Part 2: Logistic Management
1 Introduction
By now you must be familiar how Supply Chain system covers the flow of material and information from a business to its customer. With the help of Supply Chain and its elements we can understand the way to capture companies‟ competitive advantage. This has become the most important issue for enterprises in the rapidly changing and uncertain business environments.
Logistics, as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalising supply chain. This can be defined as “Having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer.” It is the science of process and incorporates all industrial sectors.
2 Origin and Definitions of Logistics
The term "Logistics" originates from the ancient Greek "logos" means ratio, word, calculation, reason, speech, and oration".
Logistics is considered to have originated in the military's need to supply themselves with arms, ammunitions and rations as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title „Logistikas‟ who were responsible for financial and supply distribution matters.
"Logistics means having the right thing, at the right place, at the right time."
Logistics, the synonymous term of physical distribution, involves planning, implementing, and controlling the physical flow of materials from the point of origin to the point of the consumer at a profit. The role of logistics is to get the right amount of product to the right places in the right time.
Logistics is defined as a business-planning framework for the management of material, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment.
Logistics is the science of planning and implementing the acquisition and use of the resources necessary to sustain the operation of a system.
3 Communication in Logistics
The two Logistics activities vital to order filling are the communication of customer order information to the order filling area and the actual process of picking out of the inventory items ordered. In the order information stage, communication can reduce errors in transferring order information from the order to the warehouse receipt. Communication with customers is vital to monitor service levels relating to dependability.
Customer communication is essential to design Logistics service levels. The communication channel must be constantly open and readily accessible to all the customers. Without customer contact, the Logistics manager is unable to provide the most efficient and effective service.
Communication must be a two-way process. The seller must be able to transmit vital Logistics service information to the customer. In addition, many customers request information on the Logistics status of shipments. The customer who needs information to plan operations expects the Logistics manager to provide answers on a timely basis.
4 Logistics Management
Logistics Management is that part of the supply chain that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption to meet customers' requirements. A professional working in the field of Logistics Management is called as a Logistician.
Ø Logistics Management typically includes different types of activities. Some of them are:
Ø Inbound and outbound transportation management
Ø Fleet management
Ø Warehousing
Ø Materials handling
Ø Order fulfillment Logistics network design
Ø Inventory management
Ø Supply/demand planning
Ø Management of third party Logistics services providers
5 The Process of Logistics
Logistics is the process of anticipating customer needs and wants, acquiring the capital, material, people and technologies, and information necessary to meet those needs. It also includes optimising the goods or service to fulfil customer requests and utilising the network to fulfil customer requirements in a timely way.
Following diagram depicts the process of Logistics:
5.1 Process of Logistics
Logistics is viewed as the competency that links an enterprise with its customers and suppliers. Information from and about the customers will flow through the enterprise in the form of sales activity, forecasts and orders. The information is refined into specified manufacturing and purchasing plans. As products and materials are procured, a value added inventory flow is initiated which ultimately results in transfer of ownership of finished products to customers.
The Logistics process is viewed in terms of two interrelated efforts namely: Inventory Flow and Information Flow. This basic process is not restricted to manufacturing firms and for profit business alone. There is a need to integrate requirements and operations in all businesses including public sector organisations.
6 Strategic Management in Logistics
Logistics in Strategic Management (LSM) influences the participation of manufacturing managers, investment in technology, the organisation‟s ability to modify products and services, Customer Satisfaction (CUS) and Firm Performance (PRF). Structural Equation Modelling (SEM) is employed to aid in developing measures that operates, constructs and test relationships among them. The results indicate that a strategic management process that includes logisticians results in appropriate investment in modern technology and enhance the firm's ability to customise products and services. This translates to a distinctive competitive advantage resulting in improved organisation performance.
7 Domestic and Global Challenges
Globalisation of the world economy and supply chains has advanced at an almost unbelievable speed. Growth in world trade and corresponding cargo container movements continues to substantially exceed overall economic growths. Meaning that trade volumes are doubling every 5-7 years. Being part of this global economy is high on the priority list of most companies today. Whether it is to take advantage of global sourcing opportunities to reduce costs and assets, take advantage of private labelling strategies or tap into the surging business and consumer markets of China, India and other developing markets.
