Project Cost and SCM

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PROFORMA FOR SYNOPSIS OF PROJECT WORK

Name: Rahul Madan Enroll. No.: 510913525

Address for Correspondence: 20/224 Dakhshin Puri,

DDA Flats,

New Delhi-110062

Mobile No: 9999218952, 9560949836

Major area of Specialization in which project work is to be undertaken:

Material Management and Logistics Operations

Questionnaire attached: Yes / No

Resume of Project Guide attached: Yes / No

Consent Letter of Project Guide: Yes / No

Phone No. of Project Guide…………………

Date of Submission ………………………

SMU Directorate Of Distance Education

Sikkim Manipal University, Project Report on “Inventory Management System”

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PROJECT REPORT

On

“Inventory Management System &

Logistics Operation”

To

“Optimize Sales & Improve Customer

Service”

SUBMITTED BY : Rahul Madan

ROLL NO. : 510913525

ADDRESS FOR CORRESPONDENCE : 20/224 Dakhshin Puri, DDA Flats, New Delhi-62



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Chapter-1

Executive Summary

PREFACE GLOBALIZATION AND CHALLENGES

Market is moving toward diversification, which requires more product

variety, generating demand uncertainty and force enterprises to rethink

supply chain approaches. Uncertain demand leads to many managerial

problems such as production, planning, forecasting, inventory management,

production system, and timely distribution. To reduce the risk level due to

demand uncertainty, from raw materials to final customers, should undergo

innovative and revolutionary changes.

Companies must increasingly focus on gaining competitive advantage

through effective management of their supply chains. The e-business

revolution is affecting supply chain management dramatically and is

changing how companies integrate business processes, both inside and

outside the enterprise. These developments introduce new business and

technical challenges and spotlight existing business processes and supporting

enterprise systems that revolve around the supply chain. Inventory

performance directly connects to the success of SCM. The level of inventory

reduces and inventories turns increase when supply chain efficiently

manage.



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This work explains the inefficient inventory management seen in the

industry based on comparison on some important inventory parameters. For

manufacturers to be efficient participants in SCM, they need to adopt

innovativeness of SCM in systems, policies, devices, programs, products, or

services. Inventory models for calculating optimal order quantities and

reorder points have been in existence long before the arrival of the

computer.

The first Model came, T Fords were rolling off the assembly line;

manufacturers were already reaping the financial benefits of inventory

management by determining the most cost effective answers to the questions

of when and how? Long before JIT, TQM, TOC, and MRP, companies were

using these same concepts in managing their production and inventory

management.

One can imagine that in the earlier days an accountant would have

calculated EOQ or other inventory related formulas one item at a time in a

dimly lit office using the inventory books, a mechanical adding machine,

and a slide rule. Time consuming, as this was, some manufacturers of the

time recognized the financial benefits of taking a scientific approach to

making these inventory decisions. So why is it that, in these days of

advanced information technology, many companies are still not taking

advantage of these fundamental inventory models? Part of the answer lies in

poor results received due to inaccurate data inputs. Accurate product costs,

activity costs, forecasts, history, and lead times are crucial in making

inventory models work. Ironically, software advancements may also in part



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to blame. Many ERP packages come with built in calculations for EOQ,

which calculate automatically. Often the users do not understand how it is

calculated and therefore do not understand the data inputs and system setup

which controls the output.

This project is an effort to throw some light on current situation of

supply chain and logistics industry in India .as we know logistics industry is

growing industry in India it has immense scope of development provided it

gets right kind of infrastructure and strategies, currently India spends 13% of

its GDP on logistics is way ahead of developed nations who spend only 8%

of there GDP.

Indian infrastructure is nothing much to write about because of its

pathetic road and poor connectivity though efforts have been made by

government to improve its condition. Several infrastructure projects are

under way, which is definitely going to boost this industry. As we all know

most industries are bearing the brunt of recession, therefore logistics is know

expectation we have talked about challenges faced by logistics industry in

India, what should be strategies adopted to combat these challenges.

Information technology can come in handy tool to combat these challenges,

we have discussed how IT can contribute in its own way to fuel industry

growth and at last but not the least we have studied procedure of custom

clearance which helps in on time delivery of logistics services which is of

the essence for logistics industry & better service delivery & satisfaction in

terms of service & money.



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For optimize the sales and inventory management processes, you need

robust functionality for managing your logistics facilities properly. Few

changes in the current inventory system will help you to record and track

materials systematically on the basis of both quantity and value. Warehouse

inventory management functions cover internal warehouse movements and

storage.

Some changes in the current inventory system we can reduce costs for

warehousing, transportation, order fulfillment, and material handling – while

improving customer service. You can significantly improve inventory turns,

optimize the flow of goods, and shorten routes within your warehouse or

distribution center. Additional benefits of inventory management include

improved cash flow, visibility, and decision making.

Employees can plan, enter, and document warehouse and internal

stock movements by managing goods receipts, goods issues, storage, picking

and packing, physical stock transfers, and transfer postings.

Problems In existing system

As we know manual system are quite tedious, time consuming and less

efficient and accurate in comparison to the computerized system.

So following are some disadvantages of the old system:

1. Time consuming

2. Less accurate

3. Less efficient

4. Lot of paper work



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5. Slow data processing

6. Not user friendly environment

7. Difficult to keep old records

Scope of Proposed System

The scope of this system is to provide user efficient working

environment and more output can be generated through this. This system

provides user friendly interface resulting in knowing each and every usability

features of the system.

This system helps in tracking records so that past records can be verified

through them and one can make decisions based on the past records. This

system completes the work in a very less time resulting in less time

consumption and high level of efficiency.

This system is developed in such a way that even a naïve user can also

operate the system easily. The calculations are made very quickly and the

records are directly saved into databases and the databases can be

maintained for a longer period of time. Each record can be retrieved and can

be verified for the future transactions.

Feasibility Study

As we know each and every project needs to have a feasibility study for the

complete understandability of the project. We will consider 3 types of



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feasibility study they are technical feasibility, operational feasibility and

economical feasibility.

Technical Feasibility:

As our existing system is purely manual, so we need a onetime

investment of Rs 4 Lacs for the purchase of new software. It requires apprx.

10 Lacks PA as a operating cost.

With the above details our system is technically feasible as after investing 14

Lacs in a year, the company is still saving Rs 15 Lacs PA.

Operational Feasibility:

The new solution is feasible in all sense but operationally it is not. The

new system demands the expulsion of at least 15 people from the company.

Economic Feasibility:

With the manual system the operating cost of the system is about 60

Lacks P.A. This cost comprises salary of 25 people, stationary, building rent,

electricity, water, telephone etc. But with the new system this reoccurring

cost comes out to be about 20 Lacks P.A. Hence the new system is

economically feasible.

We seek answers to these and similar questions in the following

prospect;-

The presently study has been divided into ten chapters:



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Chapter one is introductory chapter. It includes executive summary

detailing the origin growth and development of Inventory

management & it’s different processes & systems

Chapter two gives general introduction to Samsung India

Electronics Pvt. Ltd. and it includes the history, development and

growth of Samsung India Electronics Pvt. Ltd as Company which I

adopted for my study work.

Chapter three explains a brief summary on the basis concept of

supply chain & logistics operations followed by organizations in

India.

Chapter four throw the light on the material handling cost control

and the detailed information to how to control in this factor is called

logistic control.

Chapter five throws the brief light on 3rd party logistics (3PL) &

survey report on 3PL & supply chain in India.

Chapter Six provides the survey report on logistics by World bank.

Chapter Seven confirms the role played by IT industry in logistics &

efficient control over inventory management & detailed report on

why IT is critical in India for better management.

Chapter Eight provides the detailed description on custom clearance

procedures followed by India & case studies regarding the importing

of material & cases like “Anti dumping material” & action taken by

Indian government to stop Anti dumping.



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Chapter Nine throw the light on the of Inventory control system in

Samsung India Electronics Pvt. Ltd. It describes how and to what

extent Samsung India Electronics Pvt. Ltd. had adopted the new

technique.

Chapter Ten comprises the summary and conclusion drawn from

this study and suggestion made for effective and efficient control for

Inventory management & logistics operations in Samsung India

Electronics Pvt. Ltd.



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RESEARCH MYTHOLOGY

Hypothesis

The study emanates from the presumption that Inventory

management & Logistics Management System, in Samsung India

Electronics Pvt. Ltd. is not too satisfactory. It can be improved through

proper mechanization in the field.

PROBLEM STATEMENT

In many organizations/manufacturing firms logistics plays the most

important role, more money is spent to provide better service delivery other

than for all other expenses & items combined in a firm. It is estimated that

the logistics cost is 2.5 times higher than of labor and wages cost. So most

organization are not able to control; use & maintain better supply chain

process in their system as per the requirement. In Samsung we found the

same issues & problems. There was not proper mechanism to control the

stocks, Inventory & Logistics parts. So my thesis works out on the same way

how to control & utilize the complete supply chain process in proper ways.

Methodology

Questionnaire; feedbacks, interviews and on the spot study techniques

were employed for the study. The desk technique was adopted for

gaining a conceptual back ground of the problem while the remaining

technique was adopted for allied aspects of the problem. The questions

which were prepared on the basis of the desk work were responded

properly by the company. The informal discussion with earlier researcher

and professors on the subject were also undertaken.



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Staff interviewed for the planning of new account system. The

annual reports and cost Logistics management system of the company

were analyzed. The sources of the basic data are annual reports,

prospects, magazines, journals, bulletin reports, accounts records and the

various sits of net of the company. The figures contained in the annual

reports and account records were rounded off to the lakh of rupees. The

cost data was redesigned and various components were regrouped in such

a manner as to facilitate the analysis.

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Purpose and objective of study:-

The objective of the study is to understand the logistics systems &

Inventory management system in Samsung India Electronics Pvt. Ltd.

This study is done to obtain a true insight performance of the companies

under study.

The objective of the present study is to see to what extent accounting

system and costing techniques are applied in the system and to highlight

the significant areas of cost reduction and cost control in the same area.

The study will focus on the performance of the company in the field of

LOGISTICS CONTROL and it will also see whether the company under

study is adopting budgetary control system or standard costing system as

techniques for cost control. This study is made to bring into light the

performance and practices adopted and used in the company and whether

there are any inefficient and ineffective practices used by company. The

study suggests measure for effective and efficient performance by the



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management and brings into light the area where cost reduction and cost

control can be achieved. Cost accounting system makes the best use for

resources by increasing profitability, for this purpose I had selected the

Samsung India Electronics Pvt. Ltd.

Selection of the company

The following factors were kept in mind which the researcher

selects the company. Samsung India Electronics Pvt. Ltd. is a

global leader in the Electronics & IT products. Samsung India

Electronics Pvt. Ltd. The selected company is almost having the

biggest network & share capital among the other companies in

India. (For this we had studied data for the other IT companies in

India also like Seagate, Maxtor, Hitachi, ASUS, Sony, LG etc.)

1. Being a part of Samsung India and handling their Inventory &

logistic process including coordinating & providing support to our

different vendors & customers in India, as being a part of the

management & process I suppose to prepare my project report in

this company only.



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INDEX

1. EXECUTIVE SUMMARY

2. HISTORY, GROWTH AND DEVELOPMENT OF SAMSUNG

INDIA ELECTRONICS PVT. LTD.

3. BASIC CONCEPT OF SUPPLY CHAIN.

4. LOGISTICS INDUSTRY STATUS IN INDIA & LOGISTIC COST.

5. 3PL SURVEY REPORT EXPLANATION.

6. WORLD BANK REPORT ON TACTS.

7. I.T. IN LOGISTICS INDUSTRY & REPORT WHY I.T.

CRITICAL TO INDIA.

8. CUSTOM CLEARENCE PROCEDURE IN INDIA.

9. DIFFERENT TYPE OF INVENTORY CONTROL SYSTEMS.

10. SUMMARY & SUGGESTION



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Chapter-2Chapter-2

Introduction of Introduction of company………company………

The Samsung Group (Korean) is a multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea. It is the world's largest conglomerate by revenue with annual revenue of US $173.4 billion in 2009 and is South Korea's largest chaebol. The meaning of the Korean Hanja word Samsung is "tristar" or "three stars".

The Samsung Group is composed of numerous international affiliated businesses, most of them united under the Samsung brand including Samsung Electronics, the world's largest electronics company, Samsung Heavy Industries, the world's second largest shipbuilder and Samsung C&T, a major global construction company.

Samsung has been the world's most popular consumer electronics brand since 2005 and is the best known South Korean brand in the world. Samsung Group accounts for more than 20% of South Korea's total exports and is the leader in many domestic industries, such as the financial, chemical, retail and entertainment industries. The company's strong influence in South Korea is visible throughout the nation, which has been referred to as the "Republic of Samsung.



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http://en.wikipedia.org/wiki/Retailing

http://en.wikipedia.org/wiki/Chemical_substance

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/wiki/Exports

http://en.wikipedia.org/wiki/Samsung_C%26T

http://en.wikipedia.org/wiki/Shipbuilder

http://en.wikipedia.org/wiki/Samsung_Heavy_Industries

http://en.wikipedia.org/wiki/Electronics

http://en.wikipedia.org/wiki/Samsung_Electronics

http://en.wikipedia.org/wiki/Business

http://en.wikipedia.org/wiki/Hanja

http://en.wikipedia.org/wiki/Korean_language

http://en.wikipedia.org/wiki/Chaebol

http://en.wikipedia.org/wiki/South_Korea

http://en.wikipedia.org/wiki/Seoul

http://en.wikipedia.org/wiki/Samsung_Town

http://en.wikipedia.org/wiki/Conglomerate_(company)

http://en.wikipedia.org/wiki/Multinational_corporation

http://en.wikipedia.org/wiki/Korean_language

http://en.wikipedia.org/wiki/File:Samsung_Logo.svg


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Samsung Group

Type Public (Korean:)

Industry Conglomerate

Founded 1938

Founder(s) Lee Byung-chul

Headquarters Samsung Town, Seoul, South Korea

Area served Worldwide



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http://en.wikipedia.org/wiki/South_Korea


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BACKGROUND…BACKGROUND…

The Samsung Group is a multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea. It is the world's largest conglomerate by revenue with annual revenue of US$173.4 billion in 2008 and is South Korea's largest chaebol. The meaning of the Korean word Samsung is "Tri-Star" or "three stars".The Samsung Group is composed of numerous international affiliated businesses, most of them united under the Samsung brand including Samsung Electronics, the world's largest electronics company, Samsung Heavy Industries, the world's second largest shipbuilder and Samsung C&T, a major global construction company. SMU Directorate Of Distance Education


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Samsung has been the world's most popular consumer electronics brand since 2005 and is the best known South Korean brand in the world. Samsung Group accounts for more than 20% of South Korea's total exports and is the leader in many domestic industries, such as the financial, chemical, retail and entertainment industries.

