MBA Sem-III

Logistics and Supply Chain

Management
Module 3: Network Optimization
 Introduction
• Transportation system is the key element in a supply
chain.
• It joins the separated activities.
• Transportation occupies one-third of the amount in
the supply chain costs and transportation systems
inuence the performance of supply chain system
enormously.
• Transporting is required in the whole production
procedures, from manufacturing to delivery to the
nal consumers and returns.
• A good coordination between each component can
give the maximum benets.
 Transportation in Supply Chain
• Transportation refers to the means of
distributing goods, supplies, resources,
information, people, and energy from the original
point (beginning of supply chain) to the
destination point (customer).

• It also involves handling, packaging, managing

the time the goods are fetched and delivered,
and maintaining coordination, especially when
inter-modal or a combination of two or more
transport modes is used.
 Transportation in Supply Chain
• An intelligent transportation system may be
dened as “a planned network of elements or
physical components that play different roles in
the transportation of goods, supplies, resources,
information, people, and energy from one place
to another.”

• The elements or physical components of a

transport system are referred as the ‘facilities’.
 Transportation in Supply Chain
A transport system consists of:

xed facilities
ow entities
control system
 Transportation in Supply Chain
• The xed facilities are the physical
components of the system that are xed in
space and constitute the network of links and
nodes of the transportation system.

• For example, the links could be roadway or

railway track and the nodes could be
intersections, interchanges, transit terminals,
harbours or airports.
 Transportation in Supply Chain
• Flow entities are the units that negotiate the
xed facilities.

• These include people, vehicles, container units,

railroad cars, and so on.

• In the case of a road system, the xed facilities

accommodate a wide variety of vehicle types,
ranging from bicycles to large tractor-trailer
combinations.
 Transportation in Supply Chain
• The control system consists of vehicular
control and ow control.

• Vehicular control refers to the technological

way in which individual vehicles are guided on
xed facilities.

• Such controls can be manual or automated.

 Transportation in Supply Chain
• The characteristics of the vehicle and the
characteristics of the vehicular control system
are considered by proper geometric design of
xed facilities.

• For example, in the case of highway facilities,

where the vehicles are manually controlled,
these include driver’s characteristics, such as
time a driver takes to perceive and react to
various stimuli.
 Transportation in Supply Chain
• The ow control system consists of the means
that permit the efficient and smooth operation
of streams of vehicles and the reduction of
conicts between vehicles.

• This system includes various types of signing,

marking, and signal systems and the
underlying rules of operation.
 Transportation in Supply Chain
• The success of any supply chain is closely
linked to the appropriate use of transportation.

• For example, Wal- Mart has effectively used a

responsive transportation system to lower its
overall costs. Wal- Mart use cross-docking
process in which product is exchanged
between trucks so that each truck going to a
retail store has products from different
suppliers.
 Transportation in Supply Chain
• There are two keys players in any transportation
that takes place within a supply chain: shipper and
carrier.
• The shipper is that party that requires the
movement of the product between two points in
the supply chain.
• The carrier is the party that moves or transports
the product. For e.g., when ABC uses
uninterruptible power supply to ship its computers
from the factory to the customer, ABC is the
shipper & uninterruptible power supply is the
carrier.
 Importance of Transportation
Basic service for increasing National Income:
As national income rises, infrastructure adopts to
support changing patterns of demand, with the
shares of power, transport and communication.

Transport is one of the most important services

within any country and a vital sector of growth.
 Importance of Transportation
Create new economic activity
Since, economic development in a country requires
adequate and effective transport services; the
degree to which transport creates new activity is a
necessary condition within the economy.

Transport is one of the essential elements of an

integrated plan for area development.
 Importance of Transportation
Indicator of development
Existence of high quality transport network,
availability of number of mechanised motor
transport, adequate number of railway, air and
shipping services as per the demand of the users
are indicators of the development in any country.