Even now the “best practice” with reference to this new discipline is being redefined on a continuous basis where Supply Chain Digest has identified 10 capabilities, encompassing processes, skill sets and technology. Companies strive to achieve global Logistics excellence must develop the identified capabilities.
In general, few companies have well automated global Logistics processes. As a result, there are still many manual steps in most organisations. Logistics personnel commonly spend too much time on low value activities which is needed to get the shipment to move. It does not spend enough time on developing better plans and hence approaches to drive continuous improvement. At the most basic level, we often hear companies refer to this as the “ocean booking2” problem.
For example, competition is intense among the many local and overseas air Logistics companies in Singapore. This is fuelled by the trend that more businesses are out-sourcing their non-core Supply Chain Management processes to third party providers that in turn would encourage more new entrants to rush into the industry to take advantage of this trend.
Cutting cost and capabilities: Logistics companies that are well positioned will thrive while those that are not are required to compete on price and accept lower margins. The latter will be forced into cost cutting to maintain their thin profits and unknowingly reduces capabilities that might still provide them with little competitive advantages they have left. This would lead to a reduction in customer satisfaction and eventually the most loyal customers will be lost.
Identifying businesses that match the capabilities: Consequently, these companies experience a period of constant decline and would finally cease to exist unless they realise the need to develop certain capabilities to pull themselves out of the vicious cycle. Companies need to select sound focused strategies before they develop competencies that support the strategy that they have chosen. Successful Logistics providers should identify and focus on a business or a set of businesses where they can offer distinctive service strengths that match their capabilities.
These areas include specific industry segments such as chemical manufacturing, specific geographic locations, and special handling services such as project Logistics. In addition, the ability to provide a set of value-added services to their customers at reduced total cost for Logistics.
Uniqueness of businesses: It is apparent that strategies adopted by individual Logistics provider would be different as each is unique to the market and customers they serve. However, these strategies should be customer-focused and organisations should gear their people, systems and processes to support their business goals.
Distance: Distance is also a critical factor in international business. "Distance always provides a challenge logistically. Other factors such as differences in inflation and political risk can come into play in international and global Logistics. Cultural differences exist whether you operate domestically, internationally, or globally,"
Other key differences include personnel and human resources issues and the regulatory environment of each country and the various cultural factors that float outside the operation. Many companies have local or regional managers guiding local hires. Therefore, the real management challenge is often from corporate to the regional or country level. That is where you run into issues such as competitiveness.
Bender states "Think and plan globally but execute locally, in the local language and according to the local culture for greater success”. The challenge is to implement global processes and planning that are flexible enough to accommodate local and regional conditions.
8 Elements of Logistics
Elements of Logistics are used together in the intended operational or support environment to perform a given task or achieve a specific purpose, support or mission requirement.
The following is a general description of 10 Logistics elements:
8.1 Maintenance Planning
Maintenance Planning begins early in the acquisition process with development of the maintenance concept. It is conducted to evolve and establish requirements and tasks to be accomplished for achieving, restoring, and maintaining the operational capability for the life of the system.
8.2 Supply Support
Supply support encompasses all management actions, procedures, and techniques used to determine requirements to:
Ø Acquire support items and spare parts.
Ø Catalogue the items.
Ø Receive the items.
Ø Store and warehouse the items.
Ø Transfer the items to appropriate location.
Ø Issue the items and so on.
8.3 Support and Test Equipment
Support and Test Equipment includes all equipment which are mobile and fixed. It is required to perform the support functions except that equipment which is an integral part of the system. Support equipment categories include:
Ø Handling and Maintenance Equipment.
Ø Tools (hand tools as well as power tools).
Ø Metrology and Measurement Devices.
Ø Calibration Equipment.
Ø Test equipment.
8.4 Manpower and Personnel
Manpower and Personnel involves identification and acquisition of personnel with skills and grades required to operate and maintain a system over its lifetime. Manpower requirements are developed and personnel assignments are made to meet support demands throughout the life cycle of the system. Manpower requirements are predicated on accomplishing the Logistics support mission in the most efficient and economical way.
