Logistics System Design and Administration Module 3 Sulbha Nigam

Logistical Positioning Logistics Environmental Assessment Time-based Logistics Alternative Logistics Strategies Strategic Integration and Logistics Time-based control techniques 2009 PESIT MBA

What is Logistics Positioning? (Or “Strategic”) Logistics Positioning is the process to provide policies and deploy facilities, equipment and operating system to achieve performance goals at the lowest cost. The plan provides guidelines concerning How many, what type and where warehouses will be located What inventory assortment will be stocked at each facility Philosophy and practice of purchasing How transportation will be performed and integrated into other areas Which methods of material handling will be utilized Methods of order processing And so forth... 2009 PESIT MBA

Logistics Environmental Assessment External factors limit the flexibility of logistics performance and therefore it is important to assess them. They are Industry competitive assessment Geo-market differentials Technology assessment Material energy assessment Channel structure Economic social projection Service industry trends Regulatory structure 2009 PESIT MBA

Time-based Logistics Focus is on reducing time from order receipt to order delivery Highly responsive Logistics add value and reduce costs Time based Logistics builds on two concepts Postponement Consolidation 2009 PESIT MBA

Time-based Logistics: Postponement It offers the strategy to reduce the anticipatory risk of Logistics Risk is reduced to the degree to which commitment to final manufacturing or distribution of the product can be postponed until receipt of customer order There are two critical types of postponement Manufacturing or Form postponement Logistical or Geographic postponement 2009 PESIT MBA

Time-based Logistics: Postponement Manufacturing or Form postponement :In this postponement , the standard or base product is manufactured to achieve economies of scale while deferring finalization of features until customer commitments are received. 2009 PESIT MBA

Time-based Logistics: Postponement Logistical or Geographic postponement: Such a setup maintains full manufacturing economies of scale while meeting customer requirements using direct shipment capabilities. Focuses on time by stocking differentiated products at a central location and responding rapidly when a customer order is received. 2009 PESIT MBA

Time-based Logistics: Postponement Manufacturing Postponement Logistics Postponement Production Costs Mid – High Low Inventory Costs Low - Mid Distribution Cost High Customer Service 2009 PESIT MBA

Time-based Logistics: Consolidation Retention of transportation economies associated with large size shipments. To get maximum transportation consolidation advantage and minimize the effects of unpredictable demand, managers use the following consolidation ways Market area Scheduled delivery Pooled delivery 2009 PESIT MBA

Time-based Logistics: Consolidation Market area: Small shipments of different customers are combined based on the delivery area or region. Drawback is that there may not be sufficient daily volume for a particular area. Scheduled delivery: Limiting shipments for markets based on predefined delivery schedule. The delivery is guaranteed based on this schedule. Pooled delivery: Freight Forwarder, Public warehouse, Transportation company – Together arrange consolidation for multiple shipper 2009 PESIT MBA

Alternative Logistics Strategies There is no single best way that can service all customers Structural separation Marketing and Logistics Separation in practice Logistical Operating arrangements Echelon Structure Direct Systems Flexible Systems Emergency Flexible Structure Routine flexible Structure 2009 PESIT MBA

Distribution Channel: Logistical and Marketing Separation Logistical channel Factory warehouse Company truck Regional warehouse Common carrier Public warehouse Local delivery (1) (2) (3) (4) (5) (6) (7) consumer Marketing channel (5) General sales office Direct sales office Distributor Retailer (1) (2) (3) (4) Manufacturer - operated Operated by other channel members 2009 PESIT MBA

Distribution Channel: Echeloned and Direct Structured Logistics Industrial Distribution or Consolidation warehouse Wholesalers or Distribution center supplier Manufacturer Retailers customer Industrial Distribution or Consolidation warehouse Wholesalers or Distribution center supplier Manufacturer Retailers customer Direct plan delivery (DPD) Direct store delivery (DSD) 2009 PESIT MBA

Distribution Channel: Complex Alternative Logistics Structure Flow through Flow through Service supplier arrangements Service supplier arrangements Industrial Distribution or Consolidation warehouse Wholesalers or Distribution center supplier Manufacturer Retailers customer Direct plant delivery (DPD) Direct store delivery (DSD) 2009 PESIT MBA

Strategic Integration and Logistics Integration of Logistics function with material and suppliers is important to achieve maximum synergy End result is a series of synchronized capabilities that implement time-based principles in a resource efficient format based on customer-focused requirements 2009 PESIT MBA