Effective transportation systems have been playing

a vital role in the economic prosperity of a country.
 Importance of Transportation
Enlarge the trading activities
The industrially developed countries lay more
emphasis on the development of trade.

The search for an integrated system combines the

merits of the individual transportation modes and
eliminates the uneconomic and unproductive
activities.
 Importance of Transportation
Promotes industrialisation

It increases wealth, promotes industrialisation and

transforms the organisation of industry and raises
the standard of living of the people.
 Role of Transport in Supply Chain
• Transport system provides the vital linkage
between production and consumption.

• Development of transport infrastructure helps the

globalisation of production process.

• Transport is essential in an economy because the

demand and supply of goods does not reach
equilibrium at any particular area or point of time.
 Role of Transport in Supply Chain
• The need for dispatch of the goods arises as they are
often produced in one place to be sold and consumed
in another place.

• Thus, transport provides the vital link between the

production and consumption point and the objective
of production is not fullled till the commodity reaches
the consumer.

• It forms an integral part of the production, distribution

and marketing systems.
 Role of Transport in Supply Chain
• Transport infrastructure services are critical for
diversication and modernisation of production
and distribution process.

• Transport increases the economic efficiency of

resources.

• The economic efficiency of resources of various

countries is increased with the growth of different
mode of transportation.
 Role of Transport in Supply Chain
• Transport reduces the cost of production and
distribution by effective, planned, integrated and
co-ordinated network.

• Developed or developing nations depend largely

on transport development for better utilisation of
resources.

• The adequacy of transport infrastructure is a key

factor in the ability of countries to compete in
international trade.
 Role of Transport in Supply Chain
• Competition for new exports and location of
global industries largely depends on the quality of
transport infrastructure.

• Increased globalisation of world trade in many

countries arouses not only from the liberalisation
of trade policies but also from advances in
transportation.

• Transport helps to stabilise prices.

 Role of Transport in Supply Chain
• Goods can be transported to places, where there is
scarcity for it.

• By this the consumers can get their desired products

or commodities at a reasonable price.

• Similarly, by transporting goods to the market, the

producer gets fair price on their products.

• Transport curbs monopoly of the trader.

 Transportation Modes in Supply Chain

• Transport modes are the means to achieve

mobility of supplies. They fall into one of three
basic types, depending on what surface they are
transported:

• land (road, rail and pipelines)

• water (shipping)
• air
 Transportation Modes in Supply Chain
• Each mode is characterised by a set of technical,
operational and commercial characteristics.
Road transportation
• Road infrastructures are large consumers of
space with the lowest level of physical constraints
among transportation modes.

• Road transportation has an average operational

exibility as vehicles can serve several purposes.
 Transportation Modes in Supply Chain
Road transportation
These systems have high maintenance costs, both
for the vehicles and infrastructures.
Rapid movements of cargo occur in small batches.
With containerisation, road transportation has
become a crucial link in cargo distribution.
Trucks are used generally which lowers the cost and
have good accessibility.
The trucks are able to access many more locations
than planes or railroads.
 Transportation Modes in Supply Chain
Road transportation

Regional truck lines are excellent for small,

frequent shipment and are most effective over
short distances.

But, the factors which lower the use of trucks

are their speed, capacity and range.
 Transportation Modes in Supply Chain
Rail transportation
Railways have an average level of physical
constraints linked to the types of locomotives
(wheeled vehicle).
Heavy industries are traditionally linked with rail
transport systems.
The process of containerisation has improved the
exibility of rail transportation by linking it with road
and maritime modes.
 Transportation Modes in Supply Chain
Rail transportation
Railroads cost are much less than other modes
when shipping large quantities or bulky goods
over long distances.

Trains run on a more consistent time schedule

than trucks or airlines.
 Transportation Modes in Supply Chain
Rail transportation

They are often able to travel in weather that would

slow or stop trucks and airplanes.

