Material handling Definition: the art & science of moving, packing & storing substances in any form

Activities of Material handling

Receiving, moving, storing, raising, tilting, retrieving

activities
Importance of Material handling * Impact on Quality

* cost [capital as well as running] * Delivery & Safety

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 Objectives of material handling (system) (Opn Mgt-LCJhamb) 1. Facilitation of production 2. Movement minimization

3. Production lead-time minimization

4. Ensuring safety 5. Minimization of fatigue and drudgery
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6. Good house keeping

7. Cost minimization

Productivity improvement
Productivity of M/H equipment

Prevent damage to materials

Lower volumes of WIP

Commonly used equipment

Conveyers

EOT Cranes

HOIST

Ropes slings, Chain slings, Hooks

Pipe lines

Forklifts

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Sortation

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Industrial Trolleys

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Railroad cars

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Robotics

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forklift

pulley block
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conveyers

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Automatic Guided Vehicles

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Carousels, Racks

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 Principles of material handling (System) 1. Planning - high impact on cost 2. Integration material handling decision should be part the corporate strategyfoundation, floors, layout, product 3. Standardization handling methods, equipment, software 4. Work minimum handling
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5. Ergonomics tasks, equipment and human

beings

6. Use of gravity-always use gravity to advantage

7. Unit load- handle only in unit loads 8. Space utilization- use space and not area, EOT rather than F/Ls

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9. System integrate handling & storage (O/H tanks and pipe lines) and form Operational Material Handling System 10. Automation - need based 11. Environment - explosive?

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Signs of Poor Material Handling 1. Cluttered floor 2. Accidents 3. Excess inventory 4. High waiting time, high Through Put Time, poor flow of material 5. Excessive handling 6. Poor quality of product, high scrap
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7. Lack of standardization
8. Poor use of skilled labor

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Material handling system

Types of Material Handling Systems: Manual,

mechanized, automatic, computerized

Elements of the Material Handling system:

human, equipment, storage, packaging

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Material Handling system design

Engineering factors

1. Building and plant layout

2. Manufacturing process and equipment

3. Nature of materials and products to be handled

4. Materials handling equipment

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 Equipment selection & Purchase

1. Full utilization of existing equipment

2. Overall cost reduction

3. Standardization

4. Integration with current system

5. Alternate methods production should not halt

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6. Facility limitation, building, floors etc

7. Future plan

8. Maintenance support
9. Life cycle cost

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Economic factors
1. Capital invested in equipment and interest on

capital
2. Maintenance and repairs

3. Power
4. Labour 5. Taxes, insurance and depreciation
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6. Salvage value 7. Savings due to

Reduction in damage to material

Labour released

Expenses on equipment displaced

Increase in production

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Important concepts in Material Handling

Unitization

Palletization
Containerization

Inter-modal transportation and related benefits

Lead-time Cost
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Unitization, unit loads

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Benefits of Unitization & unit loads 1. Ease of movement

2. Standardization of handling equipment,

3. methods and training 4. Reduction in time and cost of handling

5. Inbound shipment checking is simplified

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6. product protection is improved Examples: bottles in crates, steel sheets in coils, steel ropes in coils etc. container is an example of unit load.

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Palletization
Pallet is a Unit load platform

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Benefits of Palletization 1. Unit load is secured on a pallet, pallet provides a secure base for the unit load 2. Leads to containerization, container is a (unit

load) self contained, ie., unitized and

palletized, shipping unit

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3. Facilitates use of standardized handling

equipment like a forklift or a crane

4. Palletized unit loads bring down time of

handling and cost of handling

5. Ensures safe handling

6. Product is well protected

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Types of pallets 1. Wooden pallets 2. Plastic pallets 3. Composite pallets 4. Refrigerated pallets: self-contained shipping units for refrigerated materials Pallet pools central pools to collect pallets and issue pallets to global business
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Packaging What is Packaging? A function of logistical management Where is it performed? A facility a factory, warehouse When is it done? Begins immediately on production

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Why is it done? For product protection For facilitation of easy handling & movement For customer service

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How is it done?
By using packaging material, equipment,

human resource
Types packaging

1. Consumer packaging
2. Industrial packaging

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 Consumer packaging
Attracts attention

Influences purchasing decisions of consumer

Enables the consumer to use the product

more effectively, efficiently & safe

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Industrial packaging
Makes logistical activities of handling, storage &

moving easy
Reduces lead-time

Enhances safety
Improves product protection

Reduces costs of movement

Reduces lead-time
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 Logistical functions of packaging

1. Facilitating storage & reuse - corrugated boxes & bins of plastic, metal or wood

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2. Grouping goods into convenient unit for distribution mango boxes, cola bottles, cotton bales, wire rope coils

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3. Weight minimization - plastic bottles, plastic crates, milkbags

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4. Protection - physical damage, bubble pack, corrugated sheet cartons, mangos in crates
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5. Cube minimization - flattened cans, square shaped whisky bottles, soft drink concentrates, furniture in knocked down condition, buckets or containers one inside the other, plastic chairs

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6. Pilfer proofing - bisleri caps, cola caps

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7. Facilitating handling & using same package can be used for both activities: fruity packs, flexible tubes, aerosol packs
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8. Handling makes handling easy: pallets, straps

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Transportation
Transportation [Ref. Bowersox page 311] What is transportation? One of the functions(?) of Logistical Management Visibility? Contribution to Logistical costs?

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Transportation functionality (Functions of transportation)

1. Product movement
What is moved? Inputs and outputs of a conversion process Raw Material Semi Finished items WIP Finished goods

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 Packaging material Rejected material Movement is required up or down the supply chain

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2. Product Storage
Product is in storage (inventory, stock)

When it is moving, containerized in ship,

train, trailer or truck

It is unavailable for conversion (production) Requires maintenance (preservation milk

or other perishable in transit)
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 All storage costs generated by inventory

like insurance, cost of capital etc. are

applicable
Product is in storage when

Vehicle is stationary, stuck in traffic or

waiting

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Vehicles kept moving on circuitous route

When loading and unloading is expensive

Storage space is not available or limited

Airplanes hovering when runway is

unavailable for landing

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Why is this done? 1. Objectives

To facilitate trade & business

2.

To meet objectives of Logistical Management

3. To keep production process running

4.

To meet the customers' demand for products & services at minimum cost

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How is this done? What resources are used? Resources used by transportation Time Money Nature, environment

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Costs generated by transportation a. Time, Temporal Costs - product is locked up during transit, hence inaccessible b. Money, Financial CostsAdministration Costs, salaries, maintenance, etc Product loss and damage Cost of fuel for prime mover
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c. Nature, Environmental Costs Guzzles natural fuels India consumes about 90% of the total available and imported oil for

transportation
Transportation Creates congestion, air pollution and noise pollution. Environmental cost is tangible and substantially intangible.

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 As transportation utilizes temporal, financial

and environmental resources, items must be

moved only when product value is raised

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Principles of transportation

1. Economy of scale
Bulk shipping brings down per unit transportation cost 2. Economy of distance Cost per unit kilometer decreases as the distance moved increases Principles of transportation are fundamental in evaluating transportation strategies.

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Transportation Environment & Transportation decisions

Who are the participants in transportation decisions?

Shipper Consignee Carrier The government Public

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What is transportation mode? Mode identifies transportation method or form

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What mode of transport is this?

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What mode of transport is this?

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What mode of transport is this?

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What mode of transport is this?

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What mode of transport is this?

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What mode of transport is this?

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Impact of transport mode on costs of transportation

Transport time
Inventory in stores Inventory in transit pipeline inventory (Transit capital) Obsolescence

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Packaging
Breakage

Insurance
air, high insurance

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What constitutes Transport Infrastructure? [Transport elements]

1.

Factors that affect the smooth functioning of transportation?

Terminal facilities - well maintained loading unloading facilities, space for movement of vehicles, platforms, railway yards 2. Vehicles- trucks, ships or wagons. Their size, shape & speed

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3.

