MBA
II Year / III Semester
(Operation Elective)
BA 5025-Logistics Management
(Anna University – 
University – Regulation
Regulation 2017)

Easwari Engineering College

Department of Management Studies
Logistics Management Notes
By

S.PURUSHOTHAMAN, B.E.,MBA.,(PhD)

Assistant Professor-MBA

1
 

TABLE OF CONTENTS

S.No Contents Page Number

1. University Syllabus 3

2. Introduction on Logistics
4

3. UNIT-1 (Introduction) 10

4. UNIT-2 (Distribution channels and 20

Outsourcing Logistics)
5. UNIT-3 (Transportation and Packaging) 34

6. UNIT-4 (Performance Measurement and 58

Costs)
7. Unit-5 (Current Trends) 66

8. University Question Paper 76

9. Case Study 78

10. Content beyond the syllabus 82

11. Question bank 84

2
 

Anna University Syllabus

BA5025 LOGISTICS MANAGEMENT LTPC3003

COURSE OBJECTIVE:

• Understand the scope and practice of business logistics

logisti cs in product flow.

UNIT I INTRODUCTION 9

Definition and Scope of Logistics – 

Logistics  –  Functions
  Functions & Objectives – 
Objectives  –  Customer
 Customer Value Chain – 
Chain  –  Service
 Service
Phases and attributes – 
attributes –  Value
 Value added logistics services – 
services –  Role
 Role of logistics in Competitive strategy
 – Customer
Customer Service

UNIT II DISTRIBUTION CHANNELS AND OUTSOURCING LOGISTICS 9 

Distribution channel structure - channel members, channel strategy, role of logistics and support
in distribution channels. Logistics requirements of channel members. Logistics outsourcing  –  
catalysts, benefits, value proposition. Third and fourth party logistics. Selection of service
 provider.

UNIT III TRANSPORTATION AND PACKAGING 9

Transportation System – 
System –  Evolution,
 Evolution, Infrastructure and Networks. Freight Management – 
Management –  Vehicle
 Vehicle
Routing  –   Containerization. Modal Characteristics, Inter-modal Operators and Transport
Economies. Packaging- Design considerations, Material and Cost. Packaging as Unitisation.
Consumer and Industrial Packaging.  

UNIT IV PERFORMANCE MEASUREMENT AND COSTS 9

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

UNIT V CURRENT TRENDS 9

Logistics Information Systems – 

Systems  –  Need,
  Need, Characteristics and Design. E-Logistics – 
E-Logistics  –  Structure
  Structure and
Operation. Logistics Resource Management eLRM. Automatic Identification Technologies.
Reverse Logistics – 
Logistics –   Scope,
Scope, design and as a competitive tool. Global Logistics
Logistics – 
 –  Operational
 Operational and
Strategic Issues, ocean and air transportation. Strategic logistics planning. Green Logistics.

TOTAL: 45 PERIODS

OUTCOME :

To enable an efficient method of moving products with optimization of time and cost.

REFERENCES :

3
 

1. Bowersox Donald J, Logistics Management – 

Management –  The
 The Integrated Supply Chain Process, Tata
McGraw Hill,3rd edition 2016

2. Sople Vinod V, Logistics Management – 

Management –  The
 The Supply Chain Imperative, Pearson
Education,3rd Edition, 2012.
3. Coyle et al., The Management of Business Logistics, Cengage Learning, 7th Edition, 2004.

4. Ailawadi C Sathish & Rakesh Singh, Logistics Management, PHI, 2011.

5. Bloomberg David J et al., Logistics, Prentice Hall India, 2005.

6. Ronald H. Ballou, Business Logistics and Supply Chain Management, Pearson Education,
5thEdition, 2007.

INTRODUCTION ON LOGISTICS

Logistics deals with reaching products or services where they are wanted and when they are
wanted. Any Manufacturing or marketing activity will be difficult to achieve without any
logistical planning. So, Logistics involves coordinated efforts of transportation, warehousing,
 packaging and inventory
inven tory management.

Logistics History

Logistics is therequirements.
meet customer management of the flow of goods from Transportation origin to destination to

Logistics is the management of the flow of goods, information and other resources, including
energy and people. It involves the integration of information, transportation, inventory,
warehousing, material-handling, and packaging, and occasionally security.

Right Time, Right Place@ Minimum Cost Logistics Packaging Warehousing Started as a
 business concept in 1950’s.
1 950’s.  

The concept of logistics management was evolved during the Second World War (1939-1945).
(1939- 1945). •
The American military forces during the World War II ensured that all the food and supplies
reach at different places in a definite amount of time to the troops and cantonment
cant onment using different

logistics concepts and principles still used but in advanced version. • 

• 
British fishermen used natural ice to preserve their fish stock piles Late 1820’s Movement of
food from rural areas to urban consumption markets.

1857 The first shipment of refrigerated beef was made from the Chicago stockyards to the East
in an ordinary box car packed with ice.

Safexpress Pvt Ltd first company in the Indian logistics industry to use the GPS Maersk India,
had taken steps to facilitate research in the production, harvesting, warehousing, and packaging
of bananas. The company provided end-to-end cold chain logistics support, besides undertaking
training of local banana exporters in cold chain management.

The concept of 3PL (third party logistics) was developed and proposed in 1985, by Ken
Ackerman and Dean Wise.

4
 

*List of top companies in India (logistics)

1.TNT

2.AFL

3.DHL

4.BLUE DART

5.GATI

6.SAFE EXPREE

7.ASHOK LEYLAND

8.AGARWAL PACKERS AND MOVERS

9.DTDC

10.FIRST FLIGHT

11.ESSAR SHIPPING

*Top Logistics companies in world (2015)

1.DHL- germany

2.UPS Supply chain solutions- Giorgia

3.Fedex- America

4.SNCF- France

5.Kuene + Nage- Germany

6.DB Schenkar is a European

7.Nippon Express is a Japanese company

Logistic Companies of India 2017.

1.DHL

2.Blue Dart

3.TNT Express

4.DTDC

5.All cargo logistics ltd

6.Agarwal Packers and movers

7.Gati
5
 

8.FedEx

9.First Flight

10.Globe Express services

*Logistics firm profiles:

1. DHL India is a part of global logistics giant Deutsche Post DHL Group, which is present in
220+ countries in the world.
In India, they offer Express Delivery Solutions, International Express Delivery, Global
Forwarding (By Air, sea, Rail, and Road), ecommerce Logistics, Freight Transportation,
Warehousing & Distribution, Temperature Controlled Logistics, and Supply Chain Solutions.
They have separate sections, which handle industry specific logistics such as Aerospace,
Automotive, Chemical, and Consumer Domains. (Mumbai)

2.Second in the list is Blue Dart. Blue Dart, is considered as India's first International Air
Package Express
Express Service. Voted as a “Superbrand” for 9th consecutive year, Blue Dart is
among most preferred consumer Logistics Company in the country. They cover 35000+ locations
in all sides of country and have warehouses at 85 different locations; all backed by latest
technology such as MIS, Track & Trace, and ERP systems. (Chennai)

3. TNT India is a part of global logistics Company TNT Express. TNT provides unmatched speed
with urgent deliveries such as Medical Supplies,
Suppli es, Machinery & its critical parts, Legal Documents
etc. Similarly, their Bulk Shipment Solutions are also at par with the world's standards. Be it
Humatarian relief Cargo or Oil & Gas Shipment, they have the ability to handle all with perfect
score. (Bangalore)

4. FedEx is an American Logistic Company which has presence in 220+ countries in the world.
They have huge network in all over the world and handles 3.6 million shipments every day. In
India, they offer both Domestic & International Courier Services. They have different solutions
for all kind of shipments light & heavy weight, express & standard delivery, and time definite
delivery of goods. (USA).

5. VRL Logistics started a humble beginning in theth e year 1976 in small town in Karnataka. Slowly
and steadily, they expanded their network to 28 states
stat es & 4 UTs. Today, they are India’s largest
road transport logistic company
co mpany with a fleet of 4107 vehicles. They hold a Limca Book of records
as “Largest Fleet owner of Commercial vehicles in India. Over the years, with changing demand
of customers, they have also started their operations in Courier Service, Priority Cargo and Air
Chartering. They also provide customized 3PL and warehousing solutions to their clients. They
have largest network of 1013 branches and numerous franchises which covers all corners of India.
Their huge success lies in their reliable, on time delivery of goods.

Indian Logistics overview

*The highest dollar value in Indian global shipment during 2018.

1.Mineral fuels including oils

6
 

2. Vehicles

3. Pharmaceuticals

4.Iron & Steel

5. Cotton

6. Clothing accessories

7. Electrical Machinery and equipment

* The Biggest Challenges faced by the logistics Industry

1. Poor Integration of transport network

2. Information technology support

3. Warehouse & distribution facilities

4.Regulations differ from city to city

5. Trained manpower in 3PL.

6. Lack of specialist equipment.

7.Delayed documentation / Huge paper work.

*Future of Logistics Industry in India

# The experts predict that it can be the largest job creator by 2022.

#The Indian government has announced that it was working at the policy in order to setup new
logistics plan in the country, to devise the most cost effective method to transport goods by the
year 2035.

# It encourages tech-enabled start-ups in the logistics sector, which provides seamless movement

of goods across the world.

# Industry grows 10to 15% annually.

JOBS in Logistics for MBA students,

1.Logistics Manager

2.Logistics executive

3.Warehouse incharge

4.Purchase Manager

5.Logistics coordinator

Roles & Responsibility

7
 

1.Transportation

2.Warehouse monitoring

3.Monitoring supply chain

4.Dispatch (Import / export)

5.SCM

6.Freight forwarding

7.Custom clearance/ documentation.

8.Negotiation

9.Contract/ bidding

10.Shipping/ cargo logistics

11.Material procurement

12. SAP / systems

13.Inventory maintenance

14.Problem solving skills

15.Communication skills

Example : logistics and distribution manager you'll need to:

•Use IT systems to manage stock levels, delivery times and transport costs;

•Use associated information systems to coordinate and control the order cycle;

•Use data from IT systems to evaluate performance and quality and to plan improvements;

•allocate and manage staff resources according to changing needs;

•Manage staff;

•liaise and negotiate with customers and suppliers;

•Develop business by gaining new contracts, analysing logistical problems and producing new
solutions;

•Understand,
•Understand, work with and possibly help to develop e-commerce;

•Continually try to improve and develop business performance within the constraints of
legislation, fuel costs and rising environmental pressures

*Logistics Activities
1.Customer Service
8
 

2.Communication

3.Transport

4. Inventory Control

5.Handling returns

6.Storage

7. Plant and warehouse

8.Packaging

9.purchase orders

10. Material handling.

*Role of Logistics Manager

1.  To improve profits

2.  To increase market share

3.  Improve cash flows

4.  Rapid coverage
5.  Better customer service

* Logistics Operational performance (Measures)

(Measures)
1.  Speed
2.  Consistency
3.  Flexibility
4.  Malfunction
*Inbound and Outbound Logistics
Comparison Inbound logistics Outbound logistics

Meaning The influx of raw material and parts, The outward movement of final
from supplier to the manufacturing goods, from the company to the
 plant is known as inbound
inbou nd logistics end user, is known as outbound
logistics
Related to Material management and Customer service and channel
 procurement distribution

Interaction Between supplier and firm Between firm and consumer.

9
 

UNIT 1

INTRODUCTION

Definition and Scope of Logistics  –   Functions & Objectives  –   Customer Value Chain  –  
Service Phases and attributes  –   Value added logistics services  –   Role of logistics in
Competitive strategy – 
strategy – Customer
Customer Service.

1.1 Logistics
Logistics – 
 –  Definition
 Definition

Logistics management includes the design and administration of systems to control the flow of
materials, work in process, and finished inventory to support business unit strategy.

American Council of Logistics Management  defines logistics as “the process of planning,

implementing and controlling the efficient, cost effective flow and storage of raw materials, in
 process inventory, finished goods and related information from point of origin to point of
consumption for the purpose of conforming customer’s requirements”. 
requirements”.  

Philip Kotler defines logistics as

as “planning, implementing, and controlling the physical flows
of materials and finished goods from point of origin to point of use to meet the customer’s need
at the profit” 
profit” 

Donald J Bowersox  defines “Logistics is concerned with getting products and services
servic es where
they are needed and when they are desired.” 
desired.”  

*Scope of Logistics

1.Value adding process: Logistics creates value for customers and suppliers of the firm and the

value of the firm’s stakeholders. Value in logistics is expressed in terms of time and   place.
Products & services attain value only when they area in the possession of the customers when
and where they wish to consume them.

2.Penetrating new markets, increasing market shares and profits: Logistics is important for
Penetrating
firms to differentiate their product offerings from those of competitors. Logistics affects a
significant portion of a firm’s costs.

3.Reverse Logistics channels are important for the firm : Logistics is thought of as managing
the flow of products from the point of raw materials acquisition to end consumers. The life of a

 product does not

n ot end with delivery
d elivery to the customers.
cus tomers. For many firms, there
th ere is a reverse logistics

10
 

channel that must be managed as well. The reverse logistics channel comes into play when
customer returns the product and packing materials to the seller.

4.Globalisation and Internationalisation of industries depend on logistics performance

performance and
costs: Logistics takes an increased importance within the firm as its transportation costs become
larger part of the total cost structure. Companies take more of a global view of their operations.

India has emerged as one of the major offshoring and outsourcing destinations.
desti nations. Outsourcing adds
value, but it requires careful management of logistics costs and product flow time in the supply
chain.

(Secondary source)
1.2 Objectives of Logistics

1. Reduction of Inventory: Inventory is one of the key factors, which can affect the profit of an
enterprise to a great extent. In the traditional system, firms had to carry lot of inventory for
satisfying the customer and to ensure excellent customer service. But, when funds are blocked in
inventory, they cannot be used for other requirements. These costs will drain the enterprise’s
 profit. Logistics helps
help s in maintaining
maintaini ng inventory at the lowest level, and thus achieving
achievin g customer
goal. This can be done through small frequent supplies.