Disadvantages include inexibility, potential damage

of goods and ineffectiveness with small shipments.
 Transportation Modes in Supply Chain
Pipelines
Pipeline routes are practically unlimited as they can
be laid on land or under water.
They are used for transport of homogenous
materials.
The costs are lower than other transportation
modes.
Pipeline construction costs vary according to the
diameter and increase proportionally with the
distance.
Pipeline terminals are very important since they
 Transportation Modes in Supply Chain
Maritime transportation

Ships are one of the oldest methods of transporting

goods and they are virtually the only way to
transport large volumes of good over-seas.
Although this method is slower than shipping by air,
a ship can carry much more cargo than an airplane.
Costs are reduced signicantly by choosing ships
over air transport.
 Transportation Modes in Supply Chain
Maritime transportation
Main maritime routes are composed of oceans,
coasts, seas, lakes, rivers and channels.
However, due to the location of economic activities
maritime circulation takes place on specic parts of
the maritime space.
The construction of channels and dredging (removal
of sediments) are attempts to facilitate maritime
circulation by reducing discontinuity.
Comprehensive inland waterway systems are there.
 Transportation Modes in Supply Chain
Maritime transportation
Maritime transportation has high terminal costs,
since port infrastructures are among the most
expensive to build, maintain and improve and
also high inventory costs.

Maritime transportation is linked to heavy

industries, such as steel and petrochemical
facilities adjacent to port sites.
 Transportation Modes in Supply Chain
Air transportation

Air is considered a premium mode of transportation

because of the speed of delivery and the low impact
on the cargo (items are less likely to be broken than
those shipped by rail or truck).
Airplanes are also able to cover much longer
distances in a short time.
Savings resulting in speed of delivery are greater
than extra costs.
 Transportation Modes in Supply Chain
Air transportation

Air transport constraints can be the site, the climate,

fog and aerial currents.
For instance, a commercial plane needs about
3,300 meters of runway for landing and for take-off.
Air activities are linked to sectors like nance and
tourism, which lean on the long distance mobility of
people.
 Transportation Modes in Supply Chain
Intermodal transportation

Intermodal transport refers to a variety of modes

that is used in combination so that the respective
advantages of each mode are better exploited.

The intermodal transportation applies for passenger

movements, such as the usage of the different, but
interconnected modes of a public transit system.
 Transportation Modes in Supply Chain
Telecommunications

Telecommunications are structured networks with a

practically unlimited capacity.
They have very low constraints that include the
physiographic and oceanic masses that may impair
the setting of cables.
They provide for the instantaneous movement of
information.
 Transportation Modes in Supply Chain
Telecommunications

Wave transmissions, because of their limited

coverage, often require substations, such as for
cellular phone networks.
Satellites use a geostationary orbit which is getting
crowded.
High network costs and low distribution costs
characterise many telecommunication networks.
 FACTORS INFLUENCING TRANSPORTATION

• Unless and until there are adequate facilities

available, movement of goods by means of roads,
rails, sea or air will not be successful.

• The goods are required to move from one place to

another in the most efficient way.

• There are various factors which inuence and

affect transportation in logistics.
 FACTORS INFLUENCING TRANSPORTATION

Terminal facilities:
Terminal facilities means all of the required land,
infrastructure and equipment which are very
important for operations in a warehouse.

They are all used for the accommodation of

products as storage places as well as for transport
facilities of those products.

These facilities are not provided to an organisation

easily.
 FACTORS INFLUENCING TRANSPORTATION

Vehicles:
There are different kinds of goods and commodities
which are transferred from one place to other which
differ in size, volume, nature, etc.
Considering all these things in mind, different
vehicles need to be used depending upon specic
product types.
In case of transport of goods by sea, the capacity of
the ship to carry the loads, the speed at which it will
move needs to be examined.
 FACTORS INFLUENCING TRANSPORTATION

Fuel cost:
Fuel cost plays a very vital role in the
transport industry.

As and when the price of fuel comes down,

the transport price also goes down and vice
versa.

This indirectly benets customers as well.