History History



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In 1938, Lee Byung-Chull founded Samsung, a small trading company withforty employees located in Daegu. The company prospered until the Communist invasion in 1950 when he was forced to leave Seoul and start over in Busan. During the war, Samsung's businesses flourished and its assets grew twenty-fold. In 1953, Lee started a sugar refinery. The company diversified into many areas such as insurance, securities, and retail. In the early 1970s, Lee borrowed heavily from foreign interests and launched a radio and television station. Samsung Group later formed several electronics-related divisions, such as Samsung Electronics Devices Co., Samsung Electro-Mechanics Co., Samsung Corning Co., andSamsung Semiconductor & Telecommunications Co., and grouped them together under Samsung Electronics Co., Ltd. in 1980s. Its first product was a black-and-white television set.In the late 1980s and early 1990s, Samsung Electronics invested heavily in research and development, investments that were pivotal in pushing the company to the forefront of the global electronics industry. “By the 1980s Samsung was manufacturing, shipping, and selling a wide range of appliances and electronic products throughout the world”. In 1982, it built a television assembly plant in Portugal; in 1984, it built a $25 million plant in New York; and in 1987, it built another $25 million facility in England.The 1990s saw Samsung rise as an international corporation. Samsung's construction branch was awarded a contract to build one of the two Petronas Towers in Malaysia, Taipei 101 in Taiwan and the Burj Khalifa in United Arab Emirates, which is the tallest structure ever constructed. In 1993 and in order to change the strategy sold off ten of Samsung Group's subsidiaries, downsized the company, and merged other operations to concentrate on three industries: electronics, engineering, and chemicals. SMU Directorate Of Distance Education


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In 1996, the Samsung Group reacquired the Sungkyunkwan University foundation. Samsung survived the Asian financial crisis of 1997-98 relatively unharmed. However, Samsung Motor, a $5 billion venture was sold to Renault at a significant loss.Additionally, Samsung manufactured a range of aircraft from 1980 to 1990s.Most importantly, Samsung Electronics (SEC) has since come to dominate the group and the worldwide semiconductor business, even surpassing worldwide leader Intel in investments for the 2005 fiscal year. Samsung's brand strength has greatly improved in the last few years.

Samsung became the largest producer of memory chips in the world in 1992, and is the world's second-largest chipmaker after Intel. In 1995, it built its first liquid-crystal display screen. Ten years later, Samsung grew to be the world's largest manufacturer of liquid-crystal display panels. In 2006, S-LCD was established as a joint venture between Samsung and Sony in order to provide a stable supply of LCD panels for both manufacturers. Samsung Electronics, which saw record profits and revenue in 2004and 2005, overtook Sony as one of the world's most popular consumer electronics brands, and is now ranked #19 in the world overall. Behind, Nokia, Samsung is the world's second largest by volume producer of cell phones with a leading market sharein the North America and Western Europe.



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SAMSUNG ELECTRONICS IN SAMSUNG ELECTRONICS IN INDIAINDIASamsung India Electronics Private Limited (SIEL) is the Indian subsidiary of the US $55.2 billion Samsung Electronics Corporation (SEC) headquartered in Seoul, Korea. Headquartered in New Delhi, SAMSUNG India has widespread network of sales offices all over the country . SAMSUNG India is the hub for SAMSUNG’s South West Asia Regional operations. The South West Asia Headquarters, looks after the SAMSUNG business in Nepal, Sri Lanka, Bangladesh, Maldives and Bhutan besidesIndia. SAMSUNG India which commenced its operations in India in December 1995 enjoys a sales turnover of over US$ 1Bn in just a decade of operations in the country.From being a virtually unknown entity in the Year 1995, brand SAMSUNG today enjoys an awareness level of over 65% and a positive opinion of over 80% in the country today (source: BAS 2007). Initially, a player only in the Colour Televisions segment, it later diversified into colour monitors (1999) and refrigerators (2003).Today, it is recognized as one of the fastest growing brands in the sphere of digital technology. SIEL is the market leader in high end digital television (Plasma, LCD).



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PPRODUCT PORTFOLIO OF RODUCT PORTFOLIO OF SIELSIEL

SAMSUNG India is the hub for SAMSUNG’s South West Asia Regionaloperations. SAMSUNG India has segmented their products into five categories.Source: Samsung Electronics website

Fig: Width of the product mix of SIEL



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_ MOBILE PHONE

_ TV/AUDIO/VIDEO

_ CAMERA/CAMCORDER

_ HOME APPLIANCES

_ PC/PERIPHERALS/PRINTERS

Source: Samsung Electronics website



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Chapter-3Chapter-3

CONCEPT OF SUPPLY CHAINCONCEPT OF SUPPLY CHAIN

Supply chains encompass the companies and the

business activities needed to design, make, deliver, and use a product or service. Businesses depend on their supply chains to provide them with what they need to survive and thrive. Every business fits into one or more supply chains and has a role to play in each of them. The pace of change and the uncertainty about how markets will evolve has made it increasingly important for companies to be aware of the supply chains they participate in and to understand the roles that they play. Those companies that learn how to build and participate in strong supply chains will have a substantial competitive advantage in their markets.

N othing Entirely New. . . Just a Significant Evolution

The practice of supply chain management is guided by some basic underlying concepts that have not changed much over the centuries. Several hundred years ago, Napoleon made the remark, “An army marches on its stomach.” Napoleon was a master strategist and a skillful general and this remark shows that he clearly understood the importance of what we would now call an efficient supply chain. Unless the soldiers are fed, the army cannot move.Along these same lines, there is another saying that goes, “Amateurs talk strategy and professionals talk logistics.” SMU Directorate Of Distance Education


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People can discuss all sorts of grand strategies and dashing maneuvers but none of that will be possible without first figuring out how to meet the day-to-day demands of providing an army with fuel, spare parts, food, shelter, and ammunition. It is the seemingly mundane activities of the quartermaster and the supply sergeants that often determine an army’s success. This has many analogies in business.The term “supply chain management” arose in the late 1980s and came into widespread use in the 1990s. Prior to that time, businesses used terms such as “logistics” and “operations management” instead. Some definitions of a supply chain are offered below:

• “A supply chain is the alignment of firms that bring products or services to market.”—from Lambert, Stock, and Ellram in their book Fundamentals of Logistics Management (Lambert, Douglas M., James R. Stock, and Lisa M. Ellram, 1998, Fundamentals of Logistics Management, Boston, MA: Irwin/ McGraw-Hill)

• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves.”— from Chopra and Meindl in their book Supply chain Management: Strategy, Planning, and Operations (Chopra, Sunil, and Peter Meindl, 2001, Supply Chain Management: strategy, Planning, and Operations, Upper Saddle River, NJ: Prentice-Hall, Inc.)

• “A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.”—from Ganeshan and SMU Directorate Of Distance Education


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Harrison at Penn State University in their article An Introduction to Supply Chain Management published at http://silmaril.smeal.psu.edu/supply_chain_intro.html (Ganeshan, Ram, and Terry P. Harrison, 1995,“An Introduction to Supply Chain Management,” Department of Management Sciences and Information Systems, 303 BeamBusiness Building, Penn State University, University Park, PA). If this is what a supply chain is then we can define supply chain management as the things we do to influence the behavior of the supply chain and get the results we want. Some definitions of supply chain management are:

• “The systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chainas a whole.”-from Mentzer, DeWitt, Deebler, Min, Nix, Smith, and Zacharia in their article Defining Supply Chain Management in the Journal of Business Logistics.

• “Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.”—my own words. There is a difference between the concept of supply chain management and the traditional concept of logistics. Logistics typically refers to activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market. Also traditional logistics focuses its attention on



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activities such as procurement, distribution, maintenance, and inventory management. Supply chain management acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service.In the wider view of supply chain thinking, these additional activities are now seen as part of the work needed to fulfill customer requests. Supply chain management views the supply chain and the organizations in it as a single entity. It brings a systems approach to understanding and managing the different activities needed to coordinate the flow of products and services to best serve the ultimate customer. This systems approach provides the framework in which to best respond to business requirements that otherwise would seem to be in conflict with each other. Taken individually, different supply chain requirements often have conflicting needs. For instance, the requirement of maintaining high levels of customer service calls for maintaining high levels of inventory, but then the requirement to operate efficiently calls for reducing inventory levels. It is only when these requirements are seen together as parts of a larger picture that ways can be found to effectively balance their different demands. Effective supply chain management requires simultaneous improvements in both customer service levels and the internal operating efficiencies of the companies in the supply chain. Customer service at its most basic level means consistently high order fill rates, high on-time delivery rates, and a very low rate of products returned by customers for whatever reason. Internal efficiency for organizations in a supply chain means that these organizations get an attractive rate of return on their investments in inventory and other assets and that they find ways to lower their operating and sales expenses. There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and operating challenges and yet the issues remain SMU Directorate Of Distance Education


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essentially the same in every case. Companies in any supply chain must make decisions individually and collectively regarding their actions in five areas:

1. Production—What products does the market want? How much of which products should be produced and by when? This activity includes the creation of master production schedules that take into account plant capacities, workload balancing, quality control, and equipment maintenance.

2. Inventory—What inventory should be stocked at each stage in a supply chain? How much inventory should be held as raw materials, semi finished, or finished goods? The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain. However, holding inventory can be expensive, so what are the optimal inventory levels and reorder points?

3. Location—Where should facilities for production and inventory storage be located? Where are the most cost efficient locations for production and for storage of inventory? Should existing facilities be used or new ones built? Once these decisions are made they determine the possible paths available for product to flow through for delivery to the final consumer.

4. Transportation—How should inventory be moved from one supply chain location to another? Air freight and truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times and more uncertainty. This uncertainty must be compensated for by stocking higher levels of inventory. When is it better to use which mode of transportation?

5. Information—How much data should be collected and how SMU Directorate Of Distance Education


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much information should be shared? Timely and accurate information holds the promise of better coordination and better decision making. With good information, people can make effective decisions about what to produce and how much, about where to locate inventory and how best to transport it.The sum of these decisions will define the capabilities and effectivenessof a company’s supply chain. The things a company can do and the ways that it can compete in its markets are all very much dependent on the effectiveness of its supply chain. If a company’s strategy is to serve a mass market and compete on the basis of price, it had better have a supply chain that is optimized for low cost. If a company’s strategy is to serve a market segment and compete on the basis of customer service and convenience, it had better have a supply chain optimized for responsiveness. Who a company is and what it can do is shaped by its supply chain and by the markets it services.

H ow the Supply Chain Works

Two influential source books that define principles and practice of supplychain management are The Goal (Goldratt, Eliyahu M., 1984, The Goal, Great Barrington, MA: The North River Press Publishing Corporation); and Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra and Peter Meindl.



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Given the different modes of transportation and the location of the facilities in a supply chain, managers need to design routes and networks for moving products. A route is the path through which products move and networks are composed of the collection of the paths and facilities connected by those paths. As a general rule, the higher the value of a product (such as electronic components or pharmaceuticals), the more its transport network should emphasize responsiveness and the lower the value of a product (such as bulk commodities like grain or lumber), the more its network should emphasize efficiency.Information is the basis upon which to make decisions



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regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one, (i.e., the data is accurate, timely, and complete), the companies in a supply chain will each be able to make good decisions for their own operations. This will also tend to maximize the profitability of the supply chain as a whole. That is the way that stock markets or other free markets work and supply chains has many of the same dynamics as markets.Information is used for two purposes in any supply chain:

1. Coordinating daily activities related to the functioning of the other four supply chain drivers: production; inventory; location; and transportation. The companies in a supply chain use available data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.

2. Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables. Information is also used for strategic forecasts to guide decisions about whether to build new facilities, enter a new market, or exit an existing market. Within an individual company the trade-off between responsiveness and efficiency involves weighing the benefits that good information can provide against the cost of acquiring that information. Abundant, accurate information can enable very efficient operating decisions and better forecasts but the cost of building and installing systems to deliver this information can be very high.Within the supply chain as a whole, the responsiveness versus efficiency trade-off that companies make is one of deciding how much information to share with the other companies and how much information to keep private. The SMU Directorate Of Distance Education


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more information about product supply, customer demand, market forecasts, and production schedules that companies share with each other, the more responsive everyone can be. Balancing this openness however, are the concerns that each company has about revealing information that could be used against it by a competitor. The potential costs associated with increased competition can hurt the profitability of a company.



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T he Evolving Structure of Supply Chains

The participants in a supply chain are continuously making decisions that affect how they manage the five supply chain drivers. Each organization tries to maximize its performance in dealing with these drivers through a combination of outsourcing, partnering, and in-house expertise. In the fast-moving markets of our present economy a company usually will focus on what it considers to be its core competencies in supply chain management and outsource the rest. This was not always the case though. In the slower moving mass markets of the industrial age it was common for successful companies to attempt to own much of their supply chain. That was known as vertical integration. The aim of vertical integration was to gain maximum efficiency through economies of scale (see Exhibit 1.1).



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In the first half of the 1900s Ford Motor Company owned much of what it needed to feed its car factories. It owned and operated iron mines that extracted iron ore, steel mills that turned the ore into steel products, plants that made component car parts and assembly plants that turned out finished cars. In addition, they owned farms where they grew flax to make into linen car tops and forests that they logged and sawmills where they cut the timber into lumber for making wooden car parts. Ford’s famous River Rouge Plant was a monument to vertical integration—iron ore went in at one end and cars came out at the other end. Henry Ford in his 1926 autobiography, today and tomorrow, boasted that his company could take in iron ore from the mine and put out a car 81 hours later (Ford, Henry, 1926, Today and Tomorrow, Portland, OR: Productivity Press, Inc.). This was a profitable way of doing business in the more predictable, one-size-fits-all industrial economy that existed in the early 1900s. Ford and other businesses churned out mass amounts of basic products. But as the markets grew and customers became more particular about the kind of products they wanted, this model began to break down. It could not be responsive enough or produce the variety of products that were being demanded. For instance, when Henry Ford was asked about the number of different colors a customer could request, he said, “they can have any color they want as long as it’s black.” In the 1920s Ford’s market share was over 50 percent but by the 1940s it had fallen to below 20 percent. Focusing on efficiency at the expense of being responsive to customer desires was no longer a successful business model.Globalization, highly competitive markets, and the rapid pace of technological change are now driving the development of supply chains where multiple companies work together, each company focusing on the activities that it does best. Mining companies focus on mining, Timber Company’s focus on logging and making number and SMU Directorate Of Distance Education


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manufacturing companies focus on different types of manufacturing from making component parts to doing final assembly. This way people in each company can keep up with rapid rates of change and keep learning the new skills needed to compete in their particular business. Where companies once routinely ran their own warehouses or operated their own fleet of trucks, they now have to consider whether those operations are really a core competency or whether it is more cost effective to outsource those operations to other companies that make logistics the center of their business. To achieve high levels of operating efficiency and to keep up with continuing changes in technology, companies need to focus on their core competencies. It requires this kind of focus to stay competitive.Instead of vertical integration, companies now practice “virtual integration.”Companies find other companies who they can work with to perform the activities called for in their supply chains. How a company defines its core competencies and how it positions itself in the supply chains it serves is one of the most important decisions it can make.

