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1A. Define Logistics Management -
Logistics Management is the process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, in process inventory, finished goods and related information from point of origin to point of final consumption for the purpose of conforming to customer requirements.
The above definition highlights the key features of logistics:
It is concerned with movement and storage of materials
It is concerned with managing the information flows that underpin the flow of materials.
Its scope ranges across the whole supply chain from point of origin of raw materials to final consumption of finished goods.
It requires a single logic to plan and organize the flow of materials throughout the supply chain.
It has 2 key objectives: achieving appropriate customer service standards and doing so in a cost effective manner.
Logistics is the applied science of defining supportable systems and of planning and implementing the acquisitions and use of resources. Logistics can have a hundred different definitions depending on the person it is coming from; each individual in life has different perspective of logistics in their own way.
Logistics has a major impact on society. The cost of living depends on the cost of purchase and this in turn depends on the logistics cost of the product.
A first step in gaining an understanding of the logistics process is to have a clear understanding of what logistics management means. Logistics management has many names, including:
Business logistics Logistics
Channel management Materials management
Distribution Physical distribution
Industrial logistics Quick-response systems
Logistical management Supply chain management
Logistics in itself is a system of related activities with a purpose of managing the orderly flow of material and personnel within the channel.
Improved customer service and reduced costs are the outputs of logistics management and it is through the achievement of these two factors that logistics contributes to corporate performance.
1B. Logistics productivity improvement affects the economy -
The logistics process affects almost every sphere of human activity, directly or indirectly. Few areas of business have as significant impact on a society's standard of living as logistics. As customers, we tend to notice logistics only when there is a problem:
When an item is bought online and the delivery is not as per the promised time.
A product is advertised in media but is not available when an individual goes to the store to buy it.
A shipment of medical supplies and food for distribution to victims of a natural disaster in a foreign country cannot be delivered to those in needs because transport equipment and storage facilities are not available or are inadequate.
An automobile plant is shut down when there is a strike by the truck drivers and the parts that are required for just in time manufacturing system are unavailable.
An order is delivered to the wrong customer, and it takes several days for mistake to be corrected; in the meantime, a substitute shipment must be sent by air express, resulting in additional cost to the seller.
We often don't think of the role that logistics has in our lives until something goes wrong. Fortunately, such occurrences are the exception rather than the rule. Logistics has a significant impact on society, industries, organizations and individuals.
To understand the role of logistics in the modern economy it is important to appreciate some of the background changes that have been occurring in the economy more generally. In particular, there have been major adjustments in both the way many economies are structured and in the ways that we think about how economic growth takes place.
The new economy assumes a large contribution from total factor productivity growth, with significant industry sectors gaining from increasing returns, positive externalities, standards and network economics.
A conservative estimate is that as much as 90% of global demand in not fully satisfied by local supply. Current demand coupled with the world population projected to increase by an average over 200,000 people /day for the next decade equate to substantial opportunity. The range of products/service growth potential varies greatly between industrialised and emerging economics. In industrialised sectors of the global economies, opportunities focus on B2B and upscale consumer products. While it is true that consumers in developing nations enjoy relatively less purchasing power than those in their industrialised counterparts, demand in such economies is huge in terms of basic products and necessities. Consumers in developing nations are more interested in quality of basic life than in fashion or technology. For example, the growing population in India and china offer huge market opportunity for basic products, like, food, clothing and consumer durables. Firms with aggressive growth goals cannot neglect the commercialization of the global market place.
The decision to engage in global operations to achieve market growth and enjoy operational efficiency follows a natural path of business expansion.
Consumers in and around the world are in real terms becoming richer and more diversified, with a greater than before yearning for goods & services resulting in increase in wealth with which to accomplish it. The economies around the globe are increasing their productivity and variety to be in a position to match and keep up to the supply of the demand. It's imperative and emphatic that the logistics operations takes up the majority of the portion of the economy, and advancements and improvements in this field are of a significant importance to any country. This in turn entails an effect on economic components such as inflation, interest rates, productivity, exchange rates, energy costs and availability, the balance of national payments, unemployment figures and many more.
Cost savings has been a bone of contention for all, be it the consumer, manufacturer, or the government. Cost is not just an idiom it bears a significant impact on the economy of an individual and also the consumer. It been given to belief that Consumers world over are gaining the extra cash and becoming more diverse, which is a direct result of procuring cheaper products at a cheaper price and to match it with the best of services.
The world economy is on the upward trend pertaining to area of productivity and variety to keep afloat the increase in supply of the demand. With the economies growing the need for logistics has shown an upward trend. The above mentioned cost savings which was a bone of contention in earlier times, has now become part and parcel of the logistics as companies and organizations have entailed, toiled, and burned fingers to procure products at a cheaper price, passing on the benefits to the customer, and maintaining an even higher standard of customer service than before.