8.5 Training and Training Devices
Training and Training devices support encompasses the processes, procedures, techniques, and equipments used to train personnel to operate and support a system. This element defines qualitative and quantitative requirements for the training of operating and support personnel throughout the life cycle of the system. It includes requirements for:
Ø Competencies management
Ø Factory training
Ø Instructor and key personnel training
Ø New equipment training team
Ø Resident training
Ø Sustainment training
Ø User training
8.6 Technical Data
Technical Data and Technical Publications consist of scientific or technical information necessary to translate system requirements into discrete engineering and logistic support documentation. Technical data is used in the development of repair manuals, maintenance manuals, user manuals, and other documents that are used to operate or support the system.
8.7 Computer Resources Support
Computer Resources Support includes the facilities, hardware, software, documentation, manpower, and personnel needed to operate and support computer systems including the software within those systems. Computer resources include both stand-alone and embedded systems.
8.8 Packaging, Handling, Storage, and Transportation (PHS&T)
This element includes resources and procedures to ensure that all equipment and support items are preserved, packed, marked, handled, transported, and stored properly for short and long-term requirements.
It includes material-handling equipment and packaging, handling and storage requirements, and pre-positioning of material and parts. It also includes preservation and packaging level requirements and storage requirements.
8.9 Facilities
The Facilities Logistics element is composed of a variety of planning activities. These activities are directed towards ensuring that all required permanent or semi-permanent operating and support facilities are available concurrently with system fielding. Planning must be comprehensive and include the need for new construction as well as modifications to existing facilities.
8.10 Design Interface
Design interface is the relationship of Logistics-related design parameters of the system to its projected or actual support resource requirements. These design parameters are expressed in operational terms rather than as inherent values, specifically relate to system requirements, and support costs of the system.
9 Technology in Logistics and Channel Information Systems
Logistics technology refers to all aspects of planning and control of Supply Chain Management including purchasing, inventory control, warehousing, transportation, packaging, material handling. Objective of the Logistics technology is to minimise the overall costs by increasing operational efficiency of the manufacturing process.
In order to reach integration companies are investing on new Information and Communication Technologies (ICT) by taking four determinant factors like
Ø Individual
Ø Organisational
Ø Technological or innovation
Ø Environmental into consideration.
With regard to the identification technologies, firms may appeal to bar coding, Radio Frequency Identification (RFID). The bar coding and RFID are identification technologies that facilitate Logistics information collection and exchange.
Nowadays, with reference to data acquisition technologies, the firms usually deal with a large amount of goods and data. This demonstrates how Data collection and exchange are critical for Logistics information management Good quality in data acquisition can help firms deliver customers' goods more accurately and efficiently. To attain this goal firms could appeal to some data acquisition technologies in Logistics field such as the optical scanning, the electronic pen notepads, the voice recognition and the robotics.
In a service industry, customer service directly affects the bottom line and gross income. Federal Express Corporation (FedEx) for instance, spends $2 billion annually on technology and TNT so far has spent $500 million, resulting in a saving of $100 million. FedEx has around 5,000 people dedicated to technology development in centres across the globe. Blue Dart Express also has a dedicated technology development team in Mumbai and spends around 3% of its revenue on information technology.
Technology has been a key revenue driver for many Logistics vendors, which helps them access new markets and adopt a just-in-time delivery model. Logistics companies are also using technology to make their package sorting more effective. Many of them run their own aircraft fleet to deliver packages or containers.
For instance, FedEx has a fleet of 650 aircraft. Technology provides them with real-time information about weather conditions and airport closures helping them plan package delivery better.
With the rapid growth of technologies, our economic society and life are changing significantly in the 21st century. The way to capture their competitive advantage has become the most important issue for enterprises in the rapidly changing and uncertain business environments. Many researchers have pointed out that the adoption of technology is the most important tool for enterprises to keep their competitive advantage. The survival of an enterprise in the age of knowledge-based economy depends on how to improve their technological capability.
Increase in number of firms is under pressure from their partners to change their traditional management style (both operationally and organisationally). They should replace them with integrated systems that help increase the speed and flow of information. In order to reach this kind of integration they are investing on new Information and Communication Technologies (ICT).
