UNIT-5 quality of transport performance becomes the

WHAT IS LOGISTICS MANAGEMENT critical factor. Further, as speed and cost of

“Logistic is the process of planning, implementing transport are inter-related, careful selection of
controlling the efficient, effective flow of goods the transport becomes essential for optimum
of goods, services and related information from the cost. For example, faster transport costs mean
origin to the point of consumption for the purpose of more money but reduce inventories and improve
conforming to customer requirements” customer service.
Logistics exists to satisfy customer requirements (4) Inventory management. Good inventory
rating relevant manufacturing and marketing operation. management system must be put into place
responsibility of logistic is the geographical positioning to achieve desired customer service with
materials, work in process and finished inventories at the minimum inventory investment. Inventory
possible cost. policies must be carefully devised.
Creating logistics value is costly. Logistics Excessive inventories hide deficiencies (e.g.
for one of the highest costs of doing business. Logistics deficiencies of logistics network, poor
are normally ranges from 5% to 35% of sales depending on quality of suppliers, interior purchase order
of business. Thus logistics even though very important for management etc.) while too low inventories
business success is expensive. cause delay in order execution, slow
response and deficient customer service.
IMPROVING EFFECTIVESS OF Selective treatment based on following
LOGISTICS MANGEMENT: principles generally lead to effective
inventory management:
Five pillars to the effective logistics are: (i)
Logistical network, (ii) Transport (iii) information,  Enough quantity of high profit high
(iv) Inventory and (v) Warehousing, materials volume products, demanded by the core
handling and packaging. customer, may be carried in stock while or
negligible inventory may be kept of low-
(1) Logistical network include facilities such as profit-low volume products purchased by a
manufacturing, warehouse, dealers and retail fringe of customers.
stores. The larger the geographical spread,  Core customers may be serviced by fast
the more complex the film’s logistical reliable air service while orders of other
network. Superior logistical network, based customers may be dispatched by surface
on systematic analysis and determination of transport.
number of each type of facilities, their  Commitment to deliver product rapidly
geographical location, specific work and timely (say within the declared period)
allocations etc. can be a very big must be preceded by enhanced capabilities
competitive tool. of logistic network.
(2) Information. Accurate forecasting and good  Commitment of rapid and consistent
order management are essential for the delivery should be intended to gain
systematic inventory management JIT and customer service advantage and to
Contingency Replenishment (CR) and quick neutralize the strength that a competitor
response (QR) to the customer. Timely enjoys.
information thus is the key to the logistical
performance. Modern information Warehousing, materials handling and
technology, in the form of both hardware packaging. The choice and location of the
(faxes, mobile phones, e-mail) and software warehouse should be with a view to get closer to
(Enterprise Resource Planning) have the core customers. Materials handling within the
removed the deficiencies in information. warehouse should be planned to ensure safe and
speedy receipt, movement, storage and packaging
(3) Transport. Cost, speed and reliability are of customer’s requirements
key determinants of the effectiveness, whether it Strategic Decisions
is a war or business. Since time is the essence,
Strategies are a set of important decisions derived tiered global supply system in the West to the
from a decision making process of the top Japanese Kereitsu based company supply system,
management in the organization. In order to although there are quite a few near fully integrated
ensure success, the strategic changes that are being companies in the developing nations till date.
incorporated in the supply chain, has to conform
to well defined strategies formulated by the The following are the reasons propounded by
company from time to time. Christopher (1992) for not followingthe integrated
The top management in the company forms the supply chain:
strategic decisions and successful execution of · Few managers retain a grasp of a process from
these decisions should provide a cutting edge to one end of the pipeline to the other. As a result,
the organization. Areas that require strategic the way things get done can reflect convenience
decisions are warehousing, transportation, IT, and for doers, a desire to protect functional boundaries
make versus buy. We have already seen and a lack of understanding the related
warehousing and transportation in detail in unit-4 consequences, both up and down streams of
and 5, and hence will dwell on IT and makers individual processes.
versus buy. · Initiatives of changes are functional in nature and
seldom reflect the cost of the system.
