BLOCK 2

LOGISTICS MANAGEMENT:
COMPONENTS
Logistics Management:
Components

62
 Procurement of Material and
UNIT 5 PROCUREMENT OF MATERIAL Inventory Control

AND INVENTORY CONTROL*

Structure
5.0 Objectives
5.1 Introduction
5.2 Understanding Procurement
5.3 Procurement Methods
5.4 Inventory Control: Conceptual Framework
5.5 Inventory Control Techniques
5.6 Automation in Procurement and Inventory Control
5.7 Conclusion
5.8 Glossary
5.9 References
5.10 Answers to Check Your Progress Exercises

5.0 OBJECTIVES
After reading this Unit, you should be able to:
Comprehend the concept and importance of procurement;
Differentiate between procurement and purchase;
Discuss the steps in a procurement cycle;
Provide the conceptual framework of inventory control;
Distinguish between inventory control and inventory management;
Examine the inventory control techniques; and
Assess the scope of automation in procurement and inventory control.

5.1 INTRODUCTION
The backbone of trade by getting goods delivered quickly on ordering is logistics
or supply chain. The major components of logistics management are procurement,
material handling, packaging, and transportation, with its related information
that enables control of movement and supply of goods. Procurement and supply
management involves buying the goods and services that allow an organisation
to operate in a profitable and ethical manner. Procurement is often responsible
for large chunk of companies’ revenue, so small reductions in costs can have a
huge impact on the profits. The processes employed to maximise a company’s
use of inventory is inventory control.

This Unit shall bring out the importance of procurement, make a distinction
between procurement and purchase, discuss steps in procurement cycle, and
examine the important inventory control techniques.

* Contributed by Col. (Dr.) Rajive Kohli, Management Consultant, New Delhi

63
Logistics Management:
Components 5.2 UNDERSTANDING PROCUREMENT
All organisations lay great efforts to acquire raw materials, components, products,
services, and other resources from suppliers for their operations. In a supply
chain, each organisation buys materials from upstream suppliers, adds value,
and sells them to downstream customers. As each organisation, in turn, buys and
sells, the materials move through the whole supply chain. The trigger that initiates
each move is a purchase which is a message that an organisation sends to a
supplier, saying, ‘we have agreed on terms, so send us materials and we will pay
you’. In this process, procurement, purchasing, and sourcing are interchanging
tasks having separate functions as follows:

Procurement: It is the process of identifying and obtaining goods and

services. It includes sourcing, purchasing and covers all activities from
identifying potential suppliers through to delivery from supplier to the users
or beneficiary.

Purchasing: It is the specific function associated with the actual buying of

goods and services from suppliers.
Sourcing: It is simply identifying and working with appropriate suppliers.
It is the process of acquiring goods, works and services.
Procurement vs. Purchasing
Procurement and purchasing are two processes that are done during the process
of acquiring goods and services for an organisation.

Procurement is a strategic process of product or service sourcing, for example

researching, negotiation and planning. It comprises the following activities:
Identifying needs and requirements
Sourcing and evaluating local, national, or international suppliers
Negotiating terms, conditions, and contracts
Building and managing supplier relationships
Performing cost savings and profit margin analysis
Receiving goods/services and warehouse management
Processing and organising payment with supplier
Procurement has a vital role in an organisation involving a process of identifying,
shortlisting, selecting, and acquiring suitable goods or services or works from a
third-party vendor through a direct purchase, competitive bidding, or tendering
process while ensuring timely delivery in the right quality and quantity. Proper
procurement is essential to:

Control spending as organisations can spend more than two thirds of revenue
on procurement, so even small cost reductions can have a big impact.

Prevent corruption as it is believed to add up to 25% of the cost of

procurement contracts.

Protect the brand of the product or service as accountability is ensured due

64
 to information relating to inadequate supply chains now go right to the Procurement of Material and
Inventory Control
higher levels of organisation, with the company keeping a significant control
on it.
The role of procurement in an organisation is to:
a) Ensure uninterrupted flow of raw materials at the lowest total cost.
b) Improve the quality of finished goods produced; and
c) Optimise customer satisfaction.
7 R’s of Procurement. The goal of procurement as we have already discussed in
Units 1 and 4 of this Course is to carry out its activities in such a way that the
goods and services, so procured are of the:
1) Right Price
2) Right Quantity
3) Right Quality
4) Right Time
5) Right Place
6) Right Source
7) Right Service
The aim of procurement is to primarily have a reliable supply of materials. Other
more immediate goals being:

Organising a reliable and uninterrupted flow of materials into an

organisation.

Working closely with user departments, developing relationships, and

understanding their needs.

Identifying good suppliers, working closely with them, and developing

beneficial relationships.

Buying the right materials and making sure that they have acceptable quality,
arrive at the time and place needed, and meet any other requirements.
Negotiating good prices and conditions.
Keeping stocks low, considering inventory policies, investment, standard
and readily available materials.
Moving materials quickly through the supply chain, expediting deliveries
when necessary.
Keeping abreast of conditions, including pending price increases, scarcities,
new products, etc.
Purchasing
It includes the processes concerned with acquiring goods and services, including
payment of invoices being a part of the wider procurement process. Purchasing
is a function that focuses on how products and services are acquired and ordered,
such as raising purchase orders and arranging payment. It has the following
activities:
65
Logistics Management: Receiving purchase requisitions
Components
Evaluating quotes from suppliers
Raising and processing the purchase orders
Purchasing contributes by:
Actively seeking better materials and reliable suppliers.
Working closely with strategic suppliers to improve the quality of materials;
and
Involving suppliers and purchasing personnel in new product design and
development

5.3 PROCUREMENT METHODS

Procurement Process
The procurement process includes identifying a specific product or service
requirement and the various steps on how a business finds new or existing
suppliers, builds supplier relationships, measures cost savings, minimises risk
and is predominately focused on value and return on investment.

A typical procurement process can involve the following steps:

a) Surveying the market
b) Identifying potential suppliers
c) Creating an approved list of vendors
d) Assessing internal needs
e) Preparing a purchase order
f) Requesting proposals and evaluating quotations
g) Selecting the right supplier and negotiating
h) Receiving goods and performing quality checks
i) Developing and managing contracts
j) Obtaining invoice approvals and fulfilling payment terms
k) Establishing a good supplier relationship
The purchasing process has the following steps:
a) Obtaining a purchase requisition
b) Requesting proposals and evaluating quotations
c) Dispatching official purchase orders
d) Receiving products and services
e) Checking the quality of delivered items
f) Providing payment to vendors
Procurement can be either of the following types:
a) Merchant buyers: These include wholesalers and retailers who purchase
for resale.
66
 Procurement of Material and
b) Industrial buyers: These include those who purchase raw materials, capital Inventory Control
equipment, or maintenance, repair, and operating (MRO) supplies.

Procurement activities are often split into two distinct categories:

a) Direct spend: It is production-related procurement that encompasses all
items that are part of finished products, such as raw material, components,
and parts. It focuses on supply chain management that directly affects the
production process of manufacturing firms.

b) Indirect procurement: It is non-production-related acquisition by obtaining

“operating resources” which a company purchases to enable its operations;
comprises a wide variety of goods and services, from standardised items
like office supplies and machine lubricants to complex and costly products
and services such as heavy equipment, consulting services, and outsourcing
services.

Procurement Cycle
A general approach to procurement has a series of common steps, which start
with a user identifying a need for materials and end with its delivery. Procurement
cycle may be considered as a process to include:

a) Identification of need and requirements: Based on business objectives,

establish a short-term strategy of three to five years followed by defining
the technical direction and requirements.

b) External macro-level market analysis: Based on its requirements, an

organisation assesses the overall marketplace by understanding the
competitiveness of the marketplace and trends that are likely to impact the
organisation.

c) Cost analysis: Accumulation, examination, and manipulation of cost data

for comparisons and projections to help in plan.

d) Supplier identification: Identifying suppliers who can provide the required

product or services from different sources.

e) Entering into Non-disclosure agreement (NDA): Request vendors to sign

an NDA prior to engaging with them to protect the organisation where
sensitive information is shared with multiple potential vendors.

f) Supplier communication: Typically conduct competitive bidding processes

using a variety of competitive bidding methods such as requests for
quotation, proposals, information, tender, solution or partnership; making
direct contact with the suppliers; samples examined or trials undertaken;
and doing best value assessment.

g) Negotiations and contracting: To include price, availability, customisation,

and delivery schedules which are outlined in purchase order or formal
contract.

h) Logistics and performance management: To complete supply process

based on contract terms, review their experience for reorder to consider
continuing with same suppliers or continue with other suppliers. 67
Logistics Management: i) Supplier management and liaison: Using supplier relationship
Components
management process for more strategic supplies within a formal governance
process.
Check Your Progress Exercise 1
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) Differentiate between procurement and purchase.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) What are the components of procurement cycle?

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

5.4 INVENTORY CONTROL: CONCEPTUAL

FRAMEWORK
Inventory is defined as the sum of raw materials, fuels and lubricants, spare
parts, maintenance consumables, semi- processed materials, and finished
goods /stock at any given point of time. Since these resources are idle, when
kept in stores, inventory is defined as a resource of any kind having an economic
value.

Inventory control or stock control is regulating and maximising company’s

warehouse inventory by the activity of checking its stock. It is based on scientific
methodical practice of verifying inventory and focusing on associated facets of
inventory management, such as forecasting , within an organisation to meet the
demands placed upon that business, including supply chain management,
production control, financial flexibility, and customer satisfaction. The goal being
to generate the maximum profit from the least amount of inventory investment
without compromising customer satisfaction.

Inventory control is a system by which material of the right quantity and quality
is made available to the users, at the right time, for a given production activity,
maintenance, or repairs with the minimum of investment.

Inventory management is the process of efficiently overseeing the constant

flow of material into and out of an existing inventory. This process usually involves
68
controlling the materials received to prevent the inventory from becoming too Procurement of Material and
Inventory Control
high or dwindling to levels that could put the operation of the company into
jeopardy. A competent inventory management also seeks to control the costs
associated with the inventory, both from the perspective of the total value of the
goods included and the tax burden generated by the cumulative value of the
inventory.

Inventory Control vs. Inventory Management

Inventory control and inventory management seem similar and some use it
interchangeably. Both deal with different aspects of inventory optimisation, but
both focus on the amount of stock to be ordered. Inventory control is the process
of managing stock once it arrives at a warehouse, store, or other storage location;
planning for sales and stock-outs, optimising inventory for maximum benefit
and preventing the pile-up of dead stock. Inventory control is the managerial
procedure for implementing an inventory policy. The accountability aspect of
control takes stock of material held at a location and tracks any additions and
deletions. Inventory control defines how often inventory levels are reviewed to
determine when and how much to order. Accountability and tracking can be
performed on a manual or computerised basis.

Inventory management involves tracking inventory throughout the supply chain,

from sourcing to order fulfilment. It is a broader term that covers how to obtain,
store, and profit from raw materials and finished goods alike. Inventory
management is the process of ensuring the safe and efficient storage and control
of stock, including the managing the demand and movement of materials.

Costs of Inventory
Inventory is costly and large amounts are generally undesirable. It can have a
significant impact on the company’s productivity and its delivery time. The heart
of inventory decisions lies in the identification of inventory costs and optimising
them relating to the operations of the organisation.

Holding (or Carrying) Costs. The cost in terms of money to hold inventory,
that includes the costs for storage facilities, handling, insurance, pilferage,
breakage, obsolescence, depreciation, taxes, etc. Clearly, high holding costs tend
to favour low inventory levels and frequent replenishment.
a) Fixed Costs
Capital costs of warehouse or store
Costs of operating the warehouse or store
Personnel costs
b) Variable Costs
Cost of capital in inventory
Insurance on inventory value
Losses due to obsolescence, theft, spoilage
Cost of renting warehouse or storage space

69
Logistics Management:
Components 5.5 INVENTORY CONTROL TECHNIQUES
There are some important inventory control techniques. These include:

ABC Analysis
This technique is considered effective to exercise control over inventory. Here
materials are classified into three categories in accordance with their values.
Group ‘A’ constitutes high consumption items the value of which may be only
10 to 20 per cent of total items but account for about 50 per cent of the total value
of the stores. A greater degree of control is exercised to ensure proper usage of
these items. Group ‘B’ consists of medium consumption items that constitute 20
to 30 per cent of the inventory where a reasonable degree of control is needed.
Group ‘C’ category has inventory that is of low consumption value. Though it
covers 70 to 80 per cent of the inventory it costs about 20 per cent of total value.
This technique helps in identifying key items and controls them.

Economic Order Quantity

It focuses on taking decisions regarding how much quantity of inventory should
be ordered at any point of time and when it should be placed.

Just in Time
In this method of inventory control, the company keeps only as much inventory
as it needs during the production process. It orders inventory when the current
stock reaches the replenishment stage. This is considered a little risky method of
inventory control as a little delay in ordering of new inventory can lead to out of
stock situation.

