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INTRODUCTION TO LOGISTICS AND SCM

Ms. Pooja Ghone

 Introduction to Logistics and SCM
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 Meaning
 Objectives
 Importance of various terms and concepts of SCM
in relation to competitive global business
 EOQ models
 Customer relationship management and supply
chain
 What is Logistics?
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 This is the management of the flow of goods, resources and information between
the point of origin and the destination (point of consumption).
 Logistics is the process of planning and implementing the efficient transportation
and storage of goods from one point to another.
 It ensures that all materials and personnel are available on time and in the right
place to ensure that a business objective is accomplished.
 Logistics thus implies having the right type of product or service at the right place,
at the right time, for a right price and in the right condition.
 Logistics can be looked at as a subset of supply chain management which ties into
project management by ensuring timely completion of a project
 The aim of Logistics Management is to ensure supply to the customer
the: Right product, Right cost, Right quantity, Right quality, Right place
and Right time
 Components (activities) of Logistics
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1. Transportation
2. Supply
3. Inventory planning and management.
4. Warehousing
5. Packaging
6. Order processing
 Objectives of Logistics Management
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1. To choose the most effective transportation routes

2. To identify the best delivery method
3. To seek continuous quality improvement
4. To minimize the cost of transportation
5. To facilitate quick response to customer
requirements
6. To improve customer service
7. To minimize damage to goods
 Major Functions of Logistics
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 The major functions in logistics are :

 Transportation management

TM focuses on planning, optimizing and executing the

use of vehicles to move goods from one place to another.
TM involves the movement of people, materials and
equipment from one place to another.
It involves: Route planning, Freight payment, Route
optimization, Operations execution, Communication,
Transportation, order planning, Cost optimization,
Resource optimization, Improving delivery capabilities
 Cont…
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 Warehousing
Warehouse management includes functions like inventory planning
and management and order fulfillment.
Warehouse management involves the control and administration of
warehouse operations where equipment, vehicles and goods are kept.
Warehouse management:
Improves flexibility and responsiveness
Eases activities like orders and shipments
Secures the expensive equipment
Labor management
Ensures that equipment are kept in check
 Cont…
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 Material handling
Material Handling, this deals with the loading,
offloading and the movement of materials at the point
of origin, in transit and at the point of consumption.

 Inventory Management
Inventory Management This is the process of ordering,
storing and using the inventory of the organization with
regard to the type and amount of material in a storage
facility
 Phases of Logistics Management
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 Inbound Logistics
This is the movement of materials from the point of
origin to the point of production.
 Outbound logistics

This is the movement of finished goods from the

point of production to the point of consumption.
 Reverse Logistics

This is the movement of damaged goods from

customers back to the point of production
 MEANING AND DEFINITION OF SUPPLY
CHAIN
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 “A supply chain is a network of supplier,

manufacturing, assembly, distribution and logistics
facilities that perform the functions of procurement of
materials, transformation of these material into
intermediate and finished products, and the distribution
of these products to customers.”
 According to Professor Douglas M Lambert. “ Supply
Chain Management as the integration of business
process from the end user through original supplier who
provide products, services and information that adds
value for the customers. ”
 Cont…
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 According to Ganeshan & Harrison. “A supply

chain is a network of facilities and distribution
options that perform the function of procurement of
material transformation of these materials into
intermediate and finished products, and the
distribution of these finished products to customers.
”
 Essential Feature of SCM
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 End-to-End Visibility:
The ability to monitor and track the flow of goods, information, and finances across
the entire supply chain.
Visibility enables better decision-making, helps identify bottlenecks, reduces
uncertainties, and enhances responsiveness to changes in demand or disruptions.
 Demand Planning and Forecasting:
The process of estimating future customer demand for a product or service.
Accurate demand planning minimizes stockouts, reduces excess inventory, and
improves overall supply chain efficiency. It allows organizations to align production
and distribution with actual market needs.
 Inventory Management:
The optimization of inventory levels to balance the costs of holding inventory
against the costs of stockouts.
Efficient inventory management ensures that products are available when needed,
minimizing carrying costs and the risk of obsolescence.
 Cont…
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 Supply Chain Collaboration:

Cooperation and information-sharing among supply chain
partners, including suppliers, manufacturers, distributors, and
retailers.
Collaboration fosters a more integrated and agile supply chain.
Shared information helps in demand planning, inventory
optimization, and quick response to changes in market conditions.
 Technology Integration:
Incorporating advanced technologies
Technology integration improves real-time visibility, automates
routine tasks, enables predictive analytics, and enhances decision-
making capabilities throughout the supply chain.
 Cont…
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 Supplier Relationship Management (SRM):

Managing relationships with suppliers to ensure a reliable and efficient flow of
materials and services.
It helps in reducing lead times, improving product quality, and mitigating supply
chain risks.
 Logistics and Transportation Management:
Coordinating the physical movement of goods from suppliers to manufacturers, and
from manufacturers to distributors and customers.
Efficient logistics and transportation management reduce costs, enhance delivery
speed, and contribute to overall supply chain responsiveness.
 Continuous Improvement and Adaptability:
The commitment to ongoing evaluation and enhancement of supply chain processes
in response to changing conditions.
Embracing a culture of continuous improvement allows organizations to adapt to
market dynamics, technological advancements, and evolving customer expectations.
 OBJECTIVES OF SUPPLY CHAIN
MANAGEMENT
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 Competitiveness and Efficiency.

