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Chapter 15, market logistics & supply chain management. After studying this chapter you will be able: Principles of materials management, logistics and supply chain management; logistics interface with other functions; inventory management principles and systems; warehousing management fundamentals;...
Chapter 15 Market Logistics & Supply Chain Management SDM – Ch 15 Tata McGraw Hill Learning Objectives • Principles of materials management, logistics and supply chain management • Logistics interface with other functions • Inventory management principles and systems • Warehousing management fundamentals • Transportation management practices • How IT enables the logistics function • Understand about the performance measurement of the logistics function SDM – Ch 15 Tata McGraw Hill Materials Management • Materials forms the largest single cost item in most manufacturing companies – needs to be carefully managed • Materials management function includes planning and control, purchasing and stores and inventory control • Materials management is the precursor to logistics and supply chain management Logistics…… SDM – Ch 15 Tata McGraw Hill Logistics Defined • Logistics means having the right thing, at the right place, at the right time • The procurement, maintenance, distribution and replacement of personnel and materials – Webster’s Dictionary • The science of planning, organizing and managing activities that provide goods or services – Logistics World, 1997 SDM – Ch 15 Tata McGraw Hill Logistics • Functions: planning, procurement, transportation, supply and maintenance • Processes: requirements determination, acquisition, distribution and conservation • Business: 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 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 Components of LOG Management Input •Natural Resources (land, facilities Equipment) •HR •Finance •Information SDM – Ch 15 Logistics Activities Output Customer service Demand forecasting Distribution Communications Inventory control Materials handling Order processing Parts and service support Plants and warehouse selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehouse and storage Tata McGraw Hill •Marketing Orientation (competitive Advantage) •Time and Place utility •Efficient move to customer Links and Flows General material flow/ service flow Information flow Information flow Customer’s customer Customer Lead Firm Supplier’s supplier Supplier General cash flow Outbound / Downstream logistics SDM – Ch 15 Inbound / Upstream logistics Tata McGraw Hill Source: ICFAI Logistics and Marketing • Interface on: – – – – – – Product design and pricing Customer service policies Sales forecasts and order processing Inventory policies and location of warehouses Channels of distribution and despatch planning Transportation to reach products to customers • Production wants larger production runs to minimise time spent on set up changes on the machines Marketing wants smaller runs of a variety of products SDM – Ch 15 Tata McGraw Hill Source: Michael Porter The Value Chain S U P P P O R T Company Infrastructure Organisation, people, methods margin Systems & technology Procurement Inbound Operations logistics Outbound Marketing logistics & sales Service margin SDM – Ch 15 Primary activities Tata McGraw Hill 10 Cost Factors • Can be product related or market related • Product related: density, stowability, ease or difficulty of handling and liability • Market related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer service • Five prominent modes: – Road, rail, air, water and pipeline – Sixth one is use of Ropeways SDM – Ch 15 Tata McGraw Hill 42 Customer Service Factors • • • • Consistency, dependability Transit time Coverage – door-to-door for example Flexibility in handling a range of products • Loss and damage performance • Additional services provided SDM – Ch 15 Tata McGraw Hill Reverse logistics… 43 Comparison of modes…… 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 SDM – Ch 15 Tata McGraw Hill 44 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 45 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 46 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 47 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 48 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 SDM – Ch 15 Tata McGraw Hill Water transport…… 49 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… SDM – Ch 15 Tata McGraw Hill 50 Pipeline Movement • Advantages: – – – – – – – – Reliable, continuous, all weather transport Low energy consumption – hence low cost Low maintenance and operating costs Underground, no space problem Can traverse difficult terrain Minimal transit losses Operation round the clock, safe Economies of scale – double the throughput for only 30% additional cost • Disadvantage is in the investment cost SDM – Ch 15 Tata McGraw Hill Ropeways… 51 Ropeways • Advantages: – In hilly or inaccessible areas – Long and circuitous routes with streams / deep valleys – For commodities capable of movement in ropeway buckets – Short haulages of less than 50 kms – Areas where other carriers are uneconomical • Disadvantages: – Heavy investments – Limitations on size and quantity of haul How to decide on the right carrier? SDM – Ch 15 Tata McGraw Hill 52 Carrier Selection Traffic Related Shipper related Service related Length of haul Consignment weight Dimensions Value Urgency Regularity of shipment Fragility Toxicity Perishability Type of packing Special handling required Size of firm Investment priorities Marketing strategy Network of production and distribution Availability of rail sidings Stockholding policy Management structure System of carrier evaluation Speed (transit time) Reliability Cost Customer relationship Geographical coverage Accessibility Availability of special vehicles / equipment Monitoring of goods Unitisation Ancillary services – bulk breaking, storage SDM – Ch 15 Tata McGraw Hill 53 Chart of Relative Merits Parameter Weight age Rail Road Air Water Pipe line Rope way Speed 30 3 Versatility 10 Reliability 20 5 Availability 10 Continuity of service 10 5 Distribution cost 20 6 Total score 10 5.4 6.7 5.1 5.1 5.1 4.0 Overall ranking 10 5 SDM – Ch 15 Tata McGraw Hill 54 Key Learnings • Support to customer service has evolved from materials management to logistics and to supply chain management • Production and marketing are the two internal customers of Logistics • Logistics also has a direct impact on the financials of a company • Three important functions of logistics are inventory management, warehousing and transportation SDM – Ch 15 Tata McGraw Hill 55 Key Learnings • Inventory directly supports customer service but also adds to the cost and has to be managed carefully • Warehousing provides the place utility and works as a balance between production and meeting customer needs • Transportation supports the place and time utility and uses different modes to reach the products to the consumer • Modern day supply chains integrate the operations of a firm, its suppliers and customers SDM – Ch 15 Tata McGraw Hill 56 ... of demand SDM – Ch 15 Tata McGraw Hill 24 Types of Classification • ABC category – most common for all • HML - high, medium, low - similar • FSND – fast moving, slow moving, nonmoving, dead... goods – of primary concern to marketing – Maintenance, repair and operating (MRO) supplies – In-transit, pipeline Performance measures… SDM – Ch 15 Tata McGraw Hill 22 Performance Measures • Inventory... Remanufacturing/ Assembly SDM – Ch 15 Inventory Management and control Materials Management Tata McGraw Hill Inventory management… 16 Why Carry Inventory? • Support production requirements