UNIT 4 LOGISTICS - INBOUND AND OUTBOUND

Objectives

After reading this unit you would be able to:

• define Logistics;
• describe the facets of Logistics i.e. Transportation & Warehousing;
• portray Logistics as a key to supply chain management;
• discuss about Inbound & Outbound Logistics; and
• describe Logistics from supplier to manufacturer & manufacturer to consumers.

Structure
4.1 Introduction
4.2 Logistics: Definition
4.3 What is Supply Chain Management (SCM)?
4.4 Design and Management of SCM
4.5 Logistics: Inbound and Outbound
4.5.1 Suppliers to Manufacturers
4.5.2 Manufacturers to Consumers
4.6 Logistics Management
4.7 Integrating Logistics
4.8 Perspectives in Logistics
4.9 Summary
4.10 Self Assessment Questions
4.11 References and Suggested Further Readings

4.1 INTRODUCTION

The role of logistics has for long been perceived by many senior managers and chief
executives, as nothing more than getting the right product at the right place in time
and within costs. However, in recent times to be successful logisticians a wider
perspective has to be developed with due consideration to the strategic role played by
logistic management in an organization. Strategic management of acquisitions,
movement, storage of raw materials, production and shipment to delivery to end-users
are some of the significant tasks of logistics management. Cost-effectiveness and
speed are the inherent requirements to make the operation a successful one.

Logistics is a very intricate yet a very simple subject to learn about, but a very
complicated subject in case the channels of logistics are not in place and not
integrated. Logistics per se, require a lot of coordination and integration at the highest
and the lowest of levels. Rightly said, a logisticians phone never stops ringing, he
moves from crisis to crisis, and from one criticality to another.

4.2 LOGISTICS: DEFINITION

We will begin with an illustration. Take the case of a small time businessman who
manufactured and marketed jam, those were the days when it had only a few brands
to reckon with. It entailed traveling long distances from Calcutta (now Kolkata) to the
remotest parts of Bengal & Bihar (some areas of Jharkhand). The load used to be 5

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Design and Management of huddled up at the rear (body of the vehicle) neatly packed in bright colored cardboard
SCM packages. The manufacturer processed the guavas/mangoes/pine-apple etc into a
jelly like substance, bottled them carefully under his eyes, sealed them with molten
wax (that was the practice those days), labeled them, packed them into neat
containers careful enough to prevent breakages, marked them for the consignor and
dispatched them to their destination. The surplus were sent to a badly lit room and
stacked neatly by placing bricks under the packages to prevent against damp. You
must have observed how meticulous he was and so concerned about his products.

One must admit here that one learn logistics in a very practical way. Right from the
time you used your tri-cycle to lug the loads your friends carried. When you played as
children, unknowingly, stacking your belongings neatly and carefully, inadvertently,
and later delivered them to another friend and took a few marbles in return of those
proud possessions. Till date one is doing almost the same thing; mobilizing men,
material, equipment and supplies over long distances across the length and breadth of
this country, and stocking them for a further use. That is what is logistics in short.

Coming to the proper definition, the term logistics could be used to cover all aspects
of movement, storages of material and to deliver the material to the user. For a
manager the definition would mean involving movement of goods both in the inbound
and outbound sides. It is responsible for both incoming goods and distribution of goods
to the next member of the supply chain and to the end consumer per se. In almost all
cases, the logisticians design and manage the company’s distribution system, which
consists of warehouses, distribution points and transport systems. Logistics can play a
major role in shaping and determining the nature of the overall corporate response to
exploit market opportunities (Deshmukh & Mohanty, 2004). Marketing forecasts
precede exploration of market opportunities, since, overall potential of the market,
customer profiles, price/volume combinations and resellers profile is to be identified
before the best suited infrastructure is utilized to maximize the opportunities available.
A logistic activity enables a broader view that has to be undertaken on how the
available opportunity can at best be approached. This would further enable the
management to review the number of production options available whether it is
manufacturing of components, assembly operations or a combination approach. The
important characteristics of this decision process concern the relationship between
fixed and variable costs ab-initio and also through the product life cycle. This will
require a view of the markets, the response of the product competitors and an
assessment of market risk.

Logistics can make or break a company. How? Once a logistics decision is taken, the
implications of that will be, high level of services in terms of product availability and
delivery. Failure of logistics will affect your company repute and overall affect the
market share. Therefore, in a nutshell one has to understand the importance of
logistics and its related decision, since it’s the key to effective supply chain
management, and also the first step towards building a strong market position.

Let us see this through an illustration fig 4.1:

Once you have generally understood the basics of logistics we can now inch forward
to the intricacies involved in making this logistics happen and what helps in a
successful logistics activity. Like in the army it is said that no war can be won without
the foresight and planning of an expert logisticians. A soldier can fight a battle in the
adverse of conditions, only when, the logistician ensures timely supply of stores, ration
and ammunition in all weather and terrain conditions. The two major aspects of
logistics are transporting and warehousing, without which logistics is seriously
affected.

