP involves movement from
Operation from raw materials to finished goods to customer.
finished goods.
5. Scope MRP is concerned with DRP is concerned with Outbound
Inbound
Logistics. Logistics.
6. Stages of MRP controls inventory DRP controls and co-ordinates
functioning before manufacturing and inventory after manufacturing
assembly is complete. and assembly of finished goods.
9.11 EOQ WITH NUMERICALS
Economic Order Quantity (EOQ) is an equation for inventory tha
determines the ideal order quantity company should purchase for 1
inventory given a set cost of production, demand rate and other variables.
Economic order quantity (EOQ) is that size of the order which gives
maximum economy in purchasing any material and ultimately contributes
towards maintaining the materials at the optimum level and
at the minimum
cost
 149
Inventory Management
words, the economic order quantity (EOQ) is the
In other
amount
minimizing annual
of inventory to be ordered at one time for purposes of
inventory cost.
Total Cost

Inventory Carying
Cost
E.O.Q.

Cost

Cost of Ordering

Number Of Orders Placed Per Year

Assumptions underlying the EOQ model

known rate.
1. The demand of the item occurs uniformly over the period at the
between the
2 The replenishment of the stock is instant. The time that elapses
is zero.
placing of order and receiving the item into stock called lead time
size.
The price per unit is fixed and is independent of the order
delivery is fixed and does not
4. The cost of placing an order and process the
vary with the size.
directly and linearly with the size of the
5. The inventory carying charges vary
inventory investment.
inventory. It is expressed as a percentage of average
desired. There being no restriction
6. The item can be produced in quantities
of any kind.
life, there being no fear of deterioration or
7. The item has fairly long shelf
spoilage.
Limitations of EOQ:
may not be uniform throughout the year. it
1. The demand for an item
to seasons.
may fluctuate from seasons
can never be zero. There is always a time gap between
2 Lead time
of order.
placement of order and delivery
3. Price of material may not
remain same throughout the year. Moreover.
on bulk purchases, then it will lead to
if the suppliers offer discount
product.
changes in price of the
and processing the delivery may vary
4. The cost of placing an order
depending upon size of order.
be produced in quantities desired.
5. The item may not necessarily
may not necessarily have a long shelf life.
6. The item
 Logistics and S C M (TYBMS
MSSem-
Sem.
150
The formulae of EOQ
EOQ=y2ACo/Ci
A annual demand
C = cost per unit
Co = cost of order placing
= inventory carrying cost

NUMERICALS ON EOQ
1. The annual demand for an item is 3200 units. The unit cost is Rs 6 annd
inventory carrying rate is 25% per annum. If the cost of On
procurement is 150. Find EOQ. itr
Solution:
A 3200
C 6

Co= 150
= 0.25
EOQ 2ACo/Ci
2x3200x150/6x0.25
V640000
800units
2. The information gathered from EDPL shows that the
annual demand o
the item, Starter Switch is 5000 nos. The
unit price of the item is Rs.
each. The inventory carrying cost and
ordering cost is 20% and Hs.
per o der respectively. Find EOQ.
Solution
EOQ = V2ACo/Ci
Where,
A = Annual consumption
in units
Co Ordering cost per order
=

C Cost per unit

I= Inventory Carrying cost (in
decimal)
A = 5000, Co = 40,
C = 50, I= 0.2
EO =\/25000x40
50x0.2
EOQ 400000
10
EOQ = 200 units
Economic lot size corresponding
200
units. with optimal inventory cOs is
y cost
 151
Inventory Management

3 Following information refers to pedestal fans.

Annual Demand: 36,000 units
Unit Price of a pedestal fan: Rs.4,000/
Ordering cost is Rs. 500/- per order
Inventory carrying Cost: 25%
Calculate EOQ.

Solutions:
Economic Order Quantity, EOQ = y2ACo/Ci
Where,
A Annual Consumption in units
Co Ordering cost per order
C Cost per unit
I = Inventory Carrying Cost (in decimal)
A 36000, Co = 500, C = 4000, I = 0.25

2x36000x500
EOQ
4000x0.25
36000000
1000
36000
= 190 units
The Annual demand of an item is 4200 units. The unit cost is Rs.8/-.
The inventory carrying rate is 30%. The cost of procurement is
Rs.200/-. Calculate EOQ.
(M.U. Oct 2017)

Solution
A= 42000
C Rs. 8/- p.u.
Co Rs.200/-
I= 30%
EOQ-2ACo/Ci
x 4200 x 200
8x0.30
EOQ = 837 units.
152
Logistics and S CM(TYBMS Sem
1
-V
5. The annual demand of an item is 5400 units. The unit cost is Re 10
procureme
The inventory carrying rate is 20%. The cost of hernt is
Rs.150/- Calculate EOQ. (M.U. May 2017

Solution
A 5400
C = Rs. 10/- p.u.
Co = Rs.150/-
20%
EOQ =2ACo/Ci
2 x5400x50
10x 0.20
EOQ 900 units.

9.12 PORBLEMS ON EOQ AND TOTAL INVENTORY COST|

Formulass

1. EOQ=N2ACo
C
A = Annual Demand
O Ordering Cost
= Inventory Carrying Cost
C = Cost Per Unit

2 No. of orders =
Annual Demand
Order Size
3. Ordering Cost No. of orders x Cost per
order
4. Average Inventory
2
5. Carrying cost= Average Inventory
x Inventory Carrying
6. cost x Cost per t
Cost of Purchasing Material =
Annual Demand x
7. Total Inventory Cost (TIC): Cost Per Unit
Carrying Cost + st o
Ordering Cost +
Purchasing Materials.
1. ABC Manufacturing
Company requires
annum. ts cost to purchase 20,000 Units of materia per
of
material. is Rs. 45 per
The annual inventory order and Rs. 3 perade
inventory. Find the holding cost is 15% of the
economic order
cost. Should the company quantity
accept the offer and the total
to
purchase price, provided
each order is of of 2% discount inth
5,000 units more
or
Inventory Managerment 153

Solution
A 20,000 Units
O= Rs 45 Per order
C- Rs 3 Per Unit
I= 15% =0.15
I. Calculate Of EOQ

EOQ
2ACo
N
CI

= 2x 20,000 x 45
3 x 0.15
18,00,000
0.45
EOQ = 2000 Units
II. Calculation of Total Inventory Cost
Annual Demand 20,0000
a. No. of Orders Order Size 2,000 = 10

b. Ordering Cost = No. of orders X Cost per order

= 10 X Rs 45

Ordering Cost= Rs. 450

C. Average Inventory== = 1000 Units

d. Carying Cost =Average InventoryX Inventory Carying Cost X Cost Per Unit
= 1000X 0.15 x 3
Carrying Cost Rs. 450
e. Cost of Purchasing Material
= Annual Demand X Cost per Unit
= 20,000x3
Cost of Purchasing Material
= Rs. 60,000
+Carrying cost+ cost of Purchasing Material
Total Inventory Cost=Cost of Ordering
= Rs. 450+ Rs 450+ Rs 60,000

TIC = Rs 60,900
 BMS Sem
Logistics and S C M (TYBMS Sem-
154

Incase of 2% Discount
A 20,000 Units
O Rs 45 Per order

C Rs 3- 2%= Rs 2.94
I= 15% = 0.15
Q (EOQ)= 5000 Units

Calculation of Total Inventory Cost

Annual Demand20,000
a. No. of Order =
=
Order Size 5,000=4
b. Ordering Cost No. of orders x Cost Per order

= 4x Rs. 45

Ordering Cost = Rs 180

C.
C. Average Inventory =
= 5,00
2500 Units

d. Carrying cost =Average Inventory x Inventory Carrying Cost x Cost Per Unit

2500 x 0.15 x 2.94

Carrying Cost= Rs. 1102.50
e. Cost of Purchasing Material Annual Demand x Cost Per Unit

= 20,000 x2.94
Cost of Purchasing Material= Rs. 58,800
Total Inventory Cost = Cost of Ordering + Camying
Cost + Cost of Purchasing Materia
= Rs. 180+ Rs.1102.50+
Rs 58,800
Total Inventory Cost Rs 60,082.5
Since the Total Inventory Cost
when order quantity is
i.e. Rs. 60,082.5 as compared to Total 5000 units is less
Inventory Cost when order quanu
(EOQ) is 2000 units i.e. Rs. 60,900,
the company should accept offer
as
it leads to savings of Rs. 817.5
(Rs. 60,900 Rs. the
2 ABC 60,082.5).
Itd. Purchase computer
annual consumption of chip chips at the rate of Rs. 75 each. The
is 54,000
Rs.250 per order and units. If the ordering
EOQ and Total Cost? If
carrying cost is
25% p.a. what would De che
the supplier offer
ordering 9,000 units per a discount of
order, do you accept
the discount offe
10
Inventory Management 155

Solution:
A- 54,000 Units
O Rs 250 Per order
C- Rs 75 Per Unit
I= 25%= 0.25
I. Calculate Of EO0Q

2ACo
EOQ
CI

F 2x 54,000 x 250
75 x0.25

2,70,00,000
18.75
EOQ 1200 Units
II. Calculation of Total Inventory Cost
Annual Demand 25,000
a. No. of Orders Order size 1,200 45
b. Ordering Cost No. of orders x Cost per order
45 x Rs. 250
Ordering Cost = Rs. 11,250

=600 Units
C. Average Inventory =
2 2
Carying Cost Average Inventory x Inventory Carrying CostxCost Per Unit

= 600x 0.25X 75
Carrying Cost= Rs. 11,250
Material = Annual Demand x Cost per Unit
Cost of Purchasing
= 54,000 x 75
= Rs. 40,50,000
Cost of Purchasing Material
cost + cost of Purchasing Material
Total Inventory Cost = Cost of Ordering + Carying
= Rs. 11,250+ Rs 11,250+ Rs 40,50,000

otal Inventory Cost= Rs 40,72,500

 Logistics and S CM (TYBMS S
MS Sem-
156

Incase of 10% Discount

A= 54,000 Units
O= Rs 250Per order
C Rs 75- 10%= Rs 67.5

I= 25%= 0.25
Q (EOQ)=9000 Units
Calculation of Total Inventory Cost
Annual Demand 54,000
a. NO. of Order 9,000 6
Order size

b. Ordering Cost No. of orders x Cost Per order

= 6x Rs. 250
Ordering Cost = Rs 1500

C. Average Inventory =9.000 = 4500 Units

d. Carying cost = Average Inventoryx Inventory Camying Cost X Cost Per Unit

= 4500 X 0.25 X 67.5

Carrying Cost= Rs. 75,937.5

e. Cost of Purchasing Material = Annual Demand x Cost Per Unt

54,000x 67.5 =

Cost of Purchasing Material= Rs.

36,45,000
Total Inventory Cost = Cost of Ordering +Carrying
Cost + Cost of Purchasing Matenia
= Rs.
1500+ Rs 75,937.5+ Rs.
Total Inventory Cost = Rs 37,22,437.5
36,45,000
Since the Total Inventory Cost
when order quantity is less
i.e. Rs. 37,22,437.5 as 9000 unitss is
compared to Total
quantity (EOQ) is 1200 units when order
Inventory Cost when
i.e. Rs. 40,72,500,
the discount offer as it leads to the company shou accep
savings of Rs.
Rs. 37,22,437.5). 3,50,062.5 (Rs. 40,/4,500
3. The annual demand for
10/-. Carrying cost on a
particular item Rs
order is Rs. 150/-.
an average is
is 9000 units. Unit
20% and the ordering
cose
Find 1. EOQ
2. Total Inventory
Cost.
 157
InventoryManagement
order
3. It purchase manager has decided to place purchase
with minimum order quantity of 3000 units to get discount
15
of 10% per unit. State whether Purchase Manager
justified in his decision? (Nov- 2019)

Solution:
=
A 9000 Units
Co Rs 150 Per order

C Rs 10 Per Unit
=
I = 20% 0.20
I. Calculate Of EOQ
2ACo
EOQ CI

2x 9000x 150
10X0.20
27,00,000
2

EOQ = 1162 Units

II. Calculation of Total Inventory Cost

Annual Demand 9,000 = 8
a. No. of Orders =
Order Size 1,1628
b. Ordering Cost No. of orders x Cost per order
=8x Rs. 150

Ordering Cost = Rs. 1200

= = 581 Units
C. Average Inventory =

x Inventory Carrying Cost xCost Per Unit

d. Carying Cost= Average Inventory
581X0.20 x 10

Carrying Cost= Rs. 1162

Annual Demand X Cost per Unit
Cost of Purchasing Material
= 9000 x 10
Material = Rs. 90,000
Cost of Purchasing of Ordering + Carying cost + cost of Purchasing Material
Total Inventory Cost = Cost
= Rs. 1200+ Rs
1162+ Rs. 90,000
=
otal Inventory Cost Rs 92,362
 Logistics and S C M (YBMS Sem
158 -V
In case of 10% Discount
A- 9000 Units
Co= Rs 150Per order
C Rs 10- 10%= Rs 9 per unit
= 20%= 0.20
Q (EOQ)=3000 Units
Calculation of Total Inventory Cost
Annual Demand 9,000
a. NO. of Order =Order Size 3,0003
b. Ordering Cost = No. of orders x Cost Per order
= 3x Rs. 150
Ordering Cost = Rs 450
c.
C. Average Inventory =
2 3,000 = 1500 Units
d. Caying cost =Average Inventory x Inventory Carrying Cost x Cost Per Unit

1500 X 0.20X 9
Carrying Cost= Rs. 2700

e Cost of Purchasing Material = Annual DemandX Cost Per Unit

= 9000XK9
Cost of Purchasing Material Rs. 81,000
=
Total Inventory Cost Cost of Ordering + Carying Cost + Cost
of Purchasing Materials
Rs. 450+ Rs 2700+ Rs. 81,000
Total Inventory Cost= Rs. 84,150
Since the Total Inventory Cost
when order quantity is 3000 units is
i.e. Rs. 84,150 as compared to Total
Inventory Cost when order quantuy
(EOQ) is 1162 units i.e. Rs. 92,362,
the purchase manager's decision
justified as it leads to savings of Rs.
8212 (Rs. 92,362 Rs. 84,150).
-

