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WAREHOUSE MANAGEMENT

INTRODUCTION
Warehouse can play a key role in the integrated logistics strategy and its building and maintaining good relationships between supply chain partners. Warehousing affects customer service stock-out rates and firms sales and marketing success. A warehouse smoothens out market supply and demand fluctuations. When supply exceeds demand, demand warehouse stores products in anticipation of customers requirements when Demand exceeds supply the warehouse can speed product movement to the customer by performing additional services like marking prices, packaging products or final assy. Etc Warehousing can be defined as a location with adequate facilities where volume shipments are received from production centre, which are then broken down in to particular order and shipped onwards to the customer. Warehousing is an integral part of any logistics system. The warehouse is a link between producer and customer. Out-bound warehouse help consumers buy on demand without a nearby production plant warehousing cost are about10% of total integrated logistics costs for most companies.

TYPES OF WAREHOUSES
1. Private warehousing 2. Public warehousing 3. Contract warehousing 1. PRIVATE WAREHOUSING A firm producing or owning the goods owns private warehouses. The goods are stored until they are delivered to a retail outlet or sold. Potential advantage of using a private warehouse is the ability to maintain physical control over the facility, which allows managers to address loss, damage, and theft. When not in use they can rent in out. The construction and maintenance of private warehousing can be extremely costly. All the expenses have to be carefully analyzed and evaluated. These are:

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i. ii.

Fixed expenses and building and land acquisition costs which are high; Expenses incurred on ensuring that warehouses are properly equipped with materialhandling equipment like conveyors, fork lifts, hand trucks, racks and bins, and dock levelers;

iii. iv. v. vi. vii. viii.

The costs of salaries of staff required for peak activity periods which can be very high since retrenchment during slack periods may not be possible; Extra payment to be made for work on Saturday and Sundays and holidays; Janitor and other services charges are required to be taken into account; The office and record-keeping equipment necessary for successful warehousing operations has to be budgeted for; To this must be added the cost of such item as fuel, air-conditioning, power, and light; The cost of maintaining insurance records and of the premiums paid for fire, theft, and also for workmens compensation.

ADVANTAGES OF PRIVATE WAREHOUSING The advantages and disadvantages of private warehousing as against those of public warehousing are: i. ii. Private warehousing offers better control over the movement and storage of products as required by the management from time to time; There is less likelihood of error in the case of private warehousing since the companys products are handled by its own employees who are able to identify the products of their own company better; iii. If there is sufficient volume of goods to be warehoused, the costs of private warehousing compares favourably with that of public warehousing. But private warehouse may not be expected to be packed upto the brim all the while. Therefore the costs of private warehousing per unit may actually higher. 2. PUBLIC WAREHOUSING

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A public warehouse rents space to individuals or firm needing storage, some provide wide array of srevices including packaging, labelling, testing, inventory, maintenance, local delivery, data processing and pricing. All the foregoing cost factors operate in public warehousing as well. But in public warehousing, the expenses are distributed over several other consignments of other clients. In most instances therefore the net result is lower cost for each. Warehousing has become a highly specialised service and a public warehouseman can render better srevice with greater flexibility for the user. A company running a private warehouse will have to compare costs incurred with the total figure for the complete service through public warehousing.

ADVANTAGES OF PUBLIC WAREHOUSING


i. ii. iii. iv. v. vi. It is generally less expensive and more efficient; Public warehouses are usually strategically located and immediately available; Public warehousing is sufficiently flexible to meet most space requirements, for several plans are available for the requirement of different users; Fixed costs of a warehouse are distributed among many users. Therefore the overall cost of warehousing per unit works out to a lower figure; Public warehousing facilities can be given up as soon as necessary without any additional liability on the part of the user; The costs of public warehousing can be easily and exactly ascertained, and the user pays only for the space and services he use. 4. CONTRACT WAREHOUSING Contract warehousing is a specialised form of public warehousing. In addition to warehousing activities such warehousing provides a combination of integrated logistics services. Thus allowing the leasing firm to concentrate on its specialty. They provide customized srvices. (Value-added services)

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FUNCTION OF WAREHOUSE
Warehouses are basically intermediate storage points in the logistics system where raw material, work in process, finished goods and good in transit are held for varying duration of times for a variety of purposes. The warehousing functionality today is much more than the traditional function of storage. The following are main function that warehousing serves today: CONSOLIDATION: this helps to provide for the customer requirement of a combination of products from different supply or manufacturing sources. Instead of transporting the products as small shipments from different sources, it would be more economical to have a consolidation warehouse. This warehouse will receive these products from various sources and consolidate these into shipments, which are economical for transportation or as required by the customers.

PLANT A

PLANT B PLANT C

CONSOLIDATION WAREHOUSE

BREAK BULK: as the name suggest, the warehouse in this case serves the purpose of receiving bulk shipments through economical long distance transportation and breaking of these into small shipments for local delivery. This enables transportation economies with combination of long distance bulk transportation, break bulk warehousing, and short distance small shipments in place of long distance small shipments.

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CUSTOMER A

PLANT A

BREAK BULK

CUSTOMER B

CUSTOMER C BREAK BULK CROSS DOCKING: this type of facility enables receipt of full shipments from a number of suppliers, generally manufacturers, and direct distribution to different customers without storage. As soon as the shipments are received, these are allocated to the respective customers and are moved across to the vehicle for the onwards shipments to the respective customers at these facilities. Smaller shipments accompanying these full shipments are moved to the temporary storage in these facilities awaiting shipments to the respective customers along with other full shipments.

Company A/ Plant A

CUSTOMER A

Company B / Plant B

DISTRIBUTION CENTRE

CUSTOMER B

Company C/ Plant C

CUSTOMER C

CROSS DOCKING PRODUCT MIXING: products of different types are received from different manufacturing plants or sources in full shipment sizes. These products are mixed at these warehouses into right combination for the relevant customers as per their requirements. Some products which
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are commonly required inmost product mixtures, are kept in constant storage at these warehouses and continuously provided for the product mixture shipments requiring these.

PLANT A WARE HOUSE TRANSIT MIXING POINT PRODUCT D PLANT C

CUSTOMER W A B C D

PLANT B

CUSTOMER X B C D

CUSTOMER Y B C D

CUSTOMER W A B C D PRODUCT MIXING STOCK PILING: this function of warehousing is related to seasonal manufacturing or demand. In the case of seasonal manufacturing, certain raw materials are available during short periods of the year. Hence, manufacturing is possible only during these periods of availability, while the demand is full year around. This requires stockpiling of the products manufactured from these raw materials. Am example is mango pulp processing. On the other hand, certain products like woolens are required seasonally, but are produced throughout the year, and thus need to be stockpiled as such. POSTPONEMENT: this functionality of warehousing enables postponement of commitment of products t o customers until orders are received from them. This is utilized by manufacturers or distributors for storing products ready up to packaging stage. These products are packaged and labeled for the particular customer only on receipt of the order. POSITIONING: this permits positioning products or materials at strategic warehouses near to the customers. These items are stored at the warehouse until ordered by the customers when these can be provided to the customers in the shortest lead-time. This function of warehousing is utilized for higher service levels to customers for critical items and during increased marketing activists and promotions.
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ASSORTMENT: assortment warehouse store a variety of products for satisfying the variety requirements of customers. For example, retailers may demand different brands of the same product in small quantities rather than larger quantities of the single brand.

DECOUPLING: during manufacturing, operation lead-times may differ in order to enable production economies. Thus, the batch size and the lead-time of production may differ in consecutive operations. This decoupling of operations requires intermediate storage of materials required for the subsequent operation.

SAFETY STOKING: in order to cater to contingencies like stock outs, transportation delays, receipt of defective or damaged goods, and strikes, safety stocks have to be maintained. This ensures that, on the inbound side production stoppages do not occur, and, on the outbound side customers are fulfilled on time.

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SQUARE ROOT LAW WITH EXAMPLE


In their aggressive effort to take cost out of logistics network, firms are searching for new ways to reduce levels of inventory without adversely effecting customer service. A currently popular approach is to consolidate inventories into fewer stoking location in order to reduce aggregate inventories and their associated cost. Correspondingly, this strategy requires the involvement of capable transportation and information resources to see that customer service is held at existing levels and is even improved whenever possible. Square root law: The square root law helps determine the extent to which inventories may be reduced through such strategy. Assuming the total customer demand remains the same, the SRL estimates the extent to which aggregate inventory needs will change as a firm increases or reduces the number of stocking location. In general, the greater the number of stoking locations, the greater the amount of inventory needed to maintain customer service levels. Conversely, as inventories are consolidated into fewer stocking locations, aggregate inventory levels will decrease. The extent to which these changes will occur is understood through application of the square root law. The square root law states that: the total safety stock inventories in the future number of facilities can be approximated by multiplying the total amount of inventory at existing facilities by the square root of the number of future facilities divided by number of existing facilities. Therefore X2 = X1 N2 N1

Where: N1= number of existing facilities N2= number of future facilities X1= total inventory in existing facility X2= total inventory in future facilty EXAMPLE:
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A company presently distributing 40000 units of product to its customer from eight facility location throughout India is located at A, B, C, D, E, F, G and H. the company is evaluating an opportunity to consolidate its operations into two facilities. Using SRL find the total amount of inventory in the two future facility. Solution: X2 = X1 N2 N1 Here, X1= 40000 N1= N2= 8 2 2 8 X2= 40000*1/2 X2= 20000

Therefore, X2= 40000

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The Number of Warehouses:


The number of warehouses is another decision parameter impacting a number of cost variables and customer service. If customer service is taken in cost terms as cost of customer dissatisfaction, the number of warehouses will affect transportation, inventory, warehousing and customer dissatisfaction costs. Transportation costs initially decreases with increasing number of warehouses. This is due to the transportation economies obtained by having large-volume long-range transportation from consolidation warehouses and short-range small-volume transportation from break-bulk warehouses. However, as the number of warehouses increases beyond a certain value, the transportation cost starts increasing due to large number of transportation trips in between the larger numbers of warehouses. Inventory costs continuously increases with the increasing number of warehouses because the increased space available needs to be utilized and firms increase the commitment of inventory at these warehouses beyond those actually needed. Transit inventory costs continuously decrease with the increased number of warehouses due to the shorter transportation times between the larger number of warehouses. The warehousing costs increase with more warehouses due to the maintenance and facility costs associated with each warehouse. For the same space, a single warehouse incurs less warehousing cost than two warehouses. The increasing number of warehousing leads to increasing customer service levels, thus, decreasing customer dissatisfaction cost.

