LOGISTICS & SUPPLY CHAIN MANAGEMENT

UNIVERSITY OF MADRAS

B.Com. (GENERAL) DEGREE COURSE

SYLLABUS WITH EFFECT FROM 2020-2021

BGE-CSC15 CORE-XV: LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Common to BCom(MM) & BCom(ISM)

Inst.Hrs : 6

Credits : Core 4 / Elective 5 YEAR: III SEMESTER: V

Learning Objectives:

1. The students to gain deeper insights into logistics and supply chain management.

2. To highlight the integrated nature of working in logistics and supply chain industry.

3. To prepare students to work in logistics and allied industries.

OUTCOME

On completion of syllabus student will understand the basic concepts of logistics and supply
chain management and student prepare them self to work in logistics and allied industries

UNIT I:

Concepts of Logistics – Evolution – Nature and Importance – Components of Logistics

Management- Competitive advantages of Logistics – Functions of Logistics management –
Principles – Logistics Network- Integrated Logistics system, Supply chain management – Nature
and Concepts – Value chai- Functions – Supply chain effectiveness – Outsourcing – 3PLs and
4PLs – Supply chain relationships – Customer services.

UNIT II:

Elements of Logistics and Supply chain management – Inventory carrying – Ware housing,
Technology in the ware house: Computerisation, Barcoding, RFID and WMS – Material
handling , Concepts and Equipments: Automated Storage and Retrieval Systems – Order
Processing – Transportation – Demand Forecasting – Impact of Forecasts on Logistics and
Supply chain Management- Performance measurements.

UNIT III:

Transportation – Position of Transportation in Logistics and Supply chain management-Road,

Rail, Ocean Transport - Ships- Types- Measurement capacity of ships – shipping information,

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Air, Transport Multi model transport – containerization – CFS – ICDSCross Docking- Selection
of transportation mode – Transportation Network and Decision – Insurance aspects of logistics.

UNIT IV:

Logistical Information System (LIS) - Operations – Integrated IT solution for Logistics and
supply chain management- Emerging technologies in Logistics and Supply chain management.
Components of a logistic system-transportation-Inventory carrying-warehousingorder processing
–Distribution channels- Difference between warehouse and distribution centre

UNIT V:

Performance- Bench marking for supply chain improvement- Dimensions and achieving
excellence- Supply Chain Measures – SCOR model- Logistics score board- Activity Based
Costing - Economic Value Added Analysis- Balance Score card approach-Lean thinking and six
sigma approach in Supply Chain.

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UNIT I

Concepts of Logistics – Evolution – Nature and Importance – Components of Logistics

Management- Competitive advantages of Logistics – Functions of Logistics management –
Principles – Logistics Network- Integrated Logistics system, Supply chain management – Nature
and Concepts – Value chai- Functions – Supply chain effectiveness – Outsourcing – 3PLs and
4PLs – Supply chain relationships – Customer services.

What is Logistics?

Logistics is the process of planning and executing the efficient transportation and storage of
goods from the point of origin to the point of consumption. The goal of logistics is to meet
customer requirements in a timely, cost-effective manner.

Examples of Logistics:

Logistics is a specialized field of its own comprised of shipping, warehousing, courier

services, road/rail transportation, and air freight. Retail companies become involved in
supply chain management to control
product quality, inventory levels, timing,
and expenses.

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Concepts of Logistics

Since logistics involves the range of activities related to the production and distribution of goods
for consumption, it is composed of two separate but integrated branches; materials
management and physical distribution.

Material management involves all the activities related to the production of parts and finished
goods, including their packaging and eventual recycling or reusing.

Physical distribution involves all the activities related to making parts and finished goods
available for consumption, particularly transportation and warehousing.

The more integrated a supply chain is, the harder it is to distinguish between physical distribution
and materials management as distribution channels extend from suppliers to consumers and
as responsibility for transport and warehousing is shared between manufacturers, wholesalers,

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and retailers. Logistics must be consistent with the products it supports as customers usually do
not have any distinctions between a product and the distribution system that supplies it.

Logistics also involves a fundamental relationship between the derived and induced demands of
its activities. Materials management commonly creates a derived demand for physical
distribution since what is being produced must be transported, stored, and sold to consumers.
However, physical distribution has an induced demand effect on materials management as
distribution capabilities will shape production in terms of its organization and location. Supply
chains can be considered an integrated relation between production and distribution.
Manufacturing and mobility requirements are embedded (synchronized) as what is being
produced has to be moved at a similar rate along the supply chain.

Evolution of Logistics

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1960s and early 1970s – In the 1960s and 1970s the concept of physical distribution was
developed with the gradual realization that the ‘dark continent’ was indeed a valid area for
managerial involvement. This consisted of the recognition that there was a series of interrelated
physical activities such as transport, storage, materials handling and packaging that could be
linked together and managed more effectively. In particular, there was recognition of a
relationship between the various functions, which enabled a systems approach and total cost
perspective to be used. Under the auspices of a physical distribution manager, a number of
distribution trade-offs could be planned and managed to provide both improved service and
reduced cost. Initially the benefits were recognized by manufacturers who developed distribution
operations to reflect the flow of their product through the supply chain.

1970s – This was an important decade in the development of the distribution concept. One major
change was the recognition by some companies of the need to include distribution in the
functional management structure of an organization. The decade also saw a change in the
structure and control of the distribution chain. There was a decline in the power of the
manufacturers and suppliers, and a marked increase in that of the major retailers. The larger
retail chains developed their own distribution structures, based initially on the concept of
regional or local distribution depots to supply their stores.

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1980s – Fairly rapid cost increases and the clearer definition of the true costs of distribution
contributed to a significant increase in professionalism within distribution. With this
professionalism came a move towards longer-term planning and attempts to identify and pursue
cost-saving measures. These measures included centralized distribution, severe reductions in
stock-holding and the use of the computer to provide improved information and control. The
growth of the third-party distribution service industry was also of major significance, with these
companies spearheading developments in information and equipment technology. The concept of
and need for integrated logistics systems were recognized by forward-looking companies that
participated in distribution activities.

Late 1980s and early 1990s – In the late 1980s and early 1990s, and linked very much to
advances in information technology, organizations began to broaden their perspectives in terms
of the functions that could be integrated. In short, this covered the combining of materials
management (the inbound side) with physical distribution (the outbound side). The term
‘logistics’ was used to describe this concept. Once again this led to additional opportunities to
improve customer service and reduce the associated costs. One major emphasis made during this
period was that informational aspects were as important as physical aspects in securing an
effective logistics strategy.

1990s – In the 1990s the process was developed even further to encompass not only the key
functions within an organization’s own boundaries but also those functions outside that also
contribute to the provision of a product to a final customer. This is known as supply chain
management. The supply chain concept gave credence to the fact that there may be several
different organizations involved in getting a product to the marketplace. Thus, for example,
manufacturers and retailers should act together in partnership to help create a logistics pipeline
that enables an efficient and effective flow of the right products through to the final customer.
These partnerships or alliances should also include other intermediaries within the supply chain,
such as third-party contractors.

2000 to 2010 and beyond – Business organizations faced many challenges as they endeavored
to maintain or improve their position against their competitors, bring new products to market and
increase the profit-ability of their operations. This led to the development of many new ideas for

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improvement, specifically recognized in the redefinition of business goals and the re-engineering
of entire systems.

Nature and Importance

Nature of Logistics

1. Smooth Flow of goods.

2. Movement of Goods.

3. Integrated Action.

4. Fulfilling Customer Expectations.

5. Customer Services.

6. Storage of Goods.

7. Productivity and Profitability.

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Components of Logistics Management

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Competitive advantages of Logistics

Competitive advantage is, generally, gained by offering a customer service of greater value,
with lower prices and superior benefits. Logistics, conversely, aims to meet customer demand
at the lowest possible cost whilst facilitating the flow of materials, information and funds among
supply chain partners.

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Functions of Logistics management

Logistics management functions include

1. customer service
2. sourcing and procurement
3. production planning and scheduling

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4. packaging, and assembly.

Logistics management is part of all the levels of planning and execution, including strategic,
operational and tactical.

What is Logistics Network?

The Logistics Network is what links manufacturers, suppliers, wholesalers, retailers and
consumers; and is therefore a key component within the Supply Chain. Transport, warehouse
and distribution centre operations are what link manufacturers to end consumers (directly or in-
directly).

Integrated logistics is a business management model that is increasingly used to accelerate

product delivery and improve customer service. In this model, all departments, processes and
resources are aligned to work in perfect sync and operate as one cohesive unit.

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Supply Chain Management

 A supply chain is comprised of all the businesses and individual contributors involved in
creating a product, from raw materials to finished merchandise. ...

 Examples of supply chain activities include farming, refining, design, manufacturing,

packaging, and transportation.

 Retail companies become involved in supply chain management to control product

quality, inventory levels, timing, and expenses.

Supply chain management (SCM) is management of the flow of goods, data, and finances
related to a product or service, from the procurement of raw materials to the delivery of
the product at its final destination.

Nature and Concepts of SCM

Nature of SCM:

Formulate Effective Plan

Supply chain managers focus on creating effective plans and strategies for ensuring proper
functioning. They develop well-defined plans by doing various analysis and forecasting that
leads to deliver better results within the organization.

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Acquire Raw Materials

Availability of sufficient amount of raw materials at all is must for the uninterrupted functioning
of the business. Supply chain managers identify cheap sources of raw materials and ensure
timely attainment of all materials in the right quantity and quality.

Supervise Production Process

Supply chain management supervises the whole production processes of business for deriving
optimum results. These managers monitor all activities and ensure that each of the resources is
efficiently utilized with minimum wastage.

Manages Delivery Of Goods

Supply chain management is concerned with the regulation of delivery and logistics activities of
the organization. It works towards timely delivery of goods and services by bringing proper
coordination in between distinct transportation channels and warehouses.

Proper Return System

It facilitates a proper return mechanism by providing an automated process on both buy and sell-
side of the business. All refunds and claims of customers, distributors and suppliers are settled
instantly via this process. Super chain management ensures proper handling and inspection of
defective goods.

Concepts of SCM:

Supply chain management has five key elements—planning, sourcing raw materials,
manufacturing, delivery, and returns. The planning phase refers to developing an overall
strategy for the supply chain, while the other four elements specialize in the key requirements for
executing that plan.

5 Parts of SCM
The supply chain manager tries to minimize shortages and keep costs down. The job is not only
about logistics and purchasing inventory. According to Salary.com, supply chain managers
“oversee and manage overall supply chain and logistic operations to maximize efficiency and
minimize the cost of organization's supply chain." 1

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Productivity and efficiency improvements can go straight to the bottom line of a company.
Good supply chain management keeps companies out of the headlines and away from expensive
recalls and lawsuits. In SCM, the supply chain manager coordinates the logistics of all aspects
of the supply chain which consists of the following five parts.

Planning

To get the best results from SCM, the process usually begins with planning to match supply
with customer and manufacturing demands. Firms must predict what their future needs will be
and act accordingly. This relates to raw materials needed during each stage of manufacturing,
equipment capacity and limitations, and staffing needs along the SCM process. Large entities
often rely on ERP system modules to aggregate information and compile plans.

Sourcing

Efficient SCM processes rely very heavily on strong relationships with suppliers. Sourcing
entails working with vendors to supply the raw materials needed throughout the manufacturing
process. A company may be able to plan and work with a supplier to source goods in advance.
However, different industries will have different sourcing requirements. In general, SCM
sourcing includes ensuring:

• the raw materials meet the manufacturing specification needed for the production of
goods.
• the prices paid for the goods are in line with market expectations.
• the vendor has the flexibility to deliver emergency materials due to unforeseen events.
• the vendor has a proven record of delivering goods on time and in good quality.

Supply chain management is especially critical when manufacturers are working with
perishable goods. When sourcing goods, firms should be mindful of lead time and how well a
supplier can comply with those needs.

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Manufacturing

At the heart of the supply chain management process, the company transforms raw materials by
using machinery, labor, or other external forces to make something new. This final product is
the ultimate goal of the manufacturing process, though it is not the final stage of supply chain
management.

The manufacturing process may be further divided into sub-tasks such as assembly, testing,
inspection, or packaging. During the manufacturing process, a firm must be mindful of waste or
other controllable factors that may cause deviations from original plans. For example, if a
company is using more raw materials than planned and sourced for due to a lack of employee
training, the firm must rectify the issue or revisit the earlier stages in SCM.

Delivering

Once products are made and sales are finalized, a company must get the products into the hands
of its customers. The distribution process is often seen as a brand image contributor, as up until
this point, the customer has not yet interacted with the product. In strong SCM processes, a
company has robust logistic capabilities and delivery channels to ensure timely, safe, and
inexpensive delivery of products.

This includes having a backup or diversified distribution methods should one method of
transportation temporarily be unusable. For example, how might a company's delivery process
be impacted by record snowfall in distribution center areas?

Returning

The supply chain management process concludes with support for the product and customer
returns. Its bad enough that a customer needs to return a product, and its even worse if its due to
an error on the company's part. This return process is often called reverse logistics, and the
company must ensure it has the capabilities to receive returned products and correctly assign
refunds for returns received. Whether a company is performing a product recall or a customer is
simply not satisfied with the product, the transaction with the customer must be remedied.

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Many consider customer returns as an interaction between the customer and the company.
However, a very important part of customer returns is the intercompany communication to
identify defective products, expired products, or non-conforming goods. Without addressing the
underlying cause of a customer return, the supply chain management process will have failed,
and future returns will likely persist.

Value chain Functions

For companies that produce goods, a value chain comprises the steps that involve bringing a
product from conception to distribution, and everything in between—such as procuring raw
materials, manufacturing functions, and marketing activities.

Examples of Value Chains

Starbucks Corporation

Starbucks (SBUX) offers one of the most popular examples of a company that understands and
successfully implements the value-chain concept. There are numerous articles about
how Starbucks incorporates the value chain into its business model.

Supply chain effectiveness

What is supply chain effectiveness?

Supply chain effectiveness is an external standard of how well an organisation is meeting the
demands of the various groups and organisations that are concerned with its activities. These
groups might include customers, partners, suppliers and vendors.

An effective supply chain is one that meets or exceeds the actual demands placed on it by its key
stakeholders and this can include customers, partners, suppliers or vendors. Each of these have
their own benefits.

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Supply Chain Management Benefits

Implementing effective supply chain management using powerful SCM solutions will allow
businesses to optimize the three key flows in the supply chain: product flow, information flow,
and financial flow.

Improved product and material flow

• Time-to-consumer is a crucial indicator of product flow efficiency. The less time it takes for
goods to reach the end customer, the more efficient the product flow. However, there are
many other factors to consider such as the quality of the materials or goods that reach
customers, the supply and demand balance, shipment options and costs, and inventories.

• Effective supply chain management enables companies to improve product flow through
accurate demand and sales forecasting and also improve inventory management to arrest the
bullwhip effect and avoid underproduction. SCM also minimizes delays and allows full
traceability and visibility into the movements of goods from the supplier to the customer.
SCM enables working strategies that can accelerate time-to-market and optimize business
speed, while ensuring high level of product quality..
Seamless information flow
• “The effective SCM requires not only the integration of material flows but also the integration
of information flows in the supply chain (Frohlich & Westbrook, 2001; Trent & Monczka,
1998).” Today, with customers constantly demanding for real-time response and easy access
to product and other supply chain content, information flow should be uninterrupted.
Intermittent and insufficient information flow due to a fragmented supply chain can lead to
poor supplier and customer relationships and huge costs – to the tune of £1.2 billion per year,
according to Oracle.
• Companies with effective supply chain management can remove the bottlenecks to supply
chain information flow. It can help them evaluate the quality of information sharing, then
implement solutions to best fill the gaps. SCM helps design effective best practices to
facilitate different types of supply chain information that usually come in different formats
and structures. SCM also enables accurate, timely, complete, and relevant information flow to
avoid missed opportunities and possible risks.