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 Logistics : Inbound and
Outbound
DIRECT

OUTLETS
MOVE OF RAW
MATERIALS BY DIFFERENT MODES OF TRANSPORT

PRODUCT WAREHOUSING CONSUMERS

IN-DIRECT
PROCESSING & STORAGE

MOVE OF RAW BY DIFFERENT MODES OF TRANSPORT

MATERIALS
OUTLETS

Fig 4.1: Basic Block Diagram to Understand Logistics

Transportation

Transportation happens to be the most fundamental part of strategic logistic

management. Transport costs include all costs associated with movement of products
from one location to another. The average transport costs ranges from 5 to 6% of the
recommended retail price of the product.

Transportation is the movement of products, materials and services from one area to
another, both inbound and outbound. It can also be said as movement from one node
of the supply chain to the other. As Deshmukh and Mohanty (2004) says, “ by
providing for the swift and uninterrupted flow of products back and forth through the
chain, transportation provides a sort of lubrication to run the chain smoothly. It also
permits deeper penetration of newer markets far from the point of production.”1
Therefore, in order to effectively manage this transportation system the first step
would be to establish a cost effective transportation mode. In other words highest
customer service in lowest price, leads to company growth (Fig 4.2).

40

35
COMPANY GROWTH
30
TRANSPORTATION SYSTEM
25 CUSTOMER
COST SATISFACTION
20

15
PRODUCT
10
PRICE LEVEL COMPANY OPTIMUM
05 EXPANSION

00 05 10 15 20 25 30 35 40

Fig 4.2 Transportation Cost Factor and it’s bearing on the Company and Customer

1
Mohanty & Deshmukh in Essentials of Supply chain Management, chapter 7, pp. 118-119.
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Design and Management of Where, numerical 40 is a variable factor representing the optimum level in terms of
SCM costs & growth in X & Y axis. With the transportation costs coming down from 40 to
30 the product costs lowers to even between 10 and 5, which is directly proportional
to the customer satisfaction, which rises to 30 to 35 and affects company growth
to 40.

Transportation system has a strategic bearing on operation of a company. Therefore,

failure to identify the best transportation mode can directly affect the growth of a
company. Higher transport costs will raise prices, which will directly affect the
customer satisfaction in a negative way. The three factors as mentioned by Gattoma
& Walters required to consider are:
• Customer
• Environment

• Product & company.

Organization, which involves physical movement of goods require transport services

that varies from mode to mode. The best suitable mode is required to be identified
depending upon the nature of product that has to be moved.Therefore, in order to
identify the right transport system the following have to be considered:
• Impact of the transport system on the supply chain.
• Factors that determine the choice of transport mode.
• Who are the customers to your product per se?
• What are the environmental factors?
• What is the product?
• What is your company profile?
• Feedback and reporting both from within and the environment on the choice of
transport, and rectify in case you went wrong the first time.
• Your foresight, flexibility & integration of available resources in planning stage
will be one of the crucial factors that will dictate the choice of transport.
Next we have to see as to what are the considerations that influence transportation?2
Considerations Influencing Transportation
• Customer Communications: in order to obviate delays in transportation and
handling of logistics both the suppliers and distributors are relying more and
more on electronic transfer systems, IT & the internet. This will help in
considerable reduction in time delays and effect better cooperation between the
chains.
• Market Coverage: transportation costs influence the size of markets covered
in a big way. The characteristics are: costs, flexibility, reliability and availability.
The product per se will influence the economics of the decision. A low volume
and high value product will be able to support higher costs, which means
extended delivery distances and increase in delivery frequency.
• Sourcing Decisions: the geographical dimension of the source markets can be
influenced by low cost transportation system, i.e. ‘reliable bulk freight services
could extend the source markets,’ says Mohanty & Deshmukh. Companies
therefore have to consider a trade off between price & quality and the costs
involved in delivering to the processing point, i.e. volume & cost of
transportation.

2
Mohanty & Deshmukh in Essentials of SCM, chapter on Transportation in SCM, pp. 119-121.
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• Manufacturing Operations: cost of transporting has a direct bearing on the Logistics : Inbound and
location of the manufacturing market center. That is why, extraction based units Outbound
are close to the source of raw materials and the products related to customer
satisfaction are closer home, i.e. near to the customer hub center.

• Pricing Decision: transportation happens to be the important component of

product costs. Therefore, selection of the appropriate transportation mode will
have a direct bearing on the product costs per se, with more relevance to
exports. Increase in transportation costs increases the product pricing.