Materials Requirements Planning Method

It is an inventory control method in which the manufacturers order the inventory
after considering the sales forecast. Based on data and market demand, the
inventory is reordered.

Vital Essential and Desirable (VED) Analysis

This technique is mainly used by companies for controlling spare parts of the
inventory. Vital items are those without which the functions of the organisation
are adversely affected. Essential items are those necessary for the long-term
performance of organisational functions and the absence of which would not
cause any interruption of activities. Desirable items are those which are necessary
but do not cause any immediate loss to production and can be dispensed with.

Inventory control techniques often rely upon barcodes and radio-frequency

identification (RFID) tags to provide automatic identification of inventory objects
which can be processed with inventory management software. The items are
labelled with a quick response (QR) Code, which can then be read with smart-
phones to keep track of inventory count and movement. These systems are useful
for field service operations, where an employee needs to record inventory
transaction or look up inventory stock in the field, away from the computers and
hand-held scanners.

70
Inventory control is a key activity. Excessive investment in inventories reduces Procurement of Material and
Inventory Control
profits due to cost of carrying inventories. This is more important in case of
import of inventories. This needs proper scheduling of inventories.

5.6 AUTOMATION IN PROCUREMENT AND

INVENTORY CONROL
There are several stakeholders involved in procurement processes, from internal
members such as employees in different departments to external parties like
vendors and contract negotiators, all demanding meticulous documentation
comprising a complex web of procedures. A single purchasing cycle might last
for weeks, whereas a whole procurement cycle can last for months or even
repeated. If performed manually, these activities will be detrimental for efficiency,
as the process of revising every document, evaluating every bid, and reviewing
every invoice will cause too much delay. A comprehensive digital procure-to-
pay solution, on the other hand, allows organisations to store all purchasing and
procurement related files in one centralised database. While a shared network
drive can fulfil this purpose, cloud-based procurement software can automate
tasks at a level of convenience and efficiency that a manual system simply cannot
match.

Most organisations use some form of e-procurement, advantages being:

a) Allowing instant access to suppliers anywhere in the world.
b) Creating a transparent market where products are readily available.
c) Automating procurement with standard procedures.
d) Reducing the time needed for transactions.
e) Lessening costs
f) Outsourcing some procurement activities to suppliers or third parties.
g) Integrating seamlessly with suppliers’ information systems.
The impact of an e-procurement solution on procurement of material and inventory
control is to streamline the process of acquisition by removing repetitive data
entry, improving the workflow process, and enhancing report generation. The
acquisition of products and services is a huge task as it involves several decision
makers, departments, and a high level of paperwork: causing process bottlenecks,
slowing decision making and complicating the procurement process. Automating
key activities shall help in increasing the transparency of important information
and aid decision making. Automated procurement systems also enable employees
to concentrate on core activities to add further value within the business such as
procurement strategy and improve supplier relationships.

To help maintain supplier management, and have an overview of negotiations

and projects, many organisations utilise procurement software to hold and manage
critical information. Typical procurement automation scenarios can include:

Procurement software integration with accounting, Enterprise Resource

Planning (ERP) and Warehouse Management System (WMS)

Automating Request for Quotations (RFQs) when stock levels reach reorder
points 71
Logistics Management: Automated stock reorder notifications through email or SMS
Components
Automatic creation and distribution of purchase orders
Automated order confirmation emails
Electronic Data Interchange (EDI) integration
Developments in technology shape the way the procurement teams interact with
stakeholders and it benefits the organisation in the following manner:
Integrating a digital transformation strategy
Adopting artificial intelligence systems
Installing cyber security systems and protection
Making use of robotics for smart inventory management
Using big data to drive decisions
Making organisation adapt to changing procurement trends can help in digital
transformation, enhance supplier synergies and bring about cost savings.
Check Your Progress Exercise 2
Note: 1) Use the space below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What is inventory control? List the techniques.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) What are the benefits of automation in the area of procurement?

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5.7 CONCLUSION
Inventory management is a critical concern of organisations as they help in
planning their business future. Excess inventory, inventory record accuracy, and
inventory velocity are still at the fore when discussing e-solutions implementation
and technology developments. Inventory control focuses on the analysis that
facilitates well-informed inventory decisions by presenting frameworks that assist
in determining when inventory should be ordered, how much should be ordered,
and ultimately how the inventory ordered should be managed and accounted for.
72
Modem information technology has created new possibilities for more Procurement of Material and
Inventory Control
sophisticated and efficient control of supply chains. Most organisations can reduce
their material flow costs substantially. Inventory control techniques are
particularly important components in this process.

5.8 GLOSSARY
Artificial Intelligence: It is the ability of a computer system to perform tasks
normally requiring human intelligence. The systems work on their own without
being encoded with commands. These tasks include visual perception, speech
recognition, and translation between languages etc. In 1955, John McCarthy
came up with the name ‘artificial intelligence’.

Big Data: It involves computing and analysis from extremely large data sets to
reveal patterns and trends especially relating to human behaviour and interactions.

Cyber Security: It is the protection of computer systems and networks from the
theft of or damage to their hardware, software, or electronic data, as well as from
the disruption, or misdirection of the services they provide.

Electronic Data Interchange (EDI): It is the transfer of data from one computer
system to another by standardised message formatting, without the need for human
intervention. It facilitates multiple companies in different countries to exchange
documents electronically,

Enterprise Resource Planning (ERP): It is the integrated management of main

business processes. In logistics management it relates to a computer system that
analyses the current inventory forecast demand and expected delivery of new
supplies to calculate demand and identify requirements from suppliers.

QR code: Short for “quick response” code is a type of barcode that contains
a matrix of dots. It can be scanned using a QR scanner or a smartphone with
built-in camera.

Request for Quotation: It is a business process in which a company of firm

requests a quotation from a supplier for the purchase of specific products or
services. It is generally call or invitation for bids.

Robotics: It is an interdisciplinary research area of computer science and

engineering. It involves design, construction, operation and use of robots.

Warehouse Management System: It is a software application designed to

support and optimise the functioning of warehouses and distribution centres.

5.9 REFERENCES
Arnold J.R.T. (1996). Introduction to Materials Management (2nd ed.). Englewood
Cliffs, NJ: Prentice Hall.
Axsäter, S. (2015). Inventory Control. Sweden: Springer.
Baily, P., Farmer, D., Jessop, D. & Jones. (1998). Purchasing Principles and
Management (7th ed.). London: Pitman.
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Logistics Management: Ballou, R.H. (1998). Business Logistics Management (4rd ed.). Englewood Cliffs,
Components
NJ: Prentice Hall.

Bhardawj, M.K. (2002). Glossary of Purchasing and Materials Management.

New Delhi, India: Excel Books.

Glossary of Procurement Terms, Chartered Institute of Procurement & Supply.

Retrieved from www.cips.org/en/knowledge/glossary-of-terms/

Guth, S. (n.d) Project Procurement Management A Guide to Structured

Procurements. Retrieved from http://xstuyiwrw.onmypc.org/

Institute of Management and Administration. (2002) IOMA Handbook of Logistics

and Inventory Management. New York, USA: John Wiley & Sons.

IOMA.(2002). IOMA Handbook of Logistics and Inventory Management. John

Wiley & Sons, New York.

Leenders, M.R. & Fearon H.E. (1996). Purchasing and Supply Management.
New York, USA: McGraw-Hill.

Lysons, K. & Farrington, B. (2016). Procurement and Supply Chain Management.

Pearson.
Mishra, R. (2008). Materials Management. New Delhi, India: Excel Books.
Ravindran, A.R. (2008). Operations Research and Management Science
Handbook. New York, USA: CRC Press.
Uddin, J. (2010). Materials Management. New Delhi, India: Excel Books.
Waller, M.A. & Esper, T.L. (2014). The Definitive Guide to Inventory
Management: Principles and Strategies for the Efficient Flow of Inventory Across
the Supply Chain. New Jersey: Pearson Education.

5.10 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Your answer should include the following points:
Procurement is the process of identifying and obtaining goods and
services. It covers all activities from identifying potential suppliers to
delivery from suppliers to the users or beneficiaries.

Purchasing is a transactional function that focuses on ordering and

acquiring of products and services. This includes receiving purchase
requisitions, evaluating quotations from suppliers, raising and processing
of purchase orders.

Procurement is the process of identifying and obtaining goods and

services, while purchasing is associated with actual buying of goods
and services from the suppliers.

74
2) Your answer should include the following points: Procurement of Material and
Inventory Control
Identification of needs and requirements
External macro-level analysis
Cost analysis
Supplier identification
Entering into Non-disclosure agreement
Supplier communication
Negotiations and contracting
Logistics and performance management
Supplier management and liaison
Check Your Progress Exercise 2

1) Your answer should include the following points:

Inventory includes raw materials, fuels and lubricants, spare parts,

maintenance consumables, semi-processed materials and finished goods/
stock at a given point of time.

Inventory control is regulating and maximising the use of company’s

inventory.

It attempts to generate maximum profit from the least amount of inventory

investment without compromising customer satisfaction.

It is the process of controlling inventory to ensure that material of right

quantity and quality is made available to the user at the right time with
minimum investment.

The important inventory control techniques are a) ABC Analysis b)

Economic Order Quantity c) Just In Time d) Materials Requirement
Planning Method d) Vital Essential Desirable (VED) Analysis.
2) Your answer should include the following points:
Integrating a digital transformation technology
Adopting artificial intelligence system
Installing cyber security systems and protection
Making use of robotics for smart inventory management
Using big data to drive decisions

75
Logistics Management:
Components UNIT 6 MATERIAL HANDLING AND
PACKAGING*
Structure
6.0 Objectives
6.1 Introduction
6.2 Significance of Material Handling
6.3 Material Handling Systems
6.4 Material Handling Equipment
6.5 Packaging Perspective
6.6 Types of Packaging
6.7 Conclusion
6.8 Glossary
6.9 References
6.10 Answers to Check Your Progress Exercises

6.0 OBJECTIVES
After reading this Unit, you should be able to:
Explain the importance of material handling in logistics;
Examine the objectives of material handling systems;
Know the types of equipment for material handling;
Discuss the significance of packaging; and
Describe the various types of packaging.

6.1 INTRODUCTION
Logistics management aims at making customers satisfied with quality services.
There are several products and commodities that are important for the day to day
functioning of logistics cycle. Hence there is need for reliable material handling
and packaging. Material handling and packaging is one of five interrelated
functions of logistics. Material handling is concerned with the movement of
material/goods within the storage space, and goods into and out of each facility.
It is movement of right material to the right place, in right time, and in right
condition. It includes the movement, storage, control, and protection of materials,
products, and packaged goods throughout the process of manufacturing,
distribution, and disposal. Packaging is an important aspect of materials handling
that encompasses several aspects relating to the protection of materials and
products for distribution and movement. It serves several purposes including
protection, easing movement, and passing on product information. In this Unit,
we shall discuss key aspects relating to material handling and packaging.

* Contributed by Col. (Dr.) Rajive Kohli, Management, Consultant, New Delhi

76
 Material Handling and
6.2 SIGNIFICANCE OF MATERIAL HANDLING Packaging

Material handling is integral to the manufacturing industry. It is a human activity

being performed since time immemorial but now an important specialised function
of all industrial activities. Although every production worker’s job involves this
function, a large number of people work as dedicated “material moving machine
operators”. The material handling equipment transports various items in a variety
of industrial settings such as moving construction materials around building sites
or moving goods onto buses, trains, aircrafts, ships etc.

The basic function of material handling is to choose most appropriate material

handling equipment which is safe and can meet material handling requirements.
It aims towards:
Improving the operational efficiency of the company;
Ensuring better control of flow of material;
Providing better response to customers through improved service delivery;
and
Promoting safety in material handling.
A manufacturing establishment receives the raw material, which passes through
a series of handling processes before it reaches the ultimate customer. A modern
manufacturing plant works on assembly line principles in which the material
moves along the assembly line where different workers assemble different parts
and the finished product emerges at the end of the process. For instance, the
automobile manufacturing unit such as Maruti Udyog adopts this method.

Material handling also involves short distance movement within the confines of
a building or between building and transportation vehicle.

Material handling is significant as it:

Involves handling costs (can be 25% of the entire manufacturing costs).
Requires frequent handling of subcomponents (can be 50 times in the
manufacturing chain).
Ensures increased safety.
Decreases damages to parts and materials.
Material handling involves correct handling, sorting, moving of materials,
equipment, and goods. Proper material handling results in shortening of delivery
time, lowering overall costs of manufacturing, improving customer service, and
reducing inventory.

Dimensions of Material Handling

Movement: Efficient movement of goods into and out of storage facilities.
Time: Readying goods for production or for customer order filling.
Quantity: Due to varying usage and delivery rate of raw materials and
finished goods, material-handling systems are designed to assure that the
correct quantity of product meets the needs of production and customers.

