Logistics, Operations And Supply Chain Management

Ideally, the time taken for registering the order should be one minute. After that the pizzagoes to the guy in the "make line". He takes two minutes, and then oven time is five minutes.When the pizza comes out of the oven it is inspected. One minute goes into quality checkand packing. Another minute goes in checking the route and confirming the order one lasttime.The moment he is leaving, the delivery boy shouts the out-of-the-door time, which isnormally between 10 and 12 minutes. Then everybody yells out "drive safe". When hereturns he punches the time in. At the end of the day the average delivery time for all hisorders is checked. This helps the manager figure out which orders were not delivered intime. The next day, the store manager calls each one of those whose orders got delayed andapologizes.The essence is process sequencing, just-in-time inventory availability, and timemanagement for the success in this service operation logistics.Review Question1. Discuss the definition of logistics as given by American Council of logisticsmanagement.Dabbawalas of MumbaiFigure 1.2: Dabbawalas in ActionDabbawalas of Mumbai offer a reliable fool proof logistics system of delivering lunch boxesto over 200,000 office employee every day without mix up of having the wrong tiffin going tothe wrong office or arriving late, irrespective of conditions such as rains, strikes, andscorching heat. A team of around 5000 men and women, mostly illiterate, operate inassigned areas in Mumbai, each handling 25-30 dabbas, which is the optimum lot size asmore could create confusion and affect promptness, which will lead to customerdissatisfaction. The dabbas are collected from the houses and put in tiffing racks at anetwork of 96 railway stations all over Mumbai to load into the train for further movementtoward delivery points. They use a colour code system on the dabbas to identify thecollection and delivery points. After the lunch hour, the system operates in reverse direction,4

again displaying accuracy with collection and quality of delivery closer to Six Sigma. Thissystem gives a much cheaper alternative to office workers than having their food inrestaurants and food joints. With this logistics system, 400,000 transactions are done dailywith the precision of Six Sigma accuracy.Dabbawala/street code of residential stationResidential railway station codeDestination railway station codeDabbawala code at destinationBuilding name for deliveryFloor number of the buildingFigure 1.3: Code System of DabbasLaundry Service in Five Star HotelsFigure 1.4: Laundry Service in Five Star HotelsThe laundry service in a five star hotel is a very simple service operation that does not useany sophisticated software tools. At 10 a.m. the housekeeping department collects thelaundry from 210 rooms of a 300 room hotel operating at 70 percent occupancy. The laundryis divided into three parts; staff uniforms, room laundry (bed sheets, pillow covers) andguest clothes. Special attention is given to the guest's clothes for same day or expressdelivery. Every single piece of clothing is allotted an identification code, and the informing ispunched into the computer for tracking, processing, and final delivery. The entire laundry ishanded over to the laundry service supplier, who collects the laundry in the morning anddelivers to the house keeping department in the evening as per the customersrequirements.5Logistics, Operations and Supply Chain Management

This is a simple but effective laundry logistics operation of a hotel housekeeping departmentthat leads to customer satisfaction.Indian Postal ServiceFigure 1.4: Indian Postal ServiceIndian Postal Service is one of the largest logistics networks in the world today that deliversthe letters in the most cost-effective way. The Indian Postal Service operates through anetwork of 1,52,781 post offices covering 6, 09,030 villages, towns, and cities across thecountry, delivering 43 million letters every day. They use all transportation modes availablein India for movement of postal cargo. The collection of letters from 542,781 letter boxes,followed by sorting, packing, moving, unpacking and again sorting for final delivery ismammoth logistical task that they have performed cost effectively for the past one and a halfcenturies.Review QuestionI. Write True/False against the statement given:1.Dabbawalas of Mumbai with its logistics system does 4,00,000 transactiondaily.2.The Indian Postal service operates through a network of 15,515 post officescovering 6,09,030 villages, town and cities across country.3.Time taken in registering order for pizza is one minute.4.The laundry in five star hotels is divided into two parts: Staff uniform and guestclothes.6

