MODULE -7 IT IN THE SUPPLY CHAIN
BY: LAKSHMI NARAYANA REDDY.K MBA, PGDFM, M.Phil, (Ph.D)
MODULE 7 Dimensions of Logistics:
Introduction: A macro and micro dimension & logistics interfaces with other areas. Approach to analyzing logistics systems & logistics and systems analysis. Techniques of logistics system analysis. Factors affecting the cost and importance of logistics.
Introduction Good logistics is business power, very appropriate because it helps build competitive advantage. Big challenge is to manage whole logistics systems in such a way that order fulfillment meets and perhaps exceeds customer expectations. Perspective on supply chain management is that it is a network of the logistics systems and related activities of all the individual companies / organizations that are part of a supply chain. The individual logistics systems obviously play a role in the success of the overall supply chain.
Transportation Warehousing & storage Industrial Packaging Material Handling Inventory control Order fulfillment, Scrap/Salvage Disposal Demand forecasting, Material support. Production planning/ Scheduling Procurement, Return goods handling. Customer service, Facility location.
A Macro Dimension In the economy logistical activities, increase the growth of economy in terms of gross domestic product (G.D.P). Hence, one need to measure total logistical cost in terms of GDP, which is a widely accepted barometer or metric used to gauge the rate of growth in the economy. This reduction makes an organization to be more competitive since it directly impacts the cost of producing goods. (COGS) It indicates, a significant improvement in the efficiency of the overall logistics systems of the various companies operating in the economy.
The Micro Dimension – Logistics in a firm
Micro perspective of logistics in a firm needs to examine the relationship between logistics and other functional areas in a company. Marketing Manufacturing / Operations Finance and accounting (Ref. logistics interface with other areas)
Logistics interfaces with operations / Manufacturing
Logistics interfaces with marketing: Physical distribution and ability to provide the product at the right time in the right quantities may be the critical element in making a sale. These activities are the responsibilities of firms logistics system. Each principle area of marketing mix viz: Price, product, promotion, place, apart from interface area between logistics and marketing are relevant for discussion.
Logistics interfaces with operations / Manufacturing
Length of Production Lines: Long Vs Short Production Runs: Seasonal Demand Supply side interfaces Protective packaging Foreign and third party alternatives
Finance and accounting (Ref. logistics interface with other areas)
The impact logistics can have upon return on assets (ROA) ROA = Revenue – Expense / Assets OR ROA = Gross profit / Assets Logistics to impact on ROA possibility Reduction in inventory since inventory is an asset reducing inventory increases ROA. ROA also can also improve as long as increase in sales is not offset by higher cost for customer service. Financial viability of a company is gauged by its current ROA or ROI, hence logistics gains importance, in terms of - reduced inventories, - and reduced customer services expenses, - also utilization of ware houses and less investment on transportation equipment.
Approach to analyzing logistics System
Material management Vs physical distribution: Cost centers Nodes Vs links Logistics channels
1. Material Management V/S Physical Distribution
It is very useful to logistics management and control in an organization. A different logistics requirement exists between MM & PD and may have important implications for the design of an organization logistics system. Close coordination between them is necessary. Companies can be grouped into 4 different types based on inbound-outbound perspective requirements. Balanced system, Heavy inbound, Heavy outbound, Reverse systems.
2. Cost Centers Activities in logistics are Viz: Transportation, warehousing, inventory materials handling and industrial packing – trade off between these activities could result in lower overall cost and / or better service. Trade-offs: logistics into various cost centers or activity centers for logistics system analysis reducing total logistics cost and improving service will occupy by trading off one activity center against another. E.g.: shifting from rail to motor caries may result in faster and more reliable service. Lower inventory costs which offset higher motor carrier rate.
3. Nodes Vs Links Nodes are established spatial points where goods stop for storage or processing. i.e. plants and ware houses, where activities are conversion into finished goods or goods in finished form for sale to customers. Links: Represent the transportation network connecting the nodes in the logistics system. The network can be individual modes of transportation (Rail, motor, air, water, pipelines, or combinations and variation One node system may use simple link is suppliers to a combined plant).
4.Logistics Channel The network of intermediaries engaged in transfer, storage, handling, communication and other functions that which includes in addition to logistical flow, transaction flow of specific logistics channel can be simple or complex. Simple: Control relatively simple the individual manufacturer controls the logistical flows since deals with customer directly. complex: Control different due to additional storage and transportation
Logistics and Systems Analysis
Logistics development taken place along with system analysis and system concept. System concept: is a set of interacting elements, variables, parts, or objects that are functionally related to one another and that form a coherent group. Eg: Engine design: the overall performance of engine as a system is more important that the efficiency of individual parts. Cost perspective: Transportation decision has to be coordinated with related areas such as inventory, warehousing, packaging to optimize overall system, not just transportation. The logic is we do not focus on individual (optimization) variables but now they interact as a whole. The objective is to operate the whole system effectively, not just the individual parts.
Techniques of Logistic System Analysis
1. Short Run/ Static Analysis: one general approach to total cost analysis for logistics is known as short run analysis. In this a specific point in time, or level of production is chosen & costs are developed for various logistic cost centers described previously. Multiple short run analysis would be considered & then the system with the lowest overall cost would be selected, as long as it was consistent with constraints the organizations imposed on the logistic area.
2. Long Run/ Dynamic Analysis: It Examines a logistic system over a long time period or range of output.
Factors affecting the cost & importance of logistics
Competitive R/S: Order cycle, substitutability, inventory effect, transportation effect. Product R/S: Dollar Value, Density, Susceptibility to damage, Special Handling requirements. Spatial R/S: Related to Transportation & Distance.
Role of Logistics in Supply Chain Management
Role of logistics are covered in the following activities. Traffic and transportation – material handling Warehousing and storage – inventory control Industrial packaging – order fulfillment Demand forecasting – plant and warehousing site location Production planning – return goods handling Purchasing – parts and service handling Customer Service levels – sewage and waste disposal.
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