Types of Logistics Strategies
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Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.
1- Overwiew of Logistics
The word of logistics originates from the ancient Greek logos (?????), which means "ratio, word, calculation, reason, speech, oration".
Logistics as a concept is considered to evolve from the military's need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title 'Logistikas' who were responsible for financial and supply distribution matters.
The Oxford English dictionary defines logistics as: "The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities."Another dictionary definition is: "The time related positioning of resources." As such, logistics is commonly seen as a branch of engineering which creates "people systems" rather than "machine systems".
In military logistics, experts manage how and when to move resources to the places they are needed. In military science, maintaining one's supply lines while disrupting those of the enemy is a crucial-some would say the most crucial-element of military strategy, since an armed force without food, fuel and ammunition is defenseless.
The Iraq war was a dramatic example of the importance of logistics. It had become very necessary for the US and its allies to move huge amounts of men, materials and equipment over great distances. Led by Lieutenant General William Pagonis, Logistics was successfully used for this movement. The defeat of the British in the American War of Independence, and the defeat of Rommel in World War II, have been largely attributed to logistical failure. The historical leaders Hannibal Barca and Alexander the Great are considered to have been logistical geniuses.
1. Logistics Management
Logistics Management 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 customers' requirements.
Logistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined as having the right item in the right quantity at the right time for the right price and is the science of process and incorporates all industry sectors. The goal of logistic 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 (see supply chain management). The main functions of a logistics manager include Inventory Management, purchasing, transport, warehousing, and the organizing and planning of these activities. Logistics managers combine a general knowledge of each of these functions so that there is a coordination of 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. Logistics as a concept is considered to evolve from the military's need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title 'Logistikas' who were responsible for financial and supply distribution matters.
The term is used for describing logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right point in time.
The issue is not the transportation itself, but to streamline and control the flow through the value adding processes and eliminate non-value adding ones. Production logistics can be applied in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency
2. Commercial vehicle operation
Commercial Vehicle Operations is an application of Intelligent Transportation Systems for trucks.
A typical system would be purchased by the managers of a trucking company. It would have a satellite navigation system, a small computer and a digital radio in each truck. Every fifteen minutes the computer transmits where the truck has been. The digital radio service forwards the data to the central office of the trucking company. A computer system in the central office manages the fleet in real time under control of a team of dispatchers.
In this way, the central office knows where its trucks are. The company tracks individual loads by using barcoded containers and pallets to track loads combined into a larger container. To minimize handling-expense, damage and waste of vehicle capacity, optimal-sized pallets are often constructed at distribution points to go to particular destinations.
A good load-tracking system will help deliver more than 95% of its loads via truck, on planned schedules. If a truck gets off its route, or is delayed, the truck can be diverted to a better route, or urgent loads that are likely to be late can be diverted to air freight. This allows a trucking company to deliver a true premium service at only slightly higher cost. The best proprietary systems, such as the one operated by FedEx, achieve better than 99.999% on-time delivery.
Load-tracking systems use queuing theory, linear programming and minimum spanning tree logic to predict and improve arrival times. The exact means of combining these are usually secret recipes deeply hidden in the software. The basic scheme is that hypothetical routes are constructed by combining road segments, and then poor ones are eliminated using linear programming.
The controlled routes allow a truck to avoid heavy traffic caused by rush-hour, accidents or road-work. Increasingly, governments are providing digital notification when roadways are known to have reduced capacity.
A good system lets the computer, dispatcher and driver collaborate on finding a good route, or a method to move the load. One special value is that the computer can automatically eliminate routes over roads that cannot take the weight of the truck, or that have overhead obstructions.
Usually, the drivers log into the system. The system helps remind a driver to rest. Rested drivers operate the truck more skillfully and safely.
When these systems were first introduced, some drivers resisted them, viewing them as a way for management to spy on the driver.
A well-managed intelligent transportation system provides drivers with huge amounts of help. It gives them a view of their own load and the network of roadways.
Components of CVO include:
- Fleet Administration
- Freight Administration
- Electronic Clearance
- Commercial Vehicle Administrative Processes
- International Border Crossing Clearance
- Weigh-In-Motion (WIM)
- Roadside CVO Safety
- On-Board Safety Monitoring
- CVO Fleet Maintenance
- Hazardous Material Planning and Incident Response
- Freight In-Transit Monitoring
- Freight Terminal Management
Containerization is a system of intermodal freight transport cargo transport using standard ISO containers (known as Shipping Containers or Isotainers) that can be loaded and sealed intact onto container ships, railroad cars, planes, and trucks.
Containerization is also the term given to the process of determining the best carton, box or pallet to be used to ship a single item or number of items.