1.2Logistics- A System ConceptIn a manufacturing enterprise, the business process starts with the flow of material from thesuppliers to the manufacturing plant and then to the customer through the distributionchannel. Traditionally, in the functional organization, the business process consists ofdiscrete activities such as procurement, manufacturing, and distribution under the control ofthe respective departments. The departments may excel in their respective functions, but asan organization, their performance may be dismal. This might happen because of threereasons: (1) a lack of coordination in their activities, (2) different goals to cherish and (3) nosingle agency could control them to cherish a common goal.The concept of logistics is based on the system approach. The flow of material from asupplier to a manufacturing plant and finally to the end customer is viewed as a single chain,ensuring efficiency and effectiveness in sequential activities to achieve the objective ofcustomer satisfaction at a reduced cost. Logistics recognizes that all the activities tomaterial movement across the business process are interdependent and need closecoordination. These activities are to be managed as a system and not as functional silos.The functional areas of logistics, termed "Logistics Mix" by Martin Christopher, consist of:1.Information FlowçOrder RegistrationçOrder Checking and EditingçOrder ProcessingçCoordination2.WarehousingçMaterial StorageçLoad Unitizing and Material HandlingçSite Selection and Network PlanningçOrder Picking and FillingçDispatch Documentation3.Inventory ControlçMaterial Requirement PlanningçInventory Level Decisions for Customer Service Objectives4.PackagingçFor Handling and Damage PreventionçFor CommunicationçFor Inter Modal Transportation7Logistics, Operations and Supply Chain Management

5.TransportationçRoute PlanningçMode SelectionçVehicle SchedulingThe objective of logistics is to facilitate the flow of material across the supply chain of anenterprise so as to cost effectively make available the right product at the right place at theright time. Logistics has to achieve the two polemic goals of customer satisfaction and leastcost. This is possible only when all the logistics functions are working as a unified system toachieve the common goal.1.3Logistics FunctionsLogistics is a process of movement of goods across the supply chain of a company.However this process consists of various functions that have to be properly managed tobring effectiveness and efficiency to the supply chain of the organization. The majorlogistical functions are shown.1.3.1 Order ProcessingIt is an important task in logistics operations. The purchase order placed by a buyer to asupplier is an important legal document of the transactions between the two parties. Thisdocument incorporates the description or technical details of the product to supply, price,delivery period, payment terms, taxes, and other commercial terms as agreed. TheProcessing of this document is important as it has a direct relationship with the order or theperformance cycle time, which indicates the time when the order is received and when thematerial is received by the customer. The order processing activity consists of the followingsteps:çOrder checking for any deviations in agreed-upon or negotiated termsçPrices, payment, and delivery termsçChecking the availability of materials in stocksçProduction and material scheduling for shortageçAcknowledging the order indicating deviations, if anyThe above process consumes more time if paperwork is involved. If the processing of theorder is slow and complicated, it will have a direct effect on the delivery period committed. Itmay increase the transportation cost in order to deliver the material faster to compensate forthe delays in the order processing operation.Order processing is a routine operation but requires a great deal of planning, training ofpeople involved, and investment in the system to bring efficiency and accuracy to it. In alarge organization where thousands of orders are received each day, it becomes impossible8

to manually register the order and process the order quickly and correctly. In such asituation, a system capable of handling such voluminous work with minimum or no humaninvolvement is a necessity. In addition, due to competitive pressure, the order fulfillmentcycle has to be shortened to have an edge over the rival firms for retaining the customers.The only solution is to devise an order processing system ensuring efficiency and accuracy,but with minimal investment costs.1.3.2 Inventory ManagementInventory management is to keep enough inventory stocks to meet customer requirements,and simultaneously its carrying cost should be the lowest. It is basically an exercise ofstriking a balance between the customer service for not losing market opportunity and thecost to meet the same. The inventory is the greatest culprit in the overall supply chain of afirm because of its huge carrying cost, which indirectly eat away the profits. It consists of thecost of financing the inventory, insurance, storage, losses, damages and pilferages. Theaverage cost of carrying inventory varies from 10 to 25 percent of the total inventory per yeardepending on the products. In the case of perishable products, it is on the higher side. Eventhough inventory is a major concern, without it a firm cannot meet the regular and timelyproduct requirements of its customers.There are two approaches to inventory management: one is cost approach and the other iscustomer satisfaction. Business firms try to strike a balance between the two. Due toadvance communications and computing facilities, some business firms in businessmarkets are operating on a zero inventory level by adopting the JIT technique. But this ispossible with co-partnership between the purchaser and the supplier, and theycommunicate on a real time basis.1.3.4 WarehousingWarehousing is the storing of finished goods until they are sold. It plays a vital role in logisticsoperations of a firm. The effectiveness of an organization marketing depends on theappropriate decision on warehousing. In today's context, warehousing is treated as aswitching facility rather than a storage place. It is a major cost centre, and many problems atthe customer end are directly a result of improper warehousing management. Warehouse isthe key decision area in logistics. The major decisions in warehousing are:çWarehousing of warehousingçNumber of warehousesçSize of the WarehouseçWarehouse layoutçDesign of the buildingçOwnership of the warehouseWarehousing is an important component of logistics as it is directly linked to the ability of a9Logistics, Operations and Supply Chain Management

