Hitesh Jhanji, Lovely Professional University Unit 7: Logistics and Characteristics of Modes of Transportation Unit 7: Logistics and Characteristics of Modes of Notes Transportation CONTENTS Objectives Introduction 7.2 Planning Physical Distribution 7.3 Benefits of Efficient logistics system 74 Concept of Marketing Logistics system 7.9 Logistics and the Modern Organization 7.6 Critical elements of logistics system 7.10 Further Readings Objectives After studying this unit, you will be able to: e Explain Planning Physical Distribution ° Discuss the Benefits of effective logistics system ° Describe the Concept of marketing logistics ° Explain the Critical elements of logistics system e Discuss Logistics and modern Organisation Introduction Logistics is the one of the most important segment of the phenomenon of Marketing in business. It is a subset of Supply Chain Management. In the business functioning, the trader gets order for supply of his goods or services through his marketing executives or directly from customers and then to execute the order to the satisfaction of the customer, the trader or his supplier company prepares the Logistics, i. procures the product or services, puts labels on them, or gives some identification trademark name to them, makes necessary packing and packaging so as to save them from damage of any kind during loading, unloading, handling, transportation, etc.
till is supplied to the end customer. More simply, it is a bundle of goods finally ready to be supplied to the customer. In Logistics study, all factors contributing till the last stage, when the goods or service is finally supplied to the consumer are systematically studied.1 Definition The word, Logistics’ is derived from French word ‘Loger’, which means art of war pertaining to movement and supply of armies. LOVELY PROFESSIONAL UNIVERSITY 149 International Trade Procedures and Documentation Notes 1.
Fighting a war requires: + Setting an objective + Meticulous planning to achieve the objective + Proper deployment of troops * Supply lines consisting of weaponry, food, etc. A logistics plan should be such that there is minimum loss of men and material. Similar to fighting a war in battlefield, marketing managers also prepare a suitable logistics plan that is capable of fulfilling the company objective of meeting the demand of targeted customers in a profitable way. im Notes Inbound logistics + Material Management + Physical Distribution = Logistics 1.
Inbound logistics means the movement of materials received from suppliers. Material management means the movement of material and components inside a firm. Physical distribution refers to movement of goods outward from the end of the assembly line to the customer. Supply chain management is larger than logistics and it links logistics more directly within the user’s total communication network and with the firm engineering staff.
It not only includes manufacturer and suppliers but also transporters, warehouses, retailers and customers themselves. According to Council of Logistics Management: “Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming the customer requirement”. Logistics management includes the design and administration of systems to control the flow of material, work-in-process, and finished inventory to support business unit strategy.2 Planning Physical Distribution The main goals of Distribution in any Organization would be to take care of proper storage and transport. While Storage assures product and packaging quality and constant availability, Transportation’s objective is to ascertain that products arrive in good condition, in the right place and at the right time.
The less frequent a Firm’s re-supply, the greater would be its storage requirements.1 Distribution Considerations For proper Storage & Transportation, the SC Manager has to ensure availability of transportation (i. He or she has to also take care of security the materials are being transported from one point to another. Security during storage also needs proper attention. What is also important is the availability sufficient storage space/capacity.
This shall be based on procurement plan and frequency of deliveries at all levels of the system. 150 LOVELY PROFESSIONAL UNIVERSITY Unit 7: Logistics and Characteristics of Modes of Transportation Technology has been changing very fast and as a result, the Product Life Cycles have become Notes shorter. The short shelf life of products has been putting pressure on the Transport Function to deliver goods as quickly as possible. In addition to all these considerations, the SC Manager may have to also worry about appropriate storage conditions (cool chain), if the Products need to be preserved using this facility.
What is also important is the mode of transportation to be used. Also, the Pick-up system (facilities collect drugs) or delivery system (warehouses deliver) has a bearing on the Distribution. Another important factor is the decision to outsource transportation or not. One may have to also worry about aspects such as having appropriate procedures to: e Verify the products shipped and received — type and quantity, ° Conduct visual inspection for quality assurance, including expiration dates, ° Complete and sign transaction records/vouchers, ° Store the products, and ° Update stock-keeping records The main objectives of logistics management are: e Inventory Reduction ° Reliable & Consistent Delivery Performance ° Economy in Freight ° Minimum Damages to the Product ° Quick Response ° Optimum Contribution towards business excellence 7.2 Inventory Reduction Inventory Reductions have far-reaching implications on Company’s Return On Investment (ROT).
However, really speaking, it is a ‘tight rope walk’! While excess stocks may affect the Profitability, not having enough inventories may result in “Loss of Customers’. Therefore, one has to exercise proper control over Inventory, by taking appropriate steps at the right moment. Objective of Inventory Control Systems The objective of an inventory control system is to ensure the constant availability of products, by defining: e When products should be ordered. e What quantities of products should be ordered e How to maintain adequate quantities to meet demand, while avoiding overstocks and stock-outs Inventory Control Systems Maximum/minimum Inventory Control System is defined by months of stock.
