TRADE LOGISTICS

LOGISTIC SYSTEM

CONCEPT

Logistics is the art of managing the supply chain and science of managing and controlling the flow of goods, information and other resources between the point of origin and the point of consumption in order to meet customers' requirements. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging.

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LogisticsLogisticsLogistics

LogisticsLogistics usually refers to the management of:usually refers to the management of:

the movement of materials within the factorythe movement of materials within the factory

the shipment of incoming materials from suppliersthe shipment of incoming materials from suppliers

the shipment of outgoing products to customersthe shipment of outgoing products to customers

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Movement of Materials within FactoriesMovement of Materials within FactoriesMovement of Materials within Factories

Incoming Vehicles

Incoming Incoming VehiclesVehicles

ReceivingDock

ReceivingReceivingDockDock

QualityControlQualityQualityControlControl WarehouseWarehouseWarehouse

Work CenterWork Work CenterCenter

Other Work Centers

Other Work Other Work CentersCenters PackagingPackagingPackaging Finished

GoodsFinishedFinishedGoodsGoods

ShippingShippingShipping ShippingDock

ShippingShippingDockDock

OutgoingVehiclesOutgoingOutgoingVehiclesVehicles

The typical locations from/to which material is moved:The typical locations from/to which material is moved:

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Shipments To and From FactoriesShipments To and From FactoriesShipments To and From Factories

Traffic departmentsTraffic departmentsroutinely examine shipping routinely examine shipping schedules and select:schedules and select:

shipping methodsshipping methods time tablestime tables

ways of expediting deliveriesways of expediting deliveries

Traffic managementTraffic managementis a specialized field requiring is a specialized field requiring technical training.technical training.

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Shipments To and From FactoriesShipments To and From FactoriesShipments To and From Factories

DistributionDistribution, or physical distribution, is the shipment , or physical distribution, is the shipment of finished goods through the distribution system to of finished goods through the distribution system to customers.customers.

A A distribution systemdistribution system is the network of shipping and is the network of shipping and receiving points starting with the factory and ending receiving points starting with the factory and ending with the customers.with the customers.

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Shipments To and From FactoriesShipments To and From FactoriesShipments To and From Factories

Distribution requirements planningDistribution requirements planning (DRP) is the (DRP) is the planning for the replenishment of regional warehouse planning for the replenishment of regional warehouse

inventories.inventories. DRP uses MRPDRP uses MRP-- type logic to translate regional type logic to translate regional requirements into centralrequirements into central--distributiondistribution-- center center

requirements, which are then translated into gross requirements, which are then translated into gross requirements at the factory.requirements at the factory.

Distribution resource planningDistribution resource planning extends DRP so extends DRP so warehouse space, workers, cash, and vehicles are warehouse space, workers, cash, and vehicles are provided in the correct quantities at the correct times.provided in the correct quantities at the correct times.

OBJECTIVES

The geographical repositioning of raw materials, work in process and finished inventories where required at the lowest cost possible.

Maximize over time the ratio of annual revenue (due to the customer service level provided) less the operating costs of the logistics system to the annualized investment in the logistics system.

PRINCIPLES

Responsiveness. Responsiveness is the right support in the right place at the right time. This is the keystone of the logistic principles, for all else becomes irrelevant if the logistic system cannot support the concept of operations of the supported commander.

Simplicity. Simplicity is avoidance of complexity and often fosters efficiency in both the planning and execution of national and theater logistic operations. 

Flexibility. Flexibility is the ability to adapt logistic structures and procedures to changing situations, missions, and concepts of operations. Logistics plans and operations must be flexible to achieve both responsiveness and economy.

Contd…

Economy. Economy is the provision of support at the least cost. This element must continually be considered.

Attainability. Attainability (or adequacy) is the ability to provide the minimum essential supplies and services required to begin combat operations. An operation should not begin until minimum essential levels of support are on hand. 