Participants in the Supply Chain

In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the supplier’s supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customer’s customer or ultimate customer at the end of an extended supply chain. Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, SMU Directorate Of Distance Education


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finance, marketing, and information technology.In any given supply chain there is some combination of companies who perform different functions. There are companies that are producers, distributors or wholesalers, retailers, and companies or individuals who are the customers, the final consumers of a product. Supporting these companies there will be other companies that are service providers that provide a range of needed services.

Producers

Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber.It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and subassemblies made by other producers to create their products. Producers can create products that are intangible items such as music, entertainment, software, or designs. A product can also be a service such as mowing a lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the producers of tangible, industrial products are moving to areas of the world where labor is less costly. Producers in the developed world of North America, Europe, and parts of Asia are increasingly producers of intangible items and services.

Distributors

Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually SMU Directorate Of Distance Education


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buy. Distributors buffer the producers from fluctuations in product demand by stocking inventory and doing much of the sales work to find and service customers. For the customer, distributors fulfill the “Time and Place” function—they deliver products when and where the customer wants them. A distributor is typically an organization that takes ownership of significant inventories of products that they buy from producers and sell to consumers. In addition to product promotion and sales, other functions the distributor performs are inventory management, warehouse operations, and product transportation as well as customer support and post-sales service. A distributor can also be an organization that only brokers a product between the producer and the customer and never takes ownership of that product. This kind of distributor performs mainly the functions of product promotion and sales. In both these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available.

Retailers

Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.



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Customers

Customers or consumers are any organization that purchases and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it. Service Providers

These are organizations that provide services to producers, distributors, retailers, and customers. Service providers have developed special expertise and skills that focus on a particular activity needed by a supply chain. Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own.Some common service providers in any supply chain are providers of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices. These are banks, credit rating companies, and collection agencies. Some service providers deliver market research and advertising, while others provide product design, engineering services, legal services, and management advice. Still other service providers offer information technology and data collection services. All these service providers are integrated to a greater or lesser degree into the ongoing operations of the producers, distributors, retailers, and consumers in the supply chain. Supply chains are composed of repeating sets of participants that fall into one or more of these categories. Over time the SMU Directorate Of Distance Education


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needs of the supply chain as a whole remain fairly stable. What changes is the mix of participants in the supply chain and the roles that each participant plays.In some supply chains, there are few service providers because the other participants perform these services on their own. In other supply chains very efficient providers of specialized services have evolved and the other participants outsource work to these service providers instead of doing it themselves. Examples of supply chain structure are shown in Exhibit 1.2.



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A ligning the Supply Chain with Business Strategy



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A company’s supply chain is an integral part of its approach to the marketsit serves. The supply chain needs to respond to market requirements and do so in a way that supports the company’s business strategy. The business strategy a company employs starts with the needs of the ESSENTIALS of Supply Chain Management IN THE REAL WORLD (CONTINUED)

“For manufacturers we offer them the ability to drive standardization with our customers. Through distributor rationalization, we partner with a few best-in-class distributors per category, which in turn offers them a significant increase in the business they get from our properties. And our customers now have access to a single-source, paperless process for purchasing all of their MRO products. They outsource their purchasing operations and benefit from better economies of scale. For each constituent in our model, we provide high levels of data on purchasing activities, customer profiles, and seasonal patterns. We are bringing transparency to the supply chain.” In reflecting on the last couple of years, Charlie summarized the main lessons learned. “We have to stay much focused on our core proposition. We do purchasing of MRO products and services for people who manage real estate. We continue to build our value in that area. We have learned how best to roll out the technology and how to integrate with our supplier partners. We also have learned a lot about how to screen suppliers for their ability to implement our technology and how to support and assist our client to grow with us.”Looking at the next couple of years, Charlie sees the company continuing to grow its client base. “We know we have an excellent procurement solution in place now. We will continue to grow and enhance our facility management service offerings. We will further integrate our systems with those of suppliers. Where there is real estate and a need to SMU Directorate Of Distance Education


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manage it, we have a solution and real estate leaders are starting to realize that.” customers that the company serves or will serve. Depending on the needs of its customers, a company’s supply chain must deliver the appropriate mix of responsiveness and efficiency. A company whose supply chain allows it to more efficiently meet the needs of its customers will gain market share at the expense of other companies in that market and also will be more profitable.For example, let’s consider two companies and the needs that their supply chains must respond to. The two companies are 7-Eleven and Sam’s Club, which is a part of Wal-Mart. The customers who shop at convenience stores like 7-Eleven have a different set of needs and preferences from those who shop at a discount warehouse like Sam’s Club. The 7-Eleven customers are looking for convenience and not the lowest price. Those customers is often in a hurry and prefers that the store be close by and have enough variety of products so that they can pick up small amounts of common household or food items that they need immediately. Sam’s Club customers are looking for the lowest price. Those are not in a hurry and are willing to drive some distance and buy large quantities of limited numbers of items in order to get the lowest price possible. Clearly the supply chain for 7-Eleven needs to emphasize responsiveness. That group of customers expects convenience and will pay for it. On the other hand, the Sam’s Club supply chain needs to focus tightly on efficiency. The Sam’s Club customer is very price conscious and the supply chain needs to find every opportunity to reduce costs so that these savings can be passed on to the customers. Both of these companies’ supply chains are well aligned with their business strategies and because of this they are each successful in their markets. There are three steps to use in aligning your supply chain with your business strategy. The first step is to understand the markets that your company serves. The second step is to define the strengths or core. SMU Directorate Of Distance Education


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Basic Concepts of Supply Chain Management

Competencies of your company and the role the company can or could play in serving its markets. The last step is to develop the needed supply chain capabilities to support the roles your company has chosen.

Understand the Markets Your Company Serves

Begin by asking questions about your customers. What kind of customer does your company serve? What kind of customer does your customer sell to? What kind of supply chain is your company a part of? The answers to these questions will tell you what supply chains your company serves and whether your supply chain needs to emphasize responsiveness or efficiency. Chopra and Meindl have defined the following attributes that help to clarify requirements for the customers you serve. These attributes are:

• The quantity of the product needed in each lot—Do your customers want small amounts of products or will they buy large quantities? A customer at a convenience store or a drug store buys in small quantities. A customer of a discount warehouse club, such as Sam’s Club, buys in large quantities.

• The response time that customers are willing to tolerate—Do your customers buy on short notice and expect quick service or is a longer lead time acceptable? Customers of a fast food restaurant certainly buy on short notice and expect quick service. Customers buying custom machinery would plan the purchase in advance and expect some lead time before the product could be delivered.



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• The variety of products needed—Are customers looking for a narrow and well-defined bundle of products or are they looking for a wide selection of different kinds of products? Customers of a fashion boutique expect a narrowly defined group of products. Customers of a “big box” discount storeLike Wal-Mart expect a wide variety of products to be available.

ESSENTIALS of Supply Chain Management

• The service level required—do customers expect all products to be available for immediate delivery or will they accept partial deliveries of products and longer lead times? Customers of a music store expect to get the CD they are looking for immediately or they will go elsewhere. Customers who order a custom-built new machine tool expect to wait a while beforedelivery.

• The price of the product—How much are customers willing to pay? Some customers will pay more for convenience or high levels of service and other customers look to buy based on the lowest price they can get.

• The desired rate of innovation in the product—How fast are new products introduced and how long before existing products become obsolete? In products such as electronics and computers, customers expect a high rate of innovation. In other products, such as house paint, customers do not desire such a high rate of innovation.

Define Core Competencies of Your Company

The next step is to define the role that your company plays or wants to play in these supply chains. What kind of supply



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chain participant is your company? Is your company a producer, a distributor, a retailer, or a service provider? What does your company do to enable the supply chains that it is part of? What are the core competencies of your company? How does your company make money? The answers to these questions tell you what roles in a supply chain will be the best fit for your company. Be aware that your company can serve multiple markets and participate in multiple supply chains. A company like W.W. Grainger serves several different markets. It sells maintenance, repair, and operating (MRO) supplies to large national account customers such as Ford.


Being and it also sells these supplies to small businesses and building contractors. These two different markets have different requirements as measured by the above customer attributes. When you are serving multiple market segments, your company will need to look for ways to leverage its core competencies. Parts of these supply chains may be unique to the market segment they serve while other parts can be combined to achieve economies of scale. For example, if manufacturing is a core competency for a company, it can build a range of different products in common production facilities. Then different inventory and transportation options can be used to deliver the products to customers in different market segments.

Develop Needed Supply Chain Capabilities

Once you know what kind of markets your company serves and the role your company does or will play in the supply chains of these markets, then you can take this last step, which is to develop the supply chain capabilities needed to support the roles your company plays. This development is SMU Directorate Of Distance Education


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guided by the decisions made about the five supply chain drivers. Each of these drivers can be developed and managed to emphasize responsiveness or efficiency depending on the business requirements.

1. Production —This driver can be made very responsive by building factories that have a lot of excess capacity and that use flexible manufacturing techniques to produce a wide range of items. To be even more responsive, a company could do their production in many smaller plants that are close to major groups of customers so that delivery times would be shorter. If efficiency is desirable, then a company can build factories with very little excess capacity and have the factories optimized for producing a limited range of items. Further efficiency could be gained by centralizing production in large central plants to get better economies of scale.

ESSENTIALS of Supply Chain Management

2. Inventory —Responsiveness here can be had by stocking high levels of inventory for a wide range of products. Additional responsiveness can be gained by stocking products at many locations so as to have the inventory close to customers and available to them immediately. Efficiency in inventory management would call for reducing inventory levels of all items and especially of items that do not sell as frequently. Also, economies of scale and cost savings could be gotten by stocking inventory in only a fewCentral locations.

3. Location —A location approach that emphasizes responsiveness would be one where a company opens up many locations to be physically close to its customer base. For example, McDonald’s has used location to be very responsive to its customers by opening up lots of stores in its



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high volume markets. Efficiency can be achieved by operating from only a few locations and centralizing activities in common locations. An example of this is the way Dell serves large geographical markets from only a few central locations that perform a wide range of activities.

4. Transportation —Responsiveness can be achieved by a transportation mode that is fast and flexible. Many companies that sell products through catalogs or over the Internet are able to provide high levels of responsiveness by using transportation to deliver their products, often within 24 hours. FedEx and UPS are two companies who can provide very responsive transportation services. Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of transportation modes such as ship, rail, and pipelines can be very efficient.Transportation can be made more efficient if it is originated out of a central hub facility instead of from many branch locations.


5. Information —The power of this driver grows stronger each year as the technology for collecting and sharing information becomes more widespread, easier to use, and less expensive. Information, much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated by the operations of the other four drivers. The supply chains that serve the electronics markets are some of themost responsive in the world. Companies in these supply chains from manufacturers, to distributors, to the big retail stores collect and share data about customer demand, production schedules, and inventory levels. Where efficiency



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is more the focus, less information about fewer activities can be collected. Companies may also elect to share less information among themselves so as not to risk having that information used against them. Please note, however, that these information efficiencies are only efficiencies in the short term and they become less efficient over time because the cost of information continues to drop and the cost of the other four drivers usually continues to rise. Over the longer term, those companies and supply chains that learn how to maximize the use of information to get optimal performance from the other drivers will gain the most market share and be the most profitable.



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ESSENTIALS steps for Supply Chain Management



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A supply chain is composed of all the companies involved in the design, production, and delivery of a product to market. Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served. The goal of supply chain management is to increase sales of goods and services to the final, end use customer while at the same time reducing both inventory and operating expenses. The business model of vertical integration that came out of the industrial economy has given way to “virtual integration” of companies in a supply chain. Each company now focuses on its core competencies and partners with other companies that have complementary capabilities for the design and delivery of products to market. Companies must focus on improvements in their core competencies in order to keep up with the fast pace of market and technological change in today’s economy. To succeed in the competitive markets that make up today’s economy, companies must learn to align their supply chains with the demands of the markets they serve. Supply chain performance is now a distinct competitive advantage for companies who excel in this area. One of the largest companies in North America is a testament to the power of effective supply chain management. Wal-Mart has grown steadily over the last 20 years and much, if not most, of its success is directly related to its evolving capabilities to continually improve its supply chain.



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Chapter-4Chapter-4

LOGISTICS INDUSTRY &LOGISTICS INDUSTRY & LOGISTIC COST in India.LOGISTIC COST in India.

India is being touted as the land of opportunity for logistics service providers all over the world.

Indian’s logistics industry is fast coming into its own, poised to touch $125 billion in 2010.From $90 billion at present



INDIAN LOGISTICS INDUSTRY

ROAD RAILWAYS SEA AIR

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Environment Scan Logistics in India

Despite its favorable location between Asia and Europe and a population of more than 1 billion people, India has hardly been able to position itself on the economic market. It has only been in recent years that the country has been able to increasingly flex its economic muscle. But, India has much catching-up to do in logistics terms before it can reach the same level as the world’s leading industrial nations.

Geographic challenges in India

For India is bordered on the north by the Himalaya Mountains. For this reason, creating road and rail connections from this direction is a major undertaking. In the south, though, the Indian peninsula is well suited for sea harbors. India is indeed the country with the world’s second-largest population. But the population is unequally distributed, creating a major challenge logistics service provider.

Core countries for trade

The most important export countries for Indian products are the United States, the United Arab Emirates, China, Singapore and Great Britain. The biggest import trading partners are China, the United States, Switzerland, the United Arab Emirates and Belgium.

Indian infrastructure



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A vital step in India’s further development is expanding the road and rail networks, and modernizing harbors and airports. In the process of globalization, which is expanding India’s position in world trade, transport volume has climbed rapidly in recent years. The expansion of the logistics infrastructure has been unable to keep up with this pace. For this reason, transport capacities have already reached their limits. The transshipping times for ships in Indian harbors are three to four times longer than the average time in the West. Logistics costs are also very high in international comparison because of the poor infrastructure. For this reason, India will have difficulties positioning itself as a global logistics hub in years ahead. Road transport is especially important for India’s transport system. After all, Transport hubs in India

India has one of the world’s largest road networks, with a total length of 3.3 million kilometers. But much of this network does not meet Western standards. For instance, a truck takes five to six days to cover the 2,061-kilometer-long route between Bangalore and Delhi. The government is indeed trying to introduce counter-measures and shift freight transports from the roads to the rails. But, first, the rail infrastructure must be expanded and the connections to harbors and airports improved. Many sub-areas of the 63,000-kilometer-long rail network still use the technology of 1947, the year that British colonialists left. Only about one quarter of the routes are electrified. One other challenge is the four gauge widths used in the rail network.

Logistics requirements and service areas

Road transports are characterized by small forwarders who frequently use antiquated technology. In addition, the splintered political structure requires an excellent understanding of local conditions.As national highways in India are built and road transports are increasingly liberalized, the productivity of road shipping will rise in years ahead. The network business with LTL in India has excellent potential. The Indian road transport market is forecast to rise to $40 billion by 2012 - it is currently $28 billion.



