Institute of Professional Financial Managers

Celestino Kuchena

IPFM0395
Certified Professional Procurement and Logistics Manager

Thesis on Strategic Logistics and Transport ManagementPL50!"

Final su#mission
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Contents
!%0 Introduction
In the current scenario of serious competition in the global business environment, an effective
and efficient logistical system is necessary for providing and delivering quality products to
the point of destination. The organisation must be vigilant enough to eliminate any
inefficiency and improve their operational performance on a regular basis. Any organisation,
big or small, can benefit from a proper logistics system.
Three possible ways of acquiring transportation are purchase of vehicles, lease or hire of
vehicles, or outsourcing transportation. An efficient and effective logistics system must meet
the requirements of the customers for timely responsiveness, quality and creating value for
products and services. Road transport is the principal means of transport in many countries
for both goods and passengers.
Transport development must comply with safety requirements as well as environmental
protective measures. Several other aspects of transportation are subject to regulation
competition between operators, access to the profession, wor!ing conditions or the technical
standards of the vehicles. The transportation of goods began with the arrival of trade.
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As trade spread to other countries further and further away, the ways of conveying freight
also changed, developing new methods and technologies and becoming an entirely separate
economic activity. Today, freight is essential to maintain economic growth and
competitiveness. To manage the increase in volume, the industry must address the major
challenge of finding out how to organise goods flows in an efficient and above all sustainable
manner.
"otivated by either cost reduction through reuse or by value enhancement for the customer,
many supply chains increase their involvement in activities over the e#tended product life
cycle. They engage in product ta!ebac!, remanufacturing, return allowance, repair or
disposal (Corbett and Savaskan, 2002).
$or the international firm, customer locations and sourcing opportunities are widely
dispersed. The firm must attain a strategically advantageous position for the management of
comple# networ!s. %y appropriate integration of supply and demand through the widespread
use of information technology systems, retailers can provide a better service to consumers.
&lobal operations are the order of the day as businesses follow mar!ets and loo! for cheaper
conversion costs.
$%0 &oad transport legislation
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Road transport operators are required to carry an operator's licence which may be one of the
following ( standard national carriage of goods for hire or reward) standard international
this authorises the holder to travel abroad) or restricted which is available to ownaccount
operators and covers both the native state and abroad.
The weight threshold for vehicles covered by operator licensing is *.+ tonnes ma#imum gross
weight in the ,nited -ingdom. The criteria for obtaining an operator's licence covers the
operator's fitness to hold the licence, operating centres and their suitability) the organisation
and quality of vehicle maintenance arrangements) adherence to driver's hours and
tachography regulations.
.perator licences are issued by traffic commissioners and normally run in perpetuity. They
are formally reviewed every five years. $ailure to adhere to the rules may result in the
licence being suspended, revo!ed or curtailed. /here carriage occurs between a 0uropean
,nion 10,2 country and a non0, country, some regulations may apply to the part of the
territory of any 0, country crossed on the journey. It is not applicable on the territory of the
0, country of loading or unloading.
These regulations also apply to the national carriage of goods by road carried out temporarily
by a nonresident haulier. International carriage is underta!en subject to possession of a
community licence, and if the driver is a non0, national, in conjunction with a driver
attestation.
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$%! Legal classification of carriers
$%!%! Common carriers
The operating authority received by a common carrier may include the right to transport all
commodities or it may limit transport to specialised goods li!e steel. A common carrier is
required to publish the rates it charges for transport service, supply adequate facilities and
provide service to all points prescribed in its certificate of authority.
$%!%$ Contract carriers
They provide transport services for select customers. The contract bases on agreement
between a carrier and a shipper for a specified transportation service at a previously agreed
cost. The contract contains terms pertaining to the carrier's rates, liability, services and
equipment.
$%!%3 Pri'ate carrier
It is essentially an organisation's own transportation and is used due to cost and service
considerations. It offers more control and fle#ibility resulting in lower inventory levels,
greater customer satisfaction and efficiency at doc!s.
3%0 Transport logistics and economics
Transport economics is a branch of economics that deals with the allocation of resources
within the transport sector. 3eople and goods flow over networ!s at certain speeds, demands
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pea! and advanced tic!et purchase is often induced by lower fares. The networ!s themselves
may or may not be competitive.
Although transport systems follow the same supply and demand theory as other industries,
the complications of networ! effects and choices between similar goods 1car and bus travel2
ma!e estimating the demand for transportation facilities difficult. Transport networ!s have
positive and negative e#ternalities on nonusers.
3ositive e#ternalities include the ability to provide emergency services, increases in land
value and agglomeration benefits whereas negative impacts may include pollution 1air and
light2) safety standards) community severance and congestion. The contribution of transport
systems to potentially ha4ardous climate change is a significant negative e#ternality that is
difficult to evaluate quantitatively.
0conomists 1Small and &ome4Ibane4, 56672 consider congestion a negative e#ternality.
Transport networ!s and services can ta!e on any combination of regulated or deregulated and
public or private provision. %oth the public and private sectors in a deregulated economic
environment provide bus services in %ritain outside 8ondon. .n the other hand, bus services
within 8ondon are provided by the private sector in a regulated economic environment.