4. The annual demand for aa particular

Rs. 4/-. Carrying cost on item is 15000 units. Unit co
an average
ordering cost per order is Rs. inventory is 30% and
50/-.
Find 1. EOQ
2. Total Inventory Cost.
3. If purchase manager
has
minimum order quantity decided to place purchase orde with 10%
per unit. State whether of 3000 units to get discount
decision? Purchase Manager his
hi
is justified
(Apr- 2019)
Inventory Management
1 9

Solution
A 15000 Units
Co Rs 50 Per order
C- Rs 4 Per Unit
= 30% = 0.30
Calculate Of EOQ
EOQ
2ACo
N CI

2x 15,000 x50
4x0.30
15,00,000
V 1.2
EOQ = 1118 Units

II. Calculation of Total Inventory Cost

Annual Demand 15,000
a. No. of Orders Order Size 1,118 14

b. Ordering Cost= No. of orders Cost per order

= 14X Rs. 50
Ordering Cost= Rs. 700
.1 559 Units
C. Average Inventory-2 =2=
x Inventory Carrying Cost x Cost Per Unit
d. Carying Cost=Average Inventory
= 559x 0.30 x 4

Carrying Cost= Rs. 671

= Annual Demand X Cost per Unit
Cost of Purchasing Material
= 15000 x4
Material= Rs. 60,000
Cost of Purchasing
+ Camrying cost + cost of Purchasing Material
Total Inventory Cost = Cost of Ordering
Rs. 60,00o
= Rs. 700+ Rs 671+

Total Inventory Cost= Rs 61,371

n case of 10% Discount
A 15000 Units
Co- Rs 50Per order
per unit
C= Rs 4- 10%= Rs 3.60
I= 20%= 0.30
Q (EOQ)= 3000 Units
 Logistics and S C M (TYBMS Se
160
Calculation of Total Inventory Cost
Annual Demand_15,000 =
3,000 5
a. NO. of Order Order Size
Ordering Cost = No. of orders X Cost Per order
b.
= 5x Rs. 50
Ordering Cost = Rs 250

C. Average Inventory
= 3,000
2
1500 Units

e. Carying cost Average Inventory XInventory Carrying Cost xCost Per Unit
it

1500 X 0.30X 3.60

=

Carrying Cost= Rs. 1620

e. Cost of Purchasing Material = Annual Demand X Cost Per Unit
= 15000>x 3.60
Cost of Purchasing Material = Rs. 54000
Total Inventory Cost Cost of Ordering +Carrying Cost+ Cost of Purchasing Materials
= Rs. 250+ Rs 1620+ Rs. 54,000

Total Inventory Cost = Rs. 55,870

Since the Total Inventory Cost when order quantity is 3000 units is less
i.e. Rs. 55,870 as compared to Total Inventory Cost when order quantity
(EOQ) is 1118 units i.e. Rs. 61,371, the purchase manager's
decision is
justified as it leads to savings of Rs. 5501 (Rs. 61,371 Rs.
55,870).
9.13 REORDER LEVEL WITH NUMERICALS
The reorder level is the point at
which stock of a particular item na
diminished to a point where it
needs to be replenished.
Re order level is a stage or
time of placing a new
stock in hand is insufficient to order when the tota
meet not only the normal consumption
over normal lead time (Lead
Time
uncertainties arising out of fluctuations consumption) but also to meet
In short, as soon as in lead time and /or demand.
the stock in hand becomes equal to lead ime
consumption plus desired safety
stock, it is a time to
place fresh order to avoid any for the company
stock outs.
Reorder Point= Lead lime
x Demand per
Day + Safety Level or oStock
NUMERICALS
ON REORDER
LEVEL
1. Daily consumption of
a raw material
units. Leads time for delivery in the production process 100
safety stock equal to is 5 days. Company's
three day's policy is to keep
consumption. Calculate level.
re-order
Inventory Management 161

Solution:
Lead time consumption
= Consumption
rate x lead time
= 100 x 5
= 500
Safety stock = 3 days consumption
= 3 x 100
=300
ROL 500 +300=800
Order for replenishment of material should be placed when the stock
level reaches 800 units.
2. Daily consumption of material *' is 1,000 units. The suppliers 1

days for delivering the materials after the order is placed. What should
be the reorder level?
Solution:
Since there is no mention of safety stock,
Safety stock = zero
Lead time consumption
= Consumption rate x lead time
= 1,000 x 4

4,000 units
ROL lead time consumption + safety stock
ROL= 4,000 + 0= 4,000 units
3. Annual demand for a product is 60,000 units. Its delivery lead time is
two months. Buffer stock requirement is 500 units. Calculate reorder
level of Pinak Varu Limited

Solution:
x lead time
Lead time consumption = consumption rate
rate should be
Since lead time is given in months, consumption
calculated on per month basis.
Annual demand = 60,000 units
Therefore
Monthly demand = 60,000/12 5,000 units
Therefore,
Lead time consumption
= 5,000 x 2
= 10,000 units
stock)= 500 units
Buffer stock (i.e. safety
ROL= 10,000 500=
10,500 units
 -
and S C M (TYBMS Sem V
Logistics
162 litere
locations a base colour is consumed at rate of 500
4. In one dealer's procurement is 3 days. A safety of
1000
per day. The lead time for
by the dealer. Calculate
reorder level.
liters is maintained
Solution: Lead Time
= Consumption Rate X
Lead Time Consumption
= 500 X3
= 1500 units
Safety Stock = 1000 units
Re-order Level = Lead Time Consumption + Safety Stock
= 1500+ 1000
= 2500 units
Hence, new order should be placed when stock level reaches
2500
units.
air valves as
5. The information gathered from ABCPL regarding is

follows.
The average lead time for procurement is one week.
Average demand is 1000 units per week
Safety stock is assumed to be 1000 units
Calculate Re-Order Level.
Solution:
Lead time consumption = Consumption rate X lead time
= 1000 X 1
= 1000 units
Safety Stock
ROL
1000 units.
=
1000 + 1000
= 2000 units
Hence, new order should be placed
when stock level reaches 2000 units.
PRACTICALPROBLEM
M/s Raj Ltd. consume 8000
units of a component every year.
unit is Rs. 10. Ordering cost per order is Rs. Price p
200.
20% of total inventory Inventory carryil
costs are estimated to be
the optimal order quantity that turnover. Detemi
will minimize
2. UK Corporation require total inventory cost.
z000 units of
their manufacturing unit cost pitson assemblies per month for
of each assembly
cost per order is Rs. 120000. is Rs. 2000. Order
Inventory
carrying cost is
inventory turnover Determine
economic 20% of average
total inventory cost. order quantity to minimiz
Inventory Management 163
3 Daily consumption of a raw material in the production process is 2000
units. Lead time for delivery is 15 days. Company's policy is to Keep
safety stock equal to here days
consumption. Calculate re-order leve
4. Daily consumption of materials after the order is place. What should o
the reorder level.

9.14 WHAT DO YOU MEAN BY SAFETY STOCK? EXPLAIN

FACTORS INFLUENCINGTHE LEVEL OF A SAFETY STOCK
Safety stock is a term used by logisticians to describe a level of extra stock
that is maintained to mitigate risk of stockouts (shortfall in raw material or
packaging) caused by uncertainties in supply and demand. Adequate safety stock
levels permit business operations to proceed according to their plans. Safety stock
is held when uncertainty exists in demand, supply, or manufacturing yield, and
serves as an insurance against stockouts.
Factors that influence the level of safety stock
1. Category of item: In case of A category item where a better control is
exercised. It may not be required to keep a high level of safety stock. High
level of safety and high value consumption item will also increase the
inventory camying costs.
2. Lead-time: Normally longer the lead time more is the chances of
fluctuation and hence more is the requirement of safety stock.
3. Number of suppliers: In case there are number of suppliers available for
an item, it is not necessary to keep a high level of safety stock. Stock out
situation can be handles easily from alternate sources of supplies.
4. Criticality of an item: Safety stock for acritical items needs to be high.
E.g. in case of packing material, the safety stock needs to be high as stock
finished goods to the customer.
cut in packing material will affect the of
5. Availability of substitute: Lesser safety stock can be kept for items where
substitutes are easily available.
lf it is possible to make an item in-
6. Possibility make the item in-house:
emergency. A lower safety stock will
house at a short notice in case of
suffice.
It is better to have lower safety stock for itens
7. Risk of obsolescence:
is higher than the cost of no stock situation.
where the cost of deterioration
storage space is another factor
8. Space restriction: Restriction in the
influencing the safety stock levels.
stock out and the managemen's decision to
9. Stock out cost: The cost of to no stock situation (depending upon the
allow stoppage of production due
condition) also influence the decision on
market and company's financial
the safety stock.
 Logistics and S C M (TYBMS Sem - )
164
REVIEW QUESTIONS
Q.1. Objective Type questions
(A) Multiple Choice questions
1. Buffer Stock is
a. Half of the actual stock
which actual stock level shouldn't fall
b. Minimum stock level below
C. Maximum stock in inventory
should be initiated.
d. At which the order processing
is the amount of inventory to be ordered
at one time for
2 purpose of minimizing annual inventory cost.
b. ROL C. Safety stock d. None of the above.
a. EOQ
is the point at which stock of a particular item
has
3.
diminished to a point where it needs to be replenished.
a. EOQ b. ROL c. Safety Stock d. None of the above.
-
Ans. 1. b, 2. a, 3. b.
- -

(B) Fill in the Blanks

1. process permits the product to be manufactured and distributed
in economic lot size that are greater than market demands.
2. Safety stock is also known as
3. ABC analysis is based on law.
4 Under concept the employee of supplier works in house with customer.
5. Under system, review period is fixed but quantity is variable.
6. IT
is latest tool for controlling inventory in distribution system of organization.
selective inventor control technique is based on principle of
vital few trivial many.
8. VED inventory control technique is based on .

9. In SDE analysis classify the item has scare, difficult and

Ans. 1. Decoupling, 2. Buffer stock 3. Paretio's 4. JIT 2 5. P 6. DRP 7.
ABC 8. Criticality 9. Easy
(c) Match the following
B
JITI A. Minimum inventory related cost
2. Vendor managed inventory B. TaiichiOhno
3. Q system C. Continuous replacement strategy
4. MRPI D. Perpetual review system
5. MRP II E. DrJoshephOrlicky
6. ABCC Closed loop MRP
7. EOQ G. Usage value
Ans. (1- B)(2- C(3- D)(4- E)(5- F),(6-G)(7-A)
Q.2. Answer the following
Question.
1. Explain the various techniques
of Inventory Management.
2. Explain the importance of Inventory
3. What are the objectives of Inventory Management.
4. Write a note on Inventory Management.
Functionality.
Logistics Costing 165

Chapter 10 Logistics Costingg

SYNOPSIS
10.1 Total Cost Approach
10.2 Activity Based Costing
10.3 Mission Based Costing
10.4 ABC v/s MBC
Review Questions

10.1 TOTAL COST APPROACH/TRADITIONAL COSTING|

METHODS
The basic concept of total cost approach is simple and complements the
notion of designing logistics as an integrated performance system. Thus, it
indicates that costs incurred for performing all the logistical activities should
be considered as a whole, not individually.
Traditional Costing Methods

Balance Sheet Profit & Loss Statement

1. Balance Sheet:
Balance Sheet reflects the financial position of the firm at a specific
point of time (usually the end of the financial year). The purpose
summarize the assets and liabilities of the firm and to indicate the net
worth of the organisation.
2. Profit and Loss Statement:
Profit and Loss statement reflects the revenues
and costs associated
with specific operations over a specified period.
The purpose is to
determine the financial success of operations.
Limitations:
a. Financial statements such as Balance
Sheet and P/L statements are
designed to meet the requirements of investors
b. These and taxation agencies.
accounting methods do not satisfy logistical costing
i.e. allocating costs to each logistical requirements
activity.
Due to such limitations of
traditional costing methods and
analysis, logistics introduced total cost
logistics based costing methods
Activity-Based Costing
and Mission Based Costing. such as
 166 Logistics arnd MSSem-
SCM (TYEMS S

10.2 ACTIVITY BASED COSTING

a. Activity Based Costing is a costing methodology that identifies
fies
involved in manufacturing a product and thern assigns Costs
atrtis
costs to
activity. Cost is assigned to each activity according to to the h
the uzs
consumption.
b. For Example:
. Lets us assume that a company manufactures two prodis
Product A and Product B.
i. Product A requires special engineering activities, special attenticn
special machine setups, special testing. On the other hane and
Product B requires very little attention, no special activity
special testing.
ii. If the company uses traditional costing methods, the compary u
allocate the total manufacturing cost to both the products. Thus,
product B will be charged for such activities (Special engineering
Special Machine setups, Special testing) which was actualy na
used for manufacturing Product B.
iv. In ABC analysis, the company will identify the cost of each
activities and it will be assigned only to the product that consumed
(used) such activities.
our example, Product A will be charged for special engineering
In
be
Special set-up, Special testing. But such expenses will not
assigned to Product B.
segregate
Thus, in Activity based costing, all the expenses are
are
(Separated) instead of aggregating them. These separated expenses
the process
then assigned to the individual activities that are involved in
identifying the cost
of manufacturing a particular Product. This helps in
involved in manufacturing a particular product.
Methodology of ABC
a. Activity ldentification:
involved "
The first step in Activity based costing is to identify activities
manufacturing a particular product.
Cost Identification:
After identifying the activities, the next step is to identify co
can be
associated with each activity. Typically logistical costs
categorised as: Direct Cost, Indirect Cost and Overheads. ectly
dired
Direct Cost: Direct Cost includes all those expenses which are
involved in manufacturing a particular product.
Logistics Costing 167
Indirect Cost: Indirect Cost includes all those expenses which are not
directly involved in manufacturing a particular
product but has a
significant contribution in manufacturing a product. The manner by
which indirect costs are assigned to logistical activities is determined by
managerial judgement.
Overheads: An organisation spends lot of money on various activities
on behalf of various operation units. All such expenses are included in
overheads. Decision needs to be taken to determine how and to what
extent various types of overheads should be allocated to specific
activities.
Determining Cost Drivers:
The next step is to determine cost drivers. The cost driver is a factor
that creates or drives the cost of the activity.
Some examples of Cost Drivers
Sr. no Activity Cost Driver
Machine operating cost Machine operating hours
Transportation Type of Product, Size of Shipment
Distance.
Warehousing (Storage) Number of Units, number of days of
storage.
d. Cost Calculation:
The last step is to allocate cost under each activity
Conclusion
Due to increased competition, companies have begun to look into the
terent methods of costing other than the traditional one. The
undamental concept of activity-based costing is that expenses need to be
a5signed to the activity that consumes a resource rather than to an
organisational or budget unit.

