Bpur312 notes augt 2019

UNIT CODE: BPUR 312.
UNIT NAME: LOGISTIC SYSTEMS.
PERIOD: 14 WEEKS.
COURSE DESCRIPTION:
Introduction to logistics, logistics in organizations, role and performance of logistics activities in
purchasing and supplies. Information flow, forecasting, inventory management, warehousing,
material handling and packing, transport management, policy demand and supply requirement,
transport operations, transport costs and transport financing.
LECTURER TOPICS
WEEK
TOPIC
1
Introduction to logistical systems: Meaning of logistics systems, Scope of logistics
systems.
2
Logistics in organizations: Types of logistics, Significance of logistics
3
Role of logistics activities in organizations : Significance of logistics systems in
purchasing and supplies
4
Cat 1
5
Information flow in logistics systems: Allocation systems, Requisition systems
6
Forecasting and inventory management: Inventory levels, Lead time
7
Warehousing, material handling and packaging: Types of warehouses and factors
considered in the location of warehouses, Material handling and packing technique
8
Transport management: Significance of transport systems in logistics system, criteria
in determination of the mode of transport
9
Cat 2
10
Packaging management. Importance of packaging to logistics systems, Factors
determining the nature of packaging material
11
Policy demand supply requirement:Importance of supply and demand policies to an
organization
12
Transport operations: Transport cost ,Transport requirement, Transport financing
Cost of transport vs. cost of materials
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13
Student presentations
14-16 University Examinations
BACKGROUND AND RATIONALE.
LEARNING OBJECTIVES
By the end of this course the student should be able to:
1. Explain the meaning and significance of logistical systems
2 Explain the difference between inbound and outbound logistics
3. Discuss the modalities of logistical design
1. Understand the relationship of cost of materials vs cost of logistics
Mode of Delivery
-Through Lectures and Presentations from the Learners.
-Evaluation Mode:
-Learners Shall Be Evaluated In The Following Ways.
-Cats Shall Be Administered And It Shall Account For 30 Percent Of The Final Mark.
-Final Exam shall account for 70 Percent.
-The Learner MUST Sit For The Cats Before Sitting For The Final Examination.
-The learners must attend at least 80 percent of the lectures to qualify to sit for the exams
References:
RECOMMENDED READING AND REFERENCE MATERIALS.
1-Continuous Genetic Algorithms as Intelligent Assistance for Resource Distribution in
Logistic SystemsŁ Wieczorek, P Ignaciuk – Data, 2018
2. 2-A new generalized odd log-logistic flexible Weibull regression model with
applications in repairable systems F Prataviera, EMM Ortega, GM Cordeiro…, 2018 Elsevier
3. 3-Phase Diagram for Logistic Systems under Bounded Stochasticity Y Yahalom, NM
Shnerb – Physical Review Letters, 2019 – APS
4. 4-Adaptive Behavior Modeling in Logistic Systems with Agents and Dynamic
Graphs
5. T Démare, C Bertelle, A Dutot, D Fournier – … and Adaptive Systems …, 2019
BPUR 312 LOGISTIC SYSTEMS
CHAPTER ONE
INTRODUCTION
Logistics deals with the planning and control of material flows and related information in
organizations, both in the public and private sectors. Broadly speaking, its mission is to get the
right materials to the right place at the right time, while optimizing a given performance measure
(e.g. minimizing total operating costs) and satisfying a given set of constraints (e.g. a budget
constraint).
In the military context, logistics is concerned with the supply of troops with food, armaments,
ammunitions and spare parts, as well as the transport of troops themselves.
In civil organizations, logistics issues are encountered in firms producing and distributing
physical goods. The key issue is to decide how and when raw materials, semi-finished and
finished goods should be acquired, moved and stored. Logistics problems also arise in firms and
public organizations producing services. This is the case of garbage collection, mail delivery,
public utilities and after-sales service.
Logistics definition
‘Logistics’ is the management of the flow of resources, not only goods, between the point of
origin and the point of destination in order to meet the requirements of customers or
corporations. Logistics involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging, and often security.
Logistics‟ is the process of managing acquisition, movement and storage of materials and
finished products so as to fulfill orders most effectively. It is essentially a planning based
activity.
According to the Council of Logistics Management, logistics contains the integrated planning,
control, realization and monitoring of all internal and network-wide material, part and product
flow including the necessary information flow in industrial and trading companies along the
complete value-added chain (and product life cycle) for the purpose of conforming to customer
requirements. It is the flow of materials and information from the point of origin to the
ultimate customer.
Objectives of Logistics
Reduce inventory level
Reliable and consistent inventory
Reduce cost e.g. consolidate delivery
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To have minimum damage to products
To have a quick response to the requirements of the customer.
Main logistics targets
Logistics is one of the main functions within a company. The main targets of logistics can be
divided into performance related and cost related. They are high due date reliability, short
delivery times, low inventory level and high capacity utilization. But when decisions need to be
made, there is always a tradeoff between these targets.
Phases of Logistics
Inbound logistics is one of the primary processes and it concentrates on purchasing and
arranging inbound movement of materials, parts or finished inventory from suppliers to
manufacturing or assembly plants, warehouses or retail stores.
Process logistics – These are the operations related to processing e.g. storage, movement of
materials within the company etc. e.g. delivery lorry
Outbound logistics – This is the process related to the storage and movement of the final
product and the related information flows from the end of the production line to the end user.
Logistics fields
Given the services performed by logisticians, the main fields of logistics can be broken down as
follows:
Procurement Logistics
Production Logistics
Distribution Logistics
After sales Logistics
Disposal Logistics
Procurement Logistics consists of activities such as market research, requirements planning,
make or buy decisions, supplier management, ordering, and order controlling. The targets in
procurement logistics might be contradictory maximize the efficiency by concentrating on core
competences, outsourcing while maintaining the autonomy of the company, and minimization of
procurement costs while maximizing the security within the supply process.
Production Logistics connects procurement to distribution logistics. The main function of
production logistics is to use the available production capacities to produce the products needed
in distribution logistics. Production logistics activities are related to organizational concepts,
layout planning, production planning, and control.
Distribution Logistics has, as main tasks, the delivery of the finished products to the customer.
It consists of order processing, warehousing, and transportation. Distribution logistics is
necessary because the time, place, and quantity of production differ with the time, place, and
quantity of consumption.
Disposal Logistics’ The main function is to reduce logistics cost(s), enhance service(s), related
to the disposal of waste produced during the operation of a business.
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Business logistics
A logistics provider’s warehouse of goods being stacked on pallets with a forklift. Logistics as a
business concept evolved in the 1950s due to the increasing complexity of supplying businesses
with materials and shipping out products in an increasingly globalized supply chain, leading to a
call for experts called supply chain logisticians. Business logistics can be defined as “having
the right item in the right quantity at the right time at the right place for the right price in
the right condition to the right customer”, and is the science of process and incorporates all
industry sectors. The goal of logistics work is to manage the fruition of project life cycles, supply
chains and resultant efficiencies.
In business, logistics may have either internal focus (inbound logistics), or external focus
(outbound logistics) covering the flow and storage of materials from point of origin to point of
consumption.
The main functions of a qualified logistician include inventory management, purchasing,
transportation, warehousing, consultation and the organizing and planning of these
activities. Logisticians combine a professional knowledge of each of these functions to
coordinate resources in an organization. There are two fundamentally different forms of
logistics: one optimizes a steady flow of material through a network of transport links and
storage nodes; the other coordinates a sequence of resources to carry out some project.