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/ithin the domestic supply chain, deconsolidated and palleti4ed road transport may act as a
direct competitor to intermodal freight movements. 9omestic intermodal supply chain comes
about because it is potentially cheaper to move goods via a chain of different modes rather
than selecting the cheapest single mode.
(%0 Transport modes and s)stems
Transportation is the movement of products, materials and services from one area to another.
It provides product movement and storage. Transport infrastructure consists of the rightsof
way, vehicles, and carrier organisations that offer transportation services on a forhire or
internal basis. Its nature determines a variety of economic and legal characteristics for each
mode.
(%! Modal characteristics
(%!%! &ail
The capacity to transport large tonnage over long distances is the main reason railroads
continue to handle significant intercity tonnage and revenue. Rail operations incur high fi#ed
costs because of the e#pensive equipment, rightofway 1railroads must maintain their own
trac!s2 and terminals. :ariable operating costs are low.
(%!%$ Motor carriers
Though the cost of license fees, user fees and tolls is considerable, these e#penses are directly
related to the number of overtheroad units and !ilometres operated. The variable cost per
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!ilometre is high since a separate power unit and driver are required for each trailer or
combination of tandem trailers.
8abour requirements are also high because of driver safety instructions and the need for
substantial doc! labour. 3rimary difficulties relate to increasing equipment replacement
costs, maintenance, driver and doc! wages.
(%!%3 *ater
Its main advantage is the capacity to move e#tremely large shipments. 9eepwater vessels
are restricted to oceans and great la!es, while dieseltowed barges operating on rivers and
canals offer more fle#ibility. /ater transport fi#ed costs are between those of rail and motor
carriers.
(%!%( Pipelines
This mode operates on a twentyfourhour basis, seven days per wee! and is limited by
commodity changeover and maintenance. 3ipelines have the highest fi#ed costs and lowest
variable costs among transport modes. They are not fle#ible and are limited to products in
the form of gas, liquid or slurry.
(%!%5 +ir
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The fi#ed costs are associated with aircraft purchase and the requirements for specialised
handling systems and cargo containers. :ariable costs are high due to fuel, maintenance and
labourintensity of both inflight and ground crews.
5%0 Traffic s)stems management and control
:ehicle routing and scheduling problems are relatively complicated because of the different
types of problems that can arise. "any different aspects need to be ta!en into account and
various methods are required to provide solutions. Traffic systems management is used to
increase the capacity of state and local transportation systems by increasing the number of
pea!hour persontrips through the improvement of e#isting facilities without major
construction.
This follows congestion mitigation and improved air quality by the establishment of au#iliary
lanes on freeways through reconstruction or restriping. Au#iliary lanes include lanes for
acceleration from onramps and deceleration lanes to offramps and weaving lanes e#tending
to adjacent interchanges. Traffic flow improvements on conventional arterial roads include
widening at intersections for turn lanes, other channeli4ation, and traffic signals coordination.
;entral computer control equipment may also be utilised for remote coordination of traffic
flows.
Traffic operating centres and related surveillance equipment li!e traffic sensors and closed
circuit televisions can be set up leading to even greater remote visibility and control of traffic
movement.
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,%0 Sur'e) design and management
/riting solid and unbiased surveys may seem a daunting and unapproachable tas!. The
creation of wellstructured, simply written questions will help in collecting valid survey
responses. Relevancy and accuracy are two ideals that encompass the main outcome of
creating reliable surveys.
Reliable data on the duration, magnitude and physical distribution of pollutants in the
environment has proven invaluable for determining the precise degree of pollutant control
needed to respond to various statutory mandates. /ellunderstood questions increase both
the accuracy and frequency of survey respondents' answers.
The types of questions used in a survey will play a role in producing unbiased or relevant
responses. These range from openended 1comments to essays2 to closeended 1yes or no2
questions. The data gathered using the latter type is easier to compare than the data from
openended questions.

,%! Sur'e) la)out
"any participants li!e some !ind of insurance as regards their responses, providing that !ind
of information before the survey starts may help ease those concerns. &eneral instructions,
on how to progress through the survey, in the introduction or within each new section is
important in letting the audience !now how the survey wor!s.
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Trying to fit too much information on a single page may cause respondents to struggle
throughout the survey. The pretest is possibly one of the most critical steps in administering
a survey. The three basic goals of the pretest are to evaluate the competency of the
questionnaire, estimate survey length, and determine the quality of the surveyor (Larossi,
2006).
-%0 Strategic transport modelling
In recent years, there has been increased debate at local and national levels regarding the
interaction between the demand for travel and our living environment. In particular, there is
increasing concern about the impact of the private car on our towns and cities in terms of
congestion, atmospheric pollution, and associated health concerns, severance and loss of
amenity.
8ocal authorities are encouraged to develop land use and transportation strategies that reduce
reliance on the private car in favour of more sustainable modes such as bus, rail, cycling, and
wal!ing. These local authorities are actively involved in implementing integrated strategies,
tailored to the local conte#t, to achieve these objectives.
This is through improving facilities and services for public transport users and nonmotorised
modes whilst utilising mechanisms such as control of par!ing supply and prices, and
decreasing highway capacity. Transport modelling plays an important role in the
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demonstration of the relative merits of proposed schemes in achieving local authority
objectives.
