1. Market Logistics & Supply Chain
Management
by
Anoop Kumar
Gupta
MAIT 1

2. 2
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

3. Evolution of Distribution to SCM thru Logistics
The concept of SCM has only recently stepped into the marketing world. It
rooted three decades back and has passed through three phases
•Phase 1: Physical distribution management: This phase is better
characterised as ‘inventory push phase when manufacturing was handled in
isolation and output was pushed down to the finished goods warehouses.
•Phase II : Integrated logistics management : This phase recognised the
importance of integrating operations within the organisation like sales,
procurement, manufacturing, warehousing, distribution and transportation to
achieve an efficient and effective goods distribution system.
•Phase IIl : SCM : The graduation of logistics management to its modern
day avatar is better known as ‘SCM’. SCM extends the scope to link
external partners like suppliers, vendors, distributors and customers with a
view to deliver enhanced customer and economic value through
synchronized management of the flow of physical goods and associated
information from source to consumption.
3

4. 4
Logistics Defined
• Logistics collect raw materials from suppliers
and deliver finished goods to the customers.
• Logistics means having the right thing, at
the right place, at the right time and at the
right cost.
• Logistics is the function that moves both
tangible materials (e.g. raw materials) and
intangible material (e.g. information) through
the operations to the customers (as a finished
product), for an organization.

5. 5
Logistics Defined
• Logistics is a logical extension of
transportation and its related areas to
achieve an efficient and effective goods
distribution system.
• Logistics encompasses the activities of
– Inventory management
– Order processing
– Warehouse and materials handling
– Physical distribution (Transportation)

6. 6
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

7. Logistics Activities
Input Output
7
Components of LOG
Management
•Natural
Resources
(land, facilities
Equipment)
•HR
•Finance
•Information
•Marketing
Orientation
(competitive
Advantage)
•Time and
Place utility
•Efficient move
to customer
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

8. 8
Links and Flows
Customer’s
customer
Supplier’s
General material flow/ service flow
Customer Lead Firm Supplier supplier
General cash flow
Information flow
Information flow
Outbound / Downstream logistics Inbound / Upstream logistics
Source: ICFAI

9. 9
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.

10. Order Processing
• Primary contact between the firm and
its customer.
• Getting the order, preparing the invoice,
picking and packing the goods and
despatch
• Quality, speed and accuracy of the
order processing function determines
the ‘value’ of the logistics function
10

11. Order Processing Support Records
• Customer master – all information
about the customers
• Item master – all information about the
goods by SKU
• Price master – details of the prices for
the items to be despatched to
customers
• General data base – customer
quotations, customer sales history and
open sales orders 11

12. Benefits
• Some of the benefits of a good order
processing system are:
– Order cycle times get reduced
– Order execution accuracy is 100%
– Timely invoicing and accounting
– Order review and follow up costs get
eliminated
– Improved customer service
12

13. Materials Handling
• Function of managing inventory along
with storage and transfer of information.
Includes:
– Receiving, storing and despatch of goods
– Order picking and packing
– Sorting of goods
– Re-packing in case of damages
– Arranging transport and loading of the
goods on the carrier vehicle
13

14. Source: Michael Porter
14
The Value Chain
Company Infrastructure
Organisation, people, methods
Systems & technology
Procurement
Inbound
logistics Operations Outbound
logistics
Marketing
& sales
Service
Primary activities
S
UPP
ORT
margin
margin

15. Logistics Strategy
• Corporate strategy defines the business
the company wants to be in
• The marketing strategy decides the
products and markets to be focused on
• The distribution strategy decides how
the company will ‘reach’ its
customers/markets
• The distribution strategy includes the
physical distribution and channel
management 15

16. Logistics Strategy Based
On…
• Markets – focus on meeting customer
requirements even across business
units
• Process – operation of an efficient and
integrated logistics function
• Channels – participate in the customer
service delivery process
16

