This dissertation is about logistics management. It is a part of the supply chain management which involves with the inflow, outflow, procurement, maintenance and storage of goods and services. The supply chain exists between starting point to delivery point.
As mentioned by Ackerman (2000), “Logistic management basically means having a right thing, in the right place at the right time”. This project is focus on the activities of manager of famous company to perform in order to make the organisation a success. In today’s environment there is a need to stay updated in order to know the flaws in business, to think at the right time and act accordingly. There is always a complexity in dealing with the ever-changing customer requirements, their expectations relating to price, competitions in the economy and so on. All these have to be met efficiently in order to cope up with the situation. The success of a goods or service depends on how well strengthens of the distribution strategy is studied and how the suppliers, markets, storage and transportation are dealt with right strategy. The upcoming areas deal with the entire process involved in the transformation of a raw material into the ultimate finished product. “Logistics management presents a variety of tools to understand the logistics in effective decision making and how it goes in relating the broader issues in the entire supply chain thereby finding out ways and means in achieving the strategic goals” (Ackerman, 2000).
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The company that is selected here is Tolam Logistics which is located in Hong Kong. It was established in 1996 by Mr. Eric Lam who had about 20 years experience in freight and transportation. The TL’s provide “One Stop shop” logistics services by all type of facility of logistics like storage, delivery, custom clearance etc. The TL’s main customers included Toshiba, Sanyo, Kleon, Fuji’s air conditioner and Plasma Televisions. It had a warehouse of 100,000 sq. ft. and owns around 32 trucks. The staff strength resulted to around 100 including permanent staffs (Magee, 1985).
Tolam Logistics is a logistics company engaged in the distribution of goods that are received at its warehouse. The main points that we focussed here is warehousing and distribution. The objective of this case study is to discuss its objectives, strategies and methods employed in:
Transportation planning: TL uses its own trucks to transport the goods without depending on outsourcing of transport. Only when the demand exceeds its transport facilities it does not hesitate to make use of outsourcing and in situations where the demand is low it has no problem to put its trucks idle. They use their trucks in such situations to generate income by outsourcing their trucks to other uses. E.g. In monsoon season due to low business activity at that time not using outsourcing trucks and deploy only own trucks which runs on fixed route and fixed contract which surety of fixed expense and income.
Inventory management: TL provides a sound inventory system. They receive orders in the night and make despatches in the daytime. They forecast the warehouse space and transportation on a quarterly basis in order to know its requirements. Companies usually reserve their space in the warehouse depending upon the volume to be held in the warehouse. They have latest technology for loading and unloading 14 vehicles at a time.
Information technology: TL has an extended use of computer systems to record various transactions happening inside. It maintains a separate database for each customer. TL is now in the process of developing a new IT integrated system that will open up new exits to the company. TL does have difficulties in providing different legacy systems, so they are planning to install a common platform on the web so that all its customers can be satisfied at a time. They are implementing barcode system to tracking goods(Frederick Ross, 1996)
2. Aims and Objective:
We are learning about the issues of logistics management and for this purpose I am planning to take up the company Tolam Logistics as the main subject. Tentative research questions can be considered for this purpose is What are the main factors that affect the logistics management at TL, Do theories of logistics apply at the ground level?, How important is logistics in managing customer satisfaction?, What are the performance measures, costing methods and metrics used for logistics management?, Can modern communication technologies impact logistics management.
3. Theoretical Background:
3.1 Logistic Strategy and Planning:
The supply chain strategy is main link to growth of business strategy and it should taking care of balance maintained between the cost and service offered by firm.
As mentioned by Tompkins (1998), following factors have to be considered here,
The customers and suppliers should be aligned in regard to the internal company operations. Company’s inflow (Raw Material) and outflow (sales) should be maintained as per market demands and trends with the help of internal company operations likes collect, pickup, packaging, deliver etc.
The marketing and sales plan should be aligned to meet the supply chain strategy means like E.g. For launching a new product in the market sales plan like marketing should be start after enough production flow carry on to fulfill the demand of market, If market trends change the immediately we have other strategy for product modification.
The capital expenditure has to be aligned to the supply chain operations. E.g. Firm have enough capital for monthly fixed expense like production cost, sales, salary, rent, marketing and promotion cost etc.
The HR structure has to be aligned to the supply chain E.g. HR structure have enough manpower to operate the production, sales and marketing etc dept.
The supply chain has to be aligned in order to meet the investment policies.
The supply chain has to be aligned in order to meet the growth targets.
The supply chain has to be aligned in order to make room for expansion of the business.