Ideally, a conventional fourstage transport model might be used. <owever, the degree of
comple#ity 1and financial cost2 of such models has grown in recent years. The Strategic
Transport "odel 1ST"2 is a fle#ible multimodal modelling tool designed to assist town and
transport planners in ma!ing informed and appropriate transport policy decisions. .ne of the
main strengths of ST"s is their ability to provide an assessment of the potential effects of a
large number of policy levers in a short timescale they are best used for strategic policy
assessment.
An ST" is characterised by an aggregate 4one structure, area of idle speed flow curves, rapid
convergence to equilibrium and richness in behavioural detail. It provides means to forecast
the relative impact of various transport policy instruments, individually or in combination, in
a costeffective way. These policy changes include usercharging, changes in par!ing supply
and charges, and the impact of a new light rail scheme. ST" outputs include air quality and
carbon dio#ide emissions.
.%0 Transport polic)
$or urban areas to be able to support the required level of economic activity, they must
provide for the easy and sustainable flow of goods and people. ,nfortunately, however, such
flow has faced several hindrances. 3rominent among these have been the access to jobs,
education, and recreation. %illions of personhours are lost with people =stuc! in traffic'.
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This has been mainly due to e#plosive growth in the number of motor vehicles, coupled with
limitations for space that can be provided. The cost of travel, especially for the poor, has
increased considerably. This is largely because the use of cheaper nonmotorised modes li!es
cycling and wal!ing has become e#tremely ris!y. These modes have to share the same right
of way with motorised modes.
The objectives of a transport policy is to ensure safe, affordable, quic!, comfortable, reliable
and sustainable access for the growing number of city residents to jobs, education, recreation
and such other needs within cities. This requires incorporating urban transportation as an
important parameter at the urban planning stage. Travel distances can be minimised through
integrated land use and transport planning in all cities. 0quitable allocation of road space can
be realised by using people rather than vehicles as the focus. Traffic volume should be
reduced by an increase in the use of public transport and nonmotorised modes.
9%0 /eographical information s)stems
A &eographical information System 1&IS2 is a system that captures, stores, analyses,
manages and presents data with reference to a geographic location. It is the merging of
cartography, statistical analysis and database technology. &IS digitally creates and
=manipulates' spatial areas that may be jurisdictional, purpose or application oriented for
which a specific &IS has been developed.
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<ence, a &IS developed for an application, jurisdiction or purpose may not be necessarily
interoperable with a &IS developed for another enterprise. In general, therefore, the term
describes any information system that integrates, stores, edits, analyses, shares, and displays
geographical information for informing decision ma!ing. &IS applications are tools that
allow users to create interactive queries, analyse spatial information, edit data, maps and
present the results of all these operations (Clarke, 1986).
8ocations or e#tents in earth spacetime may be recorded as dates or times of occurrence, and
#, y and 4 coordinates representing longitude, latitude and elevation respectively. &IS
accuracy depends on how source data is encoded to be data referenced. The data represents
real objects 1li!e roads2 with digital data determining matri#. &eographical features are often
e#pressed as vectors, by considering those features as geometrical shapes.
&eostatistics is a pointpattern analysis that produces field predictions from data points. It is
a way of loo!ing at the statistical properties of those special data. /hen phenomena are
measured, the observation methods dictate the accuracy of any subsequent analysis. 9ue to
the nature of the data 1li!e traffic patterns in an urban environment2, a constant or dynamic
degree of precision is always lost in measurement.
Software is currently being developed to support spatial and nonspatial decisionma!ing,
with the solutions to spatial problems being integrated with solutions to nonspatial problems.
The result with these $le#ible Spatial 9ecision"a!ing Support Systems 1$S9SS2 is
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e#pected to be that none#perts will be able to use &IS, along with spatial criteria, and simply
integrate their nonspatial criteria to view solutions to multicriteria problems (Gao, S.
Paynter, J. and Sndara!, ". 200#). This system is intended to assist decisionma!ing.
!0%0 Maritime transport
$or 0urope, maritime transport has been a catalyst of economic development and prosperity
throughout its history. The quality of life on islands and in peripheral maritime regions
depends on good maritime transport services. Sea transport has been the largest carrier of
freight throughout recorded history. Although the importance of sea travel for passengers has
decreased due to aviation. It is effective for short trips and pleasure cruises.
Transport by water is cheaper than transport by air. =&eneral cargo' is goods pac!aged in
bo#es, pallets, cases, and barrels. ;ontainerisation revolutionised ship transport in the 56>?s.
Types can be distinguished by propulsion, si4e, or cargo type. "ost modern merchant ships
can be placed in one of a few categories. %ul! carriers are cargo ships used to transport bul!
cargo such as ore or food staples.
It is recognisable by the bo#li!e hatches on its dec!, designed to slide outboard for loading.
;ontainer ships are cargo ships that carry their entire load in truc!si4e containers. Tan!ers
are for the transport of fluids such as crude oil, petroleum products and liquefied natural gas
whereas Reefer ships are typically used to transport perishable commodities, which require
temperaturecontrolled transportation.
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These are mostly fruits, meat, and dairy products. Sea freight is the most economic form of
transportation by which goods are moved between countries in the e#port process.
;ontainerisation greatly increases the volumes of cargo by sea, the speed of transit and the
safety of the cargo in question.