10.3 MISSION BASED CSTING]

he need for mission based costing emerged as earlier cost was dealt
Solely with averages i.e. average cost per delivery. This method did not
etermine the exact cost associated with each and every mission as
ny averages were considered. This gave rise to the idea of mission
based costing.
mission can be defined as any Specific Product, any Customer, any
larket Segment, Any Geographical area etc.
ISsion based costing involves identifying the logistical activities
de to achieve a particular mission and then determining the total
Cost involved
in fulfilling a particular mission.
 (TYBMS Sem
-
168 Logistics and S C M

particular mission. large inputs from variou

n order to achieve a
activity centres are required.
firstly the activity centres are identified
us, in Mission based costing,
centres for achieving
activity
and then cost incurred for each
particular mission is identifiedd
example of Mission Based Costing
The follouwing diagram gives an Activity
Activity Cost of
Activty Activity
Centre Centre Mission
Centre Centre 3 4
2 (Transportation) (Sale)
Produdion) (Werehou

400 1000
Missinn 1

e00 700 800 2600

on 2 so0

1000 1100 1200 4200

Mission 3

2100 2400 7800

Cost of 1500 1800
Activity Centres

in the above diagram, there are

three missions namely mission 1
Mission 2 and Mission 3. Each mission requires
various activities to be
and sales
performed such as production, warehousing, transportation
is identified. The
Then the relative cost of each activity on each mission
addition of such costs gives the overall mission cost.
Mission based costing is proactive in nature as cost of each mission
estimated well in advance.
Mission based costing is a planning tool as it formulates plans ta
budgetary control of each mission output.
Thas approach becomes practical when combined with custom
sevenue analysis because even customers with low amount of sales may
stil be pratitable in incremental cost terms if not on average cost basi
in other wards, the company will incur loss if such customers were
abandaned

Conclusion
Thus, Mission based costing foeuses on identilying the costs involved
i fultling e particular mission so that the organisation can deciae
o
whether continue with a particular mission or to forfeit
it.
 Costing
Logities 169
V/S MBCc
10.4 ABC
ABC MBC
1 Cost of individual activities is Cost of ench mission
measured after the actual estimated well in is
advance.
perfomance, Hence, ABC Is Hence, MBC is proactive
reactive in nature in
nature.
Objective is to Improve the 2. Objective is to improve
performance next time by
current
performance by having
proper
leaming from last performance. planning in advance.
ABCis analytic l.e. it
analyses3. MBC is a planning tool
present activities for
as it
a formulates plans for budgetary
particular period. control of each mission/output.
4. Deals with cost related to 4. Deals with cost related to whole
Individual activities.
mission.
ABC is independent in nature.
5. MBC is dependent on ABC.
6 ABC is a Micro Concept.
6. MBCis a Macro Concept.
7 It is Time Consuming. 7. It is comparatively less
Time
Consuming.
REVIEW QUESTIONS
Q.1 Objective Type questions
(A) Multiple Choice
Questions
1. Total cost approach
is -

a. Traditional
P/L and balance sheet
b. Combination of ABC &
MBC.
C. All cost
centres added to get overall cost
d. Cumulative
cost method
Ans. 1. a
(B)
Fill in the
(1) ABC blanks
2) is a costing method
which identifies each and assigns cost to it.

Ans. based costing is macro concept

(1) Activity,
9.2. (2) Macro
Write Short
1) Notes on the following:
ompare and
2)Activity contrast activity based and mission based costing.
based costing
0 Mission based costing
4) Total
cost analysis
170 Logistics BMS
and S CM (TYBMS
Sem-

Chapter1 Performance Measurement in

SupplyChain Management

SYNOPSIS

11.1 Meaning
11.2 Objectives of Performance Measurement
11.3 Types of Performance Measurement Dimensions
of
Performance Measurement
11.4 Characteristics of ldeal Measurement System
11.5 Importance of Performance Measurement
Review Questions

11.1 MEANING
A performance measurement involves monitoring, controlling and
evaluating activities to determine their conformance to requirements,
identifies and corrects ineffectiveness as well as recognises and rewards
satisfactory performance.
Performance Measurement involves measurement of performance of
various logistical functions in order to evaluate whether actual logistical
performance is as per the pre- defined standards and to take corective
measures in case if it has deviated from pre- defined standards
The goal of Performance Measurement is to examine a company's
existing logistics operations, assess the efficiency of logistics operations
and to provide recommendations and guidelines to improve the
operations.
Performance Measurement can identify bottlenecks (problems) and
suggest improvements for the organisation. Performance Measurement
will support strategic and managerial decision making and help to
identify areas for improvement and eliminate inefficiency.

11.2 OBJECTIVES OF PERFORMANCE

MEASUREMENT
a. Monitoring:
Monitoring measures and keeps a close watch on performance of
various logistical activities so as to provide its feedback to managene ent.
Sometimes, the results of monitoring may be sent to the custometa
Monitoring is past oriented as it measures
historical (past) 1og
performance so as to provide its feedback to management. Iyp ically,
monitoring is done on the service level cost
and the logistical
components.
 formanceaMeasurement in SCM
171
Example:
For
Financial Monitoring
M system will report
outflow and inflow
i the managementnt about the cash
during a particular
period.
t ogistical monitoring system
L will report costs
associated with the
various logis
gistical activities
such as transportation,
packaging, material handling, etc. warehousing,
b.Controlling:
Controlling is present oriented
as it keeps a close
nerformance of various logistical watch on the on-going
kept on whether the performance activities. In controlling, a watch is
of logistical activities
prescribed standards or whether is as per the
it has deviated from
standards. the prescribed
For Example:
During transportation, a company
may expect or predict a
amount of damage to its goods certain
due to various reasons. If the
damage increases beyond pre-determined extent of
standards, company can
control on the damage caused to the goods due to transportation. exercise
C. Directing:
Directing is future oriented as it
focuses on improving the future
performance of various logistical activities.
Directing measures are designed
to motivate personnel. Basically, they
are incentive schemes which will help
to increase the productivity. The principle
is "better the performance more
the pay". The objective is to motivate is
the individual in the organisation to
improve individual performance which in turn will
improve the overall
performance of the organisation.

11.3 TYPES OF PERFORMANCE MEASUREMENT/

DIMENSIONS
OF PERFORMANCE MEASUREMENT

Performance Measurement

INTERNAL PERFORMANCE
EXTERNAL PERFORMANCE

coST CUSTOMER PERCEPTION

MEASUREMENT
CUSTOMER SERVICEE
BESTPRACTICE
PRODUCTIviTY MEASUREMENT BENCHMARKING

ASSEST MEASUREMENT

QUALITY
 172 Logistics and S CM (TYBMS Sem
INTERNAL PERFORMANCE MEASUREMENT -)
It is a measurement system which is conducted internally withi
organisation that helps in comparing present activity against the an
n
activity. The company may compare its current year's actual performt
with the previous year's actual performance. Otherwise, the company
compare actual performance with pre-defined standards.
i. Cost:
The most direct reflection of logistics performance is the actual
incurred to perform logistical activities. Logistical cost is normally measu
in terms of amount of rupees spent on various logistical activities. It can a
be measured in terms of cost per unit spent on various logistical activities
If a company incurs relatively lower logistical cost yet achievi eving
superior customer service its logistical performance is said to be satisfacton ory
and vice versa.
ii. Customer Service:
Customer service indicates a firm's ability to meet customer expectations
Some of the common customer service measures include fill rate, on timee
delivery, back orders, customer feedback, sales force feedback, etc. Thes ese
measures are also used to examine satisfaction of internal customers.
If a company provides superior customer service, it logistical
performance is said to be satisfactory and vice-versa.
ii. Productivity Measurement:
Productivity is the relationship (usually a ratio or an index) between
output (goods and/or services) produced and inputs (resources) utilised by
the systems.
Productivity can be measured in various areas of logistical operations
such as transportation, warehousing. material handling, operations,
production, customer service, etc.
If the company has a higher productivity i.e. output is greater than
input, its logistical performance is said to be satisfactory and vice-versa.
iv. Asset measurement:
Every organisation makes huge investments in various assets. These
investments are basically done to achieve the logistical goals fixed by the
company. Asset measurement focuses on effective utilization of such capital
investments in various facilities and equipments (various assets). Asset
measurement focuses on how fast liquid assets such as inventory "turnover"
well as how well fixed assets generate return on investment.
If the company undertakes effective utilisation of all assets, its logistical
performance is said to be satisfactory and vice-versa.
v. Quality Measurement
Quality Measures are designed to determine effectiveness of a series of
activities rather than an individual activity. Quality measures indicate
whether the actual logistical performance is as per pre-determined standards
or whether it has deviated from pre-determined standards
Performance Measurement in SCM 173
Delivery of the perfect order is the ultimate measure of quality in
ogistics operations. when all the order processing activities are pertormed
in the most efficient manner with the ultimate goal of achieving 1007o
Customer satistaction, it is termed as Perfect Order.
A Perfect Order is an order where
all 7 R's are satisfied. It includes:
RightRight Product RightRight Quantity Right Condition
Right Right Place Right Timne Right Price
Right Customer
If the company is able to deliver
perfect order to its customers, its
logistical performance is said to be satisfactory
and vice-versa.
EXTERNAL PERFORMANCE MEASUREMENT:
External Performance Measures helps
to understand customer's
perspective and to gain innovative insights from other industries.
External
performance measures are classified into following categories:
i. Customer Perception Measurement:
Customer perception measurement is done to understand the
perception of customers about the organisation, its performance,
its
employees, its products, its services, etc. Customer Perception
Measurement
is done by carrying out surveys sponsored by
the organisation or by the
industry. Such surveys ask questions regarding the firm's
and competitor's
performance in specific areas.
Some common measures of customer perception are: product
availability, performance-cycle time, information availability,
problem
resolution and product support.
ii. Best Practice Benchmarking:
Benchmarking is the process of comparing a firm's business
processes and performance measures to industry bests or best
practices from other industries.
Xerox started benchmarking in 1981 and become popular
Benchmarking may be caried out in relation to operations of both
mpetitors and leading fims in related and non-related industries.
In the process of benchmarking, management identifies the best
firms in their industry or in another industry where similar process
exist and compare the results and processes of such firm to the
results and processes of own firm.
Some of the key areas of benchmarking are: asset management,
customer service, productivity, quality, transportation, warehousing,
etc.
Firms normally use combinations of three benchmarking methods.
i. First, they use published logistics data which is available from
consultants, periodicals and university researchers.
174 Logistics and S CM (TYBMS Sem
ii. The second method is to benchmark privately, against gainst non
competitive firms in one's own related industry.
ii. The third method consists of an alliance or organisations that
systematically share benchmark data on a regular basis. Th hese
alliances usually provide substantially better information tha
than
preceding two methods.
Process of Benchmarkingg
What to Understand Plan Study best Lean from Use
Benchmark current firm best firmn findings
Performance
Conclusion
Performance Measurement helps to focus on the activities required to serve customers.
Measurement of these activities, as well as comparisons with goals and standards, is
necessary to improve performance and motivate and reward employees.

11.4 CHARACTERISTICs OF IDEAL MEASUREMENT SYSTEM

The ideal performance measurement system should incorporate
following three characteristics:
1. Cost / Service Reconciliation:
Costs involve all direct and indirect costs incurred in manufacturing a
product/performing a service. Services include all activities performed so as
to provide efficient service to customers.
Many a times, logistical reports fail to reflect cost/service trade offs which is
-

critical to generate revenue. Thus, an ideal performance measurement system

should identify and co ordinate relevant costs and revenues in order to assist
-

the managers to make meaningful logistical decisions.

This is because unless costs are appropriately sequenced with revenues,
management may not be able to obtain a clear picture of the performance
effectiveness of its logistical system.
2. Dynamic Knowledge Based Reporting:
Most of the logistical operations provide the status of important
activities such as inventory position, transportation cost, warehousing cost
and other measures for the current period of time. Such reports provide vital
statistics that can be compared with previous operational periods to
determine whether the performance is tracking as planned, however, such
reports cannot help to project a trend of future.
Hence, the reporting system should be such that it can help to project
future trends so as to take corrective actions.
3. Exception Based Reporting:
Logistical Performance Measurement should be exception based. It
indicates that if there is an exception to planned results, it should be|
Performance Measurement in 175
SCM
intimated to management to
take appropriate actions. Such intima
help managers to identify areas
requiring problem solving efforts or tacilnta
taking a more in depth assessment
-

of a specific process or function.

11.5 IMPORTANCE OF PERFORMANCE MEASUREMENT

1. Helps to Monitor Logistical
Activities:
Performance measurement helps
to keep a close watch on pertormance
of various logistical activities
so as to provide its feedback to
management. For example;
Financial Monitoring system will report to
the management about the cash
outflow and inflow during a particular
period.
period.Similarly, Logistical monitoring system
associated with the various logistical will report costs
warehousing. packaging. material activities such as transportation,
handling. etc.
2. Maintains Control on Logistical activities:
In controlling, a watch is
kept kept on whether the performance of
logistical activities is as per the prescribed
standards or whether it has
deviated from prescribed standards. Thus,
it helps to keep actual
performance in line with the expected performance.
3. Helps to keep actual performance in
line with predetermined
objectives:
As perfomance measurement keeps a close watch on the actual
perfomance and helps to take corrective measures wherever necessary, it
helps to keep actual performance in line with predetermined objectives.
4. Other benefits:
It helps to keep all costs under control.
It helps in delivering superior customer service.
It helps to increase productivity of all logistical
functions like
transportation, warehousing. packaging, etc.
It helps in increasing the overall quality of products and
services.
REVIEw QUESTIONS
Q.1 Objective Type questions
(A) Fill in the blanks
is the relationship between input and output
_focuses on effective utilization of fixed and working assets.
3. is the process of comparing fims activities with leaders in the market.
4 is an order where 7R's are satisfied
Ans. 1. Productivity, 2. Asset measurement, 3. Benchmarking, 4. Perfect order
Q.2. Answer the following questions
1 Write a note on Internal and External Performance Measurement.
Explain the characteristics of an ideal pertormance measurement system.
3. Explain the objectives of Performance Measurement.
4 Explain the various types of Performance Measurement.
176
Logistics and S C M(TYBMS Sem
-V
Chapter
12 Logistical Network nalysis
Analysis
SYNOPS1S
12.1 Meaning
12.2 Objectives / Importance of Logistical Network Analysis
12.3 RORO
12.4 LASH
12.5 Transportation Network Options
12.6 Explain the concept of Milk Run with a suitable example
Review Questions

12.1MEANING OF LOGISTICAL NETWORK ANALYSIS

1. The two main objectives of Logistics are:
To minimise overall logistical costs.
To provide superior customer service.
2. But the problem is that if company attempts to provide superior
mannas
customer services, then logistical cost will increase. In the same anner,
if the company attempts to reduce overall logistical costs, then customer
service is not satisfactory.
3 Thus, a company has to maintain a proper balance between its buo
main objectives so as to provide superior customer service at a lower
logistical cost. This can be achieved through a proper network design.
4. In a tour made by a product from raw material stage (supplier) to the
manufacturing firm, from manufacturing firm to the point of
consumption by the consumer, various logistical activities sucha
Transportation, warehousing. material handling. information flow, et
are performed. Thus, there is a need for a proper Network Design.
5 Logistical network includes various facilities such as manufacturing
plants, warehouses., distribution centers and retail stores.
6. Logistical Network Analysis Involves:
a. Determining which facilities are needed (Plants, Warehouse
Distribution Centers)
b Determining how many of each type of facility (number of plant
warehouses, distribution centers) are needed
Determining the geographical location of each facility
Determining the work to be perfomed at each facility
Logistical Network Analysis
177
e. All this analysis
of various facilities
Analysis. is known as Logistica
7. Proper network
analysis will
Network Design which will result in establishing an approP iate
reduce overall logistical costs but yet pro ide
Superior Customer Service.