77
Logistics Management: Space: Utilising effectively limited space by the material-handling
Components
equipment in the warehouse and plant.

6.3 MATERIAL HANDLING SYSTEMS

The handling of material is either manual or automated.

Manual handling involves manual methods to move individual containers

by lifting, lowering, filling, emptying, or carrying them. Ergonomic
improvements can be used to modify manual handling tasks to reduce
injuries by reconfiguring the tasks and using equipment such as lift/tilt/turn
tables etc., to reduce reaching and bending. Manual handling can expose
the workers to injuries especially handling heavy equipment.

Automated handling equipment can be used to reduce and sometimes replace

the need to manually handle material. Most of them require a human operator
for tasks such as loading/unloading and driving. In a way it is semi-
automated. Automated handling is increasing with advances in machine
intelligence, and robotics.

All the material handling equipment in the facility is required to be a single

unified system based on the following principles:

a) Planning: It encompasses a plan that includes suppliers, consultants,

components of finance, engineering, management, and operations.

b) Unitization: Assembling of goods as one compact load.

c) Systems: Integration of handling and effective storage activities which is

cost effective.

d) Simplification: Simplifying handling activities by reducing, eliminating,

and combining unnecessary movement and equipments to maximise
productivity.

e) Ergonomics: Recognising human limitations in human-mechanical systems.

f) Standardisation: Standardisation of material handling methods can enable

the equipment and controls to perform various tasks than doing a specific
one.

g) Space Utilisation: Ensuring effective utilisation of space and keeping the

areas organised and clutter-free for the use of storage space within the facility.

h) Automation: Deploying automated technology in material handling,

production, and storage.

i) Environment: Designing for ensuring reusability and recyclability along

with environmental friendliness.

j) Safety Principle: Providing safe methods of handling equipment and

following safety codes.

The primary objective of a material handling system is to reduce the unit cost of
78 production; the others being:
a) Reducing manufacturing cycle time Material Handling and
Packaging
b) Minimising delays and damage
c) Promoting safety and improving working conditions
d) Maintaining or improving product quality
e) Enhancing productivity through:
Material flow in a straight line
Material movement in as short a distance as possible
Material movement at one time
f) Material handling automation
g) Controlling inventory

6.4 MATERIAL HANDLING EQUIPMENT

Industrial material handling equipment involves a diverse range of tools, vehicles,
storage units, appliances and accessories involved in transporting, storing,
controlling, enumerating, and protecting products at any stage of manufacturing,
distribution, consumption, or disposal. These can be grouped into four categories:
storage, engineered systems, industrial trucks, and bulk material handling.

1) Storage Equipment. These are usually non-automated used to hold or

handle reserve materials (buffer). These include:

Racks, such as pallet racks, push-back racks, and sliding racks, are a
basic but important method of storage, saving floor space while keeping
their contents accessible.

Stacking frames are stackable like blocks, allowing inventory, such as

containers of liquid, to be stacked to save space without damage.

Shelves used with bins and drawers, to store and organise smaller and
more difficult to manage materials and products.

Mezzanines, which is an indoor platform to create more floor space.

2) Engineered Systems. These cover a variety of units that work cohesively

to enable storage and transportation often being automated. These include:

Conveyors are devices that move material (or people) horizontally or

vertically between two fixed points.

Automatic Guided Vehicles (AGVs) are independent computer-

operated trucks that transport loads along a predetermined path, with
sensors and detectors to avoid bumping into anything.

Automated Storage and Retrieval System (AS/RS) is a large automated

system for automatically placing and taking the loads/materials or
commodities from the storage or place where they are stored. For
example, the shuttle system is a mechanised cherry picker that can be
used by a worker or can perform fully automated functions to quickly
locate a storage item’s location and quickly retrieve it for other uses.
79
Logistics Management: 3) Industrial Trucks. Trucks can also be manual or powered. A stack truck
Components
can be used to stack items, while a non-stack truck is typically used for
transportation and not for loading. These include:
Automated Guided Vehicle (AGV)
Automated Electrified Monorail
Storing Transfer Vehicle
4) Bulk Handling Equipment. These are conveyor belts or elevators that
move large quantities of material such as food, liquid, or metals in loose
bulk form, or in packaged form through drums and hoppers. These are:
Conveyors of various types for different types of bulk material.
Stackers are usually automated, pile bulk material onto stockpiles.
Recliners retrieve materials from stockpiles, using bucket wheels, or
scraper.
Bucket elevators use buckets attached to a rotating chain or belt to carry
material vertically.
Grain elevators are tall buildings for storing grain, having equipment to
convey the grain to the top of the elevator, where it is sent out for
processing.
Hoppers are funnel-shaped containers that allow material to be poured
or dumped from one container to another.
Silos are generally large storage structures for bulk materials, without
any equipment to convey the material to the top like grain elevators.
Check Your Progress Exercise 1
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What are the objectives of materials handling system?
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) List the categories of material handling equipment.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

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 Material Handling and
6.5 PACKAGING PERSPECTIVE Packaging

Packaging is the science, art and technology of enclosing or protecting products/

materials for distribution, storage, sale, and use.   Packaging is typically viewed
towards consumer with marketing focus, and for industrial purpose with logistics
focus. Packaging refers to a container in which the product reaches the end user
and is a part of the presentation of the product that stays right till the customer
takes it from the retail store.
Packaging aims at:
Product identification
Product Protection
Product Promotion
Product Information
Product Communication
For example, food packaging is done to ensure protection of food products from
outside influences and damage, provide information to the consumers on its
ingredients, nutritional information, cost, expiry date etc.

The functions of packaging are to:

a) Attract buyers’ attention.
b) Protect goods inside the packaging.
c) Give description of contents.
d) Explain the benefits of the goods inside.
e) Provide warranty, warnings, and consumer information.
f) Indicate value, price, and uses.
Packaging is used as under to move materials throughout the various stages of
logistics management process:
a) Assembly: Protecting and holding components delivered in production
processes.
b) Automation: Automating systems require standardised trays or pans to
function.
c) Transportation: Aggregating and protecting loads as they move through
the supply chain.
d) Warehousing: Protecting products during storage.
e) Holding Order : Holding stored products prior to their delivery .
Packaging has following benefits:
a) Containment. It facilitates containment of products before they can be
moved from one place to another. If the package breaks open, the item can
be damaged or lost, or if it is a hazardous material it can contribute to
environmental pollution

b) Protection. It ensures protection of the product. The contents of the package

must be protected from damage or loss from outside environmental effects 81
Logistics Management: such as shock, moisture, dust, insects, and contamination. This reduces the
Components
security risks of shipment.

c) Apportionment. Packaging needs proper apportionment or division of the

product into appropriate quantities. The output must be reduced from
industrial production to a manageable, desirable consumer size.

d) Unitization. Primary packages can be unitized into secondary packages

(e.g., placed inside a corrugated case), which can then be unitized into a
stretch wrapped pallet, and ultimately into a container loaded with several
pallets. This reduces the number of times a product must be handled.

e) Convenience. Packaging allows products to be used conveniently, that is

with little wasted effort by customers.

f) Communication. Packages and labels communicate how to use, transport,

recycle, or dispose of the package or product.

g) Marketing. The packaging and labels can be used by marketers to encourage

potential buyers to purchase the product. Package design is an important
and constantly evolving feature.

h) Sustainability. It facilitates sustainability. Returnable and reusable

packaging can be used repeatedly before it is recycled; some materials are
engineered to be of biodegradable material.

There are usually three levels of packaging required in a distribution system.

First is a primary package that holds the product. Next, for small packages, a
shipping container such as a corrugated box is needed. There is a third level of
packaging where several primary or secondary packages are assembled into a
unit load. Typical applications include holding and protecting bulk materials,
cases, loads or individual items for shipping and receiving, organising products
in static or automated storage systems, and acting as a receptacle to hold picked
items for a discrete order.
In general packaging is good if it fulfills the following requirements:
Convenient
Attractive
Economical
Protective; and
Communicative

6.6 TYPES OF PACKAGING

Packaging may be described in relation to the type of product being packaged. It
is sometimes convenient to categorise packages by layer or function primary
(first envelops and holds), secondary (outside) or tertiary (transit). The four
common types of packaging are:

1) Containers: Receptacles that hold, protect and organise products and

materials during storage and transport. They come in a variety of forms,
including bags, barrels, drums, cartons, cases. Common materials
82
 include corrugated cardboard, welded wire mesh, metal (including steel Material Handling and
Packaging
and aluminum), corrugated plastic and high density polyethylene (HDPE)
(most frequently used in the construction of reusable and returnable
containers).

2) Pallets: These made of wood, plastic, or metal (steel or aluminum), provide

a portable, horizontal, rigid platform that serves as a base for unit loads.
Pallets are used as a returnable, reusable surface for assembling, storing,
stacking, and handling and transporting of goods as a unit load.

3) Dunnage: These are materials or devices used in the securing and/or bracing
of products during shipments. Since it is impractical for most facilities to
stock multiple container sizes to accommodate shipping different product
weights and sizes, most items get shipped in big boxes.

4) Unitizers: Materials that hold several items together to form a complete

load.

Packaging Material
There are various types of materials available for packaging of the goods. These
materials are paper, plastics, wood, cardboard etc. The selection of the packaging
materials should be made keeping in view primarily the specifications required
for consumer. The selection of the packaging materials would depend upon the
following factors:
a) Product characteristics.
b) Transportation and storage methods.
c) Climate
d) Standards and environmental considerations.
e) Market position.
The type and quality of the packaging is specific to the given product. Certain
products such as garments, shoes, textiles etc., are sold without any packaging at
the retail stores. Such goods do not require expensive packaging to ensure that
the products remain clean. These goods are often packaged in polyethylene bags.
Cardboard boxes are used for the packaging glassware and delicate items to
ensure that they are not damaged during handling and display. Expensive products
and gift items such as jewellery need high quality and expensive packaging
material.

Kinds of Packaging
Depending on the use of packaging materials, packaging is of the following
categories:

1) Plastic Packaging: The most common plastic materials are polyethylene

(PE) and polypropylene (PP).

2) Paper based Packaging: These are used as wrapping, as paperboard cartons

or corrugated fiberboard boxes.

3) Paper Board Cans: It is a form of paper-based retail packaging, is

inexpensive and is used to pack different types of products. These can be
83
Logistics Management: lined inside with aluminum foil or plastic films to provide additional
Components
protection against humidity.

4) Combined Plastic and Cardboard Packaging: These packages combine

paperboard and plastic materials used mainly in retail packaging of pens
and gift items.
5) Plastic boxes: Plastic box packaging has following advantages:
Flexible, lightweight and can be applied with films or coating to enhance
packaging appearance.
Can be recycled.
More durable than paperboard boxes.
Airtight plastic packaging containers can help to preserve the quality of
food and eliminate any contamination issues.
Does not easily break and can be stored with food under extreme
conditions.
It has ability to showcase the product at any angle without necessarily
opening the packaging.
Recyclable and cost effective.
Several traditional materials, such as wood, leather, glass, and ceramic are being
replaced by plastic.

6) Sturdy boxes: It is made from highly condensed paperboard that is four

times thicker than the paperboard used in the construction of a standard
folding carton and is more expensive.

7) Foil sealed bags: These are used for food such as nuts, cereals, smoked
fish, cheese etc., and to prevent from spoilage, as well in coffee and tea
packaging as it keeps the products dense to maintain the flavour. This
protects it from bacteria thus increasing its shelf life. These can also be
used to package bedding and clothing products by removing the oxygen
from the bag to keep the fabric tight and secure to prevent the growth of
fungi and bacteria.

8) Other Materials: Wood, textiles, straw, leaves or any other locally available
materials can be used like specially made wooden boxes to package
traditional ceramics, woodcarvings, various gift items, pieces of jewellery,
etc. Gift packages are made with much care and cushion provided for
preventing damage during transport.

Disposal of Packaging Waste

In many products there is a large amount of packaging with layers of wrapping.
There are growing concerns about the amount of packaging, its cost and disposal.
The empty packets form a large part of solid waste that the community generates.
Conventionally, industrial packaging is more likely to be reused and recycled
than consumer packaging, because it is more robust, and can be collected from a
few locations. Discarded plastic waste litter the country’s roads, rivers and form
huge mounds in garbage dumps across India. Besides the stench, the site poses a
major health hazard for the area’s residents, exposing them to the mosquito-
84
borne and other diseases. Many times, the solid waste is put on fire, polluting the Material Handling and
Packaging
air. It can also be fatal for the stray animals, mainly cows and dogs that end up
mistaking plastic for food. The packaging materials many a times comprise glass,
plastic, tins etc., that get mixed up with other refuse creating disposal problem.
The non-disposable nature of certain materials aggravates the problem further.