:arious factors should be ta!en into account when considering the transit times for goods
being carried by sea. These include frequency of sailing, actual sailing, and whether sailing
is direct or transhipment. Some ships are cellular or multipurpose 1built to carry
containerised cargo and brea! bul! cargoes.2
!!%0 &ail transport
Rail transport is less costly in environmental terms than road transport and may offer a
competitive alternative to the latter on certain major segments of the mar!et. It seems to have
the best prospects of being able to compete with road transport when large volumes are
transported over long distances. There have been developments in rail freight systems,
including the regular scheduling of rail wagon services and the introduction of the swap body
concept of transferable roadrail units ($s%ton, &'ley, and Cro(%er, 2000).
3rincipal demerits of conventional freight include damage that may be caused by shunting)
the limited number of rail heads available and the need to doublehandle since the first and
last leg of a =through' journey are by road. Rail shipments can accommodate a wide range of
types and si4es of goods dry, liquid, fro4en, and aw!wardly shapedin carload shipments.
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!$%0 +ir transport
Airfreight is confined to highvalue items, emergency shipments, and perishable products. It
offers an advantage since pilots tend to land gently therefore sensitive equipment such as
electronic devices are not damaged. The air transport of goods involves shipment of goods
via one of international airlines though the e#porter need not directly approach the airline for
boo!ing of the cargo.
;ost and $reight agents lower freight rates as they provide bul! cargo therefore increasing
cost effectiveness. 9uring the selection process, the e#porter should consider cost and timely
delivery of merchandise. The e#porter may provide for direct shipment or transhipment.
This mode offers the quic!ness of delivery, reduction of warehousing costs and lowered
insurance premiums.
!3%0 0rganisational logistics
.rganisations that fail to invest in their human capital and the ne#t generation wor!place
environment will face erosion of products and services as well as diminished capacity to
compete globally. They need to focus more on optimising resource utilisation and
productivity. .rganisational structure planning is a continuous process that ensures that an
organisation has the right human capital in the right jobs at the right time.
9emographic trends li!e aging human capital, shrin!ing talent and worried wor!force alter
human resources requirements. This is compounded by an unpredictable change of mar!et,
economic and political events. 9ifferent models e#ist to address performance challenges.
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These include ;ommon Resource 3ooling 1;R32, ,nique S!ills Set 1,SS2, and <ybrid
models. ;ommon Resource 3ools are people from which teams are staffed. ;R3 is a
mechanism for sourcing, not setting, a manager's span of controls. Resource pools !eep the
human capital e#periences, s!ills and roles aligned with business needs. The resource may be
reassigned hapha4ardly therefore, resource pools ma!e managers more efficient and not
individual resources more effective.
An ,SS refers to staff that possesses unique s!ills and has indepth processing and business
s!ills. "anagement of the talent pool shrin!age requires more administration overhead and
time for approvals or actions. The wor!force is efficient, requires no further training and is
highly innovative within processes to enable business agility. Resources in the <ybrid model
are multis!illed and innovative.
This model offers improved scheduling performance however, there is a lac! of good high
ran!ed staff, which leads and shows direction to the team. <uman capital management
planning identifies the human capital needed to carry out the mission of the organisation.
The focus should be on functions that an organisation must perform, not just on the people. It
also performs the gap analysis to determine future shortage of needed resources or s!ills or
future e#cess in some categories of wor!ers that may require action.
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!(%0 Logistics and suppl) chain management
8ogistics is the function responsible for the flow of materials from suppliers into an
organisation, through operations within the organisation, and then out to customers.
=8ogistics is the art and science of determining requirements) acquiring them) distributing
them and finally maintaining them in an operational ready condition for their entire life'
(Stone, 1968).
It is the management of all activities, which facilitate movement and the coordination of
supply and demand in the creation of time and place utility ()esket, Glasko*sky and +vie,
19,-). The term =supply chain management' arose in the late 567?s and came into
widespread use in the 566?s. 3rior to that time, businesses used terms li!e =logistics' and
=operations management'.
@A supply chain is the alignment of firms that brings products or services to the mar!et...A
(La!bert, Sto(k, and .llra!, 1998). Supply chain management is @the systemic, strategic
coordination of the traditional business functions and the tactics across these business
functions within a particular company and across businesses within the supply chain, for the
purposes of improving the long term performance of the individual companies and the supply
chain as a wholeA(/ent0er, et al.,2001).
8ogistics typically refers to the activities that occur within the boundaries of a single
organisation and supply chain refers to networ!s of companies that wor! together and
coordinate their actions to deliver a product to mar!et. Traditional logistics focuses its
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attention o activities such as procurement, distribution, maintenance, and inventory
management whereas supply chain management ac!nowledges all these and includes
mar!eting, new product development, finance and customer service.
Supply chain views the supply chain and the organisations within it as a single entity. This
systems approach provides the framewor! in which to best respond to business requirements
that otherwise would seem to be in conflict with each other. Ta!en individually, different
supply chain requirements often have conflicting needs. <igh levels of customer service call
for large quantities of inventory. <owever, to operate efficiently, inventory levels should be
low.
0ffective supply chain management requires simultaneous improvements in both customer
service levels and the internal operating efficiency of the companies in the supply chain.
