market logistics & supply chain management
DESCRIPTION
Market Logistics & Supply Chain ManagementTRANSCRIPT
SDM – Ch 15 Tata McGraw Hill Publishing 1
Chapter 15
Market Logistics & Supply Chain Management
SDM – Ch 15 Tata McGraw Hill Publishing 2
Logistics Defined
• Logistics means having the right thing, at the right place, at the right time
• The science of planning, organizing and managing activities that provide goods or services – Logistics World, 1997
SDM – Ch 15 Tata McGraw Hill Publishing 3
Logistics
• Functions: planning, procurement, transportation, supply and maintenance
• : science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources
SDM – Ch 15 Tata McGraw Hill Publishing 4
Scope of Logistics
• Choice of markets• Procurement• Plant location and layout• Inventory management• Location and management of warehouses• Choices of carriers, mode of transport• Packaging decisions• Relevant to all enterprises: manufacturing,
Government, Institutions, service organisations
SDM – Ch 15 Tata McGraw Hill Publishing 5
•Natural Resources
(land, facilitiesEquipment)
•HR•Finance
•Information
•Marketing Orientation
(competitive Advantage)•Time and Place utility
•Efficient moveto customer
Customer serviceDemand forecasting
DistributionCommunicationsInventory control
Materials handlingOrder processing
Parts and service supportPlants and warehouse selection
ProcurementPackaging
Return goods handlingSalvage and scrap disposalTraffic and transportationWarehouse and storage
Input OutputLogistics Activities
Logistics and SCM• Logistics tends to focus on transportation and
distribution, SCM focuses on purchasing and procurement, production planning, demand management, from popint of origin to point of consumption
• Supply chain management also logistics functions plus purchasing,sourcing, procurement, manufacturing operations, location planning,
• All activities and flows from point of origin to point of comsumption of a materials
SDM – Ch 15 Tata McGraw Hill Publishing 6
SDM – Ch 15 Tata McGraw Hill Publishing 7
Links and Flows
Customer’scustomer
Supplier’ssupplier
SupplierLead FirmCustomer
General cash flow
Information flow
Information flow
General material flow/ service flow
Inbound / Upstream logisticsOutbound / Downstream logistics
Source: ICFAI
SDM – Ch 15 Tata McGraw Hill Publishing 8
The Value ChainCompany Infrastructure
Organisation, people, methods
Systems & technology
Procurement
Inboundlogistics Operations
Outboundlogistics
Marketing& sales
Service
Primary activities
SUPPPORT
margin
margin
Source: Michael Porter
Inbound and outbound logistics
• Inbound logistics
• Receiving storing issuing inputs and taking care of materials handling, inventory control, scheduling for production,
• Interface with company’s suppliers, vendors and other service providers
SDM – Ch 15 Tata McGraw Hill Publishing 9
• Outbound logistics
• Distributing finished goods to dealers/ stockists/customers
• Interface with copmay’s customers
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SDM – Ch 15 Tata McGraw Hill Publishing 11
Logistics Focus Areas
Customer service related Operations related
Packaging
Order processing
Spare parts and service support
After sales Customer service support
Demand forecasting
Distribution communications
Return goods handling
Plant and warehouse site location
Procurement
Inventory control
Materials handling
Salvage and scrap disposal
Traffic and transportation
Warehousing and storage
Logistics may be confined to the company whereas SCM extends beyond
SDM – Ch 15 Tata McGraw Hill Publishing 12
Supply Chain Management• Business context:
– Globalization of the market place– Advances in technology– Increasingly demanding, informed customer base– Purchase decisions on dimensions of quality, price and
time
• Innovative supply chain:– To meet customer driven challenges– To reduce costs– Improve service levels– Enhance speed to market
SDM – Ch 15 Tata McGraw Hill Publishing 13
Integrated
Supply Chain
Management
Manufacturing/Re-manufacturing/
Assembly
Demand & Lead Time Management
Storage &
Transportation
Materials Management
Inventory Management and control
Customer Analysis
Purchasing/Supplier Partnering
Order Fulfillment
Supply Chain Integration
Inventory management…
• Inventory Management
SDM – Ch 15 Tata McGraw Hill Publishing 14
SDM – Ch 15 Tata McGraw Hill Publishing 15
Why Carry Inventory?
