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Logistics and Supply Chain Managementfor III semester MBA , Marketing & Sales Sessions
Sales and Distribution Management
Prakash A
Cell ph 93412 20241
Email : [email protected]
Market Logistics and Supply Chain Management
Syllabus - Unit V:
Physical Distribution Management
Importance of physical distribution
Logistic system analysis and design
Organization and control, role and importance of warehousing,
warehouse Type, Size
Reference Books:
Sales and Distribution Management -- Krishna K Havaldar and Vasant M Cavale
Sales & Distribution Mgt
Market Logistics and Supply Chain ManagementIntroduction :
The origin of Logistics and Supply Chain Management (SCM) are from Materials
Management
Materials Management is function in a Co., for Co-ordination of Planning, Moving,
Storing and Controlling materials in an Optimum manner so as to provide a pre-decided
service to the customer at a minimum cost
The Materials Management function include:
Materials Planning and Control
Purchasing
Stores and Inventory Control
Handling these functions independently could create a conflict of interest, hence an
integrated approach was required.
Before 1970: The functions ware fragmented as Transport, Warehouse Management,
Materials Management and Inventory Control, parts and services and Return goods
handling
1970s: Logistics came into practice in two broad areas of Materials Management and
Physical Distribution
1980s: Logistics started getting integrated into inbound, conversions and outbound
In 1990s the concept of Supply Chain Management (SCM) and integrated operations
with suppliers and customers started getting focus
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
A leading automobile manufacturer in India has created spare parts hubs in Chennai, Delhi,
and Mumbai to provide access to smaller markets also. The company also operates smaller
warehouses from select number of prominent dealers. The objective is to provide quick, JIT
(Just-In-Time) service to customer
Definition:
“ The science of planning, organizing and managing activities that provide goods or
services ” --- Logistics World 1997
“A Business Planning framework for management of materials, service, information
and capital flows. It includes the increasingly complex information, communication
and control systems required in today’s environment” -- Logistics Partners, Helsinki
“ The process of planning, implementing and controlling the efficient, effective flow of
goods, services and related information from the point of origin to the point of
consumption for the purpose of conforming to the customer requirements”
-- Council of Logistics Management
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Key Words: Planning , The Focus flow of materials, Services and Information,
Implementing, Controlling , and Communication are the Components of Logistics
function
Sales & Distribution Mgt
CUSTOMER SERVICE
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Key Tasks of Logistics Management
Market Logistics and Supply Chain Management
Logistics Operations:
Functions : Include planning, procurement, transportation, supply and maintenance.
These are strictly operational details and have to be undertaken daily. Once the Co. is
clear on its marketing and customer service strategy, the operating managers ensure
that all these details are taken care of to achieve the objective
Processes : include determination of the requirement, acquisition, distribution and
conservation. This aspect includes all the co-ordination requirements of logistics with
the functions of purchase, production and marketing. As part of operations,
interaction with other functions to help the logistics function achieve its goals
Business: Is the science of planning, design and support of business operations of
procurement, purchasing, inventory management, warehousing, distribution,
transportation, customer support, financial and human resources. -- Overall support
of logistics to the business.
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Scope of Logistics :
A Company choosing the markets in which it wants to operate
Deciding on the plan location and layout. Also decision on whether whether to
have own production facilities or outsource them
All aspects of inventory management including costs and service levels
Customer service policies
Extent of distribution network to be built up
Location and management of storage facilities
Choices of mode of transport, selection and management of carriers
Any packaging decisions that directly impact storage and transportation
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Key Logistics Activities :
Customer Service – consistent provision of “time” and “place” of utility. Logistics has
to ensure that the product or service being offered by the company is available to the
final consumer or end user when he/she wants it (time utility) and where he/she wants
(place utility)
Demand Forecasting – decisions on how much to order from suppliers and when and
how much to produce for customers. This activity normally starts with the sales
forecasts given by the Mktg. & Sales function. This is normally the function of sales to
develop the forecast at agreed frequencies for agreed geographies. The forecast tehn
becomes the starting point of planning function which is the responsibility of logistics
Distribution communication – need for info. on distribution, which could be complex,
automated and fast. This may include status of orders, shipment dates and likely
delivery dates. Logistics is concerned with contract with the suppliers on the
“inbound” side and the channel members and customers on the “outbound” side.
Inventory control - is a trade-off between the level of inventory to be maintained and
the expected service levels to be provided to the customers.
