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Demand forecasting

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Meaning

Importance

Methods

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Why demand forecasting?

Planning and scheduling production

Acquiring inputs

Making provision for finances Formulating pricing strategy

Planning advertisement

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Steps

Specifying the objective

Determining the time perspective

Making choice of method Collection of data

Estimation and interpretation of results

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CLASSIFICATION OF DEMAND FORECASTING

QUALTITATIVETECHNIQUES

1)EXPERT OPINION

Delphi method.

2)SURVEY3)MARKET EXPERIMENT

Test marketing

Controlled

experiments.

QUANTITATIVETECHNIQUES

1)Time Series Analysis.

2)Barometric Analysis.a) leading indicators

b)Coincidentindicators

c) lagging indicators.

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Expert Opinion

The expert opinion method, also known as EXPERTCONSENSUS METHOD, is being widely used fordemand forecasting.

This method utilizes the findings of market research and

the opinions of management executives, consultants,and trade association officials, trade journal editors andsector analysts. When done by

An expert, qualitative techniques provide reasonablygood forecasts for a short term because of the experts

familiarity with the issues and the problems involved. DELPH I METHOD:- The Delphi method is primarilyused to forecast the demand for NEW PRODUCTS.

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SURVEYA firm can determine the demand for its products through amarket survey. It may launch a new products, if the surveyindicates that there is a demand for that particular product in the

market.For example, Coke in India expanded its product range beyondcarbonated drinks, after the company conducted a nationwidesurvey. The survey revealed that about 80% of the youth

preferred to drink tea or coffee rather than carbonated drinks atregular intervals. The remaining 20% preferred to have milkproducts while only 2% preferred to drink carbonated drinks likecoffee.The company is now trying to bring tea and coffee brands to Indiaby installing vending machines. It is also planning to introduce a

coconut flavored drink in kerala and a black currant in Tamilnadunamed portello.

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Market Experiment

Market Experiment can help to overcomethe survey problems as they generate databefore introducing a product orimplementing a policy.

Market Experiments are two types:-

1) Test marketing:-2) Controlled experiments:-

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Test marketing

In this case, a test area is selected, which should be a

representative of the whole market in which the new product isto be launched. A test area may include several cities and towns,or a particular region of a country or even a sampleof consumers.

More than one test area can be selected if the firm wants to

assess the effects on demand due to various alternativemarketing mix.

Advertising or packaging can be done in various market areas.Then the demand for the product can be compared at differentlevels of price and advertising expenditure. In this way,

consumers response to change in price or advertising can bejudged.

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DRAWBACKS OF THE MARKETEXPERIMENT

1) The test experiments are that they are very costlyand much time consuming.

2) If in a test market prices are raised, consumer mayswitch to the competitors products.

3) It may be difficult to regain lost customers even if theprice is reduced to the previous level. Moreover, it isoften difficult to select an area, which accuratelyrepresents the potential market.

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Controlled experiments

Controlled experiments are conducted to the testdemand for a new product launched or to test thedemands for various brands of a product.

They are selected some consumers.

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DRAWBACKS OF THE CONTROLLED EXPERIMENTS

1) The consumers may be biased in the process ofselection of a sample of consumers on whichexperiments is to be performed.

2)The selected consumers may not respond accurately Ifthey come to know that they are a part of anexperiment being conducted and their behavior is being

recorded.

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Time Series Analysis

The time series analysis is one of the most common

quantitative method used to predict the future demandfor a product. Here the past sales and demand are takeninto considerations.

TIME SERIES ANALYSIS IS DIVIDED INTO FOUR

CATEGORIES:1)TREND2)SEASONAL VARIATIONS.3)CYCLICAL VARIATIONS.4)RANDOM FLUCTUATIONS.

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METHODS OF TIME SERIES ANALYSIS

1)TREND:- Past data is used to predict the future salesof firm trend is a long term increase or decreasein the variable.

2)SEASONAL VARIATIONS:- It is taken into accountthe Variations in demand during differentseasons.

Eg:- The sale of cotton dresses increases in summer.The sale of Woolen clothes increases in winter.

3)CYCLICAL VARIATIONS:- This variations in demanddue to the fluctuations in the business cycleBoom, recession and depression.