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The CEP market on the subcontinent is growing rapidly. In the last five years, revenue has experienced double-digit growth, climbing to about $650 million. Its share of the entire logistics market totals only about 3 percent. International service providers are working to set up or acquire domestic networks in India.Logistics service providers have been focusing more extensively on traditional storage functions and distribution. But the number of high-bay warehouses that meet European standards is extremely small. Typical added-value services that meet Western standards also are hardly offered. For this reason, the contract logistics market in India has a share of only about 6 percent of the entire logistics market.

Logistics centers in India

In terms of logistics, India remains a developing country in many areas. For instance, it has hardly any multimodal logistics centers. Despite its good geographic position, India has also been unable to evolve into a hub for international freight transports, like Dubai.In regional terms, India lags behind logistics centers like Singapore, Thailand and Hong Kong. Currently, India is moving forward with a plan to turn the country’s 12 main harbors into integrated freight hubs. Many of these harbors do not have the rail and road connections needed to handle the transport volume of ships. Containers frequently sit for weeks in the harbor before they can be transported.

Important logistics service providers

The largest Indian logistics service providers are Shipping Corporation of India, Container Corporation of India, Great Eastern Shipping, Reliance Ports / Terminals, Essar Shipping, Transport Corporation of India, Reliance Logistics, Blue Dart Express, Varun Shipping Company and BLR India. International service providers are Schenker, DHL, Arvato, Kühne & Nagel and TNT.

Features of Indian Logistics Industry



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•A number of small-integrated players

•Transportation costs account for nearly 40% of production costs

•Logistics costs around 13% of GDP, compared to 8% in the US.

•Growth in Indian economy is the major driving factor for the demand in logistics industry.

•Chemicals, metals, FMCG, cement and textiles have been identified as the top five contributors to logistics revenues

ROADSIndian Road Network

•India has the second highest largest road network-3.3 million km.

•US had the largest road network with 6.4 million km & China-1.8 million km National highway 2% of total road length, but carry 40% of goods through traffic of India.

Features of Indian Road Transport

•Road Network carries nearly 65% of freight and 85% of passenger traffic.

•Vehicle ownership is firmly in the hands of individual truck owners

•67% of vehicle owners have fleets of less than five vehicles.•Traffic on roads is growing at a rate of 7 to 10% per annum•Government spends-12 per cent of capital and 3 per cent of total expenditure on roads.



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Major Roads Projects



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•The Golden Quadrilateral (GQ; 5,846 km) connecting the four major cities of Delhi, Mumbai, Chennai and Kolkata•The North-South and East-West Corridors (NS-EW; 7,300 km) connecting Srinagar in the North to Kanyakumari in the South and Silchar in the East to Porbandar in the west.

•Port connectivity and other projects

Future Road Projects



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The Golden Quadrilateral



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RAILWAYS

Indian Rail Logistics

•The Indian Railways boasts of being the world’s 2nd largest rail network spread over 81,511 km and covering 6896 stations

•The freight segment accounts for roughly two thirds of railway’s revenues.

•The tonne/kilometre costs for Indian rail freight at three times that of China. [Tata Iron & Steel].



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India’s Sea Logistics

•India now has the largest merchant shipping fleet among the developing countries.

.India ranks 17thin the world in shipping tonnage

•Indian share of maritime transport services is 1% of world market

•The container traffic has registered an impressive growth of 15 per cent over the last five years.

Port Privatization

•Port traffic to grow to a level of 650 Million Tonnes Per Annum by 2008-Ministry of Shipping•Port Privatization is picking up momentum--USD1.39 billion worth projects approved.

•Players ---P&O, PSA, Maersk, Gammon India, CWC and the Dubai Port Authority.



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Indian Ports

India’s Aviation Logistics Sector•Aviation holds a small share of India’s freight market

•Air Freight is very expensive in India in comparison to road and rail.



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•The size of the world air cargo market is estimated at 27 million tonnes valued at $200 billion.

•India accounts for meager 3% of the global air cargo market

•As per an expert estimate, Indian air cargo industry is going to be double by the year 2010.

•Cargo-garments, machinery, components, pharmaceuticals, dyes, chemicals and perishables [fruit, vegetables, flowers, fish and meat].

•Major International cargo airports-Mumbai, Chennai, Bangalore, Trichy, Hyderabad, Delhi, Coimbatore, Cochin.

.Major domestic cargo airports –Ahmedabad, Goa, Lucknow, Visakhapatnam,Madurai in addition to the above.



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India’s Aviation Growth Plans

•Investments of USD 5.07 billion over next 5 years in Indian Airport Infrastructure•Blue-Dart, the only dedicated freight carrier in domestic sector.•Air India plans to increase cargo revenue from current 10% to 15-20% in 3yrs. •Jet Air, GoAir, Kingfisher Airlines charting out plans to play bigger role in Indian domestic air cargo•International Airlines-Cathay Pacific and BA increasing cargo capacity to and from India.



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LOGISTICS COST

MANAGEMENT

Historically, logistics has primarily been a military activity, the purpose of which was to provide food, clothing, supplies and equipment to troops in the field as well as to transport the troops themselves.

The gulf war of 91 for the first time in history bought the realities of war in to our drawing rooms. In preparation for the war we saw the necessity of moving huge amounts of men and materials across vast distances in a short period of time. half a million people and over half a million tones of material and supplies were airlifted 12000 kilometers with a further 2.3 million tones of equipment moved by sea- all of this achieved in a matter of months.

In the Second World War logistics also played a major role. The allied forces, invasion of Europe was a highly skilled exercise in logistics, as was the defeat of Rommel ion the desert. Rommel himself once said that ‘….. Before the fighting proper, the battle is won or lost by quartermasters’.

In the past, however, top management in most corporate offices did not always understand the importance and competitive impact6 of integrated logistics. More recently, widespread acceptance of operating, philosophies such as just-in-time, total quality management, customer responsiveness have led to greater emphasis of the role of logistics in achieving the corporate mission.

Logistic as disciplines not restricted to the war rooms of generals nor to corporate boardrooms. It is a science which is quite useful to achieve the maximum utilization OF AVAILABLE RESOURCES. THE PRESSURES OF burgeoning population and the associated nightmares of providing for them is another case in point for the emergence of logistic management in the public arena. SMU Directorate Of Distance Education


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Logistics-the 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 in such a way that current and future profitability are maximized through the cost-effective fulfillment of orders.”

(Christopher: logistics and supply chain management)

The process of planning, implementing, and controlling the efficient, cost effective flow of raw material, in – process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement.

(The council of logistics management)

The underlying philosophy behind the logistics concept is that of planning and coordinating the materials flow from source to user as integrated system rather than, as was so often the case in the past, managing the goods flows as a series of independent activities. Thus under a logistics managements regime the goal is to link the marketplace, the distribution network, the manufacturing process and the procurement cost. In other words to achieve the goal of competitive advantage through both cost reduction and service enhancement.

2. Logistics cost

The important elements of logistics cost are:1. Product inventory at source 2. Pipeline inventory3. Product inventory at warehouses and dealers4. Transit losses/insurance5. Storage losses/insurance



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6. Handling and warehouse operations7. Packaging8. Transportation9. Customers shopping

A rough estimate of the above costs at a nation al level was attempted by the RITES report on commodity flows for the total transport system study of the planning commission, govt. of India.

Organized sector 1987 1994Transportation 38% 45%Inventory 28% 25%Warehousing &packaging 20% 30%Losses 14% 6%Total logistics cost as a percentage of GDP

10% 12%

GDPRs 2,50,000 8,00,000

The total logistics cost as estimated above reflects a total of Rs 25,000 corer at 1986-87 prices, forming nearly 10percent of the GDP for that year.

Out of the logistics costs, about 35 percent is spent on transportation, 25 percent on inventories, 14 percent on losses, 11 percent on packaging, 9 percent on handling and warehouse operations, and 6 percent on customers shopping.

A recent (2004-05) study by the ministry of food and civil supplies estimated the avoidable losses in transport, storage, processing and handling at 10 percent for food grains and at 30 percent for fruits and vegetables.

3. Logic of logistics

Here’s why firms through with most cost cutting measures are turning to logistics. After having g exhausted the most conventional sources of squeezing costs in the corporations major functions ----- production, sales, personnel,



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finance, and of course, administration, now the latest corporate function under the microscope is logistics and distribution.

Currently, the average Indian company spends between 12% and 15% of its revenues on logistics. “The best of class would do about 6-7%” reckons R.J.Rajadhyaksha, general manager of AFL logistics. “Internationally, logistic spends average 2.5% of revenues, points out Sunder Srinivasan, country purchasing manager, McDonalds India. Thus, the kind of cost savings possible in Indian firms can run into hundreds of corers.

Already, smart companies in India have started working out what they can do about their logistic spends. Between April and October this year, Electrolux has already saved Rs 55 corers a year to Rs 30 corers by managing its “inbound” logistics better.

In fact, because of the increased focus on logistics, business is booming for third party logistic firms. Two years ago, the total third –party logistic business was worth Rs 20 corers. This year, the industry has clocked Rs 100 corers, and it expects to hit the Rs 400 corers marks by 2001.

This can be termed as the second wave in logistic management in India. The first ripple reached here a decade ago, when courier firms showed companies how transportation could be managed better.

Two years ago, the recession saw margins slump like never before. That’s when many companies re-examined the old proposition and d realized there was more to logistics than mere transportation.

“Effective logistics management is about managing your supply chain, which can unlock immense value across the business,” says Dhiren Singh, assistant general manager (corporate supply chain), Electrolux –Volta’s.

The boundaries of the physical zone in which a firm’s logistics will function may blur, but that it must serve up the right products in the right place, in the right numbers, at the right time, is essential.



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4. Type of logistics

Logistics are of two types which are (1) inbound logistic (2) out bound logistics.

4.1 Inbound logistics

4.1.1Criticality of inbound

First of all it is said, “Loss of production gets flashed all over the organization, but similarly loss of sale in the same organization may not get flashed to the same magnitude.” That is very true in the Indian scenario, the old age way of tackling the loss of production; possibility was by building up high level of inventory which today looks ridiculous when one looks from the SCM (supply chain management) concept.

4.1.2 Logistics snafus

Different sales tax rates in every state mean companies end up paying tax for every port of call making cost effective routing difficult.

Despite the recent announcement of industry status for transportation the business has been and is expected to remain disorganized and controlled by broker.

Lack of modern warehousing facilities which does not allow mechanized handling. Most existing ones do little else but store.

Vendors not adhering to schedules, which make the system to haywire, mainly due to lack of total knowledge on his contribution for successful implementation of SCM and inbound logistics.

The transit time of the service provider not getting adhered to due to bad roads/road block/ delay at octroi/ check posts more than the calculated time [accidents/ thefts etc.].

Data error on the parts of customer or service provider while entering into system which happens in lots of cases where interface between customer ERP and service provider is missing.

Rejection of vendor material at inspection above estimated levels.



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Service providers who have answers to all the answers and solutions for the above mentioned problems will only be effective in India for inbound logistics.

4.1.3 Inbound logistics in India and challenges

Logistics and supply chain management has come to the board rooms and lots of discussions on implementation and team formations are taking place in corporate. As believed in the industry 90% of all costs lies in supply chain and to effectively implement world class SCM practices in other words means ‘saving money’. In India the wave is on, with suits them the best. Selection of apt service providers being the major issues concerning the customer. They have to choose from pure logistics service providers giving only consultancy to /express companies turned to logistics companies or road/ road/ air transport companies turned to logistics service providers.

Then there are other issues, which are obstacles on the path to successful implementation of SCM concept for inbound logistics.

Logistics service providers except in the road/ rail/ air transporters converted to logistics companies are not fully equipped to do the entire consolidation and dispatch at general transport rates., and others being non asset based companies ;gets restricted from doing an overall jobs of region wise/ nationwide inbound logistics for the customers.

4.2 Outbound logistic

4.2.1 Routing and backhauling

Even in the old, outbound transportation logistics though, companies are finding new and innovative ways to save money. Electrolux India has reworked and optimized the way tit supplies to different markets from its factories in Maharashtra, Andhra Pradesh, Rajasthan, and Uttar Pradesh. In barely six months, it has saved nearly Rs 1 corer through better routing.

But the luggage major, Samsonite, has found a way – called backhauling ---of sending double the goods to some markets without raising costs.



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It has tied up with transporters of car majors, Maruti Udyog and Hyundai, to utilize their trucks when these are going back to the respective factories. It works this way. Hyundai itself is trying out a number of routing methods to save costs. It is utilizing the railways –an unfashionable option these days – for almost 30% of its transportation needs. Hyundai says it saves Rs 6 lakh every month in interest costs by using railways to carry cars from its factory to Delhi. Trains, it says, takes five days while trucks take seven days to cover the same distance.

4.2.2 Assembling near your customers

One way of saving both time and offering better customer service that several companies have discovered involves creating regional hubs or warehouses, where products can be stored in semi-knocked down (SKD) condition, to be assembled fast and delivered once and order comes through. This works particularly well in the computer hardware industry, where dozens of permutations and combinations involving the same basic parts is offered to the customers.

Hewlett-Packard (H-P) India has adopted this method to reach out to its customers much faster than tit could have otherwise. It utilizes warehouse facilities of airfreight ltd (AFL) in different parts of the country. It stores basic components like motherboards and RAM, in these warehouses and pays AFL Rs 3lakh a month for these warehouses.

While the computer hardware industry began using the concept of hobbling at least two years ago, other sectors are now following suit. Hyundai, for instance, has a hub near Chennai, close to the factory and two others in Delhi and Mumbai for stocking spare parts. The advantage it can access other smaller markets like Ludhiana or Abramabad which are within a 300Km radius of the two cities respectively. These hub stock parts like windshields and when a dealer in, say, Ludhiana needs anything, he merely orders warehouses maintained by select dealers.



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4.3 Reverse logistics

Reverse logistics includes all activities that are included in the definition of conventional logistics. The difference is that reverse logistics encompasses all of these activities as they operate in reverse. There fore, reverse logistics is:

The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.

More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal.

Remanufacturing and refurbishing activities also may e included in the definition of reverse logistics. Reverse logistics is more than reusing containers and recycling packaging materials. Redesigning packaging to use less material, or reducing the energy and pollution from transportation are important activities, but they might be better placed in the realm of “green” logistics. If no goods or materials are being sent “backward”, the activity probably is not a reverse logistics activity.

Reverse logistics also includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recall, and excess inventory. It also includes recycling programs, hazardous material programs, and obsolete equipment disposition and asset recovery.

Unfortunately the data on the quantum of reverse logistics’ costs in India are unavailable but we can have an estimate from the U.S. experience. Logistics costs are estimated to account for approximately 10.7 percent of the U.S. economy.

