logistics of distribution

Unit 5Logistics of Distribution

By

Feroz Khan, Sunil Singh, Arun Kumar, Ajay Kumar, Indrajit, Vinoth Raj, BADON Maxime

Content

Introduction Communication & Logistics Functions of Logistics Management Customer Service, Data Mining/Data Warehousing Modes of Logistics Application of Technology in Logistics & Channel

Information Systems Strategic Management in Logistics The Process of Logistics

What is Logistics?

Logistics is the . . . “process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.“

Council of Logistics Management

Is it different from SCM?

Not really!

“Supply Chain Management deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers.” (Stanford Supply Chain Forum)

So, Logistics and Supply Chain are equivalent terms.

Introduction

• Commercial organizations started a logistics department with the responsibility of overseeing the journey of…

• the finished product from its facilities to its retail outlets.

• Organizations always focused more on ‘Outbound logistics’ than ‘Inbound logistics’.

Video: Nike Logistics Centre

Communication and LogisticsEffective logistics management requires that the actual status of goods and services be communicated in real-time to the various groups of people involved in the logistics process

This helps logistics service providers to improve their service by keeping a closer watch on inventory and taking the steps necessary to avoid losing customers

The various types of technology being implemented in logistics activities include Electronic Data Interchange, artificial intelligence, expert systems, communication technology in the form of satellite and wireless communication, and bar coding and scanning

Information technology has become an important dimension of third party logistics service providers (3PLs) business as their competitive advantage increasingly depends on the ability to create value for customers through ICT applications

A framework for analyzing the impact of ICT on logistics & Supply Chain Management

ICT applications for logistics and SCM

Function Activity ICTTechnology

Sharing of data and information

Access and use of data and informationby supply chain partners

DatabasesData warehouse

Information transfer Communication of information betweensupply chain partners

E-mailInternet

Information use for supply chainplanning

Data in decision making and operations planning of the supply chain

CADERPMRP

The Use of Internet Applications in Managing Logistics Activities Among Palm Oil Industry

Participants in MalaysiaIn 2008, Malaysia is reported to be the second largest producer of palm oil in the world and accounts for approximately 42.0% of world palm oil production. Exported to more than 120 countries worldwide.

In 2007, Indonesia overtook Malaysia as the world’s top palm oil producer due to dramatically increased planting areas of oil palm in the country

Internet technologies such as e-commerce have the potential to provide Malaysian companies with the means and tools to better handle and manage their business activities .

E-commerce has created ‘new channels’ for information flow, goods flow and new partnerships across distribution channels

Logistics Functions

Purchasing / Procurement

Inventory Control

Warehousing

Materials Handling

Facility Location / Network Design

Transportation

Customer Service

Order Processing

…. Other Functions

Logistics plays a dominant role in SCM. ‘Supply Chain’ and the philosophies can create an

opportunity while ‘Logistics Mgt’ with its tools and processes, fulfils an opportunity.

• Right Time• Right Price• Right Quantity• Right Place• Right Quality

A Sample Logistics Firm: EKOL

Cross Docking

• A logistics activity that attempts to reduce costs , total lead time and eliminates need to place inventory in storage.

• Breaks down received items on the loading dock and immediately matches them with outgoing shipment requirements, instead of stocking the items in warehouse locations and returning to pick for orders at a later time.

• The idea is to transfer incoming shipments directly to outgoing trailers without storing them in between.

Cross Docking…

• In a traditional warehouse, goods are received from vendors and stored in devices like pallet racks or shelves.

• When a customer (e.g., the consumer or perhaps a retail outlet) requests an item, workers pick it from the shelves and send it to the destination.

Cross Docking…

• In a crossdock, goods arriving from the vendor already have a customer assigned, so workers need only move the shipment from the inbound trailer to an outbound trailer for the appropriate destination.

• Information system requirements--a chief obstacle to implementing crossdocking successfully.

Cross Docking…(classification)

• One way to classify crossdocking operations is according to when the customer is assigned to an individual pallet or product.