Rights of way- cost of right to use passage

The tax, the toll

Rails, roads, airways 4. Routes and sectional capacity-number of lanes 5. Limit on speed, weight, height 6. 7. 8. Weigh bridge facility Nature of product Carrier organizations

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What are various features of modes or modal characteristics? How do we measure relative weight of each mode? System mileage, traffic volume, revenue, nature of traffic composition

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Railways Rail network Stands out in terms of tonne-kilometres moved 226 billion tonne-kilometres and 55.8% of total tonne-kilometers moved in 1982 in India

449 billion tonne-kilometres and 51.7% of total tonne kilometers now moved in
India

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 Facing very stiff competition from

roadways, as in US after II World War

High capital investment due to right of way,

switching yards, terminals, locomotives and

rolling stock, but low operating costs

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 Focus on specific products than on broad range Raw material extractive industries away from water ways.

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Developments in this area

Recent customer friendly attitude Inter modal transport through alliances and acquisitions as in US, providing single window service to customers

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 Development of Specialized Equipment to

suit the needs of bulk volume of customers

Unit trains
Container trains

Double stack containers

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Enclosed tri-level automobile car

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A unit train, also called a block train

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Double stack containers

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RORO service to road transport - konkan railway

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Private container trains -Adani logistics, Boxram

CONCOR Dedicated Freight Corridors, DFCs Private participation in developing ICDs

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Road transport High flexibility and speed Ultimate mode of transport Rapid growth, post war Low capital cost as compared to Railways

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179.2 billion tonne-kilometres and 44.2%

of total tonne kilo-metres moved in 1982 in

India

585 billion tonne-kilometres and 56% of

total tonne kilo-metres moved in India now

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Operating costs are higher Ideal for small shipments over short distances

Labor intensive
Occasional fuel shortages Availability of good quality vehicles Availability & cost of maintenance and spares

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Bad and unsafe road conditions

Carrier organizations and their disputes with

government
Octroi

Old MVA
Restrictive permits

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Developments in this area

Entry of several manufacturers of trucks-entry of Daimler to produce Mercedes

CVs Trailer-tractor sets National grid of multi lane highways Road widening schemes, bypass to cities Pay and use roads private road builders Express ways

The Golden Quadrilateral

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Trailers
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Water transport

Sailing vessels, steamships-1800, diesel driven ships-1920

Limited scope for deep water transport Limited extent of navigable inland water transport -lakes, rivers, canals Main advantage of water transportation is extremely large shipments & low cost

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Importance of deep water vessels & deep water ports to fully realize benefits of water transport Sailing vessels for IWT Diesel towed barges, tug-barge combinations

Ferries

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Diesel towed barges- high flexibility, disadvantages are range of operation (not for long distance) and slow speed Ferries- for small water bodies like rivers and bays.

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Diesel towed barges

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Ferries for river crossing

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LASH [Lighters Aboard a SHip]: when a ship is loaded on the high seas from barges, instead of loading the cargo lifted from the barge, entire barge is lifted and loaded on the ship. At the end of the voyage barge is put back on water

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LASH
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Inland water Transport is not used to its full potential in India although we have used mechanized IWT since early 1800. Main hurdles appear to be 1. Low priority in policy

2.
3. 4.

Construction of dams

Receding water levels in the rivers Tough competition by other modes

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Developments in this area Construction of deep water ports: JNPT Construction of ports with private investment Port Pipavav, India's first port in the private sector is operated by APM Terminals, one of the largest operators of container terminals in the world

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A consortium led by P&O Australia is setting up

a $200 million Container terminal on BOT (Build-

Operate-Transfer) basis at Jawaharlal Nehru Port.

Trial operation started in April 1999

Agreement signed for construction of a captive

Coal Jetty at Mumbai by Tata Electrics.

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Pipelines What is transported in a pipe line? Liquids - oils, crude, petroleum products In India, extensively used for transporting crude and petroleum products More than 5,000 km of pipeline exists in India for crude and petroleum products Slurries - coal slurry, iron ore, lime

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 Huge quantity of water is necessary which is a

concern for environment

In India pipe line is used for transporting iron

ore.

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Pipelines

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Gases and vapors- natural gas, LPG, in India LPG pipe line is in existence Pulverized dry bulk material as hydraulic suspension Main features of this mode of transport Reliable all weather means of transport Low energy consumption

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Pipeline being under ground space occupation

is minimal

Pipe line operates all the time except when it is

shut down for maintenance

No empty container or wagon to be brought

back

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Highest fixed costs, right of way and laying of pipeline, and lowest operating costs

Not labour intensive

Not flexible by nature. Pipe lines are stationary Physical state of the commodity is a limitation. This mode of transport can release capacity of other modes for transport of essential commodities

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Rope ways
Hilly and otherwise inaccessible area Steep gradients Cause minimum ecological imbalance Point of supply and demand can be connected by shortest route Logistics of fruits in Himachal Pradesh

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Rope way
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Air transport Speed of transport is highest Fixed costs are lower than rail or road or pipe line. But operating costs are highest Air transport brings distant markets closer - perishables market in gulf countries Overcomes the hassle and cost of setting up depots and service centers overseas

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 Full potential of peak seasonal demand can be

taken

Test marketing is easy. Products can be

shipped directly from the factory

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TRANSPORTATION MODES FACTORS: (MODAL CHARECTERISTICS) CAPITAL EX OPERATING COST SYSTEM KM II III 63,000 kms IV II III IV V I RAIL ROAD WATER AIR PIPE LINE I V 5000 kms

15,03,000 15544 kms kms [IWT] (Inland W- ways)

TONNE KM

449 Billion Tonne KM

585 Billion Tonne KM II I

66 BTKM (British-T) [Costal hipping] IV IV I III

70 BTKM

SPEED

III

V V

AVAILABILTY [ABILITY II TO SERVE A SET OF

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Rail

Road Water

Air

Pipe -line

Dependability [minimum deviation from schedule, weather, congestion& other problems] Capability [ capacity to tackle any size of the load] Frequency [quantity of scheduled movement]
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III

II

IV

II

III

IV

IV

II

III

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Freight (transportation) Rate Structure & Principles:

Freight rate structure

1a. Fixed costs: Interest on capital

1. Cover actual cost of transportation. Factors influencing cost of transportation

Depreciation
Insurance premium Facility for servicing, periodic maintenance etc

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 Administrative overheads Expenses on fixed facilities like buildings

1b. Semi fixed costs:

Salaries of the staff

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1c. Variable costs Cost of fuel and lubricants

Maintenance directly attributable to a particular trip breakdown Damage to the vehicle and also the cargo. Eg. hilly roads, bad roads, war effected sea routes

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1d.Vehicle utilization
Carrier likes to gain maximum mileage out of

his vehicle
Run the vehicle at top speed to cover max.

distance at min time

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Quote higher rates if following are not conducive to the above i. ii. Road conditions

Terminal detentions [congestion, formalities, loading/unloading etc.] iii. Obtaining a return load [market factors]

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iv. Nature of goods, hazardous, corrosive [liability, insurance] v. Density, consignment light by weight

vi. Stowability, shape and size of the product 2. Traffic Bearing Capacity

Value addition by transportation

Higher the value added, opportunity for higher

rate
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3. Government Policy
freight rates are controlled by the state (hiked or

depressed) for
Items to satisfy basic needs of common man

Promotion of certain type of trade

Development of certain type of industry

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4. Profit

Margin for reasonable return on investment Entrepreneurial time and efforts Funds for future development of business

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Transportation policy
Components of transportation decisions I. Mode Selection

Air - most expensive, but very fast

Road - relatively quick and highly flexible but comparatively expensive Rail - An inexpensive mode for large quantities

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Water - the slowest but most economical

for large overseas consignments

Pipeline - primarily for oil and gas

Ropeways hilly areas, steep gradients

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Transportation network options

II. Carrier in house or out sourced - whether product owner performs the function or out
sources it.

Private carrier contract carrier Public carrier Exempt carrier

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III. Trade off situations

Cost of transportation and cost of inventory Cost of transportation and cost of customer
service

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IV. Carrier Selection 1. Constitution of the carriers organization 2. Business turn over

3.
4.

Area of operation

Network - Branch offices or associates offices 5. Strength of fleet

6.

List of clients- current & former, for ascertaining reliability

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7. Nature and volume of business

8. Normal transit time

9. Record of claims settlement

10.Reference from banks, carriers association

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V. Route and network selection

Route is the path the product takes and

network is locations and routes along which a product can be shipped

A logistics managers options for scheduling and routing decisions

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DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Retail stores Supplier Supplie rs Retail stores Retail stores supplier

DIRECT SHIPMENT

DIRECT SHIPMENT WITH MILK RUNS

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DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Supplier Retail stores

ALL SHIPMENT S VIA DC Retail stores Supplier

MILK RUNS FROM DC

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Direct shipment network Features: 1. Warehouses are eliminated 2. Long route, hence low cost

From shipper directly to retailers.