Sustainability. Sustainability is a measure of the ability to maintain logistic support to all users throughout the theater for the duration of the operation. This focuses the supporting commander’s attention on long-term objectives and capabilities of the supported forces.

Survivability. Survivability is the capacity of the organization to prevail in the face of potential destruction. Active measures must include a plan for ground defense of logistic installations with provisions for reinforcement and fire support. Passive measures include dispersion, physical protection of personnel and equipment, deception, and limiting the size and capabilities of an installation to what is essential for the mission.

Benefits:

Optimizes operations cost and productivity. Efficient utilization of assets. Facilitating internal business fulfillment

functions. Integrating external channel suppliers. Achieving conformance to performance

requirements.

Conclusion

That part of the supply chain involved with the planning, implementing and controlling of the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.

SYSTEM ELEMENTS

TRANSPORTATION

MEANING

Transportation is the movement of people and goods from one place to another.

The term is derived from the Latin word trans ("across") and portare ("to carry").

Industries which have the business of providing equipment used in transport of goods or people, actual transport, transport of people or goods and services make up a large broad and important sector of most national economies, and are collectively referred to as transport industries.

COMPEONENTS OF TRANSPORT

Infrastructure includes the transport networks (roads, railways, airways, waterways, canals, pipelines, etc.) that are used, as well as the nodes or terminals (such as airports, railway stations, bus stations and seaports).

The vehicles generally ride on the networks, such as automobiles, buses, trains, aircraft.

The operations deal with the way the vehicles are operated on the network and the procedures set for this purpose including the legal environment (Laws, Codes, Regulations, etc.)

Functions in the domain of logistics manager:

Negotiating rates and routes Selecting routes and carriers Evaluating carrier performance Analyzing transportation cost and services Operating company-owned means of freight and

transportation Filing loss and damage claims Auditing freight bills to ensure that proper charges

were paid to the carrier.

MODES OF TRANSPORT

Air transport

Rail transport

Road transport

Water transport

AIR TRANSPORT

Features:

Air transport has an unmatched origin-destination speed, especially over long distances.

Air service is quite sensitive to mechanical breakdown, weather conditions, and traffic congestion.

Variability ranks air transport as one of the least reliable modes.

Types of Air Services:

Regular domestic truck line carriers All-cargo carriers Local-service airlines Supplemental carriers Air taxis Commuter airlines International carriers

Regular domestic truck line carriers

These operate over the most heavily traveled routes on a regular basis.

These airlines offer cargo-carrying services in addition to their regularly scheduled passenger operations.

All-cargo carriers

These are common carriers of freight only. Service is concentrated at night and rates

average less than 30% those for domestic truck-line carriers.

Local-service airlines

These provide a “ connecting” service with domestic truck line carriers for less populated centers.

They provide both cargo and passenger service.

Supplemental carriers

Also known as charters, supplemental carriers operate as truck line carriers, except that they do not have regular schedules.

Air taxis

These are small air crafts, namely helicopters and small fixed wing aircraft, offering a shuttle service for passengers and cargo between downtown areas and airports.

They often have irregular service.

Commuter airlines

These are local service carriers that “fill in”routes abandoned by truck line carriers.

International carriers

These transport freight and passengers beyond the domestic regions.

RAIL TRANSPORT

Rail service – common carrier/ privately owned

A common carrier sells its transportation services to all shippers and it is guided by the economic and safety regulations of the appropriate government agencies.

Private carriers are shipper owned with the usual intent of serving only the owner. No economic regulation is needed.

Special services to the shipper

Movement of bulk commodities such as coal and grain to special cars for refrigerated products and new automobiles which require special equipment.

Expedited service to guarantee arrival within a certain number of hours.

Various stop-off privileges, permitting partial loading and unloading between source and destination points.

Pickup and delivery facilities. Diversion of reconsignment which allows circuitous

routing and changes in the final destination of a shipment while on route.

ROAD TRANSPORT

Features:

Trucking is a transportation service of semifinished and finished products.

