Logistics – An Introduction N.Chandrasekaran

LOGISTICS- DEFINITION Logistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory and the related information flows through the organization and its marketing channels for the cost effective fulfillment of customers’ orders.

SUPPLY CHAIN MANAGEMENT-Definition Supply chain Management(SCM) is the network of organizations that are involved through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer.

The Value Chain Primary Activities Support Activities Firm Infrastructure Human Resource Management Procurement Technology Development Information Technology Supply Chain Management Margin Inbound Logistics Operations Outbound Marketing & Sales Services The Value Chain

Theory of Firm Resource based view Core competencies Sustainable competitive advantage depends upon the firm’s resources and how they are used. Core competencies Heterogeneous resources and need for protecting and enhancing critical and the best value creating resource/skill.

Logistics, Production and Inventory Management Logistics – Logistics managers seek to minimize total logistics costs and at times larger issues of integrating strategies for logistics, manufacturing and even marketing are not addressed. Hence integrated approach is recommended Marketing and Manufacturing may drive planning function and logistics function as fulfillment agency …contd

Logistics, Production and Inventory Management Production management takes care of detailed tactical planning and many a times strategic issues are also dealt with for optimizing resources and investments. Current trends in lean production or agile manufacturing are focused on elimination of waste and responsive systems where supply chain function has a significant role to play

Logistics, Production and Inventory Management The core of SCM focuses on inventory management. Responsive and efficient supply network models are critical for inventory decisions. More over, decisions like transportation, warehousing, service levels and inventory management are inter-linked. Inventory management has benefits of application of mathematical programming for better decisions.

Other disciplines Management Accounting – the process of identifying, measuring, reporting and analyzing information about the economic events of organizations. Demand forecasting and marketing Operations Research

Innovations in IT Supply chain modeling systems are critically needed to help management extract effective plans from transaction plans. Two problems arise: There is too much of transactional data Lack of adequate knowledge to relate data with activities and use for decision making Technological solutions Organizational solution

Organizational adaptation Globalization E-commerce ERP systems Business process reengineering Organizational learning and change management Integrated supply chain management

Logistics Cost – Macro Analysis Prepared by N.Chandrasekaran (Based on Prof.G.Raghuram’s study)

Significance of Logistics Costs Given the opportunity costs and hidden costs (resulting in value foregone), assessment of measurable direct and indirect logistics costs has limited value.

Significance of Logistics Costs Nature of Costs Direct (transportation and handling) Indirect (inventory, losses within a system) Hidden (costs borne by other systems like infrastructure wear and tear, safety, pollution, distortions due to side payments, losses outside a system) Opportunity (foregone sales transactions)

Significance of Logistics Costs Further, there have been several numbers floating around but we have not found any paper where methodology is explicitly discussed. In the absence of rigorous methodology, it is difficult to use this number for meaningful discussion.

Logistics Costs for the Indian Economy 93-94 prices Rs billion Source: CSO Statistics

Logistics Costs for India Nominal Values Organized Sector 1987 1994 Transportation 38% 45% Inventory 28% 25% Warehousing 20% 30% Packaging Losses 14% Total Cost 10% 12% Logistics Cost (Rs billion) 250 800 GDP (Rs billion) 2,500 6,700 Source: Raghuram, G, 1992

Logistics Costs for the US Economy Nominal Values Organized Sector US: 1990 US: 2001 US: 2002 Transportation 50% 60% 63% Inventory 20% 40% 37% Warehousing 24% Packaging Losses 6% Total Cost 11.4% 9.5% 8.7% Logistics Cost ($ billion) 659 957 910 GDP ($ billion) 5,800 10,080 10,470 Source: CASS Information Systems, 2002

Logistics Costs for India (2001-02 and 2002-03) Nominal Values

Logistics Costs for India (2001-02 and 2002-03) (Rs billion)

Logistics Performance Poor Logistics Quality Significance of Logistics Costs

Petrol price trends

Key Actors Shipppers (Users of Logistics) Suppliers of logistics servcies Carriers – Rail, Road, pipeline, air, water rope-way Warehouse providers Freight forwarders Terminal operators (ports, stevedores, etc.) Government – Regulator of Logistics

Logistics Displine Management Decision sciences Infrastructure Engineering Regulatory