Unit 5

Logistics of Distribution

By
Feroz Khan, Sunil Singh, Arun Kumar, Ajay Kumar,
Indrajit, Vinoth Raj, BADON Maxime
 Content

 Introduction
 Communication & Logistics
 Functions of Logistics Management
 Customer Service, Data Mining/Data Warehousing
 Modes of Logistics
 Application of Technology in Logistics & Channel
Information Systems
 Strategic Management in Logistics
 The Process of Logistics
 What is Logistics?

Logistics is the . . . “process of planning,

implementing, and controlling the efficient,
effective flow and storage of goods,
services, and related information from point
of origin to point of consumption for the
purpose of conforming to customer
requirements.“

Council of Logistics Management

 Is it different from SCM?
Not really!

“Supply Chain Management deals with the

management of materials, information, and
financial flows in a network consisting of
suppliers, manufacturers, distributors, and
customers.” (Stanford Supply Chain Forum)

So, Logistics and Supply Chain are

equivalent terms.
 Introduction
• Commercial organizations started a logistics
department with the responsibility of
overseeing the journey of…
• the finished product from its facilities to its
retail outlets.
• Organizations always focused more on
‘Outbound logistics’ than ‘Inbound
logistics’.
Video: Nike Logistics Centre
 Communication and Logistics
Effective logistics management requires that the actual status of goods
and services be communicated in real-time to the various groups of
people involved in the logistics process

This helps logistics service providers to improve their service by

keeping a closer watch on inventory and taking the steps necessary to
avoid losing customers

The various types of technology being implemented in logistics

activities include Electronic Data Interchange, artificial intelligence,
expert systems, communication technology in the form of satellite and
wireless communication, and bar coding and scanning

Information technology has become an important dimension of third

party logistics service providers (3PLs) business as their competitive
advantage increasingly depends on the ability to create value for
customers through ICT applications
A framework for analyzing the impact of ICT
on logistics & Supply Chain Management
 ICT applications for logistics and SCM

Function Activity ICT

Technology

Sharing of data and Access and use of data and Databases

information information Data
by supply chain partners warehouse

Information transfer Communication of E-mail

information between Internet
supply chain partners

Information use for Data in decision making and CAD

supply chain operations planning of the ERP
planning supply chain MRP
 The Use of Internet Applications in Managing
Logistics Activities Among Palm Oil Industry
Participants in Malaysia
In 2008, Malaysia is reported to be the second largest producer of palm oil
in the world and accounts for approximately 42.0% of world palm oil
production.
Exported to more than 120 countries worldwide.

In 2007, Indonesia overtook Malaysia as the world’s top palm oil producer
due to dramatically increased planting areas of oil palm in the country

Internet technologies such as e-commerce have the potential to provide

Malaysian companies with the means and tools to better handle and manage
their business activities .

E-commerce has created ‘new channels’ for information flow, goods flow
and new partnerships across distribution channels
 Logistics Functions

 Purchasing /  Facility Location /

Procurement Network Design

 Inventory Control  Transportation

 Warehousing  Customer Service

 Materials Handling  Order Processing

 …. Other Functions
 Logistics plays a dominant role in SCM.
 ‘Supply Chain’ and the philosophies can create an
opportunity while ‘Logistics Mgt’ with its tools
and processes, fulfils an opportunity.
• Right Time
• Right Price
• Right Quantity
• Right Place
• Right Quality
A Sample Logistics Firm: EKOL
 Cross Docking
• A logistics activity that attempts to reduce
costs , total lead time and eliminates need to
place inventory in storage.
• Breaks down received items on the loading
dock and immediately matches them with
outgoing shipment requirements, instead of
stocking the items in warehouse locations and
returning to pick for orders at a later time.
• The idea is to transfer incoming shipments
directly to outgoing trailers without storing
them in between. 
 Cross Docking…

• In a traditional warehouse, goods are

received from vendors and stored in devices
like pallet racks or shelves.
• When a customer (e.g., the consumer or
perhaps a retail outlet) requests an item,
workers pick it from the shelves and send it
to the destination. 
 Cross Docking…
• In a crossdock, goods arriving from the
vendor already have a customer assigned,
so workers need only move the shipment
from the inbound trailer to an outbound
trailer for the appropriate destination. 