Logistic planning involves the use and management of all logistic resources in order to maintain the desired cost and service performance. The considerations include the inventory positioning, inventory levels, number of warehouses, types of warehouses, mode of carrier selection and so same will be forwarded. The company can decide on whether to deploy a high service method or a low cost service method. A high cost method deploys more warehouses, use fast delivery transportation and maintain high stock levels. This method of course is mostly trying to avoid the high cost. Whereas, a low cost service method gives value for cost by reducing the number of warehouses to one, use cheap transportation and maintain longer lead time in ordering stocks.
Through improved warehouse design the cost of handling materials can be reduced to a great extent prior delivery goods arrange as to easily loading and unloading from trucks, by arranging direct vehicle loading of materials from the warehouse and implementing automated installations are two methods that can reduce handling material costs. By conducting an assessment of the transport costs and implementing the right choice by comparing current transport costs with that of the occurring standard rates can bring down transport costs to the minimize with routes selection, speed of vehicle, Regular maintained vehicle, road maps, uses the GPRS system to reach at delivery point. This type of logistic planning goes a long way in attaining the right logistic system. Company has to consider four main points while planning a logistic system; they are as stated above, customer service levels, facility location, inventory decisions and transportation decisions. These four levels are related to each other and therefore integrated planning has to be considered. Planning here means designing the logistics network as a configuration of warehouses, production plants, selling areas, stocking-areas, transportation and information systems that aim at balancing an equilibrium between the overall costs and the revenue. Briefly idea for the logistic planning means the total cost concept should be studied to consider the supply chain.
3.2 Customer Service Strategy:
Supply chain is basically considered as a “strategic concept that involves understanding and managing the sequence of activities -from supplier to customer-that add value to the product supply pipeline” (Tompkins, 1998). The role of customers in the supply chain market is not incidental. Every company in this chain, irrespective of market size mainly they thankful to its customers as the fact is that in all profit of firm there are customers are in center whom to buy the goods and services produced by each one of them. This century marks the end of monopolies and therefore customers can make an array of choices. When customers decide not to buy products in a particular supply chain, then no doubt the company would collapse without earning any revenue for the expenses incurred in launching the product on the stage of saturation and decline stage.
So, the supply chain should be structured in such a manner that there is a common link between the products as such and the end customer. It is because that the tastes of customers keep changing and their expectations goes on rising, when product cycle at saturation and decline stage at they began decreasing ‘brand’ loyalty and put in for anything that attracts them. Thus the importation must be put on conducting effective market analysis to know the needs of different groups of customers to whom the offer is to be made. Its main aim is to polish its contact with the customers. The rationale behind this strategy is to improve services provided directly or indirectly to its customers and to use the information in the system for targeted marketing and sales purposes. A kind of metrics should be used to assess the customer service, like the company’s ability to fill the orders in limited time or the delivery of the products on the due date. Other researches can be conducted to find out the reason for not delivering the products on the due date. There is no compromise for an act of negligence in meeting customer satisfaction as it is the customers who ultimately judge the life span of the company. In today’s fast growing economy, it is not the matter of fact that the big beat the small but it is the fast beats the slow and the accurate beats the inaccurate. Below are mentioned seven steps to reduce the fulfilment costs by improving customer service at the same time (Tompkins, 1998). According to him, the following points are important with regard to supply chains,
Integrate with order entry system: In today’s hyper competitive economy it is very difficult to maintain order fulfilment through the internet. Most of them placed through internets are managed poorly and which end in resulting distorting customer satisfaction due to delay in product delivery. Integrating a systematic order fulfilment process tends to reduce manual labour that saves time, increases profitability and customer satisfaction E.g. Order received in night and make delivery in the day time.
Build in adaptability: Providing exceptional customer service has proved to be challenging in today’s competitive environment. Companies can meet this challenge by proving to be adaptable with the customer wants makes changes in their orders right from the purchase and even upto and after shipment. This can prove to be successful as the customers can get what they want even if their product changes from the market. E.g. Tailor made transportation system like packaging facility as per weather.
Confirm with bar codes: By changing the bar coding into an automated one ,the company can save a large amount of its time and energy and even implement perfection in planning as it presents real time data instead of mere projections. E.g. In the ware house material arranged with barcode easy to locate particular product with the barcode system we can easily shift goods as per priority of delivery and delivery places.
Conducting automated pickings: Automated technologies are easily fulfills the needs of customer thereby increasing customer satisfaction and bringing in repeated business in a shorter time span. E.g. Goods collection from customer destination is one of good example of automated pickings it’s save time and money of customers which bringing repeated business.