 Minimizing the Time.
 Minimizing Work in Progress.
 Improving visibility Demand.
 Improving Quality.
 Reduces Transportation Cost.
 Reduces Warehousing Cost
 Competitiveness and Efficiency
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 Supply chain is a business organization. It provides value to the

customers while being competitive. Competitiveness is essential
for it to healthy sustain itself in order to be able to provide
increasing value to its customer.
 Minimizing the time – efficient supply chain is an organization
reduces the time required for converting orders into cash. So,
there is minimal time lag and increase in productivity of the
organization.
 Minimizing Work in Progress- supply chain minimizes total
work in process in supply chain.
 Improving visibility Demand- Efficient supply chain improves
visibility of demand by each one of the partners.
 FACTORS INFLUENCING SUPPLY CHAIN
MANAGEMENT
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 Consumer Demand
 Globalization
 Competition
 Information and communication
 Government Regulation
 Environment
 FUNCTIONS OF SCM
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 Supply chain management is a cross functional

approach to manage the movement of raw material
into an organization, certain aspects of the internal
processing of material into finished goods, and
then the movement of finished goods out of the
organization towards the end consumers.
 As organization strive to focus on core
competencies and becoming more flexible, they
have reduced their ownership of raw material
sources and distribution channel.
 Cont…
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 Strategic Level
• Strategic network optimization, including the number of
locations, and size of warehousing, distribution centers, and
facilities.
• Strategic partnerships with suppliers, distributors, and
customers, creating communication channels for critical
information and operational improvements such as cross
docking, direct shipping, and third-party logistics.
• Information technology chain operations. Where-to-make and
make-buy decisions.
• Aligning overall organizational strategy with supply strategy. It
is for long term and needs resource commitment.
 Cont…
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 Tactical Level
 Sourcing contracts and other purchasing decisions.
 Production decisions, including contracting, scheduling, and
planning process definition.
 Inventory decisions, including quantity, location, and quality
of inventory.
 Transportation strategy, including frequency, routes, and
contracting.
 Benchmarking of all operations against competitors and
implementation of best practices throughout the enterprise.
 Focus on customer demand and Habits.
 Cont…
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 Operational level
 Daily production and distribution planning, including all nodes in the supply chain.
 Production scheduling for each manufacturing facility in the supply chain (minute by
minute).
 Demand planning and forecasting, coordinating the demand forecast of all customers and
sharing the forecast with all suppliers.
 Sourcing planning, including current inventory and forecast demand, in collaboration with
all suppliers.
 Inbound operations, including transportation from suppliers and receiving inventory.
 Production operations, including the consumption of materials and flow of finished goods.
 Outbound operations, including all fulfillment activities, warehousing and transportation
to customers.
 Order promising, accounting for all constraints in the supply chain, including all suppliers,
manufacturing facilities, distribution centers, and other customers.
 From production level to supply level accounting all transit damage cases & arrange to
settlement at customer level by maintaining company loss through insurance company.
 Economic Order Quantity (EOQ)
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 Economic order quantity (EOQ) refers to the optimum amount of items that
should be ordered at any given point of time, such that total annual cost of
carrying and ordering that item is minimized.
 Economic order quantity is the point at which inventory carrying cost is equal

to the ordering cost.

 Determining an optimum level involves two types of cost such as ordering

cost and carrying cost.

 The EOQ is that inventory level that minimizes the total of ordering and

carrying cost.
 EOQ can be calculated with the help of the mathematical formula:

EOQ = √2ab/c Where,

a = Annual usage of inventories (units)
b = Buying cost per order
c = Carrying cost per unit
 Inventory Order Cycle
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 Cont…
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 At the beginning of inventory cycle time, we start with

maximum amount of inventory equal to the ordered quantity Q.
 As this item is consumed, the level of inventory drop at a
constant rate equal to demand rate D.
 When it reaches a specific level called reorder level (ROL),
enough inventory is available to cover expected demand during
the lead time LT.
 At this, an order is placed equal to Q, which arrives at the end
of lead time, when the inventory level reaches zero.
 This amount is placed in stock all at once and the inventory
level goes up to its maximum value.
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 Cont…
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 ordering costs and carrying costs are inversely proportional

to each other.
 Need to minimize carrying costs, need to place small order
which increases the ordering costs.
 Need to minimize ordering costs we have to place few
orders in a year and this requires placing large orders which
in turn increases the total carrying costs for the period.
 We need to minimize the total inventory costs, Thus, E.O.Q.
is determine by the intersection of ordering cost curve and
carrying cost line. At this point total ordering cost is equal to
total carrying cost, and the total of the two costs is the least
 Benefits of EOQ

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 The main benefit of using EOQ is improved profitability.

 Improved Order Fulfillment: When you need a certain item or something for a
customer order, optimal EOQ ensures the product is on hand, allowing you to get
the order out on time and keep the customer happy. This should improve the
customer experience and may lead to increased sales.
 Less Over ordering: An accurate forecast of what you need and when will help
you avoid over ordering and tying up too much cash in inventory.
 Less Waste: More optimized order schedules should cut down on obsolete
inventory, particularly for businesses that hold perishable inventories that can
result in dead stock.
 Lower Storage Costs: When your ordering matches your demand, you should
have less products to store. This can lower real estate, utility, security, insurance
and other related costs.
 Quantity Discounts: Planning and timing your orders well allows you to take
advantage of the best bulk order or quantity discounts offered by your vendors.
 Cont…
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1. Annual Ordering Cost

= No. of orders placed X Ordering cost per order
= (D/Q) X Co
2. Annual Carrying Cost
= Average inventory X Carrying cost/ unit/ year
= (Q/2) X Ch
Total variable annual cost = Annual carrying cost + Annual
ordering cost

TVC = (Q/2)Ch + (D/Q)Co

 Cont…
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 The total variable inventory cost is minimum at a value of Q,

which appears to be at the point where inventory carrying
cost and order cost are equal.

 EOQ= √{(2 X Annual demand X Ordering cost)/ Carrying

cost}
 This formula is also known as Wilson or Harish lot size
formula.
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Thank You