• Customer Service Decisions: both customer service policy and transportation

decisions go hand in hand and hence one cannot be considered in isolation of the
other. Moreover, the type of market will also dictate the decision and will vary
considerably. Therefore, its pertinent to overrule the cost factor while servicing
the medical customers, since speed is more important than cost in selecting the
transport mode.
An Effective Selection System
Transport selection can effectively be resolved by adhering to the five stages of
selection framework:3
• Stage I: identification of those factors affecting the choice of transport selection.
• Stage II: categorize the significant factors and identify the potential risks.
• Stage III: determination of the distribution network depending upon the number
and size of the depots.
• Stage IV: application of matrix analysis for selecting the right transport.
• Stage V: measure and monitor costs continuously.
A Decision Framework

Determining an organization’s transport requirement will be based on the following

underlying considerations:
• The available depots, their sizes including movement requirements of raw
materials to manufacturing units and finished products to the warehouses and on
to the consumers.
• The best choice of mode available depending on the distance involved.
• Product characteristics that will further dictate the type of transport mode to be
employed.
• The choice of equipment in terms of type of transport for each requirement.
• The financial option that could be employed in terms of individual type of
equipment.
• The operation needs in terms of usage of the equipment for maximum utilization
and minimum operational costs.
From the above its evident that transportation is one of the important facets of
logistics and equally important in the process of SCM, because they impact the
customer services and other areas of cost. These decisions are prominent within the
purview of company logistics decisions due to the factor of trade off potential that
exists between alternative modes of transportation and other logistics functions within
the firm. Therefore, an understanding of costs and benefits of alternative transport
modes, together with an in-depth evaluation of overall corporate implications is
mandatory. Transportation costs will always have a direct bearing on the product
3
Deshmukh & Mohanty in Essentials of SCM, pp130-131.
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Design and Management of costs, i.e. increased transport costs will have risen prices and vice versa. Therefore,
SCM appropriate selection of the right transport mode is necessary for optimum customer
satisfaction and for a balanced logistics system of the firm.

Warehousing: This happens to be the other important facet of logistics chain and
works side-by-side with transportation. It is that segment of logistics function that
deals with storage and handling of inventories starting from supplier receipt to
consumption point. The management of this includes the maintenance of accurate
and timely information relating to inventory status, location and disbursement. Factors
influencing the warehousing decisions are:
• Type of distribution.
• Value of the firm.
• Quantity and potential for obsolescence.
• Competitiveness.
• Economic condition.
Warehousing perform a variety of roles as mentioned below:
• Material handling. It consists of receiving, storing and shipping.
• Storage. This maximizes customer services by improving product and location
positioning.
• Transfer of information. This ensures timely and accurate information on
inventory status, space utilization, equipment and manpower availability and
transport capacity.
In order to develop an effective warehousing strategy the following areas have to be
addressed:
• Documentation of existing warehouses operations.
• Documentation of the storage facilities and put forth requirements over the
planning horizon.
• Identify the shortfalls within the warehouses that are available including the
deficiencies.
• Alternate warehousing plans to meet contingencies in strategy.
• Selection of the best alternative.
• Update the warehouse strategic plan.
With that as a backdrop to our study let us see the design and management of Supply
Chain Management, since logistics happens to be the key of SCM.

4.3 WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)?

A simple definition would be; an integrated, synchronized and a closely knitted chain
which links all the supply interacting organization in a two way communication system
in order to maintain a high quality of inventory in the most effective manner.
Managers at all levels should understand this, since this is related closely to world-
class supply management. It can also be defined as:
• An integrated system that helps in managing the flow of distribution channel
from supplier to the consumers.
• SCM is a systematic method designed to manage the flow of information,
materials and services both inbound and outbound, i.e. from the supplier to
10 manufacturer to the end customers.

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• It’s a strategic coordination of all the related business functions within a Logistics : Inbound and
particular firm and across businesses within the supply chain, in order to improve Outbound
performance of the individual companies and of the supply chain.
• It is associated with all the activities encompassing the upward and downward
movement of goods and materials from the nascent stage to the production
stage and to the consumer. SCM is integrating these activities under one control
for better management and for attaining substantial and sustainable advantage.
It can be better achieved through better coordination and relationship.
• It’s a concerted effort of all in the channel to develop, design, manage and
implement value added services towards ultimate customer satisfaction.
Integrating men, technology, information, finances and material under one roof is
the ultimate aim of this SCM system.
These varied definitions placed above are to guide you to understand the concept of
SCM better and can be used as per individual perception. The common factor to all
this is one has to go beyond the realms of traditional functioning to include and
integrate external entities to include customers and suppliers.
For better assimilation let us put it across this way.
The Chocolate Way
You manufacture a particular brand of chocolate, a popular one with all age groups.
Now, in order to make your product responsive and hold fast into the competitive
market you got to maintain a close link with suppliers who will provide the best milk

COMPANY MANAGEMENT
SUPPLIERS PRODUCT DESIGNER

PRODUCT MANAGER
MILK

SUGAR MANUFACTURER
WORK FORCE
COCOA TRANSPORT
SYSTEM PROCESSING
BUTTER FAT UNIT

SALT
FINISHED PRODUCT
CHOCOLATES
LABELLERS

TRANSPORT SYSTEM
PRICING
CONTROL
WAREHOUSES
STOCKISTS

TRANSPORT SYSTEM

DISTRIBUTORS DISTRIBUTORS DISTRIBUTORS

CONSUMERS CONSUMERS CONSUMERS

Fig. 4.3 : A Layout of An Ideal Processing Unit Explaining the Supply Chain 11

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Design and Management of for your money, the best coca powder for the flavor, an efficient product manager
SCM with an equally trained staff who will design and manufacture what the market
requires, an effective marketing system and above all the vendor who will carry it
and distribute it to my consumers. This is your supply chain and managing this to
maintain a high quality at all times is called the supply chain management.
It is a linkage, so designed, that one cannot function with out the other and all have to
function in close unison and you, as the entrepreneur has to ensure this. It involves a
well conceived strategic planning and long-term tactical orientation, and there is a
world of difference between practicing and preaching.