Warehouse Location
Warehousing is important to the firms since it improves service and reduces co9st improvements in service are gained through rapid response to customer requests (time utility), which is a, primary factor leading to increased sales. The location decision regarding warehouses is affected by manufacturing plant, and, customer and market locations. A traditional classification by Edgar Hoover classifies warehouse locations as market-positioned, manufacturing-positioned, or intermediately-positioned.
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Market-positioned warehouses
Market-positioned warehouses are located near to the customers and markets (point of product consumption) with the objective of serving them. These generally have a large variety and low volume of items to service local requirements. Such warehouses reduce cost by providing place utility. A Market-positioned warehouses functions as a collection point for the products of distant firms with the resulting accumulations of product serving as the supply source for retail inventory replenishment. This approach allows large and cost-effective shipments from the manufacturer with lower-cost, local transportation providing service to individual retailers. Market-positioned warehouses may be owned by the firm or the retailer (private warehouses), or they may be an independent business providing warehouse service for profit (public).

Manufacturing Positioned Warehouse


Manufacturing positioned warehouse are located near to the manufacturing facilities in order to support manufacturing on the inbound side and to facilitate assortment-creation and shipping on the outbound side. Improve customer services and manufacturing support achieved through type of warehouse which acts as the collection point for products needed in filling customer orders and material needed for manufacturing.

Intermediately- Positioned Warehouse


Intermediately- positioned warehouse are those located between manufacturing and marketposition warehouses. These help in consolidation of assortments for shipments from different manufacturing facilities. A firm may have many manufacturing plant located, for economic reasons, near the sources of raw material. Under these conditions the cost-effective warehouse may be at some intermediate point.

A few of the factors governing the warehouse locations are:


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availability of services; land cost; availability of transport linkages for example, to a rail siding; availability of utilities of water and power; taxes and insurance cost; expansion space availability; And soil strength and lay off land for drainage.

WAREHOUSE LAYOUT AND DESIGN


To understand layout and design, some background information on a typical warehouses base space requirements is necessary. This discussion of space requirements relates quite closely to the discussion of basic warehouse operations. Before looking specifically at eh types of space a firm needs, we comment briefly about determining how much space a firm requires. This first step in determining warehouse space requirements is to develop a demand forecast for a companys products. This means preparing an estimate in units for a relevant sales period (usually thirty days) by product category. Then the company will need to determine each items order quantity, usually including some allowance for safety stock. The next step is to convert the units into cubic footage requirements, which may need to include pallets and which usually include an allowance of 10 to 15 percent for growth over the relevant period. At this point, the company has an estimate of basic storage space requirements. To this the company must add space needs for aisles and other needs such as lavatories and meeting rooms. Warehouse commonly devotes one-third of their total space to non-storage functions. Many companies make these spaces decision through computer simulation. The computer can consider a vast number of variables and can help product more requirements good software packages are available. One additional warehouse space requirements provides an interface with the transportation part of the logistics system- receiving and shipping. While this can be operate, efficiency usually requires two separate areas. In considering these space needs a firm must choose whether to use the dock area outside the building or to unload goods out of the vehicle directly into the warehouse. The firm has to allow or turnaround space and possibly for equipment and pallet storage. Also important are areas for staging goods before transportation and for unitizing consolidated shipments. In addition this area may need space for checking
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counting and inspecting. The volume and frequency of the throughput are critical in determining receiving and hipping space needs. Another space requirements in physical distribution warehouses is for order packing and assembly. The amount of space these functions need depends upon order volume and the products name along with the materials-handling equipment. This areas layout is critical to efficient operations and customer service. A third type of space is the actual storage space. In a warehouse, a firm must use the full volume of the cubic storage space as efficiently as possible. A firm can derive the amount of storage space from the analysis described earlier in this section and it will largest single area in the warehouse. As with the order picking area, a firm has to consider storage area layout in detail. We cover this topic in a subsequent section. Finally a firm must consider three additional types of space. First, many physical distribution warehouses have space for recouping- that is, an area to salvage undamaged parts of damaged cartoons. Second administrative and clerical staff generally require office space. Finally, rest rooms and, employee cafeteria, utilities and locker rooms require miscellaneous space. The amount of space these last three categories require depends upon a number of variables. For example, the average amount of damaged merchandise and the feasibility of repacking undamaged merchandise determine recouping space needs. The space requirement for a cafeteria and locker rooms depend on the number of employees.

LAYOUT AND DESIGN PRINCIPLES


While the discussion thus far has delineated a typical warehouses various space needs, we need to consider layout in more details. We first consider some general layout design principles and then examine layout in the context of the space category previously. The most commonly accepted warehouse design and layout principles are as follows: First, use a one story facility wherever possible, since it usually provides more usable space per investment dollar and usually it is less expensive to construct. Second, use straight-line or direct flow of goods into and out of the warehouses, to avoid backtracking. A third principle is to use efficient materials handling equipment and operations. The next section explores materials-handling fundamentals. Among other benefits, materialshandling equipment improves efficiency in operations. A fourth principle is to use an effective storage plan on the warehouse. In other words, the firm must place goods in the warehouse in such a way to maximize warehouse operations
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and avoid inefficiencies. Stated simply, we are trying to utilize existing space as completely and effectively as possible while providing both adequate accessibility and protection for the goods we are storing. The fifth principle of good layout is to minimize aisle space within the constraints that the size, type, and turning radius of materials-handling equipment impose. We must also consider the products and the constraints they impose. A sixth principle is to make maximum use of the buildings height-that is to utilize the buildings cubic capacity effectively. This usually requires integration with materials handling. Though vehicles capable of maneuvering in small aisles and stacking higher than conventional materials can be very expensive, such equipment offers potentially large overall systems savings because using height costs works best when items are regularly shaped and easily handled, when order selection is the middle stage of activity and when product moves in high volumes with few the . A company should not make warehousing decisions once and\d then take them for granted; rather, the company should monitor productivity regularly during warehouse operations. While monitoring methods vary widely, the company should set goals and standards for cost and order-handling efficiency and then measure actual performance in a n attempt to optimize the warehouses productivity. By improving productivity, a company can improve its resources uses increase cash flow, profits and return on investment; and provide its customer with better service. To begin a productivity program, a company should divide warehouse operations into functional areas and measures each areas productivity, utilization and performance, focusing on improvements in labor, equipment and making comparisons with standards if they exist. Repeating measurements can show relative trends. There is no single measure of warehouse productivity, but the method the company chooses must have the following attributes validity, coverage, comparability, completeness, usefulness, compatibility and cost effectiveness.

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VALUE ADDING
The warehouse serves several value adding roles in a logistics system. Companies will sometimes face less than truckload (LTL) shipments of raw material and finished goods. Shipping goods long; distances at LTL rates is more costly than shipping at full truckload or carload rates. By moving the LTL amounts relatively short distances to or from a warehouse. Warehousing can allow a firm to consolidate smaller shipments into large shipment: (a car load or truckload) with significant transportation savings. For the inbound logistics system the warehouse would consolidate different suppliers LTI shipments and ship a volume shipment (TL) to the firm plant. For the outbound logistics system the warehouse would receive a consolidated volume shipment from various plants and ship LTL shipments to different markets. A second warehousing function may be customer order product mixing. Companies frequently turn out a product line that contains thousands of different products if we consider, color, size shape and other variations. When planning orders, customers often want a product line mixture- for example, five dozen, four cup coffee pots, six dozen ten cup coffee pots with blue trim and ten dozen red trim and three dozen blue salad bowl sets. Because companies often produce items at different plants, a company that did not warehouse goods would have to fill orders from several locations causing differing arrival times and opportunity for mix-ups therefore a product mixing warehouse for a multiple product line leads to efficient order filling. By developing new mixing warehouses near dense urban areas, firms can make pickups and deliveries in smaller vehicles and schedule these activities at more optimum times to avoid congestion. In addition to product mixing for customer orders, companies sing raw materials or semi finished goods(e.g. auto manufacturer) company move carloads of terms mixed from a physical supply warehouse to plant. This strategy not only reduces transportation costs from consolidation but also allows the company to avoid using the plant as a warehouse. This strategy will become increasingly popular as increased fuel expenses raise transport costs and firm increase the use of sophisticated strategies such as materials requirements planning (MRP) or just in time (JIT) system.

