You are on page 1of 134

Presented in Elijah Institute of

Management studies, Thrissur


“The practical organisation that is needed to
make a complicated plan successful when a lot of
people & equipment is needed”

e.g. 1. Logistic support in the army

2. Organising famine relief presents huge


problems

i.e. Moving Right People & Right Equipment to


the Right Place at the Right Time through the
Right Methods.
 To have competitive edge over others
 Marketing
mix (By McCarthy): Product, Price,
Promotion, Place (4 Ps)
 Past‘Place’ was a “dark continent” in marketing
(Peter Drucker, 1992)
 Inthe past, Distribution was not important.
Because of manufacturers’ monopoly
E.g. 10 years waiting for Padmini Cars.
6 years waiting for Bajaj Scooters
 Shift from ‘Sellers’ Market to ‘Buyers’ Market
 Consumers are now Bosses
 Now, any product is available, that too on
installment
 No monopoly now
 Business
has become more Complex &
Dynamic now
 Vibrantmarket (Market is time & price
sensitive)
 Everyday,everybody is thinking about new
market plans
 Survival of the fittest theory
 Saying“People have your money in their
pocket & You have their goods on your
shelves”
 ‘Push’ is important than ‘Pull’ now
 Question is how you push?
 Togive the best products & services than
others
 To win customers’ loyalty & goodwill
A satisfied customer will remain loyal
 Your
weakness is your competitor’s
advantage
 More business competition & rivalry now
 E.g. Fuel efficiency claim by Hero Honda
(Now Bajaj claims 102 kmpl)
 Fuel efficiency & Economy: by Maruti Cars
(Tatas are now coming with mini Nano)
 Due to rapid technology transfer
 Rivals
not only copy, they add more features
& give more value for your money
 Now,lower price strategy doesn’t work.
(Because consumers have enough money)
 Now,Promotion also doesn’t work (Because
too much ‘advertisements’ will make the
consumers confused and fed up)

 Hence Place (out of the 4 Ps) is important


now
 Complicated business scenario
 Rapid economic boom
 Globalisation

 Liberalisation

 Intelligent consumers
 Heavy Industrialisation
 Scientific innovations
 Hence for more customer satisfaction now
 To be customer focused
 Quick delivery & after sales service (24 hrs)
 Hence the need of Logistics Management
 Logisticsfrom Greek word ‘Logisticos’ meaning
“science of computing and calculating”
 Firstused in military sense (Logistical Support)
(World War II & other wars)
 Webster (1963) defines Logistics as:
“The procurement, maintenance & transportation
of military materials, facilities & personnel”

 USAirforce (1981) defines:


“The science of planning out the movement &
maintenance of forces”
CLM(Council of Logistics Management (1991)
defines:
“Logistics is the process of planning,
implementing & controlling of efficient,
effective flow & storage of goods, services and
related information from the point of origin to
the point of consumption for the purpose of
conforming to the customer expectations”
 Corporate vision & objectives – To turn it
into winning edges over others
 Strategic logistics analysis
(i.e. finding alternatives, evaluation,
selection etc.)
 Logistics planning & evaluation
 Managing change
 Firm to dominate
4 Ps – Place more important
 Highestlevel of customer satisfaction to
maximize productivity & profitability at
lower cost
Five ways for gaining it
 Low cost (To enhance Profitability)

 Superior customer service

 Value added services (e.g. training to customers)

 Flexibility

 Regeneration (i.e. to be innovative)


 Product Design

E.g.
 Plastic moulded water tanks
 Fully assembled automobiles
 Transportation of huge machinery
(H & R Johnson)
 Containers capacity and storage
 Plant Location
 Choice of sources/ markets
 Production structure & planning
 Distribution/ Dealer network design
 Warehouse location/ operations
 Plant layout
 Allocation decisions
 Inventory management/ stock levels
 Transportation models/ Routing/ Capacity
E.g. Cement Transportation (wagon
shortage) change in packaging (Jute, plastic)
 Packaging
 Material Handling
 Storage problems in monsoons
 Plant/ warehouse near port/ Airport
 Nearness of dealers to factory/ warehouses
 Shippers
 Suppliers
 Carriers
(Rail, Road, Air etc)
 Warehouse providers/ Freight forwarders
 Terminal operators (port, stevedores)