2. Economy of freight: Freight is a major source of cost in logistics. This can be reduced by
following measures like selecting the proper mode of transport, consolidation of freight, route
 planning, long distance
distan ce shipments etc.

11
 

3. Reliability and consistency in delivery performance: Material required by the customer

must be delivered on time not ahead of the schedule or behind the schedule. Proper planning of
transportation modes, with available inventory will ensure this.

4. Minimum damage to products: Sometimes products may be damaged due to improper

 packing, frequent handling
h andling of consignment etc. This damage adds
ad ds to the logistics
logist ics cost. The use

of proper logistical packaging, mechanized material handling equipment, etc. will reduce the
damage. 

5. Quicker and faster response: A firm have the capacity to extend service to the customer in
the shortest time frame. By utilizing the latest technologies in processing information and
communication will improve the decision making, and thus enable the enterprise to be flexible
enough so that the firm can fulfil customer requirements, in the shortest possible time frame.

1.3 Functions of Logistics:

The logistics function concentrates on performing activities like Acquisition, storage,

circulation, maintenance and retrieval of materials and equipment.
equipment.

(Secondary source)

1. Order Processing: Processing the orders received from the customers is an activity which is
very important and also consumes a lot of time and paperwork. It involves steps like checking
the order for deviations in the agreed or negotiated terms, price, payment and delivery terms,
checking if the materials in available in stock, producing and scheduling the material for
shortages, and also giving acknowledgements to the owner, by indicating any deviations.

12
 

2. Inventory Planning: Planning the inventory can help an organization in maintaining an

optimal level of inventory which will also help in satisfying the customer. Activities like
inventory forecasting, engineering the order quantity, optimizing the level of service, proper
deployment of inventory etc. are involved in this process.

3. Warehousing: This serves as the place where the finished goods are stored before they are
sold to the customers finally. This is a major cost centre and improper warehouse management
will create a host of problems.

4. Packaging: A critical element in the physical distribution of the product, which also influences
the efficiency of the logistics system.

Transportation: Helps in physical movement of goods to the customer’s

5. Transportation customer’s place.
 place. This is done
through various modes such as rail, road, air, sea respectively.

1.4 Value Chain:

According to Porter “A value chain is a set of activities that an organization carries out to create
value for its customers”. 
customers”. 

Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased
 by consumers. Using this viewpoint, Porter described a chain of activities common to all
 businesses, and he divided
divi ded them into primary and support activities, as shown
sho wn below.

(Secondary source)

1.4.1 Primary Activities: 

13
 

Primary activities relate directly to the physical creation, sale, maintenance and support of a
 product or service. They
The y consist of the following:

   Inbound logistics –  –   These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.
   Operations –  –  These
 These are the transformation activities that change inputs into outputs that are sold
to customers. Here, your operational systems create value.
   Outbound logistics –   –  These
  These activities deliver your product or service to your customer. These
are things like collection, storage, and distribution systems, and they may be internal or external
to your organization.
   Marketing and sales –   –  These
 These are the processes you use to persuade clients to purchase
pur chase from you
instead of your competitors. The benefits you offer, and how well you communicate them, are
sources of value here.
   Service – 
 –  These
  These are the activities related to maintaining the value of your product or service to
your customers, once it's been purchased.

1.4.2 Supporting Activities:

These activities support the primary functions above. In our diagram, the dotted lines show that
each support, or secondary, activity can play a role in each primary activity. For example,
 procurement supports
su pports operations
operatio ns with certain activities, but
b ut it also
als o supports marketing
mark eting and sales
with other activities.

   Procurement (purchasing) –   –  This

 This is what the organization does to get the resources it needs to
operate. This includes finding vendors and negotiating best prices.
   Human resource management –   –  This
 This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers. People are a significant source
so urce of value, so businesses can create
a clear advantage with good HR practices.
   Technological development –   –   These
These activities relate to managing and processing information,
as well as protecting a company's knowledge base. Minimizing information technology costs,
staying current with technological advances, and maintaining technical excellence are sources of

value creation.
   Infrastructure  – 
 –   These are a company's support systems, and the functions that allow it to
maintain daily operations. Accounting, legal, administrative, and general management are
examples of necessary infrastructure that businesses can use to their advantage.

1.5 Value Added Logistics Services:

Services:
Value-added logistics indicates  “ providing professional services
serv ices and processes that extend
 beyond standard receiving,
rec eiving, storing and ship ping of the client's
client 's products”. 
products”.  

Logistics involves a broad spectrum of activities that mainly covers planning, implementation
and control of flows of goods, services and information from the point of origin to the point of  
consumption.
Conventionally, it features most significantly in transportation and cargo
forwarding activities. Yet the landscape of the industry has gradually evolved towards greater

14
 

emphasis on high value added logistics (VAL), essentially an integrative profile that incorporates
 processes designed to efficiently support
suppor t and facilitate different
differ ent elements in the supply
supp ly chain.

The emergence of VAL is closely related to the growing

growin g importance of supply chain manag
management
ement
under globalisation. Global market expansion and liberalisation have extended the supply chain
to cover more and more regions, as manifested by increased international procurement and
marketing activities as well as offshore trade. These developments require more effective supply
chain management that has to be built upon an integrative set of specialised logistics services . 
Some of the value added services in logistics include:
  Product labelling and packaging


  Shipment consolidation


  Customs clearance


  Customized insurance


  Transport Management


  Cargo tracking and tracing facility 



  Door step delivery 



Eg: SAL logistics Pvt Ltd,

1.  Palletization service
2.  Goods warehousing
3.  Consultation on Import and exports
4.  Port handling

*Performance
*Performance areas of Value added services
focused services: Customer focused service involve use of third party specialist
1. Customer – 
Customer – focused

to distribute products to customers. An Instance of customer focused value added services is

fulfilment. Fulfilment involves processing customer orders for manufacturers, delivering directly
to stores, maintaining retail store for shelf stocking .
2. Promotion focused services: Value added services focus on promotion focused services,
support point of sale, advertising and other promotional materials. Normally gifts and premium
merchandise as part of promotional effort are handled and shipped by service specialist.
3. Manufacturing focused services: The manufacturing focused value added services are in the
form of unique product assortment and delivery to support manufacturing. Every customer has
 physical facilities and manufacturing assembly that are unique. So, it becomes essential to

customise the delivery and presentation of in-bound materials and components. Specialist are

15
 

hired to perform the value added service in the logistics channel. For example, surgical kits are
assembled to satisfy the special requirements of the physicians.
4. Time Focused services: Time focused services aims at eliminating unnecessary work and
maximising the speed of service. First seek to perform logistics activities faster to reduce the
level of financial assets required to support
sup port performance. The aim is to compress and control time
from order receipt to order delivery in an effort to accelerate inventory turns. The popular form
of time based value added service is the JIT feeder warehouse. Suppliers make daily deliveries
to a JIT facility established near the plant.

1.6 Role of Logistics:

1.6.1 In Competitive Strategies

1. Cost Leadership: Achieving cost leadership is facilitated by logistics cost reduction to a great
extent. This can be achieved by many ways. Examples of achieving logistics cost reduction are:

  Reducing transaction costs through IT support.

  Warehouse operations based on scale economics.

  JIT, cross docking and postponement, which results in reduction of inventory and related
costs.
  Reduced vendor base and co partnership with suppliers.

2. Differentiation:  This strategy focuses on offering superior services. Examples of offering

logistics services for differentiation are:

  On
On – 
 –  time
 time and consistent delivery.
  Logistics solutions to suit individual requirements.
  Tracking consignments.

3. Collaboration: A strategy where the customer works in collaboration with the suppliers. An

example here isinformation

instead shares Vendor Management Inventory
with the vendor. This(VMI). In VMI,
information customer
relates places
to actual no orders
usage or salebut
of
their product, their current on hand inventory and details of additional marketing activity. On the
 basis of this information, the supplier takes responsibility
responsibilit y for replenishment of the customer
inventory.

4. Diversification: Firms having a lot of operations adopt this strategy. The basic objective here
is the lower cost and better control over operations thus providing superior customer service.

5. Outsourcing: Outsourcing services to logistics providers

prov iders having expertise in this area in order
to bring efficiency and effectiveness into the logistics operations. An example in outsourcing is
clearance service provider. As a majority of exporters and importers do not have a proper
expertise in this area of logistics operations, many logistics service providers offer customs
clearance service to their clients. This can reduce overall transaction cost.

Eg: Allyn International
International services 
16
 

The competitive advantage is gained by offering a customer services of greater value, lower
 pricing or greater benefits.
bene fits. In today’s global economy, being adaptive and flexible is the key to
staying relevant. Changes to the logistics industry have been driven by reasons such as the price
of oil, Labour costs, security, trade regulations, Labour stoppages, Vessel capacity and
technology.

Company gain the competitiv

competitivee advantage,

 
1. Shipper associations/ Consortiums- To lower transportation cost
2.  Transportation Management systems (TMS)-Keeping eye on costs, Transit times, delivery
 performance, freight claims & compliance.
compli ance.
3.  Auto tender functionality- Tender directly to carriers, greatly reducing the time spent
scheduling a shipment.
4.  Advanced Technology- Visibility and Transparency gives customers real-time information
on where their goods are.

1.7 Customer Service

Definition: Customer service is a process for providing significant value added benefits to the
supply chain in a cost effective way.

Customer service refers to “the entire process of filling the customers’ orders. This process
includes the receipt of the order, managing the payment, picking and packing the goods, shipping
the packages, delivering the packages, providing customer service for the end user and handling
the possible return of goods.” 
goods.” 

*Logistics involves 3 phases in customer services: (Customer service elements)

1. Pre transaction phase: In this phase, the service level and other related activities are defined
on a policy level in both qualitative and quantitative measures. It is the creations of service
 platform to serve the customer, so as to build up creditability in the market and create a good
image among the existing and prospective customers. In other words, this refers to those
elements, which determine the capability of service before they are provided. Pre transaction
elements are usually related to corporate policies or programs, written statements of service
 policy, adequacy of organizational structure and system flexibility. The important elements of
 pre transaction phase are,

 
 Accessibility
 
 Building the organization
 
 Structuring the service
 
 Educating the customers
 
 System design and flexibility

2. Transaction phase:  During this phase, the customer service is associated with the routine
tasks, which have to be performed in the logistics supply chain. Those variables directly involved
in performance of the logistics functions. The various service elements involved in this phase
are,

17
 

  Reliability of order fulfilment

  Oder convenience
  Order Postponement
  Consistency of delivery
  Product substitute

3. Post transaction phase: This is a phase where customer satisfaction and building up of a long
term relationship with the customer is involved. It involves commitment of resources to offer the
desired level of service. These measure the customer satisfaction
satisfacti on on the basis of expected results.
results .
Generally supportive of the product in use such as warranty of products, parts and repair service,
 procedures for complaints of customer and replacement of products. The crucial elements of post
transaction phase are,

  Information of order status

  Customer complaints, claims and returns
  Customer awareness

*Various measures on Availability of Stock  

a)  Stockout frequency: Stock out frequency measures whether a product is available for shipment

to customers. A stock out occurs when demand exceeds product availability.

 b)  Fill rate: goods ordered by customers may be critical ones or slow movers. Fill rate strategies
are developed on the basis of customer requirements. For example, if a customer orders 200 units
and only 194 units are available. The order fil rate is 97%.
c)  Orders shipped complete: Orders shipped complete would specify the potential number of times
the customers would receive perfect orders, provided all other aspects of service performance
have zero defects.

*Supply Chain Management (SCM)

SCM encompasses all activities associated with the flow and transformation of goods from raw
materials stage (extraction), through to the end user, as well as the associated information flows.

SCM is the integration of these activities, through improved supply chain relationships, to
achieve a sustainable competitive advantage.
SCM  is the Management of the flow of goods & services and includes all processes that
transform raw materials into final products.
*Questions for Exam: 

PART  – A

1.  Define Business Logistics

2.  Write short note on Logistics Management.  
3.  List few points about Scope of logistics. 
4.  Mention few Objectives of Logistics.

18
 

5.  Give few examples of top logistics firm in the globe.

6.  Interpret three importance of Logistics Management.
7.  Define Value Chain.
8.  Write short note on customer service.  
9.  How would you show your understanding on the Value added Logistics service?  
10. Mention any three measures of logistical service.  
11. List out the barriers of customer service in Logistics Management
12. Distinguish between Logistics in Supply Chain Management. 
13. Classify any two applications of Business Logistics
14. Define Competitive Strategy.
15.  What are the different strategies follow in Logistics? 
16.  Define Supply chain.  

PART  –B

1.  How do you think international Logistics differ from Indian Logistics for a firm with global

operation?
2.  Explain the various customer service attributes in logistics system.
3.  Discuss the importance and object
objectives
ives of Logist ics Management.
4.  Compose the different methods for selecting the competitive strategy?
5.  Sketch the value chain in logistics?
6.  Describe the Value added Logistics service? Explain the concept in detail with suitable
example.
7.  How would you describe the goal of a Logistics and explain the impact of Logistics decision
on the decisions on the success of a firm?

8.  Brief of the scope of Logistics in India.

PART-C

1.  Explain logistics structure required for manufacturing industries in detail?

2.  Critically review the current trends in retail logistics with live industry example.
3.  Choose a successful Indian company of your choice which has got a phenomenal reach in
rural markets and explain its outbound logistics operation in a detailed manner.
4.  Elucidate the Recent trends in logistics network with suitable examples.  

19
 

UNIT-2

DISTRIBUTION CHANNELS AND OUTSOURCING LOGISTICS

Distribution channel structure - channel members, channel strategy, role of logistics and
support in distribution channels. Logistics requirements of channel members. Logistics
outsourcing  –   catalysts, benefits, value proposition. Third and fourth party logistics.
Selection of service provider.