 FACTORS INFLUENCING TRANSPORTATION

Government regulations:
There is a direct impact of government
regulations in the transport industry.
Government may levy specic hours of
driving for commercial operators.
They may set certain rules and regulations
which directly affect the charges of freight
while carrying goods from one place to
another.
 FACTORS INFLUENCING TRANSPORTATION

Transit time:
The distance between the storage place or
the warehouse to that of the customers or
the suppliers determines the time in which
goods can reach to the ones who most need
it.
In general practice, this transit time is not
given any attention and this, at times, leads to
higher overall transportation costs.
 FACTORS INFLUENCING TRANSPORTATION

Transit time:
If there is a need for cutting down the transit
time, organisations switch to air transport.

However, the lower transit time, in real

practices, does not validate the use of air as a
mode of transport.
 FACTORS INFLUENCING TRANSPORTATION

Transit time:
Some of the most important projects suffer a
loss if raw materials and equipment do not
reach on time because it leads to delay in
their production activities.

Choosing a mode of transport which is able

to deliver goods on time is very important.
 FACTORS INFLUENCING TRANSPORTATION

Distribution pattern:
The pattern of distribution of different types
of goods is another important factor that
inuences transportation.

Movement of goods takes place at different

stages of its production; from raw materials
supplied to the organisation by the suppliers
to delivery of nished products to the actual
customers.
 FACTORS INFLUENCING TRANSPORTATION

Nature of product:
The most valuable aspect of the movement of
goods is the nature of products that are being
moved from one place to another.

This aspect demands very sophisticated

planning so as to deliver goods as
undamaged to the customers.
 FACTORS INFLUENCING TRANSPORTATION

Nature of product:
The type of containers to be used, the way product
needs to be packed, the time in which the product
should reach the consumers, all should be kept in
mind.
Some goods are perishable and some are non-
perishable and they should be transported
accordingly.
Some goods require special handling and should be
packed accordingly.
These are some of the most important factors
 DOCUMENTS USED IN TRANSPORTATION

• The documents used in transportation are

proofs and contracts which validate the
movement of goods from one place to
another.

• Documents are part of proofs that provide

details of the quantity, time and nature of
delivery.
 DOCUMENTS USED IN TRANSPORTATION

Bill of lading:
A bill of lading is a contract which stands as a
proof that it is the carrier’s responsibility of
loading the goods for delivery.

This document contains all the relevant details

regarding the goods which are being transported,
the details and name of the ships which are used
and the details of the ports to which it will be
delivered.
 DOCUMENTS USED IN TRANSPORTATION

Bill of lading:
This document provides the right to the carriers to take
goods from one place and deliver it to the specied
customer at some other place.

Any damage, theft or loss of goods in between is the

responsibility of the carrier.

It is the carrier’s responsibility of delivering the goods

only to those customers who possess the bill of lading
at the point of receiving the goods.
 DOCUMENTS USED IN TRANSPORTATION

Consignment note:
A consignment note is a document that certies that
particular carrier will be responsible for carrying
goods.

This document requires a valid signature of the

carrier.

This consignment note must be created with

respect to the form established by the “Convention
on the Contract for the International Carriage of
 DOCUMENTS USED IN TRANSPORTATION

Sea Waybill (SWB):

A sea waybill is a document that only shows the
receipt of goods. It is signed by persons who are
responsible for transporting goods via seaports.
The details mentioned in this document are the
name of the person who is carrying the goods, the
name of the person who has initiated the transport,
the name of the port from where goods have been
shipped, and the name of the recipient who will be
receiving the goods at the destination.
 DOCUMENTS USED IN TRANSPORTATION

Air Waybill (AWB):

An air waybill is a document that serves as proof of
the contract of the carrier.
This document establishes the responsibility of the
carrier to carry goods from one place to another by
air.
This document also explicitly mentions the prices.
It clearly states that the goods will be effectively
transferred once they enter the ight.
 DOCUMENTS USED IN TRANSPORTATION

Rail Consignment Note:

The rail consignment note is also referred to as the
International Consignment Note.