3. Simplicity of operation
4. Time of transportation is short 5. Decision points are quantity and mode

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Direct shipping with milk runs

1. Single supplier to a number of retailers - deliver like a milkman.

2. From a number of suppliers deliver to a single retailer. eg. Toyota plant in US Features: 1. Movement consolidation 2. Truck utilization 3. Transport cost reduction

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All shipments via Central Distribution Center suppliers to Distribution center and Distribution center to retailers Features: 1. Supply chain costs reduction when distances are large. 2. DC stores inventory and acts like a transfer point

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3. Economies of scale in inbound transportation

to DC. Outbound transportation cost is low as

retailers are close to DC

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Shipping via Distribution Center Using Milk Runs small lot sizes to large number of retailers from DC. Features: 1. Consolidation of small lots - reduction of outbound transportation cost

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Tailored Network
Tailor made to the company needs Features: 1. Matches the needs of the company 2. Coordination is complex

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NETWORK STRUCTURE DIRECT SHIPPING DIRECT SHIPPING WITH MILK RUNS ALL SHIPMENTS VIA DC WITH INVENTORY STORAGE ALL SHIPMENTS VIA DC WITH CROSSDOCK ALL SHIPMENTS VIA DC WITH MILK RUNS TAILORED NETWORK

PROS NO DC COORDINATI ON EASY LOWER TRANSP COSTS SMALLER INVENTORY MOVEMENT COSOLIDATI ON LOW INVENTORY MOVEMENT COSOLIDATI ON LOWER OUTBOUND TRANSORTA TION COSTS TRANSPORT ATON SUITES TO INDIVIDUAL NEEDS

CONS HIGH INVENTORY SIGNIFICANT RECEIVING EXPENSE INCREASED COORDINATION COMPLEXITY INVENTORY COSTS INCREASED HANDLING INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY STILL HIGER COORDINATION COMPLEXITY

Fig.no.22

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VI. Inter-modal transportation Intermodal Transportation Intermodal movements combine the cost and/or service advantages of two or more modes in a single product movement The more popular combinations are TOFC [Trailer On Flat Car] and COFC [Container On Flat Car].

Benefits of long haul, short time & flexibility are optimized for achieving overall cost
reduction

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 Co-ordination of different modes of transport to avoid wasteful competition Single window service to the customers Encouraging containerization both for internal as well as import/export cargo

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RAIL

COMMON PIGGY BACK

ROAD

COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE

FISHY BACK

WATER

TRAIN SHIP

AIR

AIR TRUCK [BIRDYBACK]

WATER OR AIR

LAND BRIDGE LAND [RAIL OR ROAD]

WATER OR AIR

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C O F C
COFC
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TOFC
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TOFC
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Roll On/Roll Off ferries [RORO]: the truck rolls on to the and rolls off at the end of the voyage

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Roll On/Roll Off ferries

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LANDBRIDGE
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VII. Transshipment
Transportation goods and materials to the destination using one or more intermediate destinations A technological requirement Air travel to US

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A means of logistical cost reduction

Movement consolidation

Use of public carrier

Inter-modal transportation Cargo meant for third country lands at an Indian port or airport (land bridge)

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Customs duty & transshipment Cargo cannot be moved without payment of duty Leads to congestion at gateway ports Customs Act provides a facility of transshipment of cargo without payment of duty.

Between a port/airport and other ports/airports/ICDs/CFSs

Between gateway port and bonded warehouses

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Nodal points
Railways network Growth of economy is the responsibility of state Movement of bulk materials for industrial growth and movement of essential commodities to PDS outlets is important for a prosperous and peaceful society

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 Hence the responsibility for logistics of those items falls on the state.

State owns the net work of railways, net work that is the cheapest mode of transport for
bulk. Nodal points in the value chain of such commodities can enable movement consolidation. State owned rail net work can link these nodes to the best advantage of state and thereby to that of national economy.

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Some characteristics of nodal points are as under 1. Nodal points are part of railways logistical infrastructure

2.

Nodal points should be closer to consumption points.

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3. Terminal and shunting facilities are required

at these places. Facilities for loading,

unloading & inter modal handling

4. Strategic development of such nodal points in the country strengthens the logistical operations for essential commodities and bulk materials
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Warehousing What is a warehouse? Traditional concept of warehouse Store or godown Place where unneeded items are stored A place where things are dumped Modern concept of warehouse A facility where value addition takes place
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Storage is only one function

158

Modern warehouse

Engineering focus on material handling, storage

& information in 1960 & 70

Concept of JIT needs dependable delivery

system of which warehouses are by now an

integral part

TQM in warehouses - 1980

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Warehousing Costs

Handling Holding Order Processing Packaging Admin Maintenance

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Functions of warehouse [warehousing

operations] [physical distribution management:

logistical approach by K.K.Khanna page # 57]

1. Receiving goods receive and accept

responsibility
2. Identifying goods place, label, color code

3. Sorting goods- sort out the received goods for

appropriate storage area
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4. Dispatching goods to storage- for temporary

storage with easy accessibility

5. Holding goods- security against pilferage and

deterioration

6. Selecting, retrieving, packing- items are

retrieved and grouped according to customer

order for dispatch

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7. Marshaling goods- check the items of a single

order for completeness and order records are

updated
8. Dispatching goods- consolidated order is

packaged and directed to right transport

9. Preparing records and advices- of stocks and

replenishment requirements
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Economic and service benefits of Warehouses Economic benefits - Consolidation, Break bulk, Cross Dock, processing postponement, stock piling[seasonal storage] Service benefits - spot stocking, Assortment, mixing, production support, market presence
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Economic benefits

Plant A [Product A for Customer X]

Plant B [Product B for Customer X]

Consolidation warehouse

Customer X [Product A+ Product B+ Product C]

Plant C [Product C for Customer X]

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Plant A [Product A for Customers X+Y+Z]

Customer X Break bulk warehouse Customer Y Customer Z

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Plant A [Product A] For W, X, Z Plant B [Product B] For W,X,Y,Z Plant C [Product C] For W, Y, Z
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Customer W [A+B+C]

Cross Dock warehouse

Customer X [A+B] Customer Y [B+C]

Customer Z A+ C
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Service benefits
Customer X Products A+ B+ C In transit mixing Warehouse [transit mixing point, mix & make product C] Customer Y Products A+B

Plant A [Product A]

Plant B [Product B]

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Vendor C [part C]

Assembly Line X

Vendor A [part A]

Manufacturing Warehouse

Assembly Line Y

Vendor B [part B]

Assembly Line Z

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Operating principles of Warehouse/warehouse design 1. Design criteria product flow, ware house should be designed round material handling flow

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 No of stories, one is ideal as against limitations of space, cost of land Height utilization, principle of cubic space, principle of go vertical, limitation on height utilization due to fire safety and insurance regulations

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2. Handling Technology
Movement continuity

Reducing runs
Reducing short runs with intermediate stops Ensuring longer runs

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Movement scale economies

Movement in large bulk

Moving material in cases strapped on pallets or

Containers

Handling technology is addressing these issues

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3. Storage Plan

Characteristics of product
Open air storage for bulky products

Heavy items closer to floor

Light items on higher rungs

Fast moving items in large bulk closer to aisles

Hazardous items

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Warehousing alternatives 1. Private Warehouses Owned or leased by the product owner Control is fully with the product owner Changes can be made to integrate the warehouse with rest of the logistical system Provides market presence to the product owner There is no profit to be added to the cost
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2. Public Warehouses

Available to companies on hire

Overheads get distributed over a large customer

base
As warehousing is their core business public

warehouses offer expertise in management

Flexibility of location
4/14/2012 176

 Significant scale economies, several users and resultant volume, benefits in transportation costs

4/14/2012

177

3. Contract warehouses
Contract warehouse operators take over logistics

responsibility from manufacturing company

Long term relationship and customized service

Expertise of management
Shared resources with several clients

4/14/2012

178

General classification of Public

warehouses

1. General merchandise
2. Refrigerated

3. Special commodity
4. Bonded

4/14/2012

179

Warehousing strategy
Where? How many? Of what type?
Private Market Presence Industry synergies Operating flexibility Location flexibility Scale economies Contract Public

4/14/2012

180

Site selection
Location considerations

1. Cost of distribution to market area

2. Transport requirement and facilities & Transport

cost
3. Competition, presence of others

4. Availability of utilities [power, water, gas,

sewerage disposal and cost]
4/14/2012 181

5. Labour supply and cost

6. I - R climate, labour productivity

7. Customer expectation of D
8. Company specific commitments

9. Local taxation

4/14/2012

182

10. Community attitude Restrictions associated with warehouses Future expansion Cost of land Topography and soil condition Possibility of title change to the land

4/14/2012

183

Ideal warehouse location 1. Protection of stock against moisture, insects, dust, fumes, pests, thieves, fire etc. 2. Provides facilities for ware housing activities 3. Economics of operation 4. Offers water for drinking and fire fighting 5. Away from sources of detrimental conditions 6. Easy access, proximity to A customers
4/14/2012

7. No geographic barriers

184

Number of facilities, How many?