4) RANDOM FLUCTUATIONS:- It may happen due toNatural calamities like flood, earthquake, etc.Which cannot be predicted accurately.

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BAROMETRIC ANALYSIS

DEFINITION:- The prediction of turning points In one economic time series through the use of

Observations on another time series called the

Barometer of the Indicator.

It can be divided into three groups

1)Leading indicators.

2)Coincident indicators. 3)Lagging indicators.

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LEADING INDICATORS

It compares the existing data available. In this

Index includes such as things as average

weekly hours worked and claims for

Unemployment insurance, manufacturers new

orders, stock prices, orders for plant and

equipment, index of consumer expectations,

and real M2 money supply.

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Composite Of LeadingIndicators

It is useful in understanding the business cycle. CLL

Is primarily intended to identify changes in the

direction of the economy. Components of the Index of

Coincident Indicators are employees on nonagricultural payrolls, industrial production,

Personal income minus transfer payments,

manufacturing and trade sales.

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LAGGING INDICATORS

The lagging indicator composite includes

changes in labour costs per unit, ratio ofinventory to sales, and figures on installmentcredit and loans, among other items, InPractical attempts to forecast the future,

these indices are among the most importanttools available to most organizations,including the government. These indicatorsprovide signals of changes in economicactivities like national income or nationalproduct, the level of employment and the rateof inflation.

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Conclusion

Accurate demand forecasting requires

Product knowledge

Knowledge about the customer

Knowledge about the environment

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Procurement

Management

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Current Process Group

InitiationIntegration

PlanningIntegration

ScopeTimeCost

Quality

HR

Communications

ExecutionIntegration

QualityHR

Communications

Procurement

ControlIntegration

Scope

Time

CostQuality

HR

CommunicationsRisk

Procurement

ClosingIntegration

Procurement

Key:

Past lecture

Current lecture

Future lecture

Risk

Procurement

Procurement

Procurement

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Procurement Management

Acquisition of goods and services, including:

Plan Acquisitions Define what to procure

Plan Contracting Prepare a solicitation

Request Proposals

Solicit responses Select a Vendor Evaluate and choose a vendor, andnegotiate a contract

Administer the Contract Manage the vendor relationship,document ongoing contract activities and request changes

Closing the Contract Accept the final products of the contract

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Integration

Planning Process Group Continueproject integration management byincluding a procurement management

plan in the project management plan

Closing Process Group Acceptanceof contract deliverables and projectphases and formally completing theproject

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Plan Acquisitions

Acquisition options:

Upgrade Modify the existing system

Build Develop system from the ground up internally or through a

third party Buy Purchase a Commercial-Off-The-Shelf (COTS) solution

hosted internally or by a third party

Transfer Obtain public domain or no/low-cost license softwarefrom a third party

Re-Platform Convert the status quo to a new technology platformusing internal or third party resources

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Prepare Requirements

Focus on strategic objectives

View IT as a tool enabling successful clinicalimprovements tied to an organizations objectives,

e.g., measure a successful EMR implementation byhow it achieves increased patient safety

Define user requirements tied to strategic objectives

Avoid re-inventing the wheel by using existing

examples ofrequirements instead of starting fromscratch

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Plan Contracting

Reduce the time to procure a system by limiting initialvendor proposals to scripted demonstration of userrequirements

Request vendor costs and support for technicalrequirements from only those vendors that supportuser requirements

Maintain consensus by working with key users asthey prepare requirements, conduct vendordemonstrations and select the best option

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Request Proposals

Identify vendors that support user needs, e.g., EMRniche, provide similar products to competitors and/orhave existing relationships with your organization

Prepare a vendor short-list and solicit proposals Prepare solicitation document

Issue RFP

Administer vendor solicitation process

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Select Vendor

Evaluate vendors during demonstrations

Request finalists costs and support for

technical requirements

Check references and conduct site visits

Select vendor supporting most userrequirements at lowest cost

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Negotiate Contract

Use an agreement provided by your organization not the vendor

Include a contract scope of services based on the project SOW, whichdefines the criteria for approval of and payment for deliverables

Assemble your negotiating team, including project manager and anattorney with system procurement experience