It is good to consider new ideas from any source, like, Lean Thinking, Team Work, MRP systems, Theory of Constraints or Six Sigma. Each one has a role to play depending upon the characteristics of your business such as high or low volume, standard or custom products, people intensive or machine intensive. Lean, Six Sigma and ERP are not mutually exclusive.
10 Customer Service, Data Mining and Data Warehousing
10.1 Customer Service
Customers are now at ease while dealing with Logistics companies. Real-time availability of information is helping courier companies attract new customers. Technology adoption has helped to meet service levels with customers and it is one of the key strategies to acquire and retain customers.
The impact of Logistics in the ability of a company to satisfy its customers cannot be overstated. All other efforts at modernisation, within a company would not bear fruit until the Logistics system is carefully designed to facilitate the smooth and efficient flow of goods in the system. India has to improve its roads and transport network as per the international standards in order to solve the Logistics problems.
The goal of any Logistics system is to maintain or improve customer service. In the Push mode of operation, the penalties of higher safety stock, larger warehouse, and inter-warehouse transfer are not the only penalties. Stock rotation becomes more difficult to maintain. Handling of all the products at each warehouse involves unloading, staging, storing, picking, staging and loading for shipment. All these activities involve an element of cost. In addition, there is a potential for product damage each time a product is handled.
As the majority of the product is stored at the warehouses, the plant needs to maintain a low inventory of finished goods. This allows the plant to utilise its space for production and eliminate the need for a full warehouse staff. Finally, by having the products deployed in the warehouses, the plants have the capability of shipping full truckloads and thereby reducing the system-wide transportation costs.
Flexibility and ease of response seem to have driven Logistics vendors to develop their solutions themselves rather than outsourcing them. They feel that their business requirements are complex and sophisticated and that they need an in-house team to build custom solutions.
For example, Blue Dart has a quick response team which studies the business requirements of its customers and develops appropriate solutions. It also has technical people spread across the country who work alongside customers to solve any problems.
10.2 Data Mining
Data are any facts, numbers, or text that can be processed by a computer. Nowadays, organisations are accumulating vast and increasing amounts of data in different formats and different databases.
This includes:
Ø Operational or transactional data such as sales, cost, inventory, payroll, and accounting.
Ø Non-operational data such as industry sales, forecast data, and macro economic data.
Ø Meta data, which is nothing but data about the data itself such as logical database design or data dictionary definitions.
Data Mining (sometimes called data or knowledge discovery) is the process of analysing data from different perspectives and summarising it into useful information where the information can be used to increase revenue, cuts costs, or both.
Data Mining Software is one of many analytical tools for analysing data. It allows users to analyse data from many different dimensions, categorise it, and summarise the relationships identified. Technically, data mining is the process of finding correlations or patterns among dozens of fields in large relational databases.
Companies have used powerful computers to filter through volumes of supermarket scanner data and analyse market research reports for years. However, continuous innovation in computer processing power, disk storage, and statistical software are dramatically increasing the accuracy of analysis while driving down the cost.
Companies with a strong consumer focus on retail, financial, communication, and marketing organisations primarily use data mining today.
It enables these companies to determine relationships among the following:
Ø Internal factors such as price, product positioning, or staff skills.
Ø External factors such as economic indicators, competition.
Ø Customer demographics.
Ø To determine the impact on sales, customer satisfaction, and corporate profits.
Ø To "drill down" into summary information to view detail transactional data.
For example, American Express can suggest products to its cardholders based on the analysis of their monthly expenditures.
Wal-Mart is pioneering massive data mining to transform its supplier relationships. Wal-Mart captures point-of-sale transactions from over 2,900 stores in 6 countries and continuously transmits this data to its massive 7.5 terabyte data warehouse. Wal-Mart allows more than 3,500 suppliers to access data on their products and performs data analyses. These suppliers use this data to identify customer-buying patterns at the store display level. They use this information to manage local store inventory and identify new merchandising opportunities. In 1995, Wal-Mart computers processed over 1 million complex data queries.