185

R/W -2

R/W -1

R/W -3 Plant Warehouse Regional Warehouse R/W R/W - 4

4/14/2012

186

Inventory at various locations, the square root law Inventory reduction and customer service How much to hold and in how many locations to hold? The square root law X2 =[X1] [n2/n1] X1 = total inventory in existing facilities X2 = total inventory in future facilities

4/14/2012

187

n1 = number of existing facilities [warehouses] n2 = number of future facilities [warehouses]

If a company distributes 40,000 units using 8 existing facilities and plans to reduce the inventory in their future facilities to 20,000 units, then what should be the number of facilities in their future network without compromising the customer service? If we use the square root formula, the answer is 2 facilities
4/14/2012 188

Containerization

4/14/2012

189

Containers were introduced in US during 1955 and in India during 1960 Features of a container: 1. Robust but still light for inter modal transportation 2. Equipped with fittings to facilitate safe and easy handling 3. Easily be stuffed or unstuffed in a short time
4/14/2012 190

4. Water tight and air tight outer shell 5. Internal lining that doesnt buckle under temperature and can be easily cleaned 6. Watertight flooring, air tight door seals and locks 7. Insulation to protect refrigerated cargo. Interior washable to required hygienic standard 8. Construction to allow circulation of air around
4/14/2012

cargo

191

Basic types of ISO containers

Dry or cube containers are front loaded, completely enclosed and suitable for generalpurpose transportation.

4/14/2012

192

Insulated Containers are available in 20 and 40 foot lengths, and contain a layer of foam insulation between the interior and exterior surfaces of the walls, floor and roof.
4/14/2012 193

An insulated container with a built-in refrigeration unit, the Reefer container maintains a set temperature and stabilizes the environment within the container to prolong the life of the cargo in the most arduous of environments.
4/14/2012 195

Flatrack Containers: Flatrack containers are used for heavy and oversized cargo, which cannot be loaded into container with fixed walls and needs loading from top or side. Can be delivered with both fixed and collapsible end walls.

4/14/2012

196

Open top containers are shaped like a box and loaded from either the top or end. They are designed to carry heavy, tall or hard to load materials such as coal or grain
4/14/2012 197

Tank containers are built to the same standard dimensions as other ISO containers, but are cylindrical vessels mounted in a rectangular steel framework. Typically, these containers are used to transport liquid or bulk materials.
4/14/2012 198

Major benefits of containerization to business 1. Integration of various modes of transport 2. Reduction in handling time and thereby turn around time of vehicles 3. Standardized size of containers reduces capital as well as operational costs

4/14/2012

199

4. Reduction in packaging cost as container

itself is a robust packaging

5. Need for enclosed warehouses redundant

6. Transport service is reliable

7. Containerization has lead to the building

of modular ships resulting into quick turn around and de congestion of ports
4/14/2012 200

Infrastructure for Containerization 1. Deep water ports 2. Mechanized handling equipmentEquipment used to load and unload are container cranes called straddle carriers, side loader forklifts. Obviously this equipment is very expensive 3. Inland container depots
4/14/2012 201

4. Container ships- are built for optimum

utilization of space, easy stowing in the holds,

to facilitate fast & easy loading and unloading of

container

4/14/2012

202

Container ships
4/14/2012 203

Inland Container Depots/Container Freight Station

4/14/2012

204

Material Handling in ICD

4/14/2012 205

4/14/2012

206

Inland Container Depots and Container Freight

Stations An ICD is a common user facility with public authority status Equipped with fixed installations and offering services for handling and temporary storage of import/ export laden and empty containers under Customs control
4/14/2012 207

 Trans-shipment of cargo can also take place

from such stations

I C Ds are dry ports

connect major ports [able to handle container

ships] to hinterland
facilitate customs clearance, export import

formalities
4/14/2012 208

 ICD to be located after ascertaining export import potential and good road net work Serve as consolidation facility and should have handling equipment. Facility to group small consignments goods transfer from road to rail and otherwise Increase the export potential of industries in the hinterland
4/14/2012

Decongest major ports

209

CONCOR Set up in March 1988 under the Companies Act, to profitably satisfy our customer's needs for high quality, cost effective logistics services Commenced operation from November 1989 taking over the existing network of 7 ICDs from the Indian Railways A network of more than 40 terminals, offering scheduled and on demand rapid rail and road services between the hinterland and ports, and between major metros.
4/14/2012 210

Dedicated Freight Corridors

Dedicated Freight Corridor Corporation of India (DFCCIL) was incorporated in October 2006, under Indian Companies Act 1956.

4/14/2012

213

Double stack containers

4/14/2012 214

A unit train, also called a block train

4/14/2012

215

Enclosed tri-level automobile car

4/14/2012

216

Logistics parks All logistical services under one roof Situated along DFCs and G/Q To fully utilize DFCs for promoting trade and business in India Railway ministry & State governments to jointly set up multi-modal logistics parks (MMLPs) along the dedicated freight corridors

Private logistics companies Adani logistics Reliance logistics APM terminals

Net work Analysis (or Location Analysis) What is a network? Location of facilities and routes or links What is network analysis? Study of the locations & links for minimizing logistical costs and or maximizing customer service
219

Some salient features of network design

(What decisions are taken in network design?)

1. Number of facilities [factories and warehouses]

2. Their locations
3. Communication systems

4. Activities performed in these facilities, what

item (SKU)? Storage? Break bulk?
220

1. Type of the facility (Who should operate these

facilities?)
2. Size of the facility, how big?

221

Factors to be considered in deciding the size 1. Fixed as against random access storage 2. Horizontal versus high rise layout 3. Order picking (large inventory) versus stock replenishment (small inventory) activities 4. Multi-dock versus single dock layout

222

5. Aisle space? Rack space?

6. Labor intensive or high tech operations,

carousals? Robotics?

7. Amount of cross docking

223

Importance of network analysis & design Decisions of N/W Analysis are taken to ensure 1. Prompt response to market dynamics What are market dynamics?

Changing customer service requirements shorter lead times? Lower costs?

Shrinking supplier base Changing customers

224

 Shifting locations of customer new locations of supply market

Change in corporate policies (dropping of
products or product variety)

225

2. To reduce Cost of moving the product to

customer

Network options in the network

226

DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Retail stores Supplier Supplie rs Retail stores Retail stores supplier

DIRECT SHIPMENT

DIRECT SHIPMENT WITH MILK RUNS

4/14/2012

227

DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Supplier Retail stores

ALL SHIPMENT S VIA DC Retail stores Supplier

MILK RUNS FROM DC

4/14/2012

228

 Amount of transshipment
Number of locations and volume of inventory

The square root law X2 =[X1] [n2/n1] X1 = total inventory in existing facilities X2 = total inventory in future facilities
n1 = number of existing facilities [warehouses]

n2 = number of future facilities [warehouses]

229

Number of facilities, How many?

230

Location of facilities
Some models for facility location

Gravity model
Analytical models

Ton-mile center

231

 Who operates these facilities? - outsourcing

decisions

Communication between these facilities,

information and inventory

232

3. To vitalize Customer service

Response time Lead-time Response to competitive action

5. To accommodate corporate organizational changes such as down sizing reengineering globalization
233

Milk run

234

LOGISTICAL PERFORMANCE MEASUREMENT

4/14/2012

235

What is logistical performance measurement? Measurement of performance of logistical functions Assessment of logistical performance Auditing logistical performance An activity of Logistical Management

4/14/2012

236

Why logistical performance measurement is done? To improve level of logistical competency To gain competitive edge in business

To raise the level of Customer Service

To identify weak areas of performance

4/14/2012

237

When is it done?
Measurement/Assessment/Auditing is an on going

scheduled activity

4/14/2012

238

Why logistical performance measurement is important? Logistical competency is crucial Logistical resources are scarce Measurement is important for achieving objectives direct, control, monitor, measure Measurement leads to improved performance-periodic tests
4/14/2012 239

How is this done?