Identify, prioritize and share negotiation issues with vendor

Obtain and evaluate vendor response

Prepare fallback response and share with vendor

Narrow issues to short-list and conduct face-to-face negotiations

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Administer Agreement

Use contract scope of services , project schedule andbudget as standards

Monitor vendor compliance

Identify deviations and define agreed upon correctiveactions

Prepare change orders/contract amendments whererequired by corrective actions

Monitor and document successful completion ofcorrective actions

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Close Agreement

Compare deliverable results to deliverableacceptance criteria included in contract scope ofservices

Identify corrective actions if the vendor does notadhere to the acceptance criteria

Review updated deliverable to confirm compliance

Accept and pay vendor for deliverable when it

complies with acceptance criteria

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Inventory Management

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What is inventory?

Inventory is the raw materials, component

parts, work-in-process, or finished productsthat are held at a location in the supply chain.

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Why do we care?

At the macro level:

Investment in inventory is currently over $1.25Trillion (U.S. Department of Commerce).

This figure accounts for almost 25% of GNP.

Enormous potential for efficiency increase by

controlling inventories

Inventory is one of the biggest corporate assets ($).

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Sales growth: right inventory at the rightplace at the right time

Cost reduction: less money tied up ininventory, inventory management,obsolescence

Higher profit

Why do we care?

At the firm level:

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Why do we care?

Each ofSolectrons big customers, which include Cisco,

Ericsson, and Lucent was expecting explosive growth forwireless phones and networking gear.when the bottom

finally fell out, it was too late for Solectron to halt ordersfrom all of its 4,000 suppliers. Now, Solectron has $4.7billion in inventory. (BW, March 19, 2001)

When Palm formally reported its quarterly numbers inJune, the damage was gruesome. Its loss totaled $392million, a big chunk of which was attributable to writingdown excess inventory - piles of unsold devices. (The

Industry Standard, June 16, 2001)

Liz Claiborne said its unexpected earnings decline is theconsequence of higher than anticipated excessinventories. (WSJ, August 1993)

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How do you manage your inventory?How much do you buy? When?

Soda

Milk

Toilet paper Gas

Cereal

Cash

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What Do you Consider?

Cost of not having it.

Cost of going to the grocery or gas station(time, money), cost of drawing money.

Cost of holding and storing, lost interest.

Price discounts.

How much you consume.

Some safety against uncertainty.

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Costs of Inventory

Physical holding costs: out of pocket expenses for storing inventory

(insurance, security, warehouse rental, cooling)

All costs that may be entailed before you sell it(obsolescence, spoilage, rework...)

Opportunity cost of inventory: foregone returnon the funds invested.

Operational costs:

Delay in detection of quality problems. Delay the introduction of new products.

Increase throughput times.

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Hedge against uncertain demand

Hedge against uncertain supply

Economize on ordering costs

Smoothing

Benefits of Inventory

To summarize, we build and keep inventory in

order to match supply and demand in the most

cost effective way.

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Modeling Inventory in a Supply Chain

WarehouseRetail

Supplier

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Home Depot

Our inventory consists of up to 35,000different kinds of building materials, homeimprovement supplies, and lawn and garden

products. We currently offer thousands of products in

our online store.

We offer approximately 250,000 more

products through our special order services.

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Different types of inventory models

1. Multi-period model

Repeat business, multiple orders

2. Single period models

Single selling season, single order

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Multiperiod model

Key questions: How often to review? When to place an order?

How much to order?

How much stock to keep?

orders

Supply

On-hand

inventory

Ordering costs

Holding costs

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Multiperiod modelThe Economic Order Quantity

Demand is known and deterministic:D units/year

We have a known ordering cost, S, and immediate replenishment

Annualholding cost of average inventory isHper unit

Purchasing cost Cper unit

Supplier DemandRetailer

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What is the optimal quantity to order?

Total Cost = Purchasing Cost + Ordering Cost + Inventory Cost

Purchasing Cost = (total units) x (cost per unit)

Ordering Cost = (number of orders) x (cost per order)

Inventory Cost = (average inventory) x (holding cost)

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Finding the optimal quantity to order

Lets say we decide to order in batches of Q

Number of

periods will be

D

Q

Time

Total Time

Period over which demand for Q has occurred

Q

Inventory position

The average

inventory for

each period is

Q

2

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Finding the optimal quantity to order

Purchasing cost = D x C

Inventory cost =

Ordering cost =D

Qx S

Q2

x H

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So what is the total cost?