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• Effective and seamless information flow addresses information distortion and

miscommunication and promotes enhanced collaboration and relationship value among
supply chain stakeholders. It also helps improve visibility into all transactions and accelerate
generation of supply chain insights through past reports creation.

Enhanced financial flow

• Another pain point for supply chain players is how to improve cash flow in the value chain,
which involves “thousands of invoices and payments in a given year.” The unpredictability
and variability of financial inflows and outflows can add more complexity to the inherently
complex supply chain financial flow.
• According to Visa, generally, financial management challenges are (1) slow processing due to
manual and silo processes; (2) unreliable, unpredictable cash flows because of lack of timely
information; (3) costly processes due to compliance and lack of employee empowerment; (4)
high Days Sales Outstanding (DSO) caused by invoice reconciliation delays; and (5)
suboptimal credit decisions due to manual processes for setting optimal limits.
• Implementing supply chain management can help companies address all these cash flow
challenges, allowing them to carefully evaluate their current processes, identify the weakest
links that slow down and hamper financial flow, and determine the right solutions to address
the problems.

By optimizing product, information and financial flow, companies can proactively create and
seize new market opportunities and mitigate risks that can negatively impact their entire
business. With an effective supply chain management system in place, enterprises can
comprehensively and continually assess their processes, identify and fill all the gaps, lower costs,
competently evolve with ever-evolving supply chains, and enable quicker decision making.

Outsourcing

Outsourcing is a business practice in which a company hires a third-party to perform tasks,

handle operations or provide services for the company.

Outsourced supply chain management refers to hiring a third-party logistics (3PL) company
to manage, improve and optimize the supply chain. This allows ecommerce businesses to

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delegate storage and time-consuming ecommerce fulfillment tasks while saving money and
improving their supply chain velocity.

Example:

Advertising, office and warehouse cleaning, and website development are the best examples
of outsourcing. Most business owners delegate authority to outsourced specialists when it comes
to bookkeeping, maintenance, recruitment. This helps enterprises to focus most of their resources
on the main activity.

Main advantages of outsourcing:

1. overall cost reduction;

2. reduction of personnel costs;

3. ability to focus on the main activity;

4. access to higher quality services;

5. sharing responsibility.

Process of the outsourcing

5 Stage Outsourcing Process

• Establish. Contact. You fill the inquire form. The sales team calls or emails you.
• Requirement. Analysis. High level understanding of requirements. Ballpark estimate (where
possible) ...
• Pricing & Contracting. Confirm pricing. ...
• Project. Initiation. Resource deployment & Training. ...
• Project.

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Importance of outsourcing

Outsourcing for customer service has two benefits. First, you provide your customers with
consistent customer service. Second, you allow your internal team members to focus on their
own tasks, helping your business run more efficiently and ultimately increasing your ROI.

Reasons for Outsourcing

⚫ Traditional role - reaction to problem

– Reduction and control of costs

– Avoid large capital investment costs

– Insufficient resources available

⚫ Modern role – business strategy

– Allows company to focus on their core competencies

– Keeping up with cutting-edge technology

– Creating value for the organization and its customers

– Building partnerships

How to Implement Outsourcing

⚫ Program initiation

– Opinions and ideas shared to form draft contract

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⚫ Program implementation

– Transferring staff

– Service Level Agreement (SLA)

– Establish communications between partners

– Actual transfer of the service

– Establish management procedures

⚫ Contract agreement

⚫ Contract fulfillment

Problems With Outsourcing

⚫ Loss of Control

⚫ Increased cash outflow

⚫ Confidentiality and security

⚫ Selection of supplier

⚫ Too dependent on service provider

⚫ Loss of staff or moral problems

⚫ Time consuming

⚫ Provider may not understand business environment

⚫ Provider slow to react to changes in strategy

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THIRD-PARTY LOGISTICS (TPL/3PL) & FOURTH PARTY LOGISTICS (FPL/4PL)

THIRD-PARTY LOGISTICS (TPL/3PL):

• Third-party logistics refers to the concept of outsourcing the logistics and distribution of
a manufacturing or service firm to a logistics service provider so that the manufacturing
company can focus on its core competencies of new product development manufacturing
them and marketing the products.

• 3PL stands for Third Party Logistics. These are essentially businesses that provide a
single or multiple types of logistics-related services.

• Most companies outsource their requirements to such firms.

• The services offered by these firms typically comprise contract warehousing

• Packing and distribution services

• Transportation management along with freight and inventory management.

• The logistics and distribution activities add up to almost around 5 per cent to the cost to
thereby increasing the final cost of the product.

• In addition to this the inventory costs add around 15 per cent to the cost of the product.

• To increase operational efficiency it is necessary for firms to cut these costs to remain
competitive.

• The 3PL industry includes Logistics Solution Providers (LSPs) and the shippers whose
business processes they support.

• Companies opt for third party logistics for the following reasons:

• Improved strategic focus – core competencies and customer satisfaction.

• Resource constraints.

• Lowered costs

• Expansion of markets

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• Increased flexibility

• For improvement in service levels with improved response time.

• For efficient management of inventory resulting in bettor utilization of working capital.

Other Functions of 3PL

• Fund collection, providing information of goods movement consumer demographics,

• warehousing and value-added activities such as assembling, packaging, flow of funds

and reverse logistics.

The Evolution of 3PLs

• The evolution of 3PLs is closely coupled along with the evolution of SCM practices.

• In mass Production, flow of goods from point of origin to the point of consumption –
first generation

• LSPs to handle both inward as well as outward movement of goods and some sharing of
information resulting in the birth of second generation LSPs

The Infrastructure Required for a 3PL

➢ Warehouse

➢ Fleet of vehicles

➢ Hardware and software to take care of information needs

➢ Advanced material handling capabilities

➢ Good team of consultants

➢ Trained manpower

➢ Reach in terms of geography

Selecting a 3PL Service Provider

• Knowing where to go - visualize their organization status

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• Knowing the needs and objectives - as information systems, finance, marketing,

production, field staff, human resources and supply chain department.

• Request or Proposal by LSP

• Identification of Strengths and weakness of LSP

3PL Implementation

• Parties involved in the transaction are integrated and coordinated properly for effective

• implementation before signing the contract the company must make sure that both the

• parties clarify the requirements properly so that it does not lead to ambiguity.

The Implementation Process

• After the contract has been finalized the firms must begin to implement the contract
within both the organizations.

• For implementation there should be a comprehensive plan and periodic checks should be
conducted to ensure that the implementation is on

• track.

Measuring and Evaluating Performance

• The manufacturing company should review the performance of 3PL based on the metrics
of performance decided initially in the contract.

Transportation

• On-time shipment

• On-time delivery

• Transportation cost per mile

Warehousing

➢ Percentage of orders that the 3PL ships in exact quantity as against specified on the
shipping order.

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➢ Per unit cost of warehousing.

➢ Cost of warehousing including the overheads.

➢ Ability of moving the goods from one dock to another within specified time period.

➢ Number of cases handled per hour or per employee.

➢ Picking accuracy

➢ Order fulfillment

➢ Item Fulfillment

➢ Inventory accuracy

➢ Loss and damage - contractor negligence.

Cost

➢ Service costs

➢ Cost reductions

Quality

Reports:

• Ability of service provider to supply reports to manufacturing firm with the required
information.

Process improvement:

• Initiatives jointly developed by the manufacturing firm and the 3PL to improve process
performance.

Availability

• Customer satisfaction:

• Handling routing: Excess /shortage of inventory in the warehouse indicating improper

warehousing.

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• Flexibility

• Support of top management

• Investments in infrastructure

• Financial stability

Examples:Operations of Indian 3PLs

• Gati

• Transport Corporation of India Ltd.

• Blue Dart Logistics

• DHL Logistics

• FedEx

• AFL Logistics

Functions of Indian operators

• warehousing and transportation including full truck load and less than full truck load.

Foreign Operators

• Panalpina,

• Frans Maas

• Excel

• Logistics and Bax Global.

Value Added activities of 3PL

• The value added activities of a 3PL service provide have seen them move from the role of
a 3PL to operators offering financial services

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• for fund routing and also information centers to give information to clients regarding
customer demographics.

Example 1 : Blue Dart Logistics

• Blue Dart Logistics provides various e-business solutions to its customers for information
flow and increasing the visibility of goods.

• Some of the e-commerce initiatives are

➢ Track Dart Track status of shipment

➢ Mail Dart Track shipments using mail

➢ Location Finder Find service location

➢ Transit Time Finder Check transit times for shipment

➢ Billing Receive invoices online

➢ Schedule a Pickup To schedule customer consignments picking

➢ Waybill Generation Generate a waybill for consignments

➢ Image Dart Tool for downloading proof of delivery

➢ Some other value added-services that are offered are reverse logistics, kitting services,
and custom clearances.

Example 2 : Transport Corporation of India

• TCI is an umbrella organization that provides services in the field of supply chain
management.

• It has other sister concerns such as TCI Seaways, TCI Logistics, XPS cargo and
Transystem.

• The main services offered by TCI are in the area of consulting, transportation
management services, warehousing services, IT and MIS reporting

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• services and other value-added services.

FOURTH-PARTY LOGISTICS (4PL)

• Fourth-party logistics was a term coined by Accenture Consulting in the mid 90s.

• The term was coined as a result of an exhaustive survey carried out by the organization
on customer satisfaction, which indicated that the customer expectations regarding costs
by using 5FL service providers were not up to the mark.

• On the other hand, 4PL is basically an arrangement wherein a firm outsources the
abovementioned services to a 3PL firm and additionally hires another firm that
specializes in managing and coordinating the activities of the 3PL firm.

• A 4PL firm needs to possess a high amount of technological expertise and management
capabilities.

• This covers several customized warehousing and distribution services.

• Procurement, storage and distribution and processes for each as well as the ability to
provide a customer with the outsourced financial, customer services and computer
systems to support commerce.

• The concept of Fourth-Party Logistics (4PL) provider was first defined by Andersen
Consulting (Now Accenture) as an integrator that assembles the resources, capabilities
and technology of its own organization and other organizations to design, build, and run
comprehensive supply chain solutions.

• Whereas a third party logistics (3PL) service provider targets a function, a 4PL targets
management of the entire process. Some have described a 4PL as a general contractor
who manages other 3PLs, truckers, forwarders, custom house agents, and others,
essentially taking responsibility of a complete process for the customer.

• "An integrator that assembles the capabilities, technology and resources of its own

organization and other organizations to design, build and run comprehensive supply

chain solutions."
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• For a firm to be 4PL it must have exhaustive skills in investing and maintaining the
infrastructure and resources that makes it the manager of multiple 3PL service providers
crucial to the client organization.assembling, picking and then marketing themselves as
4PL providers.

Key Components of a 4PL

➢ Change Leader

➢ Decision Makers

➢ Information

➢ Assets

Change Leader

➢ Supply-chain visionary

➢ Multiple Customer relationship

➢ Deal shaper and maker

➢ Supply-chain re-engineers

➢ Project management

➢ Service, Systems and information integrator

➢ Continuous innovation

Decision Makers

➢ Experienced logisticians

➢ Optimization engines and decision support

➢ Neutral positioning

➢ Manage multiple 3PLs

➢ Continuous improvement

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Information

➢ IT System integration

➢ IT infrastructure provision

➢ Real-time data to information

➢ Convert data to information

➢ Provide info to point of need

➢ Technical support

Assets

➢ Transport asset provider

➢ Warehouse, cross-dock, property facility

➢ Manufacturing-outsourcing

➢ Procurement service

➢ Co-packing service

Examples: 4 PL COMPANIES

➢ TransGlobal Logistics Pvt Ltd (Maharashtra, Mumbai)

➢ EPT Globle Logistics Pvt Ltd – Ahmadabad

➢ Advance Supply Chain Solutions Pvt Ltd (Karnataka, Bangalore)

➢ Marine Hub Industries (Tamil Nadu, Chennai) parrys

➢ Guru Logistics (Tamil Nadu, Chennai) Madipakkam

Example 1 : TransGlobal Logistics Pvt Ltd (Maharashtra, Mumbai)

Provides Services in Logistics

> Freight Management - road / sea / air

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> Vessel / Aircraft Chartering

> Nationwide collection / delivery
> Packing / Pick and Pack
> Inspection and verification
> Import / Export documentation / Customs
clearance
> Warehousing / Storage including Bonded
warehousing
> Insurance
> Provision of logistics personnel
> Internet accessible cargo tracking system
> Documentation processing service - Letters of
Credit, banking, Certificates of Origin etc
> Specialised consolidation services by air, ocean
and road to and from more than 100 countries
> 3 PL

Materials management (logistics) consultants

• Warehousing and distribution logistics services, international

• Logistics management services (third party logistics)

• Logistics consultants, fourth party logistics (4PL)

• Logistics consultants, pre and post production material flow and services

Supply chain relationships

Supplier relationship management is used by supply chain professionals who regularly deal
with suppliers in areas such as procurement, project management and operations.

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Sometimes called supply chain relationship management, SRM is one of the many disciplines
of supply chain management.

Importance of Supply chain relationships

Good working relationships with suppliers will not only deliver cost savings, they will reduce
availability problems, delays and quality issues - and that means a better service for the
consumer.

How to have good relationships with your suppliers

1. Choose suppliers that align with your values. ...
2. Understand your suppliers' needs. ...
3. Be a great customer. ...
4. Maintain regular communication. ...
5. Give timely feedback. ...
6. Reward good service with loyalty.

What is the difference and the relationship between the supply chain and logistics?

The basic difference between Logistics and Supply Chain Management is that Logistics
management is the process of integration and maintenance (flow and storage) of goods in an
organization whereas Supply Chain Management is the coordination and management
(movement) of supply chains of an organization.

Tasks of supplier relationship management

To achieve its goals, an organization's SRM program must be strategic in approach -- articulating
objectives and devising a plan before addressing suppliers -- rather than being reactive and
engaging suppliers on an ad hoc basis or in response to particular issues.

Enterprise leaders who take a strategic approach, for example, might determine that long-term
engagements with specific suppliers are preferable to ensure continuity of supplies, while short-
term relationships with other suppliers can best ensure business agility and flexible pricing.

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An effective SRM strategy also requires cultivating personal relationships with suppliers and
working to build trust and mutually beneficial partnerships when appropriate. That could mean
involving them in planning for key initiatives or jointly developing innovations.

Leaders involved in SRM must also work to align everyone in their organization with the goals
of the SRM program and ensure compliance with its objectives. They should also have a process
for determining the value that the SRM program returns to the organization.

Supplier relationship management process

The processes of strategic sourcing related to SRM can vary from one organization to the next.
However, SRM generally involves three broad steps:

• Segment suppliers. In this first, foundational step, the organization identifies all of its
suppliers and categorizes them by their importance to the business, thereby ensuring that the
suppliers most critical to success get the right amount of attention.

• Develop a supplier strategy. In this step, the organization develops a tactical plan for how it
will work with each supplier or category of suppliers to ensure the relationships are
successful and mutually beneficial. Organizations should start with the category of suppliers
deemed most critical but recognize that all suppliers play a role in success and thus also merit
a strategic approach that involves governance and performance management models to align
business processes and assign stakeholders according to business goals.

• Execute the supplier strategy. The executives who own the SRM discipline in the
organization need to ensure that the strategy is put into action and that they or managers take
on day-to-day tasks to operationalize the SRM plans. They should also devise ways to
monitor and measure SRM success as well as identify deficiencies and points of failure in the
SRM strategy or its execution

Customer services

Customer service is the support you offer your customers — both before and after they buy
and use your products or services — that helps them have an easy and enjoyable

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experience with you. Offering amazing customer service is important if you want to retain
customers and grow your business.

What is the role of customer service in logistics?

Logistics customer service is a part of a firm's overall customer service offering, customer
service elements that are specific to logistics operations including fulfillment, speed, quality,
and cost. The term fulfillment process has been described as the entire process of filling the
customer's order.

