Logistics Management

Sarthak Chandra

Logistics (Oxford Advanced Learners Dictionary)

The practical organisation that is needed to make a complicated plan successful when a lot of people & equipment is needed e.g. 1. Logistic support in the army 2. Organising famine relief presents huge problems

i.e. Moving Right People & Right Equipment to the Right Place at the Right Time through the Right Methods.

Why Logistics Management?

To have competitive edge over others

Marketing mix (By McCarthy): Product, Price, Promotion, Place (4 Ps) Past Place was a dark continent in marketing (Peter Drucker, 1992)

Why Logistics Management?

In the past, Distribution was not important. Because of manufacturers monopoly

E.g. 10 years waiting for Padmini Cars. 6 years waiting for Bajaj Scooters

Shift from Sellers Market to Buyers Market Consumers are now Bosses

Why Logistics Management?

Now, any product is available, that too on installment No monopoly now

Business has become more Complex & Dynamic now Vibrant market (Market is time & price sensitive)

Why Logistics Management?

Everyday, everybody is thinking about new market plans Survival of the fittest theory Saying People have your money in their pocket & You have their goods on your shelves

Why Logistics Management?

Push is important than Pull now Question is how you push? To give the best products & services than others To win customers loyalty & goodwill A satisfied customer will remain loyal

Why Logistics Management?

Your weakness is your competitors advantage More business competition & rivalry now
E.g. Fuel efficiency claim by Hero Honda (Now Bajaj claims 102 kmpl) Fuel efficiency & Economy: by Maruti Cars (Tatas have come up with Nano)

Why Logistics Management?

Due to rapid technology transfer Rivals not only copy, they add more features & give more value for your money Now, lower price strategy doesnt work. (Because consumers have enough money)

Why Logistics Management?

Now, Promotion also doesnt work (Because too much advertisements will make the consumers confused and fed up) Hence Place (out of the 4 Ps) is important now

So why Logistics Management?

Complicated business scenario Rapid economic boom Globalisation Liberalisation Intelligent consumers

So why Logistics Management?

Heavy Industrialisation Scientific innovations Hence for more customer satisfaction now To be customer focused

So why Logistics Management?

Quick delivery & after sales service (24 hrs) Hence the need of Logistics Management

Nature & Concept of Logistics Management

Logistics from Greek word Logisticos meaning science of computing and calculating
First used in military sense (Logistical Support) (World War II & other wars)

Nature & Concept of Logistics Management

Webster (1963) defines Logistics as: The procurement, maintenance & transportation of military materials, facilities & personnel US Airforce (1981) defines: The science of planning out movement & maintenance of forces

the

Nature & Concept of Logistics Management

CLM(Council of Logistics Management (1991) defines:
Logistics is the process of planning, implementing & controlling of efficient, effective flow & storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to the customer expectations

Strategic Logistic Management includes 4 steps

Corporate vision & objectives To turn it into winning edges over others
Strategic logistics analysis (i.e. finding alternatives, evaluation, selection etc.) Logistics planning & evaluation Managing change

Various Decisions in Logistics Management

Product Design
E.g.
Plastic moulded water tanks Fully assembled automobiles Transportation of huge machinery
(H & R Johnson)

Containers capacity and storage

Various Decisions in Logistics Management

Plant Location
Choice of sources/ markets

Production structure & planning

Distribution/ Dealer network design Warehouse location/ operations Plant layout

Various Decisions in Logistics Management

Allocation decisions
Inventory management/ stock levels

Transportation models/ Routing/ Capacity

E.g. Cement Transportation (wagon shortage) change in packaging (Jute, plastic)

Packaging

Various Decisions in Logistics Management

Material Handling
Storage problems in monsoons

Plant/ warehouse near port/ Airport

Nearness of dealers to factory/ warehouses

Various Agencies involved

Shippers
Suppliers
Carriers (Rail, Road, Air etc) Warehouse providers/ Freight forwarders Terminal operators (port, stevedores)