The issue of disposal of packaging waste can be tackled through the following
ways:

Prevention: Ways can be devised to avoid use of packaging material. It

should be done only where it can be done away with. It is like carrying our
own bag while shopping groceries and vegetables.

Minimisation: Excessive layers of packing material can be done way with,

through reduced packaging measures. Packaging should be resorted to only
where required.

Reuse: The reuse of packaging material should encouraged. The companies

can devise the means of collecting back the packaging material from the
customers. Many are resorting to this method.

Recycling: The packaging materials wherever possible can be reprocessed

for future use. Steel and aluminum cans, glass bottles/containers, paper,
plastic can be recycled.

Disposal: Certain packaging material must be disposed of. This can be

through incineration, landfill, composting and so on. Only that type of
packing material which is non-hazardous and non-toxic can be disposed by
open dumping.

As per Tata Energy Research Institute (TERI), report of 2018 plastic accounts
for 8% of the total solid waste generated in India. Of the 25,940 tons of plastic
waste produced in India everyday according to Central Pollution Control Board
(CPCB), 94% is thermoplastic, or recyclable materials such as PET (polyethylene
terephthalate), and PVC (polyvinyl chloride). These materials can be recycled
utmost around 7-9 times, after which they must be disposed of highlighting the
key aspect of waste management system. It is estimated that 80% of plastic waste
is recycled, mainly by the rag pickers who collect and segregate it. However, out
of the non-recyclable waste, merely 28.4% could be treated before being disposed
of, leaving the rest to pollute landfills or rivers and seas.

Currently, bio-degradable plastics are being developed. Most of the plastic

produced is used by the packaging industry, nearly half of this is single-use plastic.

All packaging is ultimately discarded, hence the societal costs associated with
waste disposal must be considered. Some companies have policies of reducing
waste by reusable containers. The replacing cardboard containers by wood might
seem expensive, but it can be used repeatedly and reduce overall costs – as well
as contributing to a cleaner environment. In India, taking cognisance of the crisis,
there is a nationwide movement to shun single-use plastic. Various state
governments have enacted laws, with little success, to curb the menace. Awareness
needs to be generated and innovative alternatives found.

85
Logistics Management: Check Your Progress Exercise 2
Components
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What are the benefits of packaging?
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) Describe the types of packaging.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

3) What are the ways of disposal of packaging waste?

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

6.7 CONCLUSION
Material handling and packaging is a key component of logistics management.
Generally, we see that any material or product when ordered is handled and
packed to be sent to customer. Material handling is a key activity that ensures
safety of the products as well as those dealing with the products. The package
serves as a means of identifying the product in a way not possible from its outward
appearance. In this Unit an attempt has been made to provide important aspects
of these two activities.

6.8 GLOSSARY
Automated Electrified Monorail: It is an automated system that establishes a
link between the areas of logistics centre –, production, storage, order preparation
and shipping.

Ergonomics: It is the science of refining the design of products to optimise

86 them for human use. It is an applied science concerned with designing and
arranging things people use so that they and things interact most efficiently and Material Handling and
Packaging
safely.

Mezzanine: It is a low storey or intermediate floor between main floors in a

building and typically between ground and first floor.
Pallet: A platform used for storing and moving stock.

6.9 REFERENCES
Apple, J. M. (1972). Material Handling Systems Design. New York, USA: Ronald
Press.

Arnold J.R.T., Chapman S.N., & Clive L.M. (2008). Introduction to Materials
Management (6th ed.). Englewood Cliffs, NJ, USA: Prentice Hall.

Ballou, R.H. & Srrivastava, S.K. (2007). Business Logistics Management:

Planning, Organizing, and Controlling the Supply Chain (5th ed.). New Delhi,
India: Prentice Hall

Ballou, R.H. (1992). Business Logistics Management (3rd ed.). Englewood Cliffs,
NJ, USA: Prentice Hall.

Bhardawj, M.K. (2002). Glossary of Purchasing and Materials Management.

New Delhi, India: Excel Books.

Bowersox, D. J., Closs, D.J. & Helferich, O.K. (1986). Logistical Management
(3rd ed.). New York, USA: Macmillan.

Glossary of Procurement Terms, Chartered Institute of Procurement & Supply.

Retrieved from www.cips.org/en/knowledge/glossary-of-terms/

Institute of Management and Administration. (2002). IOMA Handbook of

Logistics and Inventory Management. New York, USA: John Wiley & Sons.

Jones, J.V. (1998). Integrated Logistics Support Handbook (Special Reprint ed.).
New York, USA: McGraw Hill.

6.10 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Your answer should include the following points:
Improving the operational efficiency of the company
Ensuring better control of flow of material
Providing better response to customers through improved service delivery
Promoting safety in material handling
Controlling inventory
2) Your answer should include details about the following four categories:
Storage
87
Logistics Management: Engineered systems
Components
Industrial trucks: and
Bulk material handling.
Check Your Progress Exercise 2
1) Your answer should include the following points:
Containment
Protection
Apportionment
Unitization
Convenience
Communication
Sustainability
2) Your answer should include details about
Containers
Pallets
Dunnage; and
Unitizers.
3) Your answer should include the following points:
Prevention
Minimisation
Reuse
Recycling
Disposal

88
 Material Handling and
UNIT 7 TRANSPORTATION, Packaging

WAREHOUSING AND STORAGE*

Structure
7.0 Objectives
7.1 Introduction
7.2 Transportation Modes
7.3 Transportation Function: An Overview
7.4 Warehousing and Storage
7.5 Transportation and Warehousing Documentation
7.6 Conclusion
7.7 Glossary
7.8 References
7.9 Answers to Check Your Progress Exercises

7.0 OBJECTIVES
After reading this Unit, you should be able to:
Discuss the various modes of transportation that play a key role in logistics
management;
Provide an overview of transportation function;
Examine the important aspects of warehousing and storage; and
Describe the types of documents used in transportation and warehousing.

7.1 INTRODUCTION
In the domain of logistics management, physical distribution systems link
manufacturers, wholesalers, and retailers into marketing channels making the
products available. The major logistics function includes transportation in which
certain decisions about the movement of goods and services are made in the
interests of the organisation. Transportation function is important because it affects
the delivery performance, pricing of product, and condition of the arrived goods
which ultimately determine the satisfaction of the customers. There are five
different transportation modes that can be adopted by an organisation in the
delivery of their products to the dealers, warehouses, and customers.

It assumes importance in logistics management as all products are to go through

the phase of warehouse and storage. Warehousing is the act of storing goods that
will be sold or distributed later. While a small, home-based business might be
warehousing products in a spare room, basement, or garage, larger businesses
typically own or rent space that is specifically designed for storage.

This Unit orients you with the basic aspects of transportation, warehousing and
distribution.

* Contributed by Col. (Dr.) Rajive Kohli, Management Consultant, New Delhi

89
Logistics Management:
Components 7.2 TRANSPORTATION MODES
Logistics is the physical flow of materials and products which are commonly to
be transported in the supply chain. The five basic transportation modes are road;
rail, air, water, and pipeline which are described below.

Road (Trucks)
In India trucks are an important means of transportation of products than any
another means. It is estimated that the Indian truck market reached a value of
US$ 10,140 million in 2019 (IMARC). Shipping by truck is fast relative to other
modes except by air. Trucks can reach several areas including rural, hilly terrains
and in contrast to rail transport, trucks can accept products in small quantities.
Within cities, trucks are considered as the largest transportation mode. The routing
and timing schedules of trucks are highly flexible, and their service is much
faster than railways. High value goods to be sent to short distances are effectively
transported through trucks. Heavy or bulky goods require many trucks and hence
uneconomical to use them over long distances. The amount of pollutants emitted
by trucks is also high relative to some of the other transportation modes, so it is
not an ecologically preferable solution. In India in 2017, the road transportation
sector contributed to about 67 per cent of the freight traffic across the country.

Rail
Railways are the largest carrier of any nation delivering 26 per cent of total
cargo. These can transport large amounts of bulk products to the distant locations
such as sand, mineral, coal, agriculture, and forest items in a cost-effective way.
In terms of speed and cost, shipping by rail falls somewhere between truck and
water transportation. Businesses that need to ship heavy, bulky goods often try
to locate their facilities nearer to railway lines.

Air
Air transportation is the least popular among the business organisations and only
about 1 per cent of the total cargo is transported through air. The cost of air
transportation is quite high due to expensive freight rates, but it is the fastest way
of transporting goods, especially in case of perishable goods and smaller quantity
of high value products.

Shipping (Water)
Shipping is the oldest mode of transporting goods from one region to another,
but it is more time consuming than other modes. International trade is mostly
conducted by cargo shipping. They transport “loose” cargo such as grain, coal,
iron ore, petroleum, and other mined products; but also, consumer products.
Waterway is inexpensive but slow, and many markets are also not directly
accessible by water. Inland water transport is being developed wherever feasible.

Pipelines
Pipelines are generally used to transport oil, natural gas, and chemicals. Two-
thirds of petroleum products are transported by pipeline. Pipelines are costly to
be built, but once they are constructed, it is considered a cost-effective mode of
transportation. The oil moves 5 to 12 km per hour and reaches the destination in
two to three weeks depending on the size of the pipe, its pressure, and the density
90
of the liquid. The products shipped through pipelines often must be moved using Transportation, Warehousing
and Storage
two different transportation modes.

Inter-modal
Inter-modal transportation is shipping used together in combination with the
other modes of transportation. Consumer goods are often shipped in inter-modal
containers which are metal boxes. The largest containers are 53 feet long and
100 inches tall; the biggest cargo ships carry as many 15,000 containers. By
contrast, a train can carry around 250 containers stacked on top of each other. A
significant percentage of inter-modal containers offloaded from ships end up on
railways bound for inland destinations. The containers are then trucked over
shorter distances to distribution centres, warehouses, and storages.

7.3 TRANSPORTATION: AN OVERVIEW

India has a large and diverse transport sector. Transportation has been recognised
for many years as being one of the most important activities in the physical
distribution of materials and products. Companies face different trade-offs when
choosing transportation methods. The choice of transportation method depends
on the customers’ needs, speed, cost, frequency of delivery, or flexibility to
respond to different market conditions. Some of the functional issues related to
transportation are:

a) Transport transactions are often influenced by five parties: the shipper (the
original party), the consignee (destination party or receiver), the carrier,
the government, and the public.

b) Transport economics and pricing are concerned with the factors and
characteristics that determine transport costs and rates. In transportation,
economy of distance is the tapering principle since rates or charges taper
with distance i.e. transportation cost per unit of distance decreases as distance
increases.

c) Economy of scale is the characteristic where transportation costs are

proportional to the weight of the shipment. The cost per unit of weight
decreases when the size of the shipment increases.

d) The freight transportation structure consists of vehicles, and carriers that

operate within five basic transportation modes.
e) Transportation service is achieved by combining the capabilities of modes.
f) Government transportation regulations can be grouped into two categories:
economic regulation and safety and social regulation.

Given a facility network and information capability, transportation is the

operational area of logistics that geographically positions inventory. Because of
its fundamental importance and visible cost, transportation has received
considerable managerial attention over the years. The transportation managers
are fundamentally responsible for:
a) Operations management
b) Freight consolidation
91
Logistics Management: c) Rate negotiation
Components
d) Freight control
e) Auditing and claims; and
f) Logistical integration.
Transportation requirements can be accomplished in three basic ways:
a) Private fleet of equipment
b) Contract with transport specialist; or
c) Common carriage where in the services of carriers that provide different
wodes of transportation on an individual shipment basis are engaged.

The transportation requirements in the logistical network must ensure proper

facility selection, total transportation cost within the freight bill, and ensuring
the delivery service which is not sporadic or inconsistent.
Check Your Progress Exercise 1
Note: 1) Use the space below for your answers.
2) Check your answers with those given at the end of the Unit.
1) Identify functional issues relating to transportation.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) List the functions of transportation manager.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

7.4 WAREHOUSING AND STORAGE

Distribution Centre
The terms warehouse and distribution centre are often used interchangeably,
however, a warehouse provides only storage; and a distribution centre not only
stores the products but also executes the orders. In a distribution centre the
emphasis is on processing and moving goods on to other parts of the supply
chain. Modern supply chains equipped with better information can forecast
product demand well in advance, plan accordingly and deliver the right product
in the right place at the right time. Therefore, the static warehouses are evolved
into distribution centres. The differences between a warehouse and a distribution
centre are:

92
 A warehouse is used for storing products while a distribution centre, apart Transportation, Warehousing
and Storage
from storing products offers value-added services like product mixing, order
fulfilment, cross docking, and packaging.

A distribution centre stores products for relatively lesser periods compared

to a warehouse. Hence, the flow velocity through the former is much greater
than the latter.

