Module 6 Sdm

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    Module 6

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    Logistics

    A network involved in the actual

    transportation of goods and services from

    the place of manufacturing to the place of

    consumption.

    Ensures the delivery of right product at the

    right place at the right time in the right

    quantity.

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    In normal usage logistics in concerned

    with entire supply chain, from raw material

    procurement stage to the delivery of

    finished goods.

    designing and managing a system that

    controls the flow of materials into, through,

    and out of the organization

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    Logistics

    Process of planning, implementing and

    controlling the efficient, cost effective flow

    and storage of raw material, in-process

    inventory, finished goods, and related

    information from the point to origin to the

    point of consumption for the purpose of

    conforming to customer requirements.

    Council of Logistics Management

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    The process of managing and controlling

    the flow of goods and services from the

    source of production to the marketplace.

    It involves the integration of

    transportation,

    inventory,

    warehousing,

    material handling,

    packaging.

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    In business, logistics may have

    internal focus (inbound logistics),

    external focus (outbound logistics)

    An estimated 40% of the final cost that acustomer pays is absorbed by logistical

    activities in FMCG sector.

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    Logistics management

    Conventionally defined as the process of

    ensuring the delivery of the right product at

    the right place at the right time in the right

    quantities

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    Objectives of logistics

    Logistics strategy mainly has 3objectives

    Cost Reduction

    Minimize level of investment

    Service improvement

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    Key Logistical Activities

    Better Customer Service

    Facilitates Demand Forecasting

    Inventory Control Materials Handling

    Warehouse Site location

    Procurement Packaging

    Reverse Logistics

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    Logistics Planning

    The purpose is to balance the activitylevels of all the components of logistical

    system.

    So that they dont work at cross purpose inthe process of achieving their respective

    objectives.Objective Reduce

    inventoryWarehouse Frequent small

    quantities

    Transportation

    Objective

    Reduce cost Postpone

    dispatch

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    According to Simchi Levi, basic types of

    outbound logistics strategies are:

    Direct Shipment

    Warehousing

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    Customer

    Service

    Goals

    Inventory

    Management

    Transportation

    Decisions

    Location Decision

    Logistical Decision Making

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    Warehousing Decisions

    Logistical system needs some permanent

    facility for storing and supplying goods to

    the end consumer.

    A warehouse is a commercial building for

    storage of goods.

    Warehouse are locations where the

    inventory is received, stored and shipped

    out according to the demand.

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    Why Warehouse???

    Support better customer service

    Maintain source of supply without interruptions

    Overcome time and space difference

    Efficient recording which helps in detecting outof stock products.

    Point of allocation (bulk breaking).

    Prevent damage. Helps in achieving economies of scale in

    transportation. (Large quantities can be shipped

    at same time).

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    Main function of Warehousing

    MovementReceivingTransferring

    Shipping

    Storage

    InformationTransferInventory level

    Order fulfillment

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    Warehousing Location

    Strategies Market Positioned:

    Located nearest to the final customer

    Production Positioned

    Located close to production facility

    Intermediately Positioned:

    Mid locations between final customer and

    producer.

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    Warehouse selection factors

    Location of major markets

    Nature of product

    Potential for expansion Local tax structure

    Cost of availability of utilities

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    Major Decisions

    Location of warehouse Proper location leads to better customer

    service at less cost

    Improperly located warehouse leads tohigher lead times and high transportation

    cost.

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    Number of Warehouses

    Factors considered:

    Cost of lost sales

    Stock out cost when a customers order is

    not fulfilled due to lack of availability of

    stock within permissible waiting time.

    Inventory cost

    Cost incurred on procuring and holding

    inventory

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    Transportation Cost

    Warehousing Cost Renting, Leasing or owning

    Maintenance

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    Transportation Decisions

    An activity that moves products to markets

    that are geographically disparate.

    Provides time and place utility by taking

    the products nearer to the point of

    consumption.

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    Transportation

    The major decisions involve:

    Mode selection

    Vehicle routing and scheduling (Best path a

    vehicle should travel through)

    Shipment consolidation

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    Mode Selection

    Different modes: Air

    Rail

    Water Road (Major mode, nearly 65% in India)

    Pipeline

    Major factors considered are: Cost

    Dependability

    Possibility of loss and damage

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    Inventory

    Inventory-A physical resource that a firm

    holds in stock with the intent of selling it or

    transforming it into a more valuable state.

    Inventory System- A set of policies and

    controls that monitors levels of inventory

    and determines what levels should be

    maintained, when stock should be

    replenished, and how large orders should

    be

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    Inventory pile up may lead to damage.

    Not possible to reduce because:

    It is difficult to precisely forecast demand. May lead to poor customer service.

    Thus the focus remains on maintaining

    optimum levels of inventory. Emergence of concepts like JIT, ECR

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    Reducing amounts of raw materials andpurchased parts and subassemblies byhaving suppliers deliver them directly.

    Reducing the amount of works-in processby using just-in-time production.

    Reducing the amount of finished goods byshipping to markets as soon as possible.

    Zero Inventory?

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    Why Inventories?

    Improves customer service. (demandfluctuations)

    Reduces cost (discounts from

    suppliers, reduce transportation cost). Unplanned shocks (labor strikes, natural

    disasters, surges in demand, etc.)

    Economies of Purchasing

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    Cost associated with inventory

    Inventory procurement costShipping

    Handling

    Inventory carrying cost Inventory service cost

    Storage space cost

    Inventory risk cost Stock out cost

    Cost of lost sale

    Back order cost( delayed purchase)

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    Inventory level decisions

    Push or Pull Strategy

    Inventory Replenishment Point

    Reorder Quantity (EOQ)Order Timing (Reorder Point)

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    Push v/s Pull Inventory

    Control

    Push Strategy:

    Inventory management is centralized.

    Forecasting done at central level E.g. FMCG companies

    Not capable enough of reacting to market

    changes.

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    Pull Strategy

    Bottom up approach

    Decentralized forecasting

    Warehouses and other storage pointscalculate their inventory requirements.

    Helps in reducing inventory.

    Production coordinated with demandrather than forecast.

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    Order Quantity Decisions

    Quantity of reordering so that inventory is

    replenished at most ideal rate.

    Ideal stock is maintained when there is

    neither stock out nor inventory pile up.

    Calculated by Economic Order Quantity

    (EOQ) formula

    Major consideration of formula is to reduce

    total cost of inventory.

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    EOQ that minimizes TC is given by

    Q = 2DS/IC

    Where;

    D= Demand

    S= Ordering Cost IC = Inventory Carrying Cost

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    Reorder Point

    Quantity to which inventory is allowed to

    drop before replenishment order is made

    Need to order EOQ at the Reorder Point:

    ROP = D X LTD = Demand rate per period

    LT = lead time in periods