Main logistics targets
Logistics is one of the main functions within a company. The main targets of logistics can be
divided into performance related and cost related. They are high due date reliability, short
delivery times, low inventory level and high capacity utilization. But when decisions need to
be made, there is always a trade off between these targets.
Logistics management
Logistics is that part of the supply chain which plans, implements and controls the efficient,
effective forward and reverse flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet customer and legal
requirements. A professional working in the field of logistics management is called a logistician.
Logistics management is known by many names, the most common are as follows:
Materials Management
Channel Management
Distribution (or Physical Distribution)
Business or Logistics Management or
Supply Chain Management
The Chartered Institute of Logistics & Transport (CILT) was established in the United Kingdom
in 1919 and was granted a Royal Charter in 1926. The Chartered Institute is one of the
professional bodies or institutions, for the logistics and transport sectors, that offers professional
qualifications or degrees in logistics management.
Logistics outsourcing
Third-party logistics
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Third-party logistics (3PL) involves using external organizations to execute logistics activities
that have traditionally been performed within an organization itself. According to this definition,
third-party logistics includes any form of outsourcing of logistics activities previously performed
in-house. If, for example, a company with its own warehousing facilities decides to employ
external transportation, this would be an example of third-party logistics. Logistics is an
emerging business area in many countries.
Fourth-party logistics
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.
Emergency logistics
Emergency logistics is a term used by the logistics, supply chain and manufacturing industries to
denote specific time critical modes of transport used to move goods or objects rapidly in the
event of an emergency. The reason for enlisting emergency logistics services could be a
production delay or anticipated production delay, or it could be that specialist equipment is
needed urgently to prevent instances such as aircraft being grounded (also known as “aircraft on
ground”–AOG), ships being delayed, or telecommunications failure. Emergency logistics
services are typically sourced from a specialist provider.
As a profession
A logistician is a professional logistics practitioner. Professional logisticians are often certified
by professional associations. One can either work in a pure logistics company such as shipping
line, airport or freight forwarder or within the logistics department of a company. However, as
mentioned previously, logistics is a very broad field encompassing procurement, production,
distribution and disposal activities. Hence, the career perspectives are very broad also. A new
trend in the industry are the 4PL, or Fourth-party logistics – consulting companies offering
logistics services. They hire students with a BA or MA in International Logistics. Some
universities and academic institutions train students as logisticians, offering undergraduate and
postgraduate programs.
Significance of logistics.
Maintaining Competitive Edge
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Successful business logistics provide a competitive edge against other organizations. It provides
a system or process by which customer needs can be fulfilled in a more efficient manner. A
business should strive to provide shipments of merchandise in a more accurate and fast manner
than competitors do. The Internet has made it possible for many companies to do this.
Building Good Consumer Relations
Providing product in an efficient manner, which business logistics helps to do, also helps to build
good consumer relations. This is not only important for immediate monetary gain, but also
because good customer relations can mean more business. One of the best ways to advertise and
grow your business is to provide good, quality service that customers will tell other customers
about(prospecting).
Creating Finished Product
A business needs to ensure there are enough raw materials available to make finished products.
Without quality goods, a business cannot make quality product. Having enough products stocked
is also necessary for supply and demand purposes and to maximize customer satisfaction.
Providing Organization
Each time a product is created, business logistics can help to ensure the process goes efficiently.
It is important that inventory be tracked, transported, stored and manufactured in a way that
accommodates all of an organization’s departments. Controlling this flow so that each
department knows what to do and what is expected will help to ensure that the company’s plans
and goals stay on track.
Logistics systems.
A logistics system is made up of a set of facilities linked by transportation services. Facilities
are sites where materials are processed, e.g. manufactured, stored, sorted, sold or consumed.
They include manufacturing and assembly centers, warehouses, distribution centers (DCs), transshipment points, transportation terminals, retail outlets, mail sorting centers, garbage
incinerators, dump sites, etc.
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CHAPTER TWO
HOW LOGISTICS SYSTEMS WORK
Logistics systems are made up of three main activities: order processing, inventory management
and freight transportation.
1. Order processing
Order processing is strictly related to information flows in the logistics system and includes a
number of operations. Customers may have to request the products by filling out an order form.
These orders are transmitted and checked. The availability of the requested items and customer’s
credit status are then verified. Later on, items are retrieved from the stock (or produced), packed
and delivered along with their shipping documentation. Finally, customers have to be kept
informed about the status of their orders. Traditionally, order processing has been a very timeconsuming activity (up to70% of the total order-cycle time). However, in recent years it has
benefited greatly from advances in electronics and information technology. Bar code scanning
allows retailers to rapidly identify the required products and update inventory level records.
Laptop computers and modems allow salespeople to check in real time whether a product is
available in stock and to enter orders instantaneously. EDI allows companies to enter orders for
industrial goods directly in the seller’s computer without any paperwork.
Functions of order processing
Order processing serves to plan, manage and monitor the flow of goods. This requires an
information flow that precedes, accompanies and follows the flow of goods.
Advance information flow
Once the customer has placed his order, the manufacturer or retailer sends the customer an order
confirmation specifying the scheduled delivery time. All parties involved in the flow of goods
also receive prompt notification about the scheduled delivery. As a result, these parties have the
time they need to plan and schedule, two necessary conditions for optimally executing the flow
of goods in terms of costs and services, the use of MRP
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Accompanying information flow
The information flow that accompanies the flow of goods is designed to provide all parties with
operational information needed on site to carry out transport, handling and storage activities.
This information includes proper handling of hazardous goods. In addition, tracking of the flow
of goods through the logistics network is to be supported.
An RFID Radio frequency identification tag, for example, can be used in the information flow
accompanying the flow of goods. A special sensor monitors and documents the temperature of
the shipment throughout the transport. The measured data are available at each monitoring point,
a feature that enables the shipper, recipient and controller to continually check the condition of
the products. This is especially important for pharmaceutical products like vaccines whose
effectiveness can be harmed by temperature fluctuations outside the recommended range.
Follow-up information flow
The information flow that follows the flow of goods consists of information that is available only
after the flow of goods has been completed. A case in point is an invoice that the recipient
receives a few days after a delivery. However, information can also flow in the opposite
direction of the flow of goods. This involves a status report on the execution of the order including information that is reported to the dispatching point about matters such as the time
when the flow of goods passed critical stations in the transport chain. These stations can include
borders in international shipments. This information is also part of the follow-up information
flow
2. Inventory management
Inventory management is a key issue in logistics system planning and operations. Inventories
are stockpiles of goods waiting to be manufactured, transported or sold. Typical examples are:
• Components and semi-finished products (work-in-process) waiting to be manufactured or
assembled in a plant;
• Merchandise (raw material, components, and finished products) transported through the
supply chain (in-transit inventory);
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• finished products stocked in a DC prior to being sold;
• finished products stored by end-users (consumers or industrial users) to satisfy future needs.
There are several reasons why a logistician may wish to hold inventories in some facilities
of the supply chain.
a) Improving service level- Having a stock of finished goods in warehouses close to
customers yields shorter lead times.
b) Reducing overall logistics cost- Freight transportation is characterized by economies of
scale because of high fixed costs. As a result, rather than frequently delivering small
orders over long distances, a company may find it more convenient to satisfy customer
demand from local warehouses (replenished at low frequency).
c) Coping with randomness in customer demand and lead times- Inventories of finished
goods ( safety stocks) help satisfy customer demand even if unexpected peaks of demand
or delivery delays occur (due, for example, to unfavorable weather or traffic conditions).
d) Making seasonal items available throughout the year. Seasonal products can be stored
in warehouses at production time and sold in subsequent months.
e) Speculating on price patterns. Merchandise whose price varies greatly during the year
can be purchased when prices are low, then stored and finally sold when prices go up.
f) Overcoming inefficiencies in managing the logistics system. Inventories may be used
to overcome inefficiencies in managing the logistics system (e.g. a distribution company
may hold a stock because it is unable to coordinate supply and demand).