• In pre-distribution crossdocking, the customer is assigned before the shipment leaves the vendor, so it arrives to the crossdock bagged and tagged for transfer.

• In post-distribution crossdocking, the crossdock itself allocates material to its stores.

Video: Crossdocking

Data mining

The Data Mining process is the extraction of valid and previously unknown information.

why do we need it ? To handle bulk of data in various enterprises,

thereby increasing the margin To turn incomprehensible data into usable

information

Evolution Questions Technology Providers

Data collection 1960s

What was my total revenue in last five years ?

Computers Tapes Disks

IBM

Data access 1980s

What were unit sales in Mumbai last march ?

RDBMSSQL

IBMMICROSOFTORACAL

Data warehousing and decision support 1990s

What were units sells in Mumbai last march ?drill down to Bangalore ?

OLAPDATA WAREHOUSES

PIOLETARBOR

Data mining (emerging today)

What is going to happen to Bangalore unit sale ?why?

Algorithm DatabaseMultiprocessors computers

IBMPIOLET

Process in data mining Preprocess :- Define objective

Select data

Prepare data

Data mining:-]

Clustering

Classification

Regression

Association rule learning

Results validation:-Validate the finding

Scope of data miningAutomated prediction of trends and behavior

Eg:-targeted marketing .

Automated discovery of previously unknown patterns .

Eg :-retail

ApplicationRetail

Telecommunication

Security

Data warehousing • Data warehouse is a subject oriented, integrated,

time-variant, non-volatile collection of data in support of management decision-making process.

• Data warehouse figure out what “we need before we need it “

• As it has both hardware & soft ware components, which facilitates in taking better decisions in massive companies

• It is also an architecture & tool to collect, query, analyze and present information

Conceptual data warehouse

data information

acquisition analysis

Organization

External information

Data warehouse

Decision

Support tool

Modes Of Logistics

Modes of Logistics

Logistics consists of several elements that need to be considered and coordinated for successful results

Modes of logistics have been classified into two categories

One that is linked to operations and is responsible for undertaking the routine and regular responsibilities and the other that is linked to strategy and is responsible for policy making

Modes of Transportation in Logistics

Rail Road Air Water Pipeline

AIR

This mode of transportation is usually used for the delivery of goods from distant suppliers, usually the ones that are not connected by any other mode of transportation

Advantages

• Fast delivery, usually between 24 and 48 hours

• Faster fulfillment of customer orders

• Ideal for perishable and other products with short life

• Reduced lead time on supplier

• Lesser inventory

• Improved service levels

Cont….

Disadvantages

• Flight delays and/or cancellations especially when direct connections are not available

• Customs and excise formalities leading to delays

High Cost• Suppliers/customers are not always located

near a rail freight depot and delivery to/from the depot can be costly and time consuming

SEA

• Sea transportation is used by businesses for the delivery of goods from distant suppliers

• Most sea transportation is conducted in containers which vary in size

• Goods can be grouped into a container (LCL) or fill a container (FCL)

Cont…

Advantages

• Ideal for transporting heavy and bulky goods

• Suitable for products with long lead times

Disadvantages

• Longer lead/delivery times.

• Problems arising due to bad weather.

• Difficult to monitor exact location of goods in transit.

• Customs and excise restrictions.

• High cost.

• Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming.

RAIL

• Rail transportation is popular with businesses for the delivery of a wide range of goods including post, coal, steel and other heavy goods

Advantages

• Faster and quicker.

• Ability to carry high capacity.

• Cost effective.

• Safe mode of transport.

• Reliable.

Cont…

Disadvantages• Subject to unforeseen delays and/or accidents

• Completely governed by timetable and schedule of railways

• Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming

Road• A very popular mode of

transport used by suppliers and businesses to deliver orders. Many transport companies provide scheduled delivery days and next day delivery services, depending upon your needs

• Goods can be packed/grouped in box vans or in containers which are also used for sea transportation

Cont….

Advantages• Cost effective.