12.2 OBJECTIVES/IMPORTANCE
OF LOGISTICAL NETWORK
ANALYSIS
Logistical Network analysis for the following reasons.
is important
1. Quick Response to Market Changes: Regular analysis of the
Network Design is necessary so as to enable the organisation to
respond to market changes. Market changes
can be of several types
such as: changing customer service requirements, changing customers,
new market segments, new location of suppliers, etc.
Changing Customer Service Requirements:
Nowadays, customers are not ready to wait for long period of time
in order to receive ordered product. Customers expect product to
be received in shorter lead time. Thus, for delivering the product
in shorter lead time network design must be appropriate.
Changing Customers:
Nowadays, customer expectations have increased a lot. Customers
have high expectations from the supplier. Moreover, due to
information technology customers have fast and easy access to
information. As a result, nowadays, customers are highly educated
and aware about products and services.
Thus, it is not possible to fool the customers. The only way of
satisfying today's customer is by delivering a Perfect Order (Right
time, Right place, Right Quantity) etc.
if you have a
Delivery of a perfect order is possible only
appropriate network design.
New Market Segment:
segments/ new
Organisations have to find out new marketIf an organisation
business.
geographical locations to expand their
new location then it will have to set
wants to enter a new segment/manufacturing plants, warehouses,
up various facilities
like
Thus, an organisation needs to
distribution centres in that location.
design to enter a new market.
make a proper network
2. Changes in Corporate Policy:
Changes in Product line:
of product means adding a entire new network of
Any addition plant, warehouses, distribution
manufacturing
facilities like
centres, etc.
178
Logistics and S C M (TYBMSs.
Sem-V
Similarly. any
deletion of product means dropping an
aan
entire
network of facilities.
Thus, any addition ldeletion of product creates new logist
jistical
requirements relating to network design.
Downsizing:
Sometimes, the company adopts downsizing policy. It means
sell out some of the business units thus making some of
the
existing logistical facilities unnecessary.
Re-engineering:
Nowadays, many organisations adopt BPR (Business Process
Te-
engineering). This re-engineering may result in modification o
products, modification of processes etc. Due to such changes thero re
will be a need to change the network of facilities/ network design
3. Revitalize Customer Service:
Lead time: Lead time is the time gap between placement of
order and delivery of order. Nowadays the focus is on reducina
the lead time so as to enhance customer service and customer
satisfaction. This can be done through a proper network design.
Response time: Response time is time taken to respond to the
customer's queries/ orders. Response time should be reduced to
minimum so as to enhance customer service.
4. Cost Control:
A proper network design helps to reduce the overall logistical costs such
as inventory costs, warehousing costs, transportation costs, etc.
Logistical network analysis helps in selecting the most suitable
alternative out of various alternatives to ensure a balance between costs
and efficiency.

Conclusion
Proper network analysis will result in establishing an appropriate
Network Design which will reduce overall logistical costs but yet provide
superior customer service.

12.3 RORO(ROLL ON -ROLL OFF)

1. RO-RO is a type of shipping vessel.
2. Due to problems in loading and unloading of goods, the concept of RO-
RO was introduced.
Logistical Network Analysis 179

3. The cost of liting a container from

a truck and loading onto a ship and
then upon arival at destination, unloading
the container from the sip
and reloading it on the truck was very high. Thus, RO-RO came as a
new concept of reducing the cost.
4. In this method, the trucks containing the containers are directly driven
inside a huge ship (ferry). The ship carries the consignment from origin
to destination. Upon arrival at the destination, the trucks are driven o
the ship.
5 In short, the trucks are "rolled on" into the ship at the origin and are
"rolled off" from the ship after reaching the destination port.

66. The RO-RO vessels (ships) have built in ramps (platforms) which help
in "rolling on" and "rolling off".
7. This technique helps to reduce the cost of loading and unloading. There
is no need of loading and unloading the cargo separately, directly the
truck gets in the ship and gets out on its wheels.
8. It is a very convenient and time saving technique.
Example: Konkan Railways RO-RO service.

ABOARD SHIP)
12.4 LASH (LIGHTER
the cargo from shallow water ports to
1. LASH is a method used to carry
water.
ships/vessels which are located in deep LASH is used
deep water, the concept of
2 As all the ports may not have
vessel.
to load the cargo on the away from the
a ship/vessel stays in the deep water
3. In this method,
shallow water port. of boat).
on the barges (a kindship/vessel
ports are loaded
4.
4. Cargo from shallow cargo from shallow
ports to the
These barges carry the
located in deep water.
 180 Logistics and S C M (TYBMS
Sem-v
5. Upon arrival near the ship, the huge crane in the ship lifts the entire
barges and places it on the deck of the ship
6. he ship then carries the consignment from origin
to destination
lifted and placed.
7. After reaching the destination, the barges are

TRANSPORTATION NETWORK OPTIONS

12.5
network consists of manufacturing plants
Introduction: A logistical wholesalers, retailers and transporters. To
warehouses, distribution centres, well
good logistical network, we have to select strategic locations as
design a manufacturing, warehouses, distribution
of facilities for
as right number logistical network we have to
design
to design a good
centres etc. Moreover
network.
required type of transportation
Transportation Network Option:
1. Direct Shipment:
the manufacturer supplies the goods directly
In Direct Shipment, a
manufacturing plant to the retailer without using
from the
distribution centre or a warehouse.
a direct shipment network is the
of
The major advantage simplicity of operation and co
elimination of intermediary and its
transportation time from supplier to
ordination. Moreover, the
each shipment is direct.
retail store will be short because
Retailers
Suppliers

O
 Analysis
Logistical Network 181
pirect Shipment With Milk Run:
2. A milk run is a route in which a
truck either delivers product from
a single supplier to multiple retailers or goes from mulup
suppliers to a single retailer.
Milk run reduces outbound
transportation costs by consolidating9
small shipments.
Two aspects of Milk-run strategy
Single Supplier Multiple Retailers
-
Multiple Suppliers Single Retailer

Suppliers RetailersSuppiers Retailers

P
B

(E
Fig 1
Fig 2
In Fig.1, a truck delivers products from supplier A to retailers P, Q, R,
S, T and then returns back to the supplier A.
In Fig. 2, a truck collects goods from all the suppliers A, B, C, D, E and
then delivers consolidated shipment to retailer P.
3. All Shipments Via Central Distribution
In all shipments via central distribution centre option, suppliers do
not send shipments directly to the retail stores.
In this system, all the suppliers supply the goods to the distribution
centre. The distribution centre then aranges for the shipment to
the individual retailers as per their orders.
This helps in reducing transportation costs due to movement
consolidation.
It relates to the concept of cross-docking in warehouse.
Suppliers Retailers

Distribution
Centre
182
BMSSem-V)
Logistics and S CM (TYBMS Sen
4. Shipping
Via Distribution Centre Using Milk run:
As the name
suggests, this transportation network design is
extension is the
of direct shipping with milk run, where there is inclusion
of a distribution centre in
between supplier and customer
in this system, all the suppliers supply the goods to distributi
on
centre. The distribution centres in turn, will supply the goods
the retailers using the concept of milk run. to

Milk run reduces outbound transportation costs by consolidatino

small shipments. g

Suppliers Retailers

Distribution
Centre

As shown in the above diagram, in this network option, all suppliers will
supply goods to distribution centre. The distribution centre will combine all
small shipments and deliver the products to many suppliers at the same
time.

12.6 EXPLAIN THE CONCEPT OF MILK RUN WITH A SUITABLE

EXAMPLE
A milk run is a route in which a truck either delivers product from a
single supplier to multiple retailers or goes from multiple suppliers to a
single retailer.
A Milk Run is a delivery method used to transport mixed loads from
various suppliers to one customer. Instead of each supplier sending a
truck every week to meet the needs of one customer, one truck (or
vehicle) visits the suppliers to pick up the loads for that customer. This
method of transport got its name from the dairy industry practice,
for
where one tanker used to collect milk from several dairy farms
delivery to a milk processing company.
Alternatively, Milk Run is also used to transport combined loads from
single supplier to multiple retailers in one delivery.
 183
Analysis
gistical Network small
consolidating sm
Milk run reduces outbound transportation costs by
shipments.
Two aspects of Milk-run strategy
Multiple Suppliers Single Retailer
Single Supplier Multiple Retailers
-

Suppliers Retailers Suppliers Retailers

Fig 1
Fig 2

truck delivers products from supplier A to retailers P, Q, R,

S,
In Fig.1, a
T and then returms back to the supplier A.
In Fig. 2, a truck collects goods from all the suppliers A, B, C,
D, E and

then delivers consolidated shipment to retailer P.

REVIEW QUESTIONS
Q.1.0bjective type question
(A) Fill in the blanks
refers to the time gap between placement of order and
delivery of order
is the time taken to response to customer's order.
n network option, the manufacturer suppliers the goods
directly from manufacturing plant to retailer without using distribution
centre or warehouse.
4. Full form of LASH is
Ans. 1. Lead time, 2. Response time, 3. Direct shipment, 4. Lighter
Abroad ship
Q.2 Answer the following Questions.
1. Explain Network Design and state its importance.
2 Write a note on LASH.
3. Explain the concept of RORO.
4 Explain various Transportation Network Options
 184 TYBMS S.
Logistics and S C M Sem-V

UNIT- IV
in Logistic
Chapter 3 Information Technology
SYNOPsIS
13.1 Introductioon
in Logistics
Objectives of Information Technology
0. Technology in Logistics & Supply Chain
13.3 Role of Information
Management
13.4 Logistical Information System
13.5 Principles of Logistical Information System
13.6 Types of Logistical Information System
13.7 Logistical Information Functionality
13.8 Information Technology Infrastructure
Review Questions

13.1 INTRODUCTION
integral part of every
Information technology has become a vital and
improving the operational
business plan. Technology plays a crucial role in
in the business,
effectiveness and efficiency of various functional areas
Information Technology helps in speeding up information
transfers between
helps in faster data
organisation and customers. Information Technology
processing and analysis. Due to adoption of automation
to a great extent,
greater speed and
various logistical activities can be performed with a
accuracy. Thus, I.T. improves and expands the scope of business prospects.
Information Technology consists of the tools used to gain awareness of
information, analyse the information and execute on it to increase the
performance of the supply chain.

13.2 OBJECTIVES OF INFORMATION TECHNOLOGY IN

LLOGISTICS
1. To facilitate better flow of information among various members of the
supply chain such as wholesalers, retailers, dealers and other
intermediaries.
2.
2. To facilitate faster and efficient processing of information.
3. To assist in decision making process by collecting, storing, analysing
and retrieving the information as and when needed.
 ation Technologyin Logistics
informatio 185
To identify and track the exact location consignmer
4 of ignment.
To reduce labour cost and other operating costs by
5 automation. adopting

To generate logistical
reports from the
6 and quick decision making. available information for better

. To enhance the overall efficiency and effectiveness

if the organisation.
ROLE
13.3 OF INFORMATION TECHNOLOGY
SUPPLY CHAIN MANAGEMENT IN LOGISTICS|
&
RHOw
OR HOw DOES AN INFORMATION SYSTEM
ORGANISATION
ORGANISATI TOPERFORM HELP THE
IN AN EFFECTIVEMANNER
Information is power and is used
as one of the resources to developb
comnpetitive edge in business today. As
a
logistics is an information based
nrocess ot material
pro movement, it has a crucial
competitiveness.
mpetitiveness. Due
Due to advancement
role in supply chain
of technology, the speed of
formation flow has increased tremendously.
Thus, it helps in taking real
time decisions so as to take corrective measures.