ISO Container dimensions and payloads
There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft (13.7 m), 48-ft (14.6 m), and 53-ft (16.2 m). United States domestic standard containers are generally 48-ft and 53-ft (rail and truck). Container capacity is measured in twenty-foot equivalent units (TEU, or sometimes teu). A twenty-foot equivalent unit is a measure of containerized cargo capacity equal to one standard 20 ft (length) × 8 ft (width) × 8 ft 6 in (height) container. In metric units this is 6.10 m (length) × 2.44 m (width) × 2.59 m (height), or approximately 38.5 m³. These sell at about US$2,500 in China, the biggest manufacturer.
Most containers today are of the 40-ft (12.2 m) variety and are known as 40-foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers are also designated 2 TEU. Two TEU are equivalent to one forty-foot equivalent unit (FEU). High cube containers have a height of 9 ft 6 in (2.9m), while half-height containers, used for heavy loads, have a height of 4 ft 3 in (1.3 m). When converting containers to TEUs, the height of the containers typically is not considered.
The use of US measurements to describe container size (TEU, FEU) despite the fact the rest of the world uses the metric system reflects the fact that US shipping companies played a major part in the development of containers. The overwhelming need to have a standard size for containers, in order that they fit all ships, cranes, and trucks, and the length of time that the current container sizes have been in use, makes changing to an even metric size impractical.
The maximum gross mass for a 20-ft dry cargo container is 24,000 kg, and for a 40-ft, (inc. the 2.87 m (9 ft 5 in) high cube container), it is 30,480 kg. Allowing for the tare mass of the container, the maximum payload mass is there reduced to approx. 21,600 kg for 20-ft, and 26,500 kg for 40-ft containers.
Shipping Container History
A container ship being loaded by a portainer crane in Copenhagen Harbour.
Twistlocks which capture and constrain containers. Forklifts designed to handle containers have similar devices.
A container freight train in the UK.
Containers produced a huge reduction in port handling costs, contributing significantly to lower freight charges and, in turn, boosting trade flows. Almost every manufactured product humans consume spends some time in a container. Containerization is an important element of the innovations in logistics that revolutionized freight handling in the 20th century.
Efforts to ship cargo in containers date to the 19th century. By the 1920s, railroads on several continents were carrying containers that could be transferred to trucks or ships, but these containers were invariably small by today's standards. From 1926 to 1947, the Chicago North Shore and Milwaukee Railway carried motor carrier vehicles and shippers' vehicles loaded on flatcars between Milwaukee, Wisconsin and Chicago, Illinois. Beginning in 1929, Seatrain Lines carried railroad boxcars on its sea vessels to transport goods between New York and Cuba. In the mid-1930s, the Chicago Great Western Railway and then the New Haven Railroad began "piggy-back" service (transporting highway freight trailers on flatcars) limited to their own railroads. By 1953, the CB&Q, the Chicago and Eastern Illinois and the Southern Pacific railroads had joined the innovation. Most cars were surplus flatcars equipped with new decks. By 1955, an additional 25 railroads had begun some form of piggy-back trailer service.
The first vessels purpose-built to carry containers began operation in Denmark in 1951. Ships began carrying containers between Seattle and Alaska in 1951. The worlds first truly intermodal container system used purpose-built container ship the Clifford J. Rodgers built in Montreal in 1955 and owned by the White Pass and Yukon Route. Its first trip carried 600 containers between North Vancouver, British Columbia and Skagway, Alaska on November 26, 1955; in Skagway, the containers were unloaded to purpose-built railroad cars for transport north to the Yukon, in the first intermodal service using trucks, ships and railroad cars. Southbound containers were loaded by shippers in the Yukon, moved by truck, rail, ship and truck to their consignees, without opening. This first intermodal system operated from November 1955 for many years.
A converted container used as an office at a building site.
The widespread use of ISO standard containers has driven modifications in other freight-moving standards, gradually forcing removable truck bodies or swap bodies into the standard sizes and shapes (though without the strength needed to be stacked), and changing completely the worldwide use of freight pallets that fit into ISO containers or into commercial vehicles.
Improved cargo security is also an important benefit of containerization. The cargo is not visible to the casual viewer and thus is less likely to be stolen and the doors of the containers are generally sealed so that tampering is more evident. This has reduced the "falling off the truck" syndrome that long plagued the shipping industry.
Use of the same basic sizes of containers across the globe has lessened the problems caused by incompatible rail gauge sizes in different countries. The majority of the rail networks in the world operate on a 1,435mm (4ft 8½in) gauge track known as standard gauge but many countries like Russia, Finland and Spain use broader gauges while other many countries in Africa and South America use narrower gauges on their networks. The use of container trains in all these countries makes trans-shipment between different gauge trains easier, with automatic or semi-automatic equipment.