5. Value chain



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Value chain analysis is a means of segregating various activities of a business and identifies them with respect to their contribution towards value generation by identifying the cost i.e. inputs consumed by that activity and the output generated out of that activity. Traditionally, value chain consists of two kinds of activities classified as primary and secondary activities. The primary value chain analysis is a tool for identifying potential comparative advantages. The value chain provides the form with a comprehensive framework for systematically searching for ways to provide superior value to the customers. The value chain can be desegregated into nine primary and support activities. Such a division can help a firm to understand existing and potential sources of advantage as also low value or redundant activities or processes.



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Chapter-5Chapter-5

3PL Logistics & Survey3PL Logistics & Survey Report Report

Third Party Logistics-3PL

•3rdParty Logistics imply that one company acts as an agent to look after the logistics aspect of another company or group of companies.

•3RD party logistics entails a study of the customer’s business, supply chain and distribution network, in order to formulate a comprehensive integrated logistics strategy, which will help render all supply-related services from a single window

•India's 3PL sector represents 3 percent of the country's total logistics spend

•The Indian 3PL market is expected to grow at around 20 percent per annum in the next 3-5 years.

•The practice in India reveals that warehousing and outbound transportation, custom clearing and forwarding are the most frequent outsourced activities.

•Activities such as packaging, fleet management and consolidation have started gaining attention for outsourcing.

3PL Survey in India

A survey by the Transport Corporation of India (TCI) and the Management Development Institute (MDI) shows:



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• Less than 55% of Indian companies subscribe to 3PL, compared to more than 75% globally.• About 57% of the company’s plan to outsource reverse logistics within the next five years.

• 54% plan to outsource inventory management. • 53% order processing.

• More than 50% of the companies have outsourced activities like transportation, warehousing &customs clearing/forwarding.

Reasons for Logistics Outsourcing

Source: TCI & MDI Survey

Growth Drivers for Logistics in India

•General growth of the Indian economy.

•Manufacturing boom-for exports as well as for domestic market. SMU Directorate Of Distance Education


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•Expected rise in International trade from India.

•MNC’s setting up manufacturing in India-like Nokia, Flextronics, Samsung etc.

•Government’s thrust on Infrastructure --US$17 billion to upgrade highway networks.

•Implementation of VAT will lead to growth in warehousing business.

•Opening of organized retail sector -attracting retail chains like Wal-Mart and Carrefour in addition to Indian players like Pantaloon and Reliance.

Government Support

The Indian government is making great efforts by:

• Privatizing ports and airports.

• Increasing the number of gateway ports

• Investing in highway projects

• Streamlining customs and excise procedures.

• Implementing EDI systems

• Improving the rail network.

• The government plans to invest $17 billion in transport infrastructure between 2006-2010

Some of the projects are:



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• Amend in the National Highway Act to expedite land acquisition, permit private financing and allow tolling.

• Improvement in rural access by launch of the Prime Minister’s Rural Roads Program.

• Reduction of congestion on rail corridors and improvement of port connectivity by launch of National Railway Development Program.

• Upgradation of infrastructure and connectivity in the countries twelve major ports by initiating the National Maritime Development Program.

•Establishment of Tariff Authority for Major Ports to regulate tariffs.

• On a per-annum basis, United States invests 5 percent of its annual logistics spend on infrastructure, India is investing 23 percent or over four times as much.

Industry Growth=Logistics Growth

•“Engineering goods, chemicals and gems & jewelry are the fastest-growing sectors; manufacturing in India is expected to grow by 9.4 percent in coming years.” says Jacques Green, Managing Director FedEx-India, Middle East & Africa.

Auto

•Outsourcing in Auto sector could be worth $375 billion by 2015 and India could capture up to $25 billion of this amount. [Source: McKinsey]



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Chemicals•India’s chemical exports could reach $15 billion by 2015. [Source: McKinsey]

Electrical and Electronic Products

•India’s export in electrical and electronic products could reachup to $18 billion a year by 2015.[source : McKinsey].



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Retail

•Opening up of the organized retail sector is attracting big retail chains like Wal-Mart and Carrefour in addition to big Indian retailers like Pantaloon and Reliance.

•All this would require the presence of professional logistics players in the market to carry out supply chain activities.Thus demand for logistics services would be largely driven by the growth of the Indian economy.

Indian & Foreign Logistics Players

•Investing to upgrade and move into 3PL arena–Gati, Safexpress, Patel Logistics, Blue Dart etc.

•Recent IPO-All-Cargo Global Logistics.

•Container Freight stations and Inland Container depots-Container, Corporation of India, Gateway Distriparks and Balmer Lawrie & Company.

•Bharti, Taco MobiApps, Patni Computers and Reliance are focusing on telematics –a technology based on telecommunications plus computing.

•Alliances & Acquisitions -DHL acquired Blue Dart, FedEx has a tieup with Prakash Airfreight,`Rhenus AG has tied up with Seaways Shipping Ltd.

•Redwood City expanding its India presence by nearly 50%.



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•Strong Base in India-APL Logistics, TNT Express, UPS and Maersk Logistics

•In the port terminal business, Maerskand, P&O, Portsare consolidating their position by acquiring controlling stakes in private container terminals..

Challenges for Indian Logistics Companies

•Competition from Indian and Foreign logistics companies.

•Technology to keep pace with demand for real time information.

•Corporatization and lack of skill sets.

•Shedding local mindset and move to a global mindset.

•Integration of services and value added services.

•Funds to fuel expansion & growth.

•Inadequate infrastructure and complex tax laws.

Future Projected Trends

•The Indian logistics market is likely to grow at a CAGR of 7% during the next five years.

•The unorganized sector may find it difficult to exist at national level due to its inability to keep pace with technology & customer demand.

•Transportation costs are bound to come down in future with improvement in infrastructure and growth in cargo movement.

•4th Party Logistics to take root in India. SMU Directorate Of Distance Education


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[In 4PL, logistics is controlled by a service provider that does not own assets to carry out logistics activities but outsource to sub-contractors, the 3PL].

Top Nine Supply Chain Challenges for 2009

Better make sure risk management is at the top of your to-do list this year"

As if a shattered economy isn't bad enough, the prospects of supply chain disruptions on a global scale have manufacturers taking a closer look at their risk management strategies. According to Bernie Hart, global product executive, logistics management, with financial services firm J.P. Morgan's Global Trade Services group, while 2009 will have plenty of challenges for manufacturers, a number of promising opportunities will emerge as well. Hart lists the following nine trends that will characterize global supply chains throughout the year

1. Supply chain risk mitigation in an economic downturn

Supply chain risk mitigation will receive increased focus in 2009 versus past downturns due to the following factors:

supplier financial risk, volatility in energy, commodity, labor rates and currency

exchange. unpredictable economic recoveries.

2. Searching for working capital

"This trend will bring increased scrutiny to the supply chain as companies look to reduce inventory and lower operating or carrying costs," Hart says.



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"In addition, buyers will look to extend payment terms, while suppliers will drive to collect receivables more quickly, creating the need for a liquidity buffer -- such as supply chain financing -- to mitigate this brewing payables/receivables conflict. The current credit environment is pushing buyer/supplier partnerships to look to their trade flows to drive the creation of additional liquidity."

3. A resurgence in letters of credit

Hart reports that his firm, financial giant J.P. Morgan, has seen resurgence in the use of letters of credit to facilitate the financing of international trade. With credit getting tighter in all sectors, the supply of letters of credit has been declining while the cost has raised dramatically, Hart notes. "For the right borrower and the right transaction there are still deals to be done, but the market will remain tight for the near future."

4. Shortening the supply chain

U.S. manufacturers will continue to reconfigure their supply chains, Hart says, by moving plant operations and sourcing vendors closer to home and away from Asia. "Limited free trade agreements, high energy costs, and rising labor and production costs in Asia all contribute to companies re-evaluating extended supply chains." Mexico in particular has become an increasingly popular source for manufactured goods, Hart notes, citing a U.S. Commerce Department report that indicates a 7.2% increase from year-to-date imports through Mexico compared to the year before

5. Improved speed and savings in Mexico

Mexico is piloting a new customs regime called the Regimen de Recinto Fiscalizado Estratégico (RFE). "A customs regime," as Hart explains, "is a country's specific set of trade regulations, processes and practices that regulate the actions of importers and exporters." The Mexican government's hope is that the RFE will decrease logistics cost in terms of dollars per container and numbers of days in transit which, in turn, will help attract additional production to Mexico. The program could save an importer



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between US$200 to $600 per shipment, according to Mexico Customs estimates. The RFE is expected to go live in early 2009, Hart says.

6. More free-trade agreements and more scrutiny

While the United States is expected to finalize three new free-trade agreements (FTAs) in 2009 with Colombia, Panama and South Korea, it remains an open question as to whether the Obama administration will view FTAs as a priority. "The complexity associated with understanding and leveraging FTAs is beyond the scope of many companies because they either lack the expertise, resources, technology, or all of the above to do it efficiently and cost-effectively," Hart says. "Many companies eventually come to a decision point: either invest internally or outsource to a global trade expert."

7. China clamps down on oversight

"Chinese officials have vowed to clamp down on product safety failures by launching national investigations and ordering local officials to report all possible product safety issues," Hart says. "The regulatory environment is expected to become stricter in China with the introduction of a control list or catalogue of commercial encryption products developed and made overseas. Impacting high-tech manufacturers outside of China, this new control list calls for tighter regulatory oversight of firms that use encryption technology within their products."

8. The Amended Lacey Act

The United States is now the first country in the world to prohibit the import, export, sale or trade in illegally harvested wood and wood products. As a result of an amendment to the 108-year old Lacey Act, the United States now prohibits the import, export, sale or trade in illegally harvested wood and wood products, Hart says. "This will require detailed reporting -- scientific name, quantity, value and country -- of any plant matter incorporated into an imported product brought into the United States. This



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law broadly covers plants used in processing, no matter how miniscule the amount and no matter how far removed from the harvesting of the plant." As Hart sees it, the amendment could have "significant consequences for U.S. importers who will be subject to new data reporting requirements," although the specific scope of what items are covered under the amendment is still being defined.

9. A global eye toward consumer product safety

Signed into law in August 2008, the Consumer Product Safety Improvement Act could lead to similar regulation around the world that will address safety standards and requirements for children's products, such as mandatory testing, the reduction in lead paint usage, and more visible cautionary statements related to choking hazards, Hart reports. "In November 2008, representatives from China, the European Union and the United States met in Brussels for the first high-level trilateral summit on product safety to discuss key developments and further joint activities to improve cooperation and the exchange of information relating to consumer product safety. Upon import, products must be accompanied by certification that they comply with all applicable consumer product safety rules and similar rules, bans, standards and regulations under any other laws administered by the importing nation."



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Chapter-6Chapter-6

WORLD BANK REPORT WORLD BANK REPORT

World Bank report on logistics:

Strategies and tactics for a challenging market.

The Phenomenal Growth of Global Trade over the past half century the business world changed dramatically through globalization

Growth in world trade has exceeded the rate of domestic output every year since 1950.1973 - 1999: World trade grew at an annual rate nearly three times higher than world Gross Domestic Product (GDP)

Trade to GDP Ratio:

• U.S.: tripled since 1970• World: doubled since 1970

In 2009 this growth is projected to stall2009 – The Difference a Year Makes

2009 is forecast to experience the first year over year decline in global international trade volumes since 1982.



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Competing in 2009 – New Issues at the Forefront

In the challenging 2009 market three trends will be the most impactful. How well a business addresses these will determine supply chain success:

Cash Flow and Trade Terms

• Over 90% of merchandise trade is funded by finance instruments• Approximately 670,000 small and mid-sized suppliers have folded.

Security and Regulatory Compliance

• More than 26 new transportation security regulations in past 6 years• Nearly 10% of international shipments already have compliance errors

Fluctuating Freight Costs and Capacity

• Carriers working to remove excess capacity to stabilize pricing.• 450 container ships have been idled – 11% of fleet SMU Directorate Of Distance Education


2003 2004 2005 2006 2007 2008 2009-4

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Variable Energy Costs• Oil is priced in U.S. dollars, and is impacted by changes in currency.• 1-cent increase in Jet-A fuel adds $195m in carrier costs.

Creating Advantage through Supply Chain Management

Supply chain leaders (corporations and countries) have been shown to significantly out-produce and outperform their peers.

The global supply chain directly impacts, on average, 75% of a business’ operating results.

Corporations with best-in-class freight and logistics competencies manifest market cap growth 7%-26% above industry average

Up to 70% of the variation in per capita income across countries can be accounted for by supply chain position. A 1% rise in a nation’s ratio of trade to GDP increases per capita income by at least 0.5%.

Supply Chain Challenges

Primary research finds that supply chains frequently lack cohesive strategy and operational integration. This is true both for corporations and nations.

For Corporations and Nations alike:

The supply chain is crucial to economic success. Top objectives are cost control and service execution Operational plans are frequently not well integrated with strategy There is a gap between the recognized importance of the supply chain

and its operational performance Supply chain control is fragmented



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Companies and countries alike have difficulty effecting supply chain changes

Supply Chain Management is Not a Level Playing Field

o Effective management of end-to-end freight and ancillary functions can reduce total distribution cost by up to 5%, with the same impact on profit in many segments as a 30% increase in sales.

o Retail Business Improvement Through End-to-End Supply management

o Reduced Stock-Outs 2%-8% improvement.

o Lower Inventory Levels 10%-40% improvement

o Increased Sales 5%-20% improvement

o 13 Manufacturing Business Improvement Through End-to-End Supply Mgmt

o Lower Inventory Levels 10%-40% improvement

o Faster replenishment Cycles 12%-30% improvement

o Higher Sales 2%-10% improvement

o Better Customer Service 5%-10% improvement



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Chapter-7Chapter-7

Information technology inInformation technology in logistics industrylogistics industry

In a report entitled, Technology Survey for the Indian Logistics Industry? 2008 conducted by Kale Consultants Ltd in partnership with Feedback Business Consulting Services Pvt. Ltd, reveals that new investments of INR 285.25 billion (US$5.7 billion) are expected at airports in the next four years to boost their IT requirements, according to Kales head of logistics, Mr. Sumeet Nadkar.

This is one of the segments where IT utilization is maximum compared to other segments in the logistics space, he notes.

A fragmented industry

The Indian logistics industry, comprising many disorganized enterprises, transporters, express cargo movers, courier companies, freight forwarders, container companies and shipping agents, is highly fragmented. Firms are facing competitive pressures to focus on core operations and to lower costs which is leading to a growing demand for outsourced logistics services.

The Indian logistics industries size is estimated at INR2.55 trillion for FY 2008, and its size is expected to grow to INR4.1 trillion by 2013. Although road freight constitutes 60 per cent of the overall industry, the sector is entirely vested in the hands of small private players. The top-end of the market is controlled by a handful of multinationals and large domestic players.

Nadkar says India spends around 13 per cent of its GDP on logistics, higher than in the US (10 per cent), Europe (11 per cent) and Japan (10 per cent),



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and this translates to around INR1.5 trillion in extra operating costs for the economy and therefore a loss in capital formation.

