LOGISTICS AND SUPPLY

CHAIN MANAGEMENT
Meaning of Logistics
 Logistics mainly deals with reaching the
products or services when they are wanted
by the final consumers.
 The logistics is the pulse of supply chain
management.
 It plans, implements and coordinates the
activities of,
a) Forward flow
b) Reverse flow
Flow of logistics
Definition

“Logistics is the part of the supply chain process

that plans, implements and controls the efficient
flow and storage of goods, services and related
information from the point of origin to the point
of consumption in order to meet customers
requirements
- Council of logistics management
Features of Logistics
 Ensures smooth flow of goods such as raw
materials to finished goods
 Ability to meet customer expectations
 Delivery of quality products
 Customer service at least cost
 Productivity and profitability
 Deals with movement and storage in
appropriate quantity.
Origin of logistics
 Logistics derived from the Greek word ‘Logistique’
meaning – accountant or responsible for
counting

 19TH century for military purposes.

 Some said it is originated from French word

‘logos’- ART OF WAR

 This concept evolved into business only 1960s, due

to increasing complexity of business and supply of
goods.
EVOLUTION OF LOGISTICS
AND SUPPLY CHAIN
MANAGEMENT
Independent Business Era (Till 1950):
a) Increase the production in order to meet
the demand of shortages as a result of
war.
b) Fragmentation stage- only physical
distribution
c) Every department performed task
independently to maximizes the sales
volume.
Limited Internally Integrated Business
Function Era (1960-70s):
a) Large number of players entered into
market and customer expectation
increased
b) Material management and physical
distribution.
Internally Integrated Business Function Era
(1980):
a) Inflation rate, hike in oil prices,
difference in production function and
multinational operations.
b) Material management, manufacturing
management, marketing and distribution.
Externally Integrated Business function Era
(1990s):
a) Liberalization, globalization, rapid
innovation and competition
b) Evolved the concept of supply chain
management.
c) Main objective of this era is core
competency and to reduce financial risk.
 The goal of Supply Chain
Management (SCM) is to create
“customer value” leading to
increased corporate
profitability, shareholder value,
and sustained competitive
advantage in the long run.
Business Logistics
 Business logistics is an activity that takes
goods from source to destination
location. This framework of plan
concerned with
 Material Procurement
 Material management
 Inventory management
Business Logistics Stakeholders
7 R’s of logistics in business
IMPORTANCE OF LOGISTICS
 Value adding process- creates value for
customers, suppliers and for firm stakeholders
by providing product at right time.
 Minimizing cost and passing the benefits to
customers – logistics management helps to
control the total cost involves in the flow of
products.
 Adding significant customer value- it controls
time and place value in products through
transportation, information flows and
inventories.
 Penetrating new markets, increasing market
shares and increasing profits- they offer their
product by differentiating from the competitors
and supply chain yields different levels of
customer services.
 Supply chain depicts success and failure- control
costs and increase revenue.
 Reverse logistical channel- passing of customer
response or returning the product when
damaged or obsolete.
 Globalization and internationalization depends
upon logistics performance and costs- managing
the supply chain across the global offshoring.
LOGISTICAL MISSION AND STRATEGIC
ISSUES
The logistical system of a firm refers to an
generating the highest value of customer satisfaction
at the least cost while delivering the highest value to
its shareholders. Hence, the major missions of
logistics are as follow:
1) The mission of logistics is making available goods
and services to customers as per their
requirements and specifications.
2) To offer the best possible customer service for
core competency. The firm have to stay in touch
with marketing intermediaries to get a
information about end- users.
In order to achieve core competency the firm should
adopt following three service components:
1) Strategic component- reflect the vision of the top
management of the company towards relationships
with their customers in terms of their ability to ensure
the best return.
2) Logistical component- deal with basic services
required for delivery of goods, including availability of
goods as per normal and unforeseen requirements.
3) Non-logistical component- refer to value-added
services offered to customers in terms of financial and
technical support for infrastructural development,
credit facility.
In order to achieve the above logistical missions, the
following strategic issued are important for the smooth
and efficient logistical activities in the Indian environment
at the beginning of the 21st century:
1) Decision-makers to realize the importance of
arranging inputs to manufacturing, trading or service
activity.
2) Increase the status of purchase or SCM.
3) Adopt a harmonized system of codification to identify
the products.
4) Improved vendor relations is a part of cultural change
and, therefore, the joint responsibility of the top
management.
FUNCTIONS OF LOGISTICS
MANAGEMENT
 The main motive of logistics is concerned with
movement of goods from the point of inception
to the point of consumption. In all these
processes there are three set of logistics
functions are involved:
a) Procurement function
b) Production function and
c) Physical distribution function
PROCUREMENT FUNCTION
 This is also known as in-bound logistics. It
mainly concerns about the procurement of raw
materials in specified quality and in quantity.
 This function also includes handling, storage and
movement of shop floors for final use in the
manufacturing process. It includes the following:
Input needs, shipment, order placement,
Negotiation and supply contracts, quality and
sources study.
PRODUCTION FUNCTION
The main objective of this function is to
establish and maintain an orderly, smooth and
economic flow of materials facilitating total
production system avoiding idle time for any
manufacturing. It includes:
Production schedule, inventory
management, storage, temporary packaging,
material handling and inputs
PHYSICAL DISTRIBUTION
 This is also known as “out-bound” logistics. This
facilitates marketing and sales performance of
the enterprise by means of timely and
economical product availability. It includes the
following function:
Output inventory, protective packaging,
customer, order processing, warehousing and
transportation.
INTEGRATED LOGISTICS SYSTEM