Some of the largest global companies containerizing containers today are Patrick Global Shipping, Bowen Exports and Theiler & Sons Goods, LLC.
Loss at sea of ISO Containers
Containers occasionally fall from the ships that carry them, something that occurs an estimated 2,000 to 10,000 times each year. For instance, on November 30, 2006, a container washed ashore on the Outer Banks of North Carolina, along with thousands of bags of its cargo of tortilla chips. Containers lost at sea do not necessarily sink, but seldom float very high out of the water, making them a shipping hazard that is difficult to detect. Freight from lost containers has provided oceanographers with unexpected opportunities to track global ocean currents.
A Railroad car with a 20' tank container and a conventional 20' container.
Most flatcars cannot carry more than one standard 40 foot container, but if the rail line has been built with sufficient vertical clearance, a well car can accept a container and still leave enough clearance for another container on top. This usually precludes operation of double-stacked wagons on lines with overhead electric wiring (exception: Betuweroute). Double stacking has been used in North America since American President Lines introduced this "double stack" principle under the name of "Stacktrain" rail service in 1984. It saved shippers money and now accounts for almost 70 percent of intermodal freight transport shipments in the United States, in part due to the generous vertical clearances used by US railroads
ISO Container types
Various container types are available for different needs
- General purpose dry van for boxes, cartons, cases, sacks, bales, pallets, drums in standard, high or half height
- High cube palletwide containers for europallet compatibility
- Temperature controlled from -25°c to +25°c reefer
- Open top bulktainers for bulk minerals, heavy machinery
- Open side for loading oversize pallet
- Flushfolding flat-rack containers for heavy and bulky semi-finished goods, out of gauge cargo
- Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo, machinery, and processed timber
- Ventilated containers for organic products requiring ventilation
- Tank containers for bulk liquids and dangerous goods
- Rolling floor for difficult to handle cargo
Determining the best carton, box or pallet
While the creation of the best container for shipping of newly created product is called "Containerization", the term also applies to determining the right box and the best placement inside that box in order fulfillment. This may be planned by software modules in a warehouse management system. This optimization software calculates the best spatial position of each item withing such constraints as stackability and crush resistance
4. CROSS DOCKING
Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or rail car and loading these materials in outbound trailers or rail cars, with little or no storage in between. This may be done to change type of conveyance, or to sort material intended for different destinations, or to combine material from different origins.
Cross docking is used to decrease inventory storage by streamlining the flow between the supplier and the manufacturer.
- Typical applications
- "Hub and spoke" arrangements, where materials are brought in to one central location and then sorted for delivery to a variety of destinations
- Consolidation arrangements, where a variety of smaller shipments are combined into one larger shipment for economy of transport
- Deconsolidation arrangements, where large shipments (e.g. railcar lots) are broken down into smaller lots for ease of delivery.
Factors influencing the use of cross-docks
- Customer and supplier geography -- particularly when a single corporate customer has many multiple branches or using points
- Freight costs for the commodities being transported
- Cost of inventory in transit
- Complexity of loads
- Handling methods
- Logistics software integration between supplier(s), vendor, and shipper
Distribution is one of the four aspects of marketing. A distributor is the middleman between the manufacturer and retailer. After a product is manufactured it is typically shipped (and usually sold) to a distributor. The distributor then sells the product to retailers or customers.
The other three parts of the marketing mix are product management, pricing, and promotion.
Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as:
- Should the product be sold through a retailer?
- Should the product be distributed through wholesale?
- Should multi-level marketing channels be used?
- How long should the channel be (how many members)?
- Where should the product or service be available?
- When should the product or service be available?
- Should distribution be exclusive, selective or extensive?
- Who should control the channel (referred to as the channel captain)?
- Should channel relationships be informal or contractual?
- Should channel members share advertising (referred to as co-op ads)?
- Should electronic methods of distribution be used?
- Are there physical distribution and logistical issues to deal with?
- What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)?
The distribution channel
- A number of alternate 'channels' of distribution may be available:
- Selling direct, such as via mail order, Internet and telephone sales
- Agent, who typically sells direct on behalf of the producer
- Distributor (also called wholesaler), who sells to retailers
- Retailer (also called dealer), who sells to end customers
- Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.
There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas..
Distribution channels can thus have a number of levels. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the 'zero-level' channel.
The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels.
In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighbourhood retailers In Japan the chain of distribution is often complex and further levels are used, even for the simplest .
To the various `levels' of distribution, which they refer to as the `channel length', Lancaster and Massingham also added another structural element, the relationship between its members:
'Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men' passing the goods on to the end-user.
Single transaction - A temporary `channel' may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique.
Vertical marketing system (VMS) - In this form, the elements of distribution are integrated.