2.1 Distribution Channel Structure

Definition: A distribution channel is as set of interdependent organisations or

intermediaries involved in the process of making a product available for consumption. A
channel directs the flow of products from producers to customers.

The American marketing association defines a distribution channel as the structure of

intracompany organizational units and extra company agents and dealers, Wholesale and
retail, through which a commodity, product or service is marketed. 
In technical sense, a channel is a group of businesses that take ownership title to products or
facilitate exchange during the marketing process from original owner to final buyer.
Figure: Generic Channels of Distribution

(Source primary)
The figure illustrates an overall generic channel structure is required to complete the marketing
 process. One advantage of graphing channel arrangements in a flow diagram format is the ability

to show, in a logical sequence, the variety and positioning of institutions that participate in
ownership transfer. Of particular interest in figure is the range of Institutions that products may
20
 

 pass through and the alternative paths they can physically follow as they flow from original owner
to final buyer. For example, retail stores may purchase from all levels of supply ranging from
farmers to wholesalers. Despite the attractive simplicity of descriptive flowcharts structures, they
the y
 provide only minimal assistance to managers concerned with developing and implementing a
channel strategy.
2.2. Channel Strategy 
In a channel situation, the combined capabilities of primary and specialised participants should
achieve a basic requirement called assortment. Assortment consists of sorting and configuring a
variety of products and commodities to satisfy the exact buyer requirements. The primary
objective of a distribution channel is to create value by generating acceptable form, possession
time, and place. Assortment is the channel process that results in the above attributes, In order to
design an effective channel, it is essential that the requirement related to each attribute be
specified. Attention in this section is focused on those attributes that are basically achieved
through logistical operations. Logistical operations are the primary source of achieving time and
 place in a channel arrangement. Through the provision of value added services, logistics can also
make significant contributions to facilitating the correct form and conditions that most satisfy
 possession. Thus, logistical
logist ical operations are a prime contributor to overall ch
channel
annel success.
success .
Table : Typical Primary and Specialized channel participants
Primary Participants
Manufacturers Wholesalers
Agriculture Retailers
Mining Agents
Specialized Participants
Functional Specialists Support Specialists
Transportation Financial
Warehousing Informational
Assembly Advertising
Fulfilment Insurance
Sequencing Advisory / Research
Merchandising Arrangers

A Distribution channel directs the flow of products from producers to customers.

*Design of Distribution Channel

1.  Analyze customer needs

21
 

2.  Establish channel Objectives

3.  Identify major channel alternatives.
4.  Evaluate major channel Alternatives.

*Functions of Distribution Channel

1.  Gather information

2.  Reach agreements on price and terms

3.  Assume Risks

4.  Provide for storage
5.  Acquire funds to finance inventories.

Design of distribution channels requires a well organised method for designing channels that
satisfy customers and overcome competition. There are 4 choices

1.  Specify the distribution function

2.  Select the type of channel
3.  To determine the intensity of distribution
4.  Select specific members of the channel.

2.3 Levels of Distribution Channel / Channel Members

Members

Zero level Manufacturer - Consumer

First Level Manufacturer- Retailer-
Consumer
Second Level Manufacturer- Wholesaler-
Retailer- Consumer
Third Level Manufacturer- Wholesaler-
Jobber- Retailer- Consumer

22
 

Figure: Typical Channel structure

structure alternatives in consumer-goods
consumer-goods distribution
Of the four channels mentioned above, the most typical for the consumer is the wholesaler-
Retailer- Consumer structure. Most mass-produced consumer goods reach the market through a
wholesaler and retailer. The channel selected by the manufacturer depends on the characteristics
of the product, the buying habits of consumer, and the overall marketing strategy of the firm. On
the other hand, a manufacturer with limited capital resources
resou rces and limited product line might elect
to hire a broker or an agent to sell products in consumer channels.
*Types of Intermediaries
Intermediaries

1.  Wholesalers
2.  Commercials
3.  Retailer
4.  Agents and brokers

*Factors affecting the selection of channel

1.  Market factors- Buyers, geographic

2.  Product Factors- Unit value, perishability

3.  Company factors-Financial resources, desire to control channel.

2.4 Role of Logistics and support in Distribution channels (Customer Service)

1. Response time: It refers to the amount of time it takes for a customer to receive an order.

2. Product Variety:  It is the number of products or configurations that are offered by the
distribution network.

3. Product availability: It is the probability of having a product in stock when a customer order
arrives.

4. Customer Experience: It is the ease with which customers place and receive orders and the
extent to which it is customised. It involves purely experiential aspects that sales personnel
 provide.

5. Time to market: It is the time it takes to bring a new product to the market.

6.Order Visibility: It is the ability of customers to track their orders from placing the orders to
till delivery.

7. Returnability: It is the ease with which a customer can return. Unsatisfactory merchandise
and the ability of the network to handle such returns.

2.5 OUTSOURCING

Outsourcing means that a firm hires an outside firm to perform an operation rather than

executing the operation within the firm. Outsourcing means that the supply chain function
is performed by a third party.

23
 

“The strategic use of outside resources to perform activities traditionally handled by

internal staff and resources”-
resources”- Dave Griffiths.

*Reasons for Outsourcing

1. Reduce Costs

2. Focus on core

3.Improve Quality
4. Increase speed to market

5. Foster Innovation.

* Reasons for Third Party Outsourcing

1.  A third party aggregates demand across the multiple firms and gain economics of sale in
 production.
2.  A third party aggregates inventories across a large number of customers.
3.  A third party aggregates the transportation function to a higher level than any shipper on its
own.

4.  A third party aggregates procurement for many small players and facilitates economies of
scale in production.
5.  A third party provides for lower costs and higher quality.

*Key Areas of Outsourcing

1. Information Technology/ IT solutions

2. Call Centres

3.Finance & Accounting outsourcing

4. Procurement Outsourcing

5. Textiles
6. Manufacturing

7. Human Resource Management.

*OUTSOURCE VS MAKE IN HOUSE 

The make-or-buy decision is the act of making a strategic choice between producing an item
internally (in-house) or buying it externally (from an outside supplier). The buy side of the
decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that
has developed a product or part — 
 — or
or significantly modified a product or part — 
part — is
is having trouble
with current suppliers, or has diminishing capacity or changing demand.

Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic
level is the more long-range of the two. Variables considered at the strategic level include

24
 

analysis of the future, as well as the current environment. Issues like government regulation,
competing firms, and market trends all have a strategic impact on the make-or-buy decision. Of
course, firms should make items that reinforce or are in-line with their core competencies. These
are areas in which the firm is strongest and which give the firm a competitive advantage.

The increased existence of firms that utilize the concept of lean manufacturing has prompted an
increase in outsourcing. Manufacturers are tending to purchase subassemblies rather than piece
 parts, and are outsourcing activities ranging from logistics to administrative services. In their
2003 book World Class Supply Management, David Burt, Donald Dobler, and Stephen Starling
 present a rule
ru le of thumb for out-sourcing.
out-sou rcing. It prescribes
prescr ibes that a firm outsource
outsou rce all items that
th at do not
fit one of the following three categories: (1) the item is critical to the success of the product,
including customer perception of important product attributes; (2) the item requires specialized
design and manufacturing skills or equipment, and the number of capable and reliable suppliers
is extremely limited; and (3) the item fits well within the firm's core competencies, or within
those the firm must develop to fulfill future
fu ture plans. Items that fit under one of these three categories
are considered strategic in nature and should be produced internally if at all possible.

Make-or-buy decisions also occur at the operational level. Analysis in separate texts by Burt,
Dobler, and Starling, as well as Joel Wisner, G. Keong Leong, and Keah-Choon Tan, suggest
these considerations that favor making a part in-house:

•Cost considerations (less expensive to make the part)

•Desire to integrate plant operations

•Productive use of excess plant capacity to help absorb fixed overhead (using existing idle
capacity)

• Need to exert direct control

con trol over production and/or
and /or quality

•Better quality control

•Design secrecy is required to protect proprietary technology

•Unreliable suppliers
• No competent suppliers

•Desire to maintain a stable workforce (in periods of declining sales)

•Quantity too small to interest a supplier

•Control of lead time, transportation, and warehousing costs

•Greater assurance of continual supply

•Provision of a second source

•Political, social or environmental reasons (union pressure)

•Emotion (e.g., pride)

25
 

Factors that may influence firms to buy a part externally include :

•Lack of expertise

•Suppliers' research and specialized know-how exceeds that of the buyer

•cost considerations (less expensive to buy the item)

•Small-volume requirements

•Limited production facilities or insufficient capacity

•Desire to maintain a multiple-source policy

•Indirect managerial control considerations

•Procurement and inventory considerations

•Brand preference

•Item not essential to the firm's strategy

The two most important factors to consider in a make-or-buy decision

decisi on are cost and the availability

of production capacity. Burt, Dobler, and Starling warn that "no other factor is subject to more
varied interpretation and to greater misunderstanding" Cost considerations should include all
relevant costs and be long-term in nature. Obviously, the buying firm will compare production
and purchase costs. Burt, Dobler, and Starling provide the major elements included in this
comparison. Elements of the "make" analysis include:

•Incremental inventory-carrying costs

•Direct labor costs

•Incremental factory overhead costs

•Delivered purchased material costs

•Incremental managerial costs

•Any follow-on costs stemming from quality and related problems

•Incremental purchasing costs

•Incremental capital costs

Cost considerations for the "buy" analysis include:

•Purchase price of the part

•Transportation costs

•Receiving and inspection costs

•Incremental purchasing costs
26
 

•Any follow-on costs related to quality or service

One will note that six of the costs to consider are incremental. By definition, incremental costs
would not be incurred if the part were purchased from an outside source. If a firm does not
currently have the capacity to make the part, incremental costs will include variable costs plus
the full portion of fixed overhead allocable to the part's manufacture. If the firm has excess
capacity that can be used to produce the part in question, only the variable overhead caused by
 production of the parts are considered incremental. That is, fixed costs, under conditions of
sufficient idle capacity, are not incremental and should not be considered as part of the cost to
make the part.

While cost is seldom the only criterion used in a make-or-buy decision, simple break-even
analysis can be an effective way to quickly surmise the cost implications within a decision.
Suppose that a firm can purchase equipment for in-house use for $250,000 and produce the
needed parts for $10 each. Alternatively, a supplier could produce and ship the part for $15 each.
Ignoring the cost of negotiating a contract with the supplier, the simple break-even point could
easily be computed:

$250,000 + $10Q = $15Q

$250,000 = $15Q − $10Q

$250,000 = $5Q

50,000 = Q

Therefore, it would be more cost effective

effecti ve for a firm to buy the part if demand is less than 50,000
units, and make the part if demand exceeds 50,000 units. However, if the firm had enough idle
capacity to produce the parts, the fixed cost of $250,000 would not be incurred (meaning it is not
an incremental cost), making the prospect of making the part too cost efficient to ignore.

Stanley Gardiner and John Blackstone's 1991 paper in the International Journal of Purchasing
and Materials Management presented the contribution-per-constraint-minute (CPCM) method of
make-or-buy analysis, which makes the decision based on the theory of constraints. They also
used this approach to determine the maximum permissible component
compo nent price (MPCP) that a buyer
should pay when outsourcing. In 2005 Jaydeep Balakrishnan and Chun Hung Cheng noted that
Gardiner and Blackstone's method did not guarantee a best solution for a complicated make-or-
 buy problem. Therefore, they offer an updated, enhanced approach using spreadsheets with built-
in liner programming (LP) capability to provide "what if" analyses to encourage efforts toward
finding an optimal solution.

Firms have started to realize the importance of the make-or-buy decision to overall manufacturing
strategy and the implication it can have for employment levels, asset levels, and core
competencies. In response to this, some firms have adopted total cost of ownership (TCO)
 procedures for incorporating
inco rporating non-price considerations
co nsiderations into
in to the make-or-buy decision.
decisi on.

If
to Outsourcing has presented
weigh the advantages itself as a possible
and disadvantages solution
before for you
embarking on and your company,
a partnership. it is natural
Gain insight into

27
 

the good and bad of outsourcing

outsou rcing to help you decide if outsour
outsourcing
cing is right for you. Here we break
down the possible advantages and disadvantages of outsourcing.

The Advantages of Outsourcing

• Outsource
Outsource your non-core activities and spend more time concentrating on your core
 business processes.
processes .

• Offshoring gives you access to professional, expert and high-quality

high -quality services.

• Your organization can experience increased efficiency and productivity in 

in   non-core
 business processes.
processes .

• You can streamline your business operations. 

operations.  

• Offshore outsourcing can help you save on time, effort, manpower, operating costs and
training costs, giving you overall cost advantage.

• Outsourcing can make your organization more

organization  more flexible to change.

• Experience increased control of your business. 

business. 

• Save on investing in the latest technology, software and infrastructure and let your
outsourcing partner handle the entire infrastructure.

• Get the assurance that your business

busi ness processes
processes are being carried out efficiently, proficiently
and within a fast turnaround time.

• Offshoring can help your organization save on capital expenditures.  

• By outsourcing, your company can save on team management problems as your offshore
 partner will be managing the
t he team who does your work.

• Cater to the new and challenging demands of your customers. 

customers.  

• Free up the cash flow of your company. 

company.  

• Share your business risks. 

risks.  

• Give your business a competitive advantage - increase productivity in all the areas of your
 business.

• Outsourcing can help your organization cut its operational

operat ional costs by 50% if not more.

If you want your organization to stay ahead of competition, concentrate on core

competencies and make use of the latest technologies, then outsourcing can help your
organization achieve all this and more. The advantages of outsourcing far outweigh the
disadvantages. Many organizations across the globe have made the choice to outsource and
experience the benefits that it has to offer. More than 500 customers around the globe have

and are taking advantage of outsourcing by using the services that Global Outsourcing
agency offers.