A few flow diagrams have been placed for your better understanding. Once you
have understood this part of the unit the associated and related matters to supply
chain will follow suit, (figure 4.3).

Activity 1

Visit a nearby industry and understand the SCM system being followed in that
organization and co-relate the same with what you have learnt theoretically.
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4.4 DESIGN AND MANAGEMENT OF SCM

Internal functions and external suppliers constitute a company’s supply system, which
are involved in identification and fulfillment of requirement for equipment, materials
and key services in an optimized manner. Supply management is the foundation to
successful supply chain management. It can create a tremendous impact on any
company’s bottom line more than any other business function. In case the supply
chain is not positively been addressed there is bound to be problems in the firm.
Integration of these services and managing them under one head is therefore the key
to an effective supply chain system in the organization.

The principle phases of supply chain management are:

• What are the requirements and its generation?
• Sourcing
• Pricing
• Post-award activities
These phases are all interrelated and interdependent and cannot function in isolation.
The generation of requirement phase is the most important of all the phases, since;
almost 85% of the cost of materials, services and equipment is designed during this
phase. However, the irony is that supply management is not a contributor to this
phase in particular but assumes greater role for the next three phases, i.e. sourcing,
pricing and post award activities4 .

1
World Class Supply management by Burt, Dobler & Starling Tata Mc Graw-Hill page 2.
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Let us now see the four phases of supply management and how best can this be Logistics : Inbound and
obtained by interfacing each one of them with the other. Outbound

Generation of Requirements
As an entrepreneur what is your requirement, and how do you get them? It is a
question that is continuously lingering in the minds of all managers involved with this.
It is a critical activity that terminates in identifying the right and the best material
along with development of specifications and statements of work that describe these
requirements. The exodus of materials, services and equipments are ‘designed in’
during this particular phase5 , to the tune of almost 85%. Therefore in order to ensure
appropriate consideration to the services, raw materials and costs per se, supply
management should be involved right from the word go during generation of
requirement phase.

Sourcing

When one decides to go shopping just try and visualize what all plays up in one’s
mind? Say, you have to buy a Music System for example. Then what? The mental
appreciation quickly says thems following:
• Budget: How much money can you spend on a system?
• Brand: Which is the best brand available in the market for the budget you have?
• Availability: Is it readily available too?
• Services: In case it is available how are its after sales services?
• Final selection: What is the best that suits all the above?
That is exactly the appreciation one got to do before sourcing. Identifying and
selection of the best supplier available in the market, whose costs, materials,
dependability, quality and services suits the manufacturers requirements. Sourcing is
development of a supply alliance, and it is an activity by itself.6
Pricing
It’s a two way traffic aimed both at the supplier and the manufacturer. It’s done in
such a way that it benefits the supplier for its effort and also results in lowest cost for
the firm who buys the supplies. Keeping in mind inflationary trends, pricing forms
part of the on-going process in supply management with inbuilt negotiations, to arrive
at the best deal possible. If the supplies are costly the price of the commodity also
rises. Therefore, in order to strike a balance the job of supply management is to
continuously monitor this aspect so as to keep the prices from rising. For example,
when the prices of diesel goes up, the transportation cost increases leading to
increase in prices of supply. Foresight and planning on the part of the manufacturer
plays a leading role in assessing and reacting to such eventualities in a big way.
Post pricing
This is another important phase which ensures that the firm receives what it
demanded, and that too timely. It also ensures that the prices are in check and that
quality is being maintained. This also includes supplier developments, criticalities
management, technical assistance and management of the complete contract.

That is what are the principal phases of supply chain management (SCM). All the
sub phases are inter-related and managed under one head the SCM systems. Let us
see this more closely with this block diagram.

5
“Manufacturing by Design” by D Whitney, Harvard Business Review, July 1988, pp. 83-91
6
‘The Foundation’, chapter 1 of WCSM, by Burt, pp. 16. 13

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Design and Management of
SCM
GENERATION OF REQUIREMENT SOURCING

MATERIALS SERVICES COSTS

QUALITY TIME
STATEMENTS OF WORK SPECIFICATIONS
TECHNOLOGY

POST-PRICING PRICING

QUALITY LOWEST COST TO FIRM APPROPRIATE COST TO SUPPLIER

QUANTITY

TIMELY PRICE CONTROL

Fig 4.4: The Principles and Phases of SCM

4.5 LOGISTICS : INBOUND AND OUTBOUND

Let us now take a closer look at the logistics both inbound and outbound. Let me
tell you this is the most intricate part of the system of SCM. If your goods don’t
reach in time and they are of inferior quality you as an entrepreneur earn a bad
name too. So why give the consumer a chance? Plan it in a way that you
ensure both quality and quantity in a reasonable time frame. Take for example
7 days trucker’s strike in 2004. It was bad for economy of the country and
above all worse for those manufacturer’s who couldn’t deliver goods on time. A
strike or a bandh as we call it in India is a happy situation for the fleet owners
but a bad time for the drivers, mill owners, small timers, labourer, suppliers,
manufacturers and the consumers. That is the reason contingency planning plays
a predominant role in shaping our SCM system. How, let us see.