This document is a proof which species that a

particular rail carriage is responsible for taking the
contract of delivering goods.

This is again a non-transferable document.

 DOCUMENTS USED IN TRANSPORTATION

Delivery order:
A delivery order is a document which states that a
particular goods carrier has been ordered and the
responsibility of delivery of goods is accepted.

The owner of the carrier allows the release of goods

from one place by signing a contract or a document
which is known as the delivery order.
 DOCUMENTS USED IN TRANSPORTATION

Dock receipt:
A dock receipt is a document which states that
goods have been received by the carrier.
This forms as a proof of the goods being ready for
shipment.
This document species the responsibility of goods
having been transferred by the shipper to the carrier.

This document is used as a proof in preparing a bill

of lading.
 DOCUMENTS USED IN TRANSPORTATION

Shipping guarantee:

A shipping guarantee is a document that is provided

by the banks in writing, stating the safety of goods
as a joint responsibility of the importer and the
carrier.

The importer is responsible in transferring this note

to the carrier of goods.
 DOCUMENTS USED IN TRANSPORTATION

Packing note or list:

A packing note is nothing but a detailed invoice that
is attached to the goods.

This note provides information regarding

transportation details such as the mode, the origin,
the destination, the details of the carriers, date of
transport, expected date of delivery, etc.
 DOCUMENTS USED IN TRANSPORTATION

Packing note or list:

Except, for the price of goods, all other details are
mentioned in this note.

A copy of this note is shared with the receiver of the

goods so that he can check and compare the details
with the actual delivery.
 DOCUMENTS USED IN TRANSPORTATION

Proof of delivery (POD):

A proof of delivery is a document which states that
the goods have been received by the customers.

The customers, after receiving the goods, are

required to sign this document after going through
all the details of the invoice, the packing note and
comparing it with the actual goods.
 Warehouse Management

• Warehouse management is the act of

organising and controlling everything
within your warehouse – and making
sure it all runs in the most optimal way
possible.
 Warehouse Management
This includes:
Arranging the warehouse and its inventory.

Having and maintaining the appropriate equipment.

Managing new stock coming into the facility.

Picking, packing and shipping orders.

Tracking and improving overall warehouse

performance.
 Arranging Your Warehouse
• Providing enough storage space for your inventory; While still
having enough working space for staff to move around and
complete their tasks. And this generally requires (although it
depends on individual business requirements) having a space
designed to house the following areas:

• Receiving new stock area

• Unpacking/booking in new stock area
• Packing area
• Shipping station
• Excess/dead stocking area
• A warehouse office
• A main storage area
 Labelling Areas of Your Warehouse
• For example, you can start by simply including labels
for specic rows, shelves and then exact bin locations:
• So you always know, for example, that all your blue t-
shirts sized medium will be in Row A – Shelf B – Bin 1.
And the pattern can be continued like this.
• How to Arrange Inventory in Your Warehouse So at
this point we have a warehouse that’s laid out and
labelled in the most optimal way for your business. But
this now raises the question: How do you determine
the exact location each product should be stored?
The answer: Keep better selling products closer to the
packing desk.
 Labelling Areas of Your Warehouse
• Tools like ABC Analysis tend to be used more in
inventory management. But this can provide some
handy information when it comes to this part of
warehouse management too. Divide all on-hand
inventory into three groups – A, B and C:

• A Items: Are of high value with low sales frequency.

• B Items: Are of moderate value with moderate sales
frequency.
• C Items: Are of low value with high sales frequency.
 DON’T BE AFRAID TO REARRANGE
• A small nal point in this warehouse management
section is this: Don’t be afraid to rearrange your
warehouse.

• Yes – it can take time and resources to implement and

may seem like more hassle than it’s worth.