17. 17
Logistics Plan Outline
• Internal analysis (current position)
– Organisation
– Human resources
– Transportation
– Relations with internal customers
– Quality of product
– Quality of Service
• External / situation analysis
– Competitor logistics performance
– Trends
– External environment / economy
– Public, private and contract warehouse
– Public, private and contract carriage

18. Principles of Logistics Excellence
18
Strategic Operational
Alling & Tyndall
Link logistics to corporate
strategy
Organise comprehensively
Use the power of information
Emphasise human resources
Form strategic alliances
Focus on financial
performance
Target optimum service levels
Manage the details
Leveraging logistics volumes
Measure and react to
performance

19. 19
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

20. Logistics for Rural
• A business challenge as ‘access’ is still limited
• Some of the salient points on rural distribution:
– Vast potential for business but collection and
delivery points are too many
– Producers of agricultural produce and the users of
consumer products are dispersed
– Transport is unviable – no return loads
– Agri produce is seasonal, bulky, perishable and
not of standard sizes
– Intermediaries in various forms are a major
element of cost
20

21. Evolution of the concept of SCM
The chain of activities and organizations is named
differently as per the situation.
•If the emphasis is on operations then it is called
process;
•If the emphasis is on marketing then it is called
logistics;
•If the emphasis is on value-addition then it is called
value-chain;
•If the emphasis is on meeting customer demand then
it is called demand chain;
•If the emphasis is on movement of material then we
use the most general term i.e., supply chain. 21

22. Logistics and SCM
• Logistics is more concerned with
activities within the company –
procurement, production scheduling,
despatch planning, inventory,
warehousing and transportation.
• Supply chain management extends the
process of planning procurement,
production and despatches beyond the
company boundaries to its suppliers
and customers.
22

23. 23
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

24. Supply Chain Integration
• Optimising the supply chain requires
supplier and customer involvement to
integrate processes, policies, systems,
database and strategies between
diverse trading partners
24

25. 25
Supply Chain Integration
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
Inventory management…

26. IT Systems for SCM
• Supplier relationship management –
processes for flow of materials between
the suppliers and the firm
• Customer relationship management – to
optimize revenue and profitability by
superior customer service
• Electronic data interchange – exchange of
business information through standard
interfaces between suppliers and the firm
26

27. IT Systems for SCM
• Bar codes – popular and cost effective
way of tracking items along the supply
chain
• Radio frequency identification – tracking of
items, people and equipment in real time
without need for ‘line-of-sight’
• Data warehousing – collection of data from
multiple sources and converting into
information for storage and use as
required
27

28. 28
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

29. 29
Functions of Inventory
• Inventory serves as a buffer between:
– Supply and demand
– Customer demand and finished goods
– Material requirements for an operation and
the output from the previous operation
– Parts and materials to begin an operation
and the suppliers of these materials
The shock absorber of business !

30. 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
30

31. 31
Stores Management
Objectives
• Providing efficient service to users
• Reduce cost of carrying goods
• Providing correct, updated stock figures
• Controlling inventory
• Preventing damage to or obsolescence of
materials
• Achieve all of the above with good
housekeeping

32. 32
Functions
Warehouses
Material
handling
Storage
function
Customer
service
Information
transfer
Temporary Permanent
Receive goods
Identify goods
Sort goods
Despatch to storage
Hold inventory
Recall, select goods
Marshal the shipment
Despatch the shipment
Prepare records and
advices

33. 33
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

34. 34
Reasons for Warehousing
Service related Cost related
Maintain source of supply
Support customer service
policies
Meet changing market
conditions
Overcome time and space
differentials
Support JIT programs of
suppliers and customers
Provide customers with the right
mix of products at all times
Temporary storage of materials
to be disposed or re-cycled
Achieve production economies
Achieve transportation
economies
Take advantage of Quantity
Purchase discounts and forward
buys
Least Logistics cost for a
desired level of customer
service

35. 35
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

36. 36
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

37. 37
Distribution Center
• Warehouse designed to speed the flow
of goods and avoid unnecessary costs
• Speeds bulk-breaking to avoid
inventory carrying costs
• Helps to centralise control and co-ordination
of logistics activities
• Products can also be cross-docked
(one vehicle to another)
Market positioned..