• Information system requirements--a chief

obstacle to implementing crossdocking
successfully.
 Cross Docking…(classification)
• One way to classify crossdocking operations is
according to when the customer is assigned to an
individual pallet or product. 

• In pre-distribution crossdocking, the customer is

assigned before the shipment leaves the vendor, so
it arrives to the crossdock bagged and tagged for
transfer. 

• In post-distribution crossdocking, the crossdock

itself allocates material to its stores. 
Video: Crossdocking
 Data mining
The Data Mining process is the extraction of
valid and previously unknown information.
 why do we need it ?
 To handle bulk of data in various enterprises,
thereby increasing the margin
 To turn incomprehensible data into usable
information
 Evolution
Questions Technology Providers

Data collection What was my total Computers IBM

1960s revenue in last five years Tapes
? Disks

Data access What were unit sales in RDBMS IBM

1980s Mumbai last march ? SQL MICROSOFT
ORACAL
Data warehousing and What were units sells in OLAP PIOLET
decision support 1990s Mumbai last march ?drill DATA WAREHOUSES ARBOR
down to Bangalore ?

Data mining (emerging What is going to happen Algorithm IBM

today) to Bangalore unit sale ? Database PIOLET
why? Multiprocessors
computers
 Process in data mining
 Preprocess :-
Define objective
Select data
Prepare data
 Data mining:- ]

Clustering 
Classification 
Regression
Association rule learning
 Results validation:-
Validate the finding
 Scope of data mining
Automated prediction of trends and behavior
Eg:-targeted marketing .
Automated discovery of previously unknown
patterns .
Eg :-retail
 Application
Retail
Telecommunication
Security
 Data warehousing
• Data warehouse is a subject oriented, integrated,
time-variant, non-volatile collection of data in
support of management decision-making process.
• Data warehouse figure out what “we need before
we need it “
• As it has both hardware & soft ware components,
which facilitates in taking better decisions in
massive companies
• It is also an architecture & tool to collect, query,
analyze and present information
 Conceptual data warehouse

data information
Organization Decisio
acquisition analysis n
Data
warehouse Support
External tool
information
Modes Of Logistics
 Modes of Logistics
 Logistics consists of several elements that need to
be considered and coordinated for successful
results

 Modes of logistics have been classified into two

categories

 One that is linked to operations and is responsible

for undertaking the routine and regular
responsibilities and the other that is linked to
strategy and is responsible for policy making
 Modes of Transportation in
Logistics
 Rail
 Road
 Air
 Water
 Pipeline
AIR
This mode of transportation is usually used for the
delivery of goods from distant suppliers, usually the
ones that are not connected by any other mode of
transportation
Advantages
• Fast delivery, usually between 24 and 48 hours
• Faster fulfillment of customer orders
• Ideal for perishable and other products with short life
• Reduced lead time on supplier
• Lesser inventory
• Improved service levels
 Cont….
Disadvantages
• Flight delays and/or cancellations especially
when direct connections are not available
• Customs and excise formalities leading to
delays
High Cost
• Suppliers/customers are not always located
near a rail freight depot and delivery
to/from the depot can be costly and time
consuming
 SEA

• Sea transportation is used by

businesses for the delivery of
goods from distant suppliers
• Most sea transportation is
conducted in containers which
vary in size
• Goods can be grouped into a
container (LCL) or fill a
container (FCL)
 Cont…
Advantages
• Ideal for transporting heavy and bulky goods
• Suitable for products with long lead times
Disadvantages
• Longer lead/delivery times.
• Problems arising due to bad weather.
• Difficult to monitor exact location of goods in transit.
• Customs and excise restrictions.
• High cost.
• Suppliers/customers are not always located near a rail
freight depot and delivery to/from the depot can be
costly and time consuming.
 RAIL