Material Handling – Movement and storage of raw and packing materials, WIP (work-in-
progress) and finished goods. This is physical handling of goods within the firm and
incase of finished goods till they reach the customer
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Key Logistics Activities :
Order processing – getting orders in time from the customers, checking the status
of execution and delivery. Sales people get the order and pass it to logistics function
for delivery
After sales parts and service support – during warranty and post warranty till the
working life of the product
Plant and Warehouse location – at optimized cost to the Co.
Procurement – purchase of materials and services from outside Organizations
Packing – primary purpose is that it is a form of Advt. & Mktg. effort. Logistics is
concerned with providing protection for the product in transit and storage
Returned goods handling – In case of a problem, with product or the customer.
Reverse Logistics - Getting back the material for reuse, disposal, reprocessing or
recycling purpose
Warehousing and storage – to support the time and place of utility
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Types of Logistics Activities :
Divided into “Inbound” and “Outbound” .
Inbound or Upstream Logistics include- Receiving, Storing, and Issuing inputs and
taking care of:
Material Handling
Inventory Control
Inbound Quality inspection along with the quality control function
Scheduling of production to manage “issues”
Return of unacceptable materials back to the suppliers
Inbound logistics is the interface with the Company Suppliers, Vendors
and other service providers
Outbound or Downstream Logistics include – Collecting, Storing, Dispatching and
physically distributing the finished goods to the buyers/ Distribution
channels/Consumers include:
Order processing of all the orders received through sales system
Material handling of finished goods
Warehousing both in the plant and in the field
Delivery vehicle operations and scheduling
Shipping and related documentation
Outbound logistics is the interface with the Company’s customers
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Supply Chain Management (SCM):
SCM focuses on the processes linking the generation of demand to the fulfillment
of the demand.
Starting point is the customer and what he/she wants and all the activities are
centered around this.
SCM creates the process to fulfill customer service needs
SCM is concerned with the physical infrastructure required to support
these operations like, plants, warehouses and transport
SCM manages this infrastructure to maximize service level to customers
Need for Supply Chain Review
Some visible symptoms in business that indicate the need for review and revamp
or redesign the SCM process:
Slowed down response to changes in market. If the competition
launches a promotion on a particular brand/pack, the firm concerned is
not able to react in time
Large write-offs, since what the firm is producing, does not seem to be
what customers are looking for
In order to meet customer service needs and demands of customers
which seem to be imposing stringent conditions of delivery, the
company would be taking up easy way out by building up inventories
The company is not able to commit on finished goods delivery dates
There could frequent stock-outs and lost revenues as the planning
seems to be not keeping pace with the market needs
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Influencing factor on Supply Chain Management (SCM):
Globalization of market place is forcing Cos. to have world-class delivery systems
to survive the competition
Advances is Technology in Computing, Communication and Transportation have
further made the situation more complicated
An increasingly demanding customer base is forcing the Cos. to do things
differently to keep customers happy.
All purchase decisions are only on the dimensions of quality, price and time
An innovative Supply Chain, therefore:
Is able to meet all the customer driven challenges in terms of best price, excellent
quality and delivery as specified by the customer
Helps reduce costs of operation
Improves service levels by maximizing time, place and possession utilities
Enhances the speed. Companies can not only commit and meet delivery dates,
but can take care of emergency requirements
Planning and execution are synchronized in a manner as to provide consistent
excellent service to the customer
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Supply Chain Integration:
Optimizing Supply Chain requires supplier and customer involvement to integrate
processes, policies, systems, database and strategies between diverse
trading partners
Supply Chain integration benefits:
Reliable demand management - the forecasts are more accurate
High customer service levels – an efficient “pull” system works
Reduced lead times – shared planning efforts helps in this
Optimum working capital costs – there would be no need to keep additional
inventories in anticipation of demand
Optimum supply chain costs – supply chain costs need not necessaritly be
the lowest, they have to be optimum
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Differences between Logistics and Supply Chain Management:
No clear differentiation made by experts on Logistics and SCM
Few consultants view points:
Pete Crossby – SCM Consultant
Logistics includes Physical distribution, warehousing, transportation (inbound and
outbound from manufacturing plants) and in some industries customer service also
(sale order processing, inventory planning and production planning
Another Consultant’s view point:
Logistics is generally concerned with strategy and co-ordination of flows between
marketing and production (i.e transportation and distribution)
A supply chain tends to focus on purchasing and procurement, but not necessarily so,
It can include materials, inventory and production planning. There is also Demand
Management which focuses on forecasting, but is sometimes included in either
logistics or supply chain functions.