28
 

The Disadvantages of Outsourcing

• While outsourcing services such as payroll processing services and tax preparation
services, your outsourcing provider will be able to see your company’s confidential
information and hence there is a threat to security and confidentiality in outsourcing.

• When you begin to outsource your business processes,

process es, you might find
find it difficult to manage
the offshore provider when compared to managing processes within your organization.

• Offshoring can create potential redundancies for your organization and your employees
might express lack of interest or lack of quality at work.

• Your outsourcing provider might not be providing services only for your organization.
Since your provider might be catering to the needs of several companies, they will not be
able to give your company 100% attention.

• Outsourcing, though cost-effective,

cost -effective, might have hidden costs, such as the legal costs
incurred while signing a contract between companies. You might also have to spend a lot of
time and effort in getting the contract signed.

• With outsourcing, your organization might suffer from a lack of customer focus.

• There can be several disadvantages, such as, renewing contracts, misunderstanding of the
contract, lack of communication, poor quality and delayed services amongst others.

But all of these disadvantages can be avoided by partnering with the right service provider.
Before outsourcing, take the interests of your customers and employees into consideration
and then make an informed decision. If your organization is genuinely interested in
outsourcing, don’t let the fewer disadvantages stop you.
you .

*Pros and Cons of Outsourcing

Pros of Outsourcing Cons of Outsourcing

Cost effective Loss of Control
Skilled Expertise Hidden costs
Increased productivity
productivit y Linguistic barriers
Distribution of risk Bad Publicity
Improve customer service Threat to security &
confidentiality
Focus on Core Quality problems
competencies

*Types of Outsourcing business.

1.  Business process outsourcing (BPO)- It involves the contracting of the operations and
responsibilities of specific business function or processes to a third party service
 provider.

29
 

2.  Knowledge Process outsourcing (KPO)- It describes the outsourcing of core business
activities, which often competitively important or form an Integral part of a company’s
value chain.
3.  Legal process Outsourcing (LPO)- It refers to the practice of a law firm or corporation
obtaining legal support services from an outside law firm or legal support services
company.
4.  Recruitment process outsourcing  (RPO)- It involves in an employer outsources or

5.  Transfers all or

Engineering part ofOutsourcing
Process its recruitment activities
 (EPO)- to an external
It offers service provider.
global consulting and outsourcing
services providing end to end services in the areas of engineering.

Few Examples
S.No Functions Examples
1. Professional Banking Standard Chartered has outsourced its money
laundering control to India
2. Manufacturing Ford outsources its component manufacturing
to India to run its global operations.
3. Process Microsoft in India has outsourced its HR
functions to Gurgaon Solely.
4. Legal Services Morgan Stanley, Dupont
5. Pharma and R&D Glaxo smithKline hired TCS

* Outsourcing Process

1.Understanding company goals and Objectives

2. A strategic Vision and Plan

3. Selecting the right vendor

4.Management of the relationships

5. A properly structured contract

6. Open communication

7. Senior executive support

8. Use of Outside expertise.

*Outsourcing Methodologies
Methodologies

1.  Factor Rating Analysis

2.  Break Even Analysis

A)Factor Rating- Risk Analysis

This method is used to do the risk analysis and also the performance evaluation on the
outsourcing agents based on the important criteria.
*Risk Evaluation
30
 

Risk Factor England Mexico Spain Canada

Canada

Economic: Labour 1 0 2 1
cost / laws
Economic : Capital 0 2 1 0
availability

Economic: 0 2 2 0
Infrastructure
Culture : Language 0 0 0 0

Culture : social norms 2 0 1 2

Migration 0 2 0 0
:Uncontrolled
Politics : Ideology 2 0 1 2

Politics :Instability 0 1 2 2

Politics : Legalities 3 0 2 3

Total Risk Rating 8 7 11 10

scores

B) Rating Mechanism for service provider selection

Factor Importance BIM (U.S) S.P.C (India) Telco (Isreal)
weight
Can reduce operating 0.2 3 3 5
costs
Can reduce capital 0.2 4 3 3
investment
Skilled personnel 0.2 5 4 3
Can improve quality 0.1 4 5 2
Can gain access to 0.1 5 3 5
technology not in
company
Can create additional 0.1 4 2 4
Capacity
Aligns with policy/ 0.1 2 3 5
Philosophy/ culture
Total and Averages 1.0 3.9 3.3 3.8

2.6 Third and Fourth Party Logistics

A third party logistics provider that performs one or more of the logistics activities relating
to the flow of product, information and funds that could be performed by the firm itself.

Eg.: UPS & FedEx.

Third party logistics providers usually specialise in
31
 

1.Integrating operations

2.Warehousing

3.Transportation services

4.Cross-docking

5.Inventory management

6.Packaging

7.Freight forwarding

These services are scaled and customised to the customer’s specific needs based on their
market conditions and the different demands and delivery service requirements for their
 products or materials.

There are thousands of 3PLs in the market that offer different models and perform different
tasks. For example, certain 3PLs may only specialise in certain industries.

The 3PL have a large footprint throughout the country. This makes it viable for companies
to service clients in remote regions at a much lower cost than doing it themselves.

Types of 3PL Providers

1. Standard

Basic activities: Pick and pack, warehousing and distribution.

2. Service Developer
Value-added services such as tracking and tracing, cross-docking and specific packaging
32
 

3. Customer Adapter

This comes in at the request of a customer. It is when the 3PL takes over complete logistics
of the firm.

4.Customer Developer

This is the highest level of 3PL. This is when the 3PL integrates itself with the company,
and ends up taking over the entire logistics operation.

4PL:

4PL is defined as a general contractor who manages other 3PLs, truckers, forwarders,
custom brokers and other engaged in a complete process for the customer. A 3PL
targets a function while 4PL targets the management of the entire process.

*Important aspects of 4PL

1. Add value relative to a firm managing its own logistics providers.

2. Add growth in the supply chain surplus.

3. Facilitate the use of sophisticated information technology.

4. minimise production cost while meting delivery schedules.

5. Coordinate firms supply chain and improve relationship between the logistics providers.

*Functions provided by a 4PL company 

1.Procurement

2.Storage

3.Distribution

4.Processes

A 4PL company takes over the logistics section of a business. This could be the entire
 process, or a side business
busin ess that’s imperative to ha
havve as part of the main business.

An example here would be a bicycle importer. The main function is to import bicycles
however; they need to have spare parts for these unique bikes. A 4PL would manage the
total logistic operations for the spare parts business.

4PL is an integrator that assembles the resources, capabilities and technology of its own
organization and other organizations to design, build and run comprehensive supply chain
solutions.

*Comparison of 3PL and 4PL

33
 

S.No 3PL 4PL

1 Specialize in the operational element Manages all the activities of supply
of supply chain management. chain.

2 Targets a single function Manages the whole process,

sometimes even the 3PL.

3 Major
Warehousing, activities and Major
Transportationinclude Consultancy, activities include
Storage, Distribution,
Packaging.  processes.

4 Focused on day to day activities. Focused on optimizing supply chain.

2.7 Selection of Service provider (Distribution network )

This section covers distribution network choices

choic es from the manufacturer to the end consumer.
It also depends upon the nature of products and target group (consumers). The operational
factors involved in the selection of the service provider are based on the Time of delivery,
Cost of service, destiny and transportation. There are six distribution network designs used
to move products from factory to consumer.

1.  Manufacturer storage with direct shipping

The product is shipped directly form the manufacturer to the end customer by-passing the
retailer. This is also known as drop shipping with product delivered directly from the
manufacturer to customer.
2.  Manufactur
Manufacturer
er storage with direct shipping and in-transit merge
Drop shipping is coupled with in-transit merge. In-Transit merge combines pieces of the
order coming from different locations. The customer gets a single delivery. Direct sellers

such as Dell computers and companies implementing drop shipping have used in transit-
merge. For example, a customer orders a PC from Dell factory and monitor from Sony
factory. It merges the two together at a hub before making a single delivery to the customer.
3.  Distributor storage with carrier delivery
Inventory is not held by manufacturer at the factories. It is held by distributors and retailers
in intermediate warehouses. Package carriers are used to transport products from the
intermediate location to the final customer. Distribution storage requires a higher level of
inventory.
4.  Distributor storage with last mile delivery

34
 

Thee distributor or retailer delivers the product to the customer’s home instead of using a
Th
 package carrier. Firms in grocery industry use last mile delivery. Last mile delivery requires
the distributor warehouse to be much closer to the customer.
5.  Distribution storage with customer pick up
Inventory is stored at the manufacturer or distributor warehouse. Customers place their
orders online or on phone and then travel to designated pick up points to collect their
merchandise. Orders are shipped from storage to pick up points.
6.  Retail storage with customer pick up
This is the most traditional type of supply chain. Inventory is stored locally at retail stores.
Customers walk into the retail store or place an order online or by phone and pick it up at
retail store.
Example:
Range of SCM activities for Outsourcing
1.  Transportation Management- 4PL Operations, Carrier Management, Load building
2.  Materials Management- Material Optimization, Inventory Optimization, Direct Material
Acquisition
3.  Green Supply chain- Carbon foot printing, Green supply chain certification, International
Intern ational
Trade optimization
4.  Supply Management: Supply planning, Spare parts planning, Retail Inventory planning,
reverse logistics.

*Questions for Exam:

PART- A QUESTIONS

1.  What is meant by Distribution Channel?

2.  Mention the Factors affecting distribution channel.
3.  List any benefits of using channel members.
4.  Mention the members of Distribution Channel.
5.  Write short note on logistics outsourcing.
6.  What is meant by Channel Strategy?
7.  What are the factors influencing logistics outsourcing?
8.  Distinguish between 3PL and 4PL.
9.  How would you show your understanding of Third party logistics?
10. What are the benefits of logistics outsourcing?
11. List the reasons for outsourcing.
35
 

12. Write short note on 4pl.

13. Mention the advantages and disadvantages of Outsourcing.
14. What is the role of logistics?
15. List the factors affecting distribution channel.

PART-B QUESTION

1.  How would you explain common channel structures? Discuss its model in detail with a
example.
2.  Explain the procedure for structure of the distribution channel.
3.  Enumerate the various roles of logistics in the distribution channel.
4.  Brief the channel members involved in the distribution channel of logistics.
5.  How would you explain benefits of logistical outsourcing in detail?
6.  Plan the 3PL service provider for online furniture marketing.
7.  Discover the prominent Indian 3PL service providers.
8.  How do you describe the framework for customer preferring in sourcing in detail?
9.  Explain the process of customers prefers to outsource to 4PL.
10.  Describe the selection of service provider in detail.
11. Brief the logistics requirement of channel members.

PART- C QUESTIONS

1.  “The efficiency and effectiveness of the distribution channel is the function of a proper
logistics program”
program” Explain
Explain
2.  As a logistics manager of the firm, how will you design a logistics network to suit the
channel Member.
3.  “Fourth
“Fourth   Party logistics is an extension of third-party logistics with value addition.”
addition.”--
Comment.
4.  “Logistics
“Logistics outsourcing
 outsourcing will considerably
considerabl y enhance the competiveness of the organization”
organization”--
Discuss.

36
 

 
Unit-3
TRANSPORTATION
TRANSPORTATION AND PACKAGING

Transportation system- Evolution, Infra structure and networks, Freight Management-

Vehicle Routing- Containerization. Model Characteristics, Intermodal Operators and
Transport Economics. Packaging-Design Considerations, Material Cost. Packaging as
unitisation. Consumer and Industrial Packaging.

3.1 Transportation System

Transportation refers to the movement of products from one location to another. Transportation
starts its journey from the beginning of a supply chain and finally weaves its way through various
stages till reaches the customer. Transportation allows the products to move across the global
network.

*Importance of effective Transportation system

1.  Greater competition

2.  Boon to seasonal growing patterns
3.  Economies of scale
4.  Reduced prices

*Modes of Transportation

1. Air- The newest but least utilised mode of transportation is air freight. Its significant advantage
lies with its speed with which shipment can be transported. All cargo carriers, International
carriers, domestic truck line carriers are possible through air transportation.

2. Package carriers- small packages

3.Truck-  Highway transportation has expanded rapidly since the end of world war II. To a
significant degree the rapid growth of the motor carrier industry results from door to door
operating flexibility and speed of intercity movement. They can also operate on all types of
roadways. Thus the trucks are best suited to handle small shipments moving short distance.

4. Rail network - Railroads have handled the largest number of ton-miles within the continental
united states. As a result of the early establishment of a comprehensive rail network connecting
almost all cities and towns, railroads dominated intercity freight tonnage until after world war II.

5. Water- Water is the oldest mode of transportation. The original sailing vessels were replaced

 by steamboats in the early 1800s and by diesel power in the 1920s. A distinction is generally made
 between deep-water and navigable inland water transport. The main advantage of water
transportation is the capacity to move extremely large shipments. Water transportation ranks
 between rail and road transportation.
trans portation.
 37
 

 
6.Pipeline- pipelines are the significant part of the united states
stat es transportation system. In addition
to petroleum, the other imported product transported through pipeline
pipeli ne is natural gas. The pipelines
are also utilised for transporting chemicals, pulverised dry bulk materials, sewage and water
within cities.

7. Inter-modal   – 
–  The
 The Intermodal transportation is the use of more than one mode of transport to
move shipment to its destination. A variety of intermodal combinations is possible; 1) rail-truck,
2) Rail-water, 3) Rail-pipeline,4) Truck-air, 5) Truck-water.

3.1.1 Evolution of Transportation

Transportation

The transport system has evolved with the development of human culture. It has developed
across several stages like the hunting stage, the pastoral, agricultural, industrial and commercial
stages. Man has made many achievements in the development of transport and at the same time
has also helped civilization to develop. In the olden days, before human civilization, roads did not
exist, and people used to walk for their livelihood and social life. Long distance walking tracks
developed as trade routes in Palaeolithic times. In human history, the only form of transport apart
from walking was by using domestic animals.