TC = D C + +

In order now to find the optimal quantity we need tooptimize the total cost with respect to the decision

variable (the variable we control)

Which one is

the decision

variable?

D

QS

Q

2H

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What is the main insight from EOQ?

There is a tradeoff between holding costs and ordering costs

Order Quantity (Q*)

Cost

Total cost

Holding costs

Ordering costs

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Economic Order Quantity - EOQ

Q* =

2SD

H

Example:

Assume a car dealer that faces demand for 5,000 cars per year, and

that it costs $15,000 to have the cars shipped to the dealership.

Holding cost is estimated at $500 per car per year. How many

times should the dealer order, and what should be the order size?

548500

)000,5)(000,15(2*Q

If delivery is not instantaneous, but there is a

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Receive

order

Time

Inventory

Order

Quantity

Q

Place

order

Lead Time

y ,lead time L:

When to order? How much to order?

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ROP = LxD

Receive

order

Time

Inven

tory

Order

Quantity

Q

Place

order

Lead Time

Reorder

Point

(ROP)

If demand is known exactly, place an order wheninventory equals demand during lead time.

D: demand per period

L: Lead time in periods

Q: When shal l we order?

A: When inventory = ROP

Q: How much shall we order?

A: Q = EOQ

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Example (continued)

What if the lead time to receive cars is 10 days?(when should you place your order?)

10

365D =R =

10

3655000 = 137

So, when the number of cars on the lot reaches 137,

order 548 more cars.

Since D is given in years, first convert: 10 days = 10/365yrs

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TimeTime

InventoryInventory

LevelLevel

OrderOrder

QuantityQuantity

But demand is rarely predictable!

Demand???

Receive

order

Place

order Lead Time

ROP = ???

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XX

Inventory at time of receipt

ReceiveReceive

orderorder

TimeTime

InventoryInventory

LevelLevel

OrderOrder

QuantityQuantity

PlacePlace

orderorder

Lead TimeLead Time

Actual Demand < Expected Demand

ROP

Lead Time Demand

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Stockout

Point

Unfilled demand

ReceiveReceive

orderorder

TimeIn

ventory

OrderOrderQuantityQuantity

PlacePlace

orderorder

Lead TimeLead Time

If Actual Demand > Expected, we Stock Out

If ROP = expected demand service level is

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ROP = Expected Demand

Average

TimeTime

InventoryInventory

LevelLevel

OrderOrder

QuantityQuantity

If ROP = expected demand, service level is

50%. Inventory left 50% of the time, stock

outs 50% of the time.

Uncertain Demand

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To reduce stockouts we add safety stock

ReceiveReceive

orderorder

TimeTime

PlacePlace

orderorder

Lead TimeLead Time

Inventory

Level

ROP =

Safety

Stock +

Expected

LTDemand

Order QuantityQ = EOQ

Expected

LT Demand

Safety Stock

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Service level

Safety

Stock

Probability

of stock-out

Decide what Service Level you want to provide

(Service level = probabil i ty of NOT stocking out)

S f t t k

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Service level

Safety

Stock

Probability

of stock-out

Safety stock =

(safety factor z)(std deviation in LT demand)

Read z from Normal table for a given service level

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Caution: Std deviation in LT demand

Variance over multiple periods = the sumof

the variances of each period (assumingindependence)

Standard deviat ion over mult ip le

per iods is

thesquare roo tof the sum of the

variances,

Average I nventory =

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Average I nventory

(Order Qty)/2 + Safety Stock

ReceiveReceive

orderorder

TimeTime

PlacePlace

orderorder

Lead TimeLead Time

Inventory

Level

Order

Quantity

Safety Stock (SS)

EOQ/2Average

Inventory

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How to find ROP & Q

1. Order quantity Q =2. To find ROP, determine the service level(i.e., the

probability of NOT stocking out.) Find the safety factorfrom a z-table or from the graph.

Find std deviation in LT demand: square root law.

