BMT5249

Logistics Management
Unit-I

Dr. I.S.Stephan Thangaiah

M.E.,MBA.,Ph.D.,BLP-IIMC.,FIE(I)
Professor, VIT Business School
VIT University
Vellore – 632014
Email: stephan.thangaiah@vit.ac.in

Cabin: SJT 611C

 BMT5249 Logistics Management
Module-1 Introduction to Logistics management (4):
Definition and Scope of Logistics – Functions & Objectives –
Customer Value Chain – Service Phases and attributes – Value
added logistics services – Role of logistics in Competitive
strategy- Distribution Center Warehouse and Plant location

Module-2 Warehousing and Material Handling (7):

Warehousing Functions – Types – Warehousing decisions and
facilities location –Decision Model – Layout Design – Costing –
Virtual Warehouse. Material Handling Equipment and Systems –
Role of Material Handling in Logistics. Material Storage Systems
– principles – benefits – methods. Automated Material Handling.

Module-3 Performance Measurement (4):

Need, System, Levels and Dimensions. Internal and External
Performance Measurement. Logistics Audit. Total Logistics Cost
– Concept, Accounting Methods, Cost – Identification, Time
Frame and Formatting.

Project Management
 BMT5249 Logistics Management
Module-4 Transportation and Packaging (7):
Transportation System – Evolution, Infrastructure and Networks.
Freight Management – Route Planning –Containerization. Modal
Characteristics, Inter-Modal Operators and Transport
Economics. Packaging- Design considerations, Material and Cost.
Packaging as Utilization. Consumer and Industrial Packaging.

Module-5 IT in Logistics (6) :

Logistic Outsourcing; Logistic Service provider – 3PL, 4PL and
5PL; Logistics Information Systems – Need, Characteristics and
Design. E-Logistics – Structure and Operation. Logistics
Resource Management. Automatic Identification Technologies.
Warehouse Simulation. Reverse Logistics – Scope, Design and as
a Competitive Tool.

Module-6 Guest lecture by industry experts on recent trends in

logistics (2).

Project Management
 Logistics Management

Logistics management is the process of strategically

managing the procurement, movement and storage of
materials, parts and finished inventory, and the
related information flows through the organization and
its marketing channels in such a way that the current
and future profitability are maximized through the
cost effective fulfilment of orders.

Logistics Management
 Logistics Concept
Materials flow

Suppliers Procurement Operations Distribution Customers

Information flow

Objective: The objective of logistics is to link the market

place, the distribution network, the manufacturing process
and procurement activity, so as to provide higher levels of
service to the consumers yet at a lower cost.
Scope: From the total systems viewpoint, scope of logistics
management encompasses management of raw materials and
other inputs through the delivery of the final product.

Logistics Management
Objective of Business Logistics
The logistic process involves (1) selection of
warehouses, (2) freight transportation, (3) receiving
the raw material, parts, components, assemblies and
final product, (4) inventory control, (5) handling, (6)
market forecasting, (7) protective packaging, etc.,

Logistics = Supply + Materials Management + Distribution

Logistics Management
 Competitive Advantage
Competitive advantage can be explained as the ability of an
organization to differentiate itself in the eyes of customer,
from its competition, and to operate at a lower cost and
hence greater profit.

Competitive advantage helps organizations to achieve

commercial successes which mainly depends upon two
factors:
 Productivity advantage
 Value advantage

Productivity advantage is in terms of lower cost profile,

while value advantage is in terms of a product offering a
differential „plus‟ over competitive offerings.

Logistics Management
 Competitive Advantage (Contd.)
Productivity advantage is characterized by low cost of
production due to greater sales volume, economies of scale
enabling fixed costs to be spread over a greater volume,
and the impact of the „experience curve‟.

Value advantage is based on the marketing concept the

„customers don‟t buy products, they buy benefits‟. But
benefits may be intangible, i.e. they may relate not to
specific product features but to things like image or
reputation. Hence, alternatively, offerings must be
perceived to outperform its rivals in some functional
aspects.

Logistics Management
 Achieving Value Differentiation
Adding value through differentiation is extremely powerful
means of achieving competitive advantage in the market.
Another method of adding value is service. Service relates
to the process of developing relationship with the customers
through provision of an augmented offer. Augmentation
takes many forms such as delivery services, after-sales
services, financial packages, technical support and so forth.

Achievement of value differentiation strategy is based upon

added value which in turn requires segmented approach to
the market. This is because segmentation helps in
identifying opportunities for creating differentiated appeals
for specific segments.

Logistics Management
Productivity and Value Advantage Matrix

Service Leader Cost and Service

Leader
Value Advantage: (3) (4)
Customized services
Reliability
Responsiveness Commodity Cost Leader
Market
(1) (2)

Productivity Advantage:
Capacity utilization
Asset utilization
Inventory reduction
Integration with suppliers

Logistics Management
Productivity & Value Advantage Matrix
Commodity Market: For companies in quadrant (1), the
market is an uncomfortable place as their products cannot
be differentiated from their competitors‟ offerings and
they do not have any cost advantage. These are commodity
markets.

Cost Leader: Companies in quadrant (2), adopt cost

leadership strategies. Traditionally, these are based on
economies of scale gained through volume. Also, a
significant route to achieving cost advantage is through
logistics management. In many industries logistics
constitutes a major proportion of total costs, hence by
reengineering logistics processes substantial cost reduction
can be achieved.