Holding an inventory can, however, be very expensive for a number of reasons:
a) A company that keeps stocks incurs an opportunity (or capital) cost represented by the
return on investment the firm would have realized if money had been better invested.
b) warehousing costs must be incurred, whether the warehouse is privately owned, leased or
public
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The aim of inventory management is to determine stock levels in order to minimize total
operating cost while satisfying customer service requirements.
In practice, a good inventory management policy should take into account five issues:
(1) The relative importance of customers;
(2) The economic significance of the different products;
(3) Transportation policies;
(4) Production process flexibility;
(5) Competitors’ policies.
Inventory and transportation strategies.
Inventory and transportation policies are intertwined. When distributing a product, three main
strategies can be used: direct shipment, warehousing, cross docking.
• Direct shipment- If a direct shipment strategy is used; goods are shipped directly from the
manufacturer to the end-user (the retailers in the case of retail goods). Direct shipments
eliminate the expenses of operating a DC and reduce lead times. On the other hand, if a
typical customer shipment size is small and customers are dispersed over a wide
geographic area, a large fleet of small trucks may be required. As a result, direct
shipment is common when fully loaded trucks are required by customers or when
perishable goods have to be delivered timely.
• Warehousing- Warehousing is a traditional approach in which goods are received by
warehouses and stored in tanks, pallet racks or on shelves. When an order arrives, items
are retrieved, packed and shipped to the customer. Warehousing consists of four major
functions: reception of the incoming goods, storage, order picking and shipping. Out of
these four functions, storage and order picking are the most expensive because of
inventory holding costs and labour costs, respectively.
• Crossdocking- (also referred to as just-in-time distribution) is a relatively new logistics
technique that has been successfully applied by several retail chains. A cross dock is a
transshipment facility in which incoming shipments (possibly originating from several
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manufacturers) are sorted, consolidated with other products and transferred directly to
outgoing trailers without intermediate storage or order picking. As a result, shipments
spend just a few hours at the facility. In pre-distribution crossdocking, goods are
assigned to a retail outlet before the shipment leaves the vendor. In post-distribution
crossdocking, the crossdock itself allocates goods to the retail outlets. In order to work
properly, crossdocking requires high volume and low variability of demand (otherwise it
is difficult to match supply and demand) as well as easy-to-handle products. Moreover, a
suitable information system is needed to coordinate inbound and outbound flows.
3. Freight transportation
Freight transportation plays a key role in today’s economies as it allows production and
consumption to take place at locations that are several hundreds or thousands of kilometers away
from each other. As a result, markets are wider, thus stimulating direct competition among
manufacturers from different countries and encouraging companies to exploit economies of
scale. Moreover, companies in developed countries can take advantage of lower manufacturing
wages in developing countries. Finally, perishable goods can be made available in the worldwide
market. Freight transportation often accounts for even two-thirds of the total logistics cost and
has a major impact on the level of customer service. It is therefore not surprising that
transportation planning plays a key role in logistics system management. A manufacturer or a
distributor can choose among three alternatives to transport its materials. First, the company may
operate a private fleet of owned or rented vehicles (private transportation). Second, a carrier
may be in charge of transporting materials through direct shipments regulated by a contract
(contract transportation). Third, the company can resort to a carrier that uses common resources
(vehicles, crews, terminals) to fulfill several client transportation needs (common
transportation). In the remainder of this section, we will illustrate the main features of freight
transportation from a logistician’s perspective.
Distribution channels.
Bringing products to end-users or into retail stores may be a complex process. While a few
manufacturing firms sell their own products to end-users directly, in most cases intermediaries
participate in product distribution. These can be sales agents or brokers, who act for the
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manufacturer, or wholesalers, who purchase products from manufacturers and resell them to
retailers, who in turn sell them to end-users. Intermediaries add a markup to the cost of a product
but on the whole they benefit consumers because they provide lower transportation unit costs
than manufacturers would be able to achieve. A distribution channel is a path followed by a
product from the manufacturer to the end-user. A relevant marketing decision is to select an
appropriate combination of distribution channels for each product. Figure 1.3 illustrates the
main distribution channels.
Channels 1–4 correspond to consumer goods while channels 5–7 correspond to industrial goods.
In channel 1, there are no intermediaries. This approach is suitable for a restricted number of
products (cosmetics and encyclopedias sold door-to-door, handicraft sold at local flea markets,
etc.). In channel 2, producers distribute their products through retailers (e.g. in the tyre industry).
Channel 3 is popular whenever manufacturers distribute their products only in large quantities
and retailers cannot afford to purchase large quantities of goods (e.g. in the food industry).
Channel 4 is similar to channel 3 except that manufacturers are represented by sales agents or
brokers (e.g. in the clothing industry). Channel 5 is used for most industrial goods (raw material,
equipment, etc.). Goods are sold in large quantities so that wholesalers are useless. Channel 6 is
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the same as channel 5, except that manufacturers are represented by sales agents or brokers.
Finally, channel 7 is used for small accessories (paper clips, etc.).
Freight consolidation.
A common way to achieve considerable logistics cost savings is to take advantage of economies
of scale in transportation by consolidating small shipments into larger ones. Consolidation can be
achieved in three ways. First, small shipments that have to be transported over long distances
may be consolidating so as to transport large shipments over long distances and small shipments
over short distances (facility consolidation). Second, less-than-truckload pick-up and deliveries
associated with different locations may be served by the same vehicle on a multi-stop route
(multi-stop consolidation). Third, shipment schedules may be adjusted forward or backward so
as to make a single large shipment rather than several small ones (temporal consolidation).
Modes of transportation.
Transportation services come in a large number of variants. There are five basic modes (ship,
rail, truck, air and pipeline), which can be combined in several ways in order to obtain door-todoor services such as those provided, for example, by intermodal carriers and small shipment
carriers. Merchandise is often consolidated into pallets or containers in order to protect it and
facilitate handling at terminals. Common pallet sizes are 100×120 cm2, 80×100 cm2, 90×110
cm2 and 120×120 cm2. Containers may be refrigerated, ventilated, closed or with upper
openings, etc. Containers for transporting liquids have capacities between 14 000 and 20 000 l.
When selecting a carrier, a shipper must take two fundamental parameters into account: price (or
cost) and transit time. The cost of a shipper’s operated transportation service is the sum of all
costs associated with operating terminals and vehicles. The price of a transportation service is
simply the rate charged by the carrier to the shipper. Air is the most expensive mode of
transportation, followed by truck, rail, pipeline and ship. According to recent surveys,
transportation by truck is approximately seven times more expensive than by train, which is four
times more costly than by ship. Transit time is the time a shipment takes to move between its
origins to its destination. It is a random variable influenced by weather and traffic conditions.
One must bear in mind that some modes (e.g. air) have to be used jointly with other modes (e.g.
truck) to provide door-to-door transportation.
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Rail.
Rail transportation is inexpensive (especially for long-distance movements), relatively slow and
quite unreliable. As a result, the railroad is a slow mover of raw materials (coal, chemicals, etc.)
and of low-value finished products (paper, tinned food, etc.). This is due mainly to three reasons:
• Convoys transporting freight have low priority compared to trains transporting
passengers;
• Direct train connections are quite rare;
• A convoy must include tens of cars in order to be worth operating.