In the beginning of 1980s there has

been a phenomenal increase in business era
both internally and externally by the
environment surrounded by the business.
Thus in order to capture the market and
retain competition marketers developed
“integrated logistics system”.
Objectives of this system
 To ensure better customer service by
appropriate value addition for superior
customer value.
 To ensure high productivity and further
curtailment of logistics cost by three logistics
function.
 To avoid reputation of similar types of logistical
functions by different department at different
levels.
 To monitor existing logistics system so that a
continuous improvements can be made.
LOGISTICAL ACTIVITIES
 The logistical activities can be broadly
divided into two:

I. INBOUND LOGISTICS; which is concerned

with the smooth and cost-effective inflow of
materials and other inputs (that are needed in
the manufacturing process) from suppliers to
the plant. For proper management of inbound
logistics, the management has to maintain a
continuous interface with suppliers (vendors).
 II. OUTBOUND LOGISTICS (also called
physical distribution management or supply
chain management); is concerned with the flow
of finished goods and other related information
from the firm to the customer. For proper
management of outbound logistics, the
management has to maintain a continuous
interface with transport operators and channels
of distribution.
KEY ACTIVITIES OF LOGISTICS
MANAGEMENT
1) NETWORK DESIGN:
This network is required to determine the number
and location of manufacturing plants, warehouses, material
handling equipment’s.

2) ORDER PROCESSING:
Order processing includes activities for receiving,
handling, filing, recording of orders. Herein, management
has to ensure that order processing is accurate, reliable
and fast. Further, management has to minimize the time
between receipt of orders and date of dispatch of the
consignment to ensure speedy processing of the order.
3) PROCUREMENT:
It is related to obtaining materials from outside
suppliers. It includes supply sourcing, negotiation, order
placement, inbound transportation, receiving and
inspection, storage and handling etc.
4) MATERIAL HANDLING:
It involves the activities of handling raw-materials,
parts, semi-finished and finished goods into and out of
plant, warehouses and transportation terminals.
Management has to ensure that the raw-materials, parts,
semi-finished and finished goods are handled properly to
minimize losses due to breakage, spoilage etc.
5) INVENTORY MANAGEMENT:
The basic objective of inventory management is to
minimize the amount of working capital blocked in
inventories; and at the same time to provide a continuous
flow of materials to match production requirements;
Management has to maintain inventories of:
1. Raw-materials and parts
2. Semi-finished goods
3. Finished goods
Management has to balance the benefits of holding
inventories against costs associated with holding
inventories like – storage space costs, insurance costs, risk
of damage and spoilage in keeping stocks etc.
6) PACKAGING AND LABELING:
Packaging and labelling are an important aspect of
logistics management.
A) Packaging implies enclosing or encasing a product into
suitable packets or containers, for easy and convenient
handling of the product by both, the seller and specially the
buyer. Packaging facilities the sale of a product.
B) Labelling means putting identification marks on the package
of the product. A label provides information about – date of
packing and expiry, weight or size of product, ingredients
used in the manufacture of the product, instructions for
sale handling of the product, price payable by the buyer etc.
7) WAREHOUISNG:
Storage or warehousing is that logistical
activity which creates time utility by storing goods
from the time of production till the time these
are needed by ultimate consumers.
Here, the management has to decide about:
1. The number and type of warehouses needed
and
2. The location of warehouses.
8) TRANSPORTATION:
Transportation is that logistical activity which creates place utility.
Transportation is needed for:
1. Movement of raw-materials from suppliers to the manufacturing
unit.
2. Movement of work-in-progress within the plant.
3. Movement of finished goods from plant to the final consumers.
Major transportation systems include: Railways, roadways, airways,
waterways, pipelines.The choice of a particular mode of
transportation is dependent on a balancing of following
considerations:
1. Speed of transportation system
2. Cost involved in transportation
3. Safety in transportation
4. Reliability of transportation time schedules
5. Number of locations served etc.
COMPONENTS OF LOGISTICS
MANAGEMENT
1) GENERIC COMPONENT:
It includes customer service that is rendered
by the business as a result of logistics.
a) Customer service requirement for product
and competitive advantage.
b) Corporate vision towards service goals
c) Development of customer service standard
d) Infrastructural requirement
e) Development of evaluation and appraisal
mechanism.
2) PRIMARY COMPONENT:
a) Network design
b) Transportation
c) Inventory Management
d) Order processing