 Government (Regulations & logistics)


 Role CST, local sales tax, excise, octroi, modvat,
road tax on vehicles
 Inbound Logistics (Raw Materials)
 Outbound Logistics (Finished Products)
 Single v/s Multiple plants
 Nature of the products
e.g. various dimensions

- Bulk, perishable, non-perishable,


refrigerated, non-durable, industrial v/s
consumer products, packaged products
(Fruits/ Vegetable exports)
 Includes goods transportation & storage
 Material handling & Information structure
 We do mostly by road & rail
 Pipeline is growing
 Waterways unexplored
 Air for emergency only
 In India, a lot to improve
 Government to take initiative
 Suppliers to be cost conscious
 Communication technology to improve
 Suppliers & shippers are to be cost
conscious
 In short, the whole industry is unorganized
 Like any other organisational Mission
 Customer relationship to be closer
 Goods to be faster & cheaper
 Need for integrated Logistics Management
 Organisational rigidity is a barrier
(Both structural & personal)
 Because Managers’ ego & territories
 In conventional companies, even inbound &
outbound transportation is differentiated
 Too much paperwork & Red Tapism
 Papers move even slower than the movement of
cargo
 A conventional company, shows multifaces to
customers.
 Theyshunt them from table to table, department to
department
 Organisation to be horizontal
 Organisation to be market facing/ market
driven (Output focused)
 Organisation to work together
 Organisation to have cross functional teams
 This is Flat Organisation system
 To have customer order fulfillment system
 By eliminating non-value added items e.g.
delays in paperwork, idle times in
transportation, storage, checking etc.
 Better management of order fulfillment groups
like sales office people, accounting, Cr. control,
transport department etc.
Reaching Right Quantity
with the Right Quality
at the Right Price
at the Right Place
at the Right Time
to the Right People
with the Right Mode (of transportation)
(Quote from M S Banga, Chairman, HLL
(FMCG) AGM 2004 Speech)
 To touch customers in multiple ways
 Tocreate brand messages & to experience our
brands
 To offer tailored solutions to customers now
 Now shopping is a new experience
E.g. Family and children taking leisure time
 Nowconsumers are well informed through
advertisements
(Average 350 to 400 Ads/ week)
 Redistribution partners are important to HLL
 HLL has 25000 outlets in key cities in India
 They do superior display of HLL products
 HLL introduced self service stores in India
e.g. HLL in Hyderabad
Reliance Super Stores
 Advantage is consumers can “Touch & Feel”
 HLL Sunsilk shampoo wash in stores
 The key factor is product availability
 There
are 600,000 villages in India in the most
remotest places
 HLL creates ‘win-win’ partnership with consumers
e.g. Surf Ad
 HLL’splan is to reach to 100,000 villages = 100
million people (rural)
 New self help women group sell HLL products
directly to the rural people
 They also spread the message of health & hygiene
 e.g. Lifebuoy for health
 Now doing direct selling, generating Rs. 2300/-
Crores & growing at 20% pa
 Also
provides ‘customised’ offerings covering 11
categories in ‘Home & personal care & foods’
 HLLhas network of over 1500 towns in India
covering 80% of urban population, with 250,000
consultants
 Direct
selling enables personalised communication
& customized solutions, through demonstrations &
product trials & brand experience
 Eating outside in European style
 Now in India, due to busy family life and nucleus
family
 HLL adopts 3 ways
 Product availability
 Brand Communication
 Brand experience
 HLL re-inventing their distribution network
 HLL distribution creates new employments
 HLL
has 7000 stockists, 6000 sub-stockists,
employs 60,000 people
 Interface means Connections
 Marketingis the management of 4Ps (Product,
Price, Promotion, Place)
 Right product, ….Right Place etc.
 The competitive edge to be customer service
 Customer awareness of Rights
 Customers
are too much demanding Customers
know what is in the market
 No‘brand image’ will work out. Neither the price,
nor the quality
 E.g. Computer market
 Now it is product availability & service (Product
Sector)
 Service
in non-manufacturing is equally important
now (Service Industry)
 Service is an “added value” now
 Financial loss due to ‘out-of-stock’ scenario
 Marketing
is inter-related with ‘Logistics’ &
‘Customer Service’
 The concept of ‘Customer Retention’
i.e. “A satisfactory customer will remain loyal”
 Will also get references
 To sell & to service a loyal customer is less costly
A loyal customer may not think of substitutes
 This is “Relationship Marketing”
 Tocreate & sustain & strengthen customer loyalty
& relationship
 First,to design ‘customer needs’ and then the
‘services’
 Then, design a suitable logistics system
 Lessinventory but faster mode of transport for
reaching the goods
 ‘Customer Servicing’ through ‘better & faster’
logistics
 Procurement & manufacturing management have to
be market oriented, need oriented.
 This is “Logistics Pipeline Management”
 Not to produce at any cost
 Inventory tied up is money tied up
 To produce the right product
 Production
schedule through better planning
management
 Production to be market oriented
 Procurement of raw materials requires planning,
lead time, mode of transportation, time, cost
 Co-ordination between production and other
departments
i.e. ‘Logistics’ the whole concept
These are ‘Quantitative’ models from operations
research
 Forecasting Models
 Demand and Supply based on past data
 Mathematical Programme Model
a) Location Model
 i.e. planning optimal & ideal location of plant &
warehouses, both for inbound and outbound
 To minimize Transportation cost
 Allocation Models
 i.e. optimal allocation of commodities from ‘sources’ to
destinations with a vast & multidimensional network
e.g. a company with 15 plants & 30 warehouses