Automated shipping plans: Using automated shipping plan the workers can pick to a predesigned way of stacking the containers without going for trial and error methods. This saves a lot of time and energy of the workers engaged in stacking the containers and speeding the delivery with less expense than without ASP. E.g. Barcode system on containers and on the area of ware house which easily track the goods and easily stacking and speeding the delivery.
Automate shipment verification: By applying automated verification together with automated picking and using bar codes, more time can be saved on packing, verifying and shipping process.
Sourcing orders based on facility workload: Logistic managers should use the method of best utilize of space when multiple warehousing and distribution facilities are available in order to improve responsiveness and maximize flexibility.
The above factors tend to make the shipment reach the customers more quickly and which therefore has a direct impact on their satisfaction levels. The standards of service provided to end customers should be determined and mentioned on top of the list. The remaining strategic decisions should also be taken considering the customers interests. Frohne, (2008), Organization has to adjusting the supply chain as such to meet the market demand and product features, Determining the relation model among the supply chain participants, Selecting the suppliers, Determining on the distribution channels, Adopting a specific method of stock holding, Determining the location and nature of the warehouse, Formulating guidelines in selecting the transportation.
Taking a decision on any of the above mentioned factors without giving due consideration to the customer needs may seriously affect the implementation of the general strategies of the supply chain, as the strategies of the supply chain are competitive in nature that aimed at end customer satisfaction.
The focus of supply chain on the customers can be studied more explicitly using the Quick Response concept, which means identifying the demands and reacting to its changes as quickly as possible. This concept was developed in relation to textile industry in order to avoid losses due to change in demand. The QR nature is such that it assume in close cooperation with the supply chains by providing maximum satisfaction to its customers by reducing the costs to its minimum. This becomes material if the customers provide timely information to the suppliers regarding their demands and they make timely supply of the demand. This method would no doubt increase sales by reducing the costs by bringing in profit to all the supply chains involved.
3.3 Procurement management:
Procurement is appropriate goods at best cost which fulfill the requirement of purchase with good quality, quantity, time and location. It is regarding the profit orientation fastest growing business firm rather than simple cost cutting measures. There is an old saying “Goods well bought are half sold”, this means that the success of an organisation depends on the efficiency of its purchasing department. If organization purchase good quality raw material then it’s increase the productivity of internal operation, quality of final goods, reduce the wastage. Buying dept and selling departments are interlinked, in other words if buying dept purchased goods without proper consultation with the sales department which knows the nature and trend of the market, then the sales department cannot succeed to sell the goods at a profit. E.g. if purchase department without consult with sales dept purchase water resists packaging material in monsoon season to purchase waterproof material for packaging it’s indirectly effect on business cost, time etc wastage. In monsoon season low business activity need low quantity of packaging material need to know quantity of material as well. Scientific purchasing methods should be adopted in order to purchase the right product at the right price and place, in right quantity and quality and from the right supplier. All these factors are interconnected. There is always confusion for all the concerns regarding what to buy, where and how to buy. All these problems can be solved by performing the following purchasing functions. Jones, James V., p82(2006)
Planning the purchase of goods: The producer should decide on the required amount of stock of raw materials and parts that is to be purchased on the basis of expected volume of sales and the estimated rate of production. It has some sub functions that has to be followed to make the purchase effectively. They are preparation of the budget, determination of quantities to be ordered, stock turnover, consideration of effects of changes in fashion and price changes.
Assembling: It means gathering goods from various sources and bringing them to the business place. E.g. Head office ordered for packaging material and store in warehouse then need to supply at all branches on right time. If goods received from japan to deliver at north London then japan branch send goods to main office at uk branch then they supplies to London branch and London branch supply to north london branch whom deliver it to customer.
Locating the sources of supply: The buyers have to search for various sources of supply and maintain contact with them. In the selection of the suppliers, the buyers should consider the efficiency, rate and location, capacity of supply goods, goodwill and financial stability of the suppliers. It is always desirable to maintain liaison with two or more suppliers to ensure uninterrupted supply in case of non availability of raw material from one supplier buyer sure for available from another supplier and supply of raw material not interrupted.
Market news: The buyers should be always aware of the market, the prices, the change in fashion, tastes and attitude of the customers should be updated. The launching of the product and their impact on the customers should also be monitored by survey of customer’s like-dislike’s, market share, market trends etc.
Negotiation of terms: After the above activities have been completed the buyer has to finalise on buying. For this he has to negotiate with the supplier’s terms and conditions. Usual negotiations will be on the quality, quantity, price, discounts and terms of delivery.
Transfer of title: Finally, immediately after the payment the buyer should get the title transferred in his name. He should get the relevant documents like final agreement copy, terms and condition letter, quotation etc in his custody.
