Market Logistics

Logistics
Planning, implementing, and controlling the effective flow and storage of goods and materials from the point of origin to the point of consumption Transportation Warehousing (and more generally, location) Packaging Material handling Logistics information systems Logistics service providers (And some would put inventory here as well!)
Why the Increasing Interest?

Deregulation Globalization Technological breakthroughs Environmental concerns Performance impact
Deregulation
Transportation providers
Elimination of artificial barriers Unrestricted markets Multi-modal solutions Price, schedule, and terms flexibility
Buyers have greater freedom

Negotiate prices, terms, and conditions Ownership issues
BUT
Deregulation (continued)
With greater freedom comes new responsibilities Key point Logistics has evolved from being a tactical area to a strategic one
Technological Breakthroughs
Information Systems
Global positioning systems Bar-coding applications RFID on the horizon as replacement Real-time simulation and optimization Precise coordination of multi-modal solutions
Transportation Systems
Standardized containers for ease of transfer Roadrailers, etc. Multi-modal solutions Ship Truck Train Truck ?
Environmental Concerns & Performance Impact

Even while certain aspects of logistics have been deregulated, other areas are being controlled more stringently Fuel efficiency Pollution Recovery, recycling, and reuse of packaging, containers, and products
Customer touch points

Delivery reliability Delivery speed Delivery tracking Quality Ford is hiring UPS
Strategic Disconnect
Org n t a izaion St t g rae y
M rk t g a ein St t g rae y
Op raion e t s St t g rae y
Fin n l a cia St t g rae y
Strategic Disconnect Tr n or tion a sp ta D cision e s In e tor vn y D cision e s Loca tion D cision e s In m tion for a Sy m ste s
Who Owns Logistics?

Org n t a izaion St t g rae y
M rk t g a ein St t g rae y
Log ics ist St t g rae y
Op raion e t s St t g rae y
Fin n l a cia St t g rae y
Ex cu e v l of r p e n tion e tiv -le e e r se ta D ifficu g l of fu ction l in g a lt oa n a te r tion O g n tion l q e r a iza a u stion W or a ow s log : h e lly n istics? Tr n or tion a sp ta ? Mr e g a k tin ? O e a s? p r tion
Logistics Decision Areas

Transportation
Modes Formats Pricing
Warehousing
Consolidation Cross Docking and Break-Bulk Hub and Spoke Inventory
Major Transportation Modes

Highway (truck) Water Rail Air Pipeline
Highway Mode
Strengths
Flexibility to pick up and deliver where and when needed Often the best balance between cost/flexibility and delivery reliability/speed Can be available 24/7
Weaknesses
Not the fastest Not the cheapest Regional Infrastructural Development
Water Mode
Strengths
Highly cost effective for bulky items Most effective when linked into multimodal system
Weaknesses
Limited locations Relatively poor delivery reliability/speed Often limited operating hours at docks
Rail Mode
Strengths
Highly cost effective for bulky items Can be most effective when linked into multimodal system
Weaknesses
Limited locations, but better than for water. Better delivery reliability/speed than water
Air Mode
Strengths
Quickest delivery over longer distances Can be very flexible when linked to highway mode
Weaknesses
Often the most expensive, particularly on a per unit basis
Transportation Formats
Common carriers
Published rates and schedules Nondiscriminatory pricing Increased flexibility to partner
Contract carriers
Service for select customers Unlimited number of customers
Private carriers
Pricing Transportation Services

Economic factors
Pricing versus distance Price/Rupees versus density Stowability, handling, and liability Market factors
Ratings
Goods classification Class index
Economic Factors I
Price
why the tapering principle?
Distance
Price
Density
Ratings (a simplified view)

Goods classification
Perishability, stowability, handling, etc.
Class index?
average product = 100 Based on expected transportation costs
Determining Transportation Rates

Rate Determination
By weight (Less-than-truckload shipment) By distance (truckload shipments) Minimum charges and surcharges
Exceptions to the rule

Seasonal commodities FAK (freight of all kinds)
Key Points
Choosing a mode
Five choices Speed? Cost? Flexibility?
Choosing a format
Flexibility versus control
Controllable factors affecting cost

Density, stowability, packaging, and containerization
Warehousing
Any operation that stores, repackages, stages, sorts, or centralizes goods or materials New Concept Warehousing a key piece of logistics strategy
FMCG Products
More than just storage