• Rail transportation is popular with

businesses for the delivery of a
wide range of goods including
post, coal, steel and other heavy
goods
Advantages
• Faster and quicker.
• Ability to carry high capacity.
• Cost effective.
• Safe mode of transport.
• Reliable.
 Cont…

Disadvantages
• Subject to unforeseen delays and/or accidents

• Completely governed by timetable and

schedule of railways

• Suppliers/customers are not always located

near a rail freight depot and delivery to/from
the depot can be costly and time consuming
 Road
• A very popular mode of
transport used by suppliers
and businesses to deliver
orders. Many transport
companies provide scheduled
delivery days and next day
delivery services, depending
upon your needs
• Goods can be packed/grouped
in box vans or in containers
which are also used for sea
transportation
 Cont….
Advantages
• Cost effective.
• Fast delivery.
• Ideal for any short distances.
• Refrigerated vans can be easily used for transporting perishables.
• Easy to monitor location of goods.
• Mass movement of goods.
• Point-to-point service.
• Easy to communicate with driver. Usually companies ask the driver to
call the company every couple of hours.

Disadvantages
• Delays due to traffic jams, etc.
• Problems due to vehicle breakdown, accidents, etc.
• Goods susceptible to damage and losing quality.
• Heavy dependability on weather.
 Pipeline
Advantages
• Mass movement of liquids and gases
• Low operating costs

Disadvantages
• Limited applicability
• Not widespread
 Application of Technology in Logistics
and Channel Information Systems
• The application of IT can support logistics and help in
resolving several problems.
• Over and above assisting in managerial tasks such as
planning, deciding on the optimal route of
transportation and allocation, distribution.
• One of the major problems in logistics has been lost
and untracked parcels thereby affecting inventory
policies.
• Real time tracking of goods throughout the supply
chain provides excellent opportunities for improving
customer service.
 Continue
• Real time information on delivery time supports
just-in-time manufacture and retail, enabling
organizations to make strategic decisions with full
confidence in the availability of goods.
• Several leading package delivery companies are
offering parcel tracking via the Internet as a
fundamental element of the service.
• For example, lost luggage is estimated to cost the
airline industry in excess of $ 100 million
annually.
 RFID AND ITS IMPORTANCE

• Radio Frequency Identification

• Identifying a person or object using a radio
frequency transmission.
• Serial number that identifies a person.
• A microchip is attached to a Antenna.
• The chip and antenna together are called RFID
tag.
 RFID Vs Barcodes

• Line of sight technology

• RFID is more Effective.

• Barcodes have limited Information.

 Advantages of using RFID

• Supply Chain Visibility

• Operating Cost Improves.

• Saves time.
 Applications of RFID

• Product Tracking
• Inventory Control
• Pricing and Promotion
• Shipping and Receiving
• Transportation
• Return and Recalls management.
 Concerns Surrounding RFID

• High Investment.

• Limited Range.

• Health Concerns.
 SOURCING DECISIONS IN A
SUPPLY CHAIN

• The Benefits of Sourcing decisions in

a Supply Chain
• In-House or Out Source
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 The Benefits from effective sourcing
decisions in Supply Chain Management
• Better economics of scale can be achieved if orders
within a firm are aggregated
• More efficiency procurement transactions can
significantly reduce the overall cost of purchasing .
This is most important for items for which a large
number of low-value transactions occur.
• Design collaboration can result in products that are
easier to manufacture and distribute, resulting in lower
overall costs. This factor is most important for
supplier products that contribute a significant amount
to product cost value.
 Cont……

• Goods procurement processes can facilitate

coordination with the supplier and improve
forecasting and planning . Better coordination
lowers inventories and improves the matching of
supply and demand.
• Appropriate supplier contracts can allow for the
sharing of Risk, resulting in higher profits for both
the supplier and buyer.
• Firms can achieve a lower purchase price by
increasing competition through the use of auctions
 Outsourcing In-House