This has obviously led all logistic operations globally to take control of the flow and control the economy. Any advancements or improvements in this field will be of a significant importance to any country as it directly has an impact on inflation, currency conversion rates, stocks and shares, bank interest rates and the flow of communication between the governing bodies of the nation or the world.
It has been noticed in the last few years being in the supply chain industry that most companies have increased their manpower and focus in the field of logistics, as the market place has become even more competitive. This has been instrumental in allowing goods to be delivered on time more often, and increase in efficiency would help reduce cost which in turn would lower input costs and lead to greater profits for businesses
2. A. logistics been receiving more attention as a strategic function -
Strategic planning in logistics - A unified, comprehensive and integrated panning process to achieve competitive advantage through increased value and customer service, which results in superior customer satisfaction (where we want to be), anticipation forward demand for logistics services and managing the resources of the entire supply chain (how to get there).This planning is done by overall corporate goals and plan.
Quality, value and customer service have become the focus of top management. An organization must also be able to implement the strategies, plans and programmes that will deliver acceptable value and service to customers. Logistics and the people who are in the logistics field play a vital role in this concept.
Successfully implemented logistics strategy is important for companies who are dedicated to keeping service levels at the highest levels possible despite changes that occur in the supplyÂ when a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective. Because supply chains are constantly changing and evolving, a company may develop a number of logistics strategies for specific product lines, specific countries or specific customers.
The supply chain constantly changes and that will affect any logistics organization. To adapt to the flexibility of the supply chain, companies should develop and implement a formal logistics strategy. This will allow a company to identify the impact of imminent changes and make organizational or functional changes to ensure service levels are not reduced.
A company can start to develop a logistics strategy by looking at four distinct levels of their logistics organization.
Strategic: By examining the company's objectives and strategic supply chain decisions, the logistics strategy should review how the logistics organization contributes to those high-level objectives.
Structural: The logistics strategy should examine the structural issues of the logistics organization, such as the optimum number of warehouses and distribution centres or what products should be produced at a specific manufacturing plant.
Functional: Any strategy should review how each separate function in the logistics organization is to achieve functional excellence.
Implementation: The key to developing a successful logistics strategy is how it is to be implemented across the organization. The plan for implementation will include development or configuration of an information system, introduction of new policies and procedures and the development of a change management plan.
Components to Examine when Developing a Logistics Strategy
When examining the four levels of logistics organization, all components of the operation should be examined to ascertain whether any potential cost benefits can be achieved. There are different component areas for each company but the list should at least include the following:
Transportation: Does the current transportation strategies help service levels?
Outsourcing: What outsourcing is used in the logistics function? Would a partnership with a third party logistics company improve service levels?
Logistics Systems: Do the current logistics systems provide the level of data that is required to successfully implement a logistics strategy or are new systems required?
Competitors: Review what the competitors offer. Can changes to the company's customer service improve service levels?
Information: Is the information that drives the logistics organization real-time and accurate? If the data is inaccurate then the decisions that are made will be in error.
Strategy Review: Are the objectives of the logistics organization in line with company objectives and strategies.
Any organization has three main functional components namely Finance, Administration, Marketing and Operations. Most market competitors thrived through their marketing and operational expertise to make money whilst shouldering a small percentage on the finance and administration following the age old traditional of market survey theories without emphasizing or any logical prodigies.
.The actual sales would only be accentuated and perceived when the product would reach its final destination (Customer / vendor, supplier e.g.).Some common tools used in sales are and have been advancement of the competitors (Selling at a discount) which would lead to pre-launching quality products as per the market surveys, promptness and on-time delivery and to top it up the lead time for all the products, which can be termed as various service levels in the industry, which are used as a tool to rate companies.
The realization of the fact that marketing was not primarily responsible for the increase in profits entirely, companies moved onto the Icon tool of outsourcing products globally, which involved buying products at a cheaper rate, increase in quality and sales. This is the reason logistics is now a passive tool emerging as another division in any organization. Remember logistics is a magical key which enables you to save money rather than trying to increase the sales turnover. Logistics is an evergreen tree which only grows with years.
2. B. key challenges faced by logistics, greatest area of opportunity for logistics -
In today's world competition plays a vital role in pertaining to logistics. It can either hamper the product's sales and continuity or can virtually increase its demand and popularity. The competition is an additive to the logistics as it paves a way for any company to plan ahead its products growth in a systematic and logical manner using the market analysis as its source of inspiration.