Trucking moves freight with smaller average shipment sizes than rail.

Advantages:

Door-to-door service High frequency and availability of service Door-to-door speed and convenience. Shippers can enter into a contractual

agreement to obtain trucking services without incurring the capital expense and administrative problems associated with private ownership of a trucking fleet.

WATER TRANSPORT

Features:

Water services are provided in all legal forms, and most commodities shipped by water move free of economic regulation.

In addition to unregulated private carriage, liquid cargoes in bulk moving in tank vessels and commodities in bulk such as coal, sand, and gram, which make up over 80 percent of the total annual ton-miles by water, are exempt.

Features:

Water carriers, especially those in foreign service move higher valued commodities in containers on containerized ships to reduce handling time, to affect intermodal transfer, and to reduce loss and damage.

Ranking of various modes of transportation

Characteristics Rail Air Road Water

Cost 2 4 3 1

Speed 2 1 3 4

Dependability 3 2 1 4

Capability 2 4 1 3

Fuel efficiency 2 4 3 1

Loss or damage

4 2 3 1

1: most desirable; 4: least desirable

Advantages & disadvantages of various modes

Mode Advantage Disadvantage

Rail High capacity Loss or damage in transit

Air Speed High cost

Road Speed & low cost Low capacity

water Low cost Poor dependability

INTERMODAL TRANSPORT

Meaning

The use of at least two different modes in a trip from origin to destination.

Intermodal freight transport involves the

transportation of freight in a container or vehicle, using multiple modes of transportation (rail, ship, and truck). Reduced cost versus over the road trucking is the key benefit for intracontinental use.

For instance a shipment in a container may start on a truck in China, travel in a cargo ship over the Pacific Ocean to a port city in the U.S., then travel by train to the East Coast, finally being delivered by a truck.

Intermodal ship-to-rail transfer of containerized cargos.

An intermodal train carrying both shipping containers and highway semi-trailers.

Components involved in Intermodalism

Intermodal transportation. The movements of passengers or freight from one mode of transport to another, commonly taking place at a terminal specifically designed for such a purpose.

Transmodal transportation. The movements of passengers or freight within the same mode of transport. Although "pure" transmodal transportation rarely exists and an intermodal operation is often required (e.g. ship to dockside to ship), the purpose is to insure continuity within the network.

Intermodal Transportation cost

It implies the consideration of several types of transportation costs for the routing of freight from its origin to its destination, which involves a variety of shipment, transshipment and warehousing activities.

WAREHOUSING

MEANING

A warehouse management system, or a WMS, is a key part of the logistics and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking.

The systems also direct and optimize stock putaway based on real-time information.

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WarehousingWarehousingWarehousing

WarehousingWarehousing is the management of materials while is the management of materials while they are in storage.they are in storage.

Warehousing activities include:Warehousing activities include:

StoringStoring

DispersingDispersing

OrderingOrdering

AccountingAccounting

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WarehousingWarehousingWarehousing

Record keeping within warehousing requires a Record keeping within warehousing requires a stock stock recordrecord for each item that is carried in inventories.for each item that is carried in inventories.

The individual item is called a The individual item is called a stockstock--keeping unitkeeping unit(SKU).(SKU).

Stock records are running accounts that show:Stock records are running accounts that show:

OnOn--hand balancehand balance

Receipts and expected receiptsReceipts and expected receipts

Disbursements, promises, and allocationsDisbursements, promises, and allocations

OBJECTIVE

To provide an application to automatically receive inventory,

To process orders, and To handle returns.

INVENTORY MANAGEMENT

Types of Inventories

Raw materials & purchased parts

Partially completed goods called work in progress

Finished-goods inventories

(manufacturing firms) or merchandise (retail stores)

Functions of Inventory

To meet anticipated demand

To smooth production requirements

To protect against stock-outs

To take advantage of order cycles

To hedge against price increases

To take advantage of quantity discounts

Inventory Management

Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory.