Pretransaction elements

Pretransaction elements of customer service mean to establish a climate for good customer
service. Which is basically a nonroutine activity. This element of services deals with the service
level and related activities in qualitative and quantitative terms. Pretransaction elements provide
the roadmap to the operating personnel regarding the tactical and operational aspects of customer
service activities of the company. For the reverse logistics process, this phase is essential because
it helps to shape the firm to focus on customer such way to create influence the perception of the
firm into the customer’s mind.

Transaction elements

Transaction elements include everything between a order is received and delivered to the
customer. During the transaction phase of customer service, a firm focusses on retrieving,
packing, and delivering the order to the customer in a timely and cost effective manner. This

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phase also includes scheduling of shipment, communication with the customer, delivery tracking,
and delivery confirmation.

Posttransaction elements

This phase represents the array of services needed to support the product in the field; to protect
consumers from defective products; to provide for the return of packages; and to handle claims,
complaints, and returns. Corporate customer service is the sum of all these elements because
customers react to the overall experience.

The most important logistics customer service elements:

• On-time delivery
• Order fill rate
• Product condition
• Accurate documentation

Importance of logistics customer service:

• Service effects on sales

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• Service effects on customer retention

UNIT II:

Elements of Logistics and Supply chain management – Inventory carrying – Ware housing,
Technology in the ware house: Computerisation, Barcoding, RFID and WMS – Material
handling , Concepts and Equipments: Automated Storage and Retrieval Systems – Order

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Processing – Transportation – Demand Forecasting – Impact of Forecasts on Logistics and

Supply chain Management- Performance measurements.

Elements of Logistics and Supply chain management:

Five elements of logistics:

• Storage, warehousing and materials handling.

• Packaging and unitisation.
• Inventory.
• Transport.
• Information and control.

What is the role of storage, material handling and warehouses in logistics?

• It is to enable a steady stream of products to be supplied by manufacturers. Why is this

important? Manufacturers need to operate at peak efficiency, but consumers tend not to
demand goods at the same rate as a manufacturer supplies them.
• There tends to be an imbalance between supply, which is steady, and demand, which can
be unpredictable. The answer is to store the surplus goods produced by a manufacturer
until they are demanded by consumers. To achieve this, warehouse buildings are
required. These need specialist storage equipment such as shelving or racks and material

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handling equipment to move them around the warehouse and to load and unload delivery
vehicles.

What is the role of packaging and unitisation?

• A key definition and one of the Rs of logistics is the care and condition of a product.
Packaging is an essential part of that. Unitisation is also important as this assists storage
and transportation. The easiest product to move and store is a cube, so packaging and
unitisation attempts to take all different sizes and shapes of product and pack them as
near as possible into a cuboid shape.

What is the role of inventory?

• Inventory is a logistics element that is closely related to storage and warehousing. It is

concerned with what stock to hold, where the stock is located and how much stock to
hold. In effect, inventory is controlling the flows of goods going into and out of a
warehouse. How is this achieved? By looking at sales data of past orders and using
various mathematical and statistical tools to attempt to predict how much goods will be
demanded by consumers. Inventory management is not an exact science, but depending
on how variable demand can be, it is a useful tool to help manage the flows of goods
through the supply chain.

What is the role of transport?

• A major element of logistics that most will recognise is transport. This includes all modes
of transport including road vehicles, freight trains, cargo shipping and air transport.
Without transport, goods would be unable to move from one stage to another within a
supply chain. Some goods with short supply chains, such as foods, do not travel far.
Other more complex products consist of many components that can be transported from
all over the world.

What is the role of information and control?

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• The element of information and control is needed by all the elements to act as triggers to
various operational procedures. We have mentioned the information needed for
inventory. Order levels help decide what orders need to be picked and packed in
warehouses and enable the planning and organisation of transport. Information and
control’s role is to help design information systems that can control operational
procedures. They are also key in the forecasting of demand and inventory as already
mentioned.
• If you are attempting to identify what parts of a supply chain are logistics, the elements of
logistics is an essential tool.

What Are the 5 Elements of Supply Chain Management?

Supply chain management has five key elements—planning, sourcing raw materials,
manufacturing, delivery, and returns.

The planning phase refers to developing an overall strategy for the supply chain, while the other
four elements specialize in the key requirements for executing that plan. Companies must

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develop expertise in all five elements to have an efficient supply chain and avoid expensive
bottlenecks.

Inventory carrying

What is meant by inventory carrying cost?

Carrying cost is the amount that a business spends on holding inventory over a period of
time. It is the cost of owning, storing, and keeping the items in stock.

Inventory carrying cost is the total of all expenses related to storing unsold goods. The total
includes intangibles like depreciation and lost opportunity cost as well as warehousing costs. A
business' inventory carrying costs will generally total about 20% to 30% of its total inventory
costs.

Examples of inventory carrying costs:

Carrying costs are the various costs a business pays for holding inventory in stock. Examples of
carrying costs include warehouse storage fees, taxes, insurance, employee costs, and
opportunity costs.

What is the inventory carrying cost formula?

To calculate inventory carrying cost, divide your inventory holding sum by the total value of
inventory, and multiply by 100 to get a percentage of total inventory value.

Effective way to reduce the carry cost of inventory is to increase the percentage of goods
sold. It means reducing the time inventory items stay on your shelves. Tips: You can reduce
obsolete inventory by offloading inventory while it still has value.

Ware housing

Warehousing is the process of storing physical inventory for sale or distribution. Warehouses
are used by all different types of businesses that need to temporarily store products in bulk before
either shipping them to other locations or individually to end consumers.

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The function of warehousing:

Storage: The most defining function of warehouses is the storage of goods. Mass-produced or
surplus items/agricultural produce etc are stored in the warehouses to be supplied to the markets
as and when needed.

Types Of Warehouses

Distribution Centers

Distribution centers are warehouses that have larger space than other warehouses. These centers
enable faster movement of goods of large quantities within a short period. Goods are procured
from multiple suppliers and are quickly transferred to various customers.
These centers are an important part of the supply chain, as they provide fast and reliable
movement of goods. Most of these centers have computerized control leading to higher
efficiency. To increase efficiency and lower delivery time, you will often find these centers
close to transportation centers.

In the case of perishable products, goods are stored in the center for less than a day, as they enter
early morning and are distributed to customers by evening.

Public Warehouses

Public warehouses are the ones owned by the government or semi-government bodies. They are
lent out to private sector companies to stock up goods upon paying a certain amount of rent. For
small businesses and eCommerce startups that are not in a position to own a warehouse and need
to store goods for a short period, public warehouses are a great option. This storage facility
allows small businesses to deal with the overflow of goods until they are ready to own an
additional warehouse. The affordability and accessibility of public warehouses attract small
business owners to utilize the facility for their short-term storage needs.

Private Warehouses

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As the name suggests, private warehouses are privately owned by large retail corporations,
wholesalers, manufacturers or distributors. Large online marketplaces also have their privately-
owned warehouses to store merchandise. These private companies purchase products in bulk for
a peak season and store them in the warehouse for the systematic distribution of orders that are
bound to come their way.
Private warehousing, also known as proprietary warehousing, requires capital investments by the
owner, hence its best for established companies. Although it warrants investment in the start, it
turns out to be exceedingly cost-effective in the long run. Private warehouses can also be a good
option for small-scale eCommerce businesses if they require a long-term strategic presence in an
important region.

Bonded Warehouses

Bonded warehouses are mainly owned and run by the government or private agencies. This type
of storage is used to store imported goods before custom duties are levied on them, as the
companies storing goods in these warehouses do not pay any duty charges until their items are
released. The private agencies that run bonded warehouses have to obtain a license from the
government before getting into this business.

Through this mechanism, the government makes sure that the importers pay their taxes on time.
Without paying the duties, no importer can open their goods. Bonded warehouses are perfect for
importers, as they can keep their items duty-free even for a long time until they find their
customers. Such warehouses play a crucial role in cross-border trade, making them ideal for
eCommerce businesses involved in international trade.

Climate-Controlled Warehouses

As the name goes, these warehouses are used to store items that need to be kept at a specific
temperature, mostly perishables. Climate controlled warehouses can range from humidity-
controlled environments that can store fresh fruits, flowers, etc, to freezers that store frozen

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foods. If you are into perishable items, climate-controlled warehouses are a must to keep your
items fresh.

Smart Warehouses

In today’s era of automation, warehouses are not left behind. Smart warehouses use artificial
intelligence in their storage and fulfillment process. Everything is automated starting from
packing items to transporting goods to the end-customers. These warehouses require minimal
manual supervision, as they operate using the latest technologies. eCommerce giants like
Amazon and Alibaba use smart warehouses to ensure their order fulfillment is less prone to
human error.

Technology in warehousing

Warehouse technology deals with the storage and transport of goods within a company,
which makes it an integral part of internal company logistics.

Computerisation

What is computerized warehouse?

The meaning of "warehouse computer system" is a system which is typically being introduced
into one or more warehouses of a large company, be it in manufacturing industry or the
retail and distribution industries.

A computerized inventory system enables a company to monitor inventory levels in real-time

throughout the day. Also known as inventory management software, businesses can stay updated
with inventory orders, counts and sales. A computerized inventory system can help you avoid
costly mistakes, know what is and isn’t moving, get your whole team on the same page, and help
you keep track of inventory from anywhere.

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By using a computerized inventory system, all aspects of your business will run like a well-oiled
machine.

Advantages of a computerized inventory system

Avoid Costly Mistakes

Old school spreadsheets are just asking for human error. But thanks to inventory management
software, your inventory process is much more fluid. Design features such as barcode scanning
eliminate the risk of someone typing in the wrong SKU number. You can also estimate project
costs accurately since you’ll know what inventory you have in stock and how much.

Know What is Selling and What Isn’t

One of the best things about automated inventory systems? They show you what is and isn’t
moving. With a quick look at your inventory management software, you get a snapshot of which
products are in high demand, and which items you may not need to stock anymore. Unlike
with spreadsheets that require endless cross-checking, inventory software gives you all the
answers you need in one spot.

Get The Entire Team On Board

Using inventory management software enables you to give access to every member of your team.
The best computerized inventory system is easy-to-learn for every employee, including team
members who aren’t familiar with computerized inventory systems. And with an intuitive
software system like Sortly(software name) that everyone can learn within minutes, you’re less
likely to have team members skipping steps to get work done.

Stay on Top of Things From Anywhere

Ever feel like you can’t afford to step away from the office for two minutes? Inventory
management software lets you confidently tend to other aspects of your business by sending you
real-time alerts. Get notified any time stock is getting low or you when you need to replace

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products. Stay in-the-know with your business from anywhere, anytime so that you don’t need to
rely on one person for everything.

Create a computerized inventory system with inventory management software

Inventory management software is an easy, powerful way to computerize your inventory, assets,
equipment, and more. With features like barcode and QR code scanning, low stock alerts, and
customizable reports, tracking your inventory is simple, even across multiple locations.

Barcoding

Barcode system can be implemented in the warehouse management system. By using Barcode in
every process of the warehouse management system, it helps to minimize human error and
provide accurate data in a real-time. Barcode also helps to integrate every process and
improves efficiency in the warehouse management system.

How are barcodes implemented in a warehouse?

Set up your barcode system for inventory in 6 steps

1. Define all SKUs and variants. ...

2. Choose a barcoding inventory software system. ...
3. Define your barcodes for Barcoding Inventory. ...
4. Create the barcodes for Barcoding Inventory. ...
5. Update your inventory management system with new barcodes. ...
6. Put Barcoding Inventory on your place.

How is it useful?

Barcodes are applied to products as a means of quick identification. They are used in retail
stores as part of the purchase process, in warehouses to track inventory, and on invoices to assist
in accounting, among many other uses.

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What are the benefits of using barcode technology?

Advantages of Using Barcodes

• Barcodes are efficient. Bar codes permit faster and more accurate transfer and recording of
information benefiting the track of work in process or the movement of assets more quickly and
precisely. ...
• Barcodes save time. ...
• Barcodes reduce errors.

How Barcode Use Can Help Reduce Warehouse Costs

1. A decrease in clerical costs due to reduced need for manual data-entry functions.
2. Fewer errors thanks to improved inventory tracking and positive verification of activities.
3. Increases in overall inventory accuracy.
RFID

Radio Frequency Identification (RFID) refers to a wireless system comprised of two

components: tags and readers. The reader is a device that has one or more antennas that emit
radio waves and receive signals back from the RFID tag.

RFID tags are a type of tracking system that uses radio frequency to search, identify, track, and
communicate with items and people. Essentially, RFID tags are smart labels that can store a
range of information from serial numbers, to a short description, and even pages of data.

What is RFID in warehouse management system?

The RFID tag transmits the shipment or item's information to a central database via an
electromagnetic signal. The warehouse management system analyzes and updates the data as
the item progresses through the warehouse system.

How it works?

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The RFID reader is a network-connected device that can be portable or permanently attached. It
uses radio waves to transmit signals that activate the tag. Once activated, the tag sends a wave
back to the antenna, where it is translated into data. The transponder is in the RFID tag itself.

Function of RFID:

Radio Frequency Identification (RFID) is a technology that uses radio waves to passively
identify a tagged object. It is used in several commercial and industrial applications, from
tracking items along a supply chain to keeping track of items checked out of a library.

Advantages & Disadvantages of RFID

• Scanning Range. An RFID reader can scan a tag as long as it is within frequency range. ...
• RFID Capabilities. RFID systems can scan multiple items simultaneously. ...
• Speed and Convenience. ...
• RFID Costs. ...
• Scanning Issues. ...
• RFID Security and Privacy Concerns.

Differences Between RFID and Barcodes

Barcodes require the scanner to have a direct line-of-sight with the code where are RFID is a
near-field technology, which allows the scanner to read the tags within a range and without a
direct line-of-sight.

WMS

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A warehouse management system (WMS) is a software solution that offers visibility into a
business' entire inventory and manages supply chain fulfillment operations from the
distribution center to the store shelf.

What is the role of WMS?

A warehouse management system (WMS) is a software application used to monitor and control
warehouse operations and materials right from the point they are received into the
warehouse, when they are stored, and finally to when they reach the end-customer.

Why is WMS important for warehouse?

Designed to control all of your warehouse's activities, WMS allows you to track every unit
down to the lowest level of detail for improved order fulfillment and inventory accuracy. A
Warehouse Management solution makes inventory management a much faster, easier and
efficient task.

How can a WMS help in three 3 main activities in the warehouse?

WMS optimizes inventory transportation both internally and externally through inventory
tracking functionality. There are also tools for optimizing receiving, putaway, slotting, picking,
packing and shipping duties.

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What is WMS process?

A warehouse management system (WMS) consists of software and processes that allow
organizations to control and administer warehouse operations from the time goods or
materials enter a warehouse until they move out.

Benefit of WMS to clients

The WMS will benefit their operational efficiency for both labor and physical space
by monitoring work processes at various levels, enhancing productivity, and increasing
asset utilization. WMS automation assists with inventory control in a way that improves
accuracy, throughput, and speed.

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Disadvantages of WMS

• Many processes are integrated into a system - an error in one place entails errors in others. ...
• Risk of choosing incorrect parameters before use. ...
• Granting unsuitable levels of authorization to employees within the system. ...
• Potentially unsuccessful implementation.

Material handling

Materials handling, the movement of raw goods from their native site to the point of use in
manufacturing, their subsequent manipulation in production processes, and the transfer of
finished products from factories and their distribution to users or sales outlets. materials
handling.

Function:

Material handling is the movement, protection, storage and control of materials and
products throughout manufacturing, warehousing, distribution, consumption and disposal.

What is material handling in warehouse?

In a warehouse environment, material handling is commonly defined as the “movement,

protection, storage and control of materials and products throughout manufacturing,
warehousing, distribution, consumption and disposal.” The process incorporates a variety of
manual, semi-automated and automated equipment and systems

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The following 10-step approach can help you develop effective material handling processes.

1. Plan

Use a team approach to design the material handling system, taking into account the
organization's objectives.