By following logistical performance

measurement system
Measurement system is a set of

mathematical measures like ratios, percentages

4/14/2012

240

Objectives of logistical performance

measurement systems
Monitoring: tracking historical performance

Controlling: tracking ongoing performance

Directing: encouraging performance by

employees

4/14/2012

241

Measures to track above dimensions of performance Monitoring measures Controlling measures

Directing measures

4/14/2012

242

Types of measures based on perspective of measurement Activity based & process based Activity based measures measure first level efforts in performance at individual activity level No of trucks loaded per day Orders booked per day Delivery time per order Delivery time per product
4/14/2012 243

Process based performance measures measure

customer satisfaction process

Total performance cycle time (customer lead

time/order cycle time)

Response time to customer query

Number of O T Ds Number of perfect orders
4/14/2012 244

Types of measures based on availability of information Internal Performance Measurement & External Performance Measurement Internal Performance Measures Measurement is done inside the organization

Activities of customer satisfaction process Internal customer satisfaction

4/14/2012 245

Classification of Internal performance measures

in categories

Cost, customer service, productivity, asset

management & logistical quality

4/14/2012

246

Cost

Logistical cost as percentage to sales or as cost

per unit of volume

Resources expended to meet specific operating

objectives.

Examples: Cost per unit, Cost as a percentage of

sales, Inbound freight, Outbound freight etc
4/14/2012 247

Customer service

Service

levels indicating a firms ability to meet customer

expectations
examples: Fill rates, Stock outs, Shipping errors,

On-time delivery etc

4/14/2012

248

Productivity

Easily understood and extensively used.

Some times difficult to obtain all relevant details

Indicate resource utilization

Classification of productivity measures

static, dynamic and surrogate

4/14/2012

249

 Static productivity measures are calculated across one span of time, example: total factor productivity Dynamic productivity measures compare one static measure against another representing another span of time.

4/14/2012

250

 Surrogate productivity measures consider

factors correlated to productivity like customer

satisfaction, profit, quality, efficiency.

Examples: OTD, Lead time, ROI etc

4/14/2012

251

Asset Management
indicate management performance of fixed as

well as current logistical assets. Logistical fixed

assets and inventory are major portion of

companys assets
Examples: inventory turns, inventory carrying costs, inventory levels, return on investment
4/14/2012 252

Logistical Quality

Perfect Order
Complete delivery of all items requested

OTD within tolerance range

Complete and correct documentation

Product faultlessly installed

4/14/2012

253

Obstacles in delivering Perfect Order order entry errors, incomplete information, damaged shipment, invoice error, problems in installation. Examples: number of customer returns, rupee

amount of damage, frequency of damage

4/14/2012

254

External performance measures Customer perception Bench marking Customer perception measurement Surveys and polls sponsored by firm or industry Done by the firm, by consultant

4/14/2012

255

Information about firms and competitions

performance in specific areas

Product availability
Performance cycle time Information availability Problem resolution Product support
4/14/2012 256

Best practice bench marking As a tool to calibrate logistical operations Bench mark a comparable organization Bench mark a competitor company Analyze the competitors product Attract competitors resources

4/14/2012

257

 Bench-marking a non competitor company Comprehensive study being bilateral Proprietary knowledge adds value mutually

Systems
Practices

4/14/2012

258

Bench-marking methods

Published logistical data, published by

periodicals and university research

Data sharing by alliances of organizations

Closely examining a non competitors practices

with mutual consent

4/14/2012

259

Information received from

Vendors

3rd party service providers Customers

4/14/2012

260

Examples of bench-marking: asset management, cost, customer service, productivity, quality,

strategy, technology, transportation,

warehousing order processing

4/14/2012

261

Characteristics of an ideal measurement system Cost/Service Reconciliation: An ideal measurement system should reconcile cost and service [eg. freight bill and shipment] Time separation Cause/effect relationship

4/14/2012

262

Dynamic knowledge based reporting:

To reveal current situation. To reveal data in the extended past To reveal trend in future. An ideal system should do all these to enable appropriate action proactively.

4/14/2012

263

Exception based reporting

Exception from anticipated logistical results.

Indicator of process deviating from desired

Ideal report enables manager to act proactively

4/14/2012

264

Logistical Reports
Logistical reports

Status report

Trend report

Ad hoc report

Diagnostic report

Position paper

Policy report

4/14/2012

265

Report Structures
Reports are generated from information

revealed by measurement for effective decision

making

Three types of logistical reports are status, trend

and ad hoc

4/14/2012

266

Status Reports Information in detail to ascertain current situation of a chosen aspect like inventory or material handling etc Trend Reports Required at a higher level, indicates trend in

future with respect to the chosen logistical aspect

4/14/2012 267

Ad hoc Reports Specifically ordered for decision making Information in detail on specific areas of performance Ad hoc Reports are diagnostic report, position paper and policy report Diagnostic report detailed information about some phase of logistical performance like backorders
4/14/2012 268

Position paper
Prepared by lower levels of management for

executives at higher levels

Alternative courses of action for an anticipated

or current problem with resource requirements

Policy report

Ordered by CEOs whenever a policy modification

is requested for change in objectives
4/14/2012 269

LOGISTICAL PERFORMANCE MEASUREMENT

4/14/2012

270

What is logistical performance measurement? Measurement of performance of logistical functions Assessment of logistical performance Auditing logistical performance An activity of Logistical Management

4/14/2012

271

Why logistical performance measurement is done? To improve level of logistical competency To gain competitive edge in business

To raise the level of Customer Service

To identify weak areas of performance

4/14/2012

272

When is it done?
Measurement/Assessment/Auditing is an on going

scheduled activity

4/14/2012

273

Why logistical performance measurement is important? Logistical competency is crucial Logistical resources are scarce Measurement is important for achieving objectives direct, control, monitor, measure Measurement leads to improved performance-periodic tests
4/14/2012 274

How is this done?

By following logistical performance

measurement system
Measurement system is a set of

mathematical measures like ratios, percentages

4/14/2012

275

Objectives of logistical performance

measurement systems
Monitoring: tracking historical performance

Controlling: tracking ongoing performance

Directing: encouraging performance by

employees

4/14/2012

276

Measures to track above dimensions of performance Monitoring measures Controlling measures

Directing measures

4/14/2012

277

Types of measures based on perspective of measurement Activity based & process based Activity based measures measure first level efforts in performance at individual activity level No of trucks loaded per day Orders booked per day Delivery time per order Delivery time per product
4/14/2012 278

Process based performance measures measure

customer satisfaction process

Total performance cycle time (customer lead

time/order cycle time)

Response time to customer query

Number of O T Ds Number of perfect orders
4/14/2012 279

Types of measures based on availability of information Internal Performance Measurement & External Performance Measurement Internal Performance Measures Measurement is done inside the organization

Activities of customer satisfaction process Internal customer satisfaction

4/14/2012 280

Classification of Internal performance measures

in categories

Cost, customer service, productivity, asset

management & logistical quality

4/14/2012

281

Cost

Logistical cost as percentage to sales or as cost

per unit of volume

Resources expended to meet specific operating

objectives.

Examples: Cost per unit, Cost as a percentage of

sales, Inbound freight, Outbound freight etc
4/14/2012 282

Customer service

Service

levels indicating a firms ability to meet customer

expectations
examples: Fill rates, Stock outs, Shipping errors,

On-time delivery etc

4/14/2012

283

Productivity

Easily understood and extensively used.

Some times difficult to obtain all relevant details

Indicate resource utilization

Classification of productivity measures

static, dynamic and surrogate

4/14/2012

284

 Static productivity measures are calculated across one span of time, example: total factor productivity Dynamic productivity measures compare one static measure against another representing another span of time.

4/14/2012

285

 Surrogate productivity measures consider

factors correlated to productivity like customer

satisfaction, profit, quality, efficiency.