;ompanies in a supply chain must ma!e decisions individually and collectively regarding
production, inventory management, location of facilities, transportation and information
management.
!5%0 +'iation management and Logistics
:arious lin!s in the supply chain are in tension as they struggle to ma#imi4e profit. The
commercial supply chain is under pressure from vigorous airline costcutting and low traffic
demand. These lin!s are trying to cut costs yet e#pand their reach, although not always in
ways that are best for the overall system. Aggressive outsourcing bids have reduced
"aintenance, Repair and .verhaul 1"R.2 margins, especially on the airframe side.
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:isibility into lower tier suppliers is less than clear, and the top suppliers on new aircraft
programs are fle#ing their muscles to the detriment, some say, of airlines and "R. suppliers.
"R.s, however, have room to grow and opportunities to cut costs and improve performance
by forming close alliances with the airlines. Top suppliers may have to change their tac!.
:iewed as a new class of monopolists, the big component .riginal 0quipment "anufacturers
1.0"s2 are driving up the cost of repair and overhaul.
Simple cost reductions should not be the sole part of an organisation's strategy. ;ontract
initiatives are being advocated for to augment the relationship between airlines and airframe
"R.s. ;ontracts typically impose liquidated damages, or financial penalties, for holding a
plane late, but there is no @carrotA for consistently delivering a plane early. If an "R. can
consistently deliver planes, early such that the airline can plan around it, both sides should
benefit financially from this alignment of goals.
That would increase the "R.'s ability to invest in new equipment and strengthen their
performance. 3erhaps the greatest challenge in the commercial aviation supply chain, from
an "R.'s perspective, is the realignment that has occurred between airframe and component
.0"s. In the past, buyers of new %oeing and Airbus airplanes had access to data that
allowed them with their "R. providers to maintain and overhaul components independently.
As a result of the air framers' rationali4ation of their supply chains, reducing the number of
players, the air planers may have negotiated away the rights to components intellectual
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property 1I32 in e#change for favourable upfront terms. It is tougher for airlines and "R.s
to find the technical data to overhaul a component ma!ing the process much more comple#
than it was before.
.ffshore mar!eting is one way for "R.s to cut costs through the adoption of lean initiatives,
including e#tensive process mapping and waste reduction. This would increase efficiency
and throughput.
!,%0 &e'erse logistics and closed loop suppl) chain management
Reverse logistics 1R82 is the @coordination and control, physical pic!up and delivery of the
material, parts, and products from the field to processing and recycling or disposition, and
subsequent returns bac! to the field where appropriateA (1l!ber2, 2003).
Several forces have influenced the need for R8. $requently, due to legislation, the original
manufacturer is now responsible for final disposal of the product. The increasing value of
return products increases the need for safe return from the field.
There have been an increased number of customer goods returned for credit because of
increased demand for customer service and satisfaction. As products become obsolete more
quic!ly, the possibility of and potential for returns increases. The used product must be
retrieved and transported to a facility for inspection, sorting and disposition. 9iagnostic tests
may be performed to determine disposal action that recovers most value from the returned
product.
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Some products may be reconditioned or completely remanufactured. These reconditioned or
remanufactured products may be sold in secondary mar!ets where customers are unwilling to
purchase new products. 0conomic viability of a reverse supply chain is enhanced by
managing the uncertain flow of materials products may be good or bad. ;onsiderable
!nowledge of specific customers and their use of a product may be required since return flow
can be quite diverse and dependent upon the specific enduser.
!,%! Closed Loop Suppl) Chain
In closedloop supply chains, forward physical flows now generally induce future reverse
physical flows, for which the same coordination issues arise. In both cases, availability of
appropriate capacity levels for manufacturing, disassembly, remanufacturing, transportation,
and collection also needs to be coordinated.
/hen considering closedloop supply chains, the three !ey flows become richer( "aterial
flows in closedloop supply chains are not only characteri4ed by quantity, time and place, but
also by the reuse potential, which often can only be assessed after product disassembly.
Information flows in closedloop supply chains include timing of return, reusability of the
returned product and the time that the product spent in the mar!et.
This information may be very useful for operations management or product design.
$inancial flows in closedloop supply chains also include buybac! clauses, disposal costs,
and other endofuse costs. /hile pricing for the original product is relatively
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straightforward, designing contracts specifying conditions under which the product will be
ta!en bac! after use is more challenging, as the quality of the product is un!nown and often
difficult to observe.
Increasingly, it is found that the original supplier is in the best position to control the return
process. The basic reverse supply chain model operates independently of the forward supply
chain that delivered the original product. /hen a company controls the full process of
forward and bac!ward shipment, the result is a closed loop supply chain. The closed loop
supply chain generally involves a manufacturer, although sometimes it is the buyer, ta!ing
responsibility directly for the reverse logistics process.
The primary difference in this and the reverse supply chain is that in this model the entire
direct and reverse flow can be and usually is controlled by the original manufacturer. /ithin
a closed loop system, involving a consumer mar!et the primary interaction is between the
retailer and the original manufacturer.
Returns can be failed products or simply those purchased and returned. ;losed loop systems
allow organisations to trac! the product and its failure and repair e#perience, thereby
revealing how to costeffectively service and support field service.