A growing air sector

According to Cygnus Research, the air transport sector contributes over 0.2 percentage points to the country’s GDP at constant 1999-2000 prices.

The Technology Survey shows that the Indian logistics industry’s IT expenditure will more than double to about INR10 billion from the existing INR4 billion within the next 5 years - a compound annual growth rate (CAGR) of about 20?22 per cent.

According to the World Air Cargo Forecast 2006-2007, the market from India and its neighboring countries constituted about 3.9 per cent of the world’s air cargo traffic in tonnage and 4.2 percent in tonne-kilometres in 2005-06.

India is now among the top 30 global freight markets, both in terms of total and international freight operations. According to industry forecasts, the airlines cargo business segment will more than triple by 2025. Overall, the growth rate of the aviation sector in the next 10 years is expected to be not less than 25 per cent.

According to the Planning Commission, India’s air cargo movements would grow at over a CAGR of 11.5 per cent from 2007-08 to 2011-12. Air cargo handling warehouses will need an estimated 150,000 sqm of space in the next 5-10 years

Urgent need to invest

Nadkar says India risks missing out on 1 to 2 per cent GDP growth unless significant strides are made to bridge the IT gap and improve supply chain efficiencies by effectively using technology.

Airfreight is often the neglected cousin of an airline, as well as an airports passenger business. Air cargo complexes in India are congested not only



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because of lack of capacity but also due to lack efficiency and planning, he said.

Technology can help Indian airports overcome some of the space related constraints and utilize the existing resources in a better way. For example, the airports can make provisions for the agent to pay all his airport charges, request for carting orders, receive advice of arrival and delivery order, all from his office rather than queuing up at the airport counters, he says.

Similarly, an advance notification from the agent for bringing in cargo can help the airport operator plan his resources accordingly. This will stop the airport terminal gates from being choked with trucks which have to wait endlessly to load/unload cargo.

Nadkar says barcode and RFID usage can help track cargo through its life cycle. This also helps faster location of shipments at the cargo warehouse.

He points to the express delivery industry which is made up of GATI, Safexpress, TNT (Speedage), TCI, Blue Dart and DHL as the leaders in technology usage. These players will continue to remain the highest technology buyers constituting to 33 per cent of the technology expenditure by 2013 from the present 29 per cent.

The key growth driver in this sector is the opening of banking, insurance, retail, aviation and telecom sectors and their penetration in smaller cities due to an increase in global and domestic trade.

Nadkar says India is emerging as a global outsourcing hub for IT, ITeS, pharma, textiles etc., and is set to become one of the largest trading partners in Asia.

Regarding India’s courier sector, he says there was an increased usage of express and courier services by all key segments in the industry. The key players include Blue Dart, First Flight, AFL, DTDC, Overnite and Professional Couriers.



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Commenting on the freight forwarding industry made up of AFL, Alpha Cargo Express, Om Logistics, Total Logistic, Worldwide and All Cargo, Nadkar says technology expenditure in freight forwarding is expected to grow by 160 per cent.

This industry, which presently constitutes 14 per cent of the IT demand, is expected to rise to about INR1.7 billion, comprising 17 per cent of overall IT spend by FY 2013. The current IT market size is about INR110 billion (US$2.3 billion) and is expected to reach INR211 billion (US$4.4 billion) by FY 2013.

Nadkar says there are an estimated 2000 to 2,100 freight forwarders in the country, including about 600 involved in airfreight. This includes key players like, Total Logistics, GATI, Excel, Bax Global, Geologistics, Dynamic Logistics and TVS Logistics.

Report on why IT is Critical to India Logistics

The IT spends in the Indian logistics industry–through Freight Forwarding, Airports, Warehousing, Express & Courier Services and RFID(Radio Frequency Identification)—will grow in the next five years to approximately two-and-a-half times the USD$83 million now. This was the result of a survey, 'Technology Survey for the Indian Logistics Industry-2008'conducted by Kale Consultants Ltd.

Air Cargo News Flying Typers caught up with Sumeet Nadkar, Head-Logistics Special Business Unit of Kale Consultants to find out the reasons of growth in a market that has been afflicted by the downturn worldwide. Sumeet pointed out that with the current uncertainties in the world economy "it is tough to make predictions. “However, one fact remains that goods will have to move, as opposed to travel. “Travel can be replaced by video conferencing or teleconferencing, air cargo has to roll. “So our view is that five years from now, globally the logistics industry will continue to grow at a steady rate of 6-7 percent." “In India, he said, “the industry could continue to grow at about 12-13 percent to satiate the demand of growing young SMU Directorate Of Distance Education


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population across the country. “Air Cargo will also continue to grow at about 11 percent.” Nadkar also pointed out that "the tough economic climate will necessitate the focus on efficiency and productivity more than ever.” Citing India's example, he said, "the lack of automation in the Indian logistics industry has given rise to the inefficiencies, duplication of processes.“We believe with the global slowdown and tough competition, the logistics companies will be keen to embrace technology to increase operational efficiencies as well as create competitive differentiators.”As far as domestic air cargo is concerned, the sector does not look to be doing very well. Did he feel that the country's air cargo business will make strides big enough for IT to flourish? Nadkar was confident that air cargo would do well. He said: "This is a classical chicken and egg situation and compounded by the fact that the air cargo industry is in the throes of change. “To attract more cargo to the air mode, costs will have to be both controlled and competitive. “In order to ensure that the air cargo handling processes must be super-efficient, there has to be complete understanding of the market and its profitability and IT can accelerate fact-based solutions all around.“With the modernization of the airports, and creation of inter modal hubs like the one in Nagpur, the untapped domestic demand for safe and reliable transport is wide open to air cargo. “Whilst other modes such as roads and rail continue to languish. air cargo here needs to embrace various solutions such as IT in a significant manner to rationalize processes and attract morecustomers."India," he said, "spends around 13 percent of its GDP on logistics, higher than U.S. (10 percent), Europe (11 percent) and Japan (10 percent).This translates to around $31 bn in operating costs for the economy and therefore loss in capital formation. “India risks missing out on 1 to 2 percent GDP unless significant strides are made to bridge this gap and improve supply chain efficiencies by effectively using technology." Among the Kale Survey key findings:

• Technology spends in freight forwarding in India are expected to grow by 160 percent.



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• Technology spends for warehousing are expected to jump from the current $10 mn to about $25 mn by 2013.• Warehousing, Kale says, is fast emerging as a strategic function, due to the rapid growth in retail and expansion by domestic and international players. Elsewhere Kale reports, the express and courier business in India will continue to remain the largest single group adding technology in the future constituting up to 33 percent of technology growth here by 2013, up from the present 29 percent.

What's the status of the logistics industry in India, and what's your future goal? Logistics plays a vital role in bridging producers and customers—both in the domestic and international sectors. For economic growth the development of infrastructure (ports, roads, rail, inland waterways, coastal shipping) ought to be improved. Also, communication and multimodal transportation, coupled with sophisticated handling, warehousing and IT systems, hold the key. There is need for implementation of national and state plans; in this regard with an appropriate fiscal policy befitting public-private partnership. Policies should facilitate implementation of projects with minimum paperwork and quicker resolution of proposals to ensure their quick execution. The logistics industry in India is highly fragmented with about 15 established 3 Party Logistics (PL) players. Transparency in commercial matters and business ethics should be ensured by streamlining documentary requirements which govern the entire gamut of supply chain management. Lesser state control and facile tax, fiscal and legal system would be of much assistance. These measures would not only help the industry, but also result in some manufacturers entrusting all their logistics services— right from the point of dispatch to customer delivery. Thus giving birth to 4th Party Logistics, involving a separate specialized agency, as is the case in developed nations. Both the manufacturers and customers gain in such a situation which ensures competitive pricing and 'on time' delivery.TMILL visualizes itself to become a 4PL player in the near future and set up standards and benchmarks in the industry. TMILL is investing Rs 350 crore for acquiring berths and warehouses. At which ports would the new berths be constructed? The investments will be for acquisition of panamax and



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handymax vessles, up-gradation of handling facilities and augmentation of warehousing facilities over the next few years. Haldia and Paradip port-based services will be strengthened, apart from expansion of logistics activities in Mumbai and development of minor ports on the west coast. Location of minor ports for development is under feasibility study. What's your plan to develop a CFS at Haldia? We have been operating at Haldia Docks System for over two decades, and the port has already allotted us the land. Initially, the area of land which has been developed and used as a stack yard may be converted into a CFS. How will you fund your planned projects? Regarding funds, we have not yet formalized the matter. It depends on the size of the project which we wish to develop.IQ Martrade is well entrenched in terminal operations in Europe and US. They are vessel owners and charterers who are well-versed in logistics services. Therefore, expertise already exists within the organization. If required, we will not have reservation for a strategic alliance with a reliable and an established organization. What target have you set for revenue in the next two years? During the first three years of operation, since the formation of the organization, our revenue has increased threefold and PBT 3.5 times. We expect this trend to continue as we have set for ourselves a target of Rs 1,000 crore turnover by 2008-09, and being consistently EVA-plus.



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Chapter-8Chapter-8

CUSTOM CLEARENCECUSTOM CLEARENCE PROCEDURE IN INDIAPROCEDURE IN INDIA

In accordance with international practice, all cargo goods imported into the country or exported out of the country by sea, air, land or rail routes are governed by the provision of the Customs Act, 1962 and other laws of the country related to entry/ exit from the country. Customs ensures that the import and export of goods are in compliance with the Customs Act and other laws in force. Accordingly, customs procedures are intended to provide definite, predictable methods by which the goods can enter the country and get cleared on payment of applicable import duties, fulfilling the requirements of the law of the land.

To regulate and to exercise effective control over import and export activities, goods are allowed for import/export at notified places under section 7 of the Customs Act, 1962. Custodians are appointed under section 45 of the Customs Act, 1962 for safe storage of goods till they are cleared for home consumption or warehoused. Clearance of goods involves classification, assessment, examination and payment of Customs duty on imported cargo on the basis of Bill of Entry presented by the importer or his authorized agent. The Central Board of Excise and Customs (CBEC) have prescribed the procedures through notifications, rules, regulations and circulars which are implemented by field formations. These are updated and modified according to the need, demands of trade and to improve the efficiency of the system.

The role of Container Freight Stations (CFS):-

CFS is a place where containers are stuffed, de-stuffed and aggregation/ segregation of export/import cargo take place. With the growing volume of international trade, the need for expeditious clearance of goods at the port SMU Directorate Of Distance Education


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within the minimum possible time has been gaining importance. This is more so when the ports are facing congestion at their premises. Further, for optimal utilization of existing infrastructure, space, equipment, goods that are landed at ports need to be evacuated straight away without any loss of time. Accordingly the concept of Container Freight Stations (CFS) has grown in importance along with the development and growth of ports.

A CFS is an extended arm of Port/ ICD/ Air-cargo Complex, where import/ export goods are kept till completion of their examination and clearance. The imported goods can be immediately shifted from the port to CFS which also helps in the reduction of port congestion. All the activities related to clearance of goods for home consumption, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export and transshipments take place from such stations. Therefore, clearance of goods from CFS is an important point of consideration for trade in respect of export/ import Cargo as it is the final Customs contact point.

Customs Present Procedure of clearance of goods at Ports:-

The Shipping lines/steamer Agents/carriers/ Consol Operators file the Import General Manifest (IGM) in accordance with Section 30 of the Customs Act, 1962. After filing the IGM and on arrival of the goods, Custom House Agent/Importer files Bill of Entry (cargo declaration) in terms of Section 46 of Customs Act, 1962. The first stage for processing a Bill of Entry is noting/registration of Bill of Entry (B/E). The B/E is then forwarded to the concerned Appraising group in the Custom House dealing with the commodity sought to be cleared. The assessing officer in the appraising group assesses the duty liability, taking due note of any exemption or benefits claimed by the importer. Necessary checks regarding any restriction or prohibition on the goods imported are followed. In case of doubt, the officer may give an examination order in advance of finalization of assessment. Otherwise, the B/E is finally assessed and the importer deposits the duty calculated with the nominated banks.



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After assessment the B/E is passed on to the Shed Appraiser/Superintendent for examination of goods along with the B/E.The Shed Inspector/examiners examine the goods and enter their report on the B/E with signature of the importer/CHA in token of examination in his presence. After completing the examination of the goods, the shed Appraiser/Superintendent would give order for “Out of Charge”. However, in rare cases, if some discrepancy is found between the declaration and the result of examination of cargo, the Assistant Commissioner/Deputy Commissioner (AC/DC) revises the assessment on the basis of examination report. After issuance of Out of Charge order on the B/E, the importer presents the same to the Custodian who in turn issues the Gate Pass after verification of correctness of Bill of Lading and number of packages. The importer/CHA presents importer’s copy of the B/E and the Custodian Gate Pass to the Customs Officer at the gate while taking the goods out of the Customs area.

As regards exports, Shipping Bills are required to be filed along with other documents such as invoice, Application for Removal (ARE), packing list etc. The Assessing Officer in the export department checks the value of the goods, classification, rate of duty and others with regards to different provisions and the Foreign Trade Policy and related documents. After the Shipping Bill is passed by export department, the exporter presents the goods to the Shed Appraiser (Export) for examination. The examination is carried out under supervision of Shed Appraiser/ Superintendent (Export) and after examination, officer gives a “Let Export” order, after which exporter may load the goods into vessel/aircraft under supervision of Customs Officer.

Present procedure of Clearance of goods at CFS:-

The Main function of CFS is receipt, dispatch and clearance of Containerized Cargo, up-to-date inventory control and tracking system to locate containers/cargo.



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The goods received at ports are brought to CFS and stacked in CFS after verification of the seal by Customs Officers. In respect of import consignment, the Steamer Agents/liners/ Importers desiring to take the consignment to CFS, file Import General Manifests in the port. After obtaining the permission from the AC/DC, the Container moves to CFS under Customs escort or under bond and bank guarantee. The CFS allows de-stuffing of the goods. The CHA / importer file the Bill of Entry at Customs House and then Customs formalities of assessment, examination and payment of duty are completed. Thereafter, Customs gives “Out of Charge” and the Custodian releases the goods from CFS by issuing a Gate-Pass.

In respect of exports, the goods are brought directly to CFS under a Shipping Bill. The export cargo in Less than Container Load (LCL)/ Full container Load (FCL) is received by the Custodian of CFS for safe custody.

After stuffing of the goods, Container/ Customs Bonded Truck (CBT) is sealed by the Custom Officer and the same is removed from CFS for export through the desired Port.

Anti Dumping Material & Action taken by Government to stop Anti dumping

Anti-dumping, subsidies, safeguards: contingencies, etc

Binding tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or MFN) are key to the smooth flow of trade in goods. The WTO agreements uphold the principles, but they also allow exceptions — in some circumstances. Three of these issues are:

actions taken against dumping (selling at an unfairly low price)subsidies and special “countervailing” duties to offset the subsidies



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emergency measures to limit imports temporarily, designed to “safeguard” domestic industries.