Truck.
Trucks are used mainly for moving semi-finished and finished products. Road transportation
can be truckload (TL) or less-than-truckload (LTL). A TL service moves a full load directly
from its origin to its destination in a single trip. If shipments add up to much less than the vehicle
capacity (LTL loads), it is more convenient to resort to several trucking services in conjunction
with consolidation terminals rather than use direct shipments (see Figure 1.6). As a result, LTL
trucking is slower than TL trucking.
Air.
Air transportation is often used along with road transportation in order to provide door-to-door
services. While air transportation is in principle very fast, it is slowed down in practice by freight
handling at airports. Consequently, air transportation is not competitive for short and medium
haul shipments. In contrast, it is quite popular for the transportation of high-value products over
long distances.
Intermodal transportation.
Using more than one mode of transportation can lead to transportation services having a
reasonable trade-off between cost and transit time. Although there are in principle several
combinations of the five basic modes of transportation, in practice only a few of them turn out to
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be convenient. The most frequent intermodal services are air–truck ( birdyback) transportation,
train–truck ( piggyback) transportation, ship–truck ( fishyback) transportation. Containers are the
most common load units in intermodal transportation and can be moved in two ways:
• Containers are loaded on a truck and the truck is then loaded onto a train, a ship or an
airplane (trailer on flatcar);
• Containers are loaded directly on a train, a ship or an airplane (container on flatcar).
2. Physical Structure of the System
A logistics system’s physical structure consists of two things: stationary facilities and the
transportation links between those facilities. Logistics jargon further distinguishes those
facilities that are outside the system (such as drug manufacturers) from which commodities are
supplied; these are called “sources.” Facilities that receive supplies from a source (such as a
central medical store) are called “primary supply points.” Facilities that dispense commodities to
end users are called “outlets.”
Whatever names are used, there are six important things to know about the facilities:
1. Where is the facility located?
2. How is it staffed?
3. What is the actual need for each commodity at the facility and how does this need vary over
time?
4. What is the facility’s storage capacity?
5. What are the storage conditions, and are they suitable for the items being stored?
6. How the inventory is controlled, and is it secure?
In describing the physical structure of the logistics system, it is important to note the number of
links into each facility. The more links there are, the more confused the system is likely to be. At
the top, the primary supply points probably will receive commodities from a number of sources.
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At lower levels of the system, however, it is usually desirable to limit each facility to receiving
supplies through only one link (possibly with a different link for emergency backup).
Similarly, there are five important things to know about transportation links:
1. What types of transportation are available?
2. What size batches of commodities are cost-effective to transport?
3. How long does it take to get from one facility to the next?
4. How often can shipments be made?
5. Are the answers to these questions different during different seasons of the year? With this
basic information in hand, the logistics systems management structure can be designed.
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CHAPTER THREE
MANAGEMENT STRUCTURE OF LOGISTICS SYSTEMS
The essential questions in understanding the management structure of a logistics system are—
who decides what (and when and how many) commodities move through a link from one facility
to the next, and how does he/she decide?
There are two general types of logistics systems:
1. Allocation or “push” systems
2. Requisition or “pull” systems
In an allocation system, the higher-level facility decides what commodities move down the
system and when they move down. It “pushes” them through the system. In a requisition system,
the lower-level facility orders commodities as the need arise, thus “pulling” supplies through the
system.
The advantages of a requisition or “pull” system are that it can be based on current information
about actual needs, and thus, in theory, is more accurate and less wasteful than an allocation
system. Decision making is decentralized to lower levels and each manager has a narrower scope
of concern. The disadvantages of requisition systems are related directly to these advantages.
Requisition systems will work only if accurate information about needs exists or can be obtained,
and if lower level staff has sufficient management training and support to make appropriate
decisions about ordering.
Allocation or “push” systems are, therefore, appropriate when accurate information on needs is
not available or where management skill is concentrated at higher levels of the service system. If
demand significantly exceeds supply, an allocation system must be used to divide scarce
commodities among competing facilities. Where allocation systems are used, every effort should
be made to base allocations on appropriate estimates of actual need.
This management structure may differ at different levels of the system; higher levels may
requisition and then allocate to lower levels. Even at a single level, the system may be mixed. A
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regional warehouse might allocate stock to a health center every three months, but the health
center may be able to request additional supplies, if needed, in the interim. Also, it may be
desirable to use different procedures for equipment, which is essentially a one-time problem,
than for supplies, which must be restocked on a continuing basis.
In addition to the question of who makes the decisions to move commodities, there is the
question of how the decision is made. It already has been stated that the decision should be
based on a projection of actual need; such an assessment is called forecasting or
quantification.
Forecasting process must consider three things:
1. Historical data: The decision maker must consider the actual past use of commodities and
how that use pattern has changed over time; this can be done simply by graphing the data.
2. Future program plans: The decision maker must know what the future plans for the program
are and have some way of realistically estimating the effect of those plans on the demand for
commodities.
3. Underlying assumptions: The decision maker must use proper assumptions about how
demand varies over time; for example, in a new program, demand is usually slow at first,
then increases rapidly, and finally levels off
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CHAPTER FOUR
INFORMATION FLOW
Information flow from the order to delivery
An order forms the basis for the information flow in a logistics system. It has three principal
functions – it creates a flow of information that precedes the goods, accompanies them and
follows them. The tasks of order processing are divided into six phases: order transmission,
preparation, routing, picking, shipment and invoicing
The order and its impact
The transmission of the customer’s order triggers the logistics processes within the company. On
the information-flow level, order processing addresses the handling and monitoring of an order
– from the time it is placed by the customer to the delivery of the shipment documents and
invoice to the customer. The time required for order processing makes up a substantial amount of
the total delivery time.
Order transmission
Order transmission can be done by mail, fax, telephone, e-mail or electronic data exchange (web)
EDI Electronic data interchange . To avoid uneven capacity use of a logistics system, the
appropriate means of transmission should be selected in each case.
Preparation
Preparation adjusts the order to meet internal company requirements and integrates the order into
the logistics system’s planning. This includes obtaining missing information, and checking
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pricing conditions, delivery conditions and customer creditworthiness as well as the availability
of the material in the warehouse.
Routing
Order preparation is usually followed by order routing, a process that includes order
confirmation and the generation of internal job orders – manually, mechanically or electronically.
For example, a delivery notification containing all related shipping documents is prepared and
tells the storage point to process the shipment. As the integration of electronic data processing
expands, the routing process is becoming increasingly automated, reducing paperwork associated
with the information flow.
Picking
Based on prepared and processed orders, goods are picked in the warehouse. Picking is
organized according to factors such as order size, urgency and orders that have to be delivered
simultaneously. In this phase, order processing provides information to the warehouse and
inventories that can be used for tasks such as management of storage and retrieval equipment or
for inventory book keeping.
Shipment
Picking is followed by preparation of shipping documents. When options are available, this
phase includes selecting the optimal means of transport and route for delivery. This information
is closely linked to transportation because both loading and movement of goods are initiated in
this phase.
Invoicing
Invoicing of orders may be done at various points – either as post-invoicing after shipping has
been arranged or as pre-invoicing before or while compilation and shipping are being done. The
strength of post-invoicing is that an order can smoothly proceed to the warehouse. The strength
of pre-invoicing is that as much paperwork as possible can be completed in one phase.
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Records in logistics information system
There must be three different types of records in the logistics information system:
1. Stock keeping records: These must include inventory control cards, but may also include
additional records for accountability and prevention of theft.
2. Transaction records: These include records of the amount shipped from one facility to the
next and records of amounts ordered (for requisition systems).