A firm Should consider Performing the function

outsourcing if the in-House is Preferable
growth in surplus is if the Growth in surplus
large with a small is small or the increase
increase in Risk . in risk is large.
 Here we can discuss
various mechanism that Transportation
Capacity third parties can use to aggregation by
Aggregation grow the surplus transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 Capacity Aggregation
A third Party Can increase the supply
chain surplus by aggregating demand
across multiple firms and gaining
production economies of scale that no
single firm can on its own .
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 INVENTORY AGGREGATION
• A third party can increase the supply chain
surplus by aggregating inventories across a
large number of customers.
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 TRANSPORTATION AGGREGATION BY
TRANSPORTATION INTERMEDIARIES
• A third party may increase the surplus by
aggregating the transportation function to a
higher level than any shipper can on its own
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 TRANSPORTATION AGGREGATION BY
STORAGE INTERMEDIARIES
The Third Party That Stores inventory can also
increase the supply chain surplus by
aggregating inbound and out bound
transportation .
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 WAREHOUSING AGGREGATION
• A third party may increase the supply chain surplus by aggregating
warehouse needs over several Customers.
• The growth in surplus is achieved in terms of lower real estate
costs as well as lower processing costs within the warehouse
• Savings through warehousing aggregation arise if a supplier’s
warehousing needs are small or if its needs fluctuate over time
• in either case , the intermediary with the warehouse can exploit
economies of scale in warehousing construction and operation by
aggregating across multiple customers .
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 PROCUREMENT AGGREGATION
• A third party increases the supply chain
surplus if it aggregates procurement for many
small players and facilitates economies of
scale in production and inbound transportation
• Procurement aggregation is most effective
across many small buyers
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 INFORMATION AGGREGATION
• A third party may increase the surplus by
aggregating information to a higher level than can be
achieved by a firm performing the function in-house.
• All retailers aggregate information on products from
many manufactures in a single location .
• This information aggregation reduces search costs
for customers
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 RECEIVABLES AGGREGATION
• A third party may increase the supply chain
surplus if it can aggregate the receivables risk
to a higher level than the firm or it has a lower
collection cost than the firm.
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 RELATIONSHIP AGGREGATION

• An intermediary can increase the supply chain surplus by

decreasing the number of relationship required between
multiple buyers and sellers.
• Without an intermediary , connecting a thousand sellers to
a million buyers requires a billion relationships.
• The presence of an intermediary lowers the numbers of
relationship required to just over a million.
 Transportation
Capacity aggregation by
Aggregation transportation
intermediaries

Transportation Inventory
aggregation by aggregation
Warehousing
storage aggregation
intermediaries

How do third parties

increase the supply
Procurement Receivables
chain surplus
aggregation aggregation

Relationship Information Lower Costs

aggregation aggregation higher quality
 LOWER COST AND HIGHER QUALITY

• A Third party can increase the supply chain surplus if it

provides lower cost or higher quality relative to the firm .
• If these benefits come from specialization and learning ,
they are likely to be sustainable over the longer term.
• A specialized third party that is further along the learning
curve for some supply chain activity is likely to maintain
its advantage over the long term .
• A common scenario ,however is one in which the
third party has a low –cost location that the firm does
not .
• In such situations, lower labor and overhead costs are
temporary reasons for out sourcing, because if the
wage differential is persistent and third party offers
none of the other advantages discussed earlier, it is
best for the firm to maintain ownership and off-shore
production to the low –cost locations.
 Process of Logistics

Forward Logistics Reverse Logistics

 Forward Logistics

Inbound Logistics Outbound Logistics

 Physical Supply
 Physical supply means linking of suppliers with the internal
operations

Suppliers are scattered and have varying lead times, hence

coordinating and synchronizing this activity becomes a tough job

From whom to order? How much to

order? When to order? Which mode of transportation should be used?
Where to store the material? etc.