Examples: OTD, Lead time, ROI etc

4/14/2012

286

Asset Management
indicate management performance of fixed as

well as current logistical assets. Logistical fixed

assets and inventory are major portion of

companys assets
Examples: inventory turns, inventory carrying costs, inventory levels, return on investment
4/14/2012 287

Logistical Quality

Perfect Order
Complete delivery of all items requested

OTD within tolerance range

Complete and correct documentation

Product faultlessly installed

4/14/2012

288

Obstacles in delivering Perfect Order order entry errors, incomplete information, damaged shipment, invoice error, problems in installation. Examples: number of customer returns, rupee

amount of damage, frequency of damage

4/14/2012

289

External performance measures Customer perception Bench marking Customer perception measurement Surveys and polls sponsored by firm or industry Done by the firm, by consultant

4/14/2012

290

Information about firms and competitions

performance in specific areas

Product availability
Performance cycle time Information availability Problem resolution Product support
4/14/2012 291

Best practice bench marking As a tool to calibrate logistical operations Bench mark a comparable organization Bench mark a competitor company Analyze the competitors product Attract competitors resources

4/14/2012

292

 Bench-marking a non competitor company Comprehensive study being bilateral Proprietary knowledge adds value mutually

Systems
Practices

4/14/2012

293

Bench-marking methods

Published logistical data, published by

periodicals and university research

Data sharing by alliances of organizations

Closely examining a non competitors practices

with mutual consent

4/14/2012

294

Information received from

Vendors

3rd party service providers Customers

4/14/2012

295

Examples of bench-marking: asset management, cost, customer service, productivity, quality,

strategy, technology, transportation,

warehousing order processing

4/14/2012

296

Characteristics of an ideal measurement system Cost/Service Reconciliation: An ideal measurement system should reconcile cost and service [eg. freight bill and shipment] Time separation Cause/effect relationship

4/14/2012

297

Dynamic knowledge based reporting:

To reveal current situation. To reveal data in the extended past To reveal trend in future. An ideal system should do all these to enable appropriate action proactively.

4/14/2012

298

Exception based reporting

Exception from anticipated logistical results.

Indicator of process deviating from desired

Ideal report enables manager to act proactively

4/14/2012

299

Logistical Reports
Logistical reports

Status report

Trend report

Ad hoc report

Diagnostic report

Position paper

Policy report

4/14/2012

300

Report Structures
Reports are generated from information

revealed by measurement for effective decision

making

Three types of logistical reports are status, trend

and ad hoc

4/14/2012

301

Status Reports Information in detail to ascertain current situation of a chosen aspect like inventory or material handling etc Trend Reports Required at a higher level, indicates trend in

future with respect to the chosen logistical aspect

4/14/2012 302

Ad hoc Reports Specifically ordered for decision making Information in detail on specific areas of performance Ad hoc Reports are diagnostic report, position paper and policy report Diagnostic report detailed information about some phase of logistical performance like backorders
4/14/2012 303

Position paper
Prepared by lower levels of management for

executives at higher levels

Alternative courses of action for an anticipated

or current problem with resource requirements

Policy report

Ordered by CEOs whenever a policy modification

is requested for change in objectives
4/14/2012 304

MRP [Materials Requirement Plan]

Popular concept in 1960&1970

Consists of a computer system & a manufacturing

information system
Does production scheduling and materials

planning

305

MRP system MRP systems compute

Net requirements for each inventory item Time-phase them Determine their proper coverage

306

MAJOR ASSEMBLY

SUB ASSEMBLY II SUB ASSEMBLY I

SUB ASSEMBLY II

A1 A2 B1

C1 C2 C3 D1 D2

A3 A4 C4 D3 D4

C5 B2 A5 D5

307

Objectives Ensure the availability of materials (components & products) for planned production and customer delivery Maintain the lowest possible inventory level Plan

Manufacturing activities Delivery schedules And purchasing activities

308

Scope MRP System covers inbound logistical area Key elements of MRP system Master Production Schedule Bill of Materials Inventory Status Files MRP Program Outputs & Reports
309

Development First phase is called MRP I [Materials

Requirement Planning]
Second phase is called MRP II [Manufacturing

Resources Planning]

310

MRP I [soft ware] is restricted to materials

resource only

Attempts to minimize inventories

Maintain adequate materials for production

process.

MRP II includes all resources required in

planning and control of production
311

Process of MRP I
MRPI starts with, customers demand [independent demand] and explodes the time and need for components based on the demand for end product

312

inventory transactions

Customers orders

Forecasts

Engineering changes

Inventory status file [finished items, WIP, planned orders

Master production schedule [which product to produce, in what quantity & when]

MRP I SYSTEM

Bill of materials file [product structure and routing]

PLANNED SCHEDULES AND VARIOUS OTHER REPORTS

313

When does it get applied?

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

314

Advantages of MRP I
1. Improved business results [ROI, profits]

2. Improved manufacturing results

3. Better manufacturing control

4. Less inventory
5. Time phased ordering of materials 6. Less materials obsolescence
315

7. Higher reliability 8. More responsiveness to market demand

9. Reduced production costs

316

Disadvantages of MRP I 1. Due to small lot purchases high material acquisition costs and high ordering costs 2. Stock out costs are more as safety stock

protection is low
3. A limitation of software as adapting to specific

situations is difficult. So modification of the

software is necessary
317

MRP II MRP I is updated and expanded to include

Financial, marketing and logistics elements

Entire set of activities involved in planning and
control of production

It consists of variety of functions like

Production planning
318

 Resource requirements planning Master production scheduling Materials requirement planning [MRP I] Shop floor control Purchasing

319

Orders [production plan]

Bill of materials

Inventory records

Material requirement planning [MRP] Capacity requirement planning [CRP] No Realistic? yes Execute capacity plans Execute materials plan
320

Benefits of MRP II 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
321

DRP is a technique of Distribution Management DRP concept has evolved in two phases, DRPI (Distribution Requirement Planning) & DRP II (Distribution Resources Planning) DRP I deals with inventory planning

322

DRP II covers all resources relevant to

distribution

Warehouse space Man power levels Transport capacity [eg. trucks, rail cars] Financial flows
323

 DRP I Applicable to outbound logistics Determination of inventory requirement at points of consumption for short spans of time Plan to move inventory in the distribution channel in response to the above It is a time phased plan, dynamic and flexible in nature
324

 Customer dependent planning, depends on the changing market environment Not organization dependent Coordination responsibility once the finished goods are produced Planning is realistic as it is closer to real time Overall inventory levels are low Response time to real time market requirement is low
325

 DRP II Distribution Resource Planning [DRP II ]is an extension of DRP I DRP II applies the time phased logic of DRP I to replenish inventories in multi echelon warehousing systems

326

DRP II extends DRP I to include the planning of key resources in a distribution system ware house space, man power levels, transport capacity [eg. trucks, rail cars] and financial flows

327

DRP PROCESS Planning tool for DRP is schedule

Schedule for each SKU at each distribution

facility on daily, weekly or monthly basis

Integration of the above schedules and overall

requirement planning for the regional

warehouse and central supply facility

328

As an extension of DRP I, DRP II uses the needs of

distribution to drive the master schedule,

controlling the materials planning

329

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

330

Logistics benefits Reduced distribution costs Reduced inventory levels Decreased warehouse space requirement as

inventory levels are low

Lesser back orders

Improved inventory visibility & co-ord. between

manufacturing and logistics
331

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

332

System nervousness-frequent rescheduling

causing confusion

Uncertainty buffers

333

How does a DRP system work?

Consider a distribution net work with three

distribution centers catering to the needs of the

market

One central facility that supplies inventory to

three distribution centers

334

Central facility is supplied by the production

facility planned as per MRP

DRP modifies the MRP to the advantage of

the organization

335

DRP & MRP LINK DISTRIBUTION CENTER I LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 55, ORDER QUANTITY 500 WEEKS DETAILS WEEKLY REQ STOCK WHEN & HOW MUCH? 0 1 50 2 50 3 60 4 70 5 80 6 70 7 60 8 50

352

302

252

192 500

122

542 500

472

412

362

Order to Central Supply Facility

Arrival From Central Supply Facility

336

DISTRIBUTION CENTER II LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 40, ORDER QUANTITY 150
WEEKS

DETAILS

WEEKLY REQ

20

25

15

20

30

25

15

30

STOCK

140

120

95

80

60

180

135

145

110

WHEN & HOW MUCH?