4.5.1 Suppliers to Manufacturers

The most complicated, yet, the most important phase in any production is the
movement of raw materials from the supply point by the suppliers to the
manufacturing unit. Identification of the right type of suppliers is therefore the
key to effective SCM system.

Can you envisage the various agencies and steps that are involved in this total
system? Let us see them one by one.
• What is the raw material that has to be moved?
• What is the cheapest and the best available with the suppliers?
• Where is it available?
• What are the credentials of the supplier?
• What is the mode of transport being utilized for the move?

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• Is it cost effective?

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• What is the time factor involved in the movement? Logistics : Inbound and
Outbound
• Does weather and climate play a predominant role in moving the raw
material?
• What are the terrain conditions in the areas from where it has to be
moved?
• What is the distance involved?
• Is it of acceptable quality?
All these have to be addressed before one plans for movement of these raw
materials, that too in great detail. That is what is an effective SCM system to be
followed by every firm. Let us see this with an illustration.
An Illustration
A material ‘X’ has to move from Bihar, which is famous for lot of ores and raw
materials responsible in shaping our products. Let me be more specific in saying
so. Some minerals from Sasaram have to be moved to Surat in Gujarat for
making some product ‘Y’. The road distance works out close to approximately
1600 kilometers, quite a lot as per Indian standards. A truck loaded with X
leaves Sasaram on D-day (where D is 1). As per Indian road conditions it could
take anything between 3 to 4 days for the material to reach. Therefore the total
time works out to D+3/D+4, i.e. 4th/5th day the truck will reach Surat. Unloading
time ½ a day, running time works out to 4 ½ /5 ½ days. Thereafter quality
checks and various processes to place these raw materials on the production line
will take another 2 days works out to 6 ½ /7 ½ days. Production time of 1 to 2
days depending on the type of product works out to 7 ½ / 8 ½ days. Keeping a
cushion of 1 day the time taken for the finished product will be anything between
9 to 10 days. That is the planning involved in making a finished product and
achieving your target. That is under absolute ideal conditions. India is subjected to
numerous disruptions in form of natural calamities, man made obstacles, disasters,
accidents and unrest. One has to cater for these criticalities and therefore
foresight in planning is must. Suppose there is flood like situation at Sasaram,
then what? One has to plan for warehousing near Surat where certain stocks
catering to these kinds of contingencies have to be catered for, ab-initio. Like
floods there could be strikes and bandh too. These are the gray areas that have
to be addressed in totality, apart from the fact that the vehicle could also break
down en-route. There could be a number of examples related to movement of
stocks and supplies, be it rail, water, road or air. All have their complexities and
peculiarities, but the underlying basics are the same one has to plan ahead come
what may, to avoid irregularities.
Table 4.1: Terrain-wise Criticalities
Criticalities Mountains Plains Desert Link Roads
Going Hilly roads, Smooth Going, A mix of good and Rough and slow
Conditions Bends & Zigs Faster mode bad going
Time Factor Slow Fastest Medium Very slow
Prone To Severe Lesser Rare but at times Loots, bandh and
accidents, magnitude, but over speeding results Strike, Accidents
Losses in Cannot be ruled In damages Related to
supplies out population
Repair & Difficult, Available in Repair facility Rare, prone to
Recovery Frequent plenty restricted to severe breakdowns
breakdown highways only

Calamities Road Blocks, Floods, bandhs, Very rare, since Frequent

Slides, Flash riots & strikes population centers disruptions owing
Floods are far apart to congestion of
population centers
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Design and Management of Movement of supplies from suppliers to manufacturers differs from place to
SCM place. Terrain plays a predominant role in this aspect and you have to realize this
point. In mountains the criticalities are far too many and you can understand the
aforesaid through this chart in a better way.

From the above it’s evident that criticalities in any form disrupts movement in a big
way irrespective of the terrain but you got to plan your time schedule depending on
the terrain on which your supplies are moving. Therefore, knowledge on these areas
is very important so that the suppliers cannot take you for granted on these counts.
Studies on geography and layout of an area of responsibility and related aspects are
therefore important for a manager dealing with logistics.