Logistics Time Based Control Techniques Supply Driven Techniques Just in Time (JIT) (Kanban) Requirements Planning (RP) Material Requirement Planning (MRP) Distribution Requirement Planning (DRP) Demand Driven Techniques Rules Based Reorder Point (ROP) Quick Response (QR) Continuous Replenishment (CR) ( or Vendor Managed Inventory (VMI) ) Automatic Replenishment (AR) 2009 PESIT MBA

Logistics Administration Organization Planning, Costing and Pricing Performance Measurement and Reporting 2009 PESIT MBA

Logistical Organizational Development Cycle Fragmented Functional Structures Stage 2 Functional groupings Stage 3 Stage 4 Process Functional Integ Stage 5 Process Infor-mation Integ Stage 1 Fragmented Functional Aggregation Process Integration PREVAILING PARADIGM 2009 PESIT MBA

Traditional Organization of Logistically Related Functions Chief executive Finance Manufacturing Marketing Material requirement planning Forecasting Inventory control Customer sales Order service Purchasing Order processing Raw material warehousing Finished goods Field warehousing Credit authorization Finished goods Factory warehousing Management information system Transportation Facility planning Industrial engineering Production scheduling 2009 PESIT MBA

Stages of Functional Aggregation: Stage 1 Organization Chief executive Finance manufacturer Marketing Finished goods Factory warehousing Forecasting Inventory control Physical distribution Industrial engineering Order processing Transportation Credit authorization Production scheduling Finished goods Inventory control Management information system Materials management Order processing Material requirement planning Facility planning Finished goods Field warehousing Purchasing Customer sales Order service Raw material warehousing 2009 PESIT MBA

Production scheduling Stage 2 Organization Chief executive Finance Manufacturing Marketing Physical distribution Industrial engineering Forecasting Transportation Inventory control Production scheduling Order processing Order processing Materials management Finished goods Inventory control Credit authorization Management information system Material requirement planning Finished goods Field warehousing Finished goods Factory warehousing Purchasing Facility planning Raw material warehousing Customer sales Order service Raw material Inventory control Credit authorization 2009 PESIT MBA Distribution system planning

Logistical resource planning Logistical operations Stage 3 Organization Chief executive Logistic executive Planning Controlling Logistical support Logistical resource planning Product market forecasting Packaging Order processing Material handling engineering Functional planning Logistical operations Warehousing Manufacturing support Physical distribution Requirement planning Purchasing Inventory control Transport and traffic Production scheduling Capacity planning Material requirement planning 2009 PESIT MBA

Stage 4 Organization: A shift in Emphasis from function to process 2009 PESIT MBA

Stage 4 A shift in Emphasis from function to process 2009 PESIT MBA

Stage 5 Beyond Structure: Virtuality and Organizational Transparency Trend has been to evolve from Functional Aggregation to Process Aggregation (Stage 4) Process Aggregation has limited the control of Functional owners over complex global logistics Solution may be a “virtual” organization where IT brings together process organizations to execute logistical functions and removes the need of Organizational hierarchies creating bureaucracy. 2009 PESIT MBA

Virtual Organization 2009 PESIT MBA

Concepts having Logistical Significance Structural Compression Centralization/Decentralization Line and Staff distinction Matrix to Horizontal Structure Empowerment Teaming Learning 2009 PESIT MBA

Planning Operations Planning Performance Goals Budgeting Fixed Budgeting Flexible Budgeting Zero Level Budgeting (or Target Budgeting) Capital Budgeting Final Operating Plans Operating Plan Modification 2009 PESIT MBA

Costing Total Cost Analysis Logistics Activity Based Costing Cost Identification Cost Time Frame Cost Formatting Total Cost Presentation Outsource Considerations Cost Revenue Analysis 2009 PESIT MBA

Pricing Pricing Methods F.O.B. Pricing Delivered Pricing Single Zone Pricing Multiple Zone Pricing Basing Point Pricing 2009 PESIT MBA

Various Pricing Issues Potential Discrimination Quantity Discounts Pick up allowances Promotional Pricing EDLP 2009 PESIT MBA

Logistical Performance Measure Dimensions of Performance measurement Objectives Monitoring Controlling Directing Perspective Internal Performance Measurement Cost Customer Service Productivity Asset Management Quality 2009 PESIT MBA

Logistical Performance Measure External Performance Measurement Customer perception measurement Best practice benchmarking Comprehensive Supply Chain Measurement Customer Satisfaction / Quality Time Costs Assets 2009 PESIT MBA

Levels of Measurement and Information Flow Policy Chief Executive Officer Degree Of Information Selectivity Decision Vice President Variation Department heads Operation Databank Direction Line managers 2009 PESIT MBA

Reporting Report Structures: Status Reports Trend Reports Ad-hoc Reports 2009 PESIT MBA

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