The philosophy of JIT is based on the principle of less quantity in

lesser interval resulting in more deliveries

 Vendor-Managed Inventory (VMI) is the solution

Inbound Logistics
Receiving, storing and disseminating incoming goods and
material for use.
 Inbound Logistics

Order
Sourcing Placement &
Expediting

Vendor
Supplier

Receiving Transportation
 Objectives of inbound logistics

• Ensure that material received and related information are

processed and made available promptly to production, store
and other department
• Completely and accurately document goods received and
goods returned
• Accept only items that were properly ordered

• Accept only materials that meet purchase order specification

• Ensure that vendor, inventory and purchase order information

is accurately updated to reflect receipt

• Return rejected items promptly

Inbound Logistics
Management
 Outbound Logistics

Movement of material associated with storing,
transporting, and distribution a firm's goods to its
customers.

The warehousing and distribution of finished

goods.
 Outbound Logistics

Key Issues
Activities in distribution performance cycle

expected level of customer service,

cost associated With servicing the Objectives
Order customer at the prescribed level
Order Customer
Processing  Timely
Transmission delivery Order
 product to be stocked at each
distribution facility Meeting customer demand with
perfection.
whether there is a stock-out situation
when he delivers the material Balance or between supply and
whether adequate materialdemand. is still
Order available that could have Order
lasted some Customer
Selection more days, Transportation Delivery
Business Logistics in a Firm
Integrated Logistics Management

In India

AMUL

 The DABBAWALLAHs of
MUMBAI

 ITC e-choupal
 Reverse Logistics
 Reverse Logistics
“Process of planning, implementing and controlling the efficient,
cost-effective flow of raw materials, in-process inventory,
finished goods and related information from the point of
consumption to the point of origin for the purpose of recapturing
value or proper disposal”
- Rogers and Tibben-
Lembke
 Reverse Logistics Activities
 Handling of returned merchandise
Damage
Seasonal inventory
Resell via outlet
Salvage of outdated products
Stock–balancing returns

 Recycling and reuse

Material reuse
Remanufacturing / refurbishing

 Hazardous materials disposition

 The Network of Reverse Logistics

Reverse Logistics Steps production

production

4. disassembling
and crushing

Treatment
Treatment centre
centre

5. transport

3. transport

containers
containers

collecting
collecting point
point
consumer
consumer

1. Collecting 2. selection
and sorting
retailer
retailer
 REVERSE LOGISTICS
CHALLENGES
• Retailer – Manufacturer Conflict
Inefficiencies that lengthen the time for processing returns:
Condition of the item
Value of the item
Timeliness of response

They have to develop a working partnership to derive mutual

benefit.
 Problem Return Symptoms
Lack of information about the process.
 Examples
U.S. Reverse Logistics Costs

Return Percentages
Total U.S. Logistics Costs

$1,006,000,000

Approximate RL cost %
Reverse Logistics in UK
4.00%

Estimated U.S. RL Costs

Very $40,240,000
few Indian manufacturer across any sector has
ever claimed responsibility for their faults
 Cont…..

Nokia

Apple
Repair Order Tracking System
Reverse Logistics System
Process of Logistics :- Value Chain Analysis
 Corporate Social Responsibility
For each of Nike's regions to thoroughly understand and take responsibility for
the climate impact of its logistics.

 In FY09 our U.S. group realized more than $8.2 million in savings through
better container utilization, eliminating unnecessary trips and air freight reduction.

Wal-Mart, The Coca-Cola Company, Nordstrom, Ikea, and Starbucks, all of

which realize the value of improving shipping even without owning the fleet.

Carrefour
Reducing road transport to warehouses
Carrefour France achieved the goal it had set to ship more than 40% of its
merchandise by river and rail, resulting in 3,300 fewer trucks on the roads
.In Spain, Carrefour dispatches 100% of its import containers from the port of
Barcelona by rail and 67% from Valencia.
Preliminary studies show a saving of 25% in CO2 emissions per pallet transported
(upstream/downstream)
286 tonnes of CO2 saved by Carrefour thanks to the use of alternative upstream
transport in France
38 French hypermarkets supplied by combined rail-road transport from warehouses
in Sarran and Vert-Saint-Denis
Any Questions ???