10.3 Data Warehousing
Data Warehousing is a process of centralised data management and retrieval. Data warehousing like data mining is a relatively new term although the concept itself has been around for years. Data warehousing represents an ideal vision of maintaining a central repository of all organisational data.
Data Warehouse is a repository1 of an organisation's electronically stored data. Data warehouses are designed to facilitate reporting and analysis.
This definition of the Data Warehouse focuses on data storage. However, the means to retrieve, analyse, extract, transform and load data and to manage the data dictionary are also considered essential components of a Data Warehousing system.
Many references to Data Warehousing use this broader context. Thus, an expanded definition for Data Warehousing includes business intelligence tools, tools to extract, transform, and load data into the repository and tools to manage and retrieve metadata.
Some of the benefits that a Data Warehouse provides are as follows:
Ø A common data model for all data of interest regardless of the data's source.
Ø Information in the Data Warehouse is under the control of Data Warehouse users so that, the source system data is removed over time.
Ø The information in the warehouse can be stored safely for extended periods.
11 Summary
Logistics Management is the backbone of all distribution systems for goods and services. Today, companies recognise that an efficient Logistics Management is necessary to remain competitive in today‟s business environment. Thus, every company that provide goods and services must have a Logistics Management function. Manufacturing companies of all varieties have extensive Logistics Management departments. Logistics is the important function in business today. No marketing, manufacturing or project execution can succeed without Logistics support.
In addition, independent transportation companies using land, rail, sea, and air methods of shipment exist to support those organisations that out-source their Logistics Management operations. Service organisations (banks and hospitals), merchandising firms (retailers and wholesalers), and governmental agencies at the state and national levels (military and transportations agencies) have extensive Logistics Management operations.
12 Case Study
Flowtech, the fluid power component stockist, has increased floor space and is now able to achieve 90 to 100 picks an hour after installing 13 Kardex Shuttle XP systems.
The company produces a new catalogue every year containing an additional 5,000 to 10,000 products each time.
Ravi Satyaraj, IT and systems director, at the company, says: “We realised after the addition of new products for the next catalogue, space would become a problem; this was further compounded by ordering more stock from the Far West which meant we had to hold greater quantities of buffer stock to counter the longer delivery times.”
Flowtech doubled the size of its original warehouse from 20,000 sq ft to 40,000 sq ft in 2001, and did enquire about a implementing a crane-based system in 2003 but decided against it because of cost and service level issues.
However, a business review in 2005 predicted it would see a growth in small and medium sized parts, so it decided a vertical storage system was the most sensible option to address present and future storage needs.
Five 12m high Kardex Shuttle XPs were installed over a four week period in October 2005, and the company then chose commissioned informal boxes for the components
Flowtech also reviewed its traditional picking procedures and updated some of the complementary systems with hand-held RF scanners and mobile label printers, as well as implementing a back office software suite.
Phases two and three saw a further eight shuttle units being installed, along with more narrow aisle racking bringing the total to 6,000 pallet location spaces.
The shuttle units store more than 40,000 medium to slow moving, small to medium sized parts in a 250 sq m space. This compares to the previous system which required 450 sq m to store 7,000 products.
Satyaraj adds: “In the past we could achieve a rate of about 30 manual picks an hour. The addition of RF technology and barcoding, and tour management has increased this to 40 to 45 picks an hour, but we must then compare this to the automated shuttles which are giving us 90 to 100 picks per hour. These advantages are further enhanced by much quicker replenishment.”
Furthermore, pick accuracy is now more than 99 %, based on an error rate of 0.46 %.
Questions:
1. Why Flowtech did not implement the crane-based system?
2. Explain how the pick accuracy was increased?
3. What was the benefit of business review in 2005?
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References:
1. Distribution logistics: advanced solutions to practical problems By Bernhard Fleischmann, Andreas Klose.
2. Logistics of distribution systems By Frank Homer Mossman, Newton Morton.
3. Contemporary physical distribution and logistics By James C. Johnson, Donald F. Wood.
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References:
2. Logistics of distribution systems By Frank Homer Mossman, Newton Morton.
3. Contemporary physical distribution and logistics By James C. Johnson, Donald F. Wood.