The first earth tracks were created by human was by carrying goods and following game trails.
Tracks were naturally created at points of high traffic density. As animals were domesticated,
horses, oxen and donkeys,
donke ys, dogs, camels etc., became an element in track creation. With the growth
of trade, tracks were flattened and widened to accommodate animal traffic. Thus different animals
were used in different regions to local conditions
condition s for transport. Use of domestic animals for social
life was a part of development of human culture.

During British rule in India, the administrators concentrated on the developments of roads and
transport in India for the convenient of marketing and administration. Lord William Bentinck
reviewed the idea of constructing the roads by connecting Peshawar, Delhi and Calcutta. Lord
Dalhousie created public works department for the improvement of transport. Lord Mayo and
Lord Rippon acted as a stimulus to the development of road and transport in India. During World
war II road construction activities increased.
increased . Even though, public transport was in practice, Indian
villages were self-sufficient and most of people were using carts and animals for goods carrier.

Due to increasing trade in India over the years, an effective infrastructure was developed through
railway system connecting the entire country and as India showed considerable growth in

economy, ports and airports were intensively constructed to encourage global trade.
Selecting the best paths for the transport mode to follow to minimize travel time or distance
reduces transportation costs and improves customer service. Start with determining shortest
 possible routes based on Transit time, Distance, and Cost.
 38
 

 
*Transport Service Selection

Depends on variety of service characteristics

 Not all service characteristics

characterist ics are of equal importance

Most common bases used for modal choice:

Cost of service

Average transit time (speed)

Transit-time variability (dependability)

Other bases used

Capability

Availability & adequacy of equipment

Availability of service

Frequency of service

Security

Claims handling
Shipment tracing

Problem-solving assistance.

3.2 TRANSPORTATION NETWORK

A transportation network or transportation

transportatio n network is a realization of a spatial network, describing
a structure which permits either vehicular movement or flow of some commodity. Examples are
network of roads, railways, pipes and power lines.

Transportation networks are spatially complex and therefore, difficult to analyse and describe. In
order to make sense out of the great web of worldwide transportation systems, it is necessary to
use graphs and charts to study their characteristics and effects on spatial realities. Transportation
geography graph involves development abstract representations of transportation networks that
consists of points and lines. When creating network graphs, geographers connect points using
lines in order to develop an idealized measure of the structure of actual transportation system.

Transport Network - A Framework of routes between locations, where a permanent track (e.g,
roads, rail and canals), and a scheduled service (e.g, airline, transit, train). Various types of links
 between points along which
whic h movement take place.
 39
 

*Network Structure

1. Ranges from Centripetal to centrifugal

2. Express inequalities between places.

3. Express transport rates.

4. Integration processes impacted on the structure and flows of transportation networks.

*Types of Transportation networks

The network having a common point where loading and unloading takes place for freight
consolidation is called Trans-Shipment points. So most of the transportation happen using the
 below methods as the networks.
net works. The Different types of n
networks
etworks are being used iin
n transporting
transportin g
the goods from point of production to the point of consumption.

1. Point to point network

2. Multiple Delivery points

 40
 

 
3. Nodal Network

4. Hub and Spoke Network

3.3 TRANSPORTATION INFRASTRUCTURE

Transportation has become greater than simply moving product from one location to another.
It is vital to understand the infrastructure of transportation to reach the needs of the customers
at their required time periods. Transportation infrastructure involves:

1.Transport Functionality

2.Transport Principles

3.Transport Participants

1. Transport Functionality

1. Product Movement:

The basic value provided by transportation is to move inventory to specified destinations in the
form of materials, components, work in progress, or finished goods. The performance of
transportation is vital to procurement, manufacturing and customer accommodation. Without
reliable transportation, most commercial activities could not be performed. Transportation
consumes time, financial and environmental resources. Transportation has a restrictive element
 because inventory
inventor y is generally inaccessible
inaccessib le during the transportation
transpor tation process. Advancements iin
n
information technology have significantly improved access to in transit inventory and arrival
status of shipments by providing exact location and arrival times.

2. Product Storage:

Transport vehicles can also be used for product storage at origin or destination, but they are
comparatively expensive in storage facilities. A trade - off exists between using a transportation
vehicle versus temporily placing products in a warehouse. If the inventory involved is scheduled
to be shipped within a few days to a different location, the cost of unloading, warehousing and
reloading the product may exceed the temporary cost of using the transportation vehicle for
storage.

2. Transport Principles

There are two fundamental economic principles that impact the transportation efficiency.

1.Economy of scale
2.Economy of distance

1. Economy of Scale:
 41
 

 
It is the concept of cost per unit of weight decreasing as the size of the shipment increases. For
example, truckload shipments utilizing an entire vehicle capacity have a lower cost than smaller
shipments utilising limited portion of vehicle capacity. Generally, larger capacity transportation
vehicles such as rail and port services are less costly per unit of weight than smaller capacity
vehicles such as trucks and aircrafts. Transportation economies of scale exist because fixed cost
associated with transporting a load is allocated over the increased weight. Fixed costs include

administration related to scheduling, cost of equipment, time to position vehicles for loading or
unloading. Such costs are considered fixed as they don’t vary with shipment size. 
size.  

2. Economy of Distance:

It refers to decreased transportation cost per unit of weight as distance increases. Transportation
economy of distance is also referred as tapering principle. The rationale for distance economies
is similar to that of economies of scale. Especially, longer distances allow fixed cost to be spread
over more miles, resulting in lower per mile charges.

3. Transport Participants

1. Shipper and Consignee:

The shipper and the consignee have a common interest in moving goods from origin to
destination within the given time at the lowest cost. Services related to transportation include
specified pickup and delivery times, predictable transit time, and zero loss or damage, as well
as accurate and timely exchange of information and invoicing.

2. Carriers and Agents:

The carrier performs a transportation service desires to maximize its revenue for movement
while minimising associated costs. As a service business, carriers want to change the customers
the highest rate possible while minimising the labour, fuel and vehicle costs required to complete
complet e
the movement. To achieve this objective, the carriers seek to co-ordinate pickup and delivery
times to group to consolidate many different shippers’ freight into movements that achieve
economy of scale and distance. Brokers and freight forwarders are transport
tran sport agents that facilitate
the carrier and customer matching. Amore recent development has been the emergence of
internet or online brokers that match carrier capacity and shipper requirements.

3. Government:

The government has a vested interest in transportation because of the critical importance of
reliable service to economic and social well-being. Government desires a stable and efficient
transportation environment to support economic growth. A stable and efficient transportation
 42
 

 
environment requires carriers providing essential
essenti al services at a reasonable cost. Because of direct
impact of transportation on economic success, governments have traditionally been very
involved in oversight of carrier practices.

3.4 FREIGHT MANAGEMENT 

To handle or direct with a degree of skill, to exercise executive, administrative and supervisory

direction of the loading and transporting of goods that need to be shipped or transported from
one destination to another resulting in compensation.

Freight Management involves controlling cost, retaining accurate records, in addition to

sustaining warehouse inventory levels.

VEHICLE ROUTING

*Principles for good routing and scheduling

1. Good routing and scheduling minimise the total travel time on the route.

2. Good routing and scheduling minimises the number of trucks needed to serve all stops.

3.Efficient routes begin with the farthest stop from the depot.

4. The vehicle should be large enough to handle all stops in one route.

5. pickups should be made during the course of the deliveries to minimise the amount of path
crossing.

Transportation analysis focuses on the routing and scheduling of vehicles and seeks to optimize
vehicle and driver utilization while meeting customer service requirements. Transportation
decisions can be classified as either strategic or tactical. Strategic transportation decisions are
concerned with decisions like which mode to use, which routes to serve, and the service level to
 be offered and the costs, whereas tactical level transportation decisions are concerned with daily
or weekly routing schedules and allocation of vehicles based on current demand.

The overall objective of transportation analysis and planning is to minimize the combination of
vehicles, kilometres and people required to deliver the products, normally these decisions are
taken at the warehouse or central distribution centre which stocks and delivers the goods. The
decision of routing and scheduling involve the usage of mathematical techniques and well

researched for their applicability. These techniques can be classified into 3 types of approaches.

3.4.1 Heuristic Approach:

 43
 

 
It uses the rule of thumb clustering or savings technique
techn ique to develop routes by sequentially
sequential ly adding
or deleting the intermediate delivery points.

3.4.2 Exact or Optimal Approach:

It uses linear programming to identify the best routes. This makes extensive usage of computer
software programs. The problem with this approach are the large number of constraints and

variables that are needed to represent even the basic routing or scheduling problem and the
impact of this on the computational time and resources. Many companies which are into
distribution intensive businesses like home delivery outlets, retail stores and consumer product
companies have implemented basic routing software. The primary reason for implementing this
software is cost savings. Some of the benefits that can accrue through implementation of routing
software are increased utilization and fleet size reduction, increased productivity, reduction of
human resources, decreased fuel expenses and increased customer service.

3.4.3 Interactive Approach:

It utilizes a combination of simulation, cost calculator or graphics capability to support an

interactive decision process. The decision maker identifies the alternatives for evaluations. The
interactive decision support system then determines plots and calculates the performance
characteristics in terms of time and costs. The drawback of this approach is the dependence on
the skill of the operator as the size and the complexity of the problem increases.

3.5 MODES OF TRANSPORTATION

There are essentially 5 modes of transportation that are used by shippers to reach out the
customers in the supply chain.

•Air Transportation

•Road Transportation

•Rail Transportation

•Water Transportation

•Pipeline Transportation

3.5.1 Air Transportation:

Transportation:

Airways have high fixed cost compared to other modes of transport because of the infrastructure
and equipment involved in its operations. The fuel cost and man power costs are variable and
 44
 

 
depend on the number of trips made. The intension of airlines compared to other modes is to
maximise the flying time of an aircraft and the revenue generated from trips.

Airways offer the benefit of faster delivery but are the most expensive mode of transportation.
They are ideally used for emergency shipments and for movements of high value goods. The
general rule for selecting this mode of transportation is the time sensitivity of the product. Some
of the major air transportation companies are UPS, DHL and FedEx Crucial factors for air
transport is the well-developed airport facilities and infrastructure like ground handling,
connectivity and storage facilities

Transportation:
3.5.2 Road Transportation

It is the predominant mode of transportation of goods in the country and accounts for more than
75% of the total freight cost The trucking industry can be classified based on the size of the
vehicle in operation and the capacity as LTL (Less than Truck Load) and TL (Truck Load) The
TL operators charge based on the full carrying capacity of the truck irrespective of the load
actually carried. The LT operators charge based on the weight carried and the distance travelled.
The major advantage of road transportation is also called to be as trucking, as it as the ability to
offer door to door pickup and delivery. Though this is the most expensive operation compared
to that of railways, its services is more popular
popula r from the fact that it can be easily contracted. The
fixed costs are relatively lower for TL operations. The idle time and the travel distance between
successive shipments add to the costs of operation. The major objective is to minimise the idle
time and get return loads from the destination point reached. The LTL operators cannot assure
the same level of service as a TL operator as they need to pick up multiple
multip le shipments, consolidate
and then transport.

The roads in India can be classified as National Highways, State Highways, District Roads and
Village Roads. The responsibilities for maintenance and up gradation are also split along the
lines between the Central and State Governments. The government has setup a body NHAI for
developing and maintaining the road network. The growth in road traffic has been phenomenal
 because of the
th e increased
increas ed economic
econ omic activities.
acti vities. These results
resu lts in
i n frequent
frequen t congestions,
con gestions, accidents,
and higher turnaround times near check points. As the size of the industry is extremely high,
this mode of transportation would continue to be the backbone of transportation network in the
country. Some of the major operators in India who provide road transportation services are
services are TCI, GATI and ABT etc.

Transportation:
3.5.3 Railway Transportation

This mode of transportation is operated only by the Government in India. But whereas in other
countries there are many private players like Canadian National, CSX Transportation who
 45
 

 
execute operations in North America region. It is used for transportation of high density or high
weight cargo over very long distances in cases where the cargo is not time sensitive. For
instance, this is the dominant mode for coal transportation from mines to thermal power plants
and for transportation of food grains from and to warehouses. The rail transport has a very fixed
cost because of the locomotives and the yards. The trips related expenses like fuel and labour is
independent of the number of wagons but varies according to the distance travelled or time

taken. The focus of the rail transportation operators is to reduce the idle time or waiting time for
the train. The costing of the trail transportation is economical only when large shipments are
transported over large distances. The major issues at rail roads are vehicle and staff scheduling,
track maintenance, repair and availability of empty wagons.

3.5.4 Water Transportation:

Historically, water transport is the earliest form of transportation. It can be classified as,

1.Domestic Water Transportation: This is the transport of goods within the geographical
 boundaries of the country.
cou ntry. These can be further classified
cl assified as

•Coastal Domestic Water Transportation: This involves transport of product through inland
waterways as well as within domestic ports.

•Inland Domestic Water Transportation: This uses the rivers canals and lakes of the country for
transportation of goods.

2.Foreign Water Transportation: This is the movement of goods over water across the domestic
waterways onto the international waterways and boundaries. Water transport constitutes over
95% of the total volumes handled for exports and imports through the ports of India. This mode

of transport is ideally suited for shipment of very large shipments at low cost. It is however the
slowest mode of transport because of the slower in transit, wait time, loading and unloading time
from ships. This is not a feasible option for short distances of products such as food grains,
fertilizers, cement etc. Considering the distance and volume involved this is the most effective
transportation mode.