Warehousing Distribution Centers
Warehousing Benefits
Economic benefits:
Accrue directly to company Must consider total system costs
Service benefits:
Support customer service needs May or may not reduce costs
Consolidation
Small shipments in ...
Warehouse
Large economical shipments out ...
Example 1
Customer Drawing Papers Printer Furniture Shipment 100 boxes 100 PC printers 10 dining room sets Weight 3,000 Kgs. 3,000 Kgs. 4,000 Kgs.
Dedicated truck from Delhi to Mumbai: Rs.2,000 Cost to run consolidation warehouse: Rs.9 per hundred-weight Local delivery in Mumbai: Rs.200 per customer
Cost Benefits of Consolidated Warehousing

Warehousing costs Cost of one truck to Mumbai Delivery to final 3 customers Rs.200 = customer How does this compare to the cost of separate dedicated shipments? What about truck utilization (assume trucks hold 60,000 Kgs.)
10,000 Kgs Rs.9/100 Kgs =
Rs.900
Rs.2,000 Rs.600
Cross-Docking
Large economical shipments in ...
Warehouse
Small shipments out ...
What about supply / demand mismatches?
Break-Bulk
Like break-bulk, but usually refers to a single source
Plant A
Warehouse
Customer Delivery
Example 2
Manufacturer Customers 500 Kg. average order size Direct shipments: Rs.7.28 per hundred-wt. Rs.7.28 5 = Rs.36.40 > 20,000 Kgs: Rs.2.40 per hundred-wt. Local delivery: Rs.1.35 per hundred-wt.
Insight:
If we can run a warehouse for less than:
5 (Rs.7.28 Rs.2.40 Rs.1.35) = Rs.17.65/500 Kgs. Or Rs.17.65 / 5 = Rs.3.53 per hundred-weight
we should do it.
Hub and Spoke Systems
Processing and Postponement

Cold Drinks Processing and Bulk food products, Postponement paints, etc.
Packaging high volumes Labeling, etc. Customer A Customer B Customer C
containers
Minimizes risk Minimizes inventory
Spot Stock & Assortment

Spot Stock : attempt to position seasonal goods close to the market place Region 1 Region 2 Region 3
Manufacturer or Centralized Source
Warehouse
Time sensitive, seasonal items Often temporary, public storage
Assortment
Broad product line and good inventory control key to success : Array of goods is held close to the source of demand in order to assure short customer lead time
Supplier E Supplier F Supplier G Supplier H Customer A
Assortment Warehouse
Customer B Customer C Customer D
Logistics Information Systems

Strategic decision making
DSS SRM
applications
CRM
applications
Network design
Tactical planning
Routine decision making
Warehouse & transportation planning
ERP
applications
Execution and transaction processing Suppliers Internal supply chain Customers
Warehouse management & transportation execution
Logistics
Packaging Implications
Transportation
Class segmentation Damage protection
Material handling and warehousing

Storage requirements Container recycling Ease of handling
Logistics Strategy
Owning versus Outsourcing
Does the firm have the volume needed to justify a private logistics system? Would owning the logistics system limits the firm ability to respond to changes in the marketplace or supply chain ? Is logistics a core competency for the firm?- common , contract, Third party logistic carrier
Measuring Logistics Performance

Perfect Order Delivery Time , Shipped complete, invoice
correctly, undamaged in transit Landed Cost Freight Forwarder, Customer Broker Weighted Center of Gravity Method * Optimisation Models- Assignment Problem
Weighted Center of Gravity Method *
Economic Factors II
Stowability, handling, and liability
versus

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Logistics

Why the Increasing Interest?

Buyers have greater freedom

Environmental Concerns & Performance Impact

Customer touch points

Fin n l a cia St t g rae y

Who Owns Logistics?

Log ics ist St t g rae y

Fin n l a cia St t g rae y

Logistics Decision Areas

Major Transportation Modes

Pricing Transportation Services

Ratings (a simplified view)

Determining Transportation Rates

Exceptions to the rule

Controllable factors affecting cost

More than just storage

Large economical shipments out ...

Cost Benefits of Consolidated Warehousing

Small shipments out ...

What about supply / demand mismatches?

Hub and Spoke Systems

Processing and Postponement

Minimizes risk Minimizes inventory

Spot Stock & Assortment

Manufacturer or Centralized Source

Time sensitive, seasonal items Often temporary, public storage

Customer B Customer C Customer D

Logistics Information Systems

Routine decision making

Warehouse & transportation planning

Execution and transaction processing Suppliers Internal supply chain Customers

Warehouse management & transportation execution

Material handling and warehousing

Measuring Logistics Performance

Weighted Center of Gravity Method *

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