2. Standardize

Be consistent in your choice of storage equipment, including bins, shelves and racks, as well as
equipment used to transport materials. Also, be consistent in your processes to minimize
confusion and errors.

3. Simplify

Reduce, combine or eliminate as much movement as possible. For example, move finished goods
directly to the shipping dock rather than through the warehouse.

4. Consider Ergonomics

Design your processes to eliminate repetitive motion, reduce manual labor and adhere to safety
standards.

5. Unitize

Wherever possible, move full pallets or containers to improve efficiency and reduce effort.

6. Organize

Working in an organized space is more efficient than working around clutter. Many of the 5-S
principles from lean manufacturing relate to the need for a clean, organized workspace. This
applies as much to material handling as it does to manufacturing. It also means effectively using
space, including overhead space.

7. Systematize

Coordinate material handling across the entire enterprise. Consider all material movement when
you plan and systematize.

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8. Go Green

Reuse and recycle equipment to reduce the environmental impact of your material handling.
Reusable packing, returnable containers and recycling packing materials can all contribute to
more effective operations.

9. Automate

Employ automation wherever possible. Think of automated picking and put-away technologies.
Invest in conveyor systems. Automation boosts efficiency, consistency and responsiveness while
increasing accuracy.

10. Evaluate Life-cycle Costs

When considering investing in material handling equipment, don't simply look at the initial
capital outlay. Account for the cost of consumables, training, installation, setup, maintenance and
repair.

Sometimes a material handling solution that appears less expensive upfront will actually result in
higher costs overall. In addition to costs, evaluate the improvements in efficiency and
productivity.

Manufacturers and distributors operate with very small margins. They are used to looking at
every expenditure with an eye toward reducing costs and increasing productivity. Material
handling equipment and processes deserve the same rigorous analysis. When you see the
contribution that the right processes can make to the bottom line, you will be convinced that
material handling equipment and processes are essential components of your operational
infrastructure.

Why material handling is important?

Material handling can improve customer service by making products easy to find, move, and
ship out, cut costs by reducing the amount of time spent moving the productsand reduce product
damages by properly transporting your products. It also ensures increased safety from permanent
and temporary disabilities.

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Material handling equipment (MHE) is mechanical equipment used for the movement,
storage, control, and protection of materials, goods and products throughout the process of
manufacturing, distribution, consumption, and disposal.

The different types of handling equipment can be classified into four major categories

1. transport equipment,
2. positioning equipment,
3. unit load formation equipment, and
4. storage equipment.

Automated Storage and Retrieval Systems

Automated storage and retrieval systems, sometimes known as ASRS or AS/RS, are made of a
variation of computer-controlled systems that automatically place and retrieve loads from
set storage locations in a facility with precision, accuracy and speed.

Automated storage and retrieval systems (AS/RS) provide dense inventory storage to maximize
floor space.

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Often used for tooling, components, documents or raw materials storage, vertical carousels are
enclosed on all sides.

Automated storage and retrieval systems are used in a variety of areas to support
processing and picking throughout a facility:

• Order picking: Retrieving and presenting required inventory to pickers

• Storage: Providing dense long-term buffering for small or large items that are slow- to
medium-movers

• Kitting: Providing an area to group component parts for assembly

• Consolidation: Providing a dynamic area to hold parts and items until all pieces of an order
can be merged ready for shipment. Often used for consumer, B2B and store orders.

• Assembly: Storing work piece components for later production

• Production: Storing tooling and component parts for manufacturing processes

• Replenishment: Storing excess inventory for restocking of ancillary picking systems

• Security: Providing an enclosed storage environment with software access controls

• Retail: Providing a large quantity of parts and items at a customer service desk. Keeps
workers in front of customers instead of walking and searching in back rooms.

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Automated storage and retrieval systems provide a variety of benefits:

• Increases throughput capabilities

• Increases accuracy levels to 99.99%+

• Increases ergonomics by delivering items to the operator at a convenient height, eliminating

time lost to walking, searching, lifting, bending and twisting activities

• Provides highest possible storage density

• Saves up to 85%+ of otherwise wasted floor space

• Increases labor productivity up to 85%

• Enhances product security

• Provides real-time inventory control

Automated storage and retrieval systems are used in a variety of industries, including:

• Automotive

• Beverage

• Electronics

• E-commerce

• Food

• Hazmat

• Hospital

• Jewelry

• Life sciences

• Manufacturing

• Medical devices and equipment

• Maintenance & repair operations (MRO)

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• Paper

• Pharmaceutical

• Plastics

• Spare parts handling

• Warehousing and distribution

Order Processing

What is order processing in logistics management?

Order Processing, as the name implies, is the process of fulfulling the order of customers. The
order processing stages involve – picking, packaging and delivering the goods to a carrier. Then
the carrier fulfils the process of handling the goods to the customers' specified locations.

What is order processing in supply chain management?

Order processing is the process or workflow that happens after a customer places an order.
This starts with confirming the products are in stock, then picking the items from inventory and
sending them to a sorting area.

What are the 3 steps of order processing?

How does order management work: Order Management Process

• Stage 1 – Receiving the customer's order.

• Stage 2 – Fulfilling the customer's order.
• Stage 3 – Handling the post-sales processes

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What are the steps involved in order processing?

Steps in order processing include picking, sorting, tracking and shipping. Order processing
can range from manual processes (handwritten on an order log sheet) to highly technological and
data-driven processes (through online orders and automated order processing software)
depending on the operation.

Example:

In the order the customer has ordered 1 wired earphones of a particular brand. With this
information and the location of delivery, the order management and supply chain systems
determine that the product is in New Jersey which is the closest to the customer.

Order processing important:

Order processing systems help ensure that all of your customers' orders are filled on time,
since automated systems can reduce errors in order processing. This can enhance the customer
experience and maximize your company's profitability. It can also improve your cost efficiency
on stock.
Transportation
Transportation, the movement of goods and persons from place to place and the
various means by which such movement is accomplished.

Transportation in a supply chain refers to the movement of products from one location to
another, which begins at the start of the supply chain as materials make their way to the
warehouse and continues all the way to the end user with the customer's order delivered at the
doorstep.

How important is transportation in supply chain?

Effective transport improves a supply chain by decreasing (if not avoiding) waste of
materials and time. This helps supply chain professionals transport products and deliver them to
the right location, on time – which is a priority for any successful business.

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What is a transport system in logistics?

The transportation system is the physical link that connects customers, raw material
suppliers, plants, warehouses and channel members. These are the fixed points in a logistics
supply chain. The basic modes of transportation are water, rail, motor carrier, air and pipeline.

What are the main components of transportation in the supply chain?

For transportation to take place, four components are essential:

• Modes. They represent the conveyances, mostly taking the form of vehicles that are used to
support the mobility of passengers or freight. ...
• Infrastructures. ...
• Networks. ...
• Flows.

What is importance of transportation?

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• The importance of transportation is that it enables trade, commerce, and

communication that establish civilization. It is good planning that manages traffic
flows and enables the undisturbed and steady movement from one place to another.

What are the 5 modes of transportation?

Top 5 Modes of Transportation in Logistics

• Road Transportation. There are many advantages to road transportation, especially for
companies who rely on fast delivery to retain their customers. ...
• Rail Transportation. ...
• Marine Transportation. ...
• Air Transportation. ...
• Intermodal Transportation.
The different modes of transport are air, water, and land transport, which includes Rails or
railways, road and off-road transport. Other modes also exist, including pipelines, cable
transport, and space transport.

Demand Forecasting

Demand forecasting is the process of using predictive analysis of historical data to estimate
and predict customers' future demand for a product or service. Demand forecasting helps

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the business make better-informed supply decisions that estimate the total sales and revenue for a
future period of time.

Logistics demand forecasting is a way for companies to accurately anticipate the demand
for products and shipments throughout the supply chain, even under uncontrollable
conditions or circumstances.

What is demand forecasting in supply chain?

Demand Forecasting is the process that enables demand planners and supply chain
professionals to estimate customer demand for a product based on prior sales data and
other contributing data factors.

What is demand forecasting and its steps?

Definition: Demand Forecasting is a systematic process of predicting the future demand for a
firm's product. Simply, estimating the potential demand for a product in the future is called as
demand forecasting. The demand forecasting finds its significance where the large-scale
production is involved.

The following steps are taken to facilitate a systematic demand forecasting:

1. Specifying the Objective: The objective for which the demand forecasting is to be done must be
clearly specified. The objective may be defined in terms of; long-term or short-term demand, the
whole or only the segment of a market for a firm’s product, overall demand for a product or only
for a firm’s own product, firm’s overall market share in the industry, etc. The objective of the
demand must be determined before the process of demand forecasting begins as it will give
direction to the whole research.

2. Determining the Time Perspective: On the basis of the objective set, the demand forecast can
either be for a short-period, say for the next 2-3 year or a long period. While forecasting demand
for a short period (2-3 years), many determinants of demand can be assumed to remain constant
or do not change significantly. While in the long run, the determinants of demand may change

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significantly. Thus, it is essential to define the time perspective, i.e., the time duration for which
the demand is to be forecasted.

3. Making a Choice of Method for Demand Forecasting: Once the objective is set and the time
perspective has been specified the method for performing the forecast is selected. There are
several methods of demand forecasting falling under two categories; survey
methods and statistical methods.

The Survey method includes consumer survey and opinion poll methods, and the statistical
methods include trend projection, barometric and econometric methods. Each method varies
from one another in terms of the purpose of forecasting, type of data required, availability of data
and time frame within which the demand is to be forecasted. Thus, the forecaster must select the
method that best suits his requirement.

4. Collection of Data and Data Adjustment: Once the method is decided upon, the next step is to
collect the required data either primary or secondary or both. The primary data are the first-hand
data which has never been collected before. While the secondary data are the data already
available. Often, data required is not available and hence the data are to be adjusted, even
manipulated, if necessary with a purpose to build a data consistent with the data required.

5. Estimation and Interpretation of Results: Once the required data are collected and the demand
forecasting method is finalized, the final step is to estimate the demand for the predefined years
of the period. Usually, the estimates appear in the form of equations, and the result is interpreted
and presented in the easy and usable form.

why is it important?

Demand forecasting is the process of forecasting the future demand of your product. The
demand forecasting methodology uses historical sales performance, seasonal trends, and other
relevant data to make educated guesses about what sales might look like in both the near and the
long-term future.

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Demand Forecasting Methods

There are two main demand forecasting approaches that can help you determine how to forecast
demand more accurately. Depending on your business situation, size, and the sample size of
historical data, you may find that some methods are more suitable for your business than others.

First are quantitative methods, which are based on historical or current data. This involves
looking at the data from the past few years, or even the existing data, and interpreting it to
provide you with forecasts about likely future performance.

Quantitative demand forecasting uses advanced models such as the autoregressive integrated
moving-average, fine-tuning the equation to account for the historical representation. Then,
inserting the specific numbers to produce a forecast.

Another approach is the qualitative demand forecasting method, which relies on opinions from
experts either outside or within the company to generate multiple forecasts and then synthesize
them to produce a final result.

Quantitative demand forecasting can also employ surveys of the target audience, which can
provide insights that might be missed by people within the organization. However, one of the
more significant demand forecasting constraints with this approach is the difficulty of ensuring
the survey is an accurate representation of your audience.

Demand Forecasting Types

To make the most of what demand forecasting can offer, it’s essential to understand the different
types and uses that can be applied in different situations.

Passive & Active

Passive demand forecasting is ideal for businesses that don’t plan for rapid expansion, using
historical data in a limited scope. Meanwhile, active demand forecasting considers more factors,
such as external factors and even the economy.

Micro & Macro

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At the macro level, demand forecasting looks at the entire market and analyzes the shifts and
trends occurring. Micro-level demand forecasting looks at the business itself, examines its
processes, and uses that data to predict future patterns.

Short & Long Term

Finally, you can use demand forecasting to look at different time periods. With short-term
forecasting, you look at the upcoming months, while long-term forecasting covers multiple
years.

Internal Demand Forecasting

A limiting factor for business growth is internal capacity; say you project that customer demand
will triple in the next three years; does your business have the capacity to meet that demand?
With internal forecasting, the needs of all operations that may impact future sales are identified.
For example, in human resources, demand forecasting could help identify how many people will
need to be hired within those next three years to keep things running smoothly and fill future
customer demand.

What are the advantages of demand forecasting?

Demand forecasting also helps reduce risks and make better financial decisions that increase
profit margins, cash flow, improve resource allocation, and create more opportunities for
growth.

What are the disadvantages of demand forecasting?

One of the disadvantages of demand forecasting is that not every situation can be predicted.
For example, a severe weather event could impact product or material supply availability or
transportation logistics.

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Impact of Forecasts on Logistics and Supply chain Management

Effective price forecasting helps businesses predict if and when they need to raise or lower
their prices to cover cost fluctuations or changes in consumer demand.

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Performance measurements

Performance measurement is the process used to assess the efficiency and effectiveness of
projects, programs and initiatives. It is a systematic approach to collecting, analyzing and
evaluating how “on track” a project/program is to achieve its desired outcomes, goals and
objectives.

Examples of Performance Measurements:

Tracking the liquidity of funds administered by the finance department. Tracking the
amount of inventory maintained by the materials management department. Tracking the amount
of scrap produced in the production department.

Supply chain performance measure can be defined as an approach to judge the performance of
supply chain system. Supply chain performance measures can broadly be classified into two
categories −

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• Qualitative measures − For example, customer satisfaction and product quality.

• Quantitative measures − For example, order-to-delivery lead time, supply chain
response time, flexibility, resource utilization, delivery performance.

Here, we will be considering the quantitative performance measures only. The performance of a
supply chain can be improvised by using a multi-dimensional strategy, which addresses how the
company needs to provide services to diverse customer demands.

The Council of Logistics Management defines Supply Chain Management as

• “the process of planning, implementing and controlling efficient and cost effective flow
of materials, in-process inventory, finished goods and related information from point-of-
orderto point-of-consumption, for the purpose of conforming to customer requirements”.
• The fundamental objective of a high performance of supply chain is to produce products
to match customers’ demand cycle, while producing the greatest value possible to the
customers.
• A number of technologies and managerial attention has gone into improving supply chain
performance.
• The increasingly competitive environment calls for speedy, cost efficient, accurate and
reliable supply chains.
• Supply chain management is no longer a matter of operational and functional areas of the
firm.
• Today, it is a strategic issue demanding top-level management attention.
• The supply chain can have huge leverage on the creation of customer value.
• Supply chains will fight the new battle for market dominance; as such measurements
around the supply chain are critical. If we look at competition today, it is supply chain
versus supply chain.
• This brings out a situation that competitors might focus on developing superior supply
chain Performance.
• Accordingly, companies will have to find or develop metrics to measure performance of
supply chain.

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Process measurements:
• Key Performance Indicator (KPI) is a performance measure, a yardstick for tracking
progress and a tool to achieve a goal. KPI encompasses all areas of Business — Demand
Management, Supply, Conversion and Delivery.
Best Practices of Business:
• Quantitative and qualitative metrics ;
• Areas include cost, quality, customer satisfaction
•
• Best-in-class standards for the defined processes
•
• Used to measure against current business process
•
The scoreboard indicates the Key Performance Indicators of a supply chain and compares
the performance of a typical organisation with that of the best-in-class as a benchmark.

• No. Attributes Typical Superior

1. Delivery performance 50% 95%
2. Fill rates 60% 98%
3. Order fulfilment 50% 90%
4. Production flexibility 45 days 20 days
5. Logistics costs to sales 10% 3%
6. Inventory days of supply 60 days 22 days
7. Inventory turns 6.5 12
8. Nett asset turns 3 19

A firm's performance measures should:

• be simple and easy to use.
• have a clear purpose.
• provide fast feedback.
• relate to performance improvement, not just monitoring.
• reinforce the firm's strategy.

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• relate to both long-term and short-term objectives of the organization.