• Support production requirements• Support operational requirements• Maximize customer service – ensure
availability when needed – protect against uncertainty
• Hedge against marketplace uncertainty• Take advantage of order quantity
discounts
SDM – Ch 15 Tata McGraw Hill Publishing 16
Factors Which Drive Inventory
• Target service level parameters
• Lot sizing practices
• Safety stock and safety time conventions
• Volume discounts and purchase arrangements
• Seasonal build up needs
SDM – Ch 15 Tata McGraw Hill Publishing 17
Categories of Inventory
• Anticipation – built in anticipation of future demand – peak season, strike, promotion
• Fluctuation (safety) – to cover random, unpredictable fluctuations in supply and demand and lead time – to prevent disruption in operations, deliveries etc
• Lot-size – to take advantage of quantity discounts, reduce shipping, set up and clerical costs – also called cycle stock
SDM – Ch 15 Tata McGraw Hill Publishing 18
Categories of Inventory
• Transportation – pipeline or movement inventories – to cover the time needed to move from one point to another – factory to distribution point for example
• Hedge – for materials where prices are volatile
• Maintenance, repair and operating supplies (MRO) – to support M and O – spare parts, lubricants, consumables etc
SDM – Ch 15 Tata McGraw Hill Publishing 19
Performance Measures
• Inventory turns = Annual cost of goods sold /average inventory in value
• Days of sales = inventory on hand / average daily sales
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Types of Classification
• ABC category – most common for all• HML - high, medium, low - similar• FSND – fast moving, slow moving, non-
moving, dead – spare parts / FG
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ABC Inventory Analysis
• Based on Pareto’s law:– A – 20% items worth 80% of value– B – 30% items worth 15% of value– C – about 50% items account for 5% of the usage
• Classify items based on the above criteria• Apply degree of control in proportion to the
importance of the group
SDM – Ch 15 Tata McGraw Hill Publishing 22
Inventory Related Costs• Unit costs – basic value of the item carried• Ordering costs – generating and sending a
material release, transport, any other acquisition costs
• Carrying costs – capital, storage, obsolescence• Stock-out costs• Quality costs – non-conforming goods• Other costs – duties, tooling, exchange rate
differences etc
SDM – Ch 15 Tata McGraw Hill Publishing 23
Approaches for Controlling Inventory
• Continuous review:– Safety stocks and forecasting methods– Excess and obsolete inventory
• Part simplification and re-design• On-site supplier managed inventory• Use of supply chain inventory management
systems, Materials Requirement Planning, Distribution Requirement Planning etc
• Automated inventory tracking systems• Supplier – buyer cycle-time reduction
Warehouse management…
SDM – Ch 15 Tata McGraw Hill Publishing 24
FunctionsWarehouses
Material handling
Storage function
Customer service
Information transfer
Temporary Permanent Receive goodsIdentify goods
Sort goodsDespatch to storage
Hold inventoryRecall, select goods
Marshal the shipmentDespatch the shipmentPrepare records and
advices
SDM – Ch 15 Tata McGraw Hill Publishing 25
Purpose of Warehousing
• To provide desired level of customer service at the lowest possible total cost
• It is that part of the firm’s logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored
• Distribution warehousing relates mainly to FG
SDM – Ch 15 Tata McGraw Hill Publishing 26
Warehouses
• Support manufacturing
• Mix products from multiple facilities for shipment to a single customer
• Break-bulk
• Aggregate
• Used more as a ‘flow-thru’ point than as a ‘hoarding’ point
SDM – Ch 15 Tata McGraw Hill Publishing 27
Distribution Warehousing
• The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost
• Could be C&FA s, depots or distribution centers
• Macro location strategies:– Market positioned– Production positioned– Intermediately positioned
SDM – Ch 15 Tata McGraw Hill Publishing 28
Transportation • Very important in the Logistics function:
– Movement across space or distance adds value to products
– Transportation provides time and place utility
• Role of transportation includes:– Provides opportunity for growth under competitive
conditions– Deeper penetration into markets– Wider distribution means greater demand– Can influence product prices favourably
Principles….
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Transportation Principles• Continuous flow• Optimise unit of cargo - stackability• Maximum vehicle unit – capacity utilization• Adaptation of vehicle unit to volume and nature of
traffic• Standardisation• Compatibility of unit load equipment• Minimum of dead weight to total weight• Maximum utilization of capital, equipment and
personnel
Process….
SDM – Ch 15 Tata McGraw Hill Publishing 30
Reverse Logistics
• Movement of goods from the market or customer back to the company
• The need:– Increased awareness of the environment– Stringent legislation – For some it is part of the business– Profitability of dealing with scrap, surplus
• Surplus, obsolescence can result due to:– Over optimistic sales forecasts, change in product
specs, errors in estimating material usage, losses in processing or overbuying based on incentives
Comparison of modes……
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Advantages of Rail
• Economy – more so for goods over long distances
• Efficiency of energy
• Reliability – not affected by weather conditions
SDM – Ch 15 Tata McGraw Hill Publishing 32
Disadvantages
• Uneconomical for small shipments and short distances
• Not suitable for remote stations
• Costly terminal handling facilities
• Inflexible time schedules
Road transport…..
SDM – Ch 15 Tata McGraw Hill Publishing 33
Road Freight Advantages
• Through movement – direct from consignor to consignee, no transshipment
• Flexibility – routes and loading routines can be easily altered, operate day and night
• Less capital costs – for own fleet + immunity from industrial action
• Fast turn-around – if articulated units like tractors and trailers are used
• Minimum delays
SDM – Ch 15 Tata McGraw Hill Publishing 34
Disadvantages
• Susceptibility to weather and road conditions – in spite of the best protection
• Unsuitability for heavy loads – rail transport more economical for bulk loads
• Unsuitability for long distances – again the rail telescopic rates are more favourable
Air transport….
SDM – Ch 15 Tata McGraw Hill Publishing 35
Air Transport Advantages
• Faster mode• Reduction in cost particularly inventory• Broad service range• Increasing capabilities• Disadvantages:
– High cost– Weather affects flight conditions– Limitations on heavy consignments
Water transport……
SDM – Ch 15 Tata McGraw Hill Publishing 36
Water Transport
• Advantages: – Mass movement of bulk– Lowest freight cost – Preferred for long haul of low value commodities
• Disadvantages:– Not for quick transit– Suitable for certain types on commodities only
Pipeline….