!-%0 International logistics
International logistics is the design and management of a system that controls the flow of
materials into, through, and out of the international corporation. ;lose collaboration with
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suppliers is essential to develop Bust InTime inventory systems, which in turn may be crucial
to maintaining manufacturing costs at globally competitive levels.
Investment decisions of multinational companies are affected by international ta# rate
differentials. 0#ploiting such differences by means of crosscountry profit shifting can
decrease global ta# liability. Supply chains must be designed robustly to un!nown operating
conditions in order to avoid lost sales or e#cess capacity.
&enerally, shipping costs are higher for a processfocused supply chain networ! than a
mar!etfocused configuration, as the common components need to be shipped across plants.
9ue to an enhanced integration of national mar!ets, disparities of economic and production
conditions disappear and differences in corporate ta# rates become even more distinct.
0#ploitation of these e#ogenous mar!et imperfections via production shifting to lowta#
countries thus represents a viable alternative to multinational enterprises in order to decrease
their ta# liability. In the absence of ta#es, demand would always be satisfied by the less
e#pensive alternative that is supplying components from the production plant located within
the same country due to lower transport costs.
!.%0 &etail logistics
/ith the appropriate logistics, products should be of a better presentational quality, of lower
cost and longer shelf lives. There should be fewer instances of stoc!outs in the supply chain.
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Information transmission and dissemination technologies can be employed to reduce reaction
times to =surges' in demand. A good logistics system can reduce costs and improve service
delivery.
There is also an environmental dimension to logistics and supply chain management.
Retailing and logistics ma!e products available. Retailers are concerned with their storage
facilities, which may be warehouses, distribution centres, or simply stoc! rooms. The
question for retailers is the amount of inventory to be held and the location of this stoc! to
meet demand changes.
Since consumers generally buy products in small quantities, retailers ma!e a conceited effort
to develop products that are easy to handle in logistics terms, have reasonable pac!aging
costs and yet retain their selling ability on the shelves. Information is a necessity. Retailers
need to !now not only about demand and supply, but also about volumes, stoc!, prices and
movements.
If communications and transport can be lin!ed effectively, a retailer can move from !eeping
stoc! in a warehouse to running a distribution centre, which sorts products for immediate
delivery. All this is part of the logistics mi#. This is the @process of strategically managing
the procurement, movement and storage of materials, parts and finished inventory through the
organi4ation and its mar!eting channelsA (C%risto4%er, 1998).
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Retailers have increased their control over secondary distribution by channelling an
increasing proportion of their supplies through distribution centres. This restructuring has
reduced inventory levels and improved efficiency through composite distribution and
centrali4ation in specialist warehouses of slower moving stoc!. Retail operations are
e#panded in bits and pieces. This ma!es it necessary for retailers to underta!e projects
pertaining to their endeavours.
!9%0 Pro1ect management in suppl) chains
3roject management is the discipline of planning, organi4ing, securing and managing
resources to bring about the successful completion of specific project goals and objectives. A
project is a temporary endeavour with a defined beginning and end underta!en to meet
unique goals and objectives. The major challenge is to achieve all of the project goals while
honouring the preconceived project constraints.
As an ambition, project management see!s to optimi4e the allocation and integration of
inputs necessary to meet predefined objectives. A number of approaches to project
management e#ist and include agile, interactive, and phased approaches. Irrespective of the
methodology employed, careful consideration must be given to the overall project objectives,
timeline, and cost as well as the roles and responsibilities of all the participants and
sta!eholders.
!9%! Critical chain pro1ect management
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This is a method of planning and managing projects that puts more emphasis on the resources
1physical and human2 needed in order to e#ecute project tas!s. The theory of constraints is
applied to increase the rate of throughput of projects in an organisation. The system
constraints, which can be time, funding or deliverables, are identified as well as the resources.
Tas!s on the critical chain are then afforded priority over all other activities to e#ploit the
constraints.
!9%$ +gile pro1ect management
This is based on the principles of human interaction management. The project is seen as a
series of relatively small tas!s conceived and e#ecuted as the situation demands in an
adaptive manner, rather than as a completely preplanned process. 3roject management is
composed of process groups, which include initiation, planning, e#ecution, monitoring and
controlling. Initiation determines the nature and scope of the project.
It is imperative to understand the business environment and ma!ing sure that all necessary
controls are incorporated into the project. 3lanning should cover an analysis of the business
needs, a review of current operations and a cost and benefit analysis. The purpose is to plan
time, cost and resources adequately to estimate the wor! needed and to effectively manage
ris! during project e#ecution.
3roject planning consists of developing the scope statement, team selection, wor! brea!down
structure creation and ris! planning (5er0ner, 200-). 0#ecution follows planning. These are
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processes used to complete the wor! defined in the project management plan to accomplish
the project's requirements.
It involves coordinating people and resources, as well as integrating and performing the
activities of the projects in accordance with the project management plan. Activities to
monitor the project variables 1cost, effort and scope2 against the project management plan
must be instituted to identify corrective actions to address issues and ris!s properly.
$0%0 Inno'ations in logistics and suppl) chains
;ompanies going global are e#periencing une#pected transportation costs, higher inventory
investment, and longer and cycle times. At the same time, their local clients are demanding
lower prices, more unique e#ecution, and improved responsiveness. As a result companies
are see!ing ways to ma!e their international logistics processes more reliable, comfortable,
fle#ible and less e#pensive.