Safety stock is given by:SS = (safety factor)(std dev in LT demand) Reorder point is: ROP = Expected LT demand + SS

3. Average Inventory is: SS + EOQ/2

2SDEOQ H

( )

LT D

std dev in LT demand std dev in daily demand days in LT

LT

E l ( ti d)

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Example (continued)

Back to the car lot recall that the lead time is 10 daysand the expected yearly demand is 5000. You estimate the

standard deviation of daily demand demand to be d = 6.

When should you re-order if you want to be 95% sure you

dont run out of cars?

168)36(1065.1137 ROP

Since the expected yearly demand is 5000, the expected

demand over the lead time is 5000(10/365) = 137. The z-

value corresponding to a service level of 0.95 is 1.65. So

Order 548 cars when the inventory level drops to 168.

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WAREHOUSINGMANAGEMENTGaurav Narkhede | Josue Servalis | Mike Macas |

Praneetha Boda

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Part of firms logistics system that storesproducts at and between point of origin andpoint of consumption.

Term Warehousing is referred astransportation at zero miles per hour

Warehousing provides time and place utility forraw materials, industrial goods, and finishedproducts, allowing firms to use customer serviceas a dynamic value-adding competitive tool.

THE ROLE OF THE WAREHOUSE IN

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THE ROLE OF THE WAREHOUSE INTHE LOGISTICS SYSTEM

The warehouse is where the supply chain holdsor stores goods.

Functions of warehousing include

Transportation consolidation Product mixing

Docking

Service Protection against contingencies

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TYPE OF WAREHOUSING

Public Warehousing

Private Warehousing

Contract Warehousing

Multi-client Warehousing

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DESIGN CONSIDERATION

Ideal Facility for Pure SupplierConsolidation

(Full Pallet Movement)

Warehouse SpaceRequirements

PRINCIPLES OF WAREHOUSE

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PRINCIPLES OF WAREHOUSELAYOUT DESIGN

Use one-storyfacilities

Move goods in astraight line

Use efficientmaterials-handling

equipment

Use an effectivestorage plan

Minimize aisle

space

RECEIVING

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WAREHOUSE PROCESSPut-away

Identify ProductIdentify Product LocationMove Products

Update Records

StorageEquipmentStock Location Popularity Unit Size

Cube

Shipping PreparationPackingLabelingStacking

Order PickingInformationWalk & PickBatch Picking

ShippingSchedule CarrierLoad VehicleBill of LoadingRecord Update

Schedule CarrierUnload VehicleInspect for damage

INPUT

OUTPUT

OBJECTIVES OF EFFICIENT

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OBJECTIVES OF EFFICIENTWAREHOUSE OPERATIONS

Provide timely customer service.

Keep track of items so they can be found readily &

correctly.

Minimize the total physical effort & thus the cost of

moving goods into & out of storage.

Provide communication links with customers

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Benefits of Warehouse Management

Provide a place to store & protect inventory

Reduce transportation costs

Improve customer service levels

Complexity of warehouse operation depends on the

number of SKUs handled & the number of orders

received & filled.

Most activity in a warehouse is material handling.

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Capital costs

Costs of space & materials handling

equipment

Operating costs

Cost of labor

Measure of labor productivity is the number of

units that an operator can move in a day

COSTS OF OPERATING A WAREHOUSE

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WAREHOUSE ACTIVITIES Receive goods

Identify the goods

Dispatch goods to

storage

Hold goods

Pick goods

Marshal shipment

Dispatch shipment

R i d

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Accepts goods from

Outside transportation or attached factory &

accepts responsibility

Check the goods against an order & the bill of

loading

Check the quantities

Check for damage & fill out damage reports if

necessary

Inspect goods if required

Receive goods

Identif the goods

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items are identified with the appropriate stock-

keeping unit (SKU) number (part number) &

the quantity received recorded

Identify the goods

Dispatch goods to storage goods are sorted & put away

Hold goods

goods are kept in storage & under proper

protection until needed

Pick goods

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Pick goods items required from stock must be selected

from storage & brought to a marshalling area

Marshal the shipment goods making up a single order are brought

together & checked for omissions or errors; order

records are updated

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Maximize productivity & minimizet h t t