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Differences between Logistics and Supply Chain Management:
Few consultants view points:
Council of Logistics Management:
Definition of Logistics:
Logistics Management is that part of the supply chain management process that plans,
implements and controls the efficient, effective forward and reverse flow and storage
of goods, services, and related information between the point of origin and the point of
consumption in order to meet customers’ requirement.
Definition of SCM:
Supply Chain Management encompasses the planning and management of all
activities involved in sourcing and procurement, conversion, and all Logistics
Management Activities. Importantly it also includes co-ordination and collaboration
with channel partners, which can be suppliers, intermediaries, third-party service
providers, and customers. In essence SCM integrates supply and demand
management within and across companies
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Integrated Supply Chain:
Sales & Distribution Mgt
Integrated Supply Chain Management
Customer Analytics
Purchasing/ Supplier
Partnering
Inventory Mgt & Control
Demand & Lead Time Mgt
Materials Management
Manufacturing/ Re-Mfg. / Assembly
Storage & Transportation
Order fulfillment
Market Logistics and Supply Chain Management
Major Areas of Interaction – Logistics and Marketing:
Product Design: Has a direct impact on the warehouse space and transportation
utilization and related costs
Pricing: The Co. has to decide on optimum service levels which the customers can
expect the level of servicing the customer demand directly affects the product costs
and also decides the pricing policies
Market and Demand Forecast: These are critical in detailing the level of logistics
resources that are needed to service the customers
Customer Service policies: If marketing opts to provide a very high level of
service to its customers, logistics resources like facilities (warehouse space, labour,
transport arrangement). Marketing has to work closely with logistics to decide the
service levels.
Number and location of warehouses: Major area of contention between marketing
and logistics.
Inventory Policies: A careful balancing has to be done by marketing and logistics
together, between the agreed level of customer service to be provided and the costs of
holding inventory
Order processing : This is the source of daily interaction between marketing/sales
and logistics. Field sales responsible for providing the daily orders from the customers,
which logistics has to process and dispatch
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Customer Service Elements:
Sales & Distribution Mgt
Frequency of Delivery Quality of sales presentations
Time from Order to delivery In-store merchandising
Consistency of Delivery Credit terms offered
Emergency delivery when required Regular calls by sales representatives
Stock availability and continuity of supply Manufacturer Monitoring of retail stock levels
Orders filled completely – No SKU is missed out Customer query handling
Order size constraints Quality of outer packing
Order Status information Well stacked pallets – relates to outer packing
Advice on non-availability Claims procedures need to be easy for customer
Convenience of placing orders Condition of goods when received by the customer
Acknowledgement of orders Easy-to-use by dates on outer packaging
Invoicing procedures & Accuracy of Invoices Quality on inner packaging for in-store display
Regular review of product range to keep abreast of customer needs
Consultation on new product / package
Co-ordination between production, Marketing and Distribution
Market Logistics and Supply Chain Management
Logistics Impact on Financial Health:
Logistics impacts on both numbers which generates ROI profitability and capital
employed
ROI is the function of the profits generated on the capital employed. Profitability is
a function of the revenue and the costs
Logistics can help maximize customer service and hence increase the sales
revenues
Logistics efficiency helps costs, the net effect of these two actions is the
increased profitability
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Distribution Warehousing:
Objective is to set up a warehouses closest to the customer locations to service
markets better at minimum cost
The warehouse location strategies could be
Market positioned – warehouses are located nearest to the final customer Order Cycle Time - Time elapsed between the customer placing order and the receipt of the
goods by him
Transportation Cost – Freight cost from nearest warehouse to the customer location
Sensitivity of the product – Perishable, goods which can not be kept for long time
Order sizes – Full truck loads
Levels of customer services offered
Production positioned – warehouses are located close to production facilities Perishability of the raw materials
Number of Product Mix
Assortments ordered by the customers from the product mix
Transportation consolidation rates – Eg. Full truck load
Intermediately positioned – mid point location between the final customer and the
producer
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Transportation:
An important part of logistics function – Movement of products across space and
distance add value to the products as it gets them nearer to the customers
Transportation really provides the “time” and “place” utility
Transport Modes & Selection parameters/Criteria: Nature of goods, policy of the company and its customers which are all operational details
Comparison with the alternative modes that are available
The Co’s and its Customer’s expectations on speed of delivery, quality of service & Cost