· IT Solutions and Integration: IT solutions will · Their custodians as a means of providing
play a significant role in information building all breathing space and as ways of providing some
through the supply chain. However, companies hidden flexibility respond to protect lead times.
should address several queries centered on proper The individual functional lead times contain slack
alignment of information technology tools and the and where these become embodied in a processing
expected increase in productivity and services. system, they are institutionalized. Actually,
Identifying the very scope of the business problem companies that have benefited from integration are
that is to be addressed is the most important in this pacing ahead with confidence, and IT as a whole
complete exercise. This effort will help in have further aided in integration vigorously.
identifying the best course available to the · Make versus Buy: The main organization focus
manufacturer and the area that it is to be applied, today is on outsourcing of non-critical
the core business issues. At the same time, it is components. These decisions are arrived at after
also important to assess the effect of IT on the considering the factors like, capacity, leverage an
organization as a whole and its capabilities. More organization gets and the quality and confidence
often than not, IT affects the business in 3 ways: in working with the vendor. Make buy decision is
a strategic decision and the area that has to
· The integrated process requires managers for addressed in this is development of the total cost
restructuring the cultures and capabilities on model (Deshmukh & Mohanty). It has been seen
values providing continuous improvement and that having a supplier that can work in a
teamwork. simultaneous engineering way with the company
· It enables the organization not only to rethink but is the main aspect in order to avoid costs
also leverage new information, like graphics, associated with unnecessary design complexity.
computer integration and workstation technology. This may also mean having a supplier who can
· Application of new information requires provide the same support through IT rather than
redefinition of goals and skills of the enterprise’s having an engineer in site, and achieve the same
people resources. result. The next consideration is the aspect of
labour elements. Here, once again the need for
The response to the issue of managing the supply simultaneous engineering is required mainly in
chain included having a fully integrated business, those off-shore areas with low labour rates, over
and some of the vehicle manufacturing companies and above issues like labour rate inflation and
were structured in a way where the input were raw challenges of overseas sourcing. All these have
materials and output the finished product. to be considered in a structured manner and not in
However, the driving forces for global isolation
manufacturers have ranged from becoming a Strategic Supply Management Activities
As per Burt and Dobler, supply management focus key players in development of each of the firm’s
on ten strategic activities: corporate strategic plan. Supply management
· Environment Monitoring: Monitoring the provides input to the strategic planning process on
supply environments to identify threats and threats and opportunities in the supply world. It
opportunities, is an important task of supply also provides inputs on constraints that may affect
managements, to include material shortages strategic initiatives. Its knowledge of the firm’s
affecting both price and availability of purchased supply world may be a vital source of input for
materials and services. They can further be strategic planning.
classified as: · Strategic Sourcing: The firm should manage
and develop its supply base in line with firm’s
· Changes in legislation: affecting the workplace. strategic objectives. Several actions that should be
This can affect both price and availability. taken are:
· Wars and conflicts that can affect availability of · Periodic review of the active suppliers.
materials resulting in price increase. · Identification of the appropriate relationship
· Consolidation among suppliers: to the extent of (transactional, collaborative or alliance) for each
monopoly. A firm should change its strategy based commodity class.
on such changes. · Optimization of supply base with coordination
and combination with several forces to increase
· Integrated Supply Strategy: Supply the importance of the firm’s supply base.
management should develop and manage the
firm’s supply strategy based on wholesome · Strategic Supply Alliances: Developing and
integration strategy and not in isolated strategies. managing the supply alliances frequently are two
· Commodity Strategy: Must develop and update of the most crucial and most strategic activities
sound commodity supply strategy. The following undertaken by any firm. Institutional trust is a key
activities have to be performed to ensure prerequisite to supply alliances. Rapid growth of
effectiveness of the strategies: American society of Alliance Professionals is a
· Strategy Updating: Commodity teams must testimony to the industry’s recognition of
identify materials, items of equipment and importance of these activities.