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cost, warehouse management mustwork with the following Maximize use of space

space is the largest capital cost

Effective use of labor & equipment

labor is the largest operating cost

material handling equipment is the second

largest capital cost

FACTORS INFLUENCING

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FACTORS INFLUENCINGEFFECTIVE USE OF WAREHOUSES Cube utilization and accessibility

Stock location

Order picking and assembly

Physical Control & Security - Elements

Cube utilization andibilit

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accessibility

Goods stored not just on the floor, but in the

cubic space of the warehouse; warehouse

capacity depends on how high goods can be

stored

Accessibility means being able to get at the

goods wanted with a minimum amount of

work

Cube utilization and accessibility

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continued

Stock Location

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S oc oca o

Objectives

To provide the required customer

service

To keep track of where items are stored

To minimize effort to receive, put away,

and retrieve items

Basic Stock Locating Systems

Group functionally related items

together

Stock Location

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Fixed Location

SKU assigned a permanent location, & no otheritems are stored there

Fixed-location systems usually have poor cubeutilization

Usually used in small warehouses; throughput issmall, & there are few SKUs

Floating (Random) Location

Goods stored wherever there is appropriatespace

Advantage is improved cube utilization

continued

Stock Location

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continued

Two other systems sometimes used are

Point-of-use storage

Inventory stored close to where it will be

needed

Used in repetitive manufacturing & JIT

systems

Central storage

Contains all inventory in one central location

Stock Location

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Advantages of Point-of-use Storage

Materials are readily accessible to users

Material handling is reduced or eliminated

Central storage costs are reduced

Material is accessible all the time

continued

Stock Location

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Advantages of Central Storage

Ease of control

Inventory record accuracy is easier to

maintain

Specialized storage can be used

Reduced safety stock, since users do not

need to carry their own safety stock

continued

Order Picking andAssembly

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Assembly

When an order is received, items must

be obtained from the warehouse,

grouped, & prepared for shipment,

systems used

Area system

Zone system

Multi-order system

Order Picking andAssembly

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Area system

Order picker circulates throughout

warehouse selecting items on an order --

order is ready to ship when order picker is

finished

Zone system Warehouse is divided into zones, & each

picker works only in an assigned zone --

Assembly continued

Order Picking andAssembly

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Multi-order system

Same as the zone system, except that

each picker collects items for a number of

orders at the same time

Assembly continued

PHYSICAL CONTROL & SECURITY -ELEMENTS

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ELEMENTS Good part numbering system

Simple, well-documented transaction system

Identify the item

Verify the quantity

Record the transaction

Physically execute the transaction

Limited access Inventory must be kept in a safe, secure

(locked) place with limited general access

Well-trained workforce

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Logistic Management

LOGISTICS

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Defined

Planning implementing and controlling thephysical flow of material and finished goods from

point of origin to point of use to meet customer`s

need at a profitBy Philip Kotler

It is essentially a planning process and an

information activitySo A integrative process that optimizes the flow of

material and supplies through the organization

and its operations to the customer

The word logistic has originated from Greek word

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Logistikos and the Latin word Logisticus which

means science of computing & calculating

In ancient times it was used more in connection with

moving armies, the supplies of food & armaments to

the war front.

During World War II logistics gained importance inarmy operations covering the movement of supplies ,

men & equipment across the border

Today

It has acquired the wider meaning and is used in the

business for the movement of material from suppliers

to the manufacturer and finally the finished goods to

the consumers

Scope of Logistic

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It is of critical importance to the organization how it delivers

products & services to the customer , whether the product is tangible

or intangible.Effective & efficient Physical movement of the tangible product will

speak of intangible services associated with the product and the

organization which is delivering it.

In Case of intangible product , the delivery of tangibles at the rightplace & right time will speak about its quality.

On the macro level infrastructure such as Various modes of

transport , transportation equip., storage facilities, connectivity &

information processing are contributing to a larg3e extent in thephysical movement of goods produced in manufacturing , mining &

agriculture Sectors.