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Cross -Docking is an operation that facilitates the product mixing function. In cross docking operations products from different suppliers arrive in truckload lots but instead of being placed into storage for later picking they are moved across the warehouse area waiting trucks for movement to particular customers. The incoming materials are picked from the delivering truck from temporary storage locations to fill a specific order and moved across the deck to a truck destined for the customer. The whole process is completed in a matter of hours. Excess product and small items are stored temporarily to await scheduled deliveries and to permit sorting of inbound loads of mixed products. A third warehouses functions is to provide service. The importance of customer service is obvious. Having goods available in a warehouse when a customer places an order, particularly if the warehouse is in reasonable proximity to the customer usually leads to customer satisfaction and enhances future sales. Service may also be a factor for physical supply warehouses. However, production schedules, which a firm makes in advance, are easier to service than customers while customers demands is often uncertain physical supply stock outs costs sometimes seem infinite. A fourth warehousing functions is protection against contingencies such as transportation delays vendors stock outs or strikes. A potential truckers strike will generally cause buyers to stock larger inventories than usual; for example this particular function is very important for physical supply warehouse in that a delay in the delivery of raw material can delay the production of finished goods. However, contingencies also occur with physical distribution warehouses- for example, goods damaged in transit can affect inventory levels and order filling. A fifth warehousing function is to smooth operations or decouple successive stages in the manufacturing process. Seasonal demand and the need for a production run along enough to ensure reasonable cost quality are examples of smoothing- that is preventing operations under overtime conditions at low production levels. In effect, this balancing strategy always a company to reduce its manufacturing capacity investment. As we can see warehouse functions can make important contributions to logistics systems and company operation. However, we must also view warehousing in a trade-off context; that is warehousings contribution to profit must be greater than its cost.

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PLANNING AND CO-ORDINATION OF FLOWS 1. Co-ordination is the backbone of overall information system architecture among the participants of the value chain. Coordination results in plans specifying : (i) Strategic objectives, (ii) Capacity constraints, (iii) Logistical requirements, (iv) inventory deployment, (v) Manufacturing requirements, (vi) procurement requirements and (vii) Forecasting. (i) Strategic Objectives detail the nature and location of customers, which are matched to the required products and services to be performed. The financial aspects of the strategic plans detail resources required to support inventory, receivables, facilities, equipment and capacity. (ii) Capacity Constraints coordinate internal and external manufacturing requirements for given strategic objectives, capacity constraints identify limitation, barriers or bottlenecks within manufacturing capabilities and determine appropriate outsource requirements. (iii) Logistics Requirements specify the work that distribution facilities, equipment and labour must perform to implement the capacity plan. Based on inputs from forecasting, customer orders and inventory status, logistics requirements specify value chain performance. (iv) Inventory Deployments are the interfaces between planning/coordination and operations that detail the timing and composition of where inventory will be positioned from an information perspective, inventory deployment specifies the what, where and when of the

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overall logistics process. From an operational viewpoint, inventory management is performed as a day-to-day event. (v) Manufacturing Plans are driven from logistical requirements and result in inventory deployment. The primary output is a statement of time-phased inventory requirements which drives master production scheduling (MPs) and manufacturing requirements planning (MRP). The output from MRP is a day-to-day production schedule that can be used to specify material and component requirements. (vi) Procurement Requirements schedule material and components for inbound shipment to support manufacturing requirements. Purchasing coordinates decisions concerning supplier qualification, degree of desired speculations, third party arrangements and feasibility of longterm contracting. (vii) Forecasting utilises fast data, current activity levels and planning assumptions to predict future activity levels. The forecasts predict periodic (monthly or weekly) sales levels for each product, forming the basis for logistical requirement and operating plans.

2. Operational Requirements : The second aspect of information requirements is concerned with directing operations to receive, process and ship inventory as required to support customer and purchase orders. Operational requirements deal with: (i) order management, (ii) order processing,(iii) distribution operations, (iv) inventory management, (v) transportation and shipping and (vi) procurement. (i) Order Management refers to the transmission of requirements information between value chain members involved in finished product distribution. The primary activity of order management is accurate entry and qualification of customer orders. (ii) Order Processing allocates inventory and assigns responsibility to satisfy customer requirements. In technology-rich order processing systems, two-way communication linkage can be maintained with customers to generate a negotiated order that satisfies customers within the constraints of planned logistical operations. (iii) Distribution Operations involve information flows required to facilitate and coordinate performance within logistics facilities. The key to distribution operation is to store and handle specific inventory ill little as possible while still meeting customer order requirements. (iv) Inventory Management is concerned with using information to implement the logistics plan as specified.

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(v) Transportation and Shipping information directs the movement of inventory. It is also necessary to ensure that required -transportation equipment is available when needed. (vi) Procurement is concerned with the information necessary to complete purchase order preparation, modification and release while existing overall supplier compliance. The overall purpose of operational information is to provide the detailed data required for integrated performance of physical distribution, manufacturing support and procurement operations whereas planning/coordination flows provide information concerning planned activities, operational requirements are needed to direct day-to-day work:]

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TRANSPORTATION MANAGEMENT
Introduction
Transportation plays a key role in economic success by allowing for the safe and efficient distribution of goods and services throughout the supply chain. Transportation links the various integrated logistics activities. Without transportation, the integrated logistics system breaks down. Some view transportation as the glue that holds the entire system together. Without the transportation link raw material cannot flow into the warehouses and plants, nor can be finished product flow out of the plant to field warehouses and finally to the customer. Transportation physically moves products from where they are produced to where they are needed. This movement across space or distance adds value to products. This value added is often referred to as place utility. Time Utility is created by warehousing and storing products until they are needed. Transportation is also a factor in time utility, it determines how fast and how consistently a product moves from one point to another. This is known as time-in-transit and consistency of services respectively. If a product is not available at the precise time it is needed, there may be expensive repercussions, such as lost sales, customer dissatisfaction, and production downtime, when the product is being used in the manufacturing process. Transportation Ryder Integrated Logistics and United Parcel Services (UPS) have achieved successes because they are able to provide consistent time-in-transit and thus increase the time and place utility of their customer products.

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Transportation Functionality
Transport functionality provides two major functions. Product Movement and Product Storage. Product Movement Where the product is in the form of materials, components, assemblies, work-in-progress or finished goods, transportation is necessary to move it to the next stage of the manufacturing process or physically closer to the ultimate customer. A primary transportation function is product movement up and down, the value chain since transportation utilizes Temporal (time), financial and environmental resources, it is important that items be moved only when it truly enhances product value. The major objective of transportations to move product from an origin location to a prescribed destination while minimizing temporal, financial and environmental resource costs, loss and damage expenses must also be minimized.

Product Storage A less common function is 'temporary Storage. Vehicles make rather expensive storage facilities. However, if the in-transit product requires storage but will be moved again shortly (say in few days), the cost of unloading and reloading the product in a warehouse may exceed the per day charge of storage in the transportation vehicle. In circumstances where warehouse space is limited utilizing transportation vehicles may be a viable option. 1) One method may be involving loading product on the vehicle and then have it to take a circuitous route or indirect route to its destination. 2) Another method is by way of diversion. This occurs when an original shipment destination is changed while the delivery is in transit.

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Principles:
There are 2 fundamental principles guiding transportation management: 1) Economy of scale 2) Economy of distance 1) Economy of scale This refers to the characteristics that transportation cost per unit of weight decreases when the size of the shipment increases. It is also generally true that larger capacity transportation vehicles such as rail or water are less expensive per unit of weight than smaller capacity vehicles like truck and tempo. Transportation economies of scale exist because fixed expenses associated with moving and loading can be spread over the loads weight. The more the load, the lesser will be cost per unit weight. The fixed expenses include administrative cost of taking the transportation order; time to position the vehicle for loading and unloading, invoicing and equipment cost. 2) Economy of distance Refers to the characteristic that transportation cost per unit of distance decreases as distance increases. These principles are important considerations when evaluating alternative transportation strategies or operating practices. The objective is to maximize the size of the load and the distance that it is shipped while still meeting customer service expectations.

Participants in transportation Decisions:


1) Shipper 2) Carrier 3) Consignee 4) Public 5) Government

Modes of transportation
There are five major modes of freight transportation, airlines, motor carriers, pipelines, railroads and water carriers. Each of these modes has distinct characteristics that give them
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advantage over the others. Which mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and flexibility.

Airlines Airlines are the fastest terminal-to-terminal mode of transportation. That is the primary advantage. They specialize in time sensitive movement of documents, perishable items, technical instruments, medical supplies and high valued products. Also air transportation has the highest percentage of revenues coming from passenger travel. While airlines are important for some freight movement, their primary business has traditionally been passenger travel. Airfreight services cost more than other modes, primarily due to their speed. Air carriers provide terminal-to-terminal service, meaning that direct delivery to a consumer's door is the rarest of exceptions. Airlines are reasonably reliable. While weather related flight delays might disrupt service, the disrupted service is often still the fastest than the next fastest mode, the motor carrier. The airlines, speed advantage is most apparent for hauls over 500 miles. For trips less than 500 miles, motor carriers can often outperform airlines door-to-door. Airlines transport small volume shipments rather than large volumes, and packaged products rather than heavy bulk commodities. The physical configuration and cost of air service also limit the variety of products shipped by air. Measured by weight airlines transport very little freight. The percentage of total freight dollars shipped by air is relatively small although the revenue growth rate is promising. As customer service expectations increase, so does the demand for shorter transit times. As a result, many shippers have turned to air transportation Most airline costs change over a short period of time and depend on output making airlines predominantly variable cost carriers. When the initial cost of the air fleet is significant these fixed costs are spread over the long useful life of the aircraft. Terminals represent a major fixed cost in other modes, but airline terminals are publicly owned facilities for which the airlines pay user fees. The significant start-up costs associated with an airline limit the number of competitors creating an oligopolistic market structure, with only a few large carriers.