Logistics Management
Productivity & Value Advantage Matrix
Service Leader: For companies in quadrant (3), seek
differentiation through service excellence since markets are
becoming more and more service sensitive. Customers expect
greater responsiveness and reliability from suppliers,
reduced lead times, just-in-time delivery, and value-added
services. Service strategies can be developed through
enhanced logistics management.

Cost and Service Leader: Companies in quadrant (4), are

distinctive in the value they deliver and are not cost
competitive. Thus, competitors find it extremely hard to
attack these companies which try to excel in the value chain
activities.

Logistics Management
 Value Chain Activities
Value Chain Activities

Primary Activities: Secondary Activities:

 Inbound Logistics  Infrastructure
 Operations  Human Resource
 Outbound Logistics Management
 Marketing & Sales  Technology Development
 Service  Procurement

The primary activities represent the functional areas like

arranging inputs for transforming then into output, and managing
distribution, marketing, sales and services.
The support activities facilitate integration of all the functions
across the entire organization.

Logistics Management
 Michael Porter‟s concept of Value Chain
Secondary Activities

General administration

Human resource management

Research, technology, and systems development

Procurement

Inbound Operations Outbound Marketing Service

logistics logistics and
Sales

Primary Activities
 Integrated Logistics Concept

Inventory Flow

Physical Manufacturing Suppliers

Customers Procurement
Distribution Support

Information Flow

Logistics Management
 Operating Objectives of
Integrated Logistics
The operational objectives are the primary
determinants of logistical performance. These
include:
 Rapid response
 Minimum variance
 Minimum inventory
 Movement consolidation
 Quality
 Life cycle support

Logistics Management
 Functions of Logistics
Logistical competency is achieved by coordinating
the following functional areas:
 Network design
 Information
 Transportation
 Inventory
 Warehousing, material handling and packaging

Logistics Management
Key components of Logistics Management
Location of warehouse
Number and size of
distribution centre
Types of storage
Material handling equipment

Storage, warehousing
and materials handling

Design of systems Unit load

Information Packaging and
Control procedures Protective packaging
Forecasting and Control unitization Handling systems

Transport Inventory

Mode of transport What to stock

Type of delivery operation Where to stock
Load planning How much to stock
Route schedule

Logistics Management
 Stages in Supply Chain Integration

Stage 1: Baseline

Material Distribution
Purchasing Sales
Control Production

Material Flow Customer Service

Stage 2: Functional Integration

Materials Manufacturing Distribution

Managemen Management
t

Material Flow Customer Service

Logistics Management
Stages in Supply Chain Integration (Contd.)
Stage 3: Integral Integration

Manufacturing Distribution
Materials
Management
Managemen
t

Material Flow Customer Service

Stage 4: External Integration

Internal Supply Customer

Suppliers
Chain

Material Flow Customer Service

Logistics Management
 Supply Chain Integration
Stage 1: Complete functional independence where each function such as
production or purchasing does its own thing in complete isolation from
other business function. For instance, production function seeking to
optimize its unit cost of manufacture by long production runs without
regard for build up of finished goods inventory and the adverse impact it
will have on the warehousing as well as working capital.
Stage 2: Companies recognize the need for limited integration between
adjacent functions such as distribution and inventory management or
purchasing and material control.
Stage 3: A natural extension of stage two, leading to establishment and
implementation of end-to end integration. A concept of linkage and
coordination is achieved.
Stage 4: The linkage achieved in stage three is extended upstream to
suppliers and downstream to customers. It represents true supply chain
integration.

Logistics Management
 Role of Distribution Centres
 To hold the inventory that is produced from long production
runs.
 To hold inventory and decouple demand requirements from
production capabilities.
 To hold inventory to enable large seasonal demands to be
catered for more economically.

 To hold inventory to help provide good customer service.

 To enable cost trade-offs with the transport system by

allowing full vehicle loads to be used.

 To facilitate order assembly.

Logistics Management
 Role of Distribution Centres (Contd.)
 To hold the inventory that is produced from long production
runs. Long production runs reduce production costs by
minimizing the time spent for machine set-up and changeover,
enabling „lean‟ manufacturing.

 To hold inventory and decouple demand requirements from

production capabilities. This helps to smooth the flow of
products in the supply chain and assists in operational
efficiency, enabling an „agile‟ response to customer demands.
Note that many supply chains have strategic inventory located
at several different points, whereas this buffer only needs to
be held at what is known as the decoupling point: the point at
which discrete product orders are received

Logistics Management
 Warehouse Location
 Proximity of market: The warehouse is ideally located
at the geographical centre of the area of the market it
intends to serve.
 Availability of warehouse/land for warehouse near the
market and suitability of its place
 Distance of railhead/ highway/ air or seaport consisting
• Lesser distance
• Approaches/ connectivity by different modes of transport
including trailers for containers
• Material handling facilities
• Uninterrupted supply of electricity and water (when so
required for the purpose of warehouse operations)
• Industrial relations climate
 Stability or will of Local Government Administration
 Engineering design consideration: Type of soil,
possibilities of flood, earthquakes, etc.,

Logistics Management
 Location Analysis Techniques

• Location factor rating method

• Break Even Analysis

• Centre of gravity technique

• Load distance method

Operations Management
 Reference Books
1. Alan Rushton and Phil Croucher, “The Handbook pf
Logistics and Distribution Management” 5th edition, Kogan
Page, 2014.

2. Ailawadi C Satish, Rakesh Singh, “Logistics Management”

2nd edition, Prentice-Hall of India, 2012

3. Sople Vinod V, (2004), Logistics Management – The

Supply Chain Imperative”, Pearson Education, Indian
Reprint.

Logistics Management
 Thank You!
All the Very Best!!