The internal market
Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each subsidiary's, or each department's, 'internal' customers.
In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price'. To all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyer-seller relationship.
Less obvious, but just as practical, is the use of `marketing' by service and administrative departments; to optimize their contribution to their `customers' (the rest of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in dealing with their clients, offer a very useful parallel.
Product (or service)<>Cost<>Consumer location
The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. In practice, if the producer is large enough, the use of intermediaries (particularly at the agent and wholesaler level) can sometimes cost more than going direct.
Many of the theoretical arguments about channels therefore revolve around cost. On the other hand, most of the practical decisions are concerned with control of the consumer. The small company has no alternative but to use intermediaries, often several layers of them, but large companies 'do' have the choice.
However, many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if he has any aspirations to be market-oriented, his job should really be extended to managing, albeit very indirectly, all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:
- Channel membership
- Channel motivation
- Monitoring and managing channels
Intensive distribution - Where the majority of resellers stock the `product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.
Selective distribution - This is the normal pattern (in both consumer and industrial markets) where `suitable' resellers stock the product.
Exclusive distribution - Only specially selected resellers (typically only one per geographical area) are allowed to sell the `product'.
It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `bribery': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they are tempted to push the product. At the other end of the spectrum is the almost symbiotic relationship that the all too rare supplier in the computer field develops with its agents; where the agent's personnel, support as well as sales, are trained to almost the same standard as the supplier's own staff.
Monitoring and managing channels
In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain.
In practice, of course, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and prospects.
This relatively recent development integrates the channel with the original supplier - producer, wholesalers and retailers working in one unified system. This may arise because one member of the chain owns the other elements (often called `corporate systems integration'); a supplier owning its own retail outlets, this being 'forward' integration. It is perhaps more likely that a retailer will own its own suppliers, this being 'backward' integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald's hamburgers and Benetton clothes) or simple co-operation (in the way that Marks & Spencer co-operates with its suppliers).
Alternative approaches are `contractual systems', often led by a wholesale or retail co-operative, and `administered marketing systems' where one (dominant) member of the distribution chain uses its position to co-ordinate the other members' activities. This has traditionally been the form led by manufacturers.
The intention of vertical marketing is to give all those involved (and particularly the supplier at one end, and the retailer at the other) 'control' over the distribution chain. This removes one set of variables from the marketing equations.
Other research indicates that vertical integration is a strategy which is best pursued at the mature stage of the market (or product). At earlier stages it can actually reduce profits. It is arguable that it also diverts attention from the real business of the organization. Suppliers rarely excel in retail operations and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities ( Marks & Spencer, for example, very deliberately provides considerable amounts of technical assistance to its suppliers, but does not own them).
A rather less frequent example of new approaches to channels is where two or more non-competing organizations agree on a joint venture - a joint marketing operation - because it is beyond the capacity of each individual organization alone. In general, this is less likely to revolve around marketing synergy.
LOGISTICS IN FOOD DISTRIBUTION
Food distribution, a method of distributing (or transporting) food from one place to another, is a very important factor in public nutrition. Where it breaks down, famine, malnutrition or illness can occur. During some periods of Ancient Rome, food distribution occurred with the policy of giving free bread to its citizens under the provision of a common good.
There are three main components of food distribution:
- Transport infrastructure, such as roads, vehicles, rail transport, airports, and ports.
- Food handling technology and regulation, such as refrigeration, and storage, warehousing.
- Adequate source and supply logistics, based on demand and need.
In general, it is exactly logistics of information.
The field of information logistics aims at developing concepts, technologies and applications for need-oriented information supply. Information-on-demand services are a typical application area for information logistics, as they have to fulfil user needs with respect to content, location, time and quality
Information Logistics consists of two words - information and logistics. Information can mean a lot of things, but usually is text (syntax with a semantic meaning) and logistics which is the transportation of sth from point A to point B. In a simplified sense is a newsletter information logistics, also an e-mail or even the ordinary mail you receive.
Information logistics is concerned with the supply of information to individuals and aims to optimize it by targeted delivery in accordance with requirements in such a way that the substantively correct and actually necessary information is available where and when it is needed. This information should be transformed in line with users' needs, depending on the communication media and users' preferences, in order to aid custom processing of it.
Information is created throughout the entire product creation process. The goal of information logistics is to optimize the content and format of the information, reduce throughput times and achieve a high degree of parallel processing. Our approach is such that information can be created and reused in a structured manner all along the value creation chain. This requires the use of an information model, an overall product tree and a graphic design concept. The deployed system must meet these requirements optimally.
The result is automated configuration of fully scalable information for a wide variety of target group perspectives (e.g. by sector or area of application). The customer can simply navigate through the information. The information and documentation creation process is made easier, safer and more efficient.