• But an optimally arranged warehouse can save bags

of time overall and severely reduce costs for entirety
of your supply chain management.
 Receiving and Managing New Stock
• Stock doesn’t just appear out of nowhere.

• And so a critical part of warehouse management

is being able to receive, unpack, put away and
book in new inventory as efficiently as possible.

• The faster this happens, the sooner that stock

becomes available for sale.
 Reverse Logistics
• Reverse logistics is a type of supply chain management that
moves goods from customers back to the sellers or
manufacturers.

• Once a customer receives a product, processes such as returns

or recycling require reverse logistics.

• Reverse logistics start at the end consumer, moving backward

through the supply chain to the distributor or from the
distributor to the manufacturer.

• Reverse logistics can also include processes where the end

consumer is responsible for the nal disposal of the product,
including recycling, or resale.
 When Is Reverse Logistics Used?

• Organizations use reverse logistics when goods move

from their destination back through the supply chain
to the seller and potentially back to the suppliers.
• The goal is to regain value from the product or
dispose of it.
• The objectives of reverse logistics are to recoup value
and ensure repeat customers.
 Steps to Good Reverse Logistics
Process the Return
The return process starts when the consumer signals
they want to return a product.
This step should include return authorization and
identify the product’s condition.
This process also involves scheduling return shipments,
approving refunds and replacing faulty goods.
 Steps to Good Reverse Logistics
Deal with Returns
Once a returned product arrives at your location or
centralized processing center, inspect it and determine
its return category.

Sort products into the disposition options: x, resell as

new, resell as a return, recycle, scrap.
 Steps to Good Reverse Logistics
Keep Returns Moving

Reduce your daily waste by sending repairable items to the repair

department.

Repair

After reviewing the returned item/equipment and determining

whether it can be repaired, move it to the repair area. If not
possible, sell any sellable parts.

Recycle

Any parts or products that you cannot x, reuse or resell should be
sent to the area for recycling.
 Reverse Logistics Components
Returns management:

This process deals with product returns from customers or

avoiding returns in the rst place.

These activities should be fast, controllable, visible and

straightforward.

Customers judge a company on its return ow and re-return

policies.

A re-return is the return of an item a second time.

Often, these returns trigger the extended return policies, such as

offering store credit.
 Reverse Logistics Components
Return policy and procedure (RPP):
The policies about returns that a company shares with
customers is its RPP.
These policies should be visible and consistent.
Employees should also adhere to them.
 Reverse Logistics Components
Remanufacturing or refurbishment:
Another type of reverse logistics management includes
remanufacturing, refurbishing and reconditioning.
These activities repair, rebuild and rework products.
Companies recover interchangeable, reusable parts or
materials from other products, also known as the
cannibalization of parts.
Reconditioning involves taking apart, cleaning and
reassembling products.
 Reverse Logistics Components
Packaging management:
This type of reverse logistics focuses on reuse of
packing materials to reduce waste and the disposal.
Unsold goods:
Reverse logistics for unsold goods handles returns from
retailers to manufacturers or distributors.
These types of returns can be due to poor sales,
inventory obsolescence or a delivery refusal.
 Reverse Logistics Components
End-of-life (EOL):
When a product is EOL, it is no longer useful or does not
work.
The product may no longer meet a customer's needs or
be replaced by a newer, better version.
Manufacturers often recycle or dispose of products that
are end-of-life.
These goods can create environmental challenges for
manufacturers.
 Reverse Logistics Components
Delivery failure:
With failed deliveries, drivers return products to sorting
centers.
From there, the sorting centers return the products to
their point of origin.
While rare, some sorting centers may have the staff
available to identify why a delivery failed, correct the
problem and resend.
 Reverse Logistics Components
Rentals and leasing:
When a piece of equipment comes to the end of its
lease or rental contract, the company that owns the
product can remarket, recycle or redeploy it.
Repairs and maintenance:
In some product agreements, customers and companies
maintain equipment or repair it if issues arise. In some
cases, the company sells damaged returned products to
another consumer after repair.