3.5.5 Pipeline Transportation:

Transportation:

It is primarily used for transportation of crude petroleum, refined petroleum

 products and natural gas. This mode of transport has a high a fixed cost for setting up and

operationalizing the pipeline. These are effective way of transporting liquids and gases when
relatively large flows are required. This mode is used along with other modes to cover for any
fluctuating demand, for instance crude is also transported through ships and also through
 pipelines.
 46
 

 
3.6 MULTIMODAL TRANSPORTATION

Multimodal transportation means using more than one mode of transport during delivery of a
 particular consignment. It is otherwise known as combination of more than one mode
transportation. For example, if a consignment is being transported from China to India by using
a ship i.e. water transportation and after unloading in India, the consignment is forwarded to its
destination either by train or by road which leads to multimodal transportation.

There are some factors that affect the choice of transport mode, but organizations do not have
to use the same mode for the entire shipment. Their best option is often to divide the shipment
mode into different stages and the best mode for each stage. This depends upon the distance
related costs. Shipments that use several modes of transport are called intermodal
inter modal transportation.
The aim of intermodal transport is to combine the benefits of several separate modes, but the
main issue in using multimodal transport is the exchange of information to facilitate shipment
transfers between modes because these transfers often involve considerable delays.

Advantages:

•Provides faster transit of goods.

•Reduces burden of documentation and formalities.

•Minimised costs for shipments

•Establishes only one agency to deal with.

Transportation.
The strategies involved in Transportation

Transportation is a key logistics function of supply chains which runs from suppliers through to
customers or stores. It involves the movement of product, service/transit time, and cost which
are three of five traditional key issues of effective supply chains. It also impacts with the other
two issues of movement of information and integration within and among suppliers, customers
and carriers.

A transportation strategy, to be effective in supply chain management, is fitting the movement

of goods to the corporate supply chain. It is not playing one carrier off against another. Rather
it is a way to respond to the dynamics of the business, its customers, suppliers' and operation.

The strategy, regardless of whether you are involved with domestic or international, should
recognize —  

1.Segment- Each shipment does not have the same priority. Products, suppliers, customers, time
of the year, and other factors can affect the importance and urgency of transport movements.
 47
 

 
The strategy cannot be one-dimensional. It should be segmented to reflect urgencies. That can
mean mode changes and/or alternative carriers.

2. Customer requirements- The supply chain involves continuous and efficient movement of
 product from vendor
vendo r to manufacturer to customer.
custo mer. Therefore,
There fore, the transportation program must
reflect and meet customer needs. The time and service aspects of transportation are vital.

3.Shipments must move timely- Customers demand their shipments be delivered as they require-
require -
-on the date needed, by the carrier preferred, in the proper shipping packaging method and
complete, both shipped complete and delivered complete and in good order. Being able to have
a transportation program with can do this provides customer satisfaction and can give your
company a competitive advantage.

4. Mode selection- How will products move, by air versus surface? What modes will be used?
What roles do transit time play in your supply chain? How will the inventory and service impacts
 be measured as compared to the
t he freight charges?

5. Carrier relationships. -Volume creates carrier/forwarder

carrier/fo rwarder attention. Even if there is no strategy,
the number of carriers trying to get business will make firms develop one. Infrequent shipping
dictates another approach. The carrier attention with volume creates a competitive interest in
your business. But there is another side to this attention as to freight cannot be divided among
many carriers. This cannot be done for two reasons. First, as random, fracturing of the freight
impacts negotiating or leverage position.
positio n. Second, too many carriers hinder the ability to develop
carrier relationships needed to meet supply chain requirements. Developing supply chain
responsive programs be demands effort by both the carriers and shipper. Transportation must
responsive and needs a focus with a carrier--a relationship.

6. Measuring/Metrics- It is important
import ant to know how well the strategy and carriers are performing.
performin g.
This takes two approaches. One is measuring. Measuring means comparing performance versus
agreed standards. What is the actual delivery
deli very to customer performance, on a macro basis, car
carrier
rier
and customer by customer basis? A macro measure can hide a problem even if the overall
measure is good. And, with supply chain management, this means realizing primary customers
and delivery locations. A test of measuring costs is how well the transport spend is being
managed. Transport performance metrics can provide a way to view the value of the spend.

7. Carrier mergers and alliances and closings- This is an important and difficult issue. Firms

should understand what is happening within each mode and align the strategy with carriers who
will still be viable in the future — often
often five years since strategic plans may extend that far. A
great strategy with a carrier who is taken over or goes out of business is suddenly not a good
strategy.
 48
 

 
8.Flexibility/Adaptability.-Change
8.Flexibility/Adaptabilit y.-Change is happening. It is not a question of whether or not it happens.
The only question is how quickly it occurs. The strategy should be able to change. New
customers. New products. New businesses. New suppliers. New corporate emphasis. Each of
these can dramatically impact the strategy. The times they are a changing--and so will the
strategy

3.7 Inter-Modal Operators and Transport Economies

The Intermodal transportation is the use of more than one mode of transport to move shipment
to its destination. A variety of intermodal combinations is possible; 1) rail-truck, 2) Rail-water,
3) Rail-pipeline,4) Truck-air, 5) Truck-water. Not all the combinations are practical. Trailer on
flatcar (TOFC) and Container on Flat car (COFC) have gained acceptance.

1.  Trailer on flatcar (TOFC) or piggyback

Trailer on flatcar stands for transporting truck trailers on rail road flatcars over long
distances. TOFC combines both the convenience and flexibility of trucking and the long
haul economy of rail. The rate is less than for trucking alone. Also rail has been able to share
in some traffic that normally would move by truck alone. The shipper enjoys the benefits of
door to door service over long distances at reasonable rates. These features have made
 piggyback popular.
popula r.
2.  Container on flatcar (COFC)
Under containerised freight, the entire trailer is transported in a railroad flat car. The trailer
may be a container or box in which the freight is packaged or trailers chassis. It permits to
haul only the container in a truck inter-modal
inter-mod al service. The container is a piece of equipment.
It is transferable to all surface transportation modes with the exception of pipeline.
Containerised freight avoids expensive rehandling of small shipment units at the point of
intermodal service. When combined with truck I, containerised freight offers door to door
service. This type of service has gained wide acceptance in international trade.

3.8 CONTAINERIZATION

Containerization refers to physical equipment, which is used for unifying a number of

shipments, which then move as individual units. These are used to handle bulk commodities as
well as merchandise and are especially adaptable for inter model transport. The following are
different choices available for consignor in transportation of containers.

Advantages:

•Reduced door to door shipments.

•Reduced freight costs.

 49
 

 
•Reduced damage and pilferage, thus eliminating handling of packages.

•Better utilization of capital equipment through uniformity of cargo.

Drawbacks:

•Large consumption of terminal space.

•Heavy capital investment in equipment is required.

•This system is not appropriate for air freight.

3.8.1 TYPES OF CONTAINERIZATION

CONTAINERIZATION

1. General Purpose Containers:

They are the freight containers, totally enclosed with a rigid side walls, and floor,
floo r, having at least
one of its end walls equipped with doors and intended to be suitable for the transport of a variety
variet y
of cargoes. It is suitable for the carriage of most types of dry goods, including those packed in

 boxes, cartons, cases, bags, bales, pallets, drums

d rums and adequate loading
l oading - unloading
unloadi ng equipment,
this type of container may also be used for certain types of bulk cargo (dry and liquid).

2. Open Top Containers:

Containers:

Freight container similar in all respect to general purpose container except that it has no rigid
roof but have a flexible and movable or removable tarpaulin cover normally supported on
movable or removable roof bows. These containers are primarily used to carry heavy and or
 bulky finished products, whose handling
h andling and
an d loading
loa ding can only be performed with a crane or a
rolling bridge.

3. Flatrack Containers:

It consists of a floor structure with a high loading capacity composed of a steel frame and a
softwood floor and two end walls, which may be either fixed or collapsible. The end walls are
stable enough to allow cargo securing means to be attached and several flatracks to be stacked
on top of one another. Flatracks are available in 20’ and 40’ sizes . They are many used for over
height or over width cargoes.

4. Refrigerated ISO Containers:

These are temperature regulated shipping containers that always have a carefully controlled low
temperature. They are exclusively used for shipment of perishable substances like fruits and
vegetables over long distances.
 5. Tanks:
50
 

 
Container storage units used mostly for transportation of liquid materials, they are used by a
huge proportion of entire shipping industry. They are mostly made of strong steel or other anti-
corrosive elements providing them with long life and protection to the materials.

  height Containers:
6. Half – 
Half –  height

Another kind of shipping containers includes half height containers. Made mostly of steel, these

containers are half the height of full sized containers.

con tainers. Used especially for goods lik
likee coal, stones
etc. which need easy loading and unloading.

3.9 TRANSPORT ECONOMICS

The factors which influence transport economics are:

1. Distance

This is the major influence on the cost as it is direct contributor to variable costs like labour, fuel
and maintenance. The tapering principle, where the cost curve increases at a decreasing rate as

a result of the distance function is relevant here.

2. Volume

It is viable to consolidate smaller loads into larger loads to take advantage of the economies of
scale.

3. Density

The product density or weight is discussed here, where the product density can be increased
within a truckload for better capacity utilization.

4. Stowability

This refers to the product dimensions and how they affect the vehicle space utilization. It is
easier to stow standard shaped items than odd shaped items, which occupy more space.

5. Handling 

While loading or unloading trucks, railcars, or ships there is a necessity for special handling
equipment like trolleys, forklift trucks, conveyors etc. to load or unload trucks, railcars or ships.

6. Liability

These are product characteristics, which basically affect the risk of damage and the resulting
incidence of claims.
 7. Market factors
51
 

 
Market factors indicate lane volume and balance. A transportation lane refers to the movement
 between the points
po ints of origin
o rigin to destination. When a vehicle
vehi cle is
i s sent from the
th e point
poi nt of origin, it
may return empty handed or may bring back the containers. Due to the imbalances in demand
in the manufacturing and consumption locations,
locations , a balanced (volume is equal in both directions)
move is nearly impossible. It is the responsibility of the logistics mangers to understand the
influence these factors have on the transportation cost and minimize such expenses.

3.10 PACKAGING

Packaging is a tool related to the performance of marketing function. The basic objective behind
 packaging is preventing damage to the product during storage, transportation and handling,
when it is in movement for distribution in the market. It forms an important cost element of
goods and represents 5 – 
5 –   30
30 % of the value of goods, depending upon the type of product. It has
the significant importance on the cost and the productivity of the logistical system. The main
cost elements are purchase of packaging materials, introducing automated or manual packing
operations, and further the need for disposal of materials. A systematic approach is necessary to

manage packing. Any central planning logic, which is designed to control total distribution
costs, must keep in mind the costs related to packaging. The two main types of packaging are,

1. Consumer Packaging

This packaging is done with a marketing emphasis. The packaging design focuses on aspects
like customer convenience, market appeal, shelf utilization, product protection etc. The proper
 package design should have its base on a complete assessment of logistical package
requirements, which requires a complete evaluation of how all the components in the logistics
system influence packaging.

2. Industrial Packaging

The concept of containerization or utilization is where the individual products are grouped into
cartons, bags, bins, or barrels for handling efficiently.
efficientl y. The master cartons are grouped into larger
units for handling, the combination that is referred to as containerization or utilization. Logistical
 packaging is designed
desi gned to meet the distribution
distribut ion objectives. Determining
Determin ing the degree of protection
pro tection
required to cope with anticipated physical and element environment is an important issue in
 package designing.

*FUNCTIONS OF PACKAGING

The various functions of packaging are divided into primary, secondary and tertiary functions.
The primary functions are related to the nature of packaging; secondary functions relate to
 52
 

 
communication. Primary, secondary and tertiary functions are divided into the following sub  –  
functions:

Primary Functions:

1. Protective Function

The protective function of packaging essentially involves protecting the contents from the
environment and vice versa. The inward protective function is intended to ensure full retention
of the utility value of the packaged goods. The packaging is thus intended to protect the goods
from loss, damage and theft.

In addition, packaging must also reliably be able to withstand the many different static and
dynamic forces to which it is subjected during transport, handling and storage operations. The
goods frequently also require protection from climatic conditions, such as temperature,
humidity, precipitation and solar radiation, which may require inward packaging measures in
addition to any outward packaging measures.

The outward protection provided by the packaging must prevent any environment degradation
 by the goods. This requirement is particularly significant in the transport of hazardous materials,
with protection of human being for primary importance. The packaging must further prevent
goods from contamination, damage or other negative impact upon the environment.

The inward and outward protective function primarily places demand upon the strength,
resistance and leak proof properties of transport packaging.

2. Storage function

The packaging materials and packaging containers required for producing packages must be
stored in many different locations both before packaging of the goods and once the package
contents have been used. Packaging must thus also fulfil the storage function.

3. Loading and transport function

Convenient goods handling entails designing transport packaging is such a manner that it may
 be held, lifted, moved, set
se t down and stowed easily,
easil y, efficiently and safel
safely.
y. Packaging thus has a
crucial impact on the efficiency of transport, handling and storage of goods. Packaging should
therefore design to be easily handled and to permit space saving
savin g storage and stowage. The shape

and strength of packages should

sho uld be such that they may be not only be stowed side by side leaving
virtually no voids but may also be stowed safely one above the other.
 53
 

 
The most efficient method of handling general cargo is to make up cargo units. Packaging should
thus always facilitate the formation of cargo units, package dimensions and the masses to be
accommodated should be tailored wherever possible to the dimensions and load carrying
capacity of standard pallets and containers.

When handling is to be an entirely or partially manual, package must be easy to pick up and
must be of a suitably low mass. Heavy goods must be accommodated in packages which are
well suited to mechanical handling. Such items of cargo must be forkliftable and be provided
with convenient load bearing lifting points for the lifting gear, with the points being specially
marked with handling marks.

The loading and transport functions places requirements

requiremen ts upon the external shape of the package,
upon the mass of the goods accommodated inside and upon the convenient use of packaging
aids. The strength of the package required for stowing goods on top of each other demonstrates
the close relationship between the loading and the transport function and the protective function.