A distribution centre is customer-centric bridging the supplier and its

customers. While the role of a warehouse is to store products efficiently,
the role of distribution centre is to efficiently meet customer requirements.

Typically retail and warehouse orders are shipped from a distribution centre
and not from a warehouse. Basically, a warehouse generally does not serve
external customers like a distribution centre.

The operations at a distribution centre are much more complex than that at
a warehouse. As a result, the distribution centres are equipped with latest
technology for order processing, warehouse management and transportation
management.

Warehouses exist and serve a purpose. An example is when inventory is

pre-built months in advance to meet the high seasonal demand and is stored
in typical warehouses before being sent to a distribution centre for customer
service. However, the importance of warehouses in supply chain has gone
down and the distribution centres have now emerged as the nerve centres
of the modern supply chains.

Warehousing Elements
The basic elements that help monitor inventory and store it safely in a warehouse,
whether only storage or also order fulfilment, are:

a) Shelving and rack systems that offer maximum storage capacity and easy
product access.
b) A climate control system for the product being stored. This is particularly
important for frozen products or those requiring refrigeration.
c) Inventory control software giving details where all individual units are in
the system.
d) Equipment for moving products within the warehouse.
e) Shipping supplies for order fulfilment.
f) Pickers or people who load products into a warehouse, others who fill orders
in a true distribution centre, and those who manage the facility and
operation.
g) Security to protect stored products.
h) Access to cost-effective transportation to bring products in or move them
out as orders are fulfilled. That often means easy access to highways,
railways, or airports.

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Logistics Management: Functions Performed by Warehouses
Components
Warehouses usually perform the following functions:
a) Procurement: The first step in warehousing where goods are received
unloaded and moved to pre-receipt inspection point and for accounting
purpose.

b) Sorting: Items received in bulk are sorted out item-wise for better storage
and easy identification. Heavy and big sized items are kept separate.

c) Breaking (dividing): Items received in bulk are broken down into smaller
portions and packed separately to cater to the requirements of various retail
outlets and customers.

d) Storage: After sorting and dividing, items are stored with proper
identification and location to take them out as and when required. Big
retailers also use computers and merchandise-based software packages to
locate, identify and maintain accounting of the items.

e) Making items available for consignment/shipment: In warehouses, goods

are stored for short period, and as per the orders from retail outlets or
customers; goods are dispatched to the destinations.

f) Material handling: Material handling is a part of physical distribution

system consisting of proper handling equipment used for loading, unloading,
lifting, and moving goods from one place to another.
g) Display: To promote sales, some warehouses display products.
h) Inventory control: It includes procuring goods and keeping its proper
records. Warehouses are also responsible for inspection, maintenance, and
accounting of goods to prevent any thefts and unforeseen mishaps. Proper
accounting results in avoiding large fluctuations in inventory levels.

i) Processing: Certain goods are not to be consumed in the form they are
produced. It requires processing to make them consumable. For instance,
ripening of fruits or juice extraction, seasoning of timber, crushing of wheat,
polishing of paddy etc. Some warehouses also perform these activities as
per the demand from the owners.

j) Grading and branding: Some warehouses perform the functions of grading

and branding of goods on the behalf of the producers, wholesalers, or the
importer of goods. Besides usual activities, some warehouses provide
mixing, blending, and packaging assistance for the convenience of handling
and sale.

k) Transportation: In a few cases, warehouses provide transportation facility.

It collects goods from the factories and sends these goods to the place of
delivery.

94
Types of Warehouses Transportation, Warehousing
and Storage
The following are the types of warehouses.
a) Private Warehouses: Private warehouses are owned by the business
enterprises to store their products. Because of heavy cost of construction
and maintenance of these warehouses, their number is quite small. Only
big business houses can afford to have such type of warehouses.

b) Public Warehouses: These are also known as duty paid warehouses and
open for public at large. Most of the small and medium business
organisations cannot afford to have their own warehouses on account of
large financial investment in their construction and maintenance. They make
use of these types of warehouses, which may be owned by an individual or
some agency whose main object is to provide storage facilities to people
for certain fees or charges. These warehouses operate within rules and
regulations formed by the government. Public warehouses are especially
useful to business houses, usually situated near railway lines or main roads,
to provide quick transportation services. Goods lying in the warehouse can
be hypothecated for getting loan and financial assistance. Public warehouses
ensure greater security and handling of goods on account of latest mechanical
devices used in handling and preserving the goods. Goods can be branded,
graded, and packed in desired sizes in the warehouses.

c) Bonded Warehouses: Bonded warehouses situated near the port, are used
for imported goods which are not granted clearance on account of non-
payment of custom duty by the importer of these goods. Goods can only be
removed after the custom duties are paid. Bonded warehouses may be run
by the government or licensed private agencies having strict control and
supervision imposed by custom authorities on their operation and
functioning. The importer of the goods can inspect and check the goods.
After making part payment of the custom duty, goods can be proportionately
withdrawn from these warehouses. Goods kept in these warehouses can be
branded, packed, graded, and labelled in the warehouse itself. Bank loans
can be raised with the help of receipt issued by these warehouses as a
collateral security. There is a least possibility of goods being exposed to
any risk of theft, damage, and deterioration. The entrepôt trade i.e., re-
export of imported goods is greatly facilitated as the importer can have the
delivery of goods without paying any custom duty.

d) Special Commodity Warehouses: These warehouses are constituted for

storing a particular type of commodity, e.g., tobacco, cotton, wheat etc.
The nature of the commodity is important in selecting the type of warehouse.
Storage tanks are needed for storing petrol, and godowns for storing
agricultural products.

e) Cold Storage or Refrigerated Warehouses: These are the warehouses

which are used for storing perishable commodities like eggs, butter, fruits,
vegetables, fish, fresh meat etc. Goods stored in cold storages can be held
for longer time making possible the regular supply of certain commodities
throughout the year.

f) Institutional Warehouses: Different institutions and bodies have their own

warehouses on account of the nature of their operations. Banks keep the
95
Logistics Management: stock of the companies in these warehouses as security against the loans
Components
advanced. Railways maintain warehouses to store large quantity of goods
to be dispatched to different parts of the country, or goods received for the
purpose of delivery are kept till they are disbursed to the claimant. Various
transport agencies also maintain warehouses for storing the goods which
are to be dispatched and received. The Food Corporation of India has many
big warehouses throughout the country for storing agricultural products.

7.5 TRANSPORTATION AND WAREHOUSING

DOCUMENTATION
In transportation and warehousing, there are many types of documents and bills
which are needed to transport goods from one place to another. Transport
documents lie at the heart of trade transactions. These documents are issued by
the shipping company, airline, trucking company, railway, freight forwarder or
logistics company. They provide an accounting record of the transaction,
instructions on where and how to ship the goods and a statement giving
instructions for handling the shipment.

Lorry Receipt (L/R)

It is an acknowledgement of goods given by the transport companies to the persons
who send goods. The consignor (sender) sends this receipt to the buyer with the
invoice and other documents. The buyer can take delivery of the goods only on
production of this receipt at the destination.

Railway Receipt (R/R)

When goods are sent through Railways, the railway authorities acknowledge
receipt of goods which is called R/R. Like L/R, it is also a document of title to
goods and the buyer must produce this to the railway authorities while taking
delivery of goods.

Consignment Note
It is a form issued by railway companies to be signed up by all persons who
intend to send goods by railways. It contains terms and conditions on which the
railway company undertakes to carry the goods. This form is to be filled in and
handed over to the Railways along with the goods.

Bill of Lading (B/L)

B/L is a document issued by the agent of a carrier to a shipper, signed by the
captain, agent, or owner of a vessel, furnishing written evidence regarding receipt
of the goods (cargo). It includes the conditions on which transportation is made
(contract of carriage), and the engagement to deliver goods at the prescribed port
of destination to the lawful holder of the bill of lading. It is, therefore, both a
receipt for merchandise and a contract to deliver it as freight.

Although the term is used for shipment by sea, it may be used for any type of
carriage of goods.

Airway Bill (AWB)

It is a bill of inventory or listing of cargo that is being transported by air. AWB is
96 the most important document issued by an airline either directly or through its
authorised agent. It is a receipt issued by an international airline for goods and Transportation, Warehousing
and Storage
an evidence of the contract of carriage. It is a document of title to goods. It is a
non-negotiable transport document that covers the transport of cargo from airport
to airport. By accepting a shipment, a cargo agent acts on behalf of the carrier
whose airway bill is issued.

CMR Document
CMR (Convention Relative au Contrat de Transport International de
Marchandises par la Route) is an international agreement that contains the rights
and obligations of parties involved in road transport, the shipper, carrier, and
addressee. This is required when goods are transported internationally by road
used by all parties. The carrier usually completes the form, but the sender or
exporter is responsible for the accuracy of the information and must sign the
form when the goods are collected. The consignee will also sign the form on
delivery, which is essential for the carrier to be able to confirm the delivery of
the goods and to justify the payment for its services.

Multi-modal Bill of Lading

This is for those goods carried in multi-modal transport units (mainly containers)
covering two or more modes of transport , such as shipping by road and by sea.
The responsibility for the management and processing of shipping document
depends on the sale conditions (In coterms) agreed between the parties. Bill of
lading is the title of ownership of the goods and can, therefore, be negotiated.
Only authorised forwarders integrated into International Federation of Freight
Forwarders Association (IFFFA) can issue this document. It is addressed to the
exporter, multimodal transport operator in the destination country, and the
importer.
Dock Warrant or Warehouse Warrant
It is a document of title to goods issued by dock authorities certifying that the
goods are held by them. To take delivery of the goods, this certificate must be
given back to the authorities. It is a transferable instrument and if properly
assigned, even a third party can take delivery of the articles from the warehouse
or dock.

Warehouse Keeper’s Receipt

It is simply an acknowledgement of goods issued by a warehouse keeper to the
owner of the goods. It is not a document of title to goods.

Delivery Order
It is an order issued by the owner of goods to the warehouse authorities when
delivery in small lots is required from the warehouse. Such orders should
accompany the warehouse warrant in which the authorities will enter the details
of the goods delivered by the party. The delivery order is the document of title to
goods.

97
Logistics Management: Check Your Progress Exercise 2
Components
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) State the functions of warehouses.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) List the various types of documents used in transportation.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

7.6 CONCLUSION
A supply chain is composed of a series of suppliers and customers linked together
by a physical distribution system. The physical distribution system involves the
transportation of goods through the various modes, the inventories that exist in
transit and in distribution centres, along with the physical handling of goods.
The efficient operation of the warehouse involves several processing activities.
Freight transport and storage are crucial activities in logistics systems planning
as they determine the logistics costs and affect the service level provided to
customers. Each mode of transportation has different cost and service
characteristics. These determine which method is appropriate for the types of
goods to be moved.

All these logistics activities are linked to each other with detailed information
about each. The monitoring of the plethora of information related to the diverse
aspects of logistics is a crucial process. These would require integration of various
technologies with the logistics data.

7.7 GLOSSARY
Consignees: In a contract of carriage, the consignee is the person to whom the
shipment is to be delivered whether by land, sea, or air.

Entrepot Trade: It refers to a trade at one centre for the goods of other countries.
In this merchandise can be imported and exported without paying import duties.

Freight Transport: Freight transport is the process of moving different types of

98 goods from one point to another.
Shippers: Consignor, exporter, or seller (who may be the same or different parties) Transportation, Warehousing
and Storage
named in the shipping documents as the party responsible for initiating a shipment,
and who may also bear the freight cost.

Cross docking: A logistics procedure where products from a supplier or

manufacturing plant are distributed directly to a customer or retail chain with
marginal to no handling or storage time.

7.8 REFERENCES
Ballou, R.H. (1998). Business Logistics Management (4th ed.). Englewood Cliffs,
NJ, USA: Prentice Hall.

Bowersox, D. J., Calabro, P.J. & Wagenheim, G.D. (1981). Introduction to

Transportation. New York, USA: Macmillan.
IMARC. Retrieved from https://www.imarcgroup.com/
Johnson, J. L. & Wood, D.F. (1986). Contemporary Physical Distribution and
Logistics (3rd ed.). New York: Macmillan.

Jones, J.V. (2006). Integrated Logistics Support Handbook (3rd ed.). New York,
USA: McGraw Hill.

Kachru, U. (2013). Logistics and Supply Chain Management. New Delhi, India:
New Delhi.

Lieb, R. C. (1978). Transportation, The Domestic System. Reston, Virginia, USA:

Reston Pub.Co.

Tompkins, J.A. & Harmelink, D.A. (Eds.). (1993). The Distribution Management
Handbook. New York, USA: McGraw Hill.

7.9 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Your answer should include the following points:
Transport transactions are often influenced by five parties namely the
shipper, consignee, carrier, government, and the public.

Transport economics and pricing are concerned with the factors and
characteristics that determine transport costs and rates.