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Motor carriers (Road) Motor carriers are the most flexible mode of transportation. This means better direct access to motor carriage for more shippers and final consumers. Motor carriers compete with airlines for higher valued products as well as time-sensitive products (electronics perishable etc,) within a 500 miles radius. Motor carriage ranks as the second fastest mode of transportation, with the additional advantages of door-to-door flexibility and broad geographic coverage. Because trailers vary in length, temperature control and form motor carriers can carry a variety of products. In fact, they can carry almost anything. As industry saying 'if it got there, a truck brought it' rings very nearly true. Motor carrier rates are high compared with all other modes but air. They also face gross weight and length restrictions, as well as other legal limits. Motor carriers are susceptible to delays because of bad weather or traffic congestion. Almost, motor carriers are not well suited to handle extremely heavy bulky products because the trailer is not properly constructed to ship such significant weight efficiently even when permit allow the legal restriction to be lifted. Pipelines Pipelines are unique mode of transportation. They are fixed in place, and the product moves through them. This limits the type of products they can transport but within these limits they can move more tons under a single shipment than any other mode of transportation (30,000 to 25,00,000 tons). They can transport product only in a liquid or gaseous state. Petroleum is the number one product moved by pipelines. Pipelines are cost effective where large quantities of liquid products need to be transported. Pipelines offer one advantage that none of the other modes can offer. A pipeline is a continuous flow mode. When the pipeline is full the product flows to the destination immediately and continues to do so almost without fail. Pipelines are the most dependable mode of delivery unaffected by external factors like weather. However, pipeline transportation is slow, rigid in terms of routes and product types and limited to terminalto-terminal service. A pipeline's average speed is usually between two and five miles per hour. Pipelines can rarely deliver the product to the consumer's door and the origin and destination of the mode are fixed-unless household water and gas lines are taken into account. Many pipelines are built by private entities for private use. Different types of liquid can be shipped through a pipeline at the same time separated by a batching plug. A batching plug is a

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mechanism designed to allow for continuous flow through the pipeline while maintaining the integrity of each individual product. Pipeline costs are predominantly fixed. Pipelines must build their own right-of-way, an extremely expensive undertaking. Pipelines most often move large quantities of a liquid product from a fixed origin to a fixed destination. The construction of a pipeline becomes cost effective only when the high initial fixed cost can be spread over enough volume to keep the unit transportation cost competitive with other modes. Railroads Railroads transport a significant amount of domestic freight. Railroads haul high-density lowvalued freight over long distances at rates lower than trucking and air, but higher than water and pipeline. Products hauled include coal, stone, sand, metals, grain and automobiles. Their primary competitors include domestic water carriers for large bulk products and motor products for higher valued goods. Railroads can handle a wide variety of goods but generally have not. They lack flexibility and high-speed delivery in their standard operation. Historically, railroads have been unreliable due to poor scheduling, a substandard infrastructure and unreliable equipment. Railroads argue that their assets are older because they must commit considerable resources to build their own right of way. Rail companies have attempted to improve their reputation for customer service by updating old equipment, installing current technologies and implementing customer-oriented strategies. Like other modes, railroads are classified by annual sales figures. Railroads operate in an oligopoly, with a limited number of interdependent competitors. Fixed costs are high compared with air, water and motor carriage. The higher percentage of fixed costs stems from ownership and construction of the right-of-way. Rail transportation has benefited from significant level of international inter modal freight, which currently provides the industry with its highest growth and profits. Water Carriers Water carriers dominate international transportation because of their cost structure and ability to transport large volumes. Their significant modal market share is derived from these international operations. Advantage of water transport includes long haul capabilitiesparticularly for low-valued products such as coal, stone, grain and ores-at low rates. They can and do haul a broad range of products from ores and grains to Christmas toys. Since water carriers haul a wide variety of commodities, they operate a variety of ships. Tankers primarily

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carry liquid products like petroleum and crude oil. Measuring over 1.500 feet long and 200 feet wide, these vessels are some of the largest on the ocean. Bulk carriers are constructed to haul commodities like coal, iron ore, or agricultural products. Furthermore, significant growth in container ships shows the impact containerization has had on water carriage. Standardized containers are loaded, placed on container ships, and shipped across the ocean to their destination. A standard container measures either 8' by'8 by 20' or 8' by 8 by 40'.One twenty-foot container is referred to as one twenty-foot equivalent unit (TEU). A forty foot container is two TEUs. Water carriers compete heavily with railroads along certain routes and with pipelines for the movement of some products, particularly petroleum. Water carriers cost structure and volume levels are such that they can charge very low rates. Water carriers are relatively slow, unreliable and suffer from a high degree of variability in delivery schedules. Two main types of for-hire carriers make up the deep-water industry. Liners have fixed sailing times and fixed routes, while tramps sail when they reach capacity. Since liners must sail at a specific time, they are not always filled to capacity. Tramps are usually the better choice when service dates and times are not critical, and liners the better choice when these criteria are critical. Water carriers operate in an oligopoly due to the large initial investment, which tends to limit the number of carriers. However, over the life of the ship, variable cost dominates. The initial cost of the ship is significant, but the volume transported over the useful life of the ship is so large that the cost per unit is relatively low.

Mode Comparison- Dominant Traffic

MODE
Rail Road/ Highway Water Pipeline Air

% SHARE 40% 30% 15 % 10% 5%

NATURE OF TRAFFIC Agricultural products, ores, coal, heavy machines, etc. Medium & Light manufacturing distribution Mining, cement chemicals, agricultural products, heavy machinery, etc. Petroleum products, chemicals, gas Emergency requirements of any material, small lots

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Cost Structure For Each Mode

MODE
Rail Road Water Pipeline Air

FIXED COSTS High Low capital High/ medium Highest Medium

VARIABLE COSTS Low Medium- fuel, maintenance Low Low High- fuel human operation

Relative operating Characteristics OP. CHARTS Speed Availability Dependability Capability Frequency Total score

RAIL
3 2 3 2 4 14 2 1 2 3 2 10

ROAD

WATER 4 4 4 1 5 18

PIPELINE 5 5 1 5 1 17 1 3 5 4 3 16

AIR

SCALE: 1 TO 5; 1 IS BETTER

Classification of carriers
Common carriers The basic foundation of the public transport and system is the common carrier. They have the right to transport any material within a specified zone. (Trucks and tempos). Contract Carriers Contract carriers provide transport services for selected customers. The basis for contract is an agreement between a carrier and a shipper for a specified transportation service at a previously agreed cost. Private Carriers A private carrier consists of a firm providing its own transportation. They are 'not for hire'.

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Specialized carriers a) Oil tankers b) Trailers to carry container (8 ft. high, 20 or 40 ft. length & 8 ft.wide) loads and special products material. c) Special closed trucks/tempos. d) Parcel services-blue dart, Fed-ex. Etc.

Value Added Services


These are as follows: a) Electronic tracking b) Advanced label imaging system (bar code) c) Delivery confirmation service d) On-call pick up service e) Packaging and forwarding, etc.

Transportation Documents
a) Bill of lading It is the basic document utilized in purchasing transport services. It serves as a receipt and documents commodities and quantities shipped for this reason accurate description and count are essential. In case of loss damage or delay, the bill of lading is the basis for damage claims. The designated individual or buyer on a bill of lading is the only bona-fide recipient of the goods, a carrier is responsible for proper delivery according to instructions contained in the document in effect, and title is transferred with completion of delivery. The bill of lading specifies terms and conditions of carrier liability and documents responsibility for all possible causes of loss. Or damage except those defined as acts of GOD (flood, earthquake. etc.) b) Freight bill

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The freight bill represents a carrier's method of charging for transportation services performed. It is developed using information contained in the bill of lading. The freight bill may be either pre-paid or collect. c) Shipping manifest The shipping manifest lists individual stops or consignees when multiple shipments are placed. The objective of the manifest is to provide a single documentation that defines the content of the total load without requiring the review of individual bill of lading.

Transportation Cost Structures


(1) Fixed cost (2) variable cost (3) joint cost (4) common cost Fixed cost. Certain costs are constant regardless of the firm's activity. Example of this would include the capital invested in railroad, tracks, airplanes, or tractors. A variable cost changes as output changes. If a tractor is driven more miles, certain costs increase proportionately. Fuel costs, wages, maintenance costs and tire replacement depend on output. As miles increases so do these costs. Fuel usage for airlines varies with the number of flights as week as the distance traveled. To determine if a cost is variable consider what happens if operations shut down. The costs that disappear are variable and these that continue are fixed. All cost in the long run are variable. For instance, a locomotive is eventually no longer useable and must be replaced. For the twenty-five year life of the locomotive the cost is fixed. When a new locomotive is purchased to replace it, the cost changes, it is no longer fixed. However once the new engine is placed, it too will have a useful life of many years. The cost again becomes fixed. For most decisions do not reach beyond its useful life. The benefits of increased volume accrue more to high fixed cost carriers than to high variable costs carriers seek volume to spread the fixed costs over more units greatly increasing profits. A joint cost occurs when the production of one product or service requires or offers the production of another product or service. For example, a railroad moves goods from New York
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to Los Angeles. It now has engines available in Los Angeles to provide back-haul service to New York or additional transportation from Los Angeles. The cost of placing the train in Los Angeles is a joint cost with the New York to LA run and whatever run follows it. Fixed and variable costs can also be joint costs. All modes incur joint costs to some extent. Common cost cannot be directly associated with a product or activity. Since this creates confusion we normally assign activities percentage of these common costs. For instance a tractor traveling from Dallas to Chicago with three shipments breaks down and requires $5000 in repairs. How much of this repair cost should be allocated to the three different shipments? It is based on space used, weight or both? Thats the problem with common costs. In transportation common costs are significant and are found in all modes. Airlines are variable cost mode because they do not own the right of way. Governmental entities own the large airports the federal government operates the airways and airlines pay fees for the privilege of using them. In keeping with the definition of variable costs airlines pay take off and landing fees only when they take off and land. Other large variable costs include fuel, wages and maintenance. Major fixed costs are the airplanes and salaries. Due to their type of operations airlines have many common costs since they normally move freight in a single airplane for multiple customers. Motor carriers like airlines; do not own the way or path of travel. They are variable cost carriers. Some estimate that 90 percent of the motor carrier industry's cost is variable. They pay user fees (taxes etc.) to offset the road maintenance costs. Other major variable costs are fuel, driver wages, and equipment maintenance. The major fixed costs are the terminals and equipment. LL carriers have many common costs because of the number of shipments in a single trailer. TL carriers have few common costs because the trailer is filled with product from a single shipper. Pipelines are categorized as heavy fixed cost carriers. They own their right of way and their terminals. In fact because of computerization, this mode is also classified as very capital intensive. This leads to lower wages and maintenance costs. Because pipelines move a variety of liquid products, they have significant common costs.