Activity 2

Study the aspects of terrain and its implications on logistics management. Visit a few
places in the hilly and mountainous terrain and understand the implication of these
areas on logistics management.
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Differences in Urban and Rural Areas

India is one such country, which enjoys a rare mix of both urban and rural pockets at
regular intervals. Rural areas require tremendous amount of logistics supply and
coordination to make the SCM system effective. That is the lay of Indian society and
hence one has to understand and be live to the problem. Actually most of our supplies
move generally from these rural areas and hence you should be aware of these areas
in a nutshell. Let us discuss them for a while.
The various criticalities pertaining to logistics in rural areas are:
• Large quantities and more number of collection points.
• Distance between the manufacturers and users are large.
• Materials are bulky, perishable, and expendable and have inferior packaging.
• Certain places have to be communicated through handcarts, tractors, boats,
cycles and bullock carts.
• Trips are generally one-way and hence not cost effective.
• Uniformity in work is missing, since; logistics are restricted to peak seasons
only.
• A mix of intermediaries and direct delivery.
• Storage, movement and packaging of agro products are difficult and time
consuming.
There are many more to this depending upon the nature of terrain and climatic
conditions too, but these are the salient ones and you as a manager have to
understand this aspect. Trading in rural areas is difficult and risky too.

Storage in rural areas is another criticality due to restriction in storage areas and
because the agro produces are seasonal in nature. These are to be consumed round
the year, both in season and off-season. Storage starts right from the time the harvest
is ready till its distributed to the consumers. The various storage places available are:
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• At the farm itself. Logistics : Inbound and
Outbound
• Village collection centers/collection points.
• With the processor.
• Wholesaler.
• Bins and self-help store rooms under stringent conditions.
• Retailer.
• Market place/selling points.
The shelf life of these items generally the farm produce are very less and hence
planned infrastructure has to be developed for proper storage facility like the cold
rooms.

Transport in these areas is still primitive in nature; starting from bullock carts,
cycles, hand carts, rickshaw van, boats, animal transport and even stragglers.
This is due to bad roads and roads connectivity. India has one of the largest road
networks in the world with approximately 2.5 million kilometers of road network.
National highway accounts to nearly 5200 km, which is barely 2% of the total
roads in the country. Actually movement of goods from rural areas becomes
expensive due to its handling costs and number of organizations involved in it. Let
us see it with an illustration.

ROADS
SOURCE WAREHOURSES

PRODUCE FACTORIES GOODS

MARKETPLACE CENTRAL POINTS

CONSUMERS

A RURAL AREA SCM SYSTEM: DEPICTING MOVES OF GOODS

EX SOURCES TO THE MARKET PLACE

Fig 4.5: Rural Area SCM System

Activity 3
As a student of Logistics suggest a few practical viewpoints, which differs urban
from rural logistics, both in terms of management and maintenance. Organize a
visit to a rural area factory and carry out a feasibility study on how logistics can
be improved for better response.
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Design and Management of Urban Areas
SCM
Coming on to urban areas, the process is certainly different since; it doesn’t have
to go through the exercise of moving through bad roads too often and poor
storage system. Things move more systematically and less time consuming,
though at times the carriers perforce move through difficult stretches of rural
areas, generally a mix of urban and rural areas. What happens in urban areas?
Let us see.
• The procurement is done generally closer home and very near to the towns
and cities.
• The supplier’s job is to supply the goods in the time frame and price that is
fixed initially.
• The company management generally contacts the supplier who has nominated
go-downs close to the place of manufacture, for better and even time
management.
• Unlike rural areas the suppliers in the fastest mode deliver the material and
services in order to save on time; a combination of rail, air and road at
places even waterways.
• Manufacturing takes lesser time in production and distribution thereafter.
• A better market available to the manufacturer for his goods.
From the above it’s evident that a manufacturer in the rural area stands at a
disadvantage visa-vie his urban counterpart for the following reasons:
• Movement of raw materials.
• Transport system.
• Storage facility.
• Production.
• Preservation.
• Distance from source to market area.
• Availability of market.
In a nutshell the SCM involved in managing a rural enterprise is more cumbersome
than the urban one.

4.5.2 Manufacturers to Consumers

Let us now visualize the various stages involved in moving the finished products
from the manufacturing units to the consumers. They are:
• Packaging of goods.
• Stocking them in warehouses/containerization.
• Loading into carriers/transportation.
• Delivery to the nearest wholesalers.
• Wholesalers to retailers.
• Retailers to market places/stores.
• To consumers.
These 7 steps are like any of those 7 days. It’s difficult to skip one to save on
another. Yes, there are direct marketing that the companies are following these
days, but they are numbered. But the basic stages of these companies too move
through pre-designated franchises and not directly. Hence, the time taken or cost
18 per se generally remain the same.

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Problems envisaged in movement of products from manufacturing units to Logistics : Inbound and
consumers are many and can be listed as under: Outbound

• Perishable products.
• Losses in transit.
• Accidents and calamities.
• Unavoidable delays in terms of strikes and bandh.
• Labor unrest.
• Rats and rodents.
• Breakages during handling.
• General costing since at times even double handling is involved.
Let us see this with the help of a diagram, (figure 4.6).