• match the firm's organization culture.
• not conflict with one another.
• be integrated both horizontally and vertically in the corporate structure.
• be consistent with the firm's existing recognition and reward system.
• focus on what is important to customers.
• focus on what the competition is doing.
• lead to identification and elimination of waste.
• help accelerate organizational learning.

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UNIT III:

Transportation – Position of Transportation in Logistics and Supply chain management-Road,

Rail, Ocean Transport - Ships- Types- Measurement capacity of ships – shipping information,
Air, Transport Multi model transport – containerization – CFS – ICDS Cross Docking- Selection
of transportation mode – Transportation Network and Decision – Insurance aspects of logistics.

Supply chain management

Supply chain management is the process of overseeing how goods and services evolve from
ideas and raw materials into finished products or services. It includes various processes such as
purchasing the raw materials, moving them to the manufacturing sites, using them to produce
goods, transporting the final product to the customer, and even keeping the track of where the
sold products go. It integrates materials, finances, suppliers, manufacturing facilities,
wholesalers, retailers, and consumers into a seamless system.

Logistics

When used in a business sense, logistics is the management of the flow of things between the
point of origin and the point of consumption in order to meet the requirements of customers or
corporations. The resources managed in logistics can include physical items such as food,
materials, animals, equipment, and liquids, as well as abstract items, such as time and
information. The logistics of physical items usually involve the integration of information flow,
material handling, packaging, inventory handling, warehousing, and transportation.

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Transportation

Transportation refers to the movement of raw materials, work-in-processes, and final products
from one location to another in the supply chain. It has a significant role in logistics and supply
chain management. Finding the best transportation mode (e.g., water, rail, air, road), designing
the transportation network, finding the shortest routes with the lowest costs to deliver the
products to destinations as well as scheduling the movements of trucks to deliver the packages
on time, are some of the decisions that are being made in transportation management.

Position of Transportation in Logistics and Supply chain management

Supply Chain Management is the practice of organizing the secure flow of goods and services.
Depending on the industry this can vary from the product offered by the specific industry. The
process includes and considers the entire conversion of raw material into finished products, and
then reaching the hands of the end customer.

The management part of this process is where it gets interesting. It is required by managers to
minimize the effort and resources that it takes to make the supply chain more economical.
Streamlining this process to gain a competitive advantage and making happy customers is what
SCM is all about.

SCM includes everything from the production of products to the development of information
systems to keep track of everything. The chain has 3 main components from start to finish which
simplifies the process a little. These components are Purchasing, Manufacturing, and most
importantly Transportation.

Having a clear and economical transportation strategy is absolutely vital to grow your business.
It involves creating a wide web of seamless distribution and sorted-out transportation plans for
both receiving and shipping products. A good shipping flow is what keeps your customers
coming back for more business because nobody likes to receive late orders.

Working with Transportation in SCM

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Transportation is the metal link that holds the supply chain together. Every step of the process is
connected together through transportation, since raw materials are moved from the dealers or
where they are purchased from, to the place where they are manufactured, and finally to the end
customer. If you don’t have an economical and stable shipping plan in place, you end up losing a
lot of money, and that can be a competitive difference. Let’s understand further how the role of
transportation is important in a supply chain.

Reduce Costs

Operating a business is a costly affair already. With meticulous planning and plotting, one can
save a lot of money with a good transportation strategy in place. Transportation can involve a
number of different modes (air, water, or land), fuel costs, and weight. To keep the cost of such
logistics to a minimum, it is suggested to conduct a full-scale freight audit.

Enhanced Customer Service

The customer should be the top-most priority of a business and by proxy, also the supply chain.
Tightening up your transportation lines is one way to ensure that shipments reach your customer
on time and in good condition. For a large-scale operation, this tiny little detail is even more
important.

Segmenting Shipments Based on Priority

A business must understand the varying degrees of priority that shipments might have.
Sometimes getting some packages quicker might be more important than getting all the packages
at a moderate regular time. This is why, segmenting shipments based on factors such as different
customers, type of products, suppliers etc. is highly essential.

Using a Transportation Management System

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TMS or Transportation Management System is software that allows for regular and efficient
tracking of your transportation network. This helps you a great deal when it comes to analyzing
and making informed decisions. With a TMS, you can track route planning, fleet management,
fuel costing, cargo handling, and customer communications, all using one platform.

Various Modes of Transportation

One way for businesses to grow is by expanding their reach globally. For that to happen, they
would need to figure out ways to transport shipments everywhere in the world. This means
adopting a combination of various modes of transportation and figuring out the fastest combined
way to get the product available worldwide.

Transportation to Dissolve Geographical Limitations

This is an extension of the previous point. Trucks have been the preferred mode of transporting
shipments in every country. They are tangible and on the land level, can go beyond what the
railway lines allow. A fleet of trucks is the best way for local businesses to manage their
transportation needs.

Helping Better the Economy

With transportation methods getting flexible and stretching across borders, global trade is at an
all-time healthiest. Businesses in every country, with some meticulous planning, can not only
expand their reach but also help their country’s economy while doing so. Global trade, due to the
possibilities of various modes of transportation, has made the world smaller in the best way

Road, Rail, Ocean Transport

Road Freight

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Road freight is a popular choice for transporting for all manner of goods across the globe. It’s
particularly suited to situations where products are being transported across borders and for final-
mile delivery to customers’ doors.

It’s a common choice in countries like the USA and Canada, where road freight accounts for the
majority of transport, and it can be used in combination with every other mode of transport on
this list.

Benefits of road freight

● There are fewer restrictions on road freight compared to air or sea freight.
● Trucks are easier to track than ships or planes – GPS can let you know where they are at
all times
● It’s one of the most financially economical modes of transport
● It’s highly accessible. Every country in the world has a road network. That can’t be said
for sea or rail networks
● It’s easy to organise specialist transportation based on your products. Road freight can
accommodate hazardous materials, perishable goods and just about anything else
● Door-to-door transport is possible when correctly planned
● It’s easy to adjust routes and timings if necessary
● Uncomplicated packing, shipping and offloading process
Drawbacks of road freight

● Road freight can take longer than transportation by air or sea and can also be
unpredictable due to unforeseen weather or road closures
● It’s not suitable for trans-global transportation
● It’s easier for criminals to target trucks compared to other transport modes
● Size and weight limits apply
● Issues with seasonality can make roads unsafe
● Higher risk of accidents and breakdowns when compared to alternative modes of
transport
● It’s slower than other modes of transport

Sea Freight

Sea freight accounts for the vast majority of the world’s trade. More than 90% of all goods are
transported by ships.

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For an idea of scale: Statista report the 10 largest container ports are responsible for more than
247m TEU throughput in 2021

That’s because ships can carry significantly heavier loads than air freight at a fraction of the cost.
As a result, it’s the preferred choice for transporting bulk materials like agricultural produce and
raw materials.

Furthermore, its worth noting ocean shipping is the most integral part of the supply chain for
most of the worlds industries, cited in this Statista report, making it a backbone of global trade.

Between 2013 and 2019, both the capacity of the global merchant fleet and the volume of
seaborne trade increased significantly. During this time span, the volume of goods carried by
ships rose by almost 35 percent, while the combined capacity of merchant ships grew by around
17 percent.

Benefits of sea freight

● It’s the best way to transport large and heavy goods. Cargo ships can carry thousands of
tons, making them perfect for oversized or bulk products
● It’s cheaper than air transportation. And also more environmentally friendly
● Minimal handling is required
● Slow-moving vessels mean goods are less likely to be damaged
● Shipping is rarely impacted by weather conditions
● It has the highest carrying capacity of all freight options
● Sea freight the largest carrying capacity
Drawbacks of sea freight

● Not always the most financially economical choice

● Can be inaccessible depending on origin or end destination
● Long transit times make it unsuitable for expedited deliveries
● Any reputable freight forwarder should provide access to a global shipping network with
a range of services including FCL and LCL shipments.

Air Freight

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Air freight is the go-to choice for speedy delivery. It’s accessible all over the world and a
convenient method to move smaller shipments long distances. Given that most major cities have
an airport, air freight also lets businesses ship to specific areas or region.

Benefits of air freight:

● Speed is the biggest benefit of air freight. It’s rare for flights to suffer more than a few
hours delay and air freight allows for a much more direct route than road, sea or rail
● The fixed schedule of air freight makes them a reliable choice
● Security is much higher with air freight than other modes of transport, packages often
receive the most rigorous protection measures
● The reduced risk of air freight tends to mean lower insurance premiums.

Drawbacks of air freight:

● Air freight is one of the most expensive transport methods owing to high fuel costs and
additional expenses like security checks
● The nature of air freight means there are restrictions on what can be transported. Size,
weight and product types are all restricted.
● It can be risky, given that any crash can result in the complete loss of goods.

Rail Freight

Trains are a vital part of logistics routes across the globe, particularly in Europe and North
America, where rail networks are comprehensive. In North America, for instance, rail freight
accounts for about 15% of all freight journeys. It’s the ideal choice for organisations that require
fast, scheduled and reliable freight in areas of the world where rail networks are strong.

Benefits of rail freight

● Trains offer more carrying capacity than road freight

● Less chance of delays owing to fixed schedules and the nature of rail journeys
● Low environmental impact compared to any other mode of transport. It emits over three-
quarters fewer emissions than road freight
● A cost-effective solution for long journeys
● Particularly good for inter-country transportation
Drawbacks of rail freight

● Can be slower than other forms of transport

● A lack of accessibility means rail freight isn’t suitable in all locations

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● No door-to-door service owing to pre-defined routes

● Usually requires additional transportation at the end of the journey

Ships and types of ships in Logistics

Cargo ships are classified into various types based on purpose, size, type of cargo etc.

The economic factor is of prime importance in designing a merchant ship. Every owner
wants maximum return on their investment, which means a ship’s construction not only depends
on the current economic necessities, but the factor of future adaptability also plays a part.

From the preliminary design of a vessel due for construction, the following information
can be obtained:

● Dimensions
● Displacement
● Stability
● Propulsive characteristics and hull form
● Preliminary general arrangement
● Principal structural details

A layout of the various ship types and their subdivisions will be listed, covering a wide range of
all vessels in operation.

The type of ship plays an important role in deciding the above-mentioned parameters.

Types of Ships

Ships are mainly classified into the following types:

1. Container Ships

2. Bulk Carrier

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3. Tanker Ships

4. Passenger Ships

5. Naval Ships

6. Offshore Ships

7. Special Purpose Ships

1. Container Ships

As the name suggests, a vessel structured specifically to hold huge quantities of cargo compacted
in different types of containers is referred to as a container vessel (ship).

● Panamax
● Suezmax
● Post-Panamax
● Post-Suezmax
● Post-Malaccamax

Refrigerated Container Ships: These Vessels carry refrigerated cargo (mainly in refrigerated
containers)

2. Bulk Carrier Ships

Bulk carriers are a type of ship which transports cargoes (generally dry cargo) in bulk quantities.
The cargo transported in such ships is loose cargo, i.e. without any specific packaging and
generally contains items like food grains, ores and coals and even cement.

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● Bulk carrier
● Representation image
● Conventional bulkers
● Geared bulker
● Gearless bulker
● Self-discharging bulker
● Lakers
● BIBO

Some other forms of dry cargo are:

Tramps: A boat or ship engaged in the tramp trade does not have a fixed schedule or published
ports of call.

Cargo Liners: An ocean liner is designed to transport passengers from point A to point B. The
classic example of such a voyage would be a transatlantic crossing from Europe to America.

3. Tanker Ships

Tanker ships are specialised vessels for carrying a large amount of liquid cargo. Tankers are
further sub-divided into different types based on the cargo they carry.

The main types of tankers are:

Oil Tankers: Oil tankers mainly carry crude oil and its by-products.

Liquefied Gas Carriers: A gas carrier (or gas tanker) is designed to transport LPG, LNG or
liquefied chemical gases in bulk.

Chemical and Product Carriers: A chemical tanker is a type of tanker ship designed to transport
chemicals and different liquid products in bulk

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Other types of tankers: Some other types of tankers are juice tankers, wine tankers, integrated tug
barges etc.

Based on their size, tankers are further divided into various types such as:

● VLCC
● ULCC
● Panamax
● Aframax
● Suezmax
● Capesize
● Handymax
● Lighters
● Handy

4. Passenger Ships

Passenger ships, as the name suggests, are mainly used for transiting passengers.

They are mainly classified into:

Ferries – Vessels used for transiting passengers (and vehicles) on short-distance routes are called
ferries.

Cruise Ships – Mainly used for recreational activities, cruise ships are like luxurious floating
hotels with state-of-the-art facilities.

5. Speciality Vessels

Speciality vessels are constructed and used for specific purposes.

Tugs: A tug (tugboat) is a boat or ship that manoeuvres vessels by pushing or towing them.

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Tenders – A boat or a larger ship used to service or support other boats or ships, generally to
transport people and/or supplies, is called a tender vessel.

Pilot Crafts – Pilot crafts are used for the transportation of harbour pilots.

Cable Layers – Cable laying vessels help in laying cables onto the sea bed.

Research Vessels – They are special types of vessels used to carry out a variety of research at
sea. Some of the most common types of research vessels are – seismic vessels, hydrographic
vessels, oceanographic vessels, polar vessels etc.

Salvage Vessels – Salvage vessels are vessels engaged in salvage operation; recovery of lost
property at sea.

Lightships: A light vessel, or lightship, is a ship that acts as a lighthouse. They are used in waters
that are too deep or otherwise unsuitable for lighthouse construction.

Barge Carriers: A barge is a flat-bottomed boat built mainly for river and canal transport of
heavy goods.

Timber Carriers: Vessels that carry timber

Livestock Carriers: Vessels that carry livestock/animals

6. Offshore Vessels

Offshore vessels mainly help in oil exploration and construction jobs at sea. Offshore vessels are
of several types.

Some of the main ones are:

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● Supply Ship: Vessels that supply to offshore rigs

● Pipe Layers: Vessels engages in laying pipes and cables
● Crane Barges or floating cranes: A crane vessel, crane ship or floating crane is a ship
with a crane specialized in lifting heavy loads
● Semi-submersible Drill Rigs: These are Mobile Offshore Drilling Units to make stable
platforms for drilling oil and gas
● Drill Ships: A drillship is a merchant vessel designed for use in exploratory offshore
drilling of new oil and gas wells or scientific drilling purposes
● Accommodation Barges: Could be a stand-alone floating hotel or can include
accommodation as well as space for Cargo
● Production Platforms: To extract and process oil and natural gas or to temporarily store
product until it can be brought to shore for refining and marketing
● Floating Storage Unit (FSU) – Floating vessel mainly used for storage of oil and by-
products.
● Floating Production and Storage Unit (FPSO): A floating production storage and
offloading unit is a floating vessel used by the offshore oil and gas industry for the
production and processing of hydrocarbons and the storage of oil
● Anchor handling vessels – These are used for offshore construction and installation
operations.
● Diving vessels – Are vessels used by divers for diving in the ocean for underwater jobs.

Measurement capacity of ships

● A ship's displacement is the volume of water it displaces when it is floating, and is

measured in cubic metres (m3), while its displacement tonnage is the weight of the water
that it displaces when it is floating with its fuel tanks full and all stores on board, and is
measured in metric tons.
● Gross tonnage (GT or gt) is a measure of a ship's overall internal volume and is
determined by dividing by 100 the contents, in cubic feet, of the vessel's enclosed spaces.
GT applies to the vessel, not to cargo
● tonnage, in shipping, the total number of tons registered or carried or the total carrying
capacity.
● Deadweight is the actual amount of weight in tonnes that a vessel can carry when loaded
to the maximum permissible draught (includes fuel, fresh water, gear supplies, catch and
crew).

Multimodal transport

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Multimodal transport is a type of freight. Freight that involves the use of more than one mode of
transportation to transport goods from the supplier to the buyer, and it can be a combination of
two or more of any means of transport, such as road, rail, sea or air freight.