7. JUST IN TIME CONCEPT
Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. The process is driven by a series of signals, or Kanban ,, that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency.
New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical demand. If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted a trailing 13 week average as a better predictor than most forecastors could provide.
A related term is Kaizen which is an approach to productivity improvement literally meaning "continuous impr
History of JIT
The technique was first used by the Ford Motor Company This describes the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. The concept needed an effective freight management system (FMS); Ford's Today and Tomorrow (1926) describes one.
The technique was subsequently adopted and publicised by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS).
Japanese corporations cannot afford large amounts of land to warehouse finished products and parts. Before the 1950s, this was thought to be a disadvantage because it reduced the economic lot size. (An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.) The undesirable result was poor return on investment for a factory.
As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are listed below.
Set up times are significantly reduced in the warehouse. Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement.
The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand.
Employees who possess multiple skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product.
Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers don't have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day.
Increased emphasis on supplier relationships. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public.
Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay.
Within a JIT System
The major problem with Just In Time operation is that it leaves the supplier and downstream consumers open to supply shocks. In part, this was seen as a feature rather than a bug by Ohno, who used the analogy of lowering the level of water in a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. Once the barriers were exposed, they could be removed; since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area. Just In Time is a means to improving performance of the system, not an end.
With shipments coming in sometimes several times per day, Toyota is especially susceptible to an interruption in the flow. For that reason, Toyota is careful to use two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk by the 1997 Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Thus, a strong, long-term relationship with a few suppliers is preferred to short-term, price-based relationships with competing suppliers.
Within a raw material stream
As noted by Liker (2003) and Womack and Jones (2003), it would ultimately be desirable to introduce flow and JIT all the way back through the supply stream. However, none of them followed this logically all the way back through the processes to the raw materials. With present technology, for example, an ear of corn cannot be grown and delivered to order . The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery.
It has been frequently charged that the oil industry has been influenced by JIT (see here (2004), here (1996), and here (1996)). The argument is presented as follows:
The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004. As a result, the industry is susceptible to supply shocks, which cause spikes in prices and subsequently reduction in domestic manufacturing output. The effects of hurricanes Katrina and Rita are given as an example: in 2005, Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large number of oil production and transfer facilities, resulting in the loss of 20% of the US domestic refinery output. Rita subsequently shut down refineries in Texas, further reducing output. The GDP figures for the third and fourth quarters showed a slowdown from 3.5% to 1.2% growth. Similar arguments were made in earlier crises.
Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT, JIT students and even oil & gas industry analysts question whether JIT as it has been developed by Ohno, Goldratt, and others is used by the petroleum industry. Companies routinely shut down facilities for reasons other than the application of JIT. One of those reasons may be economic rationalization: when the benefits of operating no longer outweigh the costs, including opportunity costs, the plant may be economically inefficient. JIT has never subscribed to such considerations directly; following Waddel and Bodek (2005), this ROI-based thinking conforms more to Brown-style accounting and Sloan management. Further, and more significantly, JIT calls for a reduction in inventory capacity, not production capacity. From 1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only 8.5% from 228,331 to 222,903 bbls to 208,986 (Energy Information Administration data). Stocks fluctuate seasonally by as much as 20,000 bbls. During the 2005 hurricane season, stocks never fell below 194,000 thousand bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls in 1997. This shows that while industry storage capacity has decreased in the last 30 years, it hasn't been drastically reduced as JIT practitioners would prefer.
Finally, as shown in a pair of articles in the Oil & Gas Journal, JIT does not seem to have been a goal of the industry. In Waguespack and Cantor (1996), the authors point out that JIT would require a significant change in the supplier/refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies. Specifically, the relationships remain cost-driven among many competing suppliers rather than quality-based among a select few long-term relationships. They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America. In the follow-up editorial, the Oil & Gas Journal claimed that "casually adopting popular business terminology that doesn't apply" had provided a "rhetorical bogey" to industry critics. Confessing that they had been as guilty as other media sources, they confirmed that "It also happens not to be accurate."
Consider a (highly) simplified mathematical model of the ordering process.
K = the incremental cost of placing an order
kc = the annual cost of carrying one unit of inventory
D = annual demand in units
Q = optimal order size in units
TC = total cost over the year
We want to know Q.
We assume that demand is constant and that the company runs down the stock to zero and then places an order, which arrives instantly. Hence the average stock held (the average of zero and Q, assuming constant usage) is Q / 2. Also, the annual number of orders placed is D / Q.
TC consists of two components. The first is the cost of carrying inventory, which is given by Q * kc / 2, i.e. the average inventory times the carrying cost per unit. The second cost is the cost of placing orders, given by D * K / Q, the annual number of orders, D / Q. times the cost per order, K.
