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Logistics System Design and Administration
Module 3
Sulbha Nigam
2009 PESIT MBA 2
Logistical Positioning
Logistics Environmental Assessment Time-based Logistics Alternative Logistics Strategies Strategic Integration and Logistics Time-based control techniques
2009 PESIT MBA 3
What is Logistics Positioning?
(Or “Strategic”) Logistics Positioning is the process to provide policies and deploy facilities, equipment and operating system to achieve performance goals at the lowest cost.
The plan provides guidelines concerning How many, what type and where warehouses will be located What inventory assortment will be stocked at each facility Philosophy and practice of purchasing How transportation will be performed and integrated into other
areas Which methods of material handling will be utilized Methods of order processing And so forth...
2009 PESIT MBA 4
Logistics Environmental Assessment External factors limit the flexibility of logistics
performance and therefore it is important to assess them.
They are Industry competitive assessment Geo-market differentials Technology assessment Material energy assessment Channel structure Economic social projection Service industry trends Regulatory structure
2009 PESIT MBA 5
Time-based Logistics
Focus is on reducing time from order receipt to order delivery
Highly responsive Logistics add value and reduce costs
Time based Logistics builds on two conceptsPostponementConsolidation
2009 PESIT MBA 6
Time-based Logistics: Postponement It offers the strategy to reduce the anticipatory risk
of Logistics Risk is reduced to the degree to which
commitment to final manufacturing or distribution of the product can be postponed until receipt of customer order
There are two critical types of postponement Manufacturing or Form postponement Logistical or Geographic postponement
2009 PESIT MBA 7
Time-based Logistics: Postponement Manufacturing or Form postponement :In this postponement , the
standard or base product is manufactured to achieve economies of scale while deferring finalization of features until customer commitments are received.
Plantor central
warehouse
Production plant Optional levelsof distribution
warehouses
Retailer/customer
Finalwarehouse
level
Ret a il e r/cust omer o rde r po intMa nu fac t u r in g pro cessInv entoryMat e r i a l s f l o w
2009 PESIT MBA 8
Time-based Logistics: Postponement Logistical or Geographic postponement: Such a setup maintains
full manufacturing economies of scale while meeting customer requirements using direct shipment capabilities. Focuses on time by stocking differentiated products at a central location and responding rapidly when a customer order is received.
Plantor central
warehouse
Production plant Retailer/customer
Ret a i le r / cu stom er o rd er po i n tM an uf a c t u r i ng p r oc e s sI nven t o r yM at e r i a l s f l o w
2009 PESIT MBA 9
Time-based Logistics: Postponement
Manufacturing Postponement
Logistics Postponement
Production Costs Mid – High Low
Inventory Costs Mid – High Low - Mid
Distribution Cost Low High
Customer Service Mid – High Low - Mid
2009 PESIT MBA 10
Time-based Logistics: Consolidation Retention of transportation economies associated
with large size shipments. To get maximum transportation consolidation
advantage and minimize the effects of unpredictable demand, managers use the following consolidation ways Market area Scheduled delivery Pooled delivery
2009 PESIT MBA 11
Time-based Logistics: Consolidation Market area: Small shipments of different
customers are combined based on the delivery area or region. Drawback is that there may not be sufficient daily volume for a particular area.
Scheduled delivery: Limiting shipments for markets based on predefined delivery schedule. The delivery is guaranteed based on this schedule.
Pooled delivery: Freight Forwarder, Public warehouse, Transportation company – Together arrange consolidation for multiple shipper
2009 PESIT MBA 12
Alternative Logistics Strategies There is no single best way that can service all
customersStructural separation
Marketing and Logistics Separation in practice
Logistical Operating arrangements Echelon Structure Direct Systems Flexible Systems
Emergency Flexible Structure Routine flexible Structure
2009 PESIT MBA 13
Distribution Channel: Logistical and Marketing Separation
Factory warehouse
Local delivery
Company truck
Regionalwarehouse
Common carrier
Public warehouse
(1) (2)(7)
(6)(5)(4)(3)
consumer
General sales office
Direct sales office
Distributor Retailer
(1) (3)(2) (4)
(5)
Manufacturer - operated
Operated by other channel members
Marketing channel
Logistical channel
2009 PESIT MBA 14
Distribution Channel: Echeloned and Direct Structured Logistics
supplier
Direct plan delivery(DPD)
IndustrialDistribution orConsolidation
warehouse
Manufacturer Wholesalers or
Distributioncenter
Retailers customer
supplier
IndustrialDistribution orConsolidation
warehouse
Manufacturer Wholesalers or
Distributioncenter
Retailers customer
Direct store delivery(DSD)
2009 PESIT MBA 15
Distribution Channel: Complex Alternative Logistics Structure
Flow through
Service supplier arrangements
Direct plant delivery(DPD)
supplier
IndustrialDistribution orConsolidation
warehouse
Manufacturer Wholesalers or
Distributioncenter
Retailers customer
Direct store delivery(DSD)
Flow through
Service supplier arrangements
2009 PESIT MBA 16
Strategic Integration and Logistics