Role of Information Technology in Logistics and Supply

Management Chain

1. Better Communication:
Information Technology facilitates better flow of
information among
various members of the supply chain such as wholesalers, retailers,
dealersand other intermediaries. This facilitates better co-ordination
and communication among various members thereby avoiding
errors.
2. Competitive Advantage:
With the use of right technologies, the company will be in a
position to
make the goods available at right time, at right place and in right
quantity thereby resulting in customer satisfaction. Moreover, it will help
to reduce operational cost, reduce lead time, eliminate errors and
retain
all existing customers. Thus, use of proper information system helps
the
firm to attain competitive advantage over competitiors.
3. Ease of Operations:
Use of latest IT tools and technologies like Electronic Data Interchange
(EDI), Logistical Information System (LIS), Enterprise Resource
Planning (ERP) etc. facilitates easy exchange of information among
different departments. These methods or technologies smoothen the
work flow for better productivity.
186
4. Logistics and S CM TYBMS.
MS Sem-V
Quick Decision
Making
Use of various
IT software and tools helps to collect, store,
store, analu.
analyse
retrieve the information It so
also helps
helps in comp and
the actual data as and when needed. comparin.
with planned
This
data. This comparison
comparison plannoring
of planned
of
ual data plays a vital part in the decision making process.
an
d and
5. Early Warning
System:
various IT tools helps to recognize exceptional situations
situat
early stage. This helps
in identifying undesirable situations which ccan an
detected and rectified in time. The Early Warning System also be
also facilitate
the
facilita
selection of potential weak points which can be rectified later.
6 Accurate Data
Use of lT tools like RFID (Radio Frequency ldentification),
bar codin
etc. helps to collect and store accurate data. This helps in adeqa
analysis and proper uate
decision making for the management.
77ldentifying
the location of Consignment:
Ose of IT tools like Global Positioning System (GPS) and Satellite
Communication can help to identify the exact location of e
consignment. the
Tracking the actual location of an consignment is very
helpful to the firm as they can easily predict the time required
for the
consignment to reach customer's location/destination.
88. Other Benefits:
It facilitates faster and efficient processing of information.
It facilitates more timely availability of information.
Many types of useful reports can be generated for management
to
make decisions with the help of available information.
It enhances overall efficiency and effectiveness of the organisation.
It reduces labour cost due to automation.

Conclusion
Information is vital for successful decision making. The quality of
decisions will depend on the quality of information available. Improved
Information Technology
facilitates timely availability of accurate
information for better decision making. Paper- based information flow
increases the cost and decreases customer satisfaction. On the other
hand, Electronic information movement is speedy as well as less costly.
 187
Information Technology in Logistics
ation
LOGISTICA, INFORMATION SYSTEM
13.4
information
information systems are a subset of the firm's total
L.ogistics in
Logistics
it is directed to the particular problems of logistics decs ion
system, and
and
Logistical information system (LIS) is a svstem of records a
making. A
whether paper based or electronic used to aggregate, analye be
epoand display data (from all levels of the logistics system) that can
valide
make logistics decisions and manage the supply chain The
used to
information system of logistics functions plays a crucial role in making
a
mation of company's as well.
intinterpretation
correct
performance

CHARACTERISTICS/PRINCIPLES OF
OF LOGISTICAL
LOGISTICAL
13.5
INFORMATIONSYSTEM
NCIPLES
management
Briefly speaking Logistical information system is a part of
a manger to manage, control and measure the logistical
activities.
that
hat helps system to
principles should be included in the logistical information
Certain princ
Certain
and effective. To have better tactical and
strategic
make it more competitive
information
docision for the benefits of the firm and its customer, logistical
d
system should have certain principles like

1.
Availability:
i. Logistical information must be readily and consistently available.
a manger
ii. It is seen that through the readily available information
inventory.
can manage dispersed inventories as if they were single
satisfy demands
iii. Quick availability of information is necessary to
and also make better decisions.
from anywhere
iv. The information should be accessed and updated
in the country or even the world.

2. Timeliness:
available but also be
i. Logistics information should not be readily
at the need of the hour (on time). A delay in updating
available
system would reduce the efficiency of the whole system.
the
may lead to wrong decisions
ii. A delay in updating the information
and even losses.
activity takes place, the information should be
iii. As soon as the
updated.
188
Logistics and S C M(TYBMS Sem-V}
3. Accuracy:
. Accuracy is defined as the
ports match
degree to which LIS reports
principle states
physical counts or status. This that
actual
information should be accurate.
difference between the updated inform- mation
ii. There should be no
and the real scene. as physical stoel. o
inventory levels as per LIS as well beh.
111. Example: should be no difference tween
inventory should be same. There
as per LIS v/s physical stock levels.
inventory levels
and reduces invent
entory
iv. Acurate information decreases uncertainty
requirement.
4. Flexibility:
informmation as per the user'.
rs
A good LIS should be able to provide
demand. t
to provide the data tailored
ii. Information system must be able
specific customer's requirement.
for the company as well as the customer to
ii. It should be flexible
decide their preferences.
5. Appropriate Format:
it should contain the right
i. LIS should be appropriately formatted;
right sequence.
information, in the right form and in the
. If the information is not properly
formatted, decision like storing
feedback, etc will be affected.
inventory, locating inventory, customer
6. Exceptional:
If there is a sudden
1. LIS should be able to handle exceptions.
problem or opportunity, LIS should help the
manager in taking
judgemental decisions.
Conclusion
of
Information is vital for successful decision making. The quality
Logistical
decisions will depend on the quality of information available. Thus,
Information System should follow the above principles to ensure that accurate
information is available for accurate decision making.

13.6 TYPES OF LOGISTICAL INFORMATION SYSTEM

There are two types of information systems. They are:
External Information Systems/ Vertical Communication:
Information flow from people outside the organisation is termed as
External Information System. As the name suggests the source of
 Technology
Information in Logistics 189
ternal formation system are
people outside the firm. The main
source ce of intormation in external LIS
feedback about their is the customers. The custome
give 1e
likes, dislikes, preference, This
nformation is collected by the
info
e
retailers and the sales staff as they are
close contact with customers and passes
to the required department,
thus helping the suppliers, customers and
also the firm.
The external information system
is also called as Vertical
communication as it links the
members of the supply chain.
Internal Information Systems/
Horizontal Communication:
Information flow within the
organisation is termed as internal
information system.
The four major departments that
supply and receive information are:
Purchasing Department.
ii. Production Department.
ii. Marketing Department. iv. Finance Department.
This system of information includes
phusical distribution of goods,
critical aspects like budget for
innovations, delivery requirements,
deadlines, etc.
13.7 LOGISTICAL INFORMATION FUNCTIONALITY

Strategic
Planning / Strategic
Alliances
Development and
refinement of
capabiliies and
opportunities

Decision Vehicle routing and scheduling

Analysis Inventory management
Facility Location
Cost-benefit analysis
Management Financial Measurement
Control Customer Service Measurement
Productivity Measurement
Quality Measurement
Cost Measruement
Transaction
System Order Entry Shipping
Inventory Assignment Pricing and invoicing
Order Sele ction Customer inquiry
190 and S C M (TYBMS Sem-
Logistics
logistical activitiesin
into
-V
link integ
Logistics information systems of functionality. i.e.
ate
process. This integration happens at four levels
2. Management Control.
1. Transaction System.
4. Strategic Planning.
3. Decision Analysis.
1. Transaction System: individual le
and records all the logistic
The
activities.
transaction
The various
system initiates
activities performed under this level are: order a
selection, shipping, pricing, invoicing and
inventory assignment, order
customer inquiry. sequence
system performs activities in the following ce:
The transaction
customer
Receipt of order from

Assigning inventory to the

order

to select the order

Directing material handlers

of the order
Movement, loading and delivery

Pricing invoice for payment

process order status information should be
However, throughout the such
to the customers as and when customer demands for
made available performance cycle is completed
information. Thus, the customer order
through a proper flow of information.
2. Management Control:
on performance measurement
The management control system focuses
Performance measurement is necessary to provide feedback
and reporting.
and resource utilisation.
to the management regarding service level
Common performance measures include:
Financial Measurement.
Customer Service Measurement.
Productivity Measurement.
Quality Measurement, etc.
nformation Technology in Logisti
pecision Analysis: 191
3.
Decision analysis includes
taking decisions
Vehicle routing on var
various aspects such as:
and scheduling.
Inventory Management.
Facility Location.
.Cost-benefit analysis, etc.
Decision analysis
emphasizes
fitable v/s unprofitable options more on effectiveness. i.e. identityin
rather than on efficiency.
4. Strategic Planning:
Strategic planning focuses
on information
logistics strategy. These decisions support to develop and refine
analysis level but are long term are often extensions of the
in focus. decision
Strategic planning includes
decisions on various
Strategic alliances with aspects such as:
various supply chain
Development and refinement members.
opportunities. of firm capabilities and
market
Customer responsiveness to
improve service.
Conclusion
Like the management information
system (MIS), which is designed to
cater management information needs,
logistical information system (LIS)
is designed to cater logistical information
making. Information is required at all
needs for logistical decision
levels of management for accurate
decision making.

13.8 INFORMATION TECHNOLOGY INFRASTRUCTUREE|

1. RFID
1. RFID or Radio frequency Identification is a method of
storing data
and retrieving it via radio waves.
2. RFID uses radio frequencies to transmit data between a portable
device and a managing computer.
3. RFID has two parts namely, the integrated circuits, used for storing
and processing information and the antenna, used for receiving
the information.
4. RFID is used in Supply chain Management to improve the
efficiency of inventory tracking and management. It helps to save
time and extra operational costs.
192 Logistics and S C M (TYBMSSem
Bae ) -
Office Management and Back Office
5.
can also be used in Front
Management.
There are 3 types of RFID tags.
a. Active RFID Tags.
b. Passive RFID Tags.
C. Battery Assisted RFID Tags.

RFID Antenna
»)) TAG
reader (
Computer
Databasse
Advantages of RFID
Higher Productivity:
a. Use of RFID helps to increase the
productivity of overall store operations. Identifying products usina
RFID is quicker than barcode scanning or manual entry of product
details.
b. Improved Quality for Data Capture :
Using an RFID approach
means data can be captured rapidly and accurately. Electronic
data collection with RFID avoids data transcription erors and
avoids "missed items" when used to collect data on large numbers
of items at once.
c. Inventory Management : RFID tagging of stock makes it easier
to track inventory and in tum helps in better inventory
management.
Disadvantages of RFID
a. High cost.
b. Some material may create signal problem.
C. External interference can limit RFID limit.
d. RFID programming requires lot of time.
nformatic echnology in Logistics 193
Electronic Data Interchange: .
Electronic Data Interchange
(EDI) the fastest, easiest and
is ost
productive way to conduct business
warehousirsing and logistics with the transportation,
industry. EDI is theex exchange of information
suithin
w or outside the organization
rmat and is used to transfer electronic measures. EDI nas toa
using
standard forr
computer. EDI helps in saving mation from computer
informa
time as the information does not have to
he retyped. The implementation of EDI
is important for companies as t
can significantly reduce the cost of
sending documents.

EDI document data

Automated business to business

no manual processing transactions:
required.

Benefits Electronic Data Interchange

(EDI)
i) Cost Cutting: EDI reduces the
volume of paper to be handled
which results in savings in administrative
and personal costs. Staff
can be assigned to other
value added functions within the
organization.
ii) Increased Speed: Large Volumes of commercial
data can be
communicated from one computer to another
in a matter of
minutes, enabling faster response and greater customer
satisfaction.
iii) EDI eliminates inevitable errors resulting from
manual data input.
iv) EDI leads to better logistics management
and increased
productivity.
Disadvantages of EDI
a. High initial costs
b. Poor security.
C. Technologically non-savvy companies may find it difficult to
implement EDI.
 Logistics and S C M(TYBMSSem-
194 high-volum
provides a fast and high-volume channe
3.
3. Satellite Communication: nd the globe.
globe
fo
Or information movement around
The applications are: top
top of vehicles allow
on the
the
dishes
Communication drivers and dispatchers.
communication between location
regarding location
information regarding and
Provides up-to-date redirect trucks in resr
dispatchers to to
delivery and allows
need or traffic congestion.

. .o
The satellite
ampliffes the
incoming signal
and changes the
frequency

The ground equipment Signal Is

transmlts slgnal transmtted
to the satellite back to Earth

The ground
equlpment
recelveS
the slgnal
wintelsatgeneral.com
INTELSAT
(GPS)
4. Global Positioning System helps in identification of
system that
1. GPS is a satellite navigation
object.
location of an instrument/
for tracking the
movement of a particular
2 Thus, GPS can be used
consignment.
an consignment is very helpful to
of
3 Tracking the actual location predict the time required for the
easily
the firm as they can location/destination.
consignment to reach customer's

113

SMS

Signal

PR
InformationTechnologyin Logistics
195
5. Bar Coding:
Bar Coding is themost common
automatic data capture
identification, handling,
form of automatic identification
technologies. Bar codes are
retrieval and storage of goods in ware uses
and stores. Individual inventory
. for

affixed with a bar items, cartons or unitized pacKag are

code that can
attached to an online be read by a bar code scanne
computer system.
Barcode systems help
to improve inventory accuracy
accelerate day to day as we s
operations. Bar code
inventory item to show its is assigned to a particular
dispatch. Bar Coding also identity during storage, retrieval and
facilitates in locating a particular
warehouse as well as to item in
check the availability of a particular
warehouse. Bar Coding also item in
consignment during transportation.facilitates tracking the location of the

6. Enterprise Resource Planning:

a. Enterprise Resource Planning (ERP) is a business process
management software that integrates and
automates many of the
business activities including most of the back office functions.
b. These activities typically include product planning, product
development, manufacturing, logistics, distribution, inventory,
shipping, invoicing, accounting, sales, marketing and human
resources.
C. ERP is basically a cross functional activity since it integrates
various functional activities/ departments in one system.
196
Logistics and S C M TYBMS Se

Financial
Management

Customer
Relationship Supply Chain
Management ERP Management
SYSTEM

Human Manufacturing
Resource Resource
Management| Planning

Advantages of ERP:
a. Increased Efficiency:
AN ERP system eliminates repetitive processes and greaty reduces the
need to manually enter information. This makes it easier for the
companies to perform all the activities in an efficient manner.
b. Reduction in Lead Time:
Lead Time is the time gap between placement of order and delivery of
an order. By co-ordinating procurement, inventories and production
decisions with the help of ERP, the delay in production activities is
avoided.
C. Integrated Information:
Instead of having data distributed throughout a number of separated
database, all information is now located in a single location. Data is also
kept consistent and up -
to date. This makes the data easily accessible.
-

Conclusion
Logistics managers see information technology as a major source of
improved productivity and competitiveness. Unlike most other resources,
information technology is increasing in both speed and capacity while
declining in cost. It is necessary to integrate logistics requirements with
current information technology capabilities to maintain a competitive
advantage in today's business environment
InformationTechnology in Logistics 197

REVIEW QUESTIONS
Q.1. Objective type question
the blanks
(A) Fill in
RFID refers to
1
2. s exchange of information within and outside organization
using electronic measures.
3. Thetypes of logistical information system are and
helps in identification of an
of location
instrument/object/vehicle.
5 ERP is
According to LIS principles sudden problem or opportunity
6 should be
recorded.
1. provides fast and high volume channel for information
movement around the globe.
is a method of storing and retrieving it
8 is a business
via radio waves.
9 process management software that integrates and
automates many of the business activities including most of the back
office functions.
10 are used for identification, handling, retrieval & storage ot
goods in warehouses and stores.
Ans. Radio frequency identification 2. EDI/Electronic data interchange
3. External information system and internal information system 4. GPS
Global positioning system 5. Enterprise Resource Planning 6. Exceptional
7. Satellite communication 8. RFID 9. Enterprise resource planning
10. Bar code
(B) Match the following
A B
1. Strategic planning A. Computer to computer exchange of
information
2. Extermal information system B. Long term
3. Internal informmation system C. Vertical communication
4. Accuracy D. Horizontal communication
5. Timeliness E. LIS matches physical counts
6. Appropriate format F. Quick management feed back
7. EDI G. Right information, form & sequence
Ans. (1- B)(2- C)(3- D)(4- E)(5- F).(6-G)(7-A))
Q.2. Answer the following Questions
1. What are the Principles of Logistical Information System?
2 Explain the types of Logistical Information System.
3 Write a note on Information Technology Infrastructure.
4 Explain the role of Information Technology in Logistics and Supply
Chain Management.
5. Write a note on Infomation Funcionality.
 (TYBMSsS.
MS Sem-V)
198 Logistics and S C M

Logistics Infrastructure
Chapter 4 Modern

SYNOPSIs
14.1 Golden Quadrilateral
14.2 Logistics Parks
14.3 Deep Water Ports
14.4 Dedicated Freight Corridor
Container Depots/ Container Freight Stations
.Inland
14.6 Maritime Logistics
14.7 Double Stack Containers
14.8 Unit Trains
14.9 Cold Chain Storage
Review Questions
Meaningof Logistics Infrastructure
country's economic
Logistics Infrastructure is a critical enabler for
development and urbanization. It includes various
facilities 1like.
a) Transport Infrastructure
b) Site Infrastructure
c)Logistics Real Estate Infrastructure like Logistics Parts.