Top performers are succeeding in using international logistics transformation to drive
quantifiable business benefits for their corporations, including cost and speed advantages.
These companies are able to invest less capital in international logistics yet provide better
service to their customers.
They are arming their staff with uptodate technology and integration Cfriendly logistics
partners to support today's global intensive business environment. /inners set the strategy
29
for international logistics in the conte#t of how their companies compete as businesses. They
appreciate that logistics e#cellence is a journey. As a result, they focus on transforming
specific, foundational components on which they can drive future improvements.
%est practice winners are creating better ways to leverage the s!ills 1and technology2 of
partners. They are figuring out new ways to synchronise activities and process visibility and
control with customs bro!ers, freight forwarders, ocean carriers and others. /ithout
e#ception, these logistics strategies revolve around decreasing manual processes and
increasing automation.
Internetbased technology is enabling a new level of transaction automation and partner
synchroni4ation previously not practical. .ndemand global trade management platforms
and data gateways are driving more electronic collaboration for significantly reduced
information technology costs. International logistics is all about managing a networ! of third
party providers.
The foundation for controlling this process is visibility. :isibility does not stop at identifying
a shipment delay or inventory issue. Rather, an alert is the first step in a structured
notification, resolution, and root cause analysis process. A number of international logistics
leaders are focusing on e#tracting more value from their inventory.
This may mean creating better intransit visibility so they can redirect inventory around port
congestion or other bottlenec!s or to higher demand points. In other instances the focus is on
30
optimi4ing where and how much inventory to hold in the first place. /ithout a solid
foundation of trade compliance and documentation, purchasing will ma!e the wrong sourcing
decisions.
As a result, goods will be delayed at customs, and the business will be put at ris! of
regulatory infractions. Trade agreement management and integration with bro!er partners to
avoid data !eying errors and costs are among the !ey trade compliance initiatives for best
practices.
$!%0 2alue chain management
The value chain analysis is a concept from business management that was first described and
popularised by "ichael 3orter (Porter, 1996). A value chain is a chain of activities for a firm
operating in a specific industry. The business unit is the appropriate level for construction of
the value chain not the divisional or corporate level.
3roducts pass through all activities of the chain in order, and at each activity, the product
gains some value. The chain of activities gives the products more added value than the sum
of the independent activities' value. The primary activities include inbound logistics,
production, outbound logistics, mar!eting and sales.
Supportive activities include administration, human resource management and procurement.
;osts and value drivers must be identified for each activity. The value chain framewor!
quic!ly made its way to the forefront of management thought as a powerful analysis tool for
strategic planning.
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The value chain concept has been e#tended beyond individual firms. It can apply to whole
supply chains and distribution networ!s. The delivery of a mi# of products and services to
the endcustomer will mobilise different economic factors, each managing its own value.
Although commonly associated with e#portoriented trade, development practitioners have
begun to highlight the importance of developing national and intraregional chains in addition
to international ones.
$$%0 Soft3are support for logistics and SCM
The internet is a global data communication networ! using internet protocol standards to
move data between points in the supply chain. 9evices connected to it can communicate
regardless of the data format. )arrison et al (1999) argue that the improvements in the use of
information technology to capture =real time' data mean less reliance on forecasts and create a
virtual supply chain between trading partners.
/hen information is shared, process integration ta!es place between partners who focus on
their core competencies. 0lectronic data interchange is a technology that was developed to
transmit common types of data between companies that do business with each other. D"8
1e#tensible "ar!up 8anguage2 is being developed to transmit data in fle#ible formats
between computers themselves and between computers and humans.
D"8 can be used to communicate a wide range of data formats and related processing
instructions between computers once the standards have been agreed. 9ata storage and
retrieval is performed by databases, which are organised groupings of data stored in
32
electronic formats. They are models for the business processes for which they collect and
store data. The model determines which transactions can be recorded since the databases
cannot record transactions, which are more detailed and aggregated than provided for.
Specific business operations that the system is designed to support determine the way that a
system manipulates and displays data flowing in it. This process monitors orders, production
schedules, raw material purchases and finished goods inventory. 3rocurement systems
streamline the procurement process ma!ing it more efficient. "anagers compare supplier
capabilities and prices easily since routine transactions are automated.
Advanced planning systems assess the plant capacity) material availability and customer
demand using linear programming techniques to create recommended schedules.
Transportation planning systems are used to compare modes of transport basing on forecast
demand.
$3%0 Forecasting
$orecasting is the process of ma!ing statements about events whose actual outcomes have not
yet been observed. Ris! and uncertainty are central to forecasting and it is generally
considered good practice to indicate the degree of uncertainty to the forecasts. $orecasting
can be used in supply chain management to ma!e sure that the right product is at the right
place at the right time.
33
Accurate forecasting will help retailers reduce e#cess inventory and therefore increase profit
margins. Eualitative methods rely on the manager's intuition of the mar!et. They are
suitable where historical data about product consumption are available. ;ausal methods
assume that demand is correlated to particular environmental or mar!et factors. ;ommercial
loan demand increases if the interest rates are lowered.