3. Consumption records: While some programs do without these, it is much better to have log
books to record quantities dispensed to each client and a regular report that summarizes these
data for higher-level management use in forecasting and resupply decisions.
Decisions regarding the level of accountability and control in the logistics system should weigh
the level of effort and the amount of paperwork required. In some cases, it may be less expensive
to permit a certain amount of theft or shrinkage rather than to create a complex and unwieldy
information system.
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CHAPTER FIVE
INVENTORY CONTROL SYSTEMS
Types of Inventory Control Systems
There are two primary questions to answer in logistics system design.
(1) Who will make the ordering decision? (2) What is the smallest amount of information on
which those decisions can be based? The ordering decision must answer two questions:
1. How much should be ordered?
2. When should it be ordered?
There are only three different types:
1. Fixed order size, variable order interval systems
2. Fixed order interval, variable order size systems
3. Combination systems
In a fixed order size, variable order interval (or order point) system, a specific fixed amount of a
commodity is ordered whenever inventory falls below a certain level, called the reorder point.
Thus, for example, the decision rule might be, “Whenever there are fewer than 500 capsules of
tetracycline, order 1,000 more.” The trick is to choose the reorder point so the new shipment is
guaranteed to arrive before the remaining supply is exhausted. The advantage of this type of
system is that it gives control on an item-by-item basis and thus minimizes excess stock. The
disadvantage is that it is difficult to predict the transportation schedule and to batch many items
for shipment. Therefore, where transportation is difficult or time-consuming, such systems are
less appropriate.
A simple version of a fixed order size, variable order interval system is a two-bin system, in
which goods are packed in standard-sized bins that correspond to the reorder point. Each outlet
initially is issued two bins. Supplies are drawn from one bin until it is empty, and then a new
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order is placed (preferably using a preprinted order form packed at the bottom of the bin).
Supplies are then drawn from the second bin until it is exhausted, by which time the replacement
bin should have arrived, and the procedure is repeated. The advantage of the two-bin system is
that it requires no record keeping at the facility using it.
In a fixed order interval, variable order size system, the ordering time is fixed at, for
example, once per quarter, with the size of the order depending on stock remaining and projected
use. The advantage of this type of system is that many items can be batched and shipped at the
same time, thus reducing transportation problems and costs.
A mixed, or combination system uses both strategies at the same time. Stocks are reviewed on a
fixed schedule, but an order is placed only if inventory has fallen below a fixed reorder point. In
logistics jargon, such systems are known as (s,S) systems, where s is the reorder point, and S is
the amount that is requisitioned. S may be a predetermined absolute quantity, but it is more
common to order the difference between the stock on hand and the desired maximum amount the
facility wishes to store. This latter case is called a min-max inventory control system.
A special version of the mixed system is called the regular replenishment system, in which
the higher-level facility visits its outlets on a regular basis, replenishing or “topping off” stock up
to the maximum amount S. This system also does not require record keeping at the lower level.
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CHAPTER SIX
STOREKEEPING
The systems for physical control of inventory at each facility will vary depending on staff and
storage space available. A number of general concerns should be addressed at each location,
however.
The first consideration is security of the physical inventory. Minimum security measures
include:
1. Ensuring that all stock movement is authorized by locking the storeroom, limiting access to
persons other than the storekeeper and his/her assistants, and ensuring that both incoming and
outgoing stock matches documentation.
2. Verifying authenticity of documentation by spot-checking signatures and so forth.
3. Periodically verifying inventory records by a systematic count of physical inventory.
The second consideration is the facility’s physical layout. The ideal storeroom should
have—
1. Two different points for receipt and dispatch of goods to provide for orderly flow of
materials and to reduce opportunities for clerical error or theft.
2. A fixed location for each stocked item, with appropriate conditions (temperature, humidity)
for the items being stored.
3. Adequate space for unpacking received material and for packing outgoing shipments.
4. A separate secure area for valuable items.
5. Adequate access to all items in the storeroom to allow for first-to-expire, first-out (FEFO)
handling.
Beyond these considerations, storage and handling of materials are governed by the
characteristics of the products. Items with high turnover should be most easily accessible. Heavy
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items should be stored near the ground. Expensive items should be stored in the most secure
area. For drugs and other perishables, temperature and humidity requirements must be
considered.
Perishable items must be appropriately dated, preferably with the expiration date. If the
manufacturer does not include the expiration date, it should be estimated from the manufacturing
date or, if no other date is available, from the delivery date. Many logistics systems include the
expiration date on the inventory file card. While this may be convenient, it is much more
important to include the expiration date directly on the item itself, and to strictly enforce a FIFO
issue system.
These storekeeping procedures are common sense. Nonetheless, it is usually helpful to develop
simple storage guidelines, wall charts, or checklists for warehouse staff.
In summary, the storekeeping function, like any other function of the logistics system, requires
little more than orderliness and efficiency. A warehouse that looks neat and organized probably
is well managed; a warehouse that does not appear to be so certainly is not.
Centralized versus decentralized warehousing
If a warehousing strategy is used, one has to decide whether to select a centralized or a
decentralized system. In centralized warehousing, a single warehouse serves the whole market,
while in decentralized warehousing the market is divided into different zones, each of which is
served by a different (smaller) warehouse. Decentralized warehousing leads to reduced lead
times since warehouses are much closer to customers. On the other hand, centralized
warehousing is characterized by lower facility costs because of larger economies of scale. In
addition, if customers’ demands are uncorrelated, the aggregate safety stock required by a
centralized system is significantly smaller than the sum of the safety stocks in a decentralized
system. This phenomenon (known as risk pooling) can be explained qualitatively as follows:
under the above hypotheses, if the demand from a customer zone is higher than the average, then
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there will probably be a customer zone whose demand is below average. Hence, demand
originally allocated to a zone can be reallocated to the other hand; as a result, lower safety stocks
are required. Finally, inbound transportation costs (the costs of shipping the goods from
manufacturing plants to warehouses) are lower in a centralized system while outbound
transportation costs (the costs of delivering the goods from the warehouses to the customers) are
lower in a decentralized system.
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CHAPTER SEVEN
EMERGING TRENDS IN LOGISTICS
In recent years, several strategic and technological changes have had a marked impact on
logistics. Among these, three are worthy of mention: globalization, new information technologies
and e-commerce.
a) Globalization.
An increasing number of companies operate at the world level in order to take advantage of
lower manufacturing costs or cheap raw materials available in some countries. This is sometimes
achieved through acquisitions or strategic alliances with other firms. As a result of globalization,
transportation needs have increased. More parts and semi-finished products have to be moved
between production sites, and transportation to markets tends to be more complex and costly.
The increase in multimodal container transportation is a direct consequence of globalization.
Also, as a result of globalization, more emphasis must be put on the efficient design and
management of supply chains, sometimes at the world level.
b) Information technologies.
Suppliers and manufacturers make use of EDI. This enables them to share data on stock levels,
timing of deliveries, positioning of in-transit goods in the supply chain, etc. At the operational
level, geographic information systems (GISs), global positioning systems (GPSs) and on-board
computers allow dispatchers to keep track of the current position of vehicles and to communicate
with drivers. Such technologies are essential to firms engaged in express pick-up and delivery
operations, and to long-haul trucking companies.
c) E-commerce.