14.1 GOLDEN QUADRILATERAL

Golden Quadrilateral is a network of highways connecting India's
four
a.
Kolkata,
top metropolitan cities, namely Delhi, Mumbai, Chennai and
thereby forming a quadrilateral.
It is the largest highway project in India. The then Prime Minister
Atal

Bihari Vajpaayee laid the foundation stone for the project on 6th
January 1999. Golden quadrilateral project was launched in 2001 and
the whole project started it operations in 2012.
C. The overall length of the quadrilateral is 5,846 km consisting of four
six lane express highways.
d. The whole project was estimated to cost 60,000 crores but entire
project was completed at about half of the estimated costs
 LogisticsInfrastructure 199
fodern
efficient roa network is essential for a large country like India to
An
tional integration and socio-economic development. India
aintain natic
maintain
network of highways maintained by
has a large (NHA), the National Highway
Authority of India

. These highways altogether account for just two percent of the country's
atal road infrastructure but they carry 40% of the total national traffic.
Golden Quadrilateral
Beneefits of
t facilitates better and faster transport network between many major
cities and ports.
t facilitates smoother movement of products and people within
b. India.
It enables industrial and job development in smaller towns through
access to markets.
d. It provides opportunities for farmers through better transportation of
oroduce from the agriculture land to major cities.

NATIONAL HIGHWAYS DEVELOPMENT

PROJECT NADI
Legend
-SRINAGAR
Goden Quadrilatoral
-Jammu North-South Corridor
East-West Corridor
Jalandhar National Highway Number

DELHI -Sonepat
Gurgaon-
Jaipur Etawah
Etawah OGorakhpur Siligur
Kishangur
Gwalior
Kanpur Muzaftarpur
Fatehpur
Palanpur Kota sikàndara Varanasi hampul
Shivpuri vhansa Purea
Sahakhia anagart siLCHAR
T AhmadabadB Segar A
PORBANDAR Vadodara -Lakhnadon ioLKATA.
DIU ISiAND
Surat Nagpur Kharagpur
Bhubaneahwar
MUMBAl Pune

8alara Vlsakhapatnam
Hyderabad-
Belgaum
O umool-
Euru
Chilakaluripet
Noliore BAY OP BENGAL
AREBLAN SEA
Tmkur
B Hosur -@ CHENNAI
Krlahnagiri Ranpmaile
Coimbatpro salem
Kochi Po
KANYAKUMARI wOY TO SCAL

N DI AN oC E A N
 200 Logistics and S C M 1S Se
(TYBMS
Sem -V
14.2 LOGISTICS PARKS
a. businesses are under pressure to red.
Odern age of logistics, service. All these requiremena
customer
stical
have
costs and improve
pressure on development
of logistics parks.
remendous several types of firms and
an
b. ogistical parks are location which contains
operations.
such as transportation
C.
tincludes various logistics service providers on
Service provider, warehousing service providers,
etc
logistics companies such as
d. t also includes firms that provide services to
providers, specialized land firm
ruck maintenance operations, software
international financial service providers, etc.
logistics needs.
e. ALOgistics park is a one-stop-shop for all
logistics parks provide a series of value
added supply chain and
hese
manufacturing activities.

Logistics Park Offers:

Strategic location with good road, rail and air connectivity.
. Large amount of warehousing space at a place.
ii. Space for multiple clients and industries and for future expansion.
iv. Ample truck and office parking space.
V. Utilities like weighbridge, commercial complex and diesel generator.
vi. Secured place with CCTV, high compound wall and fire protection
system.
vii. General additional facilities like Maintenance and waste Management.
Moderm Logistics Infrastructure
201
14.3DEEP WATER PORTS|
A Port is usually
i) an area or
"vessels, boats, platform entered into from the
ships, which
anchoring or docking for also allows for protected stags and
these ships to load and unload
and continue up towards
its destination.
consignme nts
i) Deep Water Ports are also defined
capability to accommodate to be any port which nas e
a fully loaded ship.
ii) The term "Deep Water Port"
denote pipelines and pumpingincludes all concerned components whicn
iv) For the sake of Safety measures
stations and also service plattorms.
the construction and operations latest technology available are used in
of the deep water ports which also
impose economic social
and environmental effects
v The concerned authority of for national interest.
the deep water ports are responsible of oil
spill prevention, containment
and cleans up, effect on oceanographiC
curent patterns , potential dangers
geological conditions, etc. from waves, winds, weather and
vi) E.g. The major deep water ports
are located at kandla, Mumbal,
Jawaharlal Nehru Port Trust
at Nahava Sheva, Mormugao, new
Mangalore, Cochin, Tuticorin,
Chennai, ennore, Vishakhapatnam,
paradip and Kolkata.
HIGHLIGHTS
1. Modern diversified facilities
2 Used for Loading and Unloading
3. Premier Cruise Destination
4. Skilled labour Force
5 24 Hour access.

14.4 DEDICATED FREIGHT CORRIDOR

a. A Dedicated freight corridor can be described as a network of railway
lines "dedicated" for the movement of freight trains (Goods trains).
b. Such dedicated Fright corridors are separate from the passenger railway
network to ensure uninterrupted movement of the freight trains.
C. Railway tracks under dedicated Freight corridors are often provided
with a higher voltage overhead power line than that of normal
passenger railway networks, so that the freight trains can attain higher
speeds.
d. The Dedicated Freight Corridor Corporation of India is a corporation
run by the Government
run of India to undertake planning and
development, construction and maintenance of the dedicated freight
corridors.
 (TYBMS
202 Logiatics and 5 C M iem-V)

Golden Quadrilateral Freight Corridor: metropolitan cities

quadrilateral linking the four eit.

e Jndian Railways
Mumbal, Chennai and Kolkata is commonly wn as the
known
North s
It has two diagonals. up
corridor. to a
Golden qu
Oolden quadrilateral Freight Mumbai) addingup to a
(Kolkata- en totai
(Delhi-Chennal) and East-West more than 55% of revenue earnin
router length of 10122km. It carries
freight traffic of Indian Railways.

Benefits of Dedicated Freight Corridor

used for running treight trains
a. Dedicated freight corridor is exclusively operations.
efficiency in
This leads to faster speed and
It facilitates running of longer and
heavier trains.
b. due to
on road transport is decreased to certain extent
C. Dependence
dedicated freight corridors. providing quicker and reliable
d. It ensures guaranteed transit time thus
service.
CONTAINER
14.5 INLAND CONTAINER DEPOTS/
FREIGHT STATIONS
is a common facility
a. Inland Container Depots/ Container Freight Station
expot/import laden containers
made available for temporary storage of
and empty containers
It is a common user customs controlled facility
with public authority
b. adequate handling
status, equipped with warehousing space,
equipments and lT infrastructure.
activities such as
CFS/ICD provides an integrated platform for (packing)/de-stuffing
C.
loading/unloading. transporting and stuffing
(unpacking) of containers.
 dern Logistics Infrastructure
S/ICD service providers
CFS/ICD 203
d. also ent
custo
stoms clearance, less tha extent
ms clearance, value-added
value-added services,
services, including9
warehousing, hub-and-spoke an
than container conso
services, etc.
consolidation, refrigerated
The main ditterence between
e
dock facility located near a CFS and
an ICD is that a CFS I5 an o
ocated in the hinterland the service ports. While an ICD is generaluy
(hinterland
Since a CFS is an off-dock facility means interior areas)
f.
helps in decongesting the located near the servicing ports,
port by shifting
activities outside the port cargo and customs related
area.
However, functionally there is
9 no distin ction
between an ICD and CFS.

APL

sNUKOR

Functions of ICDs and CFSs:

a. Receipt and dispatch/delivery of
containers.
b. Stuffing (packing) and de-stuffing
(unpacking) of container
C. Customs clearance.
d. Temporary storage of cargo and containers.
f. Maintenance and repairs of container units.
Advantages
1. A temporary warehouse.
2. Used as custom clearance.
3. Develops better relations.
4 Reduces congestions at ports.
5. Increases Business Transactions.
Disadvantages
1. Requires space.
2. Creates additional costs.
3. Requires material handling equipments.
4 Requires trained staffs.
204
Logistics and S C MTYBMS
3MS
Sem
14.6 MARITIME LOGISTICS -V
a. Maritime
transport inv
involves the shipment of goods (cargo) and people
sea and other waterways. by
b. More than
80% of vork trade is carried out by sea, con stituting
the most important by far
means of transport of goods.
C
aritime logistics has been traditionally regarded as primary means
as the primary
ot transporting parts and finished goods.
d. Maritime logistics involves planning and performance of sending
shipment by sea and other waterways from point of origin to a poin oint
a
destination and that too at a reasonable cost. of
e. Introduction of containerization revolutionized maritime transn sport
Maritime industry plays a crucial role in transportation of cargo acre
cross
the work.
One of the major concerns of maritime industry is the rising pirate attacks

14.7 DOUBLE STACK cONTAINERS J

a. Double stack container is a form of intermodal freight transport where
two containers are stacked on rail cars.
b. The concept of double stack container was introduced in North America
in 1984. However, in India the first double stack train was from Jaipur.
Pipavav route which became operational in March 2006.
C Using double stack technology, a freight train of a given length can cary
roughly twice as many containers, sharply reducing cost per container.
d. The double stack container service is expected to boost the
transportation of import-export goods.
e. At present, Indian Railways carries an estimated 34 million tonnes of
goods in double-stack trains.
Modern
qistics Infrastructure 205
UNIT TRAINS
14.8
init train,
A uni
also
known as block train. is a train in which all car
(wagons) car
arry the same commodity
same and are shipped from the same
origin to the destination, without being spilt up or stored enroute.
This saves time and money, as well as the hassle, delays and confusion
b. asSOciated with assembling and
disassembling trains at rail yards.
It a
also enables railways to compete more effectively with road and
C water transport.
However, unit trains are economical only for high
d. volume customers.
Unit trains are usually used for the transportation of bulkygoods such
as coal, iron ore, crude oil, cars, etc.

14.9 COLD CHAIN STORAGE

a. Cold chain is a logistic system that provides a series of facilities for
maintaining ideal temperature storage condition for perishables from
the point of origin to point of consumption in the supply chain.
b. Cold chain helps in transportation of temperature sensitive products
along a supply chain while protecting the quality of these products.
C. It is used to extend and ensure the shelf life of products
such as fresh
agricultural produce, frozen food, chemicals vaccines and
pharmaceutical drugs.
206 Logistics and S CM (TYBMs s
MSSem-V
d. A cold chain should never be broken. A well organised ised cold
ch
the products.
esSpoilage, retains the quality ofgenerally consists of:
e. ne cold chain logistics infrastructure
i. Pre-cooling facilities ii. Cold storages
ii. Refrigerated carriers iv. Packaging
v. Warehousing.
vegetables grown in India get Was
f. About 30% of the fruits and
storage facility. Only 2% of i
annually due to insufficient cold Re.
contrast to 15% in China and 85%
products get cold storage facility in
in Europe and North America. Logistics?
What is Cold Chain
TEMPERATURE COLD CHAIN
CONTROL LOGISTICS
LOGISTICS (REFRIGERATION)

Advantages of Cold Chain

of the product.
a. Reduce costs due to adequate availability
b. Improve product integrity.
C. Increase customer satisfaction by making available at right time andin
right condition.
d. Reduce wastage and returns of expired stock.
Disadvantages
enterprises with high investment
a. Cold Chain storage is suitable for large
for smaller firms.
andmaintenance costs. Thus, it is not suitable
will encounter issues
b. Moreover, businesses using a cold storage facility to where your
near
with accessibility. If the storage facility is not located
transported to, you may need to arange for a
stock needs to be
refrigerated truck to transport your goods- incurring another extra cost.
Cold chain facility would not work if there is power shortage in a
particular area.
REVIEW QUESTIONS
Q.1.0bjective type questions.
(A) Fill in the blank:
1. is a network of highway connecting Indians top four
metropolitan cities.
2. ports are ports which has capacity to accommodate a fully
loaded ship.
3. is a form of inter model fright transport where two
containers are stacked on rail cars.
4. A unit train is also known aas
 dern Logistics Infrastructure 207
5
he
nelps in transportation
of temperature sens like milk, fish.
6. is a one stop solution perature sensitive products
for all logistical needs.
are ports which
loaded ship. provides the capability to accommodate a fuly
A can be described
as
the movement of freight trains. a network of railway lines "Dedicated for
9. provides an integrated
unloading. transporting platfom for activities such as din or
and stuffing& De-stuffing
10. is concermed of containers.
with shipping
other water ways. activities of goods and people by sea
11. 1Sa fom of intermodal
are stacked on rail cars. freight transport where 2 contalnet
12. A in which
all cars carry the
from thesame origin to the same same commodity and are shipped
enroute. destination, without being slit up or storea
Ans: 1. Golden quadrilateral 2. Deep
water ports 3. Double stack containerS
4. Block train 5. Cold chain. 6 Logistical
parks 7.Deep water ports 8. Dedicated
freight comidor 9. ICD/CFS 10. Maritime
logistics 11 Double stack containers 12.
Unit train
(C) Match the following
A
B
1. Golden Quadrilateral A. Premier Cruise destination
2. Container Freight station B. National highway Authority of
India
3. Inland container station C. Off dock facility
4. Double stack containers D. Located in hinter land
5. Cold Chain storage E. North America 1984
6. Unit train
F. Logistics+ Refrigerator
7. Deep water ports G. Block train
Ans. (1- B)(2- C)(3- D)(4- E)5- F),(6-G)(7-A)
Q.2. Write short notes on:
1. Golden Quadrilateral.
Dedicated Freight Corridor.
3. Deep Water Ports.
4. Maritime Logistics.
5. Unit Train.
6. Double Stack Containers
7. Inland Container Depots/ Container Freight Stations.
8. Logistics Parks.
9. Cold Chain.
 208 Logistics and S C M (TYBMS Sem -V)