Economy of scale wherein transportation costs are proportional to the

weight of shipment.
Transportation service is achieved by combining the capabilities of
modes.
Government transportation regulation can be grouped into two categories
economic regulation and safety and social regulation.

99
Logistics Management: 2) Your answer should include the following points:
Components
The functions of transportation manager include:
Operations management
Freight consolidation
Rate negotiation
Freight control
Auditing and claims; and
Logistical integration
Check Your Progress Exercise 2
1) Your answer should include the following points:
The functions of warehouses encompass:
Procurement
Sorting
Breaking
Storage
Making items available for shipment
Material handling
Display
Inventory control
Processing
Grading and branding
Transportation
2) Your answer should include the following points:
Lorry Receipt (L/R)
Railway Receipt (R/R)
Consignment Note
Bill of Lading
Airway Bill
CMR Document
Multi-modal Bill of Lading
Dock Warrant or Warehouse Warrant
Warehouse Keeper’s Receipt
Delivery Order

100
 Transportation, Warehousing
UNIT 8 INFORMATION MONITORING* and Storage

Structure
8.0 Objectives
8.1 Introduction
8.2 Logistics Information
8.3 Logistics Information Flow
8.4 Information Technology in Logistics
8.5 Information Processing
8.6 Optimising Logistics Information Flow
8.7 Conclusion
8.8 Glossary
8.9 References
8.10 Answers to Check Your Progress Exercises

8.0 OBJECTIVES
After reading this Unit, you should be able to:
Comprehend the importance of information in logistics;
Discuss the various components of information flow in logistics;
Appreciate the usefulness of information technology in logistics; and
Acquaint with various aspects of information processing in logistics.

8.1 INTRODUCTION
Logistics concerns the flow of material which is based on information about
each aspect in the logistics cycle. Logisticians are realising the importance of
information with in-depth understanding of improving logistical performance
with the help of fast and accurate information. Logistics usually involves the
integration of information flow with the other aspects of material handling,
production, packaging, inventory, transportation, warehousing, and security. The
logistics information management is related to the process of planning,
implementing, and controlling procedures for the efficient and effective
transportation and storage of goods. This information is from the point of origin
to the point of consumption to conform to customer requirements and includes
inbound, outbound, internal, and external movement of products.

8.2 LOGISTICS INFORMATION

Logistics requires a large amount of information on sales, inventory amounts,
forecasts, ordering and procurement, transportation arrangements, and invoicing
as well as various types of contracts, and terms of delivery. The information flow
starts with customer demand forecast and moves along the chain to, raw material
suppliers, warehouse, and to other service providers and subcontractors. All
involved entities should receive adequate information to be able to do their part
* Contributed by Col. (Dr.) Rajive Kohli, Management Consultant, New Delhi 101
Logistics Management: in promoting customer satisfaction in a timely manner so that the products are
Components
delivered in required amount and at the right time in the supply chain. These are
important for decision making in logistics.
Principles of Logistics Information
a) Availability: Logistics information must be readily, rapidly, and consistently
available to meet customer requirements and improve management
uncertainties in operations and planning.

b) Accuracy: Logistics information must reflect the status of all the activities
such as inventory levels, customer orders etc.

c) Timeliness : The logistics information must be timely to provide quick

management feedback. Timeliness is measured in terms of time taken
between the commencement and occurrence of an activity especially when
the activity is visible in the logistical information system.

Elements of Logistics Information. It is essential that retrieval of information

is without errors, fast and prompt and should be in a form useful to the user.
Logistics information is related to:
a) Sources: They must be reliable, authentic, and easily available. In physical
distribution, it is sales orders, accounting data etc.
b) Collection of information : Information is received from sales staff,
periodicals, publications, information/ data from dealers, distributors,
customers, and research organisations.
c) Storage : The data so collected from various sources in a manner convenient
for storage and use. This data bank may be computerised and in form of
registers, files, documents, etc.
d) Retrieval : The information so collected from data sources, processed, and
stored must be retrieved for the purpose of decision making, and should be
in a form which is useful in decision making.
e) Reports : The data collected, stored, and retrieved must be made accessible
to the decision maker in specified forms such as reports.
Information management makes logistics operations efficient and effective in
areas given below:

a) Supply chain: The simulation and optimisation of flows in the supply

chain allows for stock reductions and preventing stockout.

b) Price fixing: It allows specifying the price levels that would bring maximum
income or profit.

c) Multi-dimensional segregation of clients: Identification of groups of clients

with tendency of buying similar products etc., which results in better
understanding of the consumer behaviour enabling customisation and
personalisation of customers’ needs.

d) Customer loyalty analysis: This involves modelling the factors that might
define customer groups, who are loyal to the company; retaining regular
customers and developing loyalty programmes.
102
e) Analysis of customer value in terms of profitability, recognising the non- Information Monitoring
profitable and loss-making ones, to effectively plan and increase profitability.

f) Analysis of customer satisfaction: Assessing the level of customer

satisfaction which helps to plan activities aimed at meeting their satisfaction
with the provision of goods and services to meet their requirements.

g) Control of logistics costs: A continuous analysis of financial results, assisted

by integrated IT software, allows to effectively manage the costs within the
company.

h) Quality of products and services: Monitoring and early detection of quality

problems and their minimisation to ensure customer satisfaction.

Logistics Information System

The core of an information system is to convert data to information, depicting it
in a way useful for decision making, and interfacing the information with decision-
assisting methods. Logistics information systems are a subset of the organisations’
total information system, and it is directed to the logistics decision making. The
three components in this are:

i) Inputs: The inputs are data needed for planning and operating logistics
system obtained from sources like customers, company personnel, company
records, and published data.

ii) Database management: The management of the database involves

selection of the data to be stored and retrieved, choice of the methods of
analysis and basic data-processing procedures.
iii) Outputs : The outputs of a logistics information system include:
summary reports of cost or performance statistics;
status reports of inventories or order in progress;
exception reports that compare desired performance with actual
performance; and reports that initiate action.

8.3 LOGISTICS INFORMATION FLOW

Logistics is about managing material and information flow. Within a logistics
system, generally the flow of materials is from the suppliers to the processing
and assembly plants, thereafter to the sales points and finally to the customers.
The flow of materials is integrated with the information flow. The three
main flows in logistics:
a) Product flow with movement of goods from the supplier to the customer
along with returns and other service requirements.
b) Information flow by transmitting orders and updating the status of delivery.
c) Finance flow includes payment schedules, credit terms, consignment, and
title ownership arrangements.
Information is the link connecting the physical flow of goods within all logistics
activities given below:
103
Logistics Management: Movement and transport;
Components
Warehousing and storage;
Industrial packaging;
Stock control;
Demand forecasting;
Production planning;
Material /Products purchase;
Customer service at an appropriate professional level;
Warehouses and plants location;
Provision of spare parts and after-sales service;
Collection and disposal of waste.
Information flow accompanies the flow of material, goods, and services in the
production system. It plays a key role in organising and functioning of supply
chains, linking all basic elements of the logistics system. The integration of
information flow makes the system open, efficient, and enable to overcome
obstacles arising in the process. The risk and competitiveness of a dynamic market
impacts the environment of logistics requiring effective decision-making
processes. This may take place when the decision-maker has information on the
various parameters that characterise the company activities. Generally, no decision
is taken spontaneously but based on basic information. At times it calls for a
process of transforming basic information and this is always an integral part of
decision-making.

Information is seen as the base for all the processes, as well as a treasured corporate
asset. In a company managed in a traditional way, data analyses is done, and
reports are prepared by many departments, based on different kinds of systems
and IT tools which may lead to multiple versions of data. The analytical capability
of a company becomes the most important element, resulting in creation of
centralised data centres to enable information management. This is done by
selecting information that is most important for managerial decisions, making
the same sources accessible for use by different departments, preserving coherence
when it comes to formats, and standards. In this knowledge-based economy,
information systems provide:
access to information in real time;
facilitate the organisation of information collection and processing;
ensure the exchange of information with business partners in digital form;
help reduce communication costs;
allow the managers, and logisticians to share databases and place orders
through electronic means;
facilitate management of several kinds of e-logistics.

104
 Information Monitoring
8.4 INFORMATION TECHNOLOGY IN
LOGISTICS
Information technology (IT) is an important enabler of effective logistics
management.IT has potential to enhance the capabilities of a company for
sustained innovation of its business processes. The purpose of Information
Systems (IS) is to gather, categorise, store, and disseminate information that is
needed to promote the growth of the organisation. Hence IT and IS have an
important role in logistics management.

Computerised Information System

IT is essentially computer based. The benefits of computerised information system
are:

a) Rapid, prompt and error free computerised data that gives a large volume
of information for accurate analysis and decision making.

b) Enables analysis of information through mathematical and statistical

modelling in a manner and speed which cannot otherwise be obtained
manually.

c) Computerisation may be expensive, because of initial high cost but over

long period it enables overall savings in terms of staff, space, and finances.
d) It helps in better coordination between supply of material and demand.
e) It is a decision assisting system.
f) Aids control systems such as inventory control, computerised material
handling and storage system and order processing system.

g) Delegates the responsibility to lower levels under rules\regulations, which

are made in advance, eliminating any departure from laid down rules.

Logistics Information System

This coordinates the function of supply of raw material and distribution of finished
product, primarily the movement control and demand - supply coordination. For
raw material it involves follow up of indents till its issue, purchase order follow
up, receiving and warehousing of material, inventory control, etc. For finished
product it involves sales orders follow up, processing, information flow,
warehousing, scheduling, allocation of finished products. Logistics information
system is mainly for flow of data from external sources, processing and storage
of information within the organisation, use of data by the decision maker in the
form of reports, and communication of decisions to customers and their feedback.
External Information. This relates to information about:
a) Order pattern of the customers relating to total number and volume of
products ordered;
b) Material handling system available to ensure compatibility with customers’
demands;
c) Re-order point of the customers where computerised order processing can
reduce the reordering level;
105
Logistics Management: d) Ordering procedure of customer for coordination and cooperation with the
Components
suppliers.
Internal Information. The information is required from internal departments as
follows:

a) Purchasing : Information on logistic costs of purchasing from different

suppliers and supply points; routing instructions and status for inbound
materials; supplier preferences in meeting delivery schedules; supplier
prices, discounts, names and addresses, delivery schedule; and alternate
source of supply and process.

b) Production : Information on product preference and competitor product

performance. and finished products; production quantities and scheduling;
production capacity; alternate methods of production based on different
production plans; production innovations; warehouse material handling
systems; specific details of warehouse capacity for raw materials, alternate
costs of logistics based on different schedules; delivery requirements from
production to warehouse; logistic innovations; status of inbound movement
of supplies or raw materials; and physical supply and delivery requirements.

c) Marketing : Sales structure and information on logistics costs for alternative

types of customer service; ; potential changes in logistics affecting future
sales; customer complaints; introduction of new products; sales costs;
customer service norms; pricing; and any special customer service
requirements.

d) Finance and control : Information to include budget for physical

distribution costs; estimates of costs; projected capital investment
requirements; order processing system; coordination with invoicing and
amounts receivable;freight bill, auditing procedure; customer credit rating,
credit procedure; corporate financial condition and performance; capital
availability.
Check Your Progress Exercise 1
Note. 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What are the elements of logistics information system?
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) What are the components of external and internal types of logistics

information system?
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
106
 Information Monitoring
8.5 INFORMATION PROCESSING
Information processing integrates all areas of the logistics system. The
development of computers and software has put sophisticated management
information systems within the reach of most organisations. Businesses are linking
their internal logistics information systems with those of their vendors and
customers as a means of adding more value to the entire chain, creating an open
exchange of information for faster order placement, quick delivery, and greater
accountability throughout the logistics process. A suitable software is the first
requirement for this to fulfil all expectations.

The major logistic function remains same, but the information processing
enhances the following areas.

1) Order Processing: Orders can be submitted by sales personnel through

mail, telephone, electronic means, and generated by suppliers for their
customers. On receiving an order, it should be quickly and accurately
processed by the organisation. The use of sophisticated computerised order
processing system speeds up the cycle of order, shipping, and billing.

2) Warehousing : Nearly every organisation must have facilities to store its

products, so it must determine the number, types, and locations of
warehouses. Highly automated warehousing is replacing the older
warehousing system, where effective computerised material handling
systems are used that are centralised, with fewer numbers of employees.

3) Inventory Management : Maintaining an effective level of inventory is

having a balance between carrying less inventory and carry too much of it.
New inventory management system techniques need to be adapted by the
organisations. We have already discussed in detail in Unit 5 of this Course.

4) Transportation : This affects the delivery, pricing of product, and condition

of the transported goods etc. The largest carrier is the railways that deal
with large amounts of bulk product can be delivered. Trucks have a
significant role in transportation of goods, within cities. Pipelines are used
for shipment of petroleum, chemicals, and natural gas. The cost of air
transportation is much higher, but it is the quickest mode of transporting,
especially in case of perishable goods and smaller quantity of highly valuable
products. Shipping is time consuming and used together with the other modes
of transportation.