It is important to note that the multimodal transport involves changing the method of shipment
only, without any change in the handling of the goods, for example, if the goods are transported
in a specific container in the intermodal transport, the method of shipment will change, but the
container will remain the same.

What kind of containers is suitable for shipping goods using multimodal transport?

Standard containers are usually used to ship goods by intermodal transport, to ensure that
they can be well stacked and secured on cargo ships, trucks and on board aircraft, and in general,
the stronger the containers, the less risk shippers will lose their goods when changing modes of
transport.

Advantages of multimodal transport

Multimodal transport brings with it a series of advantages that make this system one of the most
used systems in the world, and these advantages are:

● Reduce congestion, sea ports are congested due to the chain of ships and small vessels.
● Reduces costs in monitoring goods and provides greater security in tax collection.
● Reducing customs costs and increasing smuggling control.
● Reducing the prices of imported goods.
● Improving the competitiveness of national products in the international market.
● Allow scheduling of activities and control of compensation goods.
● Reducing cargo transportation time.
● Reducing transportation costs.
● Reducing the risk of loss due to theft or looting.

Disadvantages of multimodal transport

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Despite the many facilities and advantages represented by the use of multimodal transport, it has
some disadvantages, as:

● High requirements to ensure security due to constant inspections by the authorities at

stations or other roads.
● Certain restrictions of a legal and operational nature due to differences in international
standards.
● A certain ignorance of new technologies may occur in the transportation region.

Containerization

Containerization is a shipment method in which commodities are placed in containers, and after
initial loading, the commodities, per se, are not rehandled in shipment until they are unloaded at
the destination. This allows for goods to be shipped more securely and efficiently.
Containerization has become a popular shipping method in recent years due to its many benefits.
For example, it minimizes damage to goods during transport and eliminates the need for freight
forwarders. Additionally, containerization helps reduce inventory levels and improve turnaround
times.

How has containerization changed shipping?

Containerization has completely changed the shipping industry. It has allowed for goods to be
shipped more securely and efficiently than ever before. Additionally, it has helped reduce
inventory levels and improve turnaround times. These benefits have made containerization very
popular among businesses. Additionally, as containerization continues to evolve, it is likely that
even more benefits will be discovered.

Advantages of Containerization

Containerization offers a number of advantages, including:

● Minimizing damage to goods during transport

● Eliminating the need for freight forwarders
● Reducing inventory levels
● Improving turnaround times
Disadvantages of Containerization

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While containerization does offer many benefits, it also has some drawbacks. These include:

● The cost of setting up the necessary infrastructure can be expensive

● Goods that require refrigeration or special care may not be suitable for containerization
● It can be difficult to track goods while they are in transit
Despite these disadvantages, containerization is still a safe, efficient, and cost effective way to
ship goods, and is becoming increasingly popular among businesses.

CFS

● A CFS (container freight station) is a warehouse that specializes in the consolidation and
deconsolidation of cargo. An LCL (less than container load) shipment will be taken to a
CFS at origin to be consolidated into a container with other cargo.
● A CFS is an area, typically a warehouse near shipping ports or crucial railway hubs.
These container freight stations are either owned by private stakeholders or shipping
terminals. Their primary function involves the consolidation and de-consolidation of less-
than-container load (LCL) cargo.
ICDs

Inland Container Depots (ICDs) and Container Freight Stations (CFSs) are also called dry ports
as they handle all customs formalities related to import and export of goods at these locations. In
a multi modal transport logistics system, ICDs and CFS act as hubs in the logistics chain.

Cross docking

Cross docking is a logistics model that optimizes the supply chain by eliminating or considerably
lowering the storage time because the goods are not stored after unloading but instead is
prepared and sent almost directly to clients.

Selection of transportation mode

1. Cost of Service:

The cost of transportation adds to the cost of the goods so it should always be kept in mind. Rail
transport is comparatively a cheaper mode of transport for carrying heavy and bulky traffic over
long distances. Motor transport is best suited and economical to carry small traffic over short
distances. Motor transport saves packing and handling costs.

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Water transport is the cheapest mode of transport. It is suitable to carry only heavy and bulky
goods over long distances where time is not an important factor. Air transport is the most costly
means of transport but is particularly suited for carrying perishable, light and valuable goods
which require quick delivery.

2. Speed of Transport:

Air transport is the quickest mode of transport but it is costliest of all. Motor transport is quicker
than railways over short distances. However, the speed of railways over long distances is more
than that of other modes of transport except air transport and is most suitable for long distances.
Water transport is very slow and thus unsuitable where time is an important factor.

3. Flexibility:

Railways, water and air transport are inflexible modes of transport. They operate services on
fixed routes and at preplanned time schedules. The goods have to be carried to the stations, ports
and airports and then taken from there. Motor transport provides the most flexible service
because it is not tied to fixed routes or time schedules. It can operate at any time and can reach
the business premises for loading and unloading.

4. Regularity of Service:

Railway service is more certain, uniform and regular as compared to any other mode of
transport. It is not much affected by weather conditions. On the other hand, motor transport,
ocean transport and air transport are affected by bad weather such as heavy rains, snow, fog,
storms etc.

5. Safety:

Safety and security of goods in transit also influence the choice of a suitable means of transport.
Motor transport may be preferred to railway transport because losses are generally less in motor
transport. Water transport exposes the goods to the perils of sea and, hence from safety point of
view, sea transport is thought of as a last resort.

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6. Nature of Commodity:

Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable goods which
require quick delivery may be carried through motor transport or air transport keeping in mind
the cost and distance.

7. Other Considerations:

A number of special services such as warehousing, packing, loading and unloading are also taken
into consideration while deciding about a mode of transport. From the above discussion it is clear
that each mode of transport is suited for a particular type of traffic.

The rail transport is particularly suited for carrying heavy and bulky goods over long distances.
Motor transport is suitable for carrying small consignments over short distances. Air transport is
suited to light and precious articles which are to be delivered quickly. Ocean transport is
appropriate for carrying heavy bulky goods over long distances at the cheapest possible cost.

Transportation network and decision

● A transport network denotes either a permanent track (e.g. roads, rail, and canals) or a
scheduled service (e.g. airline, public transit, train). It can be extended to cover various
types of links between points along which mobility can take place. The relevance of a
network is related to its connectivity.
● It allows businesses to maintain their operations and ensure delivery of needed products
and services. Therefore, maintaining the various modes of transportation within the
Country is vital to the sustainability of the economic activity
● There are many types of transportation networks including street networks, railroad
networks, pedestrian walkway networks, river networks, utility networks, and pipeline
networks. A geospatial model of a transportation network is comprised of linear features
and the points of intersection between them.
● It consists of (1) defining the transportation-strategy decision-making context and the
objectives that must be achieved; (2) analyzing the actual transportation strategy
regarding its three components: transportation network; transportation mode; and
transportation insource/outsource
criteria

a list of a variety of criteria that have been mainly used in designing transportation networks.
These include:i

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1. Delivery time : The actual time between placing an order, and receiving the delivered
product;
2. Number of trucks : The use of milk run reduces the number of trucks utilized for shipping
pharmaceutical products;
3. Transportation cost : Consolidating shipments lowers transportation cost;
4. Information system cost: The use of milk runs increases the cost of an information
system, because it requires a significant degree of coordination;
5. Size of served area : The design of the appropriate transportation network must be suited
to the size of the area to be served;
6. Transportation risk : Risk is the probability of harm or damage occurring from exposure
to a hazard, and the likely consequences of that harm or damage. It may refer to the
concept that the transportation plan is not reliable in practice. It also refers to the potential
impact on environment and human, for example, when it comes to the transportation of
hazardous materials. Transportation risk reduction is one of the major interests of the
public and governments around the globe. Therefore, the selected transportation-network
option should take into account the minimization of risk associated to transportation;
7. Demand satisfaction : Maximizing the satisfaction of customer demands amounts to
maximizing the quality of the transportation service, which is influenced by improving
the timeliness of transportation process and maximizing the safety of the transported
products;
8. Flexibility: The use of the milk run increases the flexibility;
9. Regulatory criteria : Each activity in the transportation process should be carried out
according to requirements related to the specificities of transported products.
Transportation decision

Transportation decision making looks for ways to solve current and anticipated transportation
problems while avoiding future problems.

Insurance aspects of logistics

Cargo insurance is the method used in protecting shipments from physical damage or theft.
In fact, insuring cargo ensures that the value of goods are protected against potential losses
which may occur during air, sea or land transportation.

Insurance exists to protect you from risks. In the case of cargo insurance, it is there to
protect you from financial loss should the integrity of your cargo be compromised, which is
always a possibility during the process of transport.

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Cargo insurance protects you from financial loss due to damaged or lost cargo. It pays you
the amount you're insured for if a covered event happens to your freight. And these covered
events are usually natural disasters, vehicle accidents, cargo abandonment, customs rejection,
acts of war, and piracy.

It also includes these advantages for business:

● Your cash flow is protected from unforeseen stoppages

● Profits are still generated if coverage includes it
● Efficient procedure of claims because of professional service
● Simplified reporting of losses

Depending on the insurance company, the Freight Forwarders Liability Insurance covers:

● Damage or loss to the cargo during transit,

● Custom fines and duties (due to errors and omissions) including delays,
● Third-party liabilities (such as legal expenses, mitigation costs, debris removal, etc.),
● Port authorities for any breach of regulation or duties,
● Uncollected or abandoned cargo,
● Financial claims from shippers and receivers,
● Services outsourced (such as distribution, storage, haulage, packaging, etc.)
● Damages or loses due to fire, explosion, or other natural calamities,
● Legal protection services to tackle unjustified third-party claims,
● Coverage for personal injury or employee injury during operations,
● Damage repair and lost units,
● Recovery and maintenance costs (full cover), etc.

During insurance claim, your underwriter may assess several risk and liability factors, such as:

● Cargo details (type of cargo being shipped, the value of goods, how it is packed, reefers
or normal containers, etc.)
● Type of Service (How is the cargo transported, warehousing options, etc.)
● Subcontractors Involved (their credibility, contracts, etc.)
● Receipt of the freight (including payments to subcontractors, fines, duties, tax, etc.)

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● Other important documents (mainly Bill of Lading, and any other contract involved)

UNIT IV:

Logistical Information System (LIS) - Operations – Integrated IT solution for Logistics and
supply chain management- Emerging technologies in Logistics and Supply chain management.
Components of a logistic system-transportation-Inventory carrying-warehousingorder processing
–Distribution channels- Difference between warehouse and distribution centre

Logistical Information System (LIS)

Logistics Information System (LIS) is a system of records and reports whether paper-based or
electronic, used to aggregate, analyse, validate and display data from all levels of logistics
system that can be used to make logistics decisions and manage the supply chain

ROLE OF LOGISTICS INFORMATION

SYSTEM

The role of LIS can be understood from the following:

a) LIS ensures the transformation of logistics functional operations into a process with the goal
of pursuing customer satisfaction at the lowest cost. It facilitates planning and control of logistics
activities related to order

fulfilment.

b) LIS provides information on goods and tracks the delivery, by giving their status.

c) Logistics systems depend on outside information and international standards to comply with
regulations and use laid down ways of sharing logistic information with others.

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d) The manufacturers and traders monitor the actual products to know whether they will arrive
on time and in proper condition at the delivery places, and to be able to take prompt action in
case of any lapse.

e) Transporters focus on the progress and status of the means of transport. In case of any delays
or exigencies, transporters can report these to their customers who can consider the impact.

f) Customs authorities and those responsible for ensuring the safety and security of goods during
transportation are given details about the content of goods and their means of transport.

LIS is part of logistics management to manage, control and measure the logistical activities
within the organisation and across the supply chain, achieving logistics efficiency and
effectiveness. Within an organisation, LIS achieves the following:

a) Customer satisfaction at the lowest total cost.

b) Enables planning and control of the logistical activities related to order

fulfilment.

c) Fosters better tactical and strategic decisions for the benefit of the firm and

its customers.

d) Gives information to customers regarding product availability, order status,

and delivery schedules.

e) Enables resource planning thereby reducing the requirements of inventory

and human resources.

f) Provides information to top management to formulate strategic decisions by interface with

marketing, financial, and manufacturing information

systems.

g) Links the operations of the business, such as manufacturing and distribution, with the
supplier’s operations and the customers.

h) Facilitates ‘virtual’ inventory management or electronic inventory management by managing

dispersed inventories through information technology. Inventory management becomes
centralised and decisions on replenishment and other quantities are taken based on a single stock.

The benefits of implementing LIS are:

a) Improvement in customer service and satisfaction.

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b) Establishing communication within the logistics chain.

c) Reduction in stock levels and costs particularly of transportation and storage.

d) Synchronising the processes of supply, production, and distribution.

e) Handling the problems caused by shortage of materials for production.

f) Improvement of delivery schedules and lessening probable orders errors.

g) Reduction of documentation required in supply chain management.

The main activities of LIS are:

a) Data flow from external sources.

b) Processing and storage of information within companies.

c) Transmission of data for storage\processing to the decision maker in

form of reports.

d) Communication of decisions to customers and their feedback.

LOGISTICS INFORMATION SYSTEM:

REQUIREMENTS AND COMPONENTS

There are three types of information systems that serve different organisational levels. These are
operational level systems, management-level systems, and strategic level systems. Converting
logistics data to information, representing it in a manner useful for decision making and
interfacing the information with decision-assisting methods are at the core of LIS. There are
certain requirements which are:

a) Organisation decisions: It relates to the decisions to be made at each level of organisation.

While designing information system, it must be ensured that the concerned person is entitled to
get required information needed for decision making.

b) System requirement: After arriving at the decision on collecting information, next requirement
is identification of source of information, the volume and quality of information. A suitable
channel of communication will have to be designed to satisfy various requirements.

c) Control requirements. Based on guidelines given by the management, Logistics Information

System system should be able to aid in decision making, minimising delays, and increasing
efficiency. Control is required to ensure that no errors are made.

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d) System input and output data. To satisfy the demand of a customer, several activities are
undertaken by organisation which need proper coordination. Action reports are made for the
purpose of undertaking activities based on generated information.

Key Components of LIS

LIS is designed to manage the flow of materials and information within and between
organisations and their business environment. Globally information technology is a critical
enabler of the logistics supply chain networks that businesses use to acquire, produce, and
deliver goods and services. The key components include:

a) Logistics Information Portal

b) Logistics Computing and Simulation

c) Decision Support System

d) Database

e) E-Logistics and E-Commerce

f) Software applications relating to Customer Relations Management (CRM), Enterprise

Resource Planning (ERP), Radio Frequency Identification (RFID) Tags, Transport Management
System (TMS), and Warehouse Management System (WMS)

LOGISTICS INFORMATION SYSTEM:

CONCEPTS & TECHNOLOGIES

The effectiveness of LIS is based on real time accurate information enabling a reliable accurate
forecast from the raw material suppliers to the ultimate consumer with a large geographical
spread. Managing this information is possible only with the use of various systems continuously
evolving which need ingenuity for adaption in the LIS.

Information Network: The traditional elements of logistics are integrated by a web of IT

networks, and integrated management systems, with virtual and network companies within an
information grid. This LIS incorporates all information relating to plans, implementation, and
control, for efficient and effective flow and storage of goods and services.

Electronic Data Interchange (EDI): IT plays an important role in providing real time
information for proper forecasting and planning of manufacture or for supply of finished
products to the end users. EDI can link suppliers, manufacturers, customers, and intermediaries.
IT as the key component facilitates speeding up delivery time by transmitting information to the
warehouse directly triggering an order for immediate shipment. In global context, EDI links

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exporters with customs, ports, and transporters for quick processing of customs documents thus
speeding up the deliveries.

Supply Chain Management Software (SCMS): These software modules complete supply chain
transactions and manage supplier relationships for controlling the business processes. It can
identify the activities that can reduce and eliminate non-value-added activities. It can deliver and
market better quality products and services more quickly and cost-effectively to gain an
advantage over less efficient competitors. Effective supply chain management systems help
businesses to improve the entire supply chain network by reducing waste and shipping delays.
SCMS reduces overhead expenses by enabling effective demand planning, improving inventory
management, and relationships with vendors and distributors etc.