Secondary Functions:

1. Sales function

The purpose of the sales function of a package is to enable or promote sales process and to make
it more efficient.

2. Promotional function

Promotional material placed on the packaging is intended to attract the potential purchaser’s
attention and to have a positive impact upon the purchasing decision. Promotional material on
 packaging plays
pl ays a particularly
p articularly important
imp ortant role on sales packaging and
a nd it is directly addressed to
the customer. This function is of subordinate significance in transport packaging. While product
awareness is indeed generated along the transport chain, excessive promotion also increases the
risk of theft.

3. Service function

The various items of information printed on packaging provide the consumer with details about
the contents and use of the particular product.
product . Examples are the nutritional details on yogurt pots
or dosage information on medicines.

4. Guarantee function

By supplying an undamaged and unblemished package, the manufacturer guarantee that the
details on the package corresponding to the contents. The packaging is therefore the basis for
 54
 

 
 branded goods, consumer protection and product liability. These are legislative
legislati ve requirements
which demand that goods be clearly marked with details indicating their nature, composition,
weight, and storage life.

Tertiary Function:

Tertiary function in particular relates to the extent to which the packaging materials or packaging

containers may be reused once the package contents have been used. The most significant
example is the recycling of paper, paperboard and cardboard packaging as waste paper.

3.11 DESIGN CONSIDERATIONS IN PACKAGING

1. Briefing the designer: The person who is designing the package needs to understand the
requirement from the manufacturer. A complete marketing analysis
anal ysis may be given to the designer
or some specific objectives may be provided. The designer needs to list his views about the
 problem.

2. Gathering information about the package: It involves meeting the people in the production
 process, various channel members like
li ke sales personnel, dealers etc. Facts about the packaging
pack aging
materials need to be gathered appropriately.

3. Writing the design platform : The designer gives a report giving details of what he has
understood and what must be done to achieve the objectives he has laid down. The product and
 packaging engineers need
n eed to work together.

4. Creative phase: Here, the creative people are involved. They are given a precise definition
of the problem and a set of objectives to work upon. They are required to find visual solutions
to the problems stated within the boundaries outlined in the platform of design.

5. Consulting suppliers: The appropriate suppliers of materials need to be identified where the
ideas are synchronised with reality. The ideas need to be practical and also cost effective.

presentation: The ideas are presented at a first visual presentation

6. Initial presentation: presentatio n meeting. The client
usually sees the work being done. The designs should be judged in relation to the design
 platform.

7. Modification: Modifications, if any which need to be done after the first presentation should
 be made.

8. Design Testing: To test the package, a number of tests have been developed, few tests are
listed below:
 55
 

 
•Image tests: Using the qualitative and quantitative research to assess consumer attitudes,
 preferences and message
messa ge communicated.

•Usage tests: Examining the functional related attitudes towards packaging and usually involves
in placement tests.

•Visibility tests: They are designed to evaluate legibility of pack graphics, relative impact of

different pack elements, and the relative impact of different designs.

9. Brainwave analysis: It is used for both advertising and package designing. This method is
 based on “Alpha” and “Beta” brainwaves.
br ainwaves.  

10. Final Design Phase: A final meeting with client is held to finalize the design. In this stage
the various aspects of packaging like labels, contents,
contents , colour schemes, artwork on label etc. need
to be finalised.

11. Production Design: The complete designs are presented to the clients for approval. The
design is approved and also set as per the initial discussions concerning the marketing strategy.
Any variance needs to be resolved by consulting the experts in the respective fields.

12. Finishing the job: The finalised artwork is turned over to the suppliers for producing the
 packs.

3.12 PACKAGING COST

The packaging cost depends upon the factors like the nature of product, physical dimensions,
value, regulations etc. Delivery of the product at minimum overall packaging cost is essential.
The following are the costs included in packaging,

1. Unit Package Cost

It defines the basic material or the container price. This will depend upon factors like volume,
freight charges, and methods of over packing and development costs. An increase in volume
attracts lesser price.

2. Operations Cost

The packaging equipment must have the strength and ability

abilit y to withstand the stress of high speed
filling equipment, in order to make the production process cost effective and efficient.

3. Warehousing Cost

The packed product is shipped to user’s warehouse for storage before shipment. Shape of the
 package and strength of the
t he package are the factors
factor s of key importance here.
her e.
 56
 

 
4. Distribution Cost

Moving the product from the user’s warehouse involve several forms of transport. The costs of
these are referred to as transport costs, which are governed either by the weight of the finished
 pack or the volume. They may also depend upon the shipping distance and value of the item
 being handled.

3.13 DIFFERENT TYPES OF PACKAGING MATERIALS

1. Shrink Wrapping

It is a form of packing where a pre  –  stretched

  stretched plastic sheet or bag is placed over platform and
master cartons. Advantages of this packaging are adaptability to various shipment sizes, low
cost and the ease of identifying the contents and damage.

2. Stretch Wrapping

The unit loads wrapped with a tightly drawn external plastic material. Then it is rotated on a

turn table to place the stack under tension. Platform is wrapped directly into the unit load.

3. Aluminium

The main area of usage is foil. These are used as a replacement for beverage cans, stack ability
 being the main advantage.
advantag e. Metal tubes and moulded tra
trays
ys are the two other forms. While metal
tubes are used in pharmaceuticals, crafts, and cosmetics, moulded trays are used in the food
industry.

4. High – 
High –  Density
 Density Plastic Boxes

Containers with lids similar to those purchased for home storage applications. These are rigid
and sturdy, thus ensuring high protection.

5. Plastic Strapping

A load is unitized so that many small containers can be handed as a single large container. The
strapping, which is usually about one to one and a half inch wide, is bound tightly around the
containers.

6. Plastic Foam Dunnage

It is used to pack irregular shaped products into standard shaped boxes. These are light and do
not increase the transportation cost and also provide substantial protection. A major issue here
is the environmental problems related to disposal.
 7. Film Based Packaging
57
 

 
This utilizes flexible materials instead of rigid packaging like corrugated fireboard boxes.
Corrugated fireboard cases represent an important part of the paper and board industry, in terms
of both tonnage and value. Corrugated fireboards are commonly used for television, washing
machines, refrigerators, cigarettes, personal care products, etc. among a host of other products.
The advantages here include automatic operation, reduced labour costs of manually boxing
 products.

8. Blanket Wrapping

A traditional form of wrapping, which is generally used in household packing. The packing is
most suitable for irregular shaped products like chairs, tables and other furniture. Generally
household goods carriers use these services.

9. Returnable Bulk Containers

These are most re – 

re  –  usable
  usable packages like steel or plastics and sometimes corrugated fireboard
 boxes. These are used by automobile manufacturers to pack inter – 
inter –  plant
 plant shipment of body parts.

10. Intermediate Bulk Containers

It is used to granular and liquid product shipment quantities smaller than tank cars but larger
than bags or drums. Resin pallets, food ingredients, and adhesives are packed in these containers.

11. Plastic Pallets

The rapid growth in the utilization of plastics in packaging is noticeable. These are lightweight
and recyclable.

12. Pallet Pools

Third party supplies maintain and lease high quality pallets all through the country. Palletization
has contributed immensely to logistical productivity. Advantages include reduced damage,
lesser costs of disposal, and improved use of pallet resources. The disadvantage is the costly
investment in pallets.

13. Refrigerated Pallets

It is a self-contained refrigerated shipping unit, which can be placed inside a regular dry van as
less than truck load shipment. This integrates the demands of environment and unitization.

3.14 UNITIZATION CONCEPT

Products are grouped together in cartons, bags, and barrels for handling efficiency. The
containers used to group individual products are called master cartons. When the master cartons
 58
 

 
are grouped together, it’s called unitization. The concept of unitization has its 
its   base upon the
theory that all shippers must pack their cargo in such a manner that is moved and handled
entirely by mechanical equipment, like lifts and cranes, all through the distribution network. It
enables faster loading and unloading by transportation equipment results in more efficient
distribution centre operations and also reduced level of pilferage.

According to unit load concept,

•Small, heavy and expensive items are enclosed in containers

con tainers with double or triple walls to avoid
 pilferage and damage.

•The boxes or containers are secured to pallets with shrink – 

shrink  –  wrap
 wrap or steel strapping.

•Large items can be directly secured to pallets, with assurance that they are completely protected
from damage.

Palletization for Unitization:

Pallets enable unifying dry cargo loads.

load s. Basically, it is a flat tray open which a lot of articles can
 be placed, and can be handled as one article For securing the articles to the pallets, metal
strapping, plastic films or more elaborate forms of devices are used. Benefits of palletisation
include reduction in time required to load or unload the products from the vehicle, and better
utilization of warehouse space. Other benefits include assembly of individual packages
according to a single customer order, easy handling of pallets for road as well as rail vehicles,
and reduction in the damage during transit and reduced delivery time. A drawback can be the
lack of uniformity in pallets.

S.no Consumer Packaging Industrial Packaging

1. Packaging design for consumer Design for handling convenience and
convenience , marketing and  protecting during transportation
trans portation
display purpose.

2. It has main emphasis on Main emphasis on transportation, shorter

marketing. and more direct approach.
3. Less technical expertise More technical expertise.
4. Less exchange of information The activities rely on information and
and less interaction with direct contacts.
consumers.

*Questions for Exam

PART-A QUESTIONS

1.  Define transportation.

 2.  What is meant by Freight Management?
59
 

 
3.  Enumerate the challenges related to vehicle routing.
4.  Can you list the various mode of transportation?
5.  Identify the Industrial packaging and discuss about its significance.
6.  What is meant by Vehicle Routing?
7.   Name the types of packaging.
8.  Distinguish between Consumer and Industrial packaging.
9.  Write short note on containerization.
10. What is piggyback?
11. Explain the term Intermodal transport.
12. Define Unitisation.
13. Explain the factors which influence the design of packaging.
14. Give the risk involved while going for industrial packing system
15. Explain the term packaging.
PART-B QUESTIONS

1.  What is Transportation system? Discuss its functions in Logistics Management in

Detail.
2.  Explain Transportation distribution channel structure in detail give suitable example?
3.  Bring out the factors affecting transportation decisions in detail.
4.  Explain the concept of Intermodal operators in detail.
5.  Explain how vehicle routing and scheduling done in all modes of transportation.
6.  Discuss about the important packaging and design consideration and material
cost of it.
7.  Point out the benefits of consumer and Industrial packaging.
8.  How do you explain the concept of unitization
unitizati on used by the companies in India.
9.  Discuss the importance of containerization in detail.
10. Brief the different types of packaging.
PART- C QUESTIONS

1.  In the 21st century firms are focusing upon the logistics pipeline to meet their customer
need for shorter lead times or response times. How can warehousing help firms to
achieve quicker response time?
2.  “Location of warehouse is a vital one for retail business”
busines s” -
 - discuss.
3.  “Transportation is a key decision area within the logistics mix”-
mix” - Elucidate this
statement.
4.  How is the problem of routing a vehicle through a network is solved?
 60
 

 
UNIT-4

Performance Measurement and Costs

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

4.1. Performance Measurement

Logistics is a key corporate leverage point for simultaneously increasing shareholder and
customer value. However, the formal links between logistics performance, cost, and value are
not yet well defined. Productivity translates into operating and capital cost reductions and
increases shareholder value. Improve your logistics performance in customer service, fill rate,
response time, inventory turns, receivables, transportation efficiencies and warehousing.

The Logistics performance should be Monitored continuously to ensure efficient use of

resources and financial control. Control can take place at technical, tactical and strategic levels.

*Objectives of Performance measurement

The three objectives for developing and implementing performance measurement systems
include,

1.  Monitoring: It measures and track historical logistics system performance for reporting to
customers and management. Typical monitoring measures include service level and
logistical cost components.
2.  Controlling: To track ongoing performance and are used to refine a logistical process in
order to bring it into compliance when it exceeds control standards.
3.  Directing: They are designed to motivate the personnel. For example, ‘pay for performance’
 practices are used to encourage warehouse and transportation personnel to achieve higher
levels of productivity.

*Need for Performance Measurement in Logistics

1.Evaluate and compare the performance with other companies effectively.

2. To develop standard metrics for measuring performance.

3. Enables to Identify and pursue specific competitive advantage.

4. Encourage continuous improvement.

5. Provide information to management and create accountability.

For example, the performance of the transportation is measured by cost, speed and consistency
in the service. Similarly, in the logistics industry the performance measurement strategy is,

1. Cash flow- Money that generated through strategy

2. Savings - Profits form business

3. Return on investment- Annual savings form the strategy to the Investment

 61
 

 
*Performance
*Performance Measurement in the functional perspective
perspective given by,
1. Cost - Which includes Total cost, Cost of Damage, Cost of back order.
2. Customer service- Fill rate, stock outs, Complete orders, Delivery Consistency.
3. Quality- Damage frequency, Number of credit claims, Number of customer returns.
4. Productivity- Unit shipped, Equipment downtime, orders per sales.
5. Asset Management- Inventory Turns, Return on Investment, ABC (Classification)
6. Comprehensive metrics- Cash to cash cycle, inventory, Dwell time, Total SCM cost, On-
Time in shelf present.
*Dimensions for the performance measurement
1. Price/ cost dimensions
2. Product/ quality dimensions
3. Logistics dimensions
4. Organisational dimensions.
The six dimensions of country performance measured by the logistics performance index,
- efficiency of the clearance process
- quality of trade and transport infrastructure
- Ease of arranging competitively priced shipments
- Logistics competence and quality of logistics services.
-Ability to track and trace assignments.
-Timeliness of shipment delivery.
*Typical logistics activity based measures (Example)
1. order entry time per order
2. delivery time per order
3. order selection time per order
4. inquiry time per order
5. order entry time per customer
6.order selection time per customer
7. delivery time per customer
8. order selection time per product
9. delivery time per product.
*Levels of Measurement
1. Direction-  It is concerned with information flow and measurement with execution of the
operational plan. At specified time intervals, all transactions and documents are combined in a
series of status report. The status reports summarize the individual activities and their ability to
meet expected transaction requirements.
2. Variation- The variation measurement is concerned with accumulated deviations from plan.
 Managerial Discretion concerning resource allocation initially occurs at the variation level.
62
 

 
3.Decision- Decision measurement is concerned with modifications to the operation plan.
Exceptions or problems that have materialised at the direction and variation levels require a
reappraisal of the original operation plan.
4. Policy- Policy measurement involves a change in objectives. Formulation of new policies
requires an evaluation of the planned system design as well as the total cost of achievements.