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Railroads are fixed cost carriers because they own their equipment and tracks. Economic of scale arise from increased volume which allow per unit costs to be kept low by spreading fixed costs over more units. A significant portion of railroad cost is common because all traffic share replacement costs. Water carriers are variable cost carriers because they do not own the waterways. They ways are not free. Channels must be maintained in major rivers and ports. In the United States, the U.S. Army Corps of Engineers dredges the channels. Water carriers major variable costs are labor, fuel and maintenance. Like railroads, significant portion of their costs are common because multiple shipments often share a vessel.

Factors influencing Transportation Costs and Pricing


In general factors influencing transportation costs/pricing can be grouped into two major categories: product related factors and market related factors. Many factors related to a products characteristic influenced the cost/pricing of transportation. They can be grouped into the following categories: 1) Density 2) Stow ability 3) Ease or difficulty of handling 4) Liability Density refers to a product's weight to volume ratio. Items such as steel, canned Foods, building products and bulk paper goods have high weight to volume ratios. They are relatively heavy given their size. On the other hand products such as electronics clothing, luggage and toys have low weight to volume ratios and thus are relatively lightweight given their size. In general, low-density products-those with low weight to volume ratios-tend to cost more to transport on a per pound (kilo) basis than high-density products. Stow ability is the degree to which a product can fill the available space in a transport vehicle. For example, grain ore, and petroleum products in bulk have excellent stow ability because they
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can completely fill the container (e.g. railcar, tank, truck, pipeline) in which they are transported. Other items such as automobiles, machinery, livestock and people do not have good stow ability or cube utilization. A product's stow ability depends on its size, shape, fragility, and other physical characteristics. Related to stow ability is the ease or difficulty or handling the product. Difficult to handle items are more costly to transport. Products that are uniform in their physical characteristics (e.g. raw materials and items in cartons, cans, or drums) or that can be manipulated with materials handling equipments requires less handling expenses and are therefore less costly to transport. Liability is an important concern. Products that have high value to weight ratios are easily damaged and are subject to higher rates of theft or pilferage, cost more to transport. Where the transportation carrier assumes greater liability (e.g. with compute, jewelry and home entertainment products) higher price will be charged to transport the product. Other factors, which vary in importance depending on the product category, are the products hazardous characteristics and the need for strong and rigid protective packaging. These factors are particularly important in the chemical and plastic industries.

Market-Related Factors In addition to product characteristics, important market related factors affect transportation cost/pricing. The most significant are: 1) Degree of intra-mode and inter-mode competition. 2) Location of markets, which determines the distance goods, must be transported. 3) Nature and extent of government regulation of transportation carriers 4) Balance or Imbalance of freight traffic into and out of a market 5) Seasonality of product movement 6) Whether the product domestically or internationally Customer service is a vital component of logistics management. Which each activity of logistics management contributes to the level of service a company provides to its customers, the

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import of transportation on customer service is one of the most significant. The most important transportation service characteristics affecting customer service levels are: -Dependability consistency of service -Time and transit -Market coverage- the ability to provide door-to-door service -Flexibility- handling of a variety of products and meeting the special needs of shippers -Loss and damage performance -Ability of the carrier to provide more than basic transportation service i.e. (to become part of shippers over all marketing and logistics programs) Each mode of transport- motor, rail, air, water and pipeline- has varying service capability.

Service Choices And Performance Characteristics


The user of transportation has a wide range of services as his or her disposal all revolving around the five basic modes, the variety is almost limitless (1) The five modes maybe used in combination (2) Agencies, associations and brokers maybe used for their indirect services (3) A single transportation mode maybe used exclusively. From among this plethora of service choices, the user must select a service or service combination that provide the best balance between the quality of service provided and the cost of the service. The task of service choice is not as forbidding as it sounds because the circumstances surrounding a particular shipping situation often reduce the choice to only a few reasonable service possibilities. To aid in solving the problem of transportation service choice, transportation service maybe viewed in terms of characteristics that are basic to all services. These criteria are: (1) Cost of service (2) Average delivery time (3) Transit time variability (4) Loss and Damage. It is presumed that the service is available and can be supplied with a frequency that makes it attractive as a possible service choice. Cost of service: The cost of service is simply the line-haul cost for transporting goods plus any accessorial or terminal charges for additional service provided. In the case for- hire service, the rate charged for the movement of goods between two points plus any additional charges, such as pick-up at origin, delivery at destination, insurance or the cost of preparing the goods for
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shipment makes up the total cost of service. When the shipper owns the service, the cost of service is an allocation of the relevant costs to the shipment in question. Relevant costs include such items as fuel, labor maintenance, depreciation of equipment and administrative costs. Cost comparisons for the purpose of transportation-service selection must be made on the basis of actual charges that reflect the specific commodity being shipped, the distance and direction of the movement and any special handling required. Delivery Time and Variability: There are many factors to be considered when selecting a transportation service. Repeated surveys have shown that average delivery time and delivery time variability rank at the top in importance. Delivery time is usually referred to as the average time it takes for a shipment to move from its point of origin to its destination. The different modes of transportation vary as to whether they provide direct connection between the origin and destination points, for example, shipments move on air carriers between airports and on water carriers between harbors. But for purposes of comparing carriers performance, it is best to measure delivery time 'door-to-door' even if more than one mode is involved. Although the major movement of shipment may be by rail, local pickup and delivery is often by truck if no rail sidings are available at the shipment origin and destination points. Variability refers to the normal differences that occur between shipments by the various modes. All shipments having the same origin and destination points and moved on the same mode are not necessarily in transit for the same length of time due to the effects of weather, traffic congestion, number of stop offs, and difference in time to consolidate shipments. Transit-time variability is a measure of the uncertainty in carrier performance. In recent years there has been renewed interest in the idea of coordinating the service of more than one transportation mode. The major feature of coordination is the free exchange of equipment between modes. For example, a truck trailer is carried abroad an airplane or a rail car is hauled by a water carrier. Such equipment interchange creates transportation services that are not available to a shipper using single transportation mode. Coordinated services are usually a compromise between the services offered by the cooperating carriers individually. That is, cost and performance characteristics rank between those of the participating carriers.

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MIXED MODES (MULTIMODAL/INTERMODAL TRANSPORTATION) It is not always possible to transport the goods by only one mode of transportation due to economy of transportation, long distance of transportation. So it is essential to have mixed modes some of the most commonly used are Piggyback (road + rail ) Fishy back ( road + water ) Birdy back ( road + air) There are ten possible co-ordinate services: (1) Rail-truck (2) Rail-water (3) Rail-air (4) Rail-pipeline (5) Truck-air (6) Truck-water (7) Truck-pipeline (8) Water-pipeline (9) Water-air (10) Air-pipeline. Not all of these combinations are practical. Some that are feasible have gained little acceptance. Only rail truck called 'piggyback' has seen widespread use. Truck-water combinations, refereed to as 'fishyback, are gaining acceptance especially in the international movement of high-valued goods. To a much lesser extent truck-air and rail-water combinations are feasible but they have seen limited use. TOFC. Trailer on flatcar or piggyback refers to transporting truck trailers on rail board flatcars, usually over long distances than trucks normally haul. TOFC is blending of the convenience and flexibility of trucking with the long haul economy of rail. The cost is less than for trucking alone and has permitted trucking to extend its range. Likewise, rail has been able to share in some traffic that normally would move by truck alone. The shipper benefits from the convenience of door-to-door service over long distances at reasonable rates. These features have made piggyback the most popular coordinated service. Piggyback (TOFC/COFC) In piggyback service, a motor carrier trailer or a container is placed on a rail flatcar and transported from one terminal to another. Axles can be placed under the containers so a truck can deliver them. At the terminal facilities, motor carriers perform the pickup and delivery functions. Piggyback service thus combines the low movement with the flexibility and convenience of truck movement. Since 1976 shippers have increased their use of piggyback service by 200 percent. In 1994 there were 8.1million inter-modal shipments with 1995 and 1996 shipments approximating the same levels.