Effective Inventory Management

A system to keep track of inventory

A reliable forecast of demand

Knowledge of lead times

Reasonable estimates of

Holding costs

Ordering costs

Shortage costs

Inventory Counting Systems

Periodic SystemPhysical count of items made at periodic intervals

Perpetual Inventory System System that keeps track of removals from inventory continuously, thus monitoringcurrent levels of each item

Inventory Counting Systems

Two-Bin System - Two containers of inventory; reorder when the first is empty

Universal Bar Code - Bar code printed on a label that hasinformation about the item to which it is attached

0

214800 232087768

ABC Classification System

Classifying inventory according to some measure of importance and allocating control efforts accordingly.

AA - very important

BB - mod. important

CC - least important

Annual $ value of items

AA

BB

CC

High

Low

Few ManyNumber of Items

PACKING AND UNITISATION

Meaning

Packaging is a means of ensuring safe and efficient delivery of goods in an appropriate condition for the consumer or customer.

Activities involved in packaging:-

ProtectionContainmentPresentationSecurity

PerformanceConvenienceComplianceEnvironmentalTransport and storageEconomic

InformDistributionSalesServiceGuarantee

Functions of Packaging:

Containment - to contain the contents and securing it so as to prevent movement within the package during transporting.

Protection - to protect the goods from being damaged during handling, storing and transporting. This is critically important for goods that are high in value like microchips, and fragile goods like glass wares. Example of protection are using of bubble wraps, or cushions to prevent damage from knocking.

Apportionment - to reduce the production output in a size and shape desired by the customer.

Unitization - Consolidate smaller packages into a larger package ad palletized/unitized into a single unit for shipping. This can be frequently seen in manufacturing sectors or in the freight forwarding operations as consolidation could help to reduces freight and handling cost.

Convenience - to provide convenience in terms distribution, handling, display, sale, opening, reclosing, use, and reuse. Ultimately for the convenience of the customer.

Communicationprovide information to the customer, through printing information onto the boxes and it can also help to market its products (as seen below)

SecurityThere is also and increase of using packaging to reduce the security risks. Example of such risks is pilferage. It could be done through use seal that prevents resealing of package, meaning once the package is opened, it could not be resealed.

Types of Packaging

Primary packagingContaining the basic product and reaching theconsumer

Secondary packagingTransport packaging designed to contain a numberof primary packages

Tertiary packagingUsed to assemble a volume of primary or morelikely secondary packages.

Conclusion

By placing packaging and handling systems at the centre of supply chains and recognizing that there are major benefits to managing these at the supply chain level by utilizing concepts such as standardization and re-use, packaging and handling costs can be reduced and systems simplified.

Unitisation

The art of packaging cargo into unit loads.

Meaning

A unit is a certain quantity or volume chosen as a standard. Several units can be combined to one larger unit (e.g. pallet) or divided into smaller sub-units (e.g. consumer packages).

A unit load combines packages or items into a single "unit" of a few thousand kilograms that can be moved easily with simple equipment. A unit load packs tightly into warehouse racks, containers, trucks, and railcars, yet can be easily broken apart at a distribution point, usually a distribution center, whosaler, retail store, etc.

Benefits:

Most consumer and industrial products move through the supply chain in unitized or unit load form for at least part of their distribution cycle.

Unit loads make handling, storage, and distribution more efficient.

They help reduce handling costs and damage by reducing individual handling.

CONTROL AND COMMUNICATION

CONTROL

Monitoring changing conditions with the anticipation that corrective action may be needed to realign actual performance with planned performance.

NEED FOR LOGISTICS CONTROL

It helps to ensure that the goals around which logistics plans were developed are achieve after the plan is put into action.

The dynamics and uncertainties of logistics environment over time can cause deviations from planned process performance.

To keep process performance in line with desired performance objectives .

