Physical Distribution & Logistics

The process of getting goods to customers has traditionally been called physical distribution. Managers choose a set of warehouses (stocking points) & transportation carriers that will deliver goods to the destination in the desired time at the lowest total cost. Physical distribution has been expanded to a broader concept of supply chain management, which starts earlier than physical distribution: procure the right inputs –effective conversion to finished products—dispatch to final destination. Supply chain views markets as only destination point. More effective would be to view the target markets requirement first, then design supply chain backward. This view is that of market logistics.

The Council of Logistics Management defines logistics as: Logistics is the process of planning, implementing, and controlling efficient cost effective flow & storage of raw materials, in-process inventory, finished goods & related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. Logistics describes the entire process of materials and products moving into, through and out of the company. It involves the integration of transportation, inventory, warehousing, materials handling, packaging & information technology. In India logistics cost is estimated around 13% of GDP as against 9% in the US. Cost of market logistics can be as high as 30 to 40% of the product’s cost.

Functional Areas of Logistics There are seven important functional areas of logistics. Transportation (Road, Rail or Air) (3) Information Technology (2) Network Design (1) Logistics for Customer Satisfaction Inventory and Storage (4) Packaging and Re-packaging (7) Materials Handling, Loading, and Unloading (6) Warehousing (Pvt./Public) (5)

Network Design Manufacturing plants, warehouses, material handling, distribution and after-sale services are typical logistics facilities. Network design is one of the prime responsibility of logistical management. It is required to determine the number and location of all types of facilities required to perform the logistics task. The selection of a superior locational network can be the first step towards competitive advantage. Logistical efficiency directly depends on the proper design of network and infrastructure.

Information Technology Two major areas that depend on information are: Sales Forecasting: It is done to estimate the future requirements of logistics. It helps inventory management to satisfy anticipated customer requirements. Order Management: Customer’s order is very important in logistics. Logistics services are required for external and internal customers. Today, companies try to shorten order-to-remittance cycle. GE operates an information system that checks credit standing upon receipt of order & checks availability. System issues order to ship, invoices, updates inventory, sends production order for new stock & relays the message back to the sales rep. that the customer’s order is on its way- all in less than 15 seconds.

Transportation It helps in positioning inventory geographically. There are three forms of transport, i.e., private carriage, contract carriage and public carriage. Shipper can choose from rail, road, air, waterway & pipeline & consider criteria as speed, frequency, dependability, capability, capability, availability, traceability & cost. These are two fundamental factors to transportation performance: Cost Speed Balancing of speed and cost is necessary.

Transportation system in an organisation should be: Efficient Economic Reliable Meeting customer needs in a timely manner Experienced Capable of meeting emergencies, special needs.

Modes of Transportation The following modes of transportation are used keeping in mind the goods and places where they are to be sent and the volume of goods: Railways Road Transportation Air Transportation Sea Transportation (Marine) Inland Waterways Ropeways Postal Courier Hand carts, Thelas, Rehres, Cycle Rickshaws,Bullock carts.

Inventory Inventory levels represents a major market logistics decision. Sales people would like to carry enough stock to meet customer requirement immediately- this may not be cost effective. Inventory cost increases at an increasing rate when customer service level approaches 100%. Inventory decision making involves : 1. When to order? & 2. How much to order? There is a need to balance the order processing cost & the inventory carrying cost. Inventory carrying costs include storage charges, cost of capital, taxes & insurance, depreciation & obsolescence. Carrying costs can run as high as 30% of the inventory value. EOQ is Economic order quantity is the quantity for which orders are placed when stock reaches the re-order level. EOQ is the quantity which is most economic to order.

R=Total annual requirement, C=Cost of processing the order EOQ EOQ=√{(2RC/H)}, where: R=Total annual requirement, C=Cost of processing the order H=Holding cost. 800 600 400 200 Total Cost Inventory Carrying Cost Ordering Cost E O Q 250 500 750 (Units per order) ( C o s t R . )

Warehousing Every company has to store finished goods until it is sold, because production & consumption cycles hardly match. It has to decide on number & location of storage facilities. Warehouses provide a key link in the physical distribution chain and, like other stages of distribution, they are being closely scrutinized by today’s marketing managers. The location, size and capabilities of warehouses can profoundly affect a company’s ability to satisfy its customers and deliver products and services profitably. A warehouse is a location with proper facilities where shipments are received from a factory or production centre, broken down, reassembled, and shipped to the customers as per their orders ,” It is also defined as:“a building in which goods are stored, bonded or displayed for sale.”

There are two types of warehouses (i) private warehouses (ii) public warehouses. Public warehouse: These are those which can be used by the public at large. They are constructed by government agencies and corporate houses to meet the needs of a particular type of goods. Businessmen can rent out the space which they need from the warehouse owners, who keep the goods stocked properly at the required temperature and deliver back the goods when they are demanded by the owner of the goods. Purposes of a Good Warehouse Storage Breaking bulk Consolidation Unitisation

Private warehouse: These facilities are created by individuals or companies to meet their requirements. If they have extra space available, they let it out to others also. Many private warehouses are quite modern, systematic, strategically located in areas where goods are safe from the safety point of view. Classification of warehouse: General warehouse Bonded warehouse Cold storages Warehouses meant for agricultural goods Buffer storage warehouses Import-export warehouses.