The key Japanese breakthrough was to reduce K to a very low level and to resupply frequently instead of holding excess stocks.
In practice JIT works well for many businesses, but it is not appropriate if K is not small.
The theory above can be fairly easily adapted to take into account realistic features such as delays in delivery times and fluctuations in demand.
Both of these are usually modelled by normal distributions.
The delay in delivery, in particular, means that additional 'safety stocks' need to be held if a stockout is to be rendered very unlikely.
Logistics automation is the application of computer software and / or automated machinery to improve the efficiency of logistics operations. Typically this refers to operations within a warehouse or distribution center, with broader tasks undertaken by supply chain management systems and enterprise resource planning systems.
Logistics automation systems can powerfully complement the facilities provided by these higher level computer systems. The focus on an individual node within a wider logistics network allows systems to be highly tailored to the requirements of that node.:
Automated cranes (also called automated storage and retrieval systems): provide the ability to input and store a container of goods for later retrieval. Typically cranes serve a rack of locations, allowing many levels of stock to be stacked vertically, and allowing far high storage densities and better space utilisation than alternatives.
Conveyors: automated conveyors allow the input of containers in one area of the warehouse, and either through hard coded rules or data input allow destination selection. The container will later appear at the selected destination.
Sortation systems: similar to conveyors but typically have higher capacity and can divert containers more quickly. Typically used to distribute high volumes of small cartons to a large set of locations.
Industrial Robots: four to six axis industrial robots, e.g. palletizing robots, are used for palletizing, depalletizing, packaging, comissioning and order picking.
Radio data terminals: these are hand held or truck mounted terminals which connect wirelessly to logistics automation software and provide instructions to operators moving throughout the warehouse. Many also have in-built barcode scanners to allow identification of containers.
Integration software: this provides overall control of the automation machinery and for instance allows cranes to be connected up to conveyors for seamless stock movements. Operational control software: provides low-level decision making, such as where to store incoming containers, and where to retrieve them when requested.
Business Control software: provides higher level functionality, such as identification of incoming deliveries / stock and scheduling order fulfilment, assignment of stock to outgoing trailers.
9.LOGISTICS FOR DIFFERENT FIELDS.
Liquid Logistics is a special category of logistics that relates to liquid products, and is utilized extensively in the "Supply Chain for Liquids" discipline.
Standard logistics techniques are generally used for discrete or unit products. Liquid products have logistics characteristics that distinguish them from discrete products. Some of the major characteristics of liquid products that impact their logistics handling are:
Liquids flowing from a higher level to a lower level provide the ability to move the liquids without mechanical propulsion or manual intervention
Liquids' adaptation to the shape of the container they are in provides a great deal of flexibility in the design of storage systems and the use of "dead" space for storage
The level of a liquid as it has settled in a tank may be used to automatically and continuously know the quantity of liquid in the tank
Liquids provide indications through changes in their characteristics that may be sensed and translated into measures of the quality of the liquid
Medical logistics is the logistics of pharmaceuticals, medical and surgical supplies, medical devices and equipment, and other products needed to support doctors, nurses, and other health and dental care providers.
Because its final customers are responsible for the lives and health of their patients, medical logistics is unique in that it seeks to optimize effectiveness rather than efficiency.
Medical logistics functions comprise an important part of the health care system: after staff costs, medical supplies are the single most expensive component of health care. To drive costs out of the health-care sector, medical logistics providers are adopting supply chain management theories.
Reverse logistics is the logistics process of removing new or used products from their initial point in a supply chain, such as returns from consumers, over stocked inventory, or outdated merchandise and redistributing them using disposition management rules that will result in maximized value at the end of the items original useful life. A reverse logistics operation is considerably different from forward logistics. It must establish convenient collection points to receive the used goods from the final customer or remove assets from the supply chain so that more efficient use of inventory / material overall can be achieved. It requires packaging and storage systems that will ensure that most of the value still remaining in the used good is not lost due to careless handling. It often requires the development of a transportation mode that is compatible with existing forward logistic system. Disposition can include returning assets into inventory pools or warehouses for storage, returning goods to the original manufacturer for reimbursement, selling goods on a secondary market, recycling assets, or a combination that will yield maximum value for the assets in question.
Simply, "reverse logistics" is all activity associated with a product/service after the point of sale, the ultimate goal to optimize or make more efficient aftermarket activity, thus saving money. Types of activity common with reverse logistics includes: logistics, warehousing, repair, refurbishment, recycling, e-waste, after market call center support, reverse fulfillment, field service and many others.