150

150

Order to Central Supply Facility

Arrival from Central Supply Facility

337

DISTRIBUTION CENTER III LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 115, ORDER QUANTITY 800

DETAILS
WEEKS

0
1020

1
115 905

2
115 790

3
120 670

4
120 550

5
125 425

6
125 300

7
125 175

8
120 855

WEEKLY REQ STOCK

WHEN & HOW MUCH?

800

800

Order to Central Supply Facility

Arrival from Central Supply Facility

338

LEAD TIME IS 3 WEEKS, SAFETY STOCK IS 287, ORDER QUANTITY 2200 CENTRAL SUPPLY FACILITY From I & II From III

WEEKS DETAILS WEEKLY REQ STOCK

1250

1250

1250

650 600

600

600

800 2000

2000

2000

WHEN & HOW MUCH?

2200

2200

TO MRP SCHEDULE

FROM PRODUCTION

339

340

Inventory management methods

[Bowersox pages 287]

Reactive methods (Pull methods) Planning methods (Push methods) Other methods (Modern methods)
4/14/2012 341

Reactive methods or pull systems Reactive methods or systems respond to customers pull

Q Model P Model Optional replenishment Two bin system

4/14/2012

342

Inventory valuation
During a certain span of time, goods are received

and sold. The difference between the two, is the

stock left behind. Inventory evaluation is needed

for preparing financial statements. Cost of the

goods are recorded as they arrive and records are

maintained. For stock evaluation following

methods are used
343

FIFO (First In First Out) When the goods move out, the cost of the goods first in, is attached for valuation. The balance stock left out is valued as per the cost of items last to come in

344

LIFO (Last In First Out) When the goods go out the price of latest to enter is attached. Inventory is valued as per the price of the goods first to arrive.

345

Average cost method Total volume of goods received and balance stock is found out. Total price paid is calculated and

average is found out. Average price is used for

evaluation

346

Limitations

Smooth demand patterns are assumed Unlimited production & supply facilities Inability to handle multiple facilities Needs manual intervention to prevent
shortages

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REACTIVE INVENTORY ENVIRONMENT

I 50 ROP 50 OQ 200 D 5 WHOLESALER A I ROP OQ D 80 75 200 14

I 250 ROP 200 OQ 400

DISTRIBUTION CENTER

WHOLESALER B
348 4/14/2012

Planning methods [push or proactive methods] Fair Share Allocation

Allocate an amount of inventory to a warehouse

based on

The past consumption pattern

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349

 Current stock
Minimum inventory level at the plant
warehouse.

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350

Plant warehouse Inventory 600 units

Distribution Center 1: Inventory 50 units Daily use 10 units

Distribution Center 2: Inventory 100 units Daily use 50 units

Distribution Center 3: Inventory 75 units Daily use 15 units

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Then a common days supply, DS, for distribution center inventories is, A + I DS = -------------D 500 + 50 + 100 + 75 DS = -------------------------10+50+15 = 9.67days. Now amount of inventory allocated to distribution center 1 is [9.67 50/10]X10 = 4.67X10 = 46.7 units, say 47 units. Similarly we can find allocations for distribution centers 2 & 3

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 Fair share allocation method doesnt take into account

Lead times EOQ Safety stock

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Other approaches to inventory management

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Just In Time [Bowersox pages 490.] The time based approach - Toyota Motors

Company & concept of kanban in 1950

Reduction in WIP quantities tying the inventory

closely to the demand from subsequent process

or internal customer

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Kanban is conceptually a two bin system leading to concept of stockless production JIT embraced a variety of manufacturing concepts like SMED, group technology, TPM and quality circles

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COMP STORE

VENDORS

GROUP TECHNOLOGY LAYOUT

STATION II

STATION III ASSEMBLY LINE STATION I CUSTOMER

357

F/G

American disappointment with the attempts to

incorporate Japanese methods lead to other

concepts like vendor managed inventory (JIT II) &

DRP

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358

QR, CR, AR, response based techniques

Quick response (QR)

On receiving order supplier with the help of EDI

[Electronic data interchange] finalizes the

delivery details and communicates them to the

customer in advance

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359

This facilitates scheduling labor and other

facilities

This reduces inventories as uncertainties are

reduced and total cost resulting into better

performance.

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360

 Continuous Replenishment strategy

Also known as vendor managed inventory

(JIT II)

Need for placing an order is eliminated

A supply chain relationship is established that ensures continuous replenishment of stock at customers place by the vendor
4/14/2012 361

There are three basic needs in CR

Effective communication system to provide key

information between customer and supplier

Sufficiently large volumes to make

transportation viable

Finally customer should honor the shipment

from the supplier for payment
4/14/2012 362

Automatic or profile Replenishment (AR) Supplier anticipates the customers requirement for making replenishment The responsibility for inventory management is

placed squarely on the supplier

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Information flow between customer & supplier ensures visibility of

Inventory
Customers order position

Effective management to reduce total costs

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364

What is Inventory?

365

366

 A list of items being held in stock

An asset not participating in conversion or not

getting sold Any NPA, considered to be an asset & part of

working capital

367

Why do we have inventory?

Due to mindset - reluctance to dispose off

Consequence of redundancy of products

Built-up as a means of customer satisfaction, as a cushion against uncertainties

368

 To overcome disadvantages of poor

infrastructure

9 to 12 months of sales in India, a few days in

Japan and a month in US/Europe

369

Importance of Inventory

Decades of 1980 & 1990 brought inventory in

focus

Why? Emergence of Japan as a economic super

power in 1980s

Visual evidence of success of Japanese systems

370

Ford Motors carried 15 times more WIP

inventory than what Toyota did! A benefit Toyota

enjoyed over Ford in cost management

Impact on product cost, 5 to 35% of product cost

are logistical costs & 35% of logistical costs are

inventory costs

371

 Effect on product quality & cost

Has a major impact on product cost - a source of

cost and bad quality

Problem to source traceability is lost due to inventory Defects (problems) are hidden, problems are not taken to source for C/CA/PA
372

Facilitates production
Protects the conversion process from

uncertainties of market
Measure of managerial performance

Inventory turns, small volume and high turns

373

Signs of poor inventory management

An increase in back orders

Rising inventory investments

High customer turn over

Increase in order cancellation

Insufficient storage space

Increase in rupee value & number of obsolete

products
374

Objectives of Inventory Management To increase corporate profitability To anticipate impact of corporate policies on inventory levels and act proactively To minimize logistical costs while meeting customer service requirement

375

Functions of Inventory [Rationale for Inventory] Overcomes geographical separation Decoupling internal process reducing dependence Balancing supply and demand

376

Buffers uncertainties of lead time, demand and

poor infrastructure

Acts like a cushion against unusual events like

strike or war

Technical requirement of batch production

Facilitates price discounts

377

Inventory related costs

Procurement Costs - management and staff time, order preparation and dispatch, follow up, transport from vendor, receiving, handling storage Carrying Costs - capital, opportunity, space, tax, security, insurance, spoilage and preservation, obsolescence Out of stock costs - emergency transport, lost sale, lost customer
378

Types of Inventory Location inventory-Inventory at a fixed location In transit inventory[pipeline inventory]-Being transported and or waiting to be transported Manufacturing inventory R/M, components, WIP, F/G, MRO [Maintenance, repairs and operating supplies] Risk due to commitment of resource to manufacturing is deep and long.
379

Wholesale inventory
Stock of large quantities and sold in small
quantities to retailers

Stock of seasonal products, products to satisfy

assorted, small and urgent needs of retailers

Generally risk is narrow & deep, when the

product line expands risk is wider and deeper.
380

Retailers inventory
Variety of products to satisfy demand

Retailers push the inventory backwards to

wholesalers and reduce the depth of risk although

the risk is wide

381

 Average inventory
Average level of inventory in the organization R/M, parts, WIP, finished goods Following inventory concepts are used in calculating average inventory 1. Cycle inventory: result of replenishment process, also known as base stock or lot size stock, Q/2

382

2. Safety stock Inventory: Stock held to safe guard

against variations in lead-time & or consumption

3. Transit Inventory: Either moving or awaiting

movement

383

 Economic order quantity

Assumptions of Wilsons Lot size formula or

Classical EOQ model
1. Demand is at a known constant rate and

continuous
2. Lead time is known and constant

3. Demand is fully satisfied, no shortages are

allowed
384

4. All costs are time invariant

5. Quantity discounts are not considered

6. Replenishment is instantaneous, there is no

transit inventory 7. Process is continuous 8. No constraints are imposed on quantities ordered, storage capacity, budget etc.
385

 EOQ derivation
All assumptions in tact

EOQ=2AD/h
Relax instantaneous replenishment

EOQ=2AD/h(1-D/P)

386

 Limitations of classical EOQ model- major

limitations are the assumptions made

If the concept of EOQ is applied without

taking into account the limitations, results can

be disastrous

387

Adjustments to EOQ
EOQ model does not consider economics of

transportation
Transportation costs are sensitive to weight of

consignment
Quantity discount-Quantity discounts can upset

the benefit of EOQ if we dont evaluate the

situation from total cost perspective
388

Other EOQ adjustments Production lot size: Mismatch between buyers EOQ and suppliers EBQ. Some adjustment is needed.