The sharing of information among logistics networks allows them to work together
with the goal of integrated and coordinated logistics management. Information
also enhances the performance and reduces the risks because it provides processes
that facilitate the decision makers with the needed information. IT also plays an
important role in integrating suppliers, manufactures, distributors and customers
to ensure the proper quantity and quality of products. Organisations can gather
vital information along the entire supply chain and react quickly to any predictable
market changes, thereby gaining competitive advantage by effectively utilising
logistics supply chains. Accessibility to information and transparency, enabling
a single point of contact for data, allowing decisions based on total supply chain
information and enabling collaboration with partners are the objectives of IT in
logistics. The functional roles of IT in logistics encompass execution, 107
Logistics Management: collaboration, coordination, and decision support.IT systems are expected to
Components
facilitate better matching of supply and demand between supply chain components
and create an excellent backdrop for embarking on integration with external
partners.

8.6 OPTIMISING LOGISTICS INFORMATION

FLOW
The growth or decline of a company is indicated by five key dynamic flows in
the logistics system, namely, information, materials, money, human resource,
and capital. These flows need to be proactively managed by more effective,
integrated flows across both internal and external chains. Information and
communication technology (ICT) plays a crucial role in managing external
customer and supplier relationships. The flow of materials or money is caused
by related information movement, hence effective information flow directly affects
the rest of the system and can significantly improve overall efficiency.

Sharing information effectively and accurately across an entire supply chain is a

complex activity considering the number of access points, systems, and people
at each location. The best systems in place should be capable of:
a) Managing massive amounts of data
b) Transforming data into information
c) Anticipating future needs through appropriate modelling scenarios
d) Understanding and planning replenishment cycles
e) Managing accounting functions
f) Tracking productivity
g) Fostering collaboration
To ensure complete customer accessibility, information technology in
logistics integrates six key technologies given below:

a) Intranet: Internal sites utilised for project management, document sharing,

brainstorming and generation of reports.

b) Applications: Applications are designed for one specific function and fully
integrated with core transactional system, warehouse management system,
financial consolidation and forecast/planning system, and product planning
system. We shall be discussing these in detail in Unit 9 of this Course.

c) Electronic Data Interchange: It is a data transaction system that speeds

up important logistics processes in the supply chain. It is a computer to
computer exchange of business documents such as purchase orders and
invoices in a standard electronic format between business partners.

d) Partner Portals: Easy-to-use portals fostering collaboration by providing

information to business partners.
e) Internet: Leveraging the internet to add value along the supply chain.
The platform must allow for flexibility, transparency, and interoperability with a
108 customer’s own system. Effective logistics information flow eliminates
inefficiencies, particularly excessive inventory levels. By this integration, data Information Monitoring
visibility increases, and breakdowns are significantly reduced.
Check Your Progress Exercise 2
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) What are the areas that need information processing?
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) Identify the key technologies that integrate the logistics processes.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

8.7 CONCLUSION
Logistics management involves the integration of information, transportation,
inventory, warehousing, material handling, and packaging, and often security.
Information is basic to decision making which is the essence of management
function. A manager relies on an information system to make decisions pertaining
to the function and level of the management. The information so collected is
integrated into a system and may be in the form of computer, desk calculator,
files etc. Information is a structure of machines and management technology
enabling the manager to collect, receive, process, and analyse information.

There is need for systematically collecting information and setting up procedures

to produce metrics that are used to evaluate performance to goals. Modern logistics
does not only need data, information, but also knowledge, which is an intangible
asset of the organisation, connected with human activity which, when applied,
may be the source of competitive advantage. This knowledge, if effectively used
in an enterprise, may not only bring about success, but also provide conditions
for its further extension and sharing. The use of IT is considered a prerequisite
for effective control of today’s complex supply chains. The exponential growth
of information technology in supply chain networks has significantly changed
the paper-based communication to e-communication, which also faces the threat
of cybercrime (e-risk) by unauthorised or illegal access by means of physical or/
and virtual intrusion to a computer system or computer network.

Using information more effectively is the single most important source of

competitive advantage for business firms today. Logistics is an information-based
process of material movement across the supply chain, and hence information is

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Logistics Management: a major factor for enhancing logistics competitiveness.
Components

8.8 GLOSSARY
Electronic Data Interchange: It is the concept of businesses electronically
communicating information that was traditionally communicated on paper, such
as purchase orders and invoices. Business entities conducting business
electronically are called trading partners.

Partner Portal: It is a web-based application that allows a company’ s established

distributors, service providers etc,. to obtain direct access to marketing resources,
pricing, and sales information along with technical details to serve the customers.

Reorder level: It is the inventory level at which a company would place a new
order for raw materials/products.

8.9 REFERENCES
Ghiani, G., Laporte, G. & Musmanno, R. (2013). Introduction to Logistics Systems
Management (2nd ed.). John Wiley & Sons.

Draskoviæ, V. et.al. (2016) Management and Logistics – Selected Topics.

Retrieved from http://sphub.org/wp-content/uploads/2016/03/
Management__Logistics.pdf

Harrison, A. & Hoek, R. (2008). Logistics Management and Strategy (3rd ed.).
Essex: Pearson Education Limited.

8.10 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Your answer should include the following points:
Sources
Collection of information
Storage
Retrieval
Reports
2) Your answer should include the following points:
The external types of logistics information include:
Product order pattern of customers
Material handling systems
Re-order point of customers
Ordering procedures
The internal types of logistics information include:
Purchasing
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 Production Information Monitoring

Marketing
Finance and Control
Check Your Progress Exercise 2
Your answer should include the following points:
Order Processing
Warehousing
Inventory Control
Transportation
2) Your answer should include the following points:
The key technologies are
Intranet
Applications
Electronic Data Interchange
Partner Portals
Internet

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Logistics Management:
Components UNIT 9 LOGISTICS INFORMATION
SYSTEM*
Structure
9.0 Objectives
9.1 Introduction
9.2 Role of Logistics Information System
9.3 Logistics Information System: Requirements and Components
9.4 Logistics Information System: Concepts and Technologies
9.5 Logistics Information System: Technology Applications
9.6 Conclusion
9.7 Glossary
9.8 References
9.9 Answers to Check Your Progress Exercises

9.0 OBJECTIVES
After reading this Unit, you should be able to:
Explain the concept and importance of Logistics Information System;
Examine the role of Logistics Information System;
Know its requirements and components; and
Acquaint with the technologies and applications of Logistics Information
System.

9.1 INTRODUCTION
Logistics concerns the flow of goods and services facilitated by information
support. In present time machines and robots have to a large extent eliminated
manual work. With advances in information technology, business-to-business
(B2B) transactions or business-to-customer (B2C) deals are done through the
internet. Presently logistics uses the information resources of the enterprise and
creates a database specifically for its needs consisting of elements like data source,
users, etc. Information Systems is an applied science for the processes of the
creation and operation of systems that manage information.

Business Process Analysis methodologies are used for the modelling of logistic
processes and their information flows that assist in understanding and clearly
describing the information relationships between parties and authorities and in
defining improvements to the logistic systems. Logistics Information System
(LIS) is implementation of solutions for a system of records and reports which
may be paper based or electronic. This is a specialised area in logistics that can
handle location, work management, and data management in organisations. It
mainly includes coordination of demand, supply, movement, and control of
material or finished goods.

112 * Contributed by Col. (Dr.) Rajive Kohli, Management Consultant, New Delhi
This Unit acquaints the learners with the concept and role of LIS. It brings out Logistics Information System
the requirements and components of LIS. The technologies involved in it are
analysed.

9.2 ROLE OF LOGISTICS INFORMATION

SYSTEM
Logistics Information System (LIS) is a system of records and reports whether
paper-based or electronic, used to aggregate, analyse, validate and display data
from all levels of logistics system that can be used to make logistics decisions
and manage the supply chain.
The role of LIS can be understood from the following:
a) LIS ensures the transformation of logistics functional operations into a
process with the goal of pursuing customer satisfaction at the lowest cost.
It facilitates planning and control of logistics activities related to order
fulfilment.

b) LIS provides information on goods and tracks the delivery, by giving their
status.

c) Logistics systems depend on outside information and international standards

to comply with regulations and use laid down ways of sharing logistic
information with others.

d) The manufacturers and traders monitor the actual products to know whether
they will arrive on time and in proper condition at the delivery places, and
to be able to take prompt action in case of any lapse.

e) Transporters focus on the progress and status of the means of transport. In

case of any delays or exigencies, transporters can report these to their
customers who can consider the impact.

f) Customs authorities and those responsible for ensuring the safety and
security of goods during transportation are given details about the content
of goods and their means of transport.

LIS is part of logistics management to manage, control and measure the logistical
activities within the organisation and across the supply chain, achieving logistics
efficiency and effectiveness. Within an organisation, LIS achieves the following:
a) Customer satisfaction at the lowest total cost.
b) Enables planning and control of the logistical activities related to order
fulfilment.

c) Fosters better tactical and strategic decisions for the benefit of the firm and
its customers.

d) Gives information to customers regarding product availability, order status,

and delivery schedules.

e) Enables resource planning thereby reducing the requirements of inventory

and human resources.
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Logistics Management: f) Provides information to top management to formulate strategic decisions
Components
by interface with marketing, financial, and manufacturing information
systems.

g) Links the operations of the business, such as manufacturing and distribution,

with the supplier’s operations and the customers.

h) Facilitates ‘virtual’ inventory management or electronic inventory

management by managing dispersed inventories through information
technology. Inventory management becomes centralised and decisions on
replenishment and other quantities are taken based on a single stock.

The benefits of implementing LIS are:

a) Improvement in customer service and satisfaction.
b) Establishing communication within the logistics chain.
c) Reduction in stock levels and costs particularly of transportation and storage.
d) Synchronising the processes of supply, production, and distribution.
e) Handling the problems caused by shortage of materials for production.
f) Improvement of delivery schedules and lessening probable orders errors.
g) Reduction of documentation required in supply chain management.
The main activities of LIS are:
a) Data flow from external sources.
b) Processing and storage of information within companies.
c) Transmission of data for storage\processing to the decision maker in
form of reports.
d) Communication of decisions to customers and their feedback.

9.3 LOGISTICS INFORMATION SYSTEM:

REQUIREMENTS AND COMPONENTS
There are three types of information systems that serve different organisational
levels. These are operational level systems, management-level systems, and
strategic level systems. Converting logistics data to information, representing it
in a manner useful for decision making and interfacing the information with
decision-assisting methods are at the core of LIS. There are certain requirements
which are:

a) Organisation decisions: It relates to the decisions to be made at each level

of organisation. While designing information system, it must be ensured
that the concerned person is entitled to get required information needed for
decision making.

b) System requirement: After arriving at the decision on collecting

information, next requirement is identification of source of information,
the volume and quality of information. A suitable channel of communication
will have to be designed to satisfy various requirements.

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c) Control requirements. Based on guidelines given by the management, Logistics Information System
system should be able to aid in decision making, minimising delays, and
increasing efficiency. Control is required to ensure that no errors are made.

d) System input and output data. To satisfy the demand of a customer, several
activities are undertaken by organisation which need proper coordination.
Action reports are made for the purpose of undertaking activities based on
generated information.

Key Components of LIS

LIS is designed to manage the flow of materials and information within and
between organisations and their business environment. Globally information
technology is a critical enabler of the logistics supply chain networks that
businesses use to acquire, produce, and deliver goods and services. The key
components include:
a) Logistics Information Portal
b) Logistics Computing and Simulation
c) Decision Support System
d) Database
e) E-Logistics and E-Commerce
f) Software applications relating to Customer Relations Management (CRM),
Enterprise Resource Planning (ERP), Radio Frequency Identification (RFID)
Tags, Transport Management System (TMS), and Warehouse Management
System (WMS)
Check Your Progress Exercise 1
Note: 1) Use the space below for your answers.
2) Check your answers with those given at the end of the Unit.
1) State the benefits of LIS.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) Describe the requirements of LIS and its components.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
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Logistics Management:
Components 9.4 LOGISTICS INFORMATION SYSTEM:
CONCEPTS & TECHNOLOGIES
The effectiveness of LIS is based on real time accurate information enabling a
reliable accurate forecast from the raw material suppliers to the ultimate consumer
with a large geographical spread. Managing this information is possible only
with the use of various systems continuously evolving which need ingenuity for
adaption in the LIS.

Information Network: The traditional elements of logistics are integrated by a

web of IT networks, and integrated management systems, with virtual and network
companies within an information grid. This LIS incorporates all information
relating to plans, implementation, and control, for efficient and effective flow
and storage of goods and services.