Ability to track the movement
Simplicity of the documentation other than the statutory requirements
Handling of complaints and processing of the claims
Sales & Distribution Mgt
Parameter Weightage Rail Road Air Water Pipeline Ropeway
Speed 30 5 6 8 4 3 3
Versatility 10 6 8 5 6 3 2
Reliability 20 6 8 5 5 7 4
Availability 10 7 8 5 6 3 2
Continuity of service 10 6 7 5 5 8 3
Distribution Cost 20 4 5 2 6 7 8
Total score 10 5.4 6.7 5.3 5.1 5.1 4.0
Overall ranking 10 2 1 3 4 5 6
Market Logistics and Supply Chain Management
Logistics / Supply Chain: Cost of Service: Total Cost of Service involves all the move-store activities of the product and includes:
Inventory Cost – unit costs, storage and working capital lock-up
Warehousing costs
Production or supply costs
Distribution channel costs
Communication and data processing costs
Transportation of finished goods
Materials handling cost
Packing related to logistics
Customer service based on policies on customer service levels committed
Cost of lost sales as a result of stock-outs
Any allocated administrative or overhead costs
Supply chain costs are confined to:
Inventory costs
Warehousing
Transportation
Special packing
Cost of lost sales if it can be worked out
Cost of losses and damages
Insurance costs
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Logistics / Supply Chain: Performance Measurement: Performance of the logistics or supply chain functions can be measured both on internal and
external performance. A brief view on measurement is here:
Internal Measurement The cost incurred to accomplish the objectives of customer service
Customer service status seen as a combination of sales achieved, order numbers
received and executed, rate of stock returns, stock-outs, orders cancelled, damage
claims settled and the order cycle time
Customer service delivered in terms of satisfying customers and could include:
o Fill rates – ability to supply the full order in-time also referred as OTIF = On Time
In Full
o Orders shipped complete – ability to supply the full order every time
o Speed of response
o Consistency – delivery every time as per expectations
o Stock-out frequency – number of times as demand exceeded availability
o Reliability – ability to meet customer of service
Productivity measures, which show the relationship between input (effort, time, cost) and
output (service provided)
Asset utilization – equipment, transport facilities and inventory
Concept of perfect order – quality of the fulfilled order in terms of customer
specifications, service goals, error free invoicing and zero defect performance
External Measurement Customer perception – obtained through regular feedback or surveys
Normally rank customers service parameters in relation to competition – parameters like
order cycle time, feedback status, after sales service and support systems
Best practice benchmarking – to search for the overall practice outside the Co. and adopt
it. The systems is broken down into variables affecting it and then compared – Cost,
quality, Order processing effectiveness, transpiration and warehousing efficiencies
Sales & Distribution Mgt
Market Logistics and Supply Chain Management
Logistics / Supply Chain Performance : Popular Measurement Ratios: Inventory in number of days’ sales (FG) or production (Raw Materials or packaging materials)
Inventory levels against agreed norms. Eg: a target may be set for Finished Goods levels as 7
days’ sales in the plant and 3 weeks stock in the C&FA or Distis center
Customer service levels in orders fulfilled – OTIF On Time In Full. Each order which is filled
with 100% of the ordered SKUs and on the delivery date promised is considered as complete in all
respects and gets ONE mark. Any order which is not executed OTIF gets ZERO
Warehouse capacity utilization. Utilization of the space for the tonnage handled is the
measurement
Warehouse labour utilization – the number of loads handled per day
Warehouse cost per ton handled
Freight cost per ton kilometer against budget
Market Logistics and Supply Chain Management
Summary
The support of logistics function to an organization and its marketing efforts has evolved from a
system of just managing materials to logistics and to supply chain management which extends its
activities beyond organization boundaries
Logistics is a critical function in providing the time, place and possession utilities to the products
and services of the company. Its customers are production (for Raw Materials), Packaging
materials, Consumables and Production scheduling) and Marketing (Finished Goods). Logistics
has got a major role to play in providing customer service.
The Common and regular interface of logistics is with the production and marketing. Logistics has a
direct impact on the financial performance of the company – it directly affects the ROI and the
Balance Sheet while also helping improve profitability if managed effectively
Three important functions of logistics are Inventory Management, Warehousing and Transportation
management
Warehousing provides the place utility for the product. It provides balance between production and
requirements of utilizing capacity and meeting customer requirements regularly. Distribution
warehousing has special meaning to the marketing person as it is directly concerned with finished
goods
Transportation management has developed as a useful supplement to the logistics function, in
ensuring materials are available at short notice. Various modes of transport like rail, road, air and
water are available with advantages and cost considerations. Logistics managers can use the most
suitable mode in every case while keeping costs in check but ensuring customer service