Globalization has been a promiscuous part of the world economy enabling the supply chain tool to move ahead and attain unbelievable heights. This has led to a tremendous growth in world trade pertaining to cargo container movements, and an upward growth in the overall economy of the world. The priority list for any organization is to be a part this global economy, be it to capitalize on global sourcing opportunities to reduce costs and assets, take benefit of private labelling strategies, or tap into the rolling business and consumer markets of the Asian markets like China, India and other developing markets. This has led to
to an explosion of trade and global sourcing around the globe.
Consumer awareness: The consumer awareness is another important tool for the logistics as more and more people are looking at buying cheaper products but with a brand name and a dependable after sales support. This has led the logistic of any organization to breathe in more variety for outsourcing cheaper products and spreading the organizations wings globally to procure a cheaper product with higher quality of after sales support and in return having multiple vendors supplying the same products. The end result is the consumer's demand for cheaper products has increased further leading to the 'increase in sales without overstocking the warehouse' providing a higher profit to the organization with the tool of global outsourcing.
Natural disasters: This also plays an important role for the logistics as it can tear down the local economy of the organization / country and thus hamper the operations of the organization in the way of loss of sales or the competitor gaining on the product, and also decreasing the sales. Thus proving that logistics plays a vital role for the growth of any organization be it a country or the entire globe.
The greatest area of opportunity is to cut down on inventory, order more often rather than holding more inventories and building dead stock thus decreasing the profits of any organization.
Movement of product - This is often the way that logistics is viewed in many companies. Urgent shipment and expediting orders are the common demands of business. There has to be consistency and reliability in the movement of the products. One loop hole can spoil the entire process and can be a hindrance to the flow of the product from the manufacturer to the consumer. But there is more, products move should complement the cooperate strategies. If the emphasis is on cost reduction, lower inventories, customer service or whatever, then products must move in a way that is consistent with this emphasis, product must also flow not just move from venders, manufacturing sites, warehouse and customers. If this does not flow than there is not a supply pipe line instead there are in balances in inventories with components and finished goods not being where they should be.
Movement of Information - Tracking the product that is in transit or in the warehouse is another important aspect. It is not enough to move products and materialsÂ you must also know where they are, you must know what inventories are and where and if critical action is required, you must know when orders are coming in and when they have to be delivered. Information timely and accurate is vital for sound decision making.
Time / service - The ability to respond to the dynamics of the global market place/changing forecast, customer requirements, new product introductions, new sourcing and how to manage all these changes must be done quickly. Raw material and components must be ordered correctly and should arrive quickly.
Service is more than having to expedite a shipment.
Service is a factor of competition, customer requirement, your company's position in the industry; you're corporate culture and how well everyone works together in a company.
Cost - Keeping low cost and getting suppliers, raw materials and other services at competitive prices is important and a key challenge for a logistics company.
Greatest area of opportunity for logistics -
Technology is the greatest area of opportunity for any logistics company. Automation in manufacturing, warehousing and order processing or even just managing the sales & marketing.
A company should not compromise in getting the best technology as in the long run this can be compensated by good customer service, time saving as well tracking the goods.
3. A Identify the objectives of warehousing-
Warehouse in its most basic form is simply holding goods until they are needed. The functions of a warehouse is
receive the goods from a source
Store the goods until they are required
Pick the goods from the storage area as and when required
Ship the goods to appropriate user.
The primary objective of a warehouse is to maximize the effective use of the space and other resources while satisfying the customer needs. The main resource of a warehouse is space, personnel and equipment.
The product has to be safely and conveniently stored so it can be delivered in good condition to the right place at the right time. While planning a warehouse the main points to be considered are maximum use of space, maximum use of people, effective use of equipment, maximum accessibility to all items, maximum protection to all items and effective use of information.
The varied warehouse functions are as below
Identifying and sorting of goods.
Dispatching to storage
Placing the goods in storage
Retrieval from storage
Accumulation of order
Packaging and packing
Shipment / Shipping
Inventory and record keeping.
3.B key performance indicators for all the Warehouse activities-
1. Health and Safety
No of facilities No of Lost Time injuries
No of Restricted work class No of Medical Treatment Cases
No of First Aid Cases No of Near Misses
Total Reportable Cases Total hours worked activity
2. Inbound Receipting Accuracy
Total no of Containers Received Total no of Containers Receipted
Inbound Receipting Accuracy receiving Turnaround Time
Total no of Containers Devanned Container Devanned Performance
3. Order Accuracy
Total no of Orders Picked Total no of Pick Faces Counted
Total SKU Overages Total SKU Shortages
Toll Orders with Errors Pick Accuracy % against Picked Items.