Chapter5 Logistics Outsourcing

SYNOPSIs
15.1 Meaning of Outsourcing
15.2 Objectives of Outsourcing
Outsourcing
15.3 Benefits/ Advantages of
Provider
15.4 Third Party Logistics Service
Provider
15.5 Fourth Party Logistics Service
15.6 3 PL V/s 4 PL
15.7 Drawbacks of Outsourcing
Selection of Logistics Service
Provider
15.8
15.9 Outsourcing Value Proposition.
-

Review Questions

15.1 MEANING OF OUTSOURCING]

as contracting of one or more of company's
Outsourcing can be defined
activities to outside service providers in order to reduce
business processes/ core competencies. Outsourcing
operating costs and focusing on
the overall critical activities
as transferring the repetitive and non -

can also be defined

competent functions. The primary
to outside parties and focusing on core
operating cost and focus on
objective of outsourcing is to reduce the overall
(expertise) for maximum utilisation of available resources
core competencies
organisation.
(financial, manpower, technology, etc.) of the
Why do organisations outsource their business process?
The key factors which have led to a growing
trend of outsourcing are:
business process.
a. Lack of expert labour in some portions of the
-

on the
b. Availability of cheap labour outside, without compromising
quality of output.
business
C Ability and feasibility to concentrate on the other crucial
processes.
 Outsourcing
Logistics 209
OBJECTIVES
15.2 OF OUTSOURCING

Gome of the most common objectives

of Outsourcing are as
Reducing and controlling
operating costs.
O
b.
Focus on core competent functions
by outsourcing non
activities.

C.
Improving company focus.
d. Gaining access to world class
capabilities.
e.
Freeing internal resources for
other purposes.
Streamlining or increasing efficiency
for time
-
consuming functions.
Maximizing use of external resources.
9
Sharing risks with a partner
h. company.
i Reduce major investments and avoid
financial risks.
Improve flexibility in functions.
k. Improve financial ratios.
Enhance market credibility.
m. Improve overall operating performance.

15.3 BENEFITS/ADVANTAGES OF OUTSOURCING|

1. Swiftness and expertise:
Most of the times tasks are outsourced to
vendors who specialize in
their field. The outsourced vendors also have
specific equipment and
technical expertise which enables them to complete the
tasks faster and
with better quality output.
2. Concentrating on Core Processes rather than the supporting
ones:
Outsourcing the supporting processes gives the organisation
more time
to strengthen their core business processes. Thus,
some companies
outsource in order to eliminate distractions and force themselves to
concentrate on their core competencies.
3. Reduced Operational and Recruitment Costs:
Outsourcing eliminates the need to hire individ uals in- house, hence
recruitment and operational costs can be minimised to a great extent.
This is one of the prime advantages of outsourcing.
 Logistics and S C M (TYBMS
210 m-V
4. Risk Sharing: process
components of the business outsourcerhelp th
Outsourcing certain responsibilities to the edvendo
organisation to shift certain the company.
reducing risk of
Thus,outsourcing helps in
5. Staffing Levels:
is to achieve headcount rol.
outsourcing
Another common reason for staffing that may occur due to
cha
in
or minimize the fluctuations Companies also outsource in orderin
service.
demand for a product or employees, or to provide more
develo
reduce the workload on their for freeing them from tedious tasks
opportunities for their employees
Technology:
6. Save on Infrastructure and in infrastructure
for investment the
Outsourcing eliminates the need responsibility of the business procoe.
esses
outsourcing partner takes the for the same.
develops infrastructure
and hence
7. Increasing in house efficiency:
-
,
partner. the
tasks to the outsourced
Once the company allocates the employees and the outsourced
workload will be shared between
the efficiency of internal employees
partner. This enables to increase
8. Run your business 24 x 7: a different time
to a country like India, which is on
Offshore outsourcing making full use of your 24 hour
advantage of
zone, gives you the added outsourcing partner can take
day. Since your night is their day, your
home. They
your work even after your employees go
over and continue it back for your review next
day, so
critical tasks and send
can complete done in a day,
outsourcing here is that you get more work
the benefit of
increasing your overall productivity.
customers:
9. Improve Service and Delight the
activities will enable the firm to provide on time
Outsourcing certain
quality services to customers. This will result in
deliveries and high -

a stream of loyal
satistfaction and thus creating
increased customer
customers.
Conclusion
competition, companies started outsourcing non-
Due to increased
(non-core) activities to outside service providers who are experts
critical
in doing that jobs with
efficiency, effectiveness and at reduced cost.
 Ou
Legieties urdng 211
L THIRD PARTY LOGISTICS SERVICE PROVIDER
15.47
A third party logistics service provider is a firm that provides
specialised services to its customers. Third party logistics serve
providers provide various logistical services such as transportation,
warehousing, etc.

They own the logistical infrastructure (assets) of their own

functional area.
Example: Transportation service provider has its own transport
vehicles; warehousing service provider has its own warehouses,
etc.
They perform the work entrusted by the customers, i.e. outsourced
work.
It focuses on one or more functions of supply chain. (E.g.
transportation, warehousing). Thus, it involves a narrow approach.
They specialize in their own functional area. E.g. transportation
service
ice provider specialises in transportation activities,
warehousing service provider specialises in warehousing activities.
It focuses on implementation and execution of activities.

3PL

Types of 3PL Service Providers

1. Standard Service Provider
These 3PL service providers perform all basic activities such as picking
and packing, warehousing and distributio
212 Logistics and S CM (TYBMS S
Sem-V
2. Service Developer
These 3PL service providers perform value-added services
such
tracking and tracing, cross-docking and specific packaging. as
3. Customer Adapter
This comes in at the request of a customer. It is when the 3P
takes
over complete logistics of the firm.
4. Customer Developer
This is the highest level of 3PL. This is when the 3PL service prosi
integrates itself with the company, and ends up taking over the
logistics operation.
Advantages of 3PL:
1. Swiftness and Expertise:
Third party logistics service providers are specialised in their own
ou
functional area. Moreover, they have specific equipments and technical
expertise which enables them to complete the tasks faster and with
th
better quality output.
2. Concentrating on core processes rather than the supporting ones:
Outsourcing the supporting processes to third party logistics service
providers gives the organisation more time to strengthen their core
business processes. Thus, some companies outsource in order to
eliminate distractions and force themselves to concentrate on their core
competencies.
3. Reduced Operating Costs:
Outsourcing eliminates the need to hire individuals in- house, hence
recruitment and operational costs can be minimised to a great extent.
This is one of the prime advantages of outsourcing.
Save on Infrastructure and Technology
Outsourcing eliminates the need for investment in infrastructure as the
outsourcing partner takes the responsibility of the business processes
and hence develops infrastructure for the same.
5. Increasing in - house efficiency:
Once the company allocates tasks to the outsourced partner (3PL), the
workload will be shared between the employees and the outsourced
partner. This helps to increase the efficiency of internal employees.
Logistics tsourcing 213
prove Servi
rvice and Delight the
6. Customers:
Outsourcing certain activities will
enable the firm provide on time
to
deliveries and high quality services
to customers. This will resut
increased customer satisfaction
and thus creating a stream of oya
customers.

Conclusion
Due to increased competition, companies started outsourcing non
tical (non-core) activities to outside service providers who are experts
that jobs with efficiency, effectiveness
in doingfims are external and at reduced cost.
These to the company and perform one or more
logistical operations.

15.5 FOURTH PARTY LOGISTICS SERVICE PROVIDER

A fourth party logistics service provider is basically
a consultancy firm
that acts as a link between third party service provider and the one who
needs such services.
They do not own any logistical infrastructure.
They are not the actual performers of logistical activities. They arrange
and assemble such performers.
It focuses on all the functions involved in supply chain. Thus, it involves
a broader approach.
Their supremacy is not restricted to one functional area. They can
arrange and assemble performers for all functional areas.
It focuses on planning and designing of activities.
Thus, Fourth Party Logistics Provider is basically a supply chain
integrator that manages the resources, capabilities and technologies of
its own organisation with those of complementary service provider
(3PL) to deliver a complete Supply Chain solution.
The Fourth Party Logistics provider would gather together all the
constituent parts such as systems, transportation service provider,
warehousing service providers, inventory management, and packaging
with a view to providing the client with a fully integrated supply chain.
In return the client will pay an appropriate fee and concentrate on its
core business.
A fourth Party Logistics provider is also sometimes called as a Lead
Logistics provider.
214
Logistics and S C M (TYBMS SsSem
-V)

4pl

3PLS
Trudding
3PLS
Oceam treight

Client
4PL 3PLS
Airtreigh

3PLs
Warehousing
3PLS
Integrator

arun paianisamy!| MBA, TNAU. S/282014

Advantages of 4PL:
1. Concentrating on core processes rather than supporting ones.
Outsourcing the supporting processes to fourth party logistics service
providers gives the organisation more time to strengthen their core
business processes. Thus, some companies outsource in order to
eliminate distractions and force themselves to concentrate on their core
competencies.
2. Reduced Operational Costs.
Outsourcing eliminates the need to hire individuals in- house, hence
recruitment and operational costs can be minimised to a great extent.
This is one of the prime advantages of outsourcing.
3. Save on Infrastructure and Technology.
Outsourcing eliminates the need for investment in infrastructure as the
outsourcing partner takes the responsibility of the business processes
and hence develops infrastructure for the same.
Improve Service and delight of customers.
Outsourcing certain activities will enable the firm to provide on time
deliveries and high - quality services to customers. This will result in
increased customer satisfaction and thus creating a stream of loyal
customers.
5. Combines the advantages of in and outsourcing:
Fourth Party Logistics presents a solution that incorporates the
advantages of both in sourcing and outsourcing to provide maximum
overall benefit.
Logistics utsourcing
215
Conclusion
A 4PL fimm fulfils all the different
ctead of going
instead going to
to many 3PL needs of the client from a single sourc
service
Athere are very tew 4PLservice providers 4PL is an
and
concept
emerging cone
an emerging
providers across the
worid.
15.6 3 PL V/S 4 PL
3PL
1. A third party logistics service 4PL
provider is a fim that
provides 1. A fourth party logistics service
specialised services provider is basically a consultancy
to its
customers. Third party logistics fim that acts as a link between
service providers provide third party service provider and
various the one who needs such services.
logistical services such
Such
transportation,warehousing, etc.as
2. They own the logistical 2. They do not own any logistical
infrastructure (assets) of their own infrastructure.
functional area.
Example: transportation service
provider has its own transport
vehicles; warehousing service
provider has its own warehouses,
etc.
3. They perform the work entrusted
3. They are
by the customers, i.e. outsourced not the actual
perfomers of logistical activities.
work. They arange and assemble such
perfomers.
4. It focuses on one or more 4. It focuses on all the functions
functions of supply chain. (E.g involved in supply chain. Thus, it
transportation, warehousing). involves a broader approach.
Thus, it involves a narrow
approach.
5. They specialize in their own 5. Their supremacy is not restricted
functional area. E.g. to one functional area. They can
transportation service provider arrange and assemble performers
specializes in transportation for all functional areas.
activities, warehousing service
provider specialises in
warehousing activities.
6. It focuses on implementation and6. It focuses on planning and
execution of activities. designing of activities.
216 Logistics and S C M BMS Sem
-V
15.7 DRAWBACKSOF OUTSOURCING
1. Loss of Managerial Control:
when the company outsources its activities and tunctions to
function d
.
management and control of that
servi providers, the
service providers. Thus, it will result in Lets
loss of
company. Losing management contof
transferred to the outside control of
nanagerial control of the longer be
be able to cof
functions means that you may no adie
t control
Ousiness
operations of activitiesthat you outsource.
2. Hidden Costs: hid
effective activity, it may have few iden
Although outsourcing is a cost while signing a contract beta ween
legal costs incurred
costs, such as legal problems
may arise
may arise ifif the
companies. Hidden costs and
terms and conditions are not clearly defined.
outsourcing
Confidentiality:
3. Threat to Security and infomation that keeps it running. Ona One
any business is the
The lifeblood of is the risk of losing sensitive
da a
disadvantages of outsourcing
of the biggest Thus, it is important
to evaluate the tho
loss of confidentiality.
and the
carefully before undertaking the contract
outsourcing company
4. Quality Problems: profit. Since tho
company will be motivated by
The outsourcing profit will
fix the price, the only way for them to increase
contract will services
expenses. This may affect the quality of
be to decrease doesn't
quality can also arise if the outsourcing provider
Problems with working inan
proper processes and / or is inexperienced in
have
outsourcing relationship.
to the Financial Well Being of Another Company:
5. Tied are being outsourced, an
functions of the company
If important
dependent on outsourcing service provider. In
organisation is mightily
outsourced service provider faces any risk such as bankruptcy,
case if
of company.
financial loss, etc. it may affect performance
6. Bad Publicity and ill Will:
to outside service providers, the
Due to outsourcing of certain activities
due to performance of
goodwill of the company may get affected
providers. In case if outsource provider does not
outsourced service ill -
may lead to bad publicity and
perform its activities properly, then it
will of the company.
Conclusion
Outsourcing business activities has its own advantages as well as
Thus,
the advantages of
disadvantages. If the outsourcing disadvantages outweigh
outsourcing, then you should avoid outsourcing those operations.
 Outsourcing 217
istics
ELECTION OF LOGISTICS SERVICE PROVIDER
15.8S
mpany that
company wan to outsource
that wants
Thers its activities to outside service
has to go through the followin process for selection of service
providers has
providers.