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Truck and rail partnerships to support inter modalism such as the one begun in 1989 between the Santa Fe railroad and J.B.Hunt Transport Services are relatively common. The railroad carriers freight on the long haul and the trucking company picks up and delivers between the customer and railroad.77% of inter-modal users agree that such alliances have a positive impact on transportation options available to them. In India Konkan Railway has started this typed service. Roadrailers. An innovative inter-modal concept was introduced in the late 1970s.Roadrailers or trailer trains as they are sometime called, combine motor and rail transport in a single piece of equipment. The road railer resembles a conventional motor carrier trailer. However the trailer has both rubber truck tires and steel rail wheels. Over highways tractor power units transport the trailers in the normal way, but instead of placing the trailer on a flatcar for rail movement, the wheels of the trailer are retracted and the trailer rides directly on the rail tracks. The advantages of this inter-modal form of transport are that rail flatcars are not required and that the switching time to change wheels on the trailer is less than loading and unloading the trailer from the flatcar. The major disadvantages of roadrailers are the added weighted of the rail wheels, which reduces fuel efficiency and results in higher movement costs in addition to the higher cost of the equipment. The disadvantages have tended to out-weight the advantages resulting in very low usage of this Inter-modal option. If technology improvements can reduce the cost of this transport option, usage is likely to increase. Miscellaneous inter-modal issues. Any other inter-modal combinations are possible. In international commerce for example the dominant modes of transportation are air and water. Both include Inter-modal movements through the use of containers and truck trailers. Combinations of air-sea, air-rail, truck-sea and rail-sea are used globally. As an example 'By shipping cargo by ocean from Japan to Seattle, then transferring it to a direct flight to Europe from Seattle-Tacoma Airport. Asian exporters reap substantial benefits. They can cut their transit times from 30 days for all water service to about 14 days and slash freight costs by up to 5 % compared with all services.

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Third Party Logistics Service Providers


This sector is growing very rapidly. With the increasing emphasis on supply chain management, more companies are exploring the third party option. For some firms dealing with one third party firm who will handle all or most of their freight offers a number of advantages, including the management of information by the third party, freeing the company from day-today interactions with carriers, and having the third party oversee hundreds or even thousands of shipments. Third parties have administered activities such as freight payment and dedicated contract carriage for many years. However, additional transportation and logistics activities are being outsourced. In some instances, some companies have outsourced large parts of their logistics operations to their parties. Brokers, freight forwarders, shipper, associations, Inter-modal marketing companies and third party logistics service providers can be available shipping options for a firm in the same way that the give basic modes and Inter-modal combinations can. The logistics executive must determine the optimal combination of transport alternatives for his or her company. In addition to the preceding alternatives many companies find that other transport forms can be used to distribute their products. Small package carriers and parcel post are important transporters of many time sensitive products. These companies use a combination of transport modes, especially air. The U.S. domestic airfreight market consists of 60% express, 25% passenger carriers and 15% mail. The growth rate in this sector has been robust, averaging about 10% a year.

TRANSPORTATION NETWORK DESIGN OPTIONS: Transportation Network Design Options


Classical economists neglected the importance of facility, location and overall network design Economists, when originally discussed supply demand relationships, facility, location and transportation cost differentials were assumed to be non existent or equal among competitors. The number, size, geographical relationship of the facilities are used to perform logistics operation directly affect customer service capabilities and cost. Network design primary responsibility of logistics.

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Typical logistics facilities are manufacturing plants, warehouses, gross dock operations and retail stores.

The design of a transportation network affects the performance of a supply chain. This is because a supply chain establishes an infrastructure within which operational decision regarding scheduling and routing are made. A well-designed transportation network is very essential for an organization. It allows the supply chain to achieve the desired degree of responsiveness at a low. A) DIRECT SHIPMENT NETWORK: The retail stores chain network options for the direct shipment network. As the name suggests, the retail stores chain network structures its transportation network in such a way that the shipment of goods and materials come directly from the suppliers to the retail stores. In direct shipment network, the path or the route which each shipment has to take is specified. The duty of the supply chain manager in this case is only to decide on the quantity of goods that has to be sent to the retail stores and then, depending on the type and quantity of goods, he has to decide on the mode of transportation. Here the supply chain manager has to strike a balance. In other words, if be decides to reduce the number of trips of transportation to minimize transportation cost, then he has to decide on larger inventories at a retail stores. But maintaining large inventories have their disadvantages as well. Again to keep the inventory level minimum at the retail stores, there will be more number of trips by trucks to the retail stores. This will increase the cost of transportation. Hence, the supply chain manager has to decide in a judicious manner between inventory cost and transportation cost. B) DIRECT SHIPPING WITH MILK RUNS: A milk run is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple supplier to a single retailer. Hence, in direct shipping with milk runs, a supplier delivers directly to multiple retail stores on a truck, or a truck picks up deliveries from many suppliers destined for the same retail stores. When using this opinion, a supply chain manager has to decide on the routing of each milk run. This is because if a supplier has to deliver to multiple retail stores, the supply chain manager has to decide which retail stores are to be given priority and accordingly the routes have to be decided. Similar decision about the route has to taken by the supply chain manager when many suppliers have to be contacted by the truck to take deliver of goods meant for the same retail store. Direct shipment of goods to the destinations provides the benefits of eliminating the need of having intermediate warehouses. Further the milk runs help to lower the transportation costs by consolidating shipments to multiple stores on a single truck. For example if replenishment to each retail store is considered on a direct shipment basis, it may happen that the lot size dispatched to that retail store may be small and the truck will not be loaded to its full capacity. However, if milk runs are used instead, the deliveries to multiple stores can be profitably, consolidated on to a single truck. This will result in the better utilization of the truck and also helps to reduce cost. For example, Toyota uses milk runs from suppliers to support its Just-in-Time (JIT) manufacturing system in both Japan and the United State. However in Japan, Toyota has many of its assembly plants located close together and thus uses milk runs from a single supplier for many plants. Again in the United State, Toyota uses milk runs from many suppliers to its assembly plant in Kentucky. C) ALL SHIPMENTS VIA CENTRAL DISTRIBUTION CENTRE: In this transportation network, the suppliers do not send the shipment of goods directly to the retail stores. The retail chain divides the stores by geographical region. Each region bas Central Distribution Center. The supplier sends the goods to the various central distribution centers. The Central Distribution
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Centre, in turn sends the goods to the retail stores as per the requirement. The Central Distribution Centre is an extra large between the suppliers and the retailers. It can play two different roles. First role is to store inventory and the second role is to serve as a transfer location. The presence of a distribution center helps to reduce supply chain cost when suppliers are located far from the retail stores and the transportation cost are high. Cross Docking of goods and products is taken advantages of when there are large shipments on the inbound side and on the outbound side, goods and products have to be sent to retail outlets replenishment lots. A major benefit of cross docking of products is that little inventory has to be held at the central distribution center and the products flow faster in the supply chain. Cross docking also saves handling costs, because the product does not have to be moved in to and out of storage at the central distribution center.

Modal characteristics and selection


In choosing a transportation mode, the transportation managers consider the following criteria. Cost Transit time Safety Reliability Claim records Responsiveness Speed Capability

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LOGISTICS INFORMATION
1. OPERATIVE LEVEL
The lowest level of pyramid refers to transactions and enquiries. Examples of this activities are order enquiries, order processing, stock status checks, Bill of lading preparation and Transportation rate. Only implemented guidelines are given they follow guidelines. Since there are diverse people therefore extension of information is more .

2. SUPERVISORY LEVEL
Information of this nature is used by the supervisory staff . Say, warehouse supervisors must exercise control over space utilization inventory and Labour Productivity in order billing operations. They prepare shift plan, they keep assembly ready . A truck fleet manager must have the necessary people, equipment and spare parts to accomplish the transportation mission and schedule deliveries .

3. MIDDLE MANAGEMENT LEVEL


Here middle management level is concurred with evaluation of inventory control limits , supplier evaluation, Carriers selection, planning for seasonal space and transportation needs etc are termed as Tactical Planning . They decide and supervisor follows. What is the ROL, which inventory control system to follows. What should be the buffer stock of an item.

4. TOP MANAGEMENT LEVEL


Strategic Planning & Long Term Planning are the areas where top management works . There activities involve setting of goals, policies and objectives, deciding on the overall logistical structure and determining the resources needed for the supply distribution task . all policies , goals, next three years what to produce , supplier selection .

Following 4 primary activities take place within the logistic information system :-

1. Data flow from external sources . 2. Processing and storage of information within the firm .
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3. Communication of data for storage and processing to the decision maker in the
form of reports. 4. Communication of decision to customers and their feedback .

1. External Information System


A sound external logistics Information system is based on enlisting the cooperation of customers and providing adequate and relevant information for advance planning, operation and control of Logistics activities . Co-ordinations is required both, both within and outside the organization for the planning & control of logistics and other functions of management . The SOURCE of information are the customers themselves and information can be collected through the sales staff . Information on the following aspects is collected : A] B] C] D] Order pattern of customers Material handling system available Re-order point of the customers Ordering procedure of the customers

Following information is desirable from various internal department for the external information system . A] Purchasing Components, customers requirements B] Production Product preference, product performance, packing etc. C] Marketing Sales structure, sales promotion efforts, man power, competitors activities etc . D] Finance and Control Sales statistics credit rating, financial capacity etc . E] Physical Distribution Sales statistics, inventory control, Warehouse location, material handling system etc .

2. Internal Information System


Information flow within the organization is termed on internal information system. Following department- wise information is needed :

A] Purchasing :
i) Total logistics costs of purchasing from different supplier and supply points . ii) Routing instruction for in-bound materials and suppliers . iii) Status of in-bound materials & suppliers. iv) Names, addresses etc . v) Delivery request dead lines vi) Supplier prices & price discounts vii) Alternate sources of supply & process etc .

B] Production
i) Warehouse capacity for raw materials & finished products . ii) Production quantities & planning product.
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iii) Warehouse material handling system . iv) Delivery requirements. v) Status of inbound supplies . vi) Logistical innovations vii) Production capacity & scheduling etc .

C] Marketing
i) Logistical costs of alternate levels of customers service, say number of warehouses nearer to customer . ii) Performance in meeting customer service standards viz. quantity, quality, timely delivery etc. iii) Competition logistics costs . iv) Customer complaints v) Sales cost (salary, facilities, and expenses) vi) Prices & price adjustments (discounts) vii) Special customer requirements viz. special feature color, design etc .