Enterprise Resource Planning (ERP): It encompasses software technologies in supply chain,

bringing together the information from within the firm and from different geographical areas,
integrating all businesses of the firm together for efficient use of resources. It is a process used
by a company to manage and integrate important parts of its business. It refers to the software
and systems to plan and manage all the supply chain, manufacturing, services, financial and
other processes of the organisation.

Inventory Management Module: Inventory management being a key component of logistics,

firms should manage their inventories efficiently as huge cost is involved in the inventories
piling up. Therefore, an IT module for finished goods, semi-finished goods, raw materials, and
work in progress inventories is convenient in ordering, based on suppliers or customers’
demands.

Just-In-Time (JIT) System: JIT concept was introduced by Toyota in Japan and Maruti Suzuki
in India. Generally, inventory carrying cost in terms of warehousing is extremely high due to
large capital expenditure involved in building and maintain warehouses. Thus, suppliers are
required to supply Logistics Information System components or raw material when the demand
is just placed at 24-hour notice, saving cost of transportation and warehousing. The required
components or raw material are supplied just-in-time when needed by the factory.

Transportation Management System: Transportation is a key element of logistics being an

important dimension as third-party intermediaries, to link together the suppliers and
manufacturers to final consumers. A range of services are available starting from factory door
pick up, custom freight station, rail transportation using high speed wagons from container depot
to ports and further movement if needed by sea to port of discharge and again hinterland
transportation. In these activities, communication technologies, satellite tracking, bar coding
applications, EDI, automated material handling systems etc., are

employed.

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Data Mining: Data mining is a process used of extracting usable data from a larger set of any
raw data by companies to turn it into useful information through understanding a pattern and
determine customers’ behaviour for repeat sale. By using software to look for patterns in large
batches of data, businesses can learn more about their customers to develop effective marketing
strategies, increase sales and decrease costs. It implies analysing data patterns by using one or
more

software. Accordingly, based on the feed-back obtained from dissatisfied customers, services for
such customers can be fine-tuned and customised to meet their requirement.

Data Warehousing: A data warehouse is built by integrating data from multiple sources that
support analytical reporting, and decision making. Data warehousing is the process of
constructing and using a data warehouse, being the electronic storage of a large amount of
information by a business or organisation. These are solely intended to perform queries and
analysis and often contain large amounts of historical data. It combines information from several
sources into one comprehensive database. For example, in the corporate world, a data warehouse
might incorporate customer information from a company’s sales

systems, website, mailing lists etc.

Customer Relations Management (CRM): It is a technology used to manage interactions with

customers by merging practices, strategies and technologies used by companies. Data mining and
data warehousing are two important elements of CRM technologies. CRM systems compile
customer data across different channels, or points of contact, between the customer and the
company, that include the company’s website, telephone, live chat, direct mail, marketing tools
and social networks. CRM systems can provide the staff dealing with the customers, a detailed
information on customers’ personal information, purchase history, buying preferences and
concerns. CRM technology creates various value-added

services for customers, making the interaction more accurate, timely, responsive, and reliable.
The basic CRM system could be enhanced by automation of marketing, sales force, contact
centre and workflow; location-based services, human resource management, etc.The usage of
CRM depends on a company’s business needs, resources and goals, as each has different costs
associated with it as can be seen by the undermentioned examples:

a) Contact Centre. The sales and marketing teams procure data and update the system with
information relating to customers and revise customer history records through service calls and
technical support interactions.

b) Social Customer Relations Management: To add value to customer interactions on social

media, businesses use various social CRM tools that monitor social media conversations, to
determine their target audience. Other tools are designed to analyse social media feedback and

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address customer queries and issues. They capture customer sentiments, such as the likelihood of
recommending products and overall customer satisfaction, to develop

marketing and service strategies.

c) Mobile Customer Relations Management: Mobile CRM apps take advantage of features that
are unique to mobile devices, such as GPS and voice recognition capabilities, to give sales and
marketing employees access to customer information from anywhere.

Integrated IT solution for Logistics and supply chain management

● Logistics IT Solutions
With the commencement of the digital era, logistics companies are obligated to redefine and
manage their business globally. Providing modern business solutions along with latest trends and
technologies to keep their customers content has become a mandate. The Logistics industry is at
the core of the global supply chain and is constantly evolving to keep pace with the increasing
customer demand for cost-effective solutions to enhance productivity, quality, optimization and
timing, which have become critical aspects of their businesses.

● Logistics Digital Solutions

It has in-depth domain expertise and experience to support logistics companies by offering
services and solutions for facilitating real-time “Information flow” throughout the journey,
enabling business owners to take informed and faster decisions, thus, resulting in optimized
operation for better margins and enhanced customer experiences. To enable and improve the
above end-to-end journey of supply chain and logistics, we help to deliver digital transformation
and enhance customer experience through various emerging technologies. Data Integration
solutions to upload data based on business rules and Testing Accelerators with in-built business
scenarios are some of the innovative solutions being used by our key logistics customers to
achieve operational efficiency and effectiveness.

Emerging technologies in Logistics and Supply chain management.

Emerging technology is a term generally used to describe a new technology, but it may also refer
to the continuing development of an existing technology; Today, the transformations that India is
going through can be witnessed across all walks of life. Our industries are getting modernized as
relevant automation and tech-adoptions are increasing their throughput while also improving
efficiency. Looking at the larger picture, this development is adding to the market visibility and
that of across-the-board processes.

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This ongoing transformation is perhaps the best for our logistics sector, which was earlier
infamous for complicated processes, bottlenecks, and a near-absolute opacity. So, let us have a
look at the emerging technologies that are changing the sector for good and driving it towards the
future.

1) Blockchain in Logistics

Documentation (and its verification) is one of the biggest challenges experienced by the logistics
players. This is precisely true for use cases such as procurement, transportation management,
order tracking, and customs collaboration. These different areas are where Blockchain – the
underlying technology that also powers cryptocurrencies – is making a sizeable difference. For
the uninitiated, blockchain is a distributed ledger system shared by the interacting parties or
individual stakeholders. Its entries (in the form of blocks) are synchronized throughout the
network and cannot be altered once registered. If any modification has to be done, another block
with the desired adjustment needs to be added to the string of blocks. So, data fabrication is by
design impossible in the blockchain.

This aspect of the blockchain technology is today helping us address the areas of frictional in
logistics with much simplicity. It is also optimizing the cost and the time associated with
documentation and processing for ocean freight shipments. With a safe and protected gateway
for information-sharing, blockchain is increasing transparency and helping us save costs by
streamlining the supply chain process.

2) AI and ML for supply chain optimization

Machine Learning, a subset of the Artificial Intelligence technology, is also being used by
logistics players to automate the supply chain and gather insights that otherwise remain
concealed in the burgeoning data. These insights can be directly or indirectly related to tracking,
the backend of logistics, internal functions, and so forth. They help in optimizing supply chain as
well as in automating, streamlining, and hence, decreasing the turnaround time of various
processes. The AI-driven approach is not only cost-effective and time-efficient, but it also plays
its part in making the consumer experience more delightful.

3) Low-to-No Asset Networks

Given the sheer focus required to manage every process and the integration of such procedures to
the broader logistics operation, emerging logistics providers are now entering the field of tech-
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driven shipping aggregation. These aggregators do not own any tangible assets such as fleet,
cargo movers, warehouses, etc. They instead build a proprietary solution which is then used by
individual players (suppliers, shipping players, etc.) as per their business models. This tech-
driven approach optimizes logistics operations with the help of networks, technical
infrastructure, and automation to reach out to buyers in an effective manner. Doing so also
makes scattered demand (originating from an area) visible, helps in bundling them and transfers
cost-efficiency to businesses of all shapes and sizes.

4) IoT for tracking

With the help of RFID tags, GPS, and specialized sensors, monitoring of packages is now being
done in the real-time. Further coupled with specific approaches, such as geo-fencing, geo-
tagging, and proximity alert, more bottlenecks are being eliminated from the supply chain. For
instance, an incoming shipment can be easily traced, and the forward supply chain can be readied
to process the shipment faster. This practice is enhancing operational efficiency, bringing about
superior transparency, and decreasing delays in transfers.

5) Augmented Reality

High-value consignments have various security threats, including hijacking, that need to be
eliminated. Here, Augmented Reality (alongside facial-recognition technology) is paving the
way for secured deliveries within logistics operations. Last-mile delivery is also improving with
building-recognition and indoor navigation. Similarly, the completeness of a parcel and
warehouse planning is also getting enhanced with the introduction of Augment Reality in supply
chain management.

6) Autonomous transport

Today, e-Vehicles such as self-driving trucks, ghost cargo ships (autonomous ships), and drones
are driving us closer to the future of logistics. It is estimated that this development can save up to
20% of fuel costs by aiding transportation, warehousing operations, and last-mile deliveries.
India has already passed its regulation for drones, and similar frameworks are in the pipeline for
other use cases. Also, the introduction of 5G in 2020 and, with it, the advent of logistics 4.0 are
something the industry has been looking forward to.

It is about time that the Indian logistics sector, as the economy is booming, stands shoulder to
shoulder with its western counterparts. With the ongoing technological revolution, it is just a
matter of years, and all we have to do is eagerly wait until this happens.

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Components of logistics system

Logistics management is complex and fundamental for companies in managing their supply
chain. The key components create and enforce consistency in the movement of goods from
manufacturer to distributor or consumer. It defines the logistics activities within the supply
chain.

Having a deep knowledge and understanding of the key components of logistics management is
crucial as the industry changes and pushes for faster and more effective logistics to get a product
into the hands of the consumer or distributor.

In order to help improve the process, one must dive into the key components. Here are the five
major components of logistics management:

● Planning: storage, warehousing, and materials handling

● Packaging and utilization
● Inventory control
● Transportation
● Information and control
Understanding each element of logistics is a simple and effective way to recognize how logistics
activities and processes take part in the supply chain. Let’s take a close look at each.

1. Planning: Storage, Warehousing, and Materials Handling

The market is unpredictable and highly susceptible to the imbalances between supply and
demand. Supply can be steady, but the demand for goods from consumers is not. It is directly
affected by different factors, making it unpredictable.

Logistics management plays a key role in ensuring a constant and continuous supply of goods
from the manufacturer to the consumer. Great planning becomes essential to maintain a healthy
supply chain.

During the fluctuation of supply and demand, there can be an insufficient supply of goods or a
surplus of goods produced. In such cases, storage units and warehouses become part of the
process. Proper logistics planning provides organization and synergy and becomes essential to
ensure proper maintenance and handling of the goods.

Planning is one of the most important components of Logistics management. It is essential to

assuring all elements of the process are coordinated and implemented successfully. It creates
systems and processes to achieve timely delivery of products.

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2. Packaging Unitisation

Care and conditioning of the products and goods are essential in the supply chain. Proper
handling and storing of products is key in logistics management.

The packaging of the products takes a lot of research. Analyzing the way the goods are stored to
keep them at their best quality, and strategizing how the package itself can be handled and
processed is part of the research and strategy. In addition, the colors and branding play a big part
to ensure the consumer gets a positive experience.

The design, the shape, the material, and even the colors of the packaging are thought out in order
to successfully get the product to the right hands in the best condition possible. Packaging
protects a product as it is being transported from the manufacturer to the hands of the consumer
or distributor.

But when supply and demand fluctuate, that package might need to sit in a warehouse in the
process. That goes into the packaging strategy as well. It must maintain and condition the
product in such scenarios, without jeopardizing the quality.

Unitisation assists in the storage and transportation of goods and products. Essentially, it is a
“grouped or bundled cargo, wrapped into packages and loaded onto or inside a bigger unit”.

The end goal is to fit products and goods in a cube, the easiest shape to transport and store.
Packaging and unitisation work together on packing all different shapes and sizes of products
and goods into a cuboid shape.

3. Inventory Control

Inventory is closely related to storage and warehousing and is important to ensure consumer
requirements are met. It is about controlling the flow of goods and products going in and out of
the warehouses. It determines how much stock to hold, where to store, and how much is to be
stored.

Inventory management is about predicting the demand of goods by consumers with the help of
sales data, mathematical and statistical tools. As previously mentioned, the market varies and can
sometimes be unpredictable.

Inventory management is not an exact science, but it is an important logistics element to helping
manage the flow of goods through the supply chain. A healthy inventory balance is detrimental
to the supply chain and business margins.

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4. Transportation

Transportation is a complex and costly part of logistics management. It can represent 50 percent
of the logistics budget, putting pressure on companies to find the fastest and cost-effective way
to get products and goods to the consumers and distributors. Transportation includes various
platforms, such as road vehicles, cargo trains, freight shipping, and air transport.

Perishables do not travel far, but many other goods travel from all over the world, adding
complexity to the process such as tax codes, customs clearance, and payment methods. All of
which must be cleared before the products even leave the warehouse.

Transportation plays a key role in the fast-growing industry of e-commerce. The consumer has
high expectations for fast and proper delivery of goods, and even the return of such. When
partnering with a 3PL, it is important to work with a company that provides reliable and
transparent logistic services to ensure quality and efficiency.

5. Information and Control

Data-driven logistics drive the future of the industry. The flow of information throughout the
logistics management process is vital to providing fast and accurate service to the consumer and
manufacturers.

From inventory flow to warehouses and transportation, information improves the efficiency and
performance of activities in a supply chain.

Information and control improve business efficiency helping in the traditional management
processes, but also supporting as a modern tool in achieving strategic goals.

Analyzing and understanding the five components of logics management thoroughly is a

constructive business practice as advances continue to shape the components of logistics
management, change the industry, and improve the technologies.

Distribution Channel

A distribution channel, in simple terms, is the flow that a good or service follows from
production or manufacturing to the final consumer/buyer. Distribution channels vary but
typically include a producer, a wholesaler, a retailer, and the end buyer/consumer. A distribution
channel can also provide a sense of how money flows back from the buyers to the producer or
original point of sale.

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For manufacturers, it is very important to create a mix of distribution channels that allow for ease
of availability for the consumer, i.e., a good marketing mix. Based on the diversity and scope of
a manufacturing business or any other business that can be found in the distribution process, the
respective business needs to settle on a channel or channels that allow for good sales generation
and ease of access for consumers.

Role of distribution channel

Distribution channels affect the prices of goods and their positioning in their respective markets.

Distributions, ideally, should be set up in a way that limits the number of stops for the product or
service before it reaches the end consumer. A distribution channel must be efficient and
effective. It means that transportation and other logistical requirements need to be used at
maximum capacity and at the lowest rates possible.

Distribution Channels - Types

Types of Distribution Channels

Distribution channels can either be direct or indirect. The indirect channels can be divided up
into different levels.

1. Direct distribution channels

The direct distribution channel does not make use of any intermediaries. The manufacturer or
producer sells directly to the end consumer. The direct form of distribution is typically used by
producers or manufacturers of niche and expensive goods and items that are perishable. An
example is a baker.

2. Indirect distribution channels

The indirect distribution channel makes use of intermediaries in order to bring a product to
market. The three types of indirect channels are:

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● One-level channel

The one-level channel entails a product coming from a producer to a retailer and then to the end
buyer. The retailers buy the product from the manufacturer and sell it to the end buyers. The one-
level channel is ideal for manufacturers of furniture, clothing items, toys, etc.

● Two-Level Channel

The two-level channel follows the following process: Wholesalers generally make bulk
purchases, buy from the producer, and divide the goods into smaller packages to sell to retailers.
The retailers then sell the goods to the end buyers. The two-level channel is suitable for more
affordable and long-lasting goods with a larger target market.

● Three-level channel

The three-level channel is similar to the two-level channel, except the goods flow from the
producer to an agent and then to a wholesaler. Agents assist with selling the goods and getting
the goods delivered to the market promptly.