Government (Regulations & logistics)

Role CST, local sales tax, excise, octroi, modvat, road tax on vehicles

Other factors

Inbound Logistics (Raw Materials)

Outbound Logistics (Finished Products)

Single v/s Multiple plants

Nature of the products e.g. various dimensions

- Bulk, perishable, non-perishable, refrigerated, non-durable, industrial v/s consumer products, packaged products (Fruits/ Vegetable exports)

Logistics & Infrastructure (in India)

Includes goods transportation & storage

Material handling & Information structure

We do mostly by road & rail

Pipeline is growing

Waterways unexplored
Air for emergency only

How to develop an ideal Logistics Organisation?

Organisation to be horizontal Organisation to be market facing/ market driven (Output focused)

Organisation to work together

Organisation to have cross functional teams This is Flat Organisation system To have customer order fulfillment system

How to improve customer order management system (i.e. order fulfillmen system)?

By eliminating non-value added items e.g. delays in paperwork, idle times in transportation, storage, checking etc. Better management of order fulfillment groups like sales office people, accounting, Cr. control, transport department etc.

Logistics in Short

Reaching Right Quantity with the at the Right Quality Right Price

at the
at the

Right Place
Right Time

to the
with the

Right People
Right Mode (of transportation)

The Marketing Logistics & Interface

Interface means Connections

Marketing is the management of 4Ps (Product, Price, Promotion, Place) Right product, .Right Place etc. The competitive edge to be customer service

The Marketing Logistics and Interface

Customer awareness of Rights

Customers are too much demanding. Customers know what is in the market No brand image will work out. Neither the price, nor the quality
E.g. Computer market

Now it is product availability & service (Product Sector)

The Marketing Logistics and Interface

Service in non-manufacturing is equally important now (Service Industry)

Service is an added value now

Financial loss due to out-of-stock scenario

The Marketing Logistics and Interface

Marketing is inter-related with Logistics & Customer Service

The concept of Customer Retention
i.e. A satisfactory customer will remain loyal

Will also get references

The Marketing Logistics and Interface

To sell & to service a loyal customer is less costly

A loyal customer may not think of substitutes This is Relationship Marketing

To create & sustain & strengthen customer loyalty & relationship

The Marketing Logistics and Interface

Procurement & manufacturing management have to be market oriented, need oriented.

This is Logistics Pipeline Management

Logistics interface with Production

Not to produce at any cost Inventory tied up is money tied up To produce the right product Production schedule through better planning management

Production to be market oriented

Logistics interface with Production

Procurement of raw materials requires planning, lead time, mode of transportation, time, cost Co-ordination between production and other departments
i.e. Logistics the whole concept

Models in Logistics Managemen

These are Quantitative models from operations research
1.

Forecasting Models
Demand and Supply based on past data

2.

Mathematical Programme Model

a) Location Model

i.e. planning optimal & ideal location of plant & warehouses, both for inbound and outbound To minimize Transportation cost

Models in Logistics Managemen

b) Allocation Models

i.e. optimal allocation of commodities from sources to destinations with a vast & multidimensional network e.g. a company with 15 plants & 30 warehouses

c) Distribution Network Design Model

Involves location of warehouses & break bulk points, choice of transportation modes Distribution costs include transportation, ware housing, handling, inventory

Models in Logistics Managemen

3. Inventory Models

Costs on buffer stock keeping for uncertainties Shipment & inventories of Finished products, its warehousing & retailing Pipeline inventory
i.e. routing of transportation network to destinations The simplest model is called the shortest path problem e.g. Critical path method in Operations Research Can be done by using geographical maps

4. Routing Models

Inventory Management Decisions

JIT (Just In Time) is a Japanese philosophy

i.e. nothing is produced/ moved until the need arises

Produces against advance firm order (Pull)