Scope of logistics

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g

This speed & reliability in distribution of products &

services contribute to a great extent in the growth of a

country`s domestic & international trade . Logistic cost

as a percentage of GDP across the world is shown in the

following table

Country Logistic cost as a percentage of GDPKorea 16

China 15

Japan 14

India 13

France 12

UK 11

USA 10

Scope of logistics

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p g

India spent nearly $ 50 billion to move material from

one use to another.So the Public distribution system in the country needs

logistical support for delivering goods at right place on time

and the lowest cost.

At Micro Level logistic plays a critical role in the valuedelivery system of business organization to provide superior

customer service i.e. to achieve a desired level of delivered

services and quality at the lowest possible cost.

In a nutshell any productivity improvement that could beachieved in any part of logistic system,at the micro or macro

level would help in cost reduction and proper deployment of

scare national resources to the productive purposes.

Fact

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In a manufacturing org. the business process starts with the

flow of material from the suppliers, progress to the plant, then

to the customer through the distribution channel the

department may excel in their respective function but org. as a

whole their performance may be dismal.

Reason

Lack of Co ordination in their activities

They have different goal to cherish

There is no single agency that coordinates their functions and

homogenizes them.How to overcome ?

Use of Logistic as a system

LogisticA system approach

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Logistic recognizes that all the activities of material

movement across the business process are interdependent

and needs close coordination and these are to be

maintained as a system and not the functional Silos.

System is shown as logistic Mix including following

functional AreasOrder Processing

Information Flow

WarehousingInventory control

Packaging

Transportation

Order Processing

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Involve following activities

Order checking for any deviation in agreed on negotiated term

Technical details;price;delivery period;payment terms;taxes etc

Checking the availability of material in stock (material

requisition)

Production & material scheduling for shortage

Acknowledging the order, indicating deviation if any

It is routine operation but require great deal of planning training

of people involved and investment to bring about efficiency &

accuracy

In a large organization a system capable of handling thousands of

voluminous orders with minimum human involvement or without

human involvement is a must involving shortened order fulfillment

cycle to have edge over rivals

Information Flow

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It is basically information based activity of inventory movement

across the supply chain. Hence role of information system plays a

vital role in delivering superior customer serviceThis function is required to facilitate the following information

needs

Order Registration

Order checking & editingOrder processing

Coordination means to integrate the total supply chain of the

company with informational needs as to time ,quantity, value e.g

Lead time, rate of consumption , delivery schedule & price of thematerial , Transportation time & cost etc.

Warehousing

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A storage place wherein finished goods are stored till they are

sold.Effectiveness of an organization`s marketing strategy

depends on making the right decision regarding warehouse.

Nowadays

Warehouse are treated as switching facilities rather than

storage place.It is a major cost center, many customerproblem are the direct result of improper warehousing

management.

Major decision of ware house are as follows:-

Location ,Size & Number of warehousing facilities

Warehouse layout

Design of building

Ownership of the warehouse

Inventory management

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Point order problem

That isHow much to order When to order

For this we require

Dependable IMS Independent IMS

Purchase Control Stores control Issue

management

ABC Analysis

VED Analysis Level Management

EOQ & EBQ Analysis MRP System

Perpetual inventory system JIT System

Packaging

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It is also a critical element in physical

distribution of the product , which influencesthe efficiency of the logistic system this is done

with the view of following :-

Foe handling and damage prevention

For communications

For inter modal transportation

Storage space economyThus to reduce packaging cost

Transportation

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Foe the movement of goods from supplier to buyer ,

transportation is the most fundamental and importantcomponent of logistic.

E.g. for low unit value products the transportation cost

component is 20% of the product cost.

In logistic cost its share varies up to 65-70% in case of

mass consumed very low unit price products.

Mode of transportation ( Cost & time factor)

Own fleet or OutsourcingRoute Planning

Vehicle scheduling

Are the few decision which are involved in transportation

Three Forces

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Three ForcesWhich have change the perspective of logistics

Globalization

Focus on Supply chain Management

Outsourcing of Non Core

Competency Functional Area

Globalization

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The entire world has become a global village for

marketers because of the liberalization ofeconomics of most countries and the emergence

of WTO which is forcing business organizations

to supply products beyond the national

boundaries wherever there is a marketopportunity.