38. 38
Market Positioned
• Warehouses located nearest to the final
customer
• Factors influencing are:
– Order cycle time
– Transportation costs
– Sensitivity of the product
– Order size
– Levels of customer service offered
Production positioned….

39. 39
Production Positioned
• Warehouses located close to the production
facilities or supply sources
• Not the same level of customer service as the
earlier one
• Serve as points of aggregation / collection for
products made in a number of plants
• Factors influencing are:
– Perishability of raw materials
– Number of products in the product mix
– Assortments ordered by customers
– Transport consolidation rates ex; FTL
In between…

40. 40
Intermediate Positioned
• Mid point locations between the final
customer and the producer
• High customer service levels possible even if
products made in number of units
• Other macro approaches look at cost
minimisation or cost and demand elements to
maximise profitability
Transportation management….

41. 41
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….

42. 42
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….

43. 43
The Transport Planning
Criteria
• Environmental analysis: shipper, carrier,
government regulations, public influence
• Deciding objectives
• Selecting mode
• Select transport type within the mode
• Define functions of transport
• Evaluation and control – customer perception
/ satisfaction, best practice benchmarking

44. 44
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: (including intermodal)
– Road, rail, air, water and pipeline.
– Sixth one is use of Ropeways

45. 45
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
Reverse logistics…

46. Comparison of modes……
46
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

47. 47
Advantages of Rail
• Economy – more so for goods over
long distances
• Efficiency of energy
• Reliability – not affected by weather
conditions

48. 48
Disadvantages
• Uneconomical for small shipments and
short distances
• Not suitable for remote stations
• Costly terminal handling facilities
• Inflexible time schedules
Road transport…..

49. 49
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

50. 50
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….

51. 51
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……

52. 52
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….

53. 53
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
Ropeways….

54. 54
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?

55. 55
Carrier Selection
Traffic Related Shipper related Service related
Length of haul
Size of firm
Consignment weight
Investment priorities
Dimensions
Marketing strategy
Value
Network of
Urgency
production and
Regularity of
distribution
shipment
Availability of rail
Fragility
sidings
Toxicity
Stockholding policy
Perishability
Management
structure
Type of packing
System of carrier
Special handling
evaluation
required
Speed (transit time)
Reliability
Cost
Customer relationship
Geographical coverage
Accessibility
Availability of special
vehicles / equipment
Monitoring of goods
Unitisation
Ancillary services –
bulk breaking, storage

56. 56
Chart of Relative Merits
Parameter Weight
age
Rail Road Air Water Pipe
line
Rope
way
Speed 30 5 6 8 4 3 3
Versatility 10 6 8 5 6 3 2
Reliability 20 6 8 5 5 7 4
Availability 10 7 8 5 6 3 2
Continuity of
10 6 7 5 5 8 3
service
Distribution cost 20 4 5 6 6 7 8
Total score 10 5.4 6.7 5.1 5.1 5.1 4.0
Overall ranking 10 2 1 4 5 5 6

57. 57
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

58. 58
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

59. 59
Key Learnings
• Order processing relates to the primary
contact between the company and its
customers
• A good order processing system creates the
benefits of reduction in lead times, higher
order accuracy and improved customer
service
• Materials handling is the function of
managing inventory along with storage and
transfer of information

60. 60
Key Learnings
• Logistics strategy is based on: markets,
processes and channels in use.
• Some of the IT systems in use for effective
management of the supply chain are:
– Electronic data interchange
– Supplier and customer relationship management
systems
– Bar codes
– Radio frequency identification
– Data warehousing