• Fast delivery.

• Ideal for any short distances.

• Refrigerated vans can be easily used for transporting perishables.

• Easy to monitor location of goods.

• Mass movement of goods.

• Point-to-point service.

• Easy to communicate with driver. Usually companies ask the driver to

call the company every couple of hours.

Disadvantages• Delays due to traffic jams, etc.

• Problems due to vehicle breakdown, accidents, etc.

• Goods susceptible to damage and losing quality.

• Heavy dependability on weather.

Pipeline

Advantages

• Mass movement of liquids and gases

• Low operating costs

Disadvantages

• Limited applicability

• Not widespread

Application of Technology in Logistics and Channel Information Systems

• The application of IT can support logistics and help in resolving several problems.

• Over and above assisting in managerial tasks such as planning, deciding on the optimal route of transportation and allocation, distribution.

• One of the major problems in logistics has been lost and untracked parcels thereby affecting inventory policies.

• Real time tracking of goods throughout the supply chain provides excellent opportunities for improving customer service.

Continue

• Real time information on delivery time supports just-in-time manufacture and retail, enabling organizations to make strategic decisions with full confidence in the availability of goods.

• Several leading package delivery companies are offering parcel tracking via the Internet as a fundamental element of the service.

• For example, lost luggage is estimated to cost the airline industry in excess of $ 100 million annually.

RFID AND ITS IMPORTANCE

• Radio Frequency Identification• Identifying a person or object using a radio

frequency transmission.• Serial number that identifies a person.• A microchip is attached to a Antenna.• The chip and antenna together are called RFID

tag.

RFID Vs Barcodes

• Line of sight technology

• RFID is more Effective.

• Barcodes have limited Information.

Advantages of using RFID

• Supply Chain Visibility

• Operating Cost Improves.

• Saves time.

Applications of RFID

• Product Tracking• Inventory Control• Pricing and Promotion• Shipping and Receiving• Transportation• Return and Recalls management.

Concerns Surrounding RFID

• High Investment.

• Limited Range.

• Health Concerns.

SOURCING DECISIONS IN A SUPPLY CHAIN

• The Benefits of Sourcing decisions in a Supply Chain• In-House or Out Source

• L e t s f i r s t l o o k a t d i s t i n c t i o n b e t w e e n o u t s o u r c i n g a n d o f f - s h o r i n g

• A f i r m O f f - s h o r e s a s u p p l y c h a i n f u n c t i o n i f i t m a i n t a i n s o w n e r s h i p b u t m o v e s t h e p r o d u c t i o n f a c i l i t y o f f s h o r e . ( e x : - D E L L )

• I n C o n t r a s t , a f i r m o u t s o u r c e s i f o u t s o u r c e s i f t h e f i r m h i r e s a n o u t s i d e f i r m t o p e r f o r m a n o p e r a t i o n r a t h e r t h a n e x e c u t i n g t h e o p e r a t i o n w i t h i n t h e f i r m . ( e x : - P & G ( P r o c t o r a n d G a m b l e h a s n e v e r a t t e m p t e d t o s e l l d e t e r g e n t d i r e c t l y t o c u s t o m e r s )

Dell outsources design and production of the processors in its pc’s to INTEL is

that Intel supplies many computer manufactures and gains economies of

scale that are not available to DELL if it designs and produces its own processors . The growth in surplus from outsourcing is highest when the needs of the firm are

significantly lower than the volumes required to gain economics of scale .

The Benefits from effective sourcing decisions in Supply Chain Management

• Better economics of scale can be achieved if orders within a firm are aggregated

• More efficiency procurement transactions can significantly reduce the overall cost of purchasing . This is most important for items for which a large number of low-value transactions occur.

• Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. This factor is most important for supplier products that contribute a significant amount to product cost value.

Cont……

• Goods procurement processes can facilitate coordination with the supplier and improve forecasting and planning . Better coordination lowers inventories and improves the matching of supply and demand.