In such conditions the role of

LOGISTICSWill be to provide time and place time and place

utility of the product to the customer

Focus on Supply Chain Management

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Business the world over are striving for competitiveness.In their struggle for survival their focus has shifted to the

supply chain

I.e.

Integrating the process of Procurement , processing &

distributing to deliver value for money to the customer

Two key roles logistics planning & support

are

Value delivery process success of supply

chain management

Outsourcing of Non Core Competency functionalArea

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Outsourcing is a acceptable trend in business.

Corporation have realized that doing everything bythemselves does not result in effective & efficient use of

scare resources available to them.

It is better to outsource functional area to experts who can

do job at the lowest cost and that to efficiently &

Effectively.

LOGISTICS

Is one such area where most of business org. do not haveenough expertise thus needs to be outsourced

Thus Logistics have shaped into different service industry

offering complete & customized logistics solutions

Value Chain

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It is understood now that an organization`s

competitive Success could only come through eithercost leadership or offering differentiated product and

services

LOGISTIC MANAGEMENT

Can provide both the benefits simultaneously

Through its value chain activities

Which can be categorized into different types

Inbound logisticsoperations

Out bound logistics

Support activates e.g HR, Accounts & finace, IT & MIS

Infrastructure

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Services

In boundlogistics

O

p

er

a

t

io

n

s

Out bondLogistics

operations

S & MCustomer Value

HRM&MTechnology

A&F

Supply Chain

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Procurement

StoresStores

Vendor

Operations

Warehouse

Customer

Inbound Logistics Out Bound

Logistics

Supply Chain

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Vendor

Purchase

Stores

RM

Customer

Warehousing

Stores

FG

Inbound Logistics Out bound logistics

OPERATIONSP

r

o

cu

r

e

m

e

n

t

D

is

tr

ib

u

ti

on

Material flow Material flow

Information flow

Logistics for Business Excellence

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g

For Business Excellence logistics operation need to be

integrated on the following two fronts integration of logistic into business

Integration of components of logistics

To achieve the objective of making available right

product at the right place and at a right time at low cost

, every business is required to integrate logistics into the

business process.For logistic operation to run smoothly, proper

integration amongst the component of logistic process is

a must.

Logistic

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HR A/Cs FinanceUtilitiesMarketing PPC QC Mat. Mng. IT Others

Organizational Functions

Suppliers Procurement Processing Distribution Customer

Logistic System Component

Order Processing

Inventory Mang.

Warehousing

Transportation Material Handling & Storage Logistical Packaging

Information

In Bound Log. Out Bound Logistic

In process Log.

LOGISTIC FUNCTION

Objectives of Logistic management

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Inventory Reduction

Reliable and consistent delivery performanceFreight economy

Minimum product damage

quick Response

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Warehousing

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Nowadays warehousing is used as a switching

facility rather than as a long term storage house.Attention is paid to

Higher lower shorter

inventory turnover operating cost

cycle time

And in light of these warehouse`s performance is

judged by its productivity and cost performancewhile trying to achieve 2 polemic goals.

Customer`s satisfaction lower cost of operation

1 2 3

1 2

We have to decide on 2 factors

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Whether to have

Centralized decentralizedwarehouse warehouse

It ensures tight control multiple distribution

On inventories and can centers

Operate on EOS

location of sites

Objective

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Main

better customer service low operating costAncillary objective

Maximum uti l ization of storage spaceH igher labour productivi ty

Maximum Asset util ization

Reduction in mater ial handling

I ncrease in inventory turnover

Reduce order f i l ing time

Warehousing Function

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3 Functions

Material Storage Function

Material Handling Function

Information Handling Function

Material Storage function

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Due to non synchronization of Manufacturing cycle

with that of the consumption cycle of the material ,storage of the material remains a big hurdle

So material storage is required to accommodate the

following functions:

Holding

Consolidation

Postponement

Break Bulk

packing

Cross Docking

Mixing

Material Handling function

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This involves three function

1. Loading & unloading

2. Material Movement

3. Order filing

Information handling function

F thi f ll i i f ti i i d

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For this following information is required

Goods inward

Inspection & auditing

Goods outward

Excess Stock

Invoicing

Warehouse expenses

Transit damage & Breakage

Consignment tracking

This all information facilitate quick decision