Push is in anticipation of the demand

In pull, product flow is based on demand

Distribution Structures & Systems

What is distribution? Right goods, Right Place etc

Systems in common
a) Industrial Products
Company Customer

b) Automobile
Company Dealer Customer

c) FMCG & Pharma

Company C&F Stockists Retailers Customers

Systems in common
d) FMCG
Company Distributors Wholesalers Retailers Customers

e) FMCG
Company Depot Stockists Retailers Customers

f) Consumer durables
Company Own Retail Outlet Franchised showroom Customers

Systems in common
g) Food grain, garments
Company CA Wholesalers Retailers Customers

Note:- To have warehouse or not?

Direct Distribution System (DDS)

i.e. Company Consumers (No Intermediary)

e.g. Industrial products & services sectors, where the unit value of the product is very high, product technicality & product complexity

Direct Distribution System (DDS)

To have its
Own sales force
Own retail outlets

Direct Mailing
Telemarketing

Websites

Direct Distribution System (DDS)

Personal Selling
To have trained sales force Sales force locates customers E.g. Insurance sector, Eureka Forbes

Telemarketing
Through Telephone calls Positive is, reduced selling costs

Direct Distribution System (DDS)

Direct Mailing
Sending detailed brochures to prospective customers

Is a silent sales
Negative is, poor response Firms to have the right & vast data bank

Indirect Distribution System (IDS)

One-tier Distribution system

i.e. Company Distributors Customers (only 1 intermediary) positive is, minimum distribution costs, maximum control e.g. Maruti Sitaram Customer

Indirect Distribution System (IDS)

Two-tier Distribution system

E.g. Company Wholesaler Retailer Customer

Multi-tier Distribution system

E.g. FMCG Firms

Multi Channel System (MCS)

i.e. by adopting more than one channel system to reach to customers

e.g. Auto component Manufacturers & HLL

Company Customers
Company Wholesalers Customers Company Retailers Customers

Multi Channel System (MCS)

Manufacturing firms prefer MCS for greater marketing coverage & penetration Drawback: Rivalry & competition among agents in MCS resulting into unethical selling & loosing Corporate image

Managing MCS

MCS is complex & expensive, but effective & profitable if managed well Channel conflict may lead to loosing business opportunities

Hindustan Lever Ltd. (HLL Scenario)

(Quote from M S Banga, Chairman, HLL (FMCG) AGM 2004 Speech)

To touch customers in multiple ways

To create brand messages & to experience our brands To offer tailored solutions to customers now
Now shopping is a new experience
E.g. Family and children taking leisure time

Now consumers are well informed through advertisements

(Average 350 to 400 Ads/ week)

Redistribution partners are important to HLL HLL has 25000 outlets in key cities in India They do superior display of HLL products

HLL introduced self service stores in India

e.g. HLL in Hyderabad Reliance Super Stores

Advantage is consumers can Touch & Feel HLL Sunsilk shampoo wash in stores The key factor is product availability

There are 600,000 villages in India in the most remotest places HLL creates win-win partnership with consumers e.g. Surf Ad HLLs plan is to reach to 100,000 villages = 100 million people (rural)

New self help women group sell HLL products directly to the rural people They also spread the message of health & hygiene
e.g. Lifebuoy for health

HLL Network

Now doing direct selling, generating Rs. 2300/- Crores & growing at 20% pa Also provides customised offerings covering 11 categories in Home & personal care & foods HLL has network of over 1500 towns in India covering 80% of urban population, with 250,000 consultants

HLL Network

Direct selling enables personalised communication & customized solutions, through demonstrations & product trials & brand experience

Out of Home

Eating outside in European style

Now in India, due to busy family life and nucleus family

HLL adopts 3 ways

Product availability Brand Communication Brand experience

HLL re-inventing their distribution network HLL distribution creates new employments

HLL has 7000 stockists, 6000 substockists, employs 60,000 people