TRANSPORT
PILFERAGE
SYSTEM

MANUFACTURING UNITS WAREHOUSES RIOTS & STRIKES

DISTRIBUTORS PERISHABLE

ULTIMATE AIM LABOUR UNREST WHOLESALERS BREAKAGES

LOSSES

RATS & RODENTS

MARKETS/STORES NATURAL
CONSUMERS RETAILERS CALAMITIES

RESPONSE OF THE EFFECT ON

CONSUMERS COSTING

Fig. 4.6: Problems Involved in Logistics Support

From the above it’s evident that labor’s unrest is generally common in the
complete process and an effective SCM in position can only help reducing these
miscalculations and criticalities. Natural calamities and strikes do pose a problem
for the manufacturer and indirectly increases the cost of items ultimately
available to the consumers. What is therefore your ultimate aim in this process of
SCM? It’s the response of the consumer for whom you made this happen, and
side-by-side what is the effect of the problems and criticalities on your product?
It affects the costing per se, and this is what is shown in the diagram above
(Fig.4.6).

Logistics both inbound and outbound is very intricate in nature. A consumer

sitting at the comfort of the room cannot virtually visualize how a packet of
toothpaste reaches him every time he uses it. What actually happens on ground
can only be realized by him who makes it happen that way. Once you start
thinking on it the various questions that arise are:
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Design and Management of • Where does the raw material come from?
SCM
• Who supplies it to you?
• What is the best course available to you in procuring the right material with
in the cost per se from the available options? Who decides on that? You
and the management.
• How is the material moved and where to?
• How do you store this?
• What are the various contingencies involved in this?
• What if the stores don’t reach on time? What is the option available to you?
• What would be the losses in production?
• What would be the losses in packaging?
• If the production channel breaks down, then what?
• How do you transport the finished goods in the time frame available to you?
• How will your marketer’s distribute or market the products?
• What will be the response of the consumers to your product, your ultimate
aim?
All of the above are interlinked and have a direct bearing on the net output of
the firm. An effective SCM system in place wards off any such minor
shortcomings that can run into problems and criticalities later.

4.6 LOGISTICS MANAGEMENT

Before we went on to this let us see the triangle that is formed in the supply
chain management (SCM).

DEMAND
MANAGEMENT

LOGISTICS
MANAGEMENT

Fig. 4.7: Three Components of SCM

The three critical components of SCM are:

• Supply management
• Demand management
• Logistics management
You would learn about the supply and demand part of SCM in next unit and
would discuss on logistics part of it now. As discussed earlier that the logistics
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management of transportation, storage and warehousing. We sometimes do tend Logistics : Inbound and
to ignore the role of logistics but the supply and demand chain cannot be met Outbound
without the integrated and close-knit support of the logistics.

Logistics management deals with receiving, handling, movement, storage and

delivery of material, services and finished product in an SCM system. Logistics is
required both at the beginning and at the end of it. (Fig 4.8)

RECIEPT HANDLING MOVEMENT STORAGE

TO
DELIVERY
MANUFACTURER

TO
CONSUMERS
Fig 4.8: Domain of Logistics

As Coyle puts it, “ logistics is the part of supply chain process that plans,
implements and controls the efficient, effective flow & storage of goods, services
and related information from point of origin to point of consumption for the
purpose of conforming to consumer requirements”. Logistics include the following
role (Fig 4.9)

ROLE
OF LOGISTICS

TRAFFIC CONTROL & WAREHOUSING &

TRANSPORT STORAGE TO INCLUDE
MANAGEMENT INFRASTRUCTURE

INVENTORY MATERIALS
CONTROL & MANAGEMENT &
MANAGEMENT HANDLING

DEMAND FORECAST SERVICE SUPPORT

SALVAGE
MANAGEMENT &
DISPOSAL
Fig 4.9: Role of Logistics

An effective SCM system will never be possible without the integration of

logistics, since logistics is the foundation of SCM discipline and is responsible for
its activities. Needless to mention here is that the transportation cost is the 21

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Design and Management of heaviest in the entire chain, and even more than product selling prices. Therefore,
SCM in order to maximize customer satisfaction and meeting firm’s goal it is
mandatory to ensure that effective storage facilities for goods and services are in
place.

4.7 INTEGRATING LOGISTICS

Logistics planning has to be integrated with material and capacity planning in

order to achieve maximum and optimum level of satisfaction. The needs and
requirements of our customers is variable and never a constant factor, therefore,
in order to serve them better and be profitable you got to tailor your logistics and
ensure it to be more dynamic with passing time. The emphasis should be on
reduction of cycle time and elimination of waste in order to increase customer
satisfaction. You have to understand that movement of goods, warehousing of
materials and delivery is time consuming and at times requires precision
synchronization at all levels i.e. from supplier to manufacturer and from
manufacturer to consumer.