The agents normally receive a commission and are allocated the task of product distribution in a
particular area. The three-level channel is suitable for goods that are in high demand and with a
target market that stretches across a country.

The Internet as the Modern-Day Distribution Channel

With e-commerce growing tremendously over the past couple of decades, manufacturers and
producers are now able to use online marketplaces to sell their goods. The internet is also ideal
for service providers. Examples of online market places are Amazon, AliExpress, eBay, and
Alibaba. Other internet intermediaries can be delivery services, such as Uber.

Difference between warehouse and distribution centre

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UNIT V:

Performance- Bench marking for supply chain improvement- Dimensions and achieving
excellence- Supply Chain Measures – SCOR model- Logistics score board- Activity Based
Costing - Economic Value Added Analysis- Balance Score card approach-Lean thinking and six
sigma approach in Supply Chain.

Performance

Performance management relates to application of processes, methods, metrics, and technologies

in order to create a consistent relationship between supply chain strategy, planning,
implementation, and controlling.

Bench marking for supply chain improvement

Benchmarking measures the performance of a company's supply chain by considering quantity,

value, and time. Benchmarking formulates a tangible measure of the efficiency of main
processes in the supply chain and creates a solid foundation for an organization's performance.

Collection of Supply Chain Benchmarking Data

To start benchmarking your supply chain, first, pick an area within the supply chain to focus on.
Supply chain management can be broken down into five components: planning, sourcing,
manufacturing, delivery, and returning. Focusing on an individual segment of your supply chain
will help you develop specific key performance indicators (KPIs).

KPIs are specific, measurable metrics within business activities. They give a quick representation
of business performance. Typically, KPIs use quantitative data but can also measure qualitative
data.

● Quantitative Data
Quantitative benchmarking examines the supply chain by gathering data on performance metrics.
Most KPIs are quantitative and focused on metrics and improving the supply chain’s bottom line.
Perfect order rate, inventory turnover, and on-time delivery percentages are all examples of
quantitative KPIs your supply chain should benchmark.

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● Qualitative Data
Unlike quantitative benchmarking, qualitative benchmarking gathers data based on best
practices, not performance. Qualitative benchmarking uses the best practices of competitors or
similar organizations and their data on successful techniques for improving supply chain
performance. It analyzes differences in practices such as production techniques, quality testing,
training methods, and morale without measuring results.

Components of a Benchmarking

After data and standards are projected, one can note which components of the supply chain will
be benchmarked. Some benchmarking studies will measure single or multiple components.

● Financial benchmarking
Financial benchmarking is the financial analysis of supply chain operations that are observed and
recorded. For financial benchmarking, review income statements, balance sheets, and key ratios
such as asset and inventory turnover.

● Functional benchmarking
Functional benchmarking is the most traditional and common form of benchmarking, analyzing a
single operation at one or several locations to identify where efficiencies can be improved.

● Performance benchmarking
Performance benchmarking compares the efficiency of performing a task in one company
location to another (branch vs. branch) or a competitor. Note that benchmarking performance
against competitors can be difficult since information will not be easily accessible.

● Product benchmarking
Product benchmarking compares the manufactured product of one company against another or
between facilities in the same company.

● Strategic benchmarking

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Strategic benchmarking observes how other companies compete strategically. Determines critical
areas of focus amongst the competition. This can be within the same industry or outside of the
company’s industry.

Levels of Benchmarking

Benchmarking is a continuous and fluid process where internal business practices matter just as
much as external practices and competitive pressures in the industry. Therefore, three levels of
benchmarking can be observed and measured.

● Internal Benchmarking
Internal benchmarking is a tactical process focusing on operations. It allows companies with
multiple facilities, divisions, or branches to compare how functions are performed. For example,
comparing three different warehouses within one company. Smaller companies can compare
shift performances amongst employees to benchmark internal data.

● External Benchmarking
External benchmarking is a conscious level of benchmarking that takes a company outside its
industry and exposes it to different methods and techniques. This exploratory research method
reveals and applies the best practices in other firms to your business. Because external
benchmarking requires diving into unknown industries, hiring a consulting firm to perform
proper research is recommended.

● Competitive Benchmarking
Competitive benchmarking compares a company’s operational performance against competitors.
This benchmarking technique helps gain market share, but it can be challenging to collect data.
Competitors are unlikely to share their specific knowledge on best industry practices, so using
industry-standard metrics could be an option.

Dimensions and achieving excellence

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● Customer Priorities
1 – Desired Outcomes

These are their ultimate hopes and their purpose for coming to us: joy, security, personal time,
belonging, good health, wealth, certainty, recognition, fulfillment, and respect. How well (and
quickly) they get those results through us reveals our effectiveness. If health is an outcome that is
a high customer priority, it should be measured. It is interesting to note that we often measure
undesired outcomes like mortality (death) and morbidity (new ailments contracted by exposure
to the health system). It is then easy to view the absence of those conditions as success. But are
people healthy if they don’t die or get sicker? If we don’t know what results customers want to
achieve by working with us, our long-term viability is merely chance.

2 – Undesired Outcomes

Undesired outcomes customers want to avoid or eliminate. This includes loss, death,
impoverishment, fear, discomfort, waste (time, money, or effort), frustration, sickness, reduced
status, stress, taxes, and a host of unwanted conditions. Guard against the assumption that the
reduction of an undesired outcome improves satisfaction; it merely reduces dissatisfaction. The
absence is not necessarily wealth.

3 – Product Attributes

Product characteristics customers want. Ease-of-use, accessibility, low cost of ownership,

durability, simplicity, and usefulness are the kinds of characteristics generally wanted. Product
refers to any specific deliverable or object that we can give to others, count, and make plural
with an “s.” All work can be defined as products. All customers are identified by the product(s)
they receive. The variety of products we provide and the characteristics of those products
demonstrate our creativity and uniqueness. A good product is one that can be easily used by a
customer to predictably create their desired outcome.

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4 – Process Characteristics

Our aim is to address process performance in terms customers care about. This would include
their time, complexity and cost (both expense and lost opportunity) to acquire the product and
make it function easily and effectively. The number of people a customer must contact to solve a
problem is a measure of success (or lack thereof). The customer’s priorities for- and experience
of- process should be given at least as much attention as Dimension 8.

● Producer Priorities
5 – Desired Outcomes

These are the producer’s desired outcomes. This includes leadership, growth, financial strength,
market share, mission fulfillment, and brand dominance.

6 – Undesired Outcomes

Undesired outcomes producers want to avoid or eliminate. This includes waste, high turnover,
financial loss, customer defection, instability, and conflict.

7 – Product Attributes

Product characteristics producers want. This includes easy to build, low cost to produce, no
variability, no maintenance or warranty costs, easy to distribute, consistent, and sustainable .

8 – Process Characteristics

Process characteristics producers want. This includes process consistency, simplicity, low
variation, high productivity and efficiency, comfortable lead times, high yield, and capacity that
matches demand. This is where most improvement efforts focus. A lean, waste-free process for
the producer is not necessarily experienced that way by customers. It is important to distinguish
our activity from the customer’s. Our cycle time, unit cost, defect rate and waste can decline
because we decided to measure them.

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We might compare the 8 Dimensions of Excellence framework to economic supply-and-demand

thinking. Dimensions 1-4 represent issues related to customer demand. Dimensions 5-8 are
related to supply and production matters the producer cares about. The framework is a succinct
but powerful way to identify the critical few areas we must pursue to achieve excellence. Focus
on all 8 Dimensions and excellence will be broadly enhanced. Improve a few and excellence will
be limited. Dimensions 1-4 address the customer experience, sometimes referred to as voice of
the customer (VOC). These are drivers of satisfaction and include leading indicators of
organizational success.

8 Dimensions of Excellence Concepts to Consider

1. Initiatives directing change, improvement, productivity, quality, excellence, and related topics
have historically focused on how we do work, Dimension 8. It is possible to improve internal
processes without customers experiencing any benefit.

2. What we measure is what we value, despite what we may tell ourselves.

3. If excellence is said to be an enterprise value, we will have published numerical goals to

achieve within a defined period. Based on Leader’s Actions 7 and 9, how well are our measures
aligned with what we value?

4. A balanced scorecard can only be considered balanced if all 8 Dimensions are well measured.

5. The virtues of understanding, defining, and measuring Dimension 1 are many:

● It is the only one of the eight that is stable over time.

● It is a strong driver for both excellence and innovation.
● The absence of Dimension 1 definition makes it very likely there will be no related
measures of success or goals.
● It is positive and aspirational, not focused on deficiencies.
● It propels strategic direction and invites innovation.
● It infuses all other dimensions and enterprise initiatives with customer focus.
● It supports the development of leading indicators.
● It provides a durable context and broad scope for directing quality improvement
initiatives that address Dimensions 3, 7, and 8 via standards (for example, ISO 9001) and
methods (for example, Lean, Six Sigma, balanced scorecards, continuous improvement,
and so on).

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Supply Chain Measures

Supply chain measurements control organizational behavior and, in turn, its accomplishments.
The misleading measurements directly affect the key functions of any company and lead to
revenue loss and poor long-term growth. If you want to keep your company on track, it is
imperative to implement the key strategies for measuring supply chain performance.

1. Balanced Scorecard

Even though not originally developed to measure supply chain performance, the balanced
scorecard provides keen insights on the core operations. This approach recommends using EIS,
an Executive Information System, to monitor supply chain performance.

Customers: The balanced scorecard helps to track customer interaction such as order details,
shipment tracking and delivery information. Order fill rate, on-time delivery and the status of the
deliverable can be tracked during any phase of the product or project lifecycle.

The balanced scorecard approach uses the aspects below to measure supply chain performance.

Customers: The balanced scorecard helps to track customer interaction such as order details,
shipment tracking and delivery information. Order fill rate, on-time delivery and the status of the
deliverable can be tracked during any phase of the product or project lifecycle.

Finance: The cost and the financial status, such as the cost of warehousing, transportation,
delivery or manufacturing, can be monitored closely and tracked by using the balanced scorecard
method

Internal Business Perspective: The balanced scorecard method is used to track the internal
business perspectives. Organizations will be able to forecast errors in the supply chain and
monitor whether each aspect of the product or project lifecycle adheres to the plans.

Innovative and Learning Perspectives: Training, Innovation and product development are the key
features for any business to attain success. The balanced scorecard works in these areas as well.
Organizations can identify the areas where training or a new product development is necessary to
achieve competitive advantage.

2. SCOR Model

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The SCOR or Supply Chain Operations Reference is the product of SCC, the Supply Chain
Council. The SCOR model helps companies to measure supply chain performance based on the
below key aspects.

Reliability: The SCOR model is used to achieve customer satisfaction through timely, nil
damage and complete delivery of the product or service. Reliability is the key factor in
determining brand loyalty and in turn achieving success in any business.

Responsiveness: Apart from the timely delivery of the product or service it is important to
achieve customer satisfaction by timely response to their queries. The SCOR model helps
companies to have a system where questions from customers are handled appropriately and on
time.

Agility: The projects that are agile play a vital role in achieving company’s growth. The supply
chain of a company must contend with difficulties of varying demands without delaying the
planned lead time. The SCOR model helps in creating agility in supply chain performance.

Cost: The SCOR model helps to measure and assess the cost involved in every step and phase of
the supply chain.

Assets: The SCOR model supports assessment of all the key resources used to gain customer
satisfaction.

3. EVA - Economic Value Analysis

The economic value analysis or EVA was developed by Stern, Stewart & Co to measure the
return on capital or economic value addition of an organization. The EVA method is widely used
to assess the long-term shareholder values of the company. The contribution from high level
executives is vital since the organizations invest huge capital on them. The EVA method can
help to measure the performance of these high level executives in supply chain management. The
EVA method is widely used as a part of a logistics scoreboard approach in measuring supply
chain performance.

4. The Logistics Scoreboard

Developed by Logistics Resources International Inc, the logistics scoreboard is designed based
on key aspects below to measure supply chain performance. This logistics scoreboard is a
spreadsheet-based tool that helps to measure the business value of supply chain management.

Logistics Financial Performance Measurement: The logistics scoreboard helps to measure supply
chain’s logistics financial performances such as expenses, investments, asset value and return on
these assets.

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Logistics Productivity Measurement: The logistics productivity measures are absolutely

necessary to measure supply chain performance based on productivity. The logistics scoreboard
approach helps in analyzing and measuring such aspects like orders taken or products delivered
per day.

Logistics Quality Measurement: Measuring the quality of the supply chain is essential in
continuous improvement of any company. The logistics scorecard spreadsheet helps to measure
the key quality metrics such as inventory correctness, service errors or damages during
transportation.

Logistics Cycle Time Measurement: A product life cycle is the key element in supply chain
management. The logistics scorecard can be used in measuring the logistics cycle time metrics
such as order placing time, delivery time, transit time,etc.,

5. ABC - Activity-Based Costing

Assigning costs to the activity rather than a whole project or a product is popularly known as
ABC, activity-based costing. The supply chain consists of different phases with different level of
activities. When the financial measures are tied with operational effectiveness, measuring the
cost involved in each activity becomes imperative. The activity-based costing method helps in
assigning costs in a supply chain based on its activities rather than on the end deliverables.
Measuring the key finance metrics in each phase is feasible when the ABC method is
implemented in supply chain management.

Lean thinking and six sigma approach in Supply Chain.

Lean thinking is a term used to describe the process of making business decisions in a Lean way.
Lean thinking is a framework that aims to provide a new way to think about how to organize
human activities to deliver more benefits to society and value to individuals while eliminating
waste

7 Lean Development Principles

The seven Lean principles are:

● Eliminate waste
● Build quality in
● Create knowledge
● Defer commitment

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● Deliver fast
● Respect people
● Optimize the whole
Benefits

● Manage Team/Process Complexity

● More Efficient Business Processes
● Better Management of Changing Priorities
● Better Project Visibility at the Team Level
● Increased Team Productivity
● Reduced Lead Time
● Increased Team Morale
● Improved Visibility to Stakeholders
● Reduced Costs
● Predictable Delivery of Customer Value

Six Sigma

Six Sigma is a data-driven problem-solving methodology. The focus is on process variations and
emphasis is given to customer satisfaction. Continuous process improvement with low defects is
the goal of this method.

The Goal of Six Sigma:

The aim of Six Sigma is to make a process effective with - 99.99996 % defect-free. This means
a six sigma process produces 3.4 defects per million opportunities or less as a result.

Six Sigma is a structured problem-solving methodology. Problem-solving in Six Sigma is done

using the DMAIC framework. There are five stages in this framework. They are

- Define
- Measure
- Analyze
- Improve
- Control

Define

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In this stage, project objectives are outlined. A project charter is an important component of this
phase. A project charter is a blueprint document for a six sigma project. A typical charter
contains the following information:

• Business case
• Problem statement
• Goal statement
• Project scope
• Resources
• Timelines
• Estimated benefits

This chapter gives an overview of a six sigma project and is approved by top management to
give a go-ahead to the six sigma project.

Measure

Process variables are measured at this stage. Process data is collected. The baseline is obtained
and metrics are compared with final performance metrics. Process capability is obtained.

Analyze

Root cause analysis is done at this stage. Complex analysis tools are utilized to identify the root
causes of a defect. Tools like histograms, Pareto charts, fishbone diagrams are used to identify
the root causes. Hypotheses tests are conducted to verify and validate root causes, Viz
Regression test, ANOVA test, Chi-square, etc.

Improve

Once the final root causes are identified, solutions need to be formed to improve the process.
Steps to identify, test, and implement the solutions to eliminate root causes are part of this stage.
Simulation studies, Design of experiments, Prototyping are some of the techniques used here to
improve and maximize process performance.

Control

After implementing the solutions, the performance of the solutions must be recorded. A control
system must be in place to monitor the performance post improvement. And a response plan is
developed to handle solution failure. Process standardization through Control plans & work
instructions is typically a part of this phase. Control charts show the process performance.
Project benefits are discussed and verified against the estimated one. The main purpose of this
phase is to ensure holding the gains.

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