4. On-time Dispatch
No of orders for dispatch No of orders not picked on time
No of orders sent out on time Order dispatch delivery performance
5. Inventory Accuracy
Total no of cartons counted Total carton overages
Total carton shortages Inventory % accuracy
Total no of SKU's Cycle Counted (excluding pick faces) Total SKU overages
Total SKU shortages Inventory % accuracy
6. Damages and Losses
Total no of cartons damages in the warehouse $ value of damages
7. Pallet Pick % of Total Picks
Pallet Picks Ctns on pallet picks
Total Ctns picked % Pallet picks vs Carton picks
No of orders for dispatch
Total no of orders not picked up within the pickup window
Pickup of Timeliness performance%
Total no of orders not delivered within the delivery day
Delivery Timeliness performance%
Total no of orders without the correct documentation
Damages and Losses
Total no of orders delivered with damages
Damages and Losses performance%
4. A How is logistics related to the marketing effort -
Packaging plays an important role in marketing a product. It provides all the information of weight, contents and nutrition which are of great importance to the seller as well as to the customer. The packaging of a product is what it differentiates from other brands. An attractive packaging draws the attention of a customer. The packaging can prove to the customer that the manufacturer cares and that it has done all to protect the customer against damages. Important information such as expiry date and weight/contents all this ensures that the customer is getting value of money.
The concept of marketing management philosophy can be defined as a conjoin effort of marketing and logistics working in tandem in achieving organizational goals. In totality the marketing perception is of the belief that a business exists to service customers, and alludes that whoever can endow with the comparative best service will beat other competing business .Product refers to the set of utilities/distinctiveness that a customer receives as a result of a purchase, Price is the amount of money that a customer pays for (he product or service offering. Promotion of a product or service conjoins both personal selling and advertising. Whereas increasing advertising expenditures or the size of the direct sales force can have a positive impact on sales, there is a point of diminishing returns. Place is the key element of the marketing mix with which logistics connects directly.
4. B Different types of utility, and how does logistics directly or indirectly affect each one -
Time utility is in which logistics can provide value for the customer through delivering a product, or making the availability a product at the right time. Logistics has the prime responsibility for getting a product to its place of purchase or redistribution on time.
Place utility is termed as the value garnet as it caters to providing the good/service for purchase or consumption at the right place. Logistics is a function which is directly responsible for ensuring that a product or service is there at the place of purchase.
Possession utility can be termed as the value a customer receives when they have the good in their hands or are experiencing the service. Logistics is circuitously responsible, through time and place utility of delivering possession utility by providing the good/service for a customer to purchase at a specific given time and place.
Form utility is termed as the value of an item which has been put together from its various components, so a computer hard drive would have a lot forum utility, but an entire computer would have a high form utility.
4. C. Profit leverage effect of logistics and the greatest cost savings opportunities for logistics -
The profit leverage effect of logistics illustrates that 1 dollar saved in logistics costs, has a much greater impact on a firm's profitability than 1 dollar increase in sales, due to other costs associated with that 1 dollar sale. In a competitive market as what we see today it is more difficult to increase sales than to work on cost reductions. Moreover, saving in logistics costs enable a firm to have an opportunity gain in the market place. As a result, logistics cost savings can leverage a firm's profit.
One of the biggest costs saving avenue for a company is reducing the amount of inventory that the company holds. Having inventory does serve the purpose of meeting sudden demand of the customer but the uncertainty is higher than the demand. Holding too much of inventory results in reducing profitability and the storage and handling costs applied to this inventory. It is better to order more often than to order once and stock with more inventories on hand.
4.D. If savings of US$0.02 can result in a dollar increase in sales, what is the increase in sales necessary to have the same impact on before-tax profits, if the savings in logistics costs is US$350,000 and if the net profit on sales is 7%?
$1 saving in logistics costs results in $1 profit increase. However, $350,000 increase in sale doesn't equalize the same amount of profit increase as there are many costs involved in this.
Therefore, $350,000 saving in logistics is $350,000 increasing in profit. To have the same amount of profit increasing, based on 7% net profit, it needs to be a $5,000,000 rise in sales: $350,000 / 7% = $5,000,0000.07 x Æ’Ñ = $350,000
Æ’Ñ = $350,000 / 0.07
Æ’Ñ = $5,000,000
4.E What is CABAF -
An adjustment factor incorporating the bunker and currency adjustments.
Currency Adjustment Factor is an adjustment of the freight rate caused by a significant change in the relative exchange rates in the shipping line's basket of currencies between quotation of rate and shipment date. This may be a positive (surcharge) or negative (rebate) adjustment.
Bunker Adjustment Factor is a surcharge levied by the shipping company to cover any extra fuel costs incurred between the time a rate is quoted and when the goods are shipped. BAF could be a rebate if bunkering costs had decreased in the meantime.