b) Distribution Network Design Model


 Involves location of warehouses & break bulk points,
choice of transportation modes
 Distribution costs include transportation, ware housing,
handling, inventory
1. Inventory Models
 Costs on buffer stock keeping for uncertainties
 Shipment & inventories of Finished products, its
warehousing & retailing
 Pipeline inventory
2. Routing Models
 i.e. routing of transportation network to
destinations
 The simplest model is called the shortest path
problem
e.g. Critical path method in Operations Research
 Can be done by using geographical maps
 JIT (Just In Time) is a Japanese philosophy
i.e. nothing is produced/ moved until the need arises
 Produces against advance firm order (Pull)
 ‘Push’ is in anticipation of the demand
 In pull, product flow is based on demand
ROP (Reorder point)
 At ROP, the new order is placed
 The quantity to be ordered is based on EOQ
EOQ = (2AS)
√ i
A = Annual usage
S = Set up ordering cost
i = Inventory carrying cost
EOQ = (2 x 1000 x 100) = 141
√ 40 x 25 %
A = Annual usage
(e.g. 1000 units)
S = Set up ordering cost
(Rs 100/- per unit)
i = Inventory carrying cost
(e.g. 25% of unit cost = Rs. 40/-)
 Another way to keep inventory management is a
periodic review of stock/ replenishment levels
 Push & pull may lead to higher/ lower stocks
 EOQ may create more carrying costs in the initial
stages, then it gets decreased till the next EOQ
ordered
 JIT due to space shortage (especially in Japan)
 JITencourages small lot batches/ Quantities but
often (To avoid stock out at manufacturers side)
 This
is against conventional system of mass
production & storage
 JIT requires strictest planning discipline
 JIT requires firm orders from customers
 JIT advocates for consolidated delivery
 Consolidation can be done by 3rd parties. They
collect, segregate for onward despatches
 JIT
requires a good co-ordination & communication
between supplier & customer
 JIT’s philosophy is “Quick Response” Logistics
(QR)
P & G uses QR. Their retailer Walmart gives
them quick and fast sales data
 QR leads to
 less inventory
 less safety stock
 less pipeline inventory
 less lead time
 less forecasting errors
 Developed a technique ‘Industrial Dynamics’
 Developeda special computer stimulated language
known as ‘Dynamo’
 Built 3 models of inventory
 Retailer Inventory
 Distributors Inventory
 Factory Inventory
 Eachof these models were connected through
information flows & goods flows
 Informationflows like order processing time,
factory lead time, shipping delivery time etc.
 Sometimes, a surge/ a jolt is created during
promotional activities i.e.
retailers  wholesaler  manufacturers
 It becomes a pressure in the chain
 This surge can be minimized through better
information exchanges in the chain
 Dell & Hewlett Packard does the final assembly only
after getting customers actual requirements
 ‘Masscustomization’ can be done with CAD/ CAM
i.e. Computer Order Design
E.g. Customer Foot shoe Co.
 No inventory.
 They take measurements – ‘make-to-order’
 3 weeks delivery time