An example of Reverse Logistics: T-Shirts, which are often sold at second sales where those with minor flaws like improper logo print of the manufacturer or unnoticeable stitching flaws are exhibited to be sold at discounted prices. The collection of the flawed clothes from the various stores and reselling them at the Second Sales shop is an example of reverse logistics.
Customer relationship management
- Customer service management
- Demand management
- Order fulfillment
- Manufacturing flow management
- Supplier relationship management
- Product development and commercialization
- Returns management
One could suggest other key critical supply business processes combining these processes stated by Lambert such as:
- Customer service Management
- Product development and Commercialization
- Manufacturing flow management/support
- Physical Distribution
- Outsourcing/ Partnerships
- Performance Measurement
- Supply Chain Management Components Integration
- The management components of SCM
The SCM management components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering, buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are:
- Planning and control
- Work structure
- Organization structure
- Product flow facility structure
- Information flow facility structure
- Management methods
- Power and leadership structure
- Risk and reward structure
- Culture and attitude
11.CONCEPT OF 3PL
For Outsourcing: This includes the primary level component of management methods and the company's cutting-edge strategy and its vital strategic objectives that the company will identify and adopt for particular strategic initiatives in key the areas of technology information, operations, manufacturing capabilities, and logistics (secondary level components). A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to companies for part or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer's needs based on market conditions and the demands and delivery service requirements for their products and materials.
India Logistics Industry: $125 Billion Goldmine (DATAMONITOR REPORT)
India's third-party logistics (3PL) market is all set to experience a period of explosive organic growth, judging by independent market analyst Data monitor's latest research. The Data monitor report, "India Logistics Outlook 2007," predicts high double-digit growth rates for both outsourced and contract logistics in India.
With India's gross domestic profit (GDP) growing at over 9% per year and the manufacturing sector enjoying double digit growth rates, the Indian logistics industry is at an inflection point, and is expected to reach a market size of over $125 billion in year 2010.
"Strong growth enablers exist in India today in the form of over $300 billion worth of infrastructure investments, phased introduction of value-added-tax (VAT), and development of organized retail and agri-processing industries", say Praveen Ojha, Logistics analyst, Data monitor and author of the study. "In addition, strong foreign direct investment inflows (FDI) in automotive, capital goods, electronics, retail, and telecom will lead to increased market opportunities for providers of 3PL in India."
However, as a result of the under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13% of GDP, compared to less than 10% of GDP in almost the entire Western Europe and North America.
"As leading manufacturers realign their global portfolios of manufacturing locations, India will have to work on such systemic inefficiencies, in order to attract and retain long-term real investments," added Praveen Ojha.
Consumer markets to lead growth in outsourced logistics 3PL/outsourced logistics is the outsourcing of a company's logistics operations to a specialized firm, which provides multiple tactical logistics services for use by customers as opposed to the respective company having a business unit in-house to oversee its supply chain and transportation of goods.
With increased geographical distribution of incomes in India, the consumer markets are extending beyond the five metros of Mumbai, Delhi, Bangalore, Chennai and Hyderabad. However, rather than being pre-emptive, the companies are only following with new distribution outlets. As such, the increased competition across industry verticals is forcing firms to focus on product distribution, and logistics outsourcing is gaining further momentum with this.
According to Data monitor, outsourced logistics, at just above one-quarter of the entire $90 billion Indian logistics market, is slated to grow at a compound annual growth rate (CAGR) of over 16% from 2007-10.
The fragmented industry structure: Opportunity for 3PL integrators
The Indian logistics industry is characterized by dominance of a disorganized market. Transporters with fleets smaller than five trucks account for over two-thirds of the total trucks owned and operated in India and make up 80% of revenues. The freight forwarding segment is also represented by thousands of small customs brokers and clearing & forwarding agents, who cater to local cargo requirements.
In order to reduce logistics costs and focus on core competencies, Indian companies across verticals are now increasingly seeking and using the services of third-party logistics service providers (3PLs).
Realizing the potential in the contract logistics market, 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw materials. Trucking and courier companies are now leveraging their network to provide express distribution and warehousing. Similarly, freight forwarders are moving towards owning assets in the form of Container Freight Stations (CFS), Inland Container Depots (ICD) and container trains.
Furthermore, 3PLs are also increasing investments to become end-to-end integrated players. As per the investment plans of the leading 3PLs in India, the logistics industry's capital expenditure is progressively increasing to almost match its revenue growth, a strong indicator of both 3PLs desiring to become integrated service providers and the industry enjoying investment-driven growth.
Infrastructure congestion: the key challenge According to Data monitor, the logistics industry in India is currently hampered due to poor infrastructure such as roads (over 70 % of freight transportation in India is via roads), communication, ports and complex regulatory structures.