Anti-dumping:

If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. The WTO agreement does not pass judgment. Its focus is on how governments can or cannot react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-Dumping Agreement”. (This focus only on the reaction to dumping contrasts with the approach of the Subsidies and Countervailing Measures Agreement.)

The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and show that the dumping is causing injury or threatening to do so.

GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partners — typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.

There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a product’s “normal value”. The main one is based on the price in the exporter’s domestic market. When this cannot be used, two alternatives are available — SMU Directorate Of Distance Education


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the price charged by the exporter in another country, or a calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price.

Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty.

Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury.

Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product — although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports).

The agreement says member countries must inform the Committee on Anti-Dumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each

Subsidies and countervailing measures



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This agreement does two things: it disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies. It says a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

The agreement contains a definition of subsidy. It also introduces the concept of a “specific” subsidy — i.e. a subsidy available only to an enterprise, industry, group of enterprises, or group of industries in the country (or state, etc) that gives the subsidy. The disciplines set out in the agreement only apply to specific subsidies. They can be domestic or export subsidies.

The agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category: non-actionable subsidies. This category existed for five years, ending on 31 December 1999, and was not extended. The agreement applies to agricultural goods as well as industrial products, except when the subsidies are exempt under the Agriculture Agreement’s “peace clause”, due to expire at the end of 2003.

Prohibited subsidies: subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted. The agreement defines three types of damage they can cause. One country’s subsidies can hurt a domestic industry in an importing SMU Directorate Of Distance Education


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country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

Some of the disciplines are similar to those of the Anti-Dumping Agreement. Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for anti-dumping action. There are detailed rules for deciding whether a product is being subsidized (not always an easy calculation), criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty.

Subsidies may play an important role in developing countries and in the transformation of centrally-planned economies to market economies. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 — for other developing countries the deadline was 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002.

Safeguards: emergency protection from imports

A WTO member may restrict imports of a product temporarily (take “safeguard” actions) if its domestic industry is injured or threatened with injury caused by a surge in imports. Here, the injury has to be serious. SMU Directorate Of Distance Education


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Safeguard measures were always available under GATT (Article 19). However, they were infrequently used, some governments preferring to protect their domestic industries through “grey area” measures — using bilateral negotiations outside GATT’s auspices, they persuaded exporting countries to restrain exports “voluntarily” or to agree to other means of sharing markets. Agreements of this kind were reached for a wide range of products: automobiles, steel, and semiconductors, for example.

The WTO agreement broke new ground. It prohibits “grey-area” measures, and it sets time limits (a “sunset clause”) on all safeguard actions. The agreement says members must not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. The bilateral measures that were not modified to conform with the agreement were phased out at the end of 1998. Countries were allowed to keep one of these measures an extra year (until the end of 1999), but only the European Union — for restrictions on imports of cars from Japan — made use of this provision.

An import “surge” justifying safeguard action can be a real increase in imports (an absolute increase); or it can be an increase in the imports’ share of a shrinking market, even if the import quantity has not increased (relative increase).

Industries or companies may request safeguard action by their government. The WTO agreement sets out requirements for safeguard investigations by national authorities. The emphasis is on transparency and on following established rules and practices — avoiding arbitrary methods. The authorities conducting investigations have to announce publicly when hearings are to take place and provide other appropriate means for interested parties to present evidence. The evidence must include arguments on whether a measure is in the public interest.

The agreement sets out criteria for assessing whether “serious injury” is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to SMU Directorate Of Distance Education


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adjust. Where quantitative restrictions (quotas) are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury.

In principle, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly. A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is needed and that there is evidence the industry is adjusting. Measures imposed for more than a year must be progressively liberalized.

When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached the exporting country can retaliate by taking equivalent action — for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure. In some circumstances, the exporting country has to wait for three years after the safeguard measure was introduced before it can retaliate in this way — i.e. if the measure conforms with the provisions of the agreement and if it is taken as a result of an increase in the quantity of imports from the exporting country.

To some extent developing countries’ exports are shielded from safeguard actions. An importing country can only apply a safeguard measure to a product from a developing country if the developing country is supplying more than 3% of the imports of that product, or if developing country members with less than 3% import share collectively account for more than 9% of total imports of the product concerned.

The WTO’s Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members’ commitments. SMU Directorate Of Distance Education


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Governments have to report each phase of a safeguard investigation and related decision-making, and the committee reviews these reports.

TOP STORY

INDIA TO LEVY ANTIDUMPING DUTY ON CHINA TELECOM GEARAaron Back & Rumman Ahmed, Beijing/Bangalore

MintIndia will levy antidumping duties of as high as more than three times the value on some telecommunication equipment imported from China, according to the governments in both countries.

The levy will be on synchronous digital hierarchy, or SDH, transmission equipment, a standard technology for digital telephone networks, the ministries of commerce in India and China said in separate statements posted on their Web sites.

ZTE Corp. will need to pay a duty of 236 percent and Huawei Technologies Co. 50 percent, the statement dated December 11 on the Web site of the Chinese ministry showed.

According to the Indian government statement, Fibrehome Telecommunication Technologies Ltd. will have to pay 236 percent and Alcatel-Lucent Shanghai Bell Co. 29 percent, while equipment exported from China by Israel's ECI Telecom Ltd. (ECIL) will attract a duty of 93 percent.

India s Directorate General Of Anti-Dumping & Allied Duties had April 21 initiated investigations on imports of SDH equipment originating in or exported from China and Israel following a complaint by India s Tejas Networks Ltd. that the importers were undercutting their prices, leading to pressure on local manufacturers.

The Indian commerce ministry had in September said preliminary findings showed the domestic industry had suffered material injury due to dumping of SDH transmission equipment and therefore it recommended a provisional antidumping duty on the imports.

Source: iSOURCe India Telecom Update



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Chapter-9Chapter-9

TYPES OF INVENTORYTYPES OF INVENTORY CONTROL SYSTEMSCONTROL SYSTEMS

Every business needs to know the value of the products it has to sell. Without this information, a business cannot decide on a competitive selling price, schedule raw materials purchases and schedule production to replace items that are sold--just to name a few of the vital business decisions that rely on accurate inventory information.

"Inside of lululemon DC" is Copyrighted by Flickr user: Carolyn Coles (Carolyn Coles) under the Creative Commons Attribution license.

The products a business sells are its inventory.

Perpetual vs. Periodic

The first choice a firm must make is whether to use a perpetual inventory control system or a periodic system. One deciding factor is the level of technology available. If the company has the ability to record transactions in real time, as with point-of-sale scanning equipment, the perpetual system may be chosen. With this system, sales are recorded immediately--the inventory account is perpetually changing. The second system, periodic, uses additional accounts to track sales, purchases of inventory and customer returns. These accounts hold aggregated sales data, which is not posted to



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the inventory account until the period ends. The period can be monthly, yearly or any time frame the firm chooses.

Valuation Methods

After choosing one of the above systems, there is another choice to make. How will the costs of items sold be recorded? This is an important decision. A method that lowers costs will increase net income and taxes. The company must consider factors like expected sales volume and whether future inventory purchases will rise or fall in price. Let's look at two methods of inventory valuation.

FIFO

FIFO stands for first in -- first out. With this valuation method, the cost of the oldest inventory on the shelf (the first purchased) is used to record a sales transaction. The physical inventory sold does not have to be the oldest; this is a cost valuation method. With FIFO, the value of the inventory account will be the same with perpetual or periodic accounting because the earliest costs are used whether the account is updated immediately or at the end of the period.

LIFO

LIFO stands for last in -- first out. When using LIFO, the cost for the most recently purchased inventory is used when posting a sales transaction. As with FIFO, the accounting of costs does not have to coincide with the movement of units out the door. In fact, with LIFO, the unit need not even be on hand when a sale is made. If it is purchased before the end of the period, it is the last unit, and its cost will be used when a sale is made.

Additional Considerations

In the United States, a company may only use LIFO for tax reporting purposes but may use FIFO to prepare publicly released financial statements. The decision must be made whether it is to the company's advantage to maintain two separate sets of calculations for this purpose.



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While the tax implications mentioned above are important, it is also important to appear attractive to potential investors. If management does not weigh all the factors, it could be detrimental to the company's future growth and prosperity.

Cost Accounting

1. Origin, Growth and development of cost accounting

The oldest form of accounting developed in response to the needs of

commercial firms to keep intact their relationship with outsiders, to maintain

listings of their assets and to renewable an accurate determination of the amount

accruing to different parties having a stake in the affairs of business. The

technique of accounting for costs was not taken seriously until the beginning of the

20thCentury. Before the machine age, man pursued his craft individually and

ascertained the cost of his work by simple methods. Since the commencement of

the industrial revolution, a wide spread interest of cost accounting has developed.

Cost accounting is a resent development in the accounting world.

Since the First World War, the industrialists became large and more cost

conscious. This was because of the growing competition between manufactures

and because of the increasing government controls our price. During the First

World War, most of the manufacturing was done on the cost plus system. Cost plus

system is a system under which the manufacturer is entitled to receive from the

customer or the contract a price usually consisting of prime cost of product plus

fixed percentage of it to cover overhead and profit. The most important thing is



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that cost accounting has been developed to meet the needs and requirement of the

management of all these organization which incur cost. Cost accounting now a day

is an important and essential part of accounting which only few decades ago was

considered a part financial accounting. It is important to say that cost accounting

became fully acceptable and begin to develop techniques after the First World War

and this is because of the growing competition between industries and because the

manufacturer became large and widely spread along with also increasing

government control over pricing.

In the beginning during early stage of cost accounting development, cost

accounting largely dealt with factory cost for use in inventory evaluation for price

and profit determination. Recently the scope has become larger to include

administration and distribution cost as well as covering areas such as cost control

budgeting and budgetary control standard costing.

Now a days it is assumed that cost accounting is much important and that

if an industrial concern does not have an efficient cost accounting system, its

survival becomes very difficult. At the end, I conclude that cost accounting

appeared on the land scope of business, trade and industry to meet the over riding

need for forging new tools and fashioning new methods and techniques.

1.2 Development of cost accounting in India

In India, the evolution and development of cost accounting has taken

place more or less during the same time as in the west. In the old days,

production was carried out on the cottage level. At that time the element of



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cost were only material purchasing and the labour of master or his discipline.

At that time the price was determined and ascertained mainly on the basis of

materials used in production and time spent which was termed as “mental

costing”. During the Mugal regime, big construction work was carried out in

India but no records were maintained except those for material. Period to the

First World War the conditions prevailing in the country were not conducive

to the development of cost accounting. The industrial policy of the British

rulers was opposite and diverse to the industrial development of the country.

First and second world war was compelled British to established some

industrial units in the country. With the establishment of some modern

factories the profession of cost accounting begin or the modern lines. Before

the Second World War, the cost accounting was little known in India

because it has an extremely restricted application. It was confined to vary

few factories. The war provided a push to cost accounting. Existing factories

were being expanded, and new factories started to meet the requirements of

the war efforts by subcontracting on cost plus basis to meet with the

increased volume of work. In this way various industries in India received

An unprecedented stimulus through war activities. This, in turn, necessitated

expansion of the existing cost accounting organization and created scope for

utilizing the techniques of costing then quite valuable for ascertainment of

costs and effective cost control.

During the war time the production facilities to a create extent,

switched over to production of war materials. The government was the main

buyer of such product and under the need and urgency, wasteful methods of



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production was not only allowed to be adopted, but also followed and

practiced by many industries.

The institute of cost and works accountants of India came in to

existence in the year 1944 as a private company limited by guarantee at

Calcutta. In the year of 1945, the war came to an end but the need for

existence of such an institution was felt more then before. By that time cost

accounting was well known in the field of industries as well as commercial

circles.

One significant feature of the development was the increasing

participation of the state in industrial undertaking. The accountability of

funds and profitability of undertakings was the prime requisite. The

government of India recognized the importance of the subject and in the year

1954, in the ninth report of the estimates committee of parliament. It was

recommended that economic methods of production should be followed in

government undertakings, cost accounting techniques should be followed,

and for this purpose, an “Institute of cost and works accounting” should be

established.

On the basis of this recommendation, government of India made

necessary inquires about the existing institute, and gave this institute, which

was a company limited by guarantee a statuary status in the year 1959.The

act of parliament conferred on it a status of chartered institute for the

purpose of promoting, controlling and regulating profession of “cost

accounting in India”. The institute is a professional and examining body

specializing in the field of cost accounting. Its main object is to promote the



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study and adoption of scientific methods of cost accounting as a mean of

securing efficiency of the highest degree in industrial, commercial and local

authorities. It has constituted four regional councils at Bombay, Calcutta,

Delhi and Madras.

These regional councils run study courses, and organize special

lectures, meeting, seminars, conferences etc. The institute also publishes a

monthly Journal which contains on cost accounting and other related

subjects.

An event of great significance in the history of the development of

cost accounting has been the incorporation of unique provision in the

companies act 1956.The act empowering the central government to prescribe

rules for the maintenance of cost accounting records by companies that

engaged in production processing and manufacturing of mining activities.

The government also order cost audit in such companies, where the opinion

of the central government, it is necessary to do so. The provisions mentioned

above are unique because of the statutory obligation to maintain cost

accounting records and to order cost audit.

2. Meaning of cost, cost accounting and cost accountancy

Cost Accountancy – the Institute of Cost and Management

Accountants London has defined cost accountancy as the “application

meaning of cost of costing and cost accounting principals, methods and

techniques to the science, art and practice of cost control and the

ascertainment of profitability. It includes the presentation of information

derived there form the purpose of managerial decision – making”1



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Now days the charted institute of management accountants has

changed the name of the Institute of Cost and Management Accountancy

England to the terminology institute and financial accountancy. Thus, cost

accountancy is the science, art and practice of cost accountant.

M.N Aurora observed that “cost accountancy is a wide and

comprehensive term. It has been used to describe the principles,

convention technique and systems that are employed in a business to plan

and control the utilization of its resources. Cost accountancy is that

subject who provides knowledge to take effective and efficient decision for

cost control ascertainment of profitability, internal and external reporting

So, cost accountancy is science, art and practice of cost accountant” 2

Cost accountancy is a science because science includes the systematic

knowledge which cost account should possess for proper discharge of his

responsibility. It is a science because it consists of organized systematic

knowledge which cost accountant must and should possess for proper

discharge of his function or responsibility as mentioned before.

As a matter of fact the cost accountant knowledge should not remain

restricted only to such subjects which cost accountancy embraces. but it

should also extended to subject like operation research, production, control,

linear programming, which help him in the application of his knowledge of

the cost accountancy to the problem of the business cost accountancy is an

art because art includes the ability and skill which a cost accountant is able

to apply to his cost accountancy and back ground knowledge to the

conditions in which and the problems with which he is required to deal.