A time series model presumes that demand follows a pattern and thus relies upon historical
data in a stable mar!et. Software pac!ages are utilised to determine possible demand using
statistical methods. Simulation is the use of a time series model and causal effects to imitate
the behaviour of consumers under different scenarios. It see!s to answer @what ifA questions
about the consumer propensity to purchase.
Aggregate forecasts have been found to offer better results than forecasts for individual
products. Shortterm forecasts are better than longterm ones however, it should be
remembered that all forecasts are wrong to a certain degree.
$(%0 Managing contracts in logistics
.utsourcing of logistics functions, li!e warehousing, is fast becoming popular not only for
"ulti Fational ;ompanies with global operations, but also for all organi4ations in medium
and small sector too. Request for Euotation 1R$E2 should contain complete details of the
said project to enable the Third 3arty 8ogistics partner 1*382 to propose a solution and
prepare a solution design document. The R$E should contain a specific and detailed
requirement of the buyer with regard to services or project
34
$(%! &F4 Process
The organisation issues the R$E to either all vendors in the mar!et or short listed vendors.
3ost R$E, the buyer invites all participants for a Euestion and Answer session either in a
facetoface meeting or on mail. Formally all answers to the received questions are posted to
all vendors participating to ensure fair chance for every one.
%uyer facilitates clarifications and discussions with all relevant internal business functional
groups whenever required by the vendors to be able to give them better insight into the
requirement. .n due date of the R$E, vendors are required to submit detailed bid response
document. $inal selection happens after the vendor is selected internally and procurement
further negotiates with the selected vendor and comes to agreeable terms and conditions.
$5%0 Strategic transport #usiness management
%y providing for the swift and uninterrupted flow of products bac! and forth through the
chain, transportation provides a sort of lubrication to run the chain smoothly. It also permits
deeper penetration of newer mar!ets far from the point of production. Therefore, to
effectively manage this transportation system the first step would be to establish a cost
effective transportation mode.
$ailure to identify the best transportation mode can directly affect the growth of a company.
<igher transport costs will raise prices, which will directly affect the customer satisfaction in
a negative way. The best suitable mode is required to be identified depending upon the nature
of product that has to be moved. Transport business management involves managing a team
35
or teams of drivers, warehouse operatives and office staff while ensuring control of costs to
meet budget and commercial targets.
The manager should guarantee that the demands of the customer are met whilst ensuring
ma#imum productivity. Transport operations deal with the way the vehicles are operated and
the procedures set for this purpose including finances, legalities and policies. This covers
operator's licence, drivers' hours and the certificate of competency.
$,%0 Conclusion
An effective logistics system is li!ely to benefit the prospects of a company. This may lead to
cost savings, enhanced efficiency and a decrease in the levels of inventory on hand. There
are several factors, which contribute to the success of any mode of logistics transport, some
being short transit time, punctuality, trac!ing of goods, proper storage and warehousing of
goods.
3roperly establishing a networ! leads to costeffectiveness, teamwor! and the provision of
customer services at the optimal level. The responsibility for the planning and
implementation of urban transport systems lies with the state and municipal bodies. This
calls for efforts at strengthening capabilities at the state and city level to address these issues
and underta!e the tas! of developing sustainable urban transport systems.
36
A <ybrid "odel is the surest way for the organi4ation to achieve significant operational
improvements. Implementing <uman ;apital "anagement System in conjunction with
business process management can increase organi4ation productivity. 3rocess automation
itself is not sufficient to deliver complete business agility. &eneral e#perience dictates that
the introduction of closedloop supply chain management can result in the bottom line direct
savings, particularly for organi4ations in a mature or stagnating mar!et.
A transportation mode and carrier must be selected for each shipment. The decision impacts
transportation and inventory carrying costs, intransit times, delivery reliability, and overall
customer service. The cube, weight, value, commodity, and chemical composition of each
individual order and group of orders assigned together in a shipment all affect the selection of
the proper mode and carrier.
The ideal mode selection best matches the requirements of the shipment with the
characteristics of the chosen transportation mode. The efficiency of freight logistics has a
direct impact on product prices and security of supply. <owever, the anticipated increase in
freight transport will also increase the number of vehicles on the motorways, towns and cities
and the ris! of congestion.
Such congestion could come with an economic price tag 1such as higher prices2 and have
social and environmental repercussions 1li!e pollution and noises2 if rapid, effective action is
not ta!en. 0#isting supply chains will be affected by changes in retailers, consumers and the
environment, and technologies will be applied to meet specific operational issues. Few ways
37
of meeting changing consumer demands will be the focus of much effort, though the cost
bases remain uncertain.
Retailers will be concerned to ensure they obtain the right balance between lean and agile
approaches to their supply systems in order to meet the challenges of spatial reach and rapid
reaction. /hatever the broad outcomes, leading retailers will be those with quality
management able to apply change in supply, to drive effectiveness and efficiency within an
appropriately balanced concern for people, processes and technology.
/ithin a company, warehousing and transport cannot e#ist as separate operations. Instead,
logistics is all about integration, not only within a company, but also increasingly outside the
business with suppliers, logistics service providers and customers. 3artnership is a strong
component of modern retail logistics, and an ability to wor! with other individuals and other
companies is fundamental to success.
38
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