3) SUPPORTIVE COMPONENT:
a) Storage and warehousing
b) Materials handling
c) Procurement
d) Information- logistics system, decision making, cost
e) Forecasting- demand trends, techniques,
administration and error
 LOGISTICS COMPETITIVE
ADVANTAGE
 Logistics is significantly gaining recognition in
this world due to the advantage in corporate
world towards core competency in the market
place coupled with profitability and productivity.
 The generic meaning of ‘competitive advantage’
involves the firms ability to differentiate its
products or services than the competitors.
 In other word, it generates the highest level of
customer satisfaction and maximizes
productivity and profitability by operating at
lower cost.
 MICHAEL E. PORTER
 Competitive advantage stems from firms
different activities such as designing,
production, marketing, delivering and
supporting the products.
 All these activities contribute to the firms
relative cost position and create a basis
for differentiation.
 So, the author believed that ‘firm value
chain’ as the basic tool for understanding
the behavior of cost.
 He divided total business activities of
value chain into two sets:
 Primary activities- in-bound logistics,
operations, out-bound logistics, marketing
and sales.
 Secondary activities- infrastructure,
human resource management, technology
development and procurement.
Competitive advantage can be achieved by
logistics managers in two ways
Cost advantage Value advantage
a) Low inventory a) Quality
b) No stock-out b) Availability
c) In-tact delivery c) Quick response
d) Capacity utilization d) Best service
e) High working e) Consistency of
capital turnover logistical
f) Integrated logistics performance
system
 WILLIAM C. COPACINO
 Low cost- more important in logistics -
intensive industries where there is little
differentiation in commodity products.
 Superior customer service- in- stock
availability and response to customer
responses (premium price).
 Value-added services
 Flexibility
 Regeneration
STRATEGIC LOGISTICS PLANNING
PROCESS
 After 1990s, the logistics and supply chain management
have a tremendous change in business resulting not only
in producing, purchasing, moving and selling it also offers
competitive advantage and profitability. The company
had included its logistics vision in their mission
statement. The four stage involved here is:
a) Corporate vision
b) Logistics strategic analysis
c) Logistical planning
d) Managing change
Corporate vision
 Recognition of service requirement for
different market segments- customer
strategy
 Anticipation of key external factors along
with their implications in industry trends.
 Mission and objectives of logistical
functions in terms of strategic direction
and logistics requirement.
Logistics strategy analysis
 Development of various strategic
alternatives- customer service, channel
design, network analysis, warehousing,
transportation and material management.
 Review and final confirmation of detailed
logistics plan
Logistics planning and managing
change
 Functional goals to achieve long-run
logistical activities
 Programs and procedures for new
logistics system
 Operational activities along with their
coordination
 Continuous evaluation and measurement
of performance for further improvement.
 OUTSOURCING
Outsourcing is the business practice of hiring a party
outside a company to perform services and create goods
that traditionally were performed in-house by the
company's own employees and staff. Outsourcing is a
practice usually undertaken by companies as a cost-cutting
measure.