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Some of these problems are control of cost, replacement of peans through

one ascertainment of cost and ascertainment of profitability.

Cost accountancy is considered a practice because practice includes

the continuous efforts of a cost accountant in the field of cost accountancy.

Such effort also included the presentation of information for the purpose of

managerial decision- making and keeping statistical records. There fore, cost

accountancy is a comprehensive term and it includes the following:-

3. Cost Audit

According to B.K.Bhar “cost audit is the verification and

examination of cost accountants and check on adherence to the cost

accounting plan”3 from the above definition, we can say that the main

functions of cost audit is to verify that cost accounts have been properly

maintained and complied, and to see that work have done according to the

plan laid down and detect and find error and prevent frauds and misuses.

4. Cost Control

Cost control is the guidance and regulation by executive action of cost of

operation undertaking. Cost control includes planning, communication,

motivation, reporting and decision making. A suitable cost control system

helps in maintaining expected return on capital by employing increasing

productivity of men, machine and resources, fixing reasonable selling price

for the customers and increasing profitability and economic stability of the

organization.



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Techniques of costing

Method of finding the cost of an item depends on the nature of that

item. On the basis of nature of the item a suitable method is adopted , but

cost of the item can be of different types ,such as standard cost , marginal

cost total cost ,etc. All these types of cost can be found in respect of the

same item .these different costs are known as types of costing or techniques

of costing, as described below:

(1) Historical costing: historical costing is concerned with the

time of costing .When the process of production of an item is

completed the actual expenses incurred on it .thus historical costing is

the technique of “ascertainment of costs after they have been

incurred.”

For eg.100 fans were manufactured in a factory. If the cost of the

product is calculated after completion of the manufacturing process it

will be known as historical costing. The cost so determined will be the

historical cost. Historical cost is the actual cost of the item.

(2) Standard costing – standard costing is also concerned with the time

of costing. Under this technique a cost of an item is fixed as a

standard before the item is actually manufactured. Standard cost is

cost of the item estimated prior to its production. When the item has

actually been manufactured its actual cost is found by historical

costing. Actual cost of the item may be less or more than the standard

cost. The reasons of difference between the actual cost and standard

cost are then analyzed and are the actual cost is more efforts are made



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to control it. Thus standard costing means “the preparation and use

of standard cost, their comparison with actual cost and the analysis

of variance to their causes and points of incidence.” defined by

CIMA England.

(3) Marginal costing – “the ascertainment of marginal cost and the

effect on profit of the changes in volume or type of output by

differentiating between fixed cost and variable costs is called

marginal costing.” CIMA England.

The increase in the total cost of production by increase of one unit in

the quantity of production is called marginal cost of the item. For example

let the cost of producing 100 units be rupees 1000. If on producing

101units the cost increases to rupees 1007, then rupees 7 will be the

marginal cost of that item. In the total expenditure incurred on a

production, some expenses are fixed and other is such that they increase or

decrease according to the increases or decreases in the volume of

production. Latter types of expenses are called variable expenses and only

such expenses are taken in to consideration in the marginal cost of the

item. In the marginal costing technique the fixed expenses are debited to

the profit and loss account and not to the cost of the item.

(4) Direct costing – “the practice of charging are direct cost to

operation , processes or products , leaving all indirect cost to be

written of against profit in the period in which they arise is called

direct costing.” CIMA England.



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This differs from marginal costing in that some fixed cost could be

consider to be direct cost in appropriate circumstances .

(5)Absorption costing – “the practice of charging all cost both

variable and fixed to operations process or product is called as

absorption costing.” CIMA England.

(6)Uniform costing- “the use of the same costing principles and

practices by several undertaking is termed as uniform costing.” this

technique is helpful in making mutual comparisons. CIMA England.

(7) Budget cost: - These are the estimates of expenditures relating to the

various phases of business operation, sale, production, marketing and

administration, well-concaved budgeting programmers becomes the

written expression of managements plan for the future.

(8)Estimated cost: - It is that cost which is prepared before accepting an

order for submitting price quotation. It is also used for comparing

actual cost or performance.

(9)Normal cost: - normal cost is the cost normally incurred at a given

level of output in the condition in which that level of output is

obtained.

(10) Logistics cost: - this type of cost occur when the material like

Food, Clothing, Supplies and Equipment are being transported.

According to Christopher “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 in such a way



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that current and future profitability are maximized through the cost-

effective fulfillment of orders.”

Procedure to install a costing system

If a cost accounting system is to be installed afresh in an organization

the following procedure could be adopted:

1) Study of technical features:-

Selection of the method of cost accounting depends upon the

technical features of that organization, so the cost accountant

should first of all study about these technical features. such

features include nature of the material, its market, alternative

processes available for converting it into products, nature of the

lab our, training of lab our , nature of other expenses, capacity

of the plant , capacity of the godown, demand of the finished

product, etc.

2) Selection of the method of cost accounting-

Many methods of costing have been mentioned earlier and also

it has been described as to what should be the characteristics of

an ideal system. Keeping all these points in view the cost

accountant should select a method most suitable for his

organization.

3) Identifying the cost centers-

“A cost centre is a department or part of a department

or item of equipment or machinery or a person or a group of persons,



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in respect of which costs are accumulated and over which cost control

can be exercised.” (Pk ghosh)

Thus “the cost centers embrace all the persons, employees, property

owned, and areas of activity of a business”. (Dobson)

Thus, it can be said that cost centre mans any such centre on which

the account for all the expenses incurred is maintained so they the total

cost at that centre can be known and can be controlled. With this view

cost centers can be divided into the following groups:

(1) Impersonal cost centre- “impersonal cost centre is a

centre which consists of a location or an item of equipment (or group

of these).” (CIMA England )

(2) Operation cost centre-“operation cost centre is a centre which

consists of those machines and persons carrying out similar

operations.” (CIMA England)

For example, if several machines have been established for producing

the same type of item, all these machines can be put together under one

cost centre, and cost of item produced by all these machines taken

together can be found at a time.



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(3) Personal cost centre-“Personal cost centre is a centre which

consists of a person of group of persons” (CIMA England)

For example, cost account is maintained on the basis of the3 foreman

of a department, sales representative, etc. it will be known as a personal

cost centre.

(4) Process cost centre – “Process cost centre is a cost centre which

consists of a continuous sequence of operations.” (CIMA England)

Identification of cost centers is necessary for installation of cost

accounting system, so that cost of each of these centers can be found and

proper control may be maintained on it.

4) Determination of cost unit and their methods

Cost unit is concerned with the quantity of product, service or

time. Many units are produced at the same cost centre. Cost unit is a step

which breaks the total cost into cost of saleable products.

“Cost unit is a unit of quantity of product, service or time in

relation to which cost may be ascertained or expressed.” (CIMA

England)

Per cost unit is also calculated with the total cost at any cost centre.

Cost unit can be simple or composite, per dozen, per meter is composite

cost unit. Determination of cost unit depends upon the nature of business



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some of the examples of cost unit and the methods of their costing are as

follows:

Industry Cost unit Method of costing

Cement Per tonne /per bag Unit or single out put

costing

rubber tube and tyre

industry

Per tube and tyre Unit or single (out

put costing)

Chemical industry `per tonne, kilogramme ,

litre,gallon etc.

Process costing

Sugar industry Per quintle Unit or single out put

costing

Television industry Per television set Mixed costing

Ready made garments

industry

Numbers Job costing

Soft drinks industry Per case of 24 bottles Process costing

Textile industry Per metre , per yard Process costing

Bicycle industry Number Process costing

Bricks making Per 1000 bricks Unit or single out put

costing

Brewery industry Per dozen or per barrel Process costing

5) Deciding the procedure of costing:

Preparation o0f cost accounts requires a set procedure to be followed.

In a big concern the procedure is more extensive. In small concern the SMU Directorate Of Distance Education


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procedure should be decided according to the size and need of the

business.

6) Preparation of standard sample performs:

Before installation of cost accounting system, it is necessary to

prepare standard Performa and their samples, to be used for its various

purposes. Use of these Performa makes the work of the clerks easier and

simple. Performa to be used for different purpose should be of different

colors so that these can be easily identified.

7) Efficient control over material:

In order to incre3ase the efficiency of the workers and to minimize the

per unit layout cost, a system of efficient control over the labour should be

established.

8) Efficient control over material:

A proper system of purchase, storage and issue of material should be

installed so that the per unit cost on materials is kept at the minimum.

9) Efficient control over other expenses;

Besides the material and labour, there are so many other expenses also

related to the production. These other expenses also have to be controlled

by the system so that the per unit cost under this head is minimum.

10) Reporting about the cost:

Various reports have an important place in cost accounts. these reports

are sent to higher authorities from time to time, such as weekly,

fortnightly or monthly report about wastage of material, etc. so also the

report about idle time of the workers, report about utilization of the plant,



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etc. These reports help very much in theproce4ss of controlling; therefore

it must be fixed that when, by whom in which Performa and about what

the reports will be sent regularly.

11) Deciding the status of the cost accountant;

The highest authority in cost accounting department is known as the

cost accountant. It is very much necessary to decide what will be the

status of the cost accountant in the whole organization. That means, to

which officer he will be responsible and who will be responsible to him.



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Chapter-10Chapter-10

Summary, Conclusion &Summary, Conclusion & SuggestionSuggestion

Summary of findings and suggestions

The main finding concluded in this reason work has been summarized

in this chapter.

The relevant problems with suggestion to overcome the short coming

in Samsung Electronics India Pvt. Ltd to improve Sales, logistics

operations, Inventory management, customer service (after sales support) to

increase profitability in business.

1. By reducing the production cost or by increasing the production or

both together have been highlighted.

2. By proper planning in the inventory control management.

3. Finding the better means of logistics operations to improve sales &

support.

4. By improving the customer support in terms repair & replacements.

The chapter wise findings are mentioned below:

Introduction-



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The primary aim and object of every firm is to improve its sales &

earn maximize profit. This object can be achieved when the company

controls its activities in such a way that it can gives best quality of product

at the lowest possible price or when the company control and reduces the

cost of its products. Financial accounts do not give the information regarding

cost incurred in the various departments at each cost centre. This is the

reason that the preparation of cost accents is essential to manufacturing

comprise which furnish and provide such information.

Cost consciousness is an important element in determining repaid

growth of industrial economy which is essential complex and competitive

since profit earning is the principle motivation force for successful conduct

of businesses. Cost represents the resources that have been scarified to attain

particular objectives. It is the amount of expenditure which is incurred in

providing or acquiring a thing or service total cost of production is

composed of material cost, labor cost, expenses and overheads. Proper

classification and analysis of cost enable the company to detect and find out

all the source of waste in production and marketing cost may be classified

into direct and indirect , factory, administration, selling and distribution,

fixed , variable , semi-variable , step- cost , controllable and uncontrollable

cost.

This study has brought out that there is no proper cost accounting

system and inventory management in place is not installed properly. The

difficulties in installing cost accounting system & Inventory management



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system in Samsung Electronics India Pvt Ltd are lack of support for top

management, resistance for existing staff, shortage of trained staff etc.

Inventory Management System

While developing the system a conscious effort has been made to

create and develop a software package, making use of available tools,

techniques and resources – that would generate a proper System

While making the system, an eye has been kept on making it as user-

friendly, as cost-effective and as flexible as possible. As such one may hope

that the system will be acceptable to any user and will adequately meet

his/her needs.

As in case of any system development processes where there are a

number of shortcomings, there have been some shortcomings in the

development of this system also. The project is still under modification.

Some screen shots of the inventory management system under planning

& modification with IT Team:

1. Login Page:



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2. Adding inventory in systems:



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3. Inventory Raw Report:



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4. Online dispatch invoice & packing list preparation for track &

control:



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5. Repairing inventory management (After sales support):



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6. Inventory Enquiry:

7. Online PO Entry

8. Logistics History:



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9. Expense Calculation:

Better means of logistics operations

When Samsung Electronics India Pvt. Ltd was small player in market the

expectations of its customers were lower but when it progressed into big bully

as a big organization & service provider the expectations of its customer has

gone up. This necessitates a change in the mindset of the company any its

employees.

The most important fact of the service support is reliability. Most of the

customers were skeptical of this attribute in Samsung Electronics. SMU Directorate Of Distance Education


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The company can and should make explicit promises about the date

time and place of delivery. It should then of on to fulfill them.

On occasions it fails to do so, it should be prompt in the recovery

phase.

It must also evolve some mechanism to provide compensation to the

customer if the delivery is not made in time. A case in point is the

guarantee given by other service providor.

Promptness in service provided is another important fact of this line of

business. Theoretically it is a part of the responsiveness dimension of customer

service. We can also take help of the 80/20 rule by identifying our best

customers and providing a level of promptness that delights them.

The tangibility of service presents a physical aspect which a customer can

actually see and be assured that the service provider is actually capable of

providing the service promised.

Samsung Electronics has a better position in the empathy dimension. It

would capitalize on this strength a project their human face to their customers.

Use the 80/20 rule

Offer the highest levels of service and availability to key should

constantly review the less profitable customers and the less

profitable products.

Determine ‘critical value’ of an item to the customer. The idea is

that if certain items are essential for say, the operation of a



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machine where the down- time cost are high then those parts

would be accorded a high critical value. If appropriate a ‘weight’

could be assigned on the basis of criticality and the 80/20 ranking

based on profit could be adjusted accordingly.

Cost records shall be reconciled with the financial years so as to ensure

accuracy. Variations are any shall be clearly indicated and explained.

The reconciliation shall be done in such a manner that profit of the

product under reference can be correctly serviced at and reconciled with

overall profit of the company. Records of physical verification shall be

maintained in respect of all items held in stock, machinery, spares,

chemicals, fuels, finished goods and fixed asset. Reason for shortage or

surpluses arising out of such verification and the method followed for

adjusting the same in the cost of produces shall be indicated in the

register.

Limitations of the project

(1) Most of the data on the industry have collected from secondary source

such as books, internet, periodicals etc. hence their content reliability and

accuracy may need some updation.

(2) Duration of completion of dissertation is inadequate to study such a vast

discipline. Hence even though every effort has been made to naked this study a

comprehensive one, I hope I had been able to do justice to this important and

interesting subject.

(3) The respondents to the primary survey have been suggested by Samsung

Electronics. Hence some probability of biasing creeps in.



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(4) Moreover the sample taken in the primary survey may not be a

representative of the population. The sample size was deliberately kept small

keeping in mind the time and cost constraints.

(5) Cost records shall be reconciled with the financial years so as to ensure

accuracy. Variations are any shall be clearly indicated and explained. The

reconciliation shall be done in such a manner that profit of the product under

reference can be correctly serviced at and reconciled with overall profit of the

company. Records of physical verification shall be maintained in respect of all

items held in stock, machinery, spares, chemicals, fuels, finished goods and

fixed asset. Reason for shortage or surpluses arising out of such verification and

the method followed for adjusting the same in the cost of produces shall be

indicated in the register.



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Documents

Project Cost and SCM