Integration of Logistics function with material and suppliers is important to achieve maximum synergy
End result is a series of synchronized capabilities that implement time-based principles in a resource efficient format based on customer-focused requirements
2009 PESIT MBA 17
Logistics Time Based Control Techniques Supply Driven Techniques
Just in Time (JIT) (Kanban) Requirements Planning (RP)
Material Requirement Planning (MRP) Distribution Requirement Planning (DRP)
Demand Driven Techniques Rules Based Reorder Point (ROP) Quick Response (QR) Continuous Replenishment (CR) ( or Vendor Managed
Inventory (VMI) ) Automatic Replenishment (AR)
2009 PESIT MBA 18
Logistics Administration
Organization Planning, Costing and Pricing Performance Measurement and Reporting
2009 PESIT MBA 19
Logistical Organizational Development Cycle
Fragmented Functional Structures
Stage 2Functional groupings
Stage 3Functional groupings
Stage 4Process Functional Integ
Stage 5Process Infor-mation Integ
Stage 1Functional groupings
Fragmented Functional Aggregation Process Integration
PREVAILING PARADIGM
2009 PESIT MBA 20
Traditional Organization of Logistically Related Functions
Chief executive
Finance Manufacturing Marketing
Inventory control
Order processing
Credit authorization
Management information
system
Facility planning
Material requirement planning
Purchasing
Raw material warehousing
Finished goodsFactory warehousing
Transportation
Industrial engineering
Production scheduling
Forecasting
Customer salesOrder service
Finished goods Field warehousing
2009 PESIT MBA 21
Chief executive
Finance manufacturer Marketing
Inventory control
Order processing
Credit authorization
Management information
system
Facility planningMaterial requirement
planning
Purchasing
Raw material warehousing
Finished goodsFactory warehousing
Transportation
Industrial engineering
Production scheduling
Forecasting
Customer salesOrder service
Finished goods Field warehousing
Stages of Functional Aggregation:Stage 1 Organization
Materials management
Physical distribution
Finished goods Inventory control
Order processing
2009 PESIT MBA 22
Chief executive
Finance Manufacturing Marketing
Inventory control
Order processing
Credit authorization
Management information
system
Facility planning
Material requirement planning
Purchasing
Raw material warehousing
Transportation
Industrial engineering
Production scheduling
Forecasting
Customer salesOrder service
Finished goods Field warehousing
Materials management
Physical distribution
Finished goods Inventory control
Order processing
Raw material Inventory control
Finished goods Factory warehousing
Credit authorization
Distribution system planning
Stage 2 Organization
2009 PESIT MBA 23
Chief executive
Logistic executive
Planning Controlling
Logistical support
Logistical resource planning
Packaging
Material handling engineering
Warehousing
Inventory control
Transport and traffic
Product marketforecasting
Order processing
Requirement planning
Functional planning Logistical operations
PurchasingManufacturing
supportPhysical
distribution
Production scheduling
Capacity planning
Material requirement
planning
Stage 3 Organization
2009 PESIT MBA 24
Stage 4 Organization: A shift in Emphasis from function to process
2009 PESIT MBA 25
Stage 4 A shift in Emphasis from function to process
2009 PESIT MBA 26
Stage 5 Beyond Structure: Virtuality and Organizational Transparency
Trend has been to evolve from Functional Aggregation to Process Aggregation (Stage 4)
Process Aggregation has limited the control of Functional owners over complex global logistics
Solution may be a “virtual” organization where IT brings together process organizations to execute logistical functions and removes the need of Organizational hierarchies creating bureaucracy.
2009 PESIT MBA 27
Virtual Organization
2009 PESIT MBA 28
Concepts having Logistical Significance
Structural Compression Centralization/Decentralization Line and Staff distinction Matrix to Horizontal Structure
Empowerment Teaming Learning
2009 PESIT MBA 29
Planning
Operations Planning Performance Goals Budgeting
Fixed Budgeting Flexible Budgeting Zero Level Budgeting (or Target Budgeting) Capital Budgeting
Final Operating Plans Operating Plan Modification
2009 PESIT MBA 30
Costing
Total Cost Analysis Logistics Activity Based Costing
Cost Identification Cost Time Frame Cost Formatting Total Cost Presentation
Outsource Considerations Cost Revenue Analysis
2009 PESIT MBA 31
Pricing
Pricing Methods F.O.B. Pricing Delivered Pricing
Single Zone PricingMultiple Zone PricingBasing Point Pricing
2009 PESIT MBA 32
Various Pricing Issues
Potential Discrimination Quantity Discounts Pick up allowances Promotional Pricing EDLP
2009 PESIT MBA 33
Logistical Performance Measure
Dimensions of Performance measurement Objectives
Monitoring Controlling Directing
Perspective Internal Performance Measurement
Cost Customer Service Productivity Asset Management Quality
2009 PESIT MBA 34
Logistical Performance Measure
External Performance MeasurementCustomer perception measurementBest practice benchmarking
Comprehensive Supply Chain MeasurementCustomer Satisfaction / QualityTimeCostsAssets
2009 PESIT MBA 35
Levels of Measurement and Information Flow
Operation Databank
Degree
Of
Information
Selectivity
Policy
Decision
Variation
Direction
Chief Executive Officer
Vice President
Department heads
Line managers
2009 PESIT MBA 36
Reporting
Report Structures:Status ReportsTrend ReportsAd-hoc Reports
Thank you