• Appropriate supplier contracts can allow for the sharing of Risk, resulting in higher profits for both the supplier and buyer.

• Firms can achieve a lower purchase price by increasing competition through the use of auctions

A firm Should consider outsourcing if the

growth in surplus is large with a small increase in Risk .

Performing the function in-House is Preferable if the Growth in surplus is small or the increase

in risk is large.

Outsourcing In-House

How do third parties increase the supply

chain surplus

Inventory aggregation

Capacity Aggregation

Information aggregation

Procurement aggregation

Warehousing aggregation

Receivables aggregation

Lower Costs higher quality

Transportation aggregation by

storage intermediaries

Relationship aggregation

Transportation aggregation by transportation intermediaries

Here we can discuss various mechanism that third parties can use to

grow the surplus


chain surplus












A third Party Can increase the supply chain surplus by aggregating demand across multiple firms and gaining production economies of scale that no single firm can on its own .



chain surplus












• A third party can increase the supply chain surplus by aggregating inventories across a large number of customers.

INVENTORY AGGREGATION


chain surplus












• A third party may increase the surplus by aggregating the transportation function to a higher level than any shipper can on its own

TRANSPORTATION AGGREGATION BY TRANSPORTATION INTERMEDIARIES


chain surplus












The Third Party That Stores inventory can also increase the supply chain surplus by aggregating inbound and out bound transportation .

TRANSPORTATION AGGREGATION BY STORAGE INTERMEDIARIES


chain surplus












• A third party may increase the supply chain surplus by aggregating warehouse needs over several Customers.

• The growth in surplus is achieved in terms of lower real estate costs as well as lower processing costs within the warehouse

• Savings through warehousing aggregation arise if a supplier’s warehousing needs are small or if its needs fluctuate over time

• in either case , the intermediary with the warehouse can exploit economies of scale in warehousing construction and operation by aggregating across multiple customers .

WAREHOUSING AGGREGATION


chain surplus












• A third party increases the supply chain surplus if it aggregates procurement for many small players and facilitates economies of scale in production and inbound transportation

• Procurement aggregation is most effective across many small buyers

PROCUREMENT AGGREGATION


chain surplus












• A third party may increase the surplus by aggregating information to a higher level than can be achieved by a firm performing the function in-house.

• All retailers aggregate information on products from many manufactures in a single location .

• This information aggregation reduces search costs for customers

INFORMATION AGGREGATION


chain surplus












• A third party may increase the supply chain surplus if it can aggregate the receivables risk to a higher level than the firm or it has a lower collection cost than the firm.

RECEIVABLES AGGREGATION


chain surplus












• An intermediary can increase the supply chain surplus by decreasing the number of relationship required between multiple buyers and sellers.

• Without an intermediary , connecting a thousand sellers to a million buyers requires a billion relationships.

• The presence of an intermediary lowers the numbers of relationship required to just over a million.

RELATIONSHIP AGGREGATION


chain surplus












• A Third party can increase the supply chain surplus if it provides lower cost or higher quality relative to the firm .

• If these benefits come from specialization and learning , they are likely to be sustainable over the longer term.

• A specialized third party that is further along the learning curve for some supply chain activity is likely to maintain its advantage over the long term .

LOWER COST AND HIGHER QUALITY

• A common scenario ,however is one in which the third party has a low –cost location that the firm does not .

• In such situations, lower labor and overhead costs are temporary reasons for out sourcing, because if the wage differential is persistent and third party offers none of the other advantages discussed earlier, it is best for the firm to maintain ownership and off-shore production to the low –cost locations.

Process of Logistics

Forward Logistics Reverse Logistics

Forward Logistics

Inbound Logistics Outbound Logistics

Inbound LogisticsReceiving, storing and disseminating incoming goods and material for use.

Physical Supply

Physical supply means linking of suppliers with the internal operations

Suppliers are scattered and have varying lead times, hence coordinating and synchronizing this activity becomes a tough job

From whom to order? How much toorder? When to order? Which mode of transportation should be used?Where to store the material? etc.