Electronic Data Interchange (EDI): IT plays an important role in providing

real time information for proper forecasting and planning of manufacture or for
supply of finished products to the end users. EDI can link suppliers, manufacturers,
customers, and intermediaries. IT as the key component facilitates speeding up
delivery time by transmitting information to the warehouse directly triggering
an order for immediate shipment. In global context, EDI links exporters with
customs, ports, and transporters for quick processing of customs documents thus
speeding up the deliveries.

Supply Chain Management Software (SCMS): These software modules

complete supply chain transactions and manage supplier relationships for
controlling the business processes. It can identify the activities that can reduce
and eliminate non-value-added activities. It can deliver and market better quality
products and services more quickly and cost-effectively to gain an advantage
over less efficient competitors. Effective supply chain management systems help
businesses to improve the entire supply chain network by reducing waste and
shipping delays. SCMS reduces overhead expenses by enabling effective demand
planning, improving inventory management, and relationships with vendors and
distributors etc.

Enterprise Resource Planning (ERP): It encompasses software technologies

in supply chain, bringing together the information from within the firm and from
different geographical areas, integrating all businesses of the firm together for
efficient use of resources. It is a process used by a company to manage and
integrate important parts of its business. It refers to the software and systems to
plan and manage all the supply chain, manufacturing, services, financial and
other processes of the organisation.

Inventory Management Module: Inventory management being a key component

of logistics, firms should manage their inventories efficiently as huge cost is
involved in the inventories piling up. Therefore, an IT module for finished goods,
semi-finished goods, raw materials, and work in progress inventories is convenient
in ordering, based on suppliers or customers’ demands.

Just-In-Time (JIT) System: JIT concept was introduced by Toyota in Japan

and Maruti Suzuki in India. Generally, inventory carrying cost in terms of
warehousing is extremely high due to large capital expenditure involved in
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building and maintain warehouses. Thus, suppliers are required to supply Logistics Information System
components or raw material when the demand is just placed at 24-hour notice,
saving cost of transportation and warehousing. The required components or raw
material are supplied just-in-time when needed by the factory.

Transportation Management System: Transportation is a key element of

logistics being an important dimension as third-party intermediaries, to link
together the suppliers and manufacturers to final consumers. A range of
services are available starting from factory door pick up, custom freight station,
rail transportation using high speed wagons from container depot to ports and
further movement if needed by sea to port of discharge and again hinterland
transportation. In these activities, communication technologies, satellite tracking,
bar coding applications, EDI, automated material handling systems etc., are
employed.

Data Mining: Data mining is a process used of extracting usable data from a
larger set of any raw data by companies to turn it into useful information through
understanding a pattern and determine customers’ behaviour for repeat sale. By
using software to look for patterns in large batches of data, businesses can learn
more about their customers to develop effective marketing strategies, increase
sales and decrease costs. It implies analysing data patterns by using one or more
software. Accordingly, based on the feed-back obtained from dissatisfied
customers, services for such customers can be fine-tuned and customised to meet
their requirement.

Data Warehousing: A data warehouse is built by integrating data from multiple

sources that support analytical reporting, and decision making. Data
warehousing is the process of constructing and using a data warehouse, being
the electronic storage of a large amount of information by a business or
organisation. These are solely intended to perform queries and analysis and often
contain large amounts of historical data. It combines information from several
sources into one comprehensive database. For example, in the corporate world,
a data warehouse might incorporate customer information from a company’s sales
systems, website, mailing lists etc.

Customer Relations Management (CRM): It is a technology used to manage

interactions with customers by merging practices, strategies and technologies
used by companies. Data mining and data warehousing are two important elements
of CRM technologies. CRM systems compile customer data across different
channels, or points of contact, between the customer and the company, that include
the company’s website, telephone, live chat, direct mail, marketing tools and social
networks. CRM systems can provide the staff dealing with the customers,
a detailed information on customers’ personal information, purchase history,
buying preferences and concerns. CRM technology creates various value-added
services for customers, making the interaction more accurate, timely, responsive,
and reliable. The basic CRM system could be enhanced by automation of
marketing, sales force, contact centre and workflow; location-based
services, human resource management, etc.The usage of CRM depends on a
company’s business needs, resources and goals, as each has different costs
associated with it as can be seen by the undermentioned examples:

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Logistics Management: a) Contact Centre. The sales and marketing teams procure data and update
Components
the system with information relating to customers and revise customer
history records through service calls and technical support interactions.

b) Social Customer Relations Management: To add value to customer

interactions on social media, businesses use various social CRM tools that
monitor social media conversations, to determine their target audience. Other
tools are designed to analyse social media feedback and address customer
queries and issues. They capture customer sentiments, such as the likelihood
of recommending products and overall customer satisfaction, to develop
marketing and service strategies.

c) Mobile Customer Relations Management: Mobile CRM apps take

advantage of features that are unique to mobile devices, such as GPS
and voice recognition capabilities, to give sales and marketing employees
access to customer information from anywhere.

9.5 LOGISTICS INFORMATION SYSTEM:

TECHNOLOGY APPLICATIONS
The three types of important information in an inventory, which can be source
of errors if not recorded accurately, are (i) part description/number, (ii) quantity
and (iii) location. Identification systems are for the codification of packages inside
the warehouse by means of codes that can be scanned by automatic devices and
these are of fundamental importance for the computerised management of the
warehouse. Some of the technology applications for LIS are described below.

Bar Codes
Bar codes are the optical conversion of a numerical or alphanumerical code which
are used to identify a package. This optical conversion is represented by means
of an alternating sequence of vertical bars and spaces. Bar codes are read using
a laser light, which pick up the reflection from the bars and spaces on the label
and is usually read from a short distance, although in present times the distance
range is improving with new designs.

The codes are standardised by industry and usually printed on a paper label or
tag. They generally contain a unique identifier, such as part number, which can
be referred to a database for required information, such as price or description.
The automotive industry requires labels designed to their specifications for layout
and the type of code used and include, in addition to the product code, the
manufacturer, date of manufacture, and so forth.

The use of bar codes improves the speed of data entry and the accuracy of the
data retrieved. These can reduce errors as they are machine readable symbols
and are widely used to gather information at all levels of retailing, distribution,
and manufacturing. The error rate for this method is extremely low compared to
human error, which is estimated to be as high as 3% for repetitive entries.
Technologically there are two kinds of bar code scanning devices:
a) Optical scanners use a light source that illuminates the surface of the code
enabling a suitable sensor to record the variations of the reflected ray.
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b) Laser scanners repeatedly explore the encoded surface at each passage, Logistics Information System
taking a series of pictures that allow a greater accuracy of scanning. This
allows scanning at high intensity and on moving packages.

Radio Frequency Identification (RFID) Tags

Smart tags are automatic identification system based on radiofrequency
technology that work in a way like bar codes. It uses reflected radio waves from
a small device or tag to receive its information. It is activated by means of an
electromagnetic field generated by the scanner (reader), which is the electronic
device used for the exchange of information with the tag itself. The readers can
be portable and are used by operators or are installed on vehicles, integrated
with an antenna.

RFID tags are generally more expensive than printed bar codes, but the price is
falling rapidly, promoting their wider applications. Hence major retailers are
using this method of gathering information.

An RFID tag can be active or passive.

a) Active tags are provided with an internal battery that powers them and
enables large transmission distance (over 400m in the open for some
models). They are equipped with an overly complicated electric system
that allows the application to be customised based on individual
requirements.

b) Passive tags are more economical and widespread being made of an

aluminium or copper antenna, a memory microchip, and a support for the
protection of this chip. They do not have a battery and require no
maintenance.

Logistic Labels
The logistic labels record information, both in legible format (characters, numbers,
and graphic elements) and in the form of a bar code. With the help of the labels,
a logistic unit can be traced throughout the supply chain. For example, a logistic
label the SSCC (Serial Shipping Container Code) facilitates tracing of the physical
path of the individual packages together with the information flow associated
with it. The scanning of the SSCC, facilitates checking of the transport documents
transmitted in electronic format, the shipping and delivery of the products.

The labels contain both human-readable text and scannable symbols giving
supplier details, product description, carton quantity, batch no, etc.

QR Code
QR (Quick Response) code is a matrix or two-dimensional barcode which is a
machine-readable optical label that contains information about the item to which
it is attached. It consists of black squares arranged in a square grid on a white
background containing data for a locator, identifier, or tracker that points to a
website or application. A QR code uses four standardised encoding modes i.e.
numeric, alphanumeric, byte/binary, and kanji (Chinese character) to store data
efficiently. It has become popular due to its fast readability and greater storage
capacity compared to standard barcodes.

119
Logistics Management: FASTag
Components
FASTag is an electronic toll collection system in India, operated by the National
Highway Authority of India(NHAI) employing RFID technology for making
toll payments directly from the prepaid or savings account linked to it or directly
to the toll owner. It is affixed on the windscreen of the vehicle and enables to
drive through toll plazas without stopping for transactions. With emphasis on
implementing an effective and efficient electronic toll collection framework,
FASTag has become popular enabling an efficient, fast, and cashless payment
option for collection of toll charge. The integration of FASTags with the electronic
way billing (E-way billing) system is an achievement toward a globally approved
business and logistics hub. Connecting the electronic way bill (E-way bill) with
FASTags can provide better operational efficiencies, making it simple to track
the movements of goods by SMS alert especially at each toll plaza .
Check Your Progress Exercise 2
Note: 1) Use the space given below for your answers.
2) Check your answers with those given at the end of the Unit.
1) Elaborate on the technologies for adoption of LIS.
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

2) Describe the technology applications for LIS.

.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................
.......................................................................................................................

9.6 CONCLUSION
LIS caters to the specific information needs for decision making in the areas of
logistics management. The appropriate software designed for the installed system
makes it possible to generate reports for users in the required formats. Non value-
added activities may be identified and taken out of the system to reduce investment
cost. Integrating Logistics and Information Systems results in better awareness
on various aspects of logistics. LIS is designed to provides the necessary skills
to manage the flow of materials and information within and between organisations
and their business environment. It focuses on the use of information technology
as a critical enabler of the supply chain networks that businesses use to acquire,
produce, and deliver goods and services all over the world.

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 Logistics Information System
9.7 GLOSSARY
Electronic Data Interchange: It is a standard way to electronically transfer
data between software applications in logistics companies and their business
partners. It speeds up important logistics processes in supply chain.

E-logistics: It is application of internet-based technologies to traditional logistics

processes or web-based applications and services dealing with the efficient
transport, distribution, and storage of products along the supply and demand
chain.

E-way Bill: It is Electronic Waybill. It is a unique document/bill which is

electronically generated for specific consignment/movement of the goods from
one place to another, either inter-state or intra-state and for goods of value of
more than INR 50000, required under current rules.

Serial Shipping Container Code (SSCC): It is an 18-digit number used to

identify shipments/ cartons/ logistics units as they travel through the supply chain.

Warehouse Management System: It is a software application designed to

support and optimise functioning of warehouse and management of distribution
centre.

9.8 REFERENCES
De Nunzio, S. (2019). Logistics Technology and Application (2 nd ed.).
Tophatmonocle.

Draskoviæ, V. et.al. (2016). Management and Logistics – Selected Topics.

Mariborska: Scientific Publishing House.

Ghiani, G., Laporte, G. & Musmanno, R. (2013). Introduction to Logistics Systems

Management (2nd ed.). John Wiley & Sons.

Harrison, A. & Hoek, R. (2008). Logistics Management and Strategy (3rd ed.).
Essex: Pearson Education Limited.

Multi Industry Scenarios for Transport (MIST). (2000). Retrieved from http://
tfig.unece.org/pdf_files/MIST%20Report%20version_2000.rtf

Rossum, J.Ev. (2016). 7 innovative technologies transforming the logistics

industry. Retrieved from https://www.bizjournals.com/bizjournals/how-to/
technology/2016/09/7-technologies-transforming-logistics-industry.html

9.8 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress Exercise 1
1) Your answer should include the following points:
Customer service improvement
Increasing trust and confidence through communication within the
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Logistics Management: logistics chain
Components
Synchronisation of the processes of supply, production, and distribution
Cost reduction particularly of transport and storage
Reducing the documentation
2) Your answer should include the following points:
The requirements for LIS to be covered under:
Organisation decision
System requirement
Control requirements
System input and output data
The components of LIS include:
Logistics information portal
Logistics computing and simulation
Decision support system
Database and data mining
E-logistics and e-commerce
Software applications that include CRM, ERP, RFID, TMS, WMS
Check Your Progress Exercise 2
1) Your answer should include the following points:
Information Network
Electronic Data Interchange.
Supply Chain Management Software
Enterprise Resource Planning
Inventory Management Module
Just-In-Time Systems
Transportation Network
Data Mining
Data Warehousing
Customer Relations Management
2) Your answer should include the following points:
Bar codes
RFID tag
Logistic labels
QR code
FASTag

122