role of logistics in scm - class3
DESCRIPTION
logisticsTRANSCRIPT
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Mayuresh Unde
25th August, 2011
Role of Logistics in SCM
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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Simple / Complex Logistics Channel
Supplier RetailerDistribution Centre
Manufacturer ConsumerDistributor
Complex
Simple
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Levels of Optimality
Finance
Marketing
LOGISTICSOther Functions
Production
Suppliers Customers
Environment
Economic
PoliticalSocial
Level 1 Organization
Level 2 Supply Chain
Level 3 Environment
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Logistics in India
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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
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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
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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)
• …
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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,
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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
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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
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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)
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Thank You!
Q & A