 Toyota’sStrategy – make 80% of the total demand


based on forecasting 20% on firm orders
What is distribution?
Right goods, Right Place etc
a) Industrial Products
 Company  Customer

b) Automobile
 Company  Dealer  Customer

c) FMCG & Pharma


 Company  C&F Stockists  Retailers  Customers
d) FMCG
 Company  Distributors  Wholesalers  Retailers 
Customers
e) FMCG
 Company  Depot  Stockists  Retailers
 Customers
f) Consumer durables
 Company  Own Retail Outlet  Franchised showroom
 Customers
g) Food grain, garments
 Company  CA  Wholesalers  Retailers 
Customers

 Note:- To have warehouse or not?


 i.e. Company  Consumers
(No Intermediary)

e.g. Industrial products & services sectors, where


the unit value of the product is very high, product
technicality & product complexity
 To have its
 Own sales force
 Own retail outlets
 Direct Mailing
 Telemarketing
 Websites
 Personal Selling
 To have trained sales force
 Sales force locates customers
 E.g. Insurance sector, Eureka Forbes

 Telemarketing
 Through Telephone calls
 Positive is, reduced selling costs
 Direct Mailing
 Sending detailed brochures to prospective customers
 Is a silent sales
 Negative is, poor response
 Firms to have the right & vast data bank
 One-tier Distribution system
 i.e.Company  Distributors  Customers (only 1
intermediary)
 positive is, minimum distribution costs, maximum
control

 e.g. Maruti  Sitaram  Customer


 Two-tier Distribution system
 E.g. Company  Wholesaler  Retailer  Customer

 Multi-tier Distribution system


 E.g. FMCG Firms
 i.e.by adopting more than one channel system to
reach to customers
e.g. Auto component Manufacturers & HLL
 Company  Customers
 Company  Wholesalers  Customers
 Company  Retailers  Customers
 Manufacturingfirms prefer MCS for greater
marketing coverage & penetration
 Drawback: Rivalry & competition among agents in
MCS resulting into unethical selling & loosing
Corporate image
 MCS is complex & expensive, but effective &
profitable if managed well
 Channelconflict may lead to loosing business
opportunities
To look into the following 6 areas
1) Distribution Objectives
Manufacturers to know firms overall
marketing objectives & strategies
 Objectives include:-
 Greater market coverage, dominance,
penetration
 Higher growth, long term business plans
 Sustainable competitive advantage
 Control on channel relationships
 Social care
2) Distribution system alternatives
 - To decide whether to have DDS (one-tier etc)
3) Determining intensity of distribution
 - i.e. how many channel numbers, length, width,
etc.
4) Intensive distribution
 To dump products everywhere
 (When products are inexpensive)
5) Exclusive distribution
 - i.e. whether to give exclusive dealership or not,
for a designated area
e.g. readymades

6) Selective distribution
 i.e. to select high potential channel intermediaries
(i.e. agents/ sellers)
 To bring maximum turnover & profits
 Storage Warehouse
 For keeping for a long time
 E.g. Raw materials, components etc for production
 Closer to factories