Defining the Logistical Problem

Identifying the areas of Problem

Establishing Objectives of Outsourcing

Searching for Potential Service Providers and Accepting Proposals

Evaluation of Proposals and Selection of Service Provider

1. Defining the Logistical Problem:

The first and foremost step in selection of service provider is to identify
the problems that the company is facing currently. The problem may
relate to increase expenditure on various logistical activities, longer
order processing time, delay in delivery of goods to customers,
increased customer complaints, etc.
2. ldentifying the areas of Problem:
Once the problem is identified, the next step is to identify the areas of
the problem. For Example, Logistics is a combination of various
functions such as transportation, warehousing, material handling.
inventory management, packaging, etc. Thus, it is important to identify
whether the problem is relating to transportation, warehousing, material
handling and so on.
 Logistics and S C M (TYBMSSem-V
218
Outsourcing:
3. Establishing Objectives of of outsourcing the activ
objectives es
is to establish Outsourcing may be undert. ken to
ne next stepservice providers. forarny
ne outside
of the following reasons:
controlling operating cost.
a. Keducing and by outsourcing nonh - critical
competent functions
b. Focus on core
activities.
Service.
C. Improving Customer Providers and Accepting
Potential Service
Searching for
Proposals: service providers t non
search potential
The next step is to be outsourced. The compan..should
processes can
company's business potential service providers.
accept proposals from the
Selection of Service Provider:
5. Evaluation of Proposals and service providers, the next ter
from potential
After collecting proposals and select the best service provider The
is to scrutinise the
applications
be considered while selecting the service
so.
variousfactors that can infrastructure, experience and customer :
base
be logistical cos
provider may used by service provider,
technology
of service provider,
reliability of service provider, etc.
services,
Conclusion
the service provider is strategic in
of
The decision on the selection the logistical performance of
thel
on
nature and has long term effectsshould follow all the above steps while
organisation. Thus, a company
selecting the service provider.

15.9 OUTSOURCING -VALUE PROPOSITION

is to help an organisation to reduce the
1. The mission of logistics
operating costs and increase profitability.
the need for investment in infrastructure as the
2. Outsourcing eliminates processes
outsourcing partner takes the responsibility of the business
This helps the company
and hence develops infrastructure for the same.
to divert their investment for productive
purposes.
more
3. Outsourcing the supporting processes will give the organisation
companies
time to strengthen their core business processes. Thus, some to
outsource in order to eliminate distractions and force themselves
concentrate on their core competencies.
LogisticsOutsourcing 219
Moreover, once the company allocates
Mo
4. tasks to the outsourced partne
the workload will be shared between the employees
artner. This enables to increase the efficiency and the outsourced
pa of internal employees.
outsourcing certain activities will enable
5 deliveries and high the firm to provide on time
quality services to customers. This will result in
-

increased customer satisfaction and

thus creating a stream of loyal
customers.
With these value propositions, the decision on logistics outsourcing can
6.
be justifieed.
REVIEW QUESTIONS
o.1.0bjective Type questions

(A) Fill in the blank:

A partly logistics service provider is a firm that provides
1.
specialized services to its customers.

2. Fourth party logistics service provider is basically a firm

3 is contracting one or more company process activities to
outside firm.
4. partly owns logistics infrastructure of their own.

Ans:1. Third 2. Consultancy 3. Outsourcing 4. Third.

(B) Match the following
A B

1. Outsourcing A. Advantages of outsourcing

2. 3PL B Non critical activities

C. Service provider
3. 4PL D. Consultancy
4. Threat to confidentiality
core activities E. Drawback of outsourcing
5. Concertation on
Ans. (1- B)(2- C)(3- D)(4- E) (5-
A)

Q.2. Answer the following questions

1. What is Outsourcing? What
are the benefits of Outsourcing?
Logistics.
2. Write a note on Third Party
Logistics.
3 Write a note on Fourth Party
4. 3PL V/s 4PL.
Outsourcing?
5. What are the objectives of of Logistics Service Providers.
6. Explain the process of selection a value proposition.
as
7. Write a note on Outsourcing
 C M (TYBMS
220 Logistics and S Sem-V

Global Environme
onment
Logistics in the
Chapter 16
SYNOPSI1s

Global Supply Chain Supply Ch in

16.1 Managing the and
Globalisation on Logistics
16.2 Impact of
Management
Trends Chai
16.3 Global Logistics Logistics and Supply in
Challenges in
16.4 Global Issues
and
Management
Review Questions

GLOBAL SUPPLY CHAIN

MANAGING THE MANAGEMENT
16.1
LGLOBAL SUPPLY
CHAIN
all over the world has created the
economies boundaries of th
1. The globalization of business beyond the national the
opportunities for doing of technologies, enti.
ntire
advancement and development
country. Due to
become a single global market.
world has of the flow.
Management is the management storage
2. Global Supply Chain includes the movement and
It
goods across the countries. inventory and finished goods
righ#
process
raw materials, work in
-

all over the world

-

of origin to the point of consumption

from the point
global supply chain management has gained huge
3. The concept of globalisation and offshore sourcing.
importance with the increased
supply chain management is same as that of the
+. The objective of global
traditional supply chain management. i.e.
To reduce costs of procurement.
To decrease risks related to purchasing activities.
management
5. However, the major difference is that global supply
involves a company's worldwide orientation rather than local or
national orientation as in case of traditional SCM.
6. Transportation of goods between different countries is much more
complicated as compared to transportation within the country. The
major considerations in global cargo movements are selection of
transportation mode, insurance, packaging and documentation as per
law of land.
 Global Enuironment
Logistics in the 221
entation
Documer the most important part
is
of cross border
7. nsactions. The important
documents in cross border transaction are
port license, consular nvoice, commercial invoice, bill of lading
of origin, etc.
certificate
factors can also come
The other into play
nditions on the one side of the world here as well. For example,
8. conditions
often vary greatly from
those on the other side and can impact production and
shipping dramatically
ThuS, we can say that due to adoption
9. of globalisation, managing
lagistics and SCM activities at the global level
is a challenging task.
Mc
Donald's Global Supply chain
1. The success of McDonald India is the result of
managing its supply
chain well.
Donalds has four distribution
Mc
2 Kalamboli, Bengaluru and Kolkata.
centres in India at Noida,
For French fries Mc Donalds imports oil and fries.
AMc Donalds has following suppliers and it maintains good relations with
them. They are.
a. Amrit Foods for Milkshake mix
b. Cremica Industries for buns and breads
C. Dynamix Dairies for cheese
d. Trilacaya Agriculture for iceberg
lettuce.
Mc Donalds has maintained good relations
with farmers in ooty, Pune,
Dehradun and other places. Initially it was possible
to grow lettuce
only in winter but with Mc Donalds
taking efforts, lettuceis grown
around the year. al
5. Mc Donalds also has cold storage warehouses all
around world and
vegetables are placed in these warehouse within
half an hour of
harvest.
6 The also have refrigerated trucks for transporation.

16.2 IMPACT OF GLOBALISATION ON LOGISTICS

AND SUPPLY CHAIN MANAGEMENT
Introduction:
The globalization of economies all over the world has
created the
oPportunities for doing business beyond the national
boundaries of the
country. Due to advancement and development
of technology, entire world
 (TYBMS Sem-V)
222 Logistics and SCM
Globalization and supply chai chain
has become a single global Market. hand, che
supply chain
one
management are interred connected. On
On the other hand, globalizatin
alization
management enables globalization.
and new sources of Procurement.
PrOvides access to new customers
Impact of Globalization on Logistics
and SCM
opportunities and risks for th the
Globalization has created both more customo
This is because globalization has brought ers
companies.
brought large extent of competitors
and new markets but it has also
emergence of new markets for goods ane and
Globalization has resulted in labour, Th
resources and suppliers and new pools of is
service, new
the company to establish its business at
creates an opportunity for
global level. has made it
environment all over the world
A more collaborative costs and focus on these core
companies to reduce
possible for the
participate more profitably in the global trade
competencies in order to
been around for a long time but it has
Trade between nations had
due to enablers such as transportation and
increased in recent years
Nations and companies alike are focusing on
information technologies. participate more profitably in the
in order to
these core competencies competencies makes globalization
global trade. A combination of these
possible at a competitive price.
countries and companies to become more
Globalization has forced competitive advantage
efficient, creating the infrastructure and
necessary to survive in global markets.
challenges for logistics and
Globalization has also resulted in lot of
supply chain management. The
global market place has made supply
more volatile and hard to forecast as there is greater
and demand great distances. The
different companies spread over
dependence on
global network made the supply chain
more complex as the increased
plants are spread throughout the
number of suppliers, customers and
managers to maintain an adequate
world. This can make it difficult for
level of control over their operations.
Conclusion
the different markets
The global reach requires the understanding of
partners, risks and regulations. Hence
including the potential
globalization brings new opportunities and threats and impacts the
required skill set of the supply chain personnel, the information
technology and the way they operate.
 in the Global Environment 223
istics

6.3 GLOBAL LOGISTICS TRENDS

Production is being brought closer to the end user:

a. uehe
Increasing amount of production units are being brought closer to
end user as a result of increased labour and transportation Co
sa
Majority of producers have realised that they can maintain the
low costs and high level of quality, regardless of whether tne
production plants are located off shore or nearby. Bringingne
production closer to the end user results in fewer transportatton
shorter lead times. and easier planning of logistics flows.
b. Focus on Large Vessels for Transportation:
Nowadays, more and more shipping companies invest in larger vessels
15
to reduce operational costs. In general, larger the vessel, the lower
the cost per unit.
C. Focus on Green Logistics:
nmore
There is an ongoing trend in the society in general, where we are
aware of our planet and committed to take care of it. As the transport
and
industry is to be blamed for much of the emissions of carbon
nitrogen dioxide, there is a continuous focus on adopting green
transport solutions. The recent trend is to reduce transportation by

airways and roadways and focus on railways for environmental

concerns.
d. Continued Investments in IT Solutions for Logistics:
Having full control over entire logistics chain requires reliable
solutions. As the supply chain becomes more complex and dynamic,
there is a greater need for advanced information technology solutions
to facilitate better communication, co ordination, traceability and
transparency among supply chain members.
e. Growing Trend of E - Commerce:
There is a tremendous growth in e commerce industry in the past few
-

decades. More and more consumers are buying stuff online instead of
visiting physical stores. This affects the supply chain as they have to
continuously find new ways of providing last mile delivery services i.e.
transporting the goods to private persons or distribution points nearby.
Globalisation:
International and emerging markets have become a main part of the
overall business growth strategy for most of the companies. Going
International' has become the objectives of most of the companies.
This enhances the scope of logistical activities.
 Logistics and
BMS
S C MTYBMS Sem-V)
224

9 Ethical' Supply Chain:

interest
nsumer
amongst the consumey about
here is far more awareness and they purchase are manufact
goods
ne conditions in which the and retailers have to constantlyC strive to
hus, Global manufacturers societal or environmental.
and sourced 'in tmer
either
root out unethical practices are made
that
ncreasingly prefer products economic and environmentalh
way, minimising business, social,
on society.
h. Complexity of Supply Chains:increasingly complex and dynamie with
Supply Chain are becoming increasing quickly and
purch.
hasing
location being changed
sourcing
becoming smaller and more frequent.
order
AND CHALLENGES IN
16.4 GLOBAL ISSUES MANAGEMENT
CHAIN
LOGISTICS AND SUPPLY
has brought many benefits and opportunities fo
Although globalisation
poses certain challenges for the company.
the company, it also
(Fluctuation) in customer demand:
1. Increasing Volatility
has made supply and demand more volatila
The global marketplace
makes it very difficult for the company to ke
(fluctuating). This over great distances.
customers are spread
proper forecast as the
supply chain:
2. Increase complexity in the
global network has made the supply chain more complex as the
The customers and plants are spread
increased number of suppliers,
This can make it difficult for managers to
throughout the world.
an adequate level of control over their operations.
maintain
3. Political and Legal Differences:
from nation to nation. The
Political and legal environment differs
of countries in which a
complexity generally increases as the number
and legal environment
company does business increases. The political
many home markets. For example,
is not the same in all provinces of
exactly the same in all the
the political and legal environment is not

. states of India.
Cultural Differences:
while
Cultural differences pose one of the most difficult problems
differences
operating at global level. It is essential to understand cultural
free
at global level. However, many domestic markets are also not
cultural diversity.
 stics in the Global Enuironment 225

Currency unit differences:

5. currency unit differs from nation to nation. This may sometimes
The
nuse problems of currency convertibility, besides the problems of
exchange rate
exchange ate fluctuations. There may also be difference in the
monetary system and regulations of the country.
Language Difference:
operates at global level often faces problems due to
The company that
nquage differences. Even when the same language is used in different
countries, the same words or terms may have different meanings.
High Cost of Transportation:
1.
cost
When the markets are far removed by distance, the transportation
to
becomes high and the time required for the delivery also tends
too.
become longer. Distance also tends to increase certain other costs

REVIEW QUESTIONS

o.1.0bjective Type questions

(A) State whether the following are True or False
and
1 There is no difference between Global Supply Chain Management
National Supply Chain management.
2. Documentation and transportation of goods in case of cross border
transaction is not complicated
3. Globalisation has forced companies to become more efficient to survive
in Global Markets.
4. Supply Chain has not been affected due to growth of e-commerce
industry.
5. Cultural differences do not pose any problems at global level.
Ans: True: 3 False: 1,2,4,5.
(B) Fill in the Blanks
1. Demand & Supply has become more in global markets.
2 Globalisation has created both and for companies.
3. Companies nowadays invest in larger vessels to reduce
costs.
Ans: 1. Volatile, 2. Opportunities & Risk, 3. Operational.
Q.2. Answer the following questions
1. Write a note on Global Logistics Trends
2. Explain the impact of globalisation on Logistics and Supply Chain
Management.
3 What are the Global issues and challenges in Logistics and Supply
Chain Management.