The philosophy of JIT is based on the principle of less quantity in lesser interval resulting in more deliveries

Vendor-Managed Inventory (VMI) is the solution

Inbound Logistics

SourcingOrder

Placement &Expediting

Receiving

Vendor Supplier

Transportation

Objectives of inbound logistics

• Ensure that material received and related information are processed and made available promptly to production, store and other department

• Completely and accurately document goods received and goods returned• Accept only items that were properly ordered

• Accept only materials that meet purchase order specification

• Ensure that vendor, inventory and purchase order information is accurately updated to reflect receipt

• Return rejected items promptly

Inbound Logistics Management

Outbound Logistics

Movement of material associated with storing, transporting, and distribution a firm's goods to its customers.

The warehousing and distribution of finished goods.

Outbound Logistics

Activities in distribution performance cycle

OrderProcessing

CustomerDelivery

OrderTransportation

Order Selection

CustomerOrder

Order Transmission

Objectives

Timely delivery

Meeting customer demand with perfection.

Balance between supply and demand.

Key Issues

expected level of customer service, cost associated With servicing the customer at the prescribed level

product to be stocked at each distribution facility

whether there is a stock-out situation when he delivers the material or whether adequate material is still available that could have lasted some more days,

Business Logistics in a Firm

Integrated Logistics Management

In India

AMUL

The DABBAWALLAHs of MUMBAI

ITC e-choupal

Reverse Logistics Reverse Logistics

“Process of planning, implementing and controlling the efficient,

cost-effective flow of raw materials, in-process inventory,

finished goods and related information from the point of

consumption to the point of origin for the purpose of recapturing

value or proper disposal”

- Rogers and

Tibben- Lembke

Reverse Logistics Activities

Handling of returned merchandiseDamageSeasonal inventoryResell via outletSalvage of outdated productsStock–balancing returns

Recycling and reuseMaterial reuseRemanufacturing / refurbishing

Hazardous materials disposition

The Network of Reverse Logistics

Reverse Logistics Steps

containers

retailer

consumer

1. Collecting 2. selection and sorting

3. transport

4. disassemblingand crushing

5. transport

collecting point

production

Treatment centre

REVERSE LOGISTICS CHALLENGES

• Retailer – Manufacturer Conflict

Inefficiencies that lengthen the time for processing returns: Condition of the itemValue of the itemTimeliness of response

They have to develop a working partnership to derive mutual benefit.

Problem Return Symptoms

Lack of information about the process.

Examples U.S. Reverse Logistics Costs

Return Percentages

Reverse Logistics in UK

Very few Indian manufacturer across any sector has ever claimed responsibility for their faults

Total U.S. Logistics Costs

$1,006,000,000

Approximate RL cost %

4.00%

Estimated U.S. RL Costs

$40,240,000

Cont…..

Nokia

Apple

Repair Order Tracking System Reverse Logistics System

Process of Logistics :- Value Chain Analysis

Corporate Social Responsibility For each of Nike's regions to thoroughly understand and take responsibility for the climate impact of its logistics.

In FY09 our U.S. group realized more than $8.2 million in savings through better container utilization, eliminating unnecessary trips and air freight reduction.

Wal-Mart, The Coca-Cola Company, Nordstrom, Ikea, and Starbucks, all of which realize the value of improving shipping even without owning the fleet.

Carrefour Reducing road transport to warehousesCarrefour France achieved the goal it had set to ship more than 40% of its merchandise by river and rail, resulting in 3,300 fewer trucks on the roads.In Spain, Carrefour dispatches 100% of its import containers from the port of Barcelona by rail and 67% from Valencia.Preliminary studies show a saving of 25% in CO2 emissions per pallet transported (upstream/downstream)286 tonnes of CO2 saved by Carrefour thanks to the use of alternative upstream transport in France38 French hypermarkets supplied by combined rail-road transport from warehouses in Sarran and Vert-Saint-Denis

Any Questions ???

logistics of distribution

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