An increasing number of companies make commercial transaction through the internet. It is
common to distinguish between business-to-business (B2B) and business-to-consumers (B2C)
transactions. The growth of e-commerce parallel that of globalization and information
technologies. As a result of e-commerce the volume of goods between producers and retailers
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should go down while more direct deliveries should be expected between manufacturers and
end-users. E-commerce leads to a more complex organization of the entire logistics system (elogistics), which should be able to manage small- and medium-size shipments to large number of
customers, sometimes scattered around the world. Furthermore, the return flow of defective (or
rejected) goods becomes a major issue (reverse logistics). The virtual warehouse and the Points
of Presence in the Territory (POPITT) are just a few examples. A virtual warehouse is a facility
where suppliers and distributors keep their goods in stock in such a way that thee-commerce
Company can fulfill its orders. A POPITT is a company-owned facility where customers may go
either for purchasing and fetching the ordered goods, or for returning defective products. Unlike
traditional shops, POPITT only stores already sold goods waiting to be picked up by customers
and defective products waiting to be returned to the manufacturers. This solution simplifies
distribution management but reduces customer service level since it does not allow for home
deliveries.
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CHAPTER EIGHT
TRANSPORT MANAGEMENT
This is an element of distribution cost that should be considered during the designing of
distribution system. Effective distribution requires that an appropriate mode of transport be used
in the transportation of the good so that they reach their destination.
Duties of transport department
The transport department is required to perform the following general function:
1. Maintenances of complete and up to date transport records. It keeps track of all
papers concerning the movement of goods.
2. It liaises with the sales and purchasing department for smooth flow of goods.
3. It has to compute the transport cost and circulate the working to the concerned
department for their guidance and decision.
4. Coordinating efforts. It coordinates the efforts of materials sales and purchase and personnel
department so as help in saving time, energy of the department concerned.
5. Evaluating the goods carried and establishing a data file on each e.g. the capacity of vehicles
cost per km etc.
6. Following up shipment to meet deadlines and communication on delivery date.
7. To advise on safety of government regulation concerning the transport vehicles.
There are various modes of transport,
1. Road transport
2. Rail transport
3. Sea transport
4. Air transport
ADVANTAGE OF ROAD TRANSPORT
1. Door to door service: road transport provides door-to-door service. It can collect and transport
the goods from seller‟s warehouse and deliver it right at the doorstep of the buyer. Such service
cannot be provided by other forms of transport.
2. Economical for short distance: road transport is economical for short distance. Again, the
loading and unloading charges are reduced due to direct transportation. Where the distance is
short, road transport is not only economical, but also quicker
3. Less overhead cost: The cost of maintenance, wages paid to drivers and others is less as
compare to railways again the money spend on the maintenance of roads is comparatively less as
compare to maintenance of tracks along the railway lines.
4. Flexibility: the road transport offers more flexible services than that of railways. There are no
fixed Schedules. The road transport can operate any time as per the convenience of the client.
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The Vehicle can be diverted to different routes, in case of blockage or accident.
5. Low investment: road transport requires low investment. The vehicles such as trucks cost
comparatively less as compare to trains, ships and aero planes.
DISADVANTAGE OF ROAD TRANSPORT:
1. Not suitable for bulky goods: road transport is not suitable to carry bulky and heavy goods,
such as heavy machinery. It is also not suitable to carry items of low grades because of the cost
involves in transporting such goods.
2. Uneconomical for long distance: the road transport is not economical for long distance. If the
distance is more than 1000 Kms the vehicle reaches to destination after three days. In this case
railways are more convenient and economical for short distance.
3. Breakdowns and delays: because of poor conditions of roads, there are often breakdowns. This
causes unnecessary delays in transportation.
4. Lack of informative in rates: there is no informative in transport rates. This is because; private
parties operate road transport. Different operators charge different rates.
5. Limited protection to goods: road transport provides limited production to goods from rain,
sun, dust and wind. Many times the good get damage due to limited production
The advantages & disadvantages of railway transport.
Railway transport occupies a significant role in the transport system of a country because the
development of trade, industry and commerce of a country largely depends on the development
of railways.
Advantages:
1. It facilitates long distance travel and transport of bulky goods which are not easily transported
through motor vehicles.
2. It is a quick and more regular form of transport because it helps in the transportation of goods
with speed and certainty.
3. It helps in the industrialization process of a country by easy transportation of coal and raw
materials at a cheaper rate.
4. It helps in the quick movement of goods from one place to another at the time of
emergencies like famines and scarcity.
5. It encourages mobility of labour and it provides a great scope for employment.
6. Railway is the safest form of transport. The chances of accidents and breakdown of railways
are minimum as compared to other modes of transport. Moreover, the traffic can be protected
from the exposure to sun, rain snow etc.
7. The carrying capacity of the railways is extremely large. Moreover, its capacity is elastic,
which can easily be increased by adding more wagons.
8. It is the largest public undertaking in the country. Railways perform many public utility
services. Their charges are based on charge what the traffic can bear principles which helps the
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poor. In fact, it is a national necessity.
Disadvantages:
1) The railway requires a large investment of capital. The cost of construction, maintenance and
overhead expenses are very high as compared to other modes of transport. Moreover, the
investments are specific and immobile. In case the traffic is not sufficient, the investments may
mean wastage of huge resources.
2) Another disadvantage of railway transport is its inflexibility. Its routes and timings cannot be
adjusted to individual requirements.
3) Rail transport cannot provide door-to-door service as it is tied to a particular track.
Intermediate loading or unloading involves greater cost, more wear and tear and wastage of time.
The time cost of terminal operations is a great disadvantage of rail transport.
4) As railways require huge capital outlay, they may give rise to monopolies and work against
public interest at large. Even if controlled and managed by the government, lack of competition
may breed in inefficiency and high costs.
5) Railway transport is unsuitable and uneconomical for short distances and small traffic of
goods.
6) It involves much time and labor in booking and taking delivery of goods through railways as
compared to motor transport.
7) Due of huge capital requirements and traffic, railways cannot be operated economically in
rural areas. Thus, large rural areas have no railway even today. This causes much inconvenience
to the people living in rural areas.
What are the Advantages of Sea Transport
(i) The way’ is free, and gives access to most parts of the world.
(ii) Small power is needed to drive a vessel, so that large vessels are practicable and economies
can be achieved.
(iii) Because weight is not important, ships can be massive enough to be strong.
(iv) Buoyancy of the effective weight is zero. Hence sea transport is very suitable for heavy
goods.
Disadvantages of Sea Transport
(i)Transport by sea is relatively slow, so that passengers are easily lost to airlines when speed is
important.
(ii)The possibility of determination of cargo is great because sea water is corrosive and also
liable to affect the quality and flavor of cargoes.
(iii)Pilfering of cargoes is common, though ‘containerization’ is doing much to reduce this.
(iv)Ports are expensive and delays are common.
The advantages and disadvantages of air transport.
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The following are some of the advantages of air transport:
1) High Speed: Air transport is the fastest mode of transport and therefore suitable carriage of
goods over a long distance requiring less time. There is no substitute for air transport when the
transport of goods is required urgently.
2) Quick Service: Air transport provides comfortable, efficient and quick transport service. It is
regarded as best mode of transport for transporting perishable goods.
3) No Infrastructure Investment: Air transport does not give emphasis on construction of tracks
like railway as no capital investment in surface track is needed, it is a less costly mode of
transport.
4) Easy Access: Air transport is regarded as the only means of transport in those areas which are
not easily accessible to other modes of transport. It is therefore accessible to all areas regardless
the obstruction of land.
5) No Physical Barrier: Air transport is free from physical barriers because it follows the shortest
and direct routes where seas, mountains and forests do obstruct.
6) Natural Route: Aircrafts travels to any place without any natural obstacles or barriers. Because
the custom formalities are compiled very quickly. It avoids delay in obtaining clearance.