Systems are designed so that stock quantities routinely fall between the minimum and maximum stock levels. The minimum stock level includes safety/buffer stock. Any inventory control system (max/min or other) must take into account safety/buffer stock. (However, in a Just-In-Time environment, the system of maintaining safety /buffer stock is not practiced.) LOVELY PROFESSIONAL UNIVERSITY 151 International Trade Procedures and Documentation Notes Inventory Control Considerations Some of the prime considerations are: ° Who decides what quantities to distribute? * The lower level (pull) or the upper level (push)? + Decision should be based on training and human resource implications e Which type of max/min system to use? ° How long should the pipeline be? * Longer pipeline reduces likelihood of stock-outs (more security stock) but increases likelihood of wastage (short shelf lives, increased expiries) e How to include safety stock levels in a non-max/min system Reliable and Consistent Delivery Performance Customer Service is the key interface between Marketing and Logistics.
It plays a significant role in developing and maintaining customer loyalty and continuous satisfaction. Logistics also supports the “place” element of marketing mix. However, in the areas of Product, Pricing and Promotion, Competitors may equal! Hence, there is a need to excel consistently in Customer Service through reliable & consistent delivery performance. Freight Economy The various Transportation Carrier Options available are: Truck, Rail, Water, Pipeline and Air.
Inter-modal transportation is becoming more common since it is really not possible to use only one mode of transportation in most of the cases. Transportation by Road is perhaps the only mode which can be used independently.3 Transport Fundamentals Freight/Transport is the most important component of logistics cost. Usually 1/3 — 2/3 of total cost is the result of Transportation. Transport involves e Equipment (trucks, planes, trains, boats, pipeline), e People (drivers, loaders & unloaders), and e Decisions (routing, timing, quantities, equipment size, transport mode).
A Caution When deciding the transport mode for a given product, there are several things to consider such as mode price, transit time &variability (reliability) and lastly potential for loss or damage. =/714| Note In developing countries we often find it necessary to locate production close to both markets and resources, while in countries with developed distribution systems people can live in places far from production and resources. 152 LOVELY PROFESSIONAL UNIVERSITY Unit 7: Logistics and Characteristics of Modes of Transportation Single-mode Service Choices and Issues Notes Air e Rapidly growing segment of transportation industry e Lightweight, small items (Products: Perishable and time sensitive goods: Flowers, produce, electronics, mail, emergency shipments, documents, etc.) e Quick, reliable, expensive ° Often combined with trucking operations Rail e Low cost, high-volume (Products: Heavy industry, minerals, chemicals, agricultural products, autos, etc.) e Improving flexibility ° Inter-modal service Truck e Most used mode e Flexible, small loads (Products: Medium and light manufacturing, food, clothing, all retail goods) e Trucks can go door-to-door as opposed to aeroplanes and trains. Water ° One of oldest means of transport e Low-cost, high-volume, slow e Bulky, heavy and/or large items (Products: Nonperishable bulk cargo — Liquids, minerals, grain, petroleum, lumber, etc.) ° Standardized shipping containers improve service ° Combined with trucking & rail for complete systems ° International trade Pipeline e Primarily for oil & refined oil products ° Slurry lines carry coal or kaolin e High capital investment e Low operating costs ° Can cross difficult terrain e Highly reliable; Low product losses Transport Cost Characteristics Transportation costs will be fixed costs as well as variable costs.
Both these costs must be reviewed frequently and efforts must be made to bring these down. LOVELY PROFESSIONAL UNIVERSITY 153 International Trade Procedures and Documentation Notes Examples of fixed costs: Terminal facilities, Transport equipment, carrier administration, Roadway acquisition and maintenance [Infrastructure (road, rail, pipeline, navigation, etc. Examples of variable costs include: Fuel, Labor, Equipment maintenance, handling, pickup & delivery, taxes etc. im Note Cost structure varies by mode.
° Rail * High fixed costs, low variable costs * High volumes result in lower per unit (variable) costs ° Highway + Lower fixed costs (don’t need to own or maintain roads) + Higher unit costs than rail due to lower capacity per truck * Terminal expenses and line-haul expenses ° Water + High terminal (port) costs and high equipment costs (both fixed) + Very low unit costs e Air Substantial fixed costs + Variable costs depend highly on distance traveled ° Pipeline + Highest proportion of fixed cost of any mode due to pipeline ownership and maintenance and extremely low variable costs Minimum Damages to Product Logistics Management must ensure that no/absolute damage happens while the product is in the custody of Logistics. Damage Costs incurred during transportation should be considered as a throughput cost, since they will continue regardless of inventory levels. » Did u know? Damage attributed to Warehouse operation is usually charged to the Warehouse Operator, if the cost is unreasonable. Quick Response [QR] Quick Response is generally a retail sector strategy, but can be tried by other industries too.
Quick Response applies JIT principles throughout the entire supply chain. The concept works by combining Electronic Data Interchange (EDI) with Bar Coding Technology, so that Customer Sales are tracked immediately. This information is immediately passed on to the Manufacturer and from there to the suppliers to enable all the partners to plan, produce and deliver the replenishments to meet Customer Requirements quickly. 154 LOVELY PROFESSIONAL UNIVERSITY Unit 7: Logistics and Characteristics of Modes of Transportation The benefits of such a system are: Notes Inventory Reduction Speedier Response Lower number of stock-out situations Reduced Handling Reduction in Obsolescence Contribution towards Business Excellence About two decades back, Logistics Function was one of the neglected areas.
It was looked at as a Cost Center. Not many organizations managed this function in a profession way. Gradually, the situations changed. With customer becoming more and more demanding, organizations realized the importance of this function and the role played by it in meeting the customers’ expectations.