Mayuresh Unde

25th August, 2011

Role of Logistics in SCM

What is Logistics & its Management?

“Logistics is the art and science of obtaining, producing and distributing material and product in the proper place and in

proper quantities. ”

Logistics Management – The Planning and coordination of the physical movement aspects of a firm’s operations such that a flow of raw materials, parts and finished goods is achieved in a manner that minimizes total costs for the levels of service desired

…APICS

…APICS

Supply Chain – Logistics System

SUPPLIER

MANUFACTURERDISTRIBUTION SYSTEM

CUSTOMER

Physical Supply

Manufacturing Planning &

Control

Physical Distribution

Dominant Flow of Products and Services

Dominant Flow of Demand Information

Fundamental Utility Creation in the Economy

Logistics

Production

Marketing

Possession Utility

Form Utility

Place UtilityTime UtilityQuantity Utility

Economic Utility Value addition to a product or service

Scope of Logistics

1. Transportation2. Storage

a. Warehousing b. Inventory

3. Packaging4. Material Handling5. Inventory Control (levels &

accuracy)6. Order Fulfillment (Lead Time)7. Production Planning8. Procurement9. Customer Service

1. Manufacturing / Operations

2. Marketing (4Ps)1. Price2. Product

(Dimensions, Packaging design & quality

3. Promotion4. Place

3. Finance

Major Activities Interfaces

ROA = ( Revenue – Expenses)

Total Assets

Factors affecting Cost – Competitive Relationships

Un

its

of

Inve

nto

ry

Order Cycle (days)

Required Inventory Vs Order Cycle Length

Order Transmission + Order receipt + Mfg/assembly + picking + packing + shipping = Order Cycle

Factors affecting Cost - Competitive Relationships

Logi

stic

s C

ost

TC = Total CostINV = Inventory CostCOLS = Cost of Lost Sales

Cost of Lost Sales Vs Inventory Costs

COLS

INV

TC

Substitutability

Marginal savings from reducing lost sales cost = Marginal cost of carrying additional inventory

Factors affecting Cost - Competitive Relationships

Logi

stic

s C

ost

TC = Total CostTR = Transportation CostCOLS = Cost of Lost Sales

Cost of Lost Sales Vs Transportation Costs

COLS

TR

TC

Substitutability

Marginal savings from reducing lost sales cost = Marginal increment with increased transportation cost

Factors affecting Cost – Product Relationships

Logi

stic

s C

ost

INV = Inventory Cost (Including StorageTR = Transportation CostPKG = Packaging Cost

Value INV

TR

PKG

Value of the product

Factors affecting Cost – Product Relationships

Logi

stic

s C

ost

INV = Inventory Cost (Including Storage)TR = Transportation CostWH = Warehousing Cost

Density (Weight /Space Ratio)

Weight Density of the product

TR

INV

WH

Factors affecting Cost – Product Relationships

Logi

stic

s C

ost

PKG = Packaging Cost TR = Transportation CostWH = Warehousing Cost

Susceptibility to loss & damage

Susceptibility to loss and damage

WH

TR

PKG

Factors affecting Cost – Spatial Relationships

A BM

PC = 8.50 PC = 7

1.15 3.50

0.75

0.60

0.40

0.50

Supplier

Manufacturer

Market

Production Costs Vs Transportation Costs

Techniques of Logistics System Analysis

• Short Run / Static Analysis: This method analyses costs associated with logistics system’s various components at one point of time or one output level

• Long Run / Dynamic Analysis: This method examines system over a long time period or range of outputs

Total Cost = Fixed Cost + (Variable Cost * Number of Units)

Dynamic Analysis

Logi

stic

s C

ost

Kilograms of Output

System 2

System 1

Total Cost = Fixed Cost + (Variable Cost * Number of Units)

y = mx + c (Equation of Straight Line)

Trade-off PointM1*x + C1 = M2*x + C2

Trade-off Output

Approach to analyzing Logistics Systems

• Inbound & Outbound Logistics– Balanced System

– Heavy Inbound

– Heavy Outbound

– Reverse Systems

• Cost Center balancing

• Node & Links

• Logistics Channels (Simple, Multi-echelon, Complex

Simple / Complex Logistics Channel

Supplier RetailerDistribution Centre

Manufacturer ConsumerDistributor

Complex

Simple

Levels of Optimality

Finance

Marketing

LOGISTICSOther Functions

Production

Suppliers Customers

Environment

Economic

PoliticalSocial

Level 1 Organization

Level 2 Supply Chain

Level 3 Environment

Logistics in India

Logistics in India

Road

Rail

Sea

Air

Logistics

Logistics Activities

• A fragmented sector – with a number of small players• Transportation is nearly 40 % in the logistics activities• Coal, Cement, textiles, metals and consumer goods are the main contributors of revenue to the logistics industry

Framework of Segment Users

Factors /Segment

Bulk Industrial ConsumerDurables

Consumer Goods

Value Addition (VA)

Low Medium High High

Consumer Type Intermediary Intermediary Final Consumer

Final Consumer

% of Logistics Costs as Proportion to VA

High(70%)(Pricesensitive)

Low(10%)(Service sensitive)

Customer Sensitivity to Availability

Low Low High High

Value Addition (VA) refers to the difference in selling price of the output and the cost price of material inputs

Role of Government in Logistics

Taxes & Regulations

• Central Sales Tax & Local Sales Tax

• Excise Duties

• Octroi and Entry Tax

• Use of Packaging Material

• VAT (Value added Tax)

• …

Status & Trends - Railways

• Railways– The Indian Railways boasts of being the world’s 2nd largest

rail network over 85,000 km and covering around 7000 stations

– The freight segment accounts for roughly two thirds of railway's revenue

– Transformation from Meter gauge to Broad gauge– Mainly used for Bulk and Industrial segment– Coal, Cement, ores, fertilizers, food grains & petroleum

products share maximum traffic– Major Benefits – Greater load carrying capacities, cheaper

option – Major issues – Wagon allocation, longer lead times,

Status & Trends - Roads

• Road– India has one of the largest road

network in the world– National Highways / State

Highways (2 % Four lane, 34 % two lane, 64 % single lane)

– Road network carries nearly 65% of freight & 85 % passenger traffic

– Major Roads – Golden Quadrilateral and NS-EW Corridors

– Major Benefits – Availability, connectivity,

– Major issues – Congestion, poor road conditions, delays

Status & Trends - Sea

• Sea– India has an extensive coastline of

around 6000 kms with 12 major and 150 minor ports

– Largest shipping fleet amongst the developing countries, ranks 17th in the world for shipping tonnage

– Petroleum products, ores, coal are major revenue contributors

– Privatization & de-regulation trend (TISCO-Haldia, JNPT)

– Major Benefits – For imports & exports,

– Major issues - Berthing delays, Access issues to smaller ports

Status & Trends - Others

• Air– Aviation holds a small share in

India’s freight market– Growth mainly due to private

airlines (Jet, Kingfisher) and other private couriers (DHL)

– Mainly used for express and small package market & perishables (consumer)

– International cargo – BA & Cathay Pacific

– Major Benefits – Efficient and speedy

– Major issues – Costly for bulk transport

• Pipeline-Mainly for petroleum (crude oil and gas), iron ore pellets, apart from water and sewage- Government players - IOCL- Currently in-adequate but slowly growing with more and more private companies in fray (Reliance)

Thank You!

Q & A