Disadvantages
1) Risky: Air transport is the most risky form of transport because a minor accident may put a
substantial loss to the goods, passengers and the crew. The chances of accidents are greater in
comparison to other modes of transport.
2) Very Costly: Air transport is regarded as the most costly mode of transport. The
Operating costs of aeroplanes are higher and it involves a great deal of expenditure on the
construction of aerodromes and aircraft. Because of this reason the fare of air transport are so
high that it becomes beyond the reach of the common people.
3) Small Carrying Capacity: The aircrafts have small carrying capacity and therefore these are
not suitable for carrying bulky and cheaper goods. The load capacity cannot be increased as it is
found in case of rails.
4) Unreliable: Most of the air transports are uncertain and the unreliable because these are
controlled by weather condition. It is seriously affected by adverse weather conditions. Fog,
snow and heavy rain weather may cause cancellation of some flights.
5) Huge Investment: Air transport requires huge investment for construction and
maintenance of aerodromes. It also requires trained, experienced and skilled personnel, which
involves a substantial investment.
Factors to consider when choosing the mode of transport
1. The distance involved will determine the mode of transport to be used to ensure that goods are
delivered on time.
2. The nature of the goods being transported will also determine the mode of transport to be used
e.g. for the fragile items the slowest mode of transport will be appropriate to minimize cases of
damage. For the perishable items the fastest mode of transport should be used in order to
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minimize deterioration.
3. The cost involved will also determine the mode of transport to use e.g. the most
appropriate mode of transport should be cost effective.
4. The accessibility to the mode of transport by both the supplier and the receiver. The
transport should be that to which the buyer can receive the goods without any difficulty
and the supplier to transport his goods without any difficulty.
5. The customers taste on requirements concerning the mode of transport to be used will also
determine the mode of transport.
6. The urgency of the need on goods being transported. For very urgent needs, the fastest mode
of transport should be used.
Measures to be taken to ensure effective transportation of goods
1. The storage and sales department (dispatch) section should liaise with transport
department to ensure that the vehicles are provided on time to do transportation of goods
2. The establishment of transport department to be responsible for all the transport
activities. This department will have responsibilities to carry out just like any other
functional department e.g.
a) To license all the transport vehicles before they are put on road
b) To carry out vehicle routing and vehicle schedule programs which gives a system on new
deliveries to be made.
c) To control the deliveries and authorize the use of distribution vehicles e.g. by signing the work
ticket that controls the movement of the vehicles etc.
3. To ensure that all the distribution vehicles are in good working condition and this requires that
they are maintained for service from time to time
4. There should be proper packaging of the goods before the transportation.
Evaluation of the mode of transport
It is the duty of transport manager to ensure that there is effectiveness on the transportation of
goods to the customers. There are various bases for evaluating the mode of transport.
Basis of evaluating transport mode
1. Time maintenance – these calls for analyzing of time deliveries over a period of
time. The number of times the mode has delivered goods on time and the number
of times there has been delay of delivery are considered. It is basing upon such
consideration that the buyer or the storekeeper will inform the transport
department about the suitability of certain mode of transport.
2. The customers complain. Analysis of the customers complain in relation to issues such as
damage to the goods, loss of good will guide transport in choosing future mode of transport.
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3. The overall cost – all costs involved and maintenance costs will help the transport department
to select the most economical mode of transport depending on the value of consignment to be
transported.
4. Compatibility – this refers to the extent to which the mode of transport can be
incorporated in the buyer’s operation system e.g. offloading, handling of
consignment using the available equipment. The mode of transport will be
suitable only if it can corporate easily in the buying organization operational
system.
Vehicle routine and vehicles scheduling
The vehicle routing and vehicle scheduling is a program that involves the allocation of the
delivery vehicles different routes that they are to serve including the allocation of the delivery
time. Vehicle routing and vehicle scheduling are important since they ensure that all the
customers are served and be served on time without any delays. It also ensures that there is very
minimum cost (operating cost) being incurred e.g. the transport cost.
An effective vehicle routing and vehicle scheduling can only be carried out if the various
functional departments are able to work closely.
Vehicles routing involves the allocation of the delivery vehicles to the respective routes they are
to serve. Vehicle scheduling involves the allocation of the delivery time to the various delivery
vehicles. This means each delivery vehicle will be making the deliveries at a specific place at a
specific time
Importance of vehicle routing and vehicle scheduling
1. The transportation activities will be carried out effectively
2. It leads to efficiency in the customer’s service e.g. goods will be delivered to the
customers at the right time in the right quantity required and at the right place. Due to the high
level of customer service, it may lead to an increase in demand since other potential customers
may also buy the company products.
3. It also leads to a reduction in the operating expenses of the company e.g. transport cost,
insurance cost of goods in transit, packaging cost etc.
4. It can also be taken as a control measure to monitor the movement of vehicles and the drivers.
Factors to consider for an effective vehicle routing and vehicle-scheduling program
1. The number of customers available will determine the vehicle routing and schedule program
e.g. with many customers there will be need to have many distribution vehicles
2. The location of customers to determine how to allocate vehicles to different directions
3. The distance from one customer to another e.g. where customers are located closes to each one
distribution vehicle can be able to serve one direction
4. The available number of the distribution vehicles e.g. where there is a limited number of
customers, one route may be forced to have only one distribution vehicle.
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5. The customer requirements on the delivery time and quantity. This is to ensure that the
customers are given satisfactory services.
Therefore effective vehicle routine and vehicle scheduling requires that thorough evaluation of
internal and external forces are carried out.
Characteristics of Transport Services
Creation of Transport infrastructure requires time: – it is necessary to anticipate the demand on
the transport system ahead of socio -economic changes. Some of the transport infrastructure
requires more than one plan for its completion. Often the capabilities created in expanding
transport network during one plan period are the results of the investments of made in earlier
plans. Therefore two issues emerged out of it such as
(1) The need to complete all ongoing works to derive the maximum benefits from the earlier
investments
(2) To make investments in transport sector keeping in view the long time frame perspective.
Transport infrastructure is capital intensive: – in view of the long gestation involved, transport
development requires heavy investment. Massive investment is required is required for quality
road construction, laying the railway lines and creation of rolling stocks, creation port facilities
and ship building industry and terminal facilities. As social return is involved in the development
of these facilities, private initiation is practically absent. For this purpose government initially
develops most of the transport services.
Effective use of energy is a critically aspect of transport sector. :- Different modes of transport
use different forms of energy with varying degree of efficiency and intensity. In this connection
due weightage is being given while considering the choice among available alternatives.
Development of transport largely depends on the availability of various forms of energy.
Development of transport is connected with the scientific and technological progress:- During
past two hundred years the economic development in various regions of the world was possible
only because of growth of transport network. The process of technological up-gradation has been
very uneven in many areas, as a result some mode of transport has been advanced and frequently
used by consumers while they don’t use at all some other modes of transport due to
several; constraints.
Freight structure and cost of transportation influence transport services:-The transport pricing
policy and subsidization of freight structure by and large influences the consumers decisions for
choosing a particular transport mode. Often the transport demands are influenced by factors not
necessarily confirming to patterns suggested by comparative cost considerations.
Security and speedier movement of goods is an important aspect of transport:- Security in travel
and safe delivery of goods is the important considerations, which influences the user preference
to various modes of transport. Timeliness in the movement of goods and door-to-door service
influences the customers to pay more for utilizing a particular transport service.