To take a quick look at how CEVA logistics a leading supply chain management company has tied up its hands with Ford, a global leader in the automotive world, proved to be a success. The operation is located closely to the plants proximity and provides small lot market consuming areas, container management and efficient transportation system. CEVA was awarded three awards for its efficient supply chain in providing customer satisfaction through maintaining quality, fast delivery and excellence in management from Ford.
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3.4 Financial aspects of logistics:
Financial managers have a responsibility to raise capital for maintaining inventory and also for the firms overall profitability. There is a global solution for low risk work. Once a company enters to do business globally its financial risks also arises. It needs to ask questions as to how it will get its money in business or whether the goods will be accepted only after the shipment. Companies can use various financial instruments that banks offer nowadays in the form of letter of credit and the like. The payment condition regulates the flow of goods or services in the logistic system and the mode of payment. Some of the common means of payment are way bills, letter of credit, commercial invoice etc. on the basis of payment conditions; banks have adopted a new means of payment under the term called financial engineering. These have proved to be very much useful in enabling the free of capital that is blocked in ventures and also reducing the time of funds being locked up in business. They also have to verify the terms and contract of payment with customer and what is fixed expense are occurred against payment method with customers.
The currencies of various countries can also affect international logistics in many ways. These are foreign exchange control and risks of exchange associated with warehousing. This can be reduced by selecting specific company locations, countries that have a stable market for their currencies. By reducing the order processing time can also minimise the risks involved in exchange rate.
3.5 Packaging and Inventory Management
Packaging is technology of preparing goods for transportation, sales, warehousing, logistics, evaluate the design of product. Packaging is concerned with the planning, distribution, sals and storage etc. Packaging makes attractive to the end consumers the old product. It is a group effort of the designer, the researcher, the engineer, the marketing expert, the sales department and the top management. “It should be designed in a systematic manner in order to achieve its very purpose” (Voortman, 2004). The various factors to be considered while taking packaging decisions are the size, colour, material, text, brand name, caption etc. In packaging designs the AIDAS formula (see Figure 1) has to be successfully implied. AIDAS represents five basic points. They are attention, interest, desire, action and satisfaction. These are very much important in the supply chain strategy which goes ultimately in meeting the customer needs. The need of packaging is to ensures the supply of right quantity and quality of the product, to protects the product from any damage caused due to dust, mishandling, pilferage etc, to makes the handling of products conveniently, to facilitates the storage of products, to makes it convenient to distinguish our products from that of the others, to makes the product more attractive, to helps the customers to reuse the product for some other purposes
Packaging holds a very important place in the supply chain logistic management. Only when the products are presented well the customers has an urge to buy it more frequently.
Fig. 1 AIDAS
4. Inventory Management:
Inventory management aims to handle all function correctly with tracking and management of material. Inventory management is very wide definition like to replenishment lead time , carrying costs of inventory, asset management, forecasting, valuation, visibility, future inventory cost, space, quality etc. The ultimate aim of supply chain management is how well you manage your inventory. Manufacturers face a number of challenges which require not just exceptional planning but also an effective communication setup that keeps you updated at the spur of a moment. From rapid changes of customer demands, globalisation or even natural calamities can cause your inventory to be stuck up paving way for no wages to the employees. Therefore there should be a quick information system to discuss the inbound and outbound issues affecting the demand and supply. For this there should be a well managed supply chain inventory management in order to keep the business running without any interruptions (Bowersox, 2000)
There are benefits and risks of holding inventory as mentioned below,
Avoiding risks of sale: If a desired amount of inventory are stored that are ready to be sold, can bring in return to the company. It can avoid losing its customers for non supply of products. Shelf-stocks are those products which are sold to its customers with little or no modifications; an example of such a product is automobiles.
Quantity discount: When goods are purchased in bulk quantity the suppliers offer a discount. This is in fact helps the buyer to make a more margin in profit. Even sometimes suppliers are ready to supply goods on credit for time period like one week /month that’s all capital invest in other source for time being help to cash cycle.
Reducing ordering costs: Each time an order has to be placed it incurs certain expenses like mailing costs, typing, approving and the like, so if inventory is stored in bulk it can reduce the ordering costs to a great extend.
Reducing the set up costs: Start up costs is incurred each time a product is produced. Maintaining large stocks of inventory helps in reducing the set up costs.
Reducing risks of production shortage: If any part of a product is unavailable it may result in the production to stay at a halt. Therefore it is good to hold inventories to maintain sufficient flow of supply to the customers.