D Finance
i) Budget for physical distribution costs ii) Various costs estimate iii) Capital investment requirements iv) Freight Bill - auditing v) Credit procedure vi) Financial performance etc. (profits)

E] Service agencies
i) Rate adjustments ii) Request for quotation for requirements iii) Freight rates iv) Carrier rates, service 7 availability etc

LOGISTICS INFORMATION SYSTEM DESIGN


Following 4 major considerations for designing the LSi) ii) iii) iv) The decision to be made in the organization at each level of management The requirements of the system the input requirements & sources, volume, quality of data, manner in which data to be collected. The Requirements of control over the system operation for the system, no. of copies to whom information to be sent etc. Input & Output Data Identify points of collection of data, design formats, arrange data entry & prepare various reports for various depots .

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Principles of Logistics Information


(1) Availability
Logistics information should be readily and consistently available . Rapid availability is necessary to respond to customers and improve management decisions. e.g. order and inventory status.

(2) Accuracy
Accuracy is defined as the degree to which LIS reports match actual physical count for status. Logistics information must reflects both current status and periodic activity for measures such as customer orders and inventory levels.

(3) Timeliness
Information should be timely provide quick management feedback .Timeliness refers to the delay between when an activity occurs and when the activity is visible in the information system . Timely information reduces uncertainty and identifies problems, thus reducing inventory requirements increasing decision accuracy .

(4) Flexibility
It should be flexible for both customers and company .One wants invoices for all his retail store and another wants one invoice for all retail stores .

(5) Appointment format


Logistics information should be appropriately formatted so that they contain the right information in the right form and in the right orders .

(6) Exceptional
If there is large order all of a sudden, product having little or no inventory, delayed shipments, decreased in operating productivity, LIS should take care of all this factors .

Types of Information System


i) External Information system
A sound external logistic information system is based on enlisting the co-operation of customers and providing educate and relevant information for advanced planning, operation and control of logistics activities .
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The source of data for the external information system for customers service are no doubt the customers themselves, and information can be collected from them through the sales staff .

(ii) Internal Information system


Made up of the elements of the information flow within an organization .It is between the department of purchasing, production, marketing, finance, etc on several important issues .The internal information system covers, data processing, data analysis, and completion of control reports are of various types status reports, exemption report and summary reports on the basis of which decision may be made by respective managers in the organization.

Advantages
1. Lower inventory caring costs, more efficient replenishment, more accurate forecast, more on time delivery, fewer documentation errors, avoiding the purchase of unnecessary equipment, etc . 2. Its ability to better plan and control traffic management .

Disadvantages
1. 2. Inflexibility to change, difficulty of integrating old and new systems, higher cost, estimation of system capability etc. Expectation of the company from LIS is to high ! some company things that using logistics information system will solve all the logistics problems they have faced .

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MATERIAL HANDLING
Definition of material handling Material handling is defined as the art and science of moving, packaging and storing of substances in a form. Other definitions include: a) Creation of time and place utility b) Movement and storage of material at the lowest possible cost through the use of proper methods and equipments. c) Lifting, shifting and placing of material which effect in a saving in money, time and place. d) Art and science of conveying, elevating, packaging and storing of materials.

SCOPE OF MATERIALS HANDLING


The scope of materials handling activity within an organization depends on the type of product manufactured, the size of organization, the value of the product and the value of the activity being performed and the relative importance of materials handling to the enterprise. There are three perspectives about materials handling viz: a) The traditional point of view.
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b) Plant wide concern for overall flow of materials. c) The system point of view. In the traditional point of view of materials handling, the emphasis is on the movement of materials from one location to another within the confines of the individual plant. The concern is to find the best way to move the materials from one place to another within the planrt. Plant wide concern focuses the attention on the overall flow of materials in the plant. The main concern is te hinter-relationship between all the handling problems and the possibility of establishing an overall materials handling plan. The systems point of view of material handling requires visualization of material handling problems, the physical distribution activities, and all closely related functions as one, an all encompassing system. This point of view involves a much broader considerations of materials handling activities involving the movement of material from all sources of supply (vendors), all handling activities witin and around the plant and the activities involved in the distribution of finished goods to all customers of thr firm.

IMPORTANCE OF MATERIAL HANDLING


1. Efficient materials handling is important to manufacturing operations. Materials sent by vendors must be unloaded, moved through inspections and production operations to stores and finally to the shipping departments. This movements donot add value to the product but, they do add to the cost. 2. materials handling analysis is a subset to plant layout and materials handling are all part of design of a production facility and can hardly be treated as separate. Materials handling system and plant, enhance effectiveness of each other. A good plant layout enables an operation to use the most effective handling method. Efficient operation of appropriate materials handling methods reduces costs and enables maximum capabilities to be derived from a given production facility.

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OBJECTIVES OF MATERIALS HANDLING


Even though the best solution to the materials handling problem, is no handling, it is hardly practicable in the manufacturing process. Hence, the main objective of materials handling is to reduce the number of handling equipments and reducing the distances through which the materials are handled. Other objectives of materials handling are: 1. lower unit materials handling costs. 2. reduction in the manufacturing cycle time through faster movements of materials and by reducing the distance through which the materials are moved. Reduction in manufacturing cycle time results in reduced work in progress inventory costs. 3. contribution towards a better control of the flow of materials through the manufacturing facility. 4. improved working conditions and the greater safety in the movement of materials. 5. contribute to better quality by avoiding damage to products by inefficient handling. 6. increases storage capacity through better utilisation of storage areas. 7. higher productivity at lower manufacturing cost.

MATERIAL HANDLING PRINCIPLES


Certain principles have evolved to guide facility layout to ensure efficient handling of materials. Although, there are no hard and fast rules, they do provide effective guidelines for the efficient movement of materials in most facility layouts.

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Principle 1: Materials should move through the facility in direct flow pattern, minimizing zigzagging or backtracking. Principle 2: Related production processes should be arranged to provide for direct material flows. Principle 3: Mechanized materials handling devices should be designed and located so that human effort is minimized. Principle 4: Heavy and bulk materials should be moved the shortest distance during processing. Principle 5: The number of times each material is handled should be minimized. Principle 6: Systems flexibility should allow for unexpected breakdowns of materials handling equipments, changes in production system technology, etc. Principle 7: Mobile equipments should carry full loads all the times. These seven principles can be summarized as follows: 1. Eliminate Handling: If not, make the handling distance as short as possible. 2. Keep Moving: If not, reduce the time spent at the terminal points of a route as short as possible. 3. Use simple patterns of material flow (the simplest path is a straight line path of flow which minimizes the handling distance between two points). If not, reduce backtracking, crossovers and other congestion producing patterns as much as possible. 4. Carry pay loads both ways: If not, minimize the time spent in transport empty by speed changes and route locations.

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5. Carry full loads: If not, consider increasing the size of unit loads, decreasing carrying capacity, lowering speed, or acquiring more versatile equipment. 6. Use Gravity: if not, try to find another source of power that is reliable and inexpensive. In addition to the above guidelines, there are certain other very important aspects of materials handling, such as the following: a. Materials handling consideration should include the movement of men, machine, tools and information. b. The flow system must support the objectives of receiving, sorting, inspecting, inventorying, accounting, packaging and assembling. Since the consideration and objectives do conflict, it is essential to take a systems decision followed by delicate diplomacy to establish a material movement plan that meets service requirement without subordinating safety and economy.

MATERIAL HANDLING COSTS


The costs of materials handling arise from two sources: 1. the cost of owning and maintaining equipment. 2. the cost of operating the system. While the costs of owning the equipment are generally known since entries are available in the books of accounts, the cost of operating the handling system are hard to pin down as records are not generally maintained. Every effort has to be made to reduce materials handling costs, particularly because they do not add any value to a product. The product will not be worth any more toi the consumer simply because it was moved, but it will still cost the consumer more. How to reduce handling costs?
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There are three fundamental ways of minimizing the costs: a) eliminating the handling itself whenever and wherever possible. b) Mechanizing, largely by conveyors and power driven trucks, whatever handling still remains. c) Making the necessary handling more efficient. Primary requisite for any action to be taken towards minimizing handling costs is to have a record maintained for them. It is here that majority of the companies are not doing the right thing. Factors affecting the selection of materials handling equipments The selection of materials handling equipments requires consideration of and attaining of proper balance between the following factors: i. ii. iii. Production problem. The capabilities of the handling equipment available. The human element involved.

The ultimate aim is to arrive at the lowest cost per unit of materials handled. (i) The production problem factors are: a. Volume of the production t obe attained. b. Class of materials to be handled. c. The layout of plant and building facilities. For example: the handling equipment which can be economically justified for the manufacture of 1000 TV sets per day would be entirely different from the handling equipment needed in a plant manufacturing 20 steam turbine generators I na year as the production rate, weight and class of materials needed are different.