Example: A small company may decide to outsource

bookkeeping duties to an accounting firm, as doing so may
be cheaper than retaining an in-house accountant.
Outsourcing is related to logistics
Services like logistics planning, warehousing
management, transportation, fleet
management, LIS, order fulfillment,
inventory management.

Value added services- tracking and tracing

of the shipment, repacking, product
assembly and testing, consultancy etc.
3 PARTY LOGISTICS PROVIDERS

The term third-party logistics is often also

used interchangeably with order fulfillment. A
third-party warehouse provides a full range of
e-commerce fulfillment services. This can
include warehousing, order processing, and
shipping and receiving. Many 3PL warehouses
provide other services. These can include
customer support, returns processing, and
customization.
In India except in automobile industry, no industry uses 3PL. In FMCG,
paints and consumer durables companies in India, the C&F agents are
doing logistics providers.
 ADVANTAGES OF 3PL
 Cost reduction- operation and interest cost
 Maximizing revenue- concentrate on core
values and utilize both financial and non-financial
resources to maximize return.
 Information facilities- Choosing optimal supply
chain depending upon information about cost
parameters.
 Working models-a) internal purchase, sales and
dispatch department.
b) Separate logistics department
c) Outsourcing total logistics work to 3PL
 ROADBLOCKS

ETIG had meeting with 60 manufacturing

companies and logistics players, in order to
identify the hindrance for the development of 3PL
in India
a) Volume of transactions
b) Cost control- not beneficial to bottom line
other than manufacturing firms
c) Not good enough
d) Mindset of Indian companies
 4 PARTY LOGISTICS PROVIDERS
 The disadvantages of 3PL such as lack of broad set of
skills, integrating technologies, strategies and global
reach.
 Fourth Party Logistic Model (4PL). The manufacturer
does not only outsource the organization of its logistic
tasks to third parties, but also the management thereof.
Fourth party logistic service providers often check the
entire supply chain.
 Fourth party logistic service providers often have no
means of transport and warehouses (non-asset based
logistics).
 STAGES IN 4PL
a) Reinvention- consulting skills, align business strategy
with supply chain and is reinvent with technologies.
b) Transformation- planning, distribution management,
procurement strategy and customer support
c) Implementation- recommendations for business
process realignment and system integration across
with client organizations and service providers.
d) Execution- it covers multiple supply chain functions
and processes from procurement to customer
service.
 LOGISTICS INFORMATION SYSTEM
INTRODUCTION:
The mission and objective of logistics and supply chain
management is to provide customer service at least possible
cost. Information is the key to success of a logistical operations
because real-time communication information in needed to
satisfy customer requirements. The role of information plays an
important role in
a) Improved focus on reducing response time.
b) Redesigning and continuous improvement of business
design
c) High value supply chain relationships
d) Attainment of global standard and access to world market.
POSITIONS OF INFORMATION IN LOGISTICS
AND SUPPLY CHAIN MANAGEMENT
a) Logistics managers must know where
they are, they must not concentrate only
on product and services.
b) They must know what inventories are
where, what orders are coming in and
when the goods must be delivered.
c) Timely and accurate information is vital
for sound logistics decision-making.
d) Logistics information must flow in two ways:
1) Internally among various department such
as purchasing, manufacturing, marketing, finance,
accounting and logistics

2) Another information must flow from

between company and its suppliers, warehouses,
transporters and customer for order processing,
distribution requirement, finance and sales
forecasting.
 LOGISTICS INFORMATION FLOW

We can understand this logistics information flow in

two ways:
a) Coordination flow of information- providing guidelines
for resource allocation and operational performance from
procurement to finished product delivery.