Significance of Transportation
Effective transportation is indispensable to economic progress. Mining, manufacturing, trade and
banking and agriculture are also necessary, but these activities, like many others, depend upon
without adequate facilities for moving goods and people from place to place, economic and
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social activities can be carried on in a limited way only. Using a mobility index that combines
available data on transport facilities and movement of passengers and freight, Wilfred Owen
finds out that immobility and poverty go together. The countries with low per capita had a
mobility index for freight and passenger transport in single digits, whereas this index was
significantly high in countries with high per capita income. Indeed, a more recent study finds out
that every one-percentage growth in the Indian economy presumes a growth of 1.2 to 4 per cent
in the transport sect
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CHAPTER NINE
WAREHOUSING
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are
usually large plain buildings in industrial areas of cities and towns and villages. They usually
have loading docks to load and unload goods from trucks. Sometimes warehouses are designed
for the loading and unloading of goods directly from railways, airports, or seaports. They often
have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets
loaded into pallet racks. Stored goods can include any raw materials, packing materials, spare
parts, components, or finished goods associated with agriculture, manufacturing and production
A warehouse is a large, spacious and secured building intended for commerce and government
use. It functions as a storage place for large quantities of goods. Warehousing is not simply about
storage though. It also covers the administration and manual labor required in storage such as
delivery, documentation, examination and certification..
Warehousing may also cover the completion of goods before distribution. The components and
packing materials are just delivered to the building. The assembly and packing of the goods will
be done in the warehouse. By doing so, the product cover will still look new and enticing upon
delivery to distribution centers. If you pack the goods before bringing them to the warehouse, the
packaging may be damaged while on the way.
DEFINITION DISTRIBUTION CENTRE
Facility that is usually smaller than a firm’s main warehouse and is used for receipt,
temporary storage, and redistribution of goods according to the customer orders as they
are received. Also called branch warehouse or distribution warehouse.
In the business language, distribution refers to the delivery of finished goods to buying centers
such as shopping centres, markets and retailer stores. Some manufacturers deliver their goods
directly to their accredited retailers. This is advantageous if the retailers’ business establishments
are just nearby the manufacturers’ places.
Direct delivery of goods to retailers can save you from warehousing costs. However, if you are
far from distribution centers, you have to deal with trucking costs and inventory frequently.
Thus, it is safe to say that warehousing and distribution go hand-in-hand in providing a more
cost-effective way of delivering goods. There are even businesses that literally combined these
two business operations.
Some warehouses are also utilized as a buying or retailing center while maintaining its original
function. In fact, the Germans still have warehouse-like department stores. The architecture of
some of these buildings is one of the causes for their dual functions. Excessive beautification of
warehouses makes them appealing for shorter period
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WHAT’S THE DIFFERENCE BETWEEN WAREHOUSING AND DISRIBUTION
CENTRES?
Physically – not so much. They each have four walls, a roof and floors, dock space and
truck doors. And, from the outside the structures might even look quite similar. But as the
following definition (from a glossary of terms by K. B. Ackerman called “Words of
Warehousing”) makes clear, what happens inside those four walls is really quite different.
That glossary defines a distribution center as a “facility from which wholesale and retail
orders are filled”, adding that “the term is used to describe a high-velocity operation as
opposed to a static storage warehouse.”
• A distribution center offers value-added services: Rather than simply offering
static storage, DCs provide a myriad of services for clients, whether those
customers are external or internal company departments and functions. A wellorganized and managed distribution center will provide such services as
transportation, cross-docking, order-fulfillment, labeling and packaging along with
whatever services are necessary to complete the order cycle, including order
processing, order preparation, shipping, receiving, transportation, returned goods
processing and performance measurement.
• A distribution center is customer focused: While a warehouse is focused on the
most efficient cost effective methods of storing products within its walls, a
distribution center’s sole mission is to provide outstanding service to its customers.
• A distribution center is technology-driven: The distribution center of today must
have in place state-of-the-art order processing, transportation management and
warehouse management systems if it is to receive, scan bar codes, locate and store
product efficiently, pick/pack and process orders, and plan loads.
• A distribution center is relationship-centric: Whether its clients are outside
companies or other intra-company units, a distribution center must remain focused
on its customers’ requirements. A distribution center is the principal link between
suppliers and customers, and its management must be conversant not only with the
customers’ needs but also with the most efficient and cost-effective methods of
meeting those needs. By contrast, a storage warehouse is so inwardly focused, in
most cases, that there is very little understanding of what customer service really
means.
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Warehouses play many vital roles in the supply chain:
a. Raw material and component warehouses
hold raw materials at or near the point of induction into a manufacturing or assembly
process.
b. Work-in-process warehouses
hold partially completed assemblies and products at various points along an assembly or
production line.
c. Finished goods warehouses
hold inventory used to balance and buffer the variation between production schedules and
demand. For this purpose, the warehouse is usually located near the point of manufacture
and is often characterized by the flow of full pallets in and full pallets out assuming that
product size and volume warrant pallet-sized loads. A warehouse serving only this
function may have demands ranging from monthly to quarterly replenishment of stock to
the next level of distribution.
d. Distribution warehouses, distribution centers
accumulate and consolidate products from various points of manufacture within a single
firm, or from several firms, for combined shipment to common customers. Such a
warehouse may be located central to either the production locations or the customer base.
Product movement may be typified by full pallets or cases in and full cases or broken
case quantities out. The facility is typically responding to regular weekly or monthly
orders.
e. Fulfillment warehouses, fulfillment centers
receive, pick, and ship small orders for individual consumers.
f. Local warehouses
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are distributed in the field in order to shorten transportation distances to permit rapid
response to customer demand. Frequently, single items are picked, and the same item
may be shipped to the customer every day.
g. Value added service warehouses
serve as the facility where key product customization activities are executed including
packaging, labeling, marking, pricing, and returns processing.
TYPES OF WAREHOUSES
The warehouse is the most common type of storage though other forms do exist (e.g., storage
tanks, computer server farms). Some warehouses are massive structures that simultaneously
support the unloading of numerous in-bound trucks and railroad cars containing suppliers’
products while at the same time loading multiple trucks for shipment to customers.
Private Warehouse
This type of warehouse is owned and operated by channel suppliers and resellers and used in
their own distribution activity. For instance, a major retail chain may have several regional
warehouses supplying their stores or a wholesaler will operate a warehouse at which it receives
and distributes products.
Public Warehouse
The public warehouse is essentially space that can be leased to solve short-term distribution
needs. Retailers that operate their own private warehouses may occasionally seek additional
storage space if their facilities have reached capacity or if they are making a special, large
purchase of products. For example, retailers may order extra merchandise to prepare for in-store
sales or order a large volume of a product that is offered at a low promotional price by a supplier.
Automated Warehouse
With advances in computer and robotics technology many warehouses now have automated
capabilities. The level of automation ranges from a small conveyor belt transporting products in
a small area all the way up to a fully automated facility where only a few people are needed to
handle storage activity for thousands of pounds/kilograms of product. In fact, many warehouses
use machines to handle nearly all physical distribution activities such as moving product-filled
pallets (i.e., platforms that hold large amounts of product) around buildings that may be several
stories tall and the length of two or more football fields.
Climate-Controlled Warehouse
Warehouses handle storage of many types of products including those that need special handling
conditions such as freezers for storing frozen products, humidity-controlled environments for
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delicate products, such as produce or flowers, and dirt-free facilities for handling highly sensitive
computer products.
Distribution Center
There are some warehouses where product storage is considered a very temporary activity. These
warehouses serve as points in the distribution system at which products are received from many
suppliers and quickly shipped out to many customers. In some cases, such as with distribution
centers handling perishable food (e.g., produce), most of the product enters in the early morn
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