 Warehouse
 For keeping finished products
 Storage time varies
Module III
 Distribution Centre
 i.e.full service warehouse
 It emphasizes on movement, then storage
 Situated near to market

 Warehouse is a value added process now, than a


necessary evil (if managed well)
 Warehouse to be meant as a Switching/ Transit
facility
 Tostore goods scientifically & systematically to
retain its value & originality
 Requires a good information system
 Ownership Based
 Private warehouses (company owned) + points
 Public warehouses (e.g. By government or by
organisation)
 Bonded Warehouses
 Either private or government owned
 Under customs/ Excise control
(Goods removal after paying duty)
1) Cold Storage

2) Export & Import warehouse


I. Economic Functions (i.e. logistical costs)
 If more warehouse is added, Transportation cost
can be reduced
 Consolidation
 a single warehouse receives goods from many plants
e.g. A,B,C, etc.
 But despatches to one customer
 Break Bulk
 Entire lot is stored
 Then despatched to different customers
 Stock - Piling
 i.e. seasonal storage of goods e.g. Garments

 Value added services


 Packaging & labeling is done in the warehouse
II. Operational Functions
 E.g. receiving goods, storing, Record keeping,
forwarding etc.
 Based on demand pattern
 Based on buying behaviour
 Competitors warehousing strategies
 Nature of the products
 The cost
 Availability of goods
 Warehousing facilities required for the product
 Now decide
 Whether to have warehouse or not
 If owned, to centralize or not.
(Centralised means very few, decentrailised means
many)
 Location, cost
 Geographical location
 Production centre v/s location
 Transportation infrastructure facilities
 Nature, quality, quantity of goods to be stored
 Management philosophy
 Land/ Space cost (Capital)
 Handling/ Transportation costs
 Administrative costs
 Quantity based, product characteristics, shapes,
sizes, weight
 Warehouse design to be flexible & futuristic
 Good material handling system
1. Purpose
2. Layout
3. Warehouse space requirement & aisle layout
 Layout for material handling
 Roof plan, floor plan for smooth material flow
 Windows, aisles, platforms, pillars, lighting,
elevators, cranes, forklifts, trucks (loading
platform) etc, palletized keeping, water,
communication, road.
 Vast courtyard for parking
 Space for office, security, compound wall
 For keeping damaged goods, refrigerated area
 Bonded space
 Computer usage
 Improved customer service
 Accurate inventory records
 Better use of storage capacity & equipment
utilizations
 To know stock costs
 Material availability
 Visibility of inventory
 Routine record keeping for verification
 Is necessary for consumer products
 Branding e.g. Glucose biscuit, Toothpaste
(Colgate)
 Design package
 Usually squares (To save space)
 Pencil like package (Lipstick) for utility purpose,
easy to carry in handbags
 Packaging for protection
 Packaging for economy
 Package for convenience
 Packaging for promotional activities
 Sometimes 5 Ps ( Price, product, place promotion,
& Packaging)
 For self services (it is self explanatory)
 Consumer affluence
 Company & Brand image
 For cost efficiency (due to innovational
packaging)
For
 Product protection
 Containment
 Attractiveness
 Identification
 Convenience
 Effective sales tool
 Easy display
 Advertisement
 Easy storage & transport
 Easy to identify
 Good memory & identification/ recognition
 Earthenware
 China Jars
 Wooden/ hard boxes
 Straw baskets
 Gunny/ Plastic bags
 Glass bottles
 Tin containers
 Clothes, etc.
1. Consumer Package e.g. Toothpaste
2. Family Package
3. Reuse Package e.g. glass jar
4. Multiple Package e.g. Make-up set, Baby care
 To protect contents
 To be attractive
 To identify
 For convenience
 To identify
 For convenience
 To occupy less space
 Image of the brand
 To have a clean look
 Proud to possess
 Status (e.g. Damas packs)
 Minimises sellers job
 To resist soiling
 Labels pasted
 Eye-catching
 Simple in design
 Easy to handle
Module III
 Movement of one product from one location
to another location
 i.e. Distribution of products to various
locations
 because products are not consumed in one
place
 An important factor in Supply Chain
especially, transportation cost
 It is 6% of the GDP in USA
 E.g. Home delivery etc.
 So manage transportation effectively
 E.g Pooling in Metropolitan cities
 So, aggregation of product to different
customers while delivering
 Walmart uses cross docking system i.e.
exchanging products based on where
shortages & surpluses occur
 To establish the cost effectiveness of the
transport mode
1) Vehicle related costs i.e. purchase, lease,
charter costs
 Fixed costs even if vehicle is not used