b) Operational flow of information- logistics operational

system required to receive, process and ship customer
and purchase order.
 COORDINATION FLOW OF INFORMATION
 Strategic Plan- marketing and financial objective.
 Capacity plan- production, transportation and
warehousing
 Logistics plan- demand forecasting, customer ordering
pattern, promotional plan requirement and safety stock
policy
 Manufacturing plan- Master production schedule(MPS)
and Manufacturing requirement plan(MRP).
 Procurement plan- release of raw materials, shipment
and arrival of goods. It also states about supplier
relationship, availability of goods, long-run and short-run
purchasing requirement
OPERATIONAL FLOW OF INFORMATION
 ORDER MANAGEMENT:
It is the entry point for customer orders by various
communication mechanism like mail, telephone, fax, e-mail,
verbal or EDI.
a) Order entry and credit checking
b) Inventory availability
c) Order editing and modification
d) Order pricing
e) Order status enquiry
 ORDER PROCESSING:
It is allocation of inventory as per
customer order. It includes:
a) Back order processing system
b) Raise invoice
c) Prepare transportation and shipping
documents
d) Reserve inventory or safety stock
e) Verify shipment
 DISTRIBUTION OPERATION:
a) Location and storage for warehouse
b) Inventory and lot control
c) Labour scheduling
d) Tracking of storage location
e) Receiving, stock storage and retrieval
 TRANSPORTATION AND SHIPPMENT:
a) Carrier selection and capacity requirement
b) Dispatch scheduling and dispatching
c) Documents preparation
d) Freight payments
e) Tracking of shipment
 PROCUREMENT:
a) Input need identification
b) Sources study
c) Quality specification
d) Negotiation and contract with vendors
e) Purchase order status
 LOGISTICS INFORMATION SYSTEM
 LIS is an integrated approach for providing relevant data
that can help managers to take decisions for smooth
flow of logistical functions.
 It is function of collection, storage and retrieval of
information to facilitate smooth flow of input goods, to
the processing facilities and outputs to their final
destination.
 The main purpose is to collect, process, store and
manipulate data for to take appropriate decisions to
overcome logistics problem
PRINCIPLES OF LOGISTICS INFORMATION
 AVAILABILITY- order and inventory status. Customer
need quick access to inventory and order status.
 ACCURACY- good logistics information system match
consistency between physical count and information
system.
 TIMELINESS- updating inventory status on hourly basis,
immediately recognizing new order reduces inventory
status and increase decision accuracy.
 EXCEPTION BASED LOGISTICS INFORMATION
SYSTEM- exception situations
 FLEXIBILITY- information to meet future enterprises
 APPROPRIATE FORMAT- particular format should be
followed.
 LIS DESIGN FOUR ELEMENTS
 THE INPUTS
It is necessary for decision making process. The
major data needed for this input element
a) Customers- sales volume, timing location of sales and
order size.
b) Company records- demand pattern, accounting and
status reports
c) Published data- trade association, professional journal
and magazines
d) Management- future sales, scanning of environmental
scenario and competitors strategies.
 DATA MANAGEMENT:
It converts all the data entered in the input process
into information which helps in assisting decision methods.
It selects what data to be maintained and retrieved for
further information. It includes:
a) How critical the information is to the decisions the
logistician must make in a particular firm.
b) How rapidly the information needs to be retrieved
c) How much effort may be required to manipulate the
information into the form needed.
 THE OUTPUTS:
a) it facilitates decision-makers to optimize the
logistical resources and ensure smooth flow of
total logistics system.
b) It is a summary presentation of data in the
required format called summary report, status
report etc.,
c) It also includes documents such as invoices,
purchase orders, transportation bills, freight bills
etc.
 THE RESOURCES:
a) Human resources:
Specialists- system analytics, programmer and computer
operator
End users- Anyone who uses those information
b) Hardware resources:
Machines- computers, printers, optical scanners
Media- Floppy disks, optical disk
c) Software resources:
Programs- spread sheet, word processing, SCM & ERP
Procedures- data entry, error correction, data processing
d) Data resources: product description, inventory
databases, customer records.
APPLICATION OF INFORMATION TECHNOLOGIES
(IT)
 ELECTRONIC DATA INTERCHANGE(EDI)
a) It is an intercompany computer to computer
exchange of business documents in standard formats.
b) It involves two organizations to utilize the information
effectively.
c) Two organizations are internally within different
departments and externally with suppliers or vendors.
d) The advantages are- increased internal productivity
and ability to compete internationally, decreased
operating cost and improvise channel relationship.
 BAR CODE SYSTEM (BCS):
a) The accurate and rapid identification of products
along with the use of their information in monitoring
the entire process.
b) Quick tracking receipts, movement details, product
identification etc., with lesser error.
c) It has black bars(narrow and width) and white bars
(narrow and width). At present there are 100
symbolizes.
d) The advantages are speed data entry, enhances data
accuracy, improvises customer services, reduce
product recall and minimizes on-hand inventory
 ELECTRONIC RESOURCE PLANNING
 INTRANET, EXTRANET AND
INTERNET