LOGISTICS CONTROL PROCESS

Corrective action

Monitor comparison by manager, consultant or

computerPerformance

reports

Standards/goals

Process ongoing Supply chain

activities

External & internal forces & changes

Elements of the

control process

Inputs Outputs

SCM activities & customer service levels

Activity cost and customer service

TYPES OF CONTROL SYSTEMS

Open loop control system Closed loop control system Modified control system

OPEN LOOP CONTROL SYSTEM

Corrective action:Adjust supply

Monitor comparison by manager

Reports on cost and service

Service and inventory level

goals

Process Warehouseoperations

Demand

Inputs Outputs

Stock resupply Stock outs and inventory costs

CLOSED LOOP CONTROL SYSTEM

Corrective action:Adjust supply

Decision rule:When L< or= ROP,

Order Q*

Computer report On L

Inventory standards for Q* and ROP

Process Warehouseoperations

Demand, D

Inputs Outputs

Stock resupply, Q Inventory on hand, L

MODIFIED LOOP CONTROL SYSTEM

Corrective action:Stock order on

supplier

Decision rule:When L< or= ROP,

Order Q*

Computer report On L

Inventory standards for Q* and ROP

Process Warehouseoperations

Demand, D

Reports on costs, service, product, promotions,

Production, schedules etc.Manager

Inputs Outputs

Stock resupply, Q Inventory on hand, L,

Stock outs and inventory cots

CONTROL INFORMATION

Total function audit – Evaluation of all personnel, organizational structure and overall network design.

Demand audit – high(new warehouses), small(replanning)

Customer service audit – Checking inventory availability, speed of delivery, order filling speed and accuracy

Logistics costs audit Inventory audit – Checking customer returns,

damaged goods, errors in inventory reports. Freight bill audit – Errors in rate, product description,

weights and routing.

I. AUDITS

II. REGUALR REPORTS

3 key measurement reports Cost-service statement/ profit and loss reports Productivity reports

Logistics cost to sales Activity cost to total logistics cost Logistics cost to industry standard or average Logistics cost to budget Logistics resources budget to actual adjusted for

actual throughput versus forecast activity. Graphic performance charts/ control charts

III. BENCHMARKING TO OTHER FIRMS

Comparing logistics costs Using inventory turnover ratios Ontime delivery statistics Logistics activity costs Comparing customer service

CORRECTIVE ACTION

Minor adjustments – e.g.. Routing, scheduling

Major replanning – e.g.. New warehouse configuration, alterations in order processing procedures, revision of inventory control procedures etc.

Contingency plans – e.g.. Shut down of a warehouse due to fire, transportation labour strikes, drying up of resources of raw materials.

COMMUNICATION

Council of Logistics Management, defines logistics as "that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements."

Meaning

Communication in logistics is concerned with the supply of information to individuals and aims to optimize it by targeted delivery in accordance with requirements in such a way that that the substantively correct and actually necessary information is available where and when it is needed.

This information should be transformed in line with users’ needs, depending on the communication media and users’ preferences, in order to aid custom processing of it.

The Need:

Effective logistics management requires that the actual status of goods and services be communicated in real-time to the various groups of people involved in the logistics process.

This helps logistics service providers to improve their service by keeping a closer watch on inventory and taking the steps necessary to avoid losing customers.

Objective

The goal of communication in logistics is to optimize the content and format of the information, reduce throughput times and achieve a high degree of parallel processing.

The information can be created and reused in a structured manner all along the value creation chain.

Role of IT:

Communication using satellite technology and sophisticated devices makes it possible for the various players involved in the logistics chain of processes to remain in constant communication with one another and with the end customer.

Technology is playing a key role in communication as well as in other processes in the logistics function and helping logistics firms to attain a competitive advantage.

The various types of technology being implemented in logistics activities include Electronic Data Interchange, artificial intelligence, expert systems, communication technology in the form of satellite and wireless communication, and bar coding and scanning.

Assignment

Critically examine a logistics service provider with respect to its various system elements.