Avoiding risks of holding inventories: Reduction or decline in the market price: It faces the risks of price cutting by competitors or the arrival of a new product. In such situations holding inventories in large amount would only prove to be a loss for the holding firm. Also inventories more money on new product like advertisement, launching, promotion offers, discount schemes etc.
Deterioration of the product: Product may get worse when it is held for longer periods.
Obsolescence of the product: The product may become obsolete and outdated when the customer’s tastes and preferences change.
While dealing with inventory management in the supply chain it is also advised to go through the costs of holding inventory. The costs associated with inventory are of two types; direct costs and indirect costs. “The direct costs of holding inventory are the materials cost, ordering costs and carrying costs. The indirect costs of holding inventory are costs of funds tied up in inventory (opportunity cost) and the costs of running out of stock (stock-out cost)” (Waters, 2003).
When critically evaluating the inventory management we can sum up the objectives like to ensure that the materials are available for production without interruption, To maintain sufficient stock of raw material in times of shortage, To ensure that inventory of finished goods are readily made available to meet the customer demands., To maintain a balance between the inventories., To prevent the inventory from deterioration by providing proper warehousing and insurance.
From the above mentioned points it is evaluated that inventory if not controlled properly may either way prove to be wastage to the concern. This has induced the need to find out techniques to control the inventory.
4.1 Economic Order Quantity:
EOQ (see Figure 2) is the level where total demands of product is constant over and each new order is delivered in regularly when in the inventory is reach at zero level. It is important to note that only the right amount of the inventory has to be stored. EOQ means the determination of the right quantity to be purchased. A balance has to be maintained between the carrying costs and the ordering cost. EOQ is the point where the total cost of ordering and the cost of carrying the inventory would be the minimum. For EOQ we assume that the ordering cost, rate of demand, purchase price and delivery quantity are constant with fixed lead time. The main point here to be noted is “whether you increase or decrease the purchase the total of all the costs should be maintained at a minimum” (Stock, 1993).
Fig. -2 Formulas for Economic Order Quantity.
Source:- Google Image.
4.2 ABC analysis:
ABC analysis (See Figure 3) is a technique of exercising selective control over inventory items. It is a method of controlling material according to its value. It’s a mechanism for impact on inventory cost by identifying items. A concern need not exercise the same degree of control over all materials. Materials of high value should be closely controlled than materials of low value. Accordingly, the materials will be grouped as A, B and C. A category material constitutes only a small percentage of the total items but they have the highest value. By category items constitutes a higher percentage of the total items but have only a medium value and the C category items constitutes the highest percentage in the total inventory but it has the lowest value. ABC analysis is based on the principles of Selective Inventory Management.
Fig-3 ABC Analysis.
Source Google Image
4.3 Determination of Re-order level:
Re-order level (See Figure 4) is that level of inventory at which the firm should place orders in order to maintain stock of the inventory. It is with regard to the timing of purchase. When orders are placed new products will reach the before it runs out of stock. Last minute order placing is not found here as the orders are placed slightly above the minimum stock level.
The above techniques can go on a long way to control the sufficient inventory. As inventory forms the life blood of a concern not a minute carelessness can be made in maintaining adequate stock of inventory. As there is a supply chain all over the globe it is high time to forgo with traditional inventory management process and continuously manage inventory through the global supply chains to optimise the inventory. The excellence in supply chain is required to strike a balance between the lead times, budgets, inventory costs and the risks. In order to maintain optimum utilization of inventory it is necessary to balance the supply chain management against the business policies, changing market demands, risks and other constraints. It makes it important to know what inventories to carry, how, when and in what form.
Fig. -4 Diagram of Reorder Level.
Source:- Google Image.
5. Physical Distribution and Monitoring Performance:
Another important area which forms an important part of the supply chains strategy is the provision of proper storage and warehousing facilities until the goods are ready to be consumed by the end customers. Its primary aim is controlling the movement and storage of goods until they are demanded in the market. “Warehouse management system aids in supporting the associated areas like transportation, put away and picking” (Frazelle, 2002). Here the warehousing systems can be managed in both ways either manually or automatically. In order to explain this much better an illustration is explained below. A UK based company is a manufacturer of books, cards, antiques and other souvenirs. The company has to ship its products to more than 500 destinations around the world. Now to know the challenge it has faced, it managed to build up its own warehouse of a 10,000 foot and used paper based system. All the products have to be located based on the colour or relying completely on the staffs employed there. But this system proved to be inefficient as there always raised confusion between the products as different products sometimes were of the same colour. This took up a lot of time and energy of the concern and they were piling up with shipments that were yet to be dispatched. This started to affect the concern both on its revenue as well as its customer satisfaction. It also led to the duplication of work as the same lists were printed twice. They recognised that th
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