services that are strategic in nature or should
formulate a strategic plan for obtaining them. Supply Chain/Networks: These help in
· Technology Access Control: All supply developing and managing of supply alliances, but
management organization’s develop and update is more complex. IT & relationship skills are
technology road maps, which lists critical current essential prerequisite for personnel assigned to the
and future technologies to be pursued. Action task. Charles Fine in his book Clock speed writes,
should be at hand to ‘ the farther you look upstream in your technology
protect these technologies that yield a competitive supply chain, the more volatility you see.
edge and ensure are not transferred to competitors. Customers are foolish if they don’t spend any time
· Supply Management Organization: The or resources thinking of the health, survival, and
organization of the supply management system possible independence of their core technology
must enhance the effectiveness and efficiency of suppliers’.4
the system in attaining the primary objective. · Social Responsibilities: Supply management
· Risk Management: Actions should be taken to must develop and implement programs that will
ensure minimum disruption of supplies and price protect the environment, facilitating the inclusion
increase. of woman-owned, minority based and small
· Data Management: Supply management, business in our economy to promote values in the
accounting and information technology must workplace.
cooperate in the collection and application of · Understand Key Supply Industry: Its impact is
supply data to facilitate the strategic supply directly proportional to the knowledge of related
planning. industries in which it buys. They study and
· Corporate Strategic Plan: Supply management understand the industries that provide the key
should join the marketing and operations as the materials, equipment, and services, cost structures,
technologies, competitive nature and culture. The What is included in this guide?
above provides the understanding of supply 􀁊Application of Supply / Value Chain Analysis
managements responsibilities both strategic and 􀁊How to create a Supply / Value Chain
tactical, which if executed effectively and 􀁊What is the Purchasing Value Chain?
efficiently will be a key to the firm’s success and Which processes does the tool apply to?
survival, fig 6.1. 􀁊Demand Management, SRM and Strategic
Sourcing
Supply Chain/Networks: These help in Which other tools link to this guide?
developing and managing of supply alliances, but 􀁊Supply Market Analysis
is more complex. IT & relationship skills are 􀁊Value Stream Analysis
essential prerequisite for personnel assigned to the 􀁊Activity Analysis
task. Charles Fine in his book Clock speed writes,
‘ the farther you look upstream in your technology Application of Supply / Value Chain Analysis
supply chain, the more volatility you see. Supply and Value Chain Analysis enables you to
Customers are foolish if they don’t spend any time identify critical points of commercial leverage in a
or resources thinking of the health, survival, and supply chain. From this understanding of these
possible independence of their core technology control or influence points, you can then identify
suppliers’.4 opportunities for introducing greater control and
· Social Responsibilities: Supply management management into both upstream and downstream
must develop and implement programs that will supply chains, aiming to introduce strategic
protect the environment, facilitating the inclusion purchasing management into supply markets.This
of woman-owned, minority based and small is important because the heart of strategic
business in our economy to promote values in the procurement is the notion of creating competitive
workplace. advantage for your own organisation by
· Understand Key Supply Industry: Its impact is proactively managing suppliers and supply
directly proportional to the knowledge of related markets.
industries in which it buys. They study and Supply and Value Chain Analysis is one of the
understand the industries that provide the key key analysis tools which facilitates a better
materials, equipment, and services, cost structures, understanding of the dynamics of supply markets
technologies, competitive nature and culture. to ensure that you identify opportunities to control
them.
Supply Value Chain Analysis

What is Supply / Value Chain Analysis?

Supply / value chain analysis is the systematic
mapping and analysis of the physical commercial
and cost linkages that exist in supply chains;
aiming to identify the value added components of
these inter-relationships that can exist in a supply
matrix.
Use of this analysis will assist in identifying
leverage points in the supply chain and help to
identify where the areas of risk in the supply chain
exist. Addressing these areas will ensure
maximisation of value for mony
Where does it fit in with Category
Management?
􀁊Internal & External Data Gathering
􀁊Identification of opportunities and options
generation
􀁊Strategy development