389

Multiple items purchase

Combination of products are sourced from a

supplier

Quantity discounts and transportation costs of

individual items may be different

Individual item as per EOQ may not be feasible

with respect to total cost

390

 So adjustment is required to EOQ of various

items Limited capital

Significant role of budgetary allocation Budget has to satisfy the requirement of entire
product line

EOQ of various items requires adjustment

391

Private trucking
Getting a full truck (FTL) becomes significant from cost perspective as against EOQ Standard package Available standard package and EOQ

392

Inventory Classification * Ranking of Inventory to facilitate selective management control * Dates back to 1951- GE * Paretos rule: 80-20 rule, separate vital few from trivial many * ABC Analysis
Vital few Trivial many 20% 80% 80% 20% Inventory Items Inventory Value
393

*An example of ABC analysis Logistics Perspective of selective management control ABC analysis has one chosen parameter like cost or value in focus A category is priority from the perspective of this particular parameter

394

Prioritization in inventory management has to

consider other factors as well

VED Analysis
FSN Analysis

HML

395

 SDE [Scarce, Difficult to procure, Easy to procure] SOS [Seasonal Off Seasonal] GOLF [Government, Open market, Local & Foreign Source] XYZ analysis

396

Quadrant Technique
Distinctives High risk, low value items: customized items not expensive but not available easily, single supplier and long leadtime Generics Low value easily available items, standard items Criticals High value customized items not available easily

Stock out Risk

Commodities High value standard items, basic production items, standard packaging items

Value or Profit potential

397

Fundamental approaches to managing inventory Traditional approach has been deciding when to order? But challenge of today - to find answers to the questions where to stock the material?, how much? and when? Modern challenge is high customer satisfaction at minimum inventory
398

Fixed Order Quantity Approach (condition of

certainty)

How much to order & when to order?

The order quantity is fixed at EOQ (discussed

already)
When to order is decided by Re Order Level

(ROL or ROP) which triggers ordering

399

ROL is fixed by calculating lead time

consumption

Inventory cycles can be conceptualized by

looking at the figure drawn in the class

400

D Q ROL
LEAD TIME CONSUMPTION INV

Lead Time

Lead Time

Lead Time

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

Q - MODEL

Q = EOQ = 2AD/h ROL = LEAD TIME CONSUMPTION

401

Salient Features of the above approach

1.Widely used technique

2.Requires constant monitoring of stock levels

3. Combines the concepts of push & pull

4.Limited by the assumptions made

Cost of in-transit inventory

Transportation costs
402

 Stock depletion is at a specific rate D during replenishment cycle. In reality stock depletions can be steep & high Min-Max Approach a modification to EOQ model Order is released when ROL is reached

Actual order quantity should be the sum of EOQ

and the difference between ROL and actual stock
on hand at the time ROL occurs.
403

D Q ROL
LEAD TIME CONSUMPTION INV ACTUAL INV LEVEL

Lead Time

Lead Time

Lead Time

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

Q - MODEL Q = EOQ + (ROL ACTUAL) = 2AD/h + (ROL ACTUAL) ROL = LEAD TIME CONSUMPTION

404

Fixed Order Quantity Approach (condition of uncertainty) When demand and lead time vary
D Q ROL
LEAD TIME CONSUMPTION INV

SAFETY STOCK 1 SAFETY STOCK 2

Lead Time Lead Time Lead Time

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

Q - MODEL
405

Fixed Order Interval Approach

Decisions about review period T & S

Optional replenishment Approach

Decisions about review period, S and s

406

S MAX STOCK

(S I1) =
INV

D I2 INVENTORY LEVEL I1 INVENTORY LEVEL s MIN STOCK

Lead Time

Lead Time

Lead Time

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

INVENTORY CYCLE TIME

P - MODEL

407

Some Inventory related definitions

1. Inventory policy:

5W-1H questions about buying and controlling

inventory. What to stock? How much? When?

Where? What method? Approach?

Centralized or decentralized control

408

2. Service levels: performance objectives of

inventory function

Order cycle time: release of a purchase order &

receipt of the shipment at customers place

Case fill rate: percentage of cases deliverable

against the number of cases customer ordered in

one order
409

 Line fill rate: product lines fully delivered to the

product lines ordered is the line fill rate.

Order fill rate: percentage of orders completely

fulfilled to orders received

410

 Average inventory a. Cycle inventory

b. Safety stock Inventory

c. Transit Inventory also known as Pipe Line

Inventory

411

Inventory Strategy a long term plan to control inventory What is controlled? Selective management control, quadrant approach When do we move inventory? Kanban system in JIT, DRP, MRP

412

Where and at how many places? Centralized or decentralized? Warehouse location, square root law Why? Customer satisfaction at minimum cost How do we manage? Inventory approaches, push

methods? pull methods?

How do we measure performance? Inventory turns, fill rates, perfect orders
413

1. Inventory and Inventory management 2. Lead time 3. Reserve stock and safety stock 4. Reorder level 5. Economic order quantity 6. Trade off between total costs of inventory and order quantity 7. Customer Service levels 8. Average inventory 9. Selective Inventory Control 10. Paretos rule
414

11. Quadrant technique 12. Non-Performing Asset 13. ABC analysis 14. Vendor managed Inventory 15. Inventory Turn Over Ratio 16. Review Period

415

Logistical Information

Importance of information
Logistical Decisions

Strategic Tactical Operational

416

Information functionality

Integration Flow Performance measurement Logistical decision making Logistical strategy

417

Four levels of information functionality

transaction, management control, decision

analysis and strategic planning

Transaction level

The most basic level of information activities

Role of information

Order entry
Inventory assignment
418

 Order selection Shipping Invoicing Customer queries

419

Management control level Role of information

Logistical performance measurement and

reporting Decision level Role of information

Identify logistical strategic alternatives

Strategic planning level

Developing and refining logistical strategy

420

Logistical Information System A computer based information system

Receives logistical information Stores logistical information Organizes it in appropriate form Integrates the logistical operating system Enables logistical decision making
421

Principles of Logistical Information System

Availability, accuracy, timeliness, exception based

LIS, flexibility, appropriate format

Availability

Rapid availability of information even in

Decentralized system

Customer queries
Management decisions
422

Accuracy LIS Vs reality

Eg. inventory levels as per LIS Vs. physical stock

levels Timeliness Time gap between event taking place and information appearing in LIS

Leads to wrong decisions

WIP status to finished goods status

423

Exception-based LIS

Highlighting problems and opportunities for

management action

Handling exceptions, making manager free for

judgmental decision making

424

Flexibility
Ability to handle diverse informational needs of

organization

Strategic logistical decision making Customer queries Delivery commitments

425

Appropriate format
Right structure and sequence

Ease in decisions like locating the inventory for

order processing or inventory planning

426

Logistical information system functionality

Order management

Order entry, editing the order for acceptability,

checking inventory availability, committing
delivery dates

Primary interface between customer service

representative and logistical operating system
427

 Order processing

Matching customer requirement Allocation of inventory Order selection [to direct distribution to draw
the inventory from a specific DC]

Determining Back order level

428

Distribution operation
Directing all activities in a distribution center to

meet customer order requirement

Receiving Handling Storing Order selecting etc.

429

Transportation and shipping

Plan execute and manage all transportation

activities like

Shipment planning & Scheduling Shipment consolidation Shipment notification Document generation Carrier management
430

Procurement

Purchase order preparation, modification and

release

Track and coordinate shipping and receiving

activities for consolidation IT support LIS, RFID, EDI

431