 Fixed Operating Costs: E.g. Vehicle


parking, trucking facility, terminal facility
for aircrafts, hangers, driver’s salary, etc.
1) Trip-related Costs: Labour, Fuel.
 Labour cost/ Day or fixed salary.
2) Quantity-related Costs: For loading – unloading
3) Overhead costs: i.e. Costs involved in
information technology used in transportation
network
 E.g. Truck Drivers with Walky Talky – Wireless
 Air
 Land (Road, Rail)
 Sea
 Pipeline
 Carrying Passenger & Carg, incur high fixed
costs in infrastructure and equipment
 Labour and Fuel costs
 Hence, Airline to maximize the daily flying
time
 Hence, airline to maximize seating capacity
with different priced classes
 Fast but expensive
 Carry costly airfreight items
E.g. FEDEX, UPS, DHL
 They use Air, Truck, Rail transportation systems
(Intermodal)
 Expensive mode of despatch
 Can carry fairly small consignments
 Have their own aircrafts, trucks etc.
 Rates according to distances
 More expensive than rail
 Delivery door-to-door
 Shorter delivery time
 More reliable
 Less pilferage and theft
 More economical
 Bilk Carriers
 For long distances
 Could be delayed due to shunting of bogies
 Ideal for heavy, low value shipments
 More pilferage and theft
 Less reliable
 E.g. to carry coal, rice, wheat, cement
 Uncertain deliveries
 Few Famous lines: Maersk, American President
Lines (APL), Scindia Steam Navigation
Company, Shipping Corporation of India (SCI)
 For large bulk to carry
 Slow & delay
 Carries cars, grains, iron and steel etc.
 Cheapest mode
 For transporting crude petroleum, natural gas
etc
 E.g. India-Pakistan-Iran Gas Pipeline (under
consideration)
 By using more than one mode of transportation
 E.g. Rail + Road (To carry containers)
 E.g. Sea + Rail + Road (To carry containers)
 High network is required for information
passing
There are five factors
 Company Characteristics and Philosophy
(Airline, DHL, L& T, etc)
 Market Structure (e.g. Geographical/
Territorial) e.g. Russia with no sea port
 Product Characteristics (weight, height, size,
shape, shelf-life etc)
 Customer Characteristics (Delivery
Specifications)
 Environmental Issues (Govt. policies, at times
subsidized transportation etc)
 i.e. Inter-Company computer-to-computer
communication
 No Human Intervention is required
 This is an automation facility
 It is inter-organisational
 Consists of standardized Electronic Message
Formats
 Can Communicate from one company to
another through computer
 Becomes paperless communication
 Can prepare and send invoices, purchase
orders etc. (computer-to-computer)
 Best for inventory management
 E.g. Dell’s marketing with customers (Direct
ordering via Internet)
Intranetis a means of distributing
information.
Establishescomplete network flow of
information from department to department,
to warehouse, to shop-floor etc.
Inintranet, the access is restricted to
outsiders
When access is given to outsiders (e.g.
suppliers and customers), it becomes extranet
 Data mining is exploring data stored already, for
transforming it to useful and meaningful information
(e.g. for forecasting purposes)
 Datawarehouse is a store house, built to contain
enterprise-wide information, collected from multiple
operational sources
 i.e. Electronic commerce or paperless
office
 Everybody will transact business
electronically (e.g. Zurich in Dubai)
 It is a wide business
 Reduces time, money, and speed up supply
& service
 E.g. By Internet we can reach anywhere
 So cheap cost wise