firm to deliver the desired level of customer service. The ownership of a warehouse isprivate, public, or contractual. Each has advantages associated with it, and a firm has tochoose the best options depending on its objectives and the resources available. However,the decision on warehousing requires proper planning and analysis, as well as help fromexperts in real estate, industrial engineering, and operations research.1.3.5 TransportationFor movement of goods from the supplier to the buyer, transportation is the mostfundamental and important component of logistics. When an order is placed, the transactionis not complete till the goods are physically moved to the customer's place. The physicalmovement of goods is through various transportation modes. For low unit value products,the transportation cost component is 20 percent of the product cost. In logistics costs, itsshare varies from 65 to 70 percent in the case of mass-consumed, very low unit-pricedproducts.Firms choose the mode of transportation depending on the infrastructure of transportation inthe country or region, cost is the most important consideration in the selection of a particularmode of transport. However, sometimes urgency of the goods at the end of customeroverrides the cost consideration and the goods are sent through the fastest mode, which isan expensive alternative.The consideration of whether the firm should have its own fleet or go in for outsourcingdepends on investment, operating costs, expertise, and reliability. The common modesavailable are road carriers, railways, airways, ships, pipelines, and ropeways. Dependingon the customers requirements and the availability of transportation infrastructure and itsreach and cost, firms decide on the mode with an optimum cost under the given productmarket conditions.1.3.6 InformationLogistics is basically an information based activity of inventory movement across a supplychain. Hence, an information system plays a vital role in delivering a superior service to thecustomers. Use of IT tools for information identification, access, storage, analysis, retrieval,and decision support in logistics is helping business firms to enhance their competitiveness.Review QuestionsI.Activity: Visit one of the daily utility big retail store in your city/town and find aboutthe logistics system and write a report.II. Question and Answers:1.Discuss the various components of logistics system.2.Explain the order processing as logistic function.10

III. Match the following:(a)Information flow - Material Requirement Planning(b)Warehousing - Order Picking and Filling(c)Packaging - Order Registration(d)Transportation - For Intermodal Transportation(e)Inventory Control - Route Planning1.3.7 Logistics for Business ExcellenceLogistics is an information based process of material movement from a supplier to themanufacturer and to the customers. Hence, for business excellence, logistics operationsneed to be integrated on the following two fronts:1.Integration of logistics into the business2.Integration of components of logisticsAny business process consists of a set of activities that include raw material procurement,conversion, and the distribution of finished products for selling. To accomplish the objectiveof making available and the right product at the right place and at the right time with less cost,the help of another process called logistics is needed to take care of the material storage andmovement across three stages of a business process. The integration will make thebusiness process run as a chain rather than isolated process elements. The logisticsprocess is a set consisting of a number of activities, including warehousing, materialhandling, storage, packaging, transportation, and information flow.For a logistics operation to run smoothly, proper integration among the components of thelogistics process is imperative. The efficiency and effectiveness of the entire system dependon how individual elements get coordinated and work as a system and not as functionalsilos.In an integrated logistics process, a close coordination between inventory flow andinformation flow is essential for system efficiency and effectiveness. For a manufacturer, theinventory flow starts after the material is shipped from a supplier to the processing ormanufacturing centre and ends with the delivery of the finished product to the customer orusher. In the case of a retailer, the logistics process starts after the material is dispatchedfrom the manufacturer or wholesaler and ends with final delivery to the user. The volume oflogistical activities varies with the width of the supply chain, the product category, and thevolume of the business.In a business process, there is continuous value addition at each stage of inventorytransportation until, it is finally delivered to the customer. Logistics supports the valuecreation process and hence it requires continuous attention of the management. For thefocused attention, logistics activities can broadly be divided into three areas of businessoperations wherein the logistics needs are quite different.11Logistics, Operations and Supply Chain Management

1.3.8 ProcurementIt is also known as buying or purchasing activity. The material movement from suppliers tothe buyer comes under the purview of inbound logistics. The raw material, components,parts, and consumables required for manufacturing operations should be available at theplant at the start of production schedules. The logistics activities include transportation andstorage. The focus here is on a timely movement of the goods in an economic load size fortransportation. Procurement is concerned with availability of desired material for themanufacturing in the right quantity. To save on the inventory carrying costs, the frequent butsmall lot sizes are planned. Howe

1.9 Third Party Logistics 1.10 Fourth Party Logistics 1.11 Career & Growth in Logistics and Supply Chain 1.12 Summary The unit is an attempt to give idea how logistics works as a system. It also helps to understand about the different elements in logistics system. It also provide an insight about objectiv