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(ii) Capabilities of the handling equipments available are: a. Adaptability: The load carrying and movement characteristics of the equipment should fit the material-handling problem. b. Flexibility: Wherever possible, the equipment should have the flexibility to handle more than one material, class or size. c. Load Capacity: Equipment selected should have enough load-carrying characteristics to do the job effectively. d. Power: The equipment should have enough power available to do this job. e. Speed: The speed of movement of the handling equipment should be as high as possible, within the limits of production process and plant safety. f. Space Requirements: The required to install or operate materials handling equipment is also an important consideration. g. Supervision required: The degree of automation in the handling equipment decides the amount of supervision required. h. Ease of maintenance: Equipment selected should be capable of easy maintenance at reasonable cost. i. Environment: Equipment selected must conform to any environmental regulations. j. Cost: The cost of the equipment (capital investment) is an obvious factor in the selection. The various kinds of costs to be considered in addition to the initial purchase price of the handling equipment are: a. Operating Costs b. Installation Costs c. Maintenance Costs d. Power Requirements e. Insurance Requirements f. Space Cost g. Depreciation Cost h. Salvage Value i. Time Value of money invested j. Opportunity Cost

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(iii) The human elements/factors cannot be overlooked in the selection of materials handling equipment. They are: a. The capabilities of the available manpower to operate the equipment. b. Safety of personnel (those who operate it or come in contact with it)

TYPES OF MATERIAL HANDLING SYSTEMS


The materials handling systems can be classified according to the type of handling equipment used, type of material handled and the methods, need or functions performed. The Classifications are: 1. Equipment oriented systems depending upon the type of equipment used. They are: a) Overhead Systems b) Conveyor Systems c) Tractor Transfer Systems d) Fork-lift Truck and Pallet Truck Systems e) Industrial Truck Systems f) Underground Systems 2. Material oriented systems consisting of the following types: a) Unit handling Systems b) Bulk Handling Systems c) Liquid handling Systems 3. Method oriented systems can be of the following types: a) Manual Systems
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b) Mechanized or automated Systems c) Job-Shop Handling Systems d) Mass Production Handling Systems 4. Function oriented Systems: a) Transportation systems b) Conveying Systems c) Transferring Systems d) Elevating Systems The materials handling equipments are classified into four basic types, viz. conveyors, cranes and hoists, trucks and auxiliary equipment.

TYPES OF MATERIALS HANDLING SYSTEMS


1. CONVEYORS These are gravity or powered devices, commonly used for moving loads from point to point over fixed paths. The various types of conveyors are: a) b) c) d) Belt Conveyor: Motor driven belt, usually made of rubberized fabric or metal fabric on a rigid frame. Chain Conveyor: Motor driven chain that drags materials along a metal slide base. Roller conveyor: Boxes, large parts or unit lands roll on top of a series of rollers mounted on a rigid frame. Pneumatic Conveyor: high volume of air flows through a tube, carrying materials along with the airflow. The other types of conveyors are bucket conveyor, screw conveyor, pipeline conveyor, vibratory conveyor, trolley conveyor, and chute or gravity conveyors. Advantages of conveyors are that they do not require operators, will move a large volume of products and inexpensive to operate.
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2. CRANES, ELEVATORS AND HOISTS These are overloaded devices used for moving various loads intermittently between points within an area, fixed by supporting and binding rails. a) Cranes are devices mounted on overhead rails or ground level wheels or rails. They lift, swing and transport large and heavy materials. Examples are Gantry Crane, Jib Crane and Electrically Operated Overhead Crane (EOTC). b) Elevators are a type of cranes that lift materials usually between floors of buildings. c) Hoists are devices, which move materials vertically and horizontally in a limited area. Examples are Air Hoists, electric hoists and chain hoists. 3. INDUSTRIAL TRUCKS

These devices are used for moving mixed or uniform loads intermittently over variable paths. They are electric, diesel, gasoline or liquefied petroleum, gas powered vehicles equipped with beds, forks, arms or other holding devices. Examples are forklift trucks, pallet trucks, tractor with trailers, hand trucks and power trolleys. 4. AUXILIARY EQUIPMENTS

These are devices or attachments used with handling equipment to make their use more effective and versatile. Examples are ramps, positioners, pallets, containers and turntables.

MISCELLANEOUS HANDLING EQUIPMENTS


1. Pipe Lines, which are closed tubes that transport liquids by means of pumps or gravity.

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2. Automatic transfer devices, which automatically grasp materials, hold them firmly while operations are being performed and move them to other locations. 3. Automated guided vehicle (AGV) Systems: These devices do not require operations and provide a great deal of flexibility in the paths they travel and the functions they perform and the AGVs are controlled by signals sent through the wires embedded in the floor or inductive tape on the floor surface. A remote control computer is needed to control the movement of AGVs. 4. Industrial Robots: a robot is a mechanism that has a movable armlike projection with a gripper on the end that can perform a variety of functions with the control that can be reprogrammed and hence they are very versatile. The process design and the principles of efficient materials handling provide the framework for selecting specific materials handling devices as the core of the materials handling system. Each of the handling devices has its own unique characteristics and advantages and disadvantages.

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WHAT IS MRP? MRP [Materials Requirement Plan] Popular concept in 1960&1970. Consists of a computer system, a manufacturing information system, building on inventory, production scheduling and administering all inputs to production and a concept and philosophy of management. Definition Of MRP SYSTEM MRP system consists of a set of logically related procedures, decision rules, and records designed to translate a master production schedule into time phased net inventory requirements and the planned coverage of such requirement for each component item needed to implement schedule. An MRP system re plans net requirements and coverage as a result of changes in either the master schedule, demand, and inventory status or product composition. MRP systems meet their objective by computing net requirements for each inventory item, time-phasing them, and determining their proper coverage OBJECTIVES 1. 2. 3. Ensure the availability of materials components and products for planned production and customer delivery. Maintain the lowest possible inventory level. Plan manufacturing activities, delivery schedules and purchasing activities.

HOW? PROCESS
MRP starts with customers demand for the quantity of end product and the time when the products are needed.
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Then MRP explodes the time and need for components based upon the end product need. MRP System focuses on inbound logistical area MRP System uses following key elements: 1. 2. 3. 4. 5. Master Production Schedule Bill of Materials Inventory Status Files MRP Program Outputs & Reports MRP system has developed into its current incarnation in phases. First phase is called MRPI or Materials Requirement Planning and the second phase is called MRPII or Manufacturing Resources Planning MRP I is a computer based production and inventory control system [soft ware] that attempts to minimize inventories while maintaining adequate materials for production process. WHEN DOES IT GET APPLIED? MRP I is applied when 1. 2. 3. The process follows an intermittent system. Demand is dependent Purchasing dept., their suppliers and companys own manufacturing system is flexible enough to handle deliveries on weekly basis

ADVANTAGES OF MRP I 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Improved business results [ROI, profits] Improved manufacturing results Better manufacturing control More accurate and timely information Less inventory Time phased ordering of materials Less materials obsolescence Higher reliability More responsiveness to market demand Reduced production costs

DISADVANTAGES OF MRP I
1. 2. 3. Due to small lot purchases high material acquisition costs and high ordering costs Stock out costs are more as safety stock protection is low A limitation of software as adapting to specific situations is difficult. So modification of the software is necessary

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MRP II
MRP I is updated and expanded to include financial and marketing and logistics elements. This newer version is called Manufacturing Resources Planning or MRP II. Includes entire set of activities involved in planning and control of production. It consists of a variety of functions of modules and includes production planning, resource requirements planning, master production scheduling, materials requirement planning [MRP I], shop floor control and purchasing

Benefits of MRP II
1. 2. 3. 4. 5. Inventory reductions of one fourth to one third Higher inventory turn over Improved consistency in on-time customer delivery Reduction in purchasing costs due to less urgent purchases Minimization of workforce overtime

DISTRIBUTION RESOURCE PLAN [DRP]


Distribution Resource Plan is a widely used powerful technique applied to outbound logistics to help determine appropriate level of inventory Distribution requirement planning [DRP I] is defined as the application of MRP principles to the distribution environment [out bound logistics], integrating the special needs of distribution. It is a dynamic model that looks at the time phased plans of events that effect inventory. Distribution Resource Planning [DRP II] is an extension of DRP I. Distribution resources planning applies the time phased logic of DRP I to replenish inventories in multi echelon warehousing systems. Distribution resources planning extends DRP I to include the planning of key resources in a distribution system ware house space, man power levels, transport capacity [e.g. trucks, rail cars] and financial flows. As an extension of DRP I, DRP II uses the needs of distribution to drive the master schedule, controlling the bill of materials and ultimately materials requirement planning. In essence, DRP I & DRP II are outgrowths of MRP I & MRP II, applied to logistics activities of a firm.

Uses of DRP generated information


Coordinate the replenishment of SKUs coming from the same source [e.g. a company owned or vendors plant.] Select transportation modes and carriers and shipment sizes more cost efficiently.
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Schedule shipping and receiving labour Develop a master production schedule for each SKU Accurate forecasts are essential ingredients for successful DRP II system.

MARKETING BENEFITS

Increased service levels - improved OTD, reduced Customer Complaints Effective new product introduction plans Ability to anticipate shortages Improved inventory coordination

LOGISTICS BENEFITS Reduced distribution costs Reduced inventory levels Decreased warehouse space requirement as inventory is low Lesser back orders Improved inventory visibility & coordination between manufacturing and logistics

CONSTRAINTS Needs accurate forecast Sources of errors in the system

- Inaccuracy in forecast quantity - Inaccuracy in forecast location - Inaccuracy in forecast time Variable performance cycles 59

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System nervousness Uncertainty buffers

COMPARE DRP & MRP DRP Outbound logistics Market MRP Inbound logistics Production Schedule worked out based on past data in the organization [Forecast based on past data] Up to Finished Goods starting from raw materials production. Dependent demand Production schedule

1.scope 2.dependence for planning inputs

3. Coordination responsibility 4. Nature of plan 5. What is forecast? 6. Planning Tool

Once the finished goods are produced. Short term and accurate Finished goods Schedule prepared for delivery of supplies in the outbound logistical network.

7. Inventory management of?

SKUs

Raw Materials, components

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8. Planning availability of stock at?

Market [retailers] & warehouses

Raw material stores, Conversion process & finished goods store

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