The National Highways (NH) form only 2% of the entire road network in India, but handle over 40% of the national road freight traffic, putting enormous pressure on the highway infrastructure. Also, on an average a commercial vehicle in India runs at a speed of 20 miles per hour (mph) compared to over 60 mph in the mature logistics markets of Western Europe and the USA.
In addition, the twelve major ports of India handle volumes higher than their full capacity, resulting in pre-berthing delays and longer ship turn-around time compared to even the East Asian counterparts like China and South Korea.
Phased introduction of VAT - A supply chain boon
The amount of time spent in complying with inter state tax requirements and at transport check points affects the cost and competitiveness of both 3PL providers as well as their customers. VAT, which is expected to replace a plethora of state and central government taxes, is likely to enhance the efficiency of the logistics industry in India. Given the current thrust on infrastructure investments in India, the implementation of VAT is likely to boost the efficiency for these stakeholders by lowering transit times and the associated paper work.
Praveen Ojha concluded: "With the collective economic interaction of growing per capita disposable incomes, fast growing manufacturing and organized retailing sectors, increasing external merchandise trade, infrastructure investments by the government and 3PL capex plans, both India's logistics industry and the 3PL sector of this market are set to witness explosive growth in the next five years."
DEFENCE LOGISTICS AGENCY
The Defense Logistics Agency (DLA) is the largest agency in the United States Department of Defense, with about 22,000 civilian and military personnel throughout the world. The agency provides supplies to the military services and supports their acquisition of weapons and other materiel.
Since its founding in 1961, DLA has been an integral part of the nation's military defense. It has been a full partner with the military services in helping to fuel the Cold War. It has also provided crucial relief to victims of natural disasters and humanitarian aid to those in need.
Origins of DLA
The origins of the Defense Logistics Agency (DLA) date back to World War II when America's huge military buildup required the rapid procurement of vast amounts of munitions and supplies. During the war, the military services began to coordinate more extensively when it came to procurement, particularly procurement of petroleum products, medical supplies, clothing, and other commodities. The main offices of the Army and Navy for each commodity were collocated. After the war, the call grew louder for more complete coordination throughout the whole field of supply - including storage, distribution, transportation, and other aspects of supply. In 1947, there were seven supply systems in the Army, plus an Air Technical Service Command, and 18 systems in the Navy, including the quartermaster of the Marine Corps. Passage of the National Security Act of 1947 prompted new efforts to eliminate duplication and overlap among the services in the supply area and laid the foundation for the eventual creation of a single integrated supply agency. The act created the Munitions Board, which began to reorganize these major supply categories into joint procurement agencies. Meanwhile, in 1949, the Commission on the Organization of the Executive Branch of the Government (Hoover Commission), a presidential commission headed by former President Herbert Hoover, recommended that the National Security Act be specifically amended so as to strengthen the authority of the Secretary of Defense so that he could integrate the organization and procedures of the various phases of supply in the military services.
Early History, 1941-1961
The pressure for consolidation continued. In July 1955, the second Hoover Commission recommended centralizing management of common military logistics support and introducing uniform financial management practices. It also recommended that a separate and completely civilian-managed agency be created with the Defense Department to administer all military common supply and service activities. The military services feared that such an agency would be less responsive to military requirements and jeopardize the success of military operations. Congress, however, remained concerned about the Hoover Commission's indictment of waste and inefficiencies in the military services. To avoid having Congress take the matter away from the military entirely, DoD reversed its position. The solution proposed and approved by the Secretary of Defense was to appoint "single managers" for a selected group of common supply and service activities.
Defense Supply Agency, 1961-1977
When Secretary of Defense Robert S. McNamara assumed office in the spring of 1961, the first-generation of single managers were handling roughly 39,000 items by procedures with which the Services had become familiar. Yet, it was clear that the single manager concept, though successful, did not provide the uniform procedures that the Hoover Commission had recommended. Each single manager operated under the procedures of its parent service, and customers had to use as many sets of procedures as there were commodity managers. Secretary McNamara was convinced that the problem required some kind of an organizational arrangement to "manage the managers." On March 23, 1961, he convened a panel of high ranking Defense officials, and directed them to study alternative plans for improving DOD-wide organization for integrated supply management, a task designated as "Project 100." The committee's report highlighted the principle weaknesses of the multiple single manager supply system.
After much debate among the service chiefs and secretaries, on August 31, 1961, Secretary McNamara announced the establishment of a separate common supply and service agency known as the Defense Supply Agency (DSA). The new agency was formally established on October 1, 1961, under the command of Lieutenant General Andrew T. McNamara. McNamara, an energetic and experienced Army logistician who had served as Quartermaster General, rapidly pulled together a small staff and set up operations in the worn Munitions Building in Washington, D.C. A short time
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