Illustration

Can you visualize the effort involved in moving crackers from Shivakasi in Tamil
Nadu to Kolkata? A child who burst these crackers only have to demand them,
and you as the guardian have to procure them from the shop, which sells these.
Where does the shopkeeper get it? He gets from the wholesaler, and the
wholesaler from the distributor/stockiest of that area. How does the company X
stock the stockiest? The crackers are packed at Shivakasi and loaded in carriers,
depending upon the time it has to reach and the time in hand before it is
required. In case the planning fails the crackers will land up after Diwali to the
dismay of many. That’s dead stock and is of no use to the consumer.

Therefore, logistics involves procuring and transporting of the raw materials

required to make firecrackers from the source to the manufacturer and once
again tran-shifting the finished products to the warehouses near to the target
area, so that closer to the festival the crackers could be utilized at once. When
this is happening another set of crackers are in the process of moving from
Shivakasi for the target area to meet any contingency. What if the warehouse
catches fire? That actually depends on the demand per se and supply thereof,
which we shall see in the follow up unit.

From the above it’s seen, as to what all gets involved in movement of
firecrackers, from the source to the consumer, and how logistics play a
predominant role in assisting the products to reach the consumers in time.

4.8 PERSPECTIVES IN LOGISTICS

One has to continuously think and think rightly to get over the routine criticalities
that are involved with logistics. Theory will surely help you to understand the
guidelines involved in logistics, but unless you understand the practical aspects
and device methods to tackle them, you will find yourself in a quandary each
time, when faced with a criticality. Certain newer perspective in logistics
planning and execution could be as enumerated below.

• Produce at Source: This will involve production near to the source of raw
material and cheap labor. It will also involve lesser movement of transport
and reduce double handling to a large extent. There are other disadvantages
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 in this though, like distance from the target population, which will involve Logistics : Inbound and
more number of stocking points and areas. But, this can reduce the basic Outbound
cost of production considerably.
• Fleet Management: Can you think of managing your own set of transport?
Yes, certainly you can. Thinking of additional costs and expenditure? Yes,
there are. But, certainly not more than hiring and facing the problems of
trucker’s strike, and incessant rise of carriage charges. Maintaining a fleet is
cumbersome today, but if you can maintain a good sixty vehicles along with
a minor repair organization, it will help you immensely on a rainy day. You
have something to call your own.
Integration of logistics network. Logistics have to be integrated with the others in
the firm for a better coordination. How? Let us see with the help of a figure.

DY MANAGING DIRECTOR /CEO

CHIEF LOGISTICS OFFICER (CLO)

MANAGER STORES TRANSPORT MANAGER SUPPLY OFFICER

COSTING FINANCES SPARES & SERVICES PROCUREMENT WING

INVENTORY CONTROL DELIVERY CONTROL WING

Fig. 4.10: Showing An Integrated Logistics Organization And Inherent Reporting

Activity 4

Suggest a new perspective to logistics management keeping in mind the present

changing logistics scenario.
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4.9 SUMMARY

Logistics plays a predominant role in designing and shaping of SCM in a firm.

Without an effective logistics system the effectiveness of the firms SCM channel
is questionable. Logistic activity helps in enabling a broader view to be taken for
handling the best available opportunity and how it is to be approached. If we
understand and know the economics of logistics activities it is possible to review
a number of production options that may include individual production
(manufacturing of all components), assembling, or an ideal combo approach. The
key players of logistics activity that is transportation and warehousing has been
amply discussed and will enable you to understand the nuances of selecting the
right transport mode for the right product and equipment within the overall gambit
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Design and Management of of cost effectiveness. We have discussed the issues pertaining to move of
SCM logistics both in-bound and out-bound in the Indian scenario, within the scope of
this unit per se. Last but not the least, we have understood the designing and
management of SCM and the key to effective SCM, the logistics.

4.10 SELF ASSESSMENT QUESTIONS

1) Define logistics and elucidate with appropriate examples in the Indian
context.
2) Explain the various factors of logistics with special reference to
transportation.
3) What are the stages for selection the appropriate transport mode and why?
4) Why is transportation important in a firm’s supply chain?
5) What is more important-inbound or outbound logistics in a supply chain?
6) Give relevant examples of the problems involved in logistics activity. How
can we overcome them?
7) What is a supply chain and what is effective SCM?
8) What are the factors that link supply chain?

4.11 REFERENCES AND SUGGESTED FURTHER

READINGS

1) Krishnaveni Muthiah (2003), Logistics Management & World Sea-borne

Trade, Himalaya Publishing House, Mumbai (for basics of Logistics &
marketing interface)

2) Deshmukh & Mohanty(2004), Essentials of SCM , Jaico Publishing House,

Mumbai (should be included in compulsory reading, since the text pertains to
Indian context, simple and easy to comprehend)

3) Simchi-Levi, David Kaminsky, Philipsimchi-Levi, Edith (2004), Designing

And Managing The Supply Chain, Tata McGraw-Hill

4) Mentzer, Fundamentals of Supply Chain Management, Sage India

Publishers

5) Burt, Dobler & Starling, World Class Supply Management, Tata Mc Graw-
Hill

6) D Whitney (1988), Manufacturing by Design, Harvard Business Review,

July 1988, pp. 83-91.

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