4.2 INTERNAL AND EXTERNAL PERFORMANCE MEASURMENT

MEASURMENT
Internal performance  measures focus on comparing activities and processes to pervious
operations and or goals. For example, customer service might be compared to last periods actual
 performance as well as to this periods
period s goal. Internal measures
measur es are commonly utilized
uti lized because
becau se
management understands the sources of information
info rmation and it is relatively easy to collect. Research
suggests that logistics performance measures can be generally classified into these categories.
1)Cost, 2) Customer service, 3) Productivity, 4) Asset management, and 5) Quality.

External Performance Measurement are also necessary to monitor, understand, and maintain

a focussed customer perspective and to gain innovative insights from other industries. The
topics of 1) customer perception measurement- is done through surveys and their logistical
 performance is measured
meas ured and 2) Best practices benchmarking  –  this
  this approach compares their
operations to those of both competitors and leading firms related to logistics industry.

*Systems in Performance Measurement

 63
 

 
The system to explain the best about the performance measurement in the logistics
logisti cs is represented
through a Logistics score board.

The logistics scoreboard is an Integrated set of performance measures falling into the following
general categories:

1. Logistics financial performance measures (e.g- Expenses and Return on Assets)

2. Logistics Productivity measures (e.g- Orders shipped per hour, and transport container
utilization)

3. Logistics quality Measures (e.g- Inventory accuracy, shipment damage)

4. Logistics cycle time measures (e.g- in transit time and order entry time)

(Refer Balance score card, ABC, and SCOR Model)

4.3 Logistics Audit

In a logistic audit (potential analysis / logistic due-diligence) the current logistic system and its
services are compared with the requirements. In particular,
part icular, the performance of the processes and
structures are checked. The purpose is to identify
ident ify possible routes of failure and spheres of action
for improving the quality and performance of the logistics system in general, and the logistic
 processes in particular. The procedure is done in five steps: requirements analysis; performance
perfor mance
analysis; process analysis; structural analysis and benchmarking.

*Objectives

The objectives of a logistic audit are:

•To point out the weaknesses of the logistic system and/or its subsystems.

•To estimate the impact and potential for performance improvements.

•To identify and demarcate the largest potential areas for improvement
Logistics Field Audit methodology is an effective management tool, widely used by the leading
companies in the world. It ensures significant cut of time period between gaining objective
assessment of company’s logistic system functioning, developing of recommendations,
introducing innovations. It is all achieved via involvement of auditors into the supply chain
management process.

*The logistics audit procedure

1. Preliminary observation of company’s operations. 

operations. 

2. Positioning supply chain strategies to corporate objectives.

3. Negotiation on the LFA Service Agreement and involvement of logistics-auditors within the
supply chain management process.
 64
 

 
4. Logistics Field Audit process(LFA)

5. LFA reporting- LFA analysis and conclusion.

6. Implementation.

7. Post-implementation audit.

4.4 Total logistics cost-  – 

–  Concept,
 Concept, Accounting Methods. Cost – 
Cost –  Identification,
 Identification, Time Frame
and Formatting.
Formatting.

Total logistics costs consider the whole range of costs associated with logistics, which includes
transport and warehousing costs, but also inventory carrying, administration and order
 processing costs. Administration and order processing costs are relative to the total volume
 being handled.
h andled. However, for the
th e same volume being
b eing handled
hand led transport
tr ansport and warehousing costs
will vary according to the distribution strategies being adopted. The above graph portrays a

simple relationship between total logistics costs and two important cost components; transport
and warehousing. Based upon the growth in the shipment size (economies of scale) or the
number of warehouses (lower distances) a balancing act takes place between transport costs and
warehousing (inventory carrying) costs. There is a cutting point representing the lowest total
 65
 

 
logistics costs, implying an optimal shipment size or number of warehouses for a specific freight
distribution system. Finding such a balance is a common goal in logistical operations and will
depend on numerous factors such as if the good is perishable, the required lead time and the
market density.

*Transportation
*Transportation Rates

In transportation industry, cost of service are related to the shipment size. Shipments in high
volumes are transported at lower rates.

A) Volume related rates:

1.  First rates quoted depend directly on the quantity shipped.
2.  Small shipments result in very low revenue for the carrier.
3.  Shipment sizes may be equal or may exceed the designated vehicle load quantity. These are
charged at vehicle load rate.
4.  Freight classification permits some allowance for volume. Regular rates for products
shipped at lesser volume and special rates are quoted for shipment in high volume.

B) Distance related Rate:

Rates are function of distance. Rates are either invariant with distance or varying directly with
distance. Rate structures lying between these two extremes
ex tremes may be of uniform rate, proportional
rates, tapering rates and blanket rates.

C)Demand related rates

 66
 

 
Demand for the services availed dictates the rate levels for the logistics. The shippers own
economic circumstances and available alternative transportation services suggest the value of
transportation service to a shipper.

*Transportation
*Transportation prices

Transportation prices can be classified into line haul services and special services.

1.Line Haul Services: Line Haul rates stand for the charges incurred between origin and
destination terminals, or door to door in the case of truckload motor carrier services. The line
haul rates are determined by 1) product, 2) shipment ,3) route and 4) miscellaneous rates.

2.Special services charges: Special service charges are for additional services such as terminals
services, stop off services and detention of carrier equipment. The special service charges are
included in the freight bill over and above line haul charges. They are classified into,

1. Special line haul services- Diversion and Reconsignment, transit privileges, protection and
interlining.

2. Terminal services- Pickup and delivery, switching and Demurrage and detention.

*Questions for Exam:

PART- A

1.  Define Performance Measurement.

2.  State some needs of Performance measurement.
3.  Give few objectives of performance measurement.
4.  Define logistics Audit.
5.  What are the levels of logistics performance?
6.  Give the elements of internal performance measurement.
7.   Name the types of Operating Cost.
8.  Give the concept of Customer Perception.
9.  Explain the factors which influence the External measures.
10. What is meant by Line haul services?
11. List down the difference of inbound and outbound logistics.
12. Specify the objectives of logistics audit.
13. List the dimensions of performance measurement.
14. What are the cost involved in logistics?
15. How would you arrive the cost of logistics?
 67
 

 
PART-B

1.  What is Performance Measurement? Discuss its functions in logistics management in detail.
2.  Explain Logistics Audit? Discuss them briefly.
3.  Bring out the factors affecting Logistical performance measurement system in a courier
company.
4.  Brief the levels of performance measurement in detail.
5.  Discuss the various elements of Internal Performance measurements and External
 performance measurements.
6.  What is the purpose of activity based costing?
7.  Sketch the steps in logistics audit/ procedure followed in Audit.
8.  Brief the cost associated with Logistics.
9.  Discuss the transportation rates and its classifications.
10. Explain the major cost elements of Logistics system
PART-C

1.  “Performance Measurement system tracks the health of the logistics

logistics process”. Explain. 
Explain. 
2.  Differentiate between the effectiveness of traditional costing and activity based costing
methods in the context of logistics costing.
3.  Explain how costing methods can help managers to manage and control logistics cost.
 68
 

UNIT-5

CURRENT TRENDS

Logistics Information Systems  –   Need, Characteristics and Design. E-Logistics  –  
Structure and Operation. Logistics Resource Management eLRM. Automatic
Identification Technologies. Reverse Logistics  –  Scope,
  Scope, design and as a competitive
tool. Global Logistics  –   Operational and Strategic Issues, ocean and air
transportation.
transportation. Strategic logistics planning. Green Logistics

5.1 Logistics Information system(LIS)

LIS is defined as the application of technology and information to enable logistics

managers to manage information electronically. The Information flow is the key element in
logistics operation. Thus the electronic movement of information offers better and speedy  
information to customers on time.

The logistics information includes customer and replenishment orders, inventory

requirements, warehouse work orders, transportation documentation and Invoices.

*Characteristics of LIS 
Characteristics

1. Availability:  Logistics information must be readily and consistently available. Rapid

availability is necessary to respond to customers and improve management decisions.

2. Accuracy: The information must accurately reflect both current status and periodic activity
activit y
for measures such as customer orders and inventory levels.

3.Timeliness: It refers to the system status, such as inventory levels as well as management

controls, such as daily or weekly performance reports.

4. Flexibility: It must contain the capability to be flexible in order to meet the needs of both
system users and customers.

5. Format: Logistics reports and screens should be appropriately formatted, that they contain
the right information in the right structure and sequence.

* Linking logistics into an integrated

integrated process

Logistics information systems link logistics activities into an integrated process. The
integration builds on four levels of functionality,

69
 

1.  Transaction- It is the most basic level which initiates and records individual logistics
activities. It is characterised by formalised rules, interfunctional communications and
an operational day to day focus.
2.  Management control-This focuses on performance measurement and reporting. It is
characterised by evaluative, tactical and intermediate term focus.
3.  Decision analysis- It focuses on decision applications to assist managers in
identifying, evaluating, and comparing logistics tactical alternatives.
4.  Strategic planning systems- It is the final level of functionality focuses on information
support to develop and refine logistics strategy.

*Logistics Information system (LIS): It consists of the hardware, software and people
throughout a supply chain that gather, analyse and execute upon information. This LIS allows
manager to make decisions to improve the supply chain performance.

70
 

Benefits of LIS

1.The information provided will be accurate.

2.Information is accessible in timely manner.

3.Information can be shared and used for decision making.

4.Track the performance and movement of goods.

5.The decision making will be faster and helps for quick delivery of materials.

5.2 E-Logistics structure and Operation

Operations include the information activities required to receive, process and ship
customer orders and to coordinate the receipt of purchase orders. Operations components
are,

1.  Order Management: it is the entry point for customer orders and inquiries. It allows
entry and maintenance of customer orders using communication technologies such as
mail, phone, fax or EDI.

71
 

2.  Order Processing: Order processing assigns or allocates available inventory to open
customer and replenishment orders. Allocation may take place in real time basis as
orders are received.
3.  Distribution operation: It incorporate LIS functions to guide distribution centre
 physical activities including product receipt, material movement, storage and order
selection. It is often referred as warehousing system or inventory control.

Transportation and Shipping: LIS function is to plan, execute and manage transport
4.  Transportation
and movement activities of the goods. These activities include shipment planning and
scheduling, shipment consolidation, Transport document generation and carrier
management.
5.  Procurement:   procurement manages purchase order preparation, modification, and
release, in addition to tracking vendor performance and compliance.

5.3 REVERSE LOGISTICS

Reverse logistics is the process of moving goods from their typical final destination
for the purpose of capturing value, or achieving proper disposal to the satisfaction of
the customer or consumer.

*Reverse Logistics Activities

1.  Handling of returned merchandise- Damage, seasonal inventory, resell, salvage of
outdated products.
2.  Recycling and reuse- Material use, remanufacturing/ refurbishing
3.  Hazardous materials disposition.
4.  Refilling.

*Reverse logistics as a Competitive Tool

To remain competitive and differentiated, the organisation across the world are showing
speed and reliability in service offering such as,

1.  Replacing defective goods

2.  Repairing of used products
3.  Refurbishing the returned products
4.  Calling back sub-standard or harmful goods
5.  Disposing
Disposing – 
 – off
off product waste

These services add to the competitiveness of an organization. Operating in a regulatory

environment and create customer value by providing a clean environment through reverse
logistics service without any extra cost to the customer .

Logistics model in Digital India

72
 

5.4 Advanced Technologies
1.  Electronic Data Interchange (EDI)
EDI is intercompany computer to computer exchange of business documents
documen ts in standard
formats. It is communicating the information between two organisation electronically.
2.  Communication technology
The information technology enhances the logistics performance through faster and
widespread communication using Radio frequency, Satellite communication and image
 processing technology.
technolo gy.
3.  Automatic Identification systems
Bar   coding and electronic scanning are identification systems used in logistics. They
facilitate logistics information collection and exchange. This identification system need
huge capital investment for users .
4.  Supply chain software systems.
systems.
5.  Artificial Intelligence or expert system.
AI and expert systems are information based technologies. They are a group of
technologies aimed at making computers imitate human reasoning. These expert
systems are concerned with symbolic reasoning rather than numeric processing.

5.5 GREEN LOGISTICS

73
 

Green logistics, in the context of humanitarian logistics encourages all stakeholders

stakehold ers to consider
the impact of their actions on the environment. The main objective of Green logistics is to
coordinate the activities within a supply chain in such a way that beneficiary needs are met at

"least cost" to the environment. It is a principle component of reverse logistics. In the past
“cost” has been defined in purely monetary terms, whereas "cost" can now also be understood
as the external costs of logistics associated with: climate change, air pollution, dumping waste
(including packaging waste), soil degradation, noise, vibration and accidents.

74
 

Green logistics describes all attempts to measure and minimize the ecological impact of
logistics activities. This includes all activities of the forward and reverse flows of products,
information and services between the point of origin and the point of consumption.

5.6 E-logistics  is the logistical process that governs everything related to the online
marketplace. It is a relatively novel concept. It is a dynamic set of communication computing
and collaborative technologies that transform key logistical processes to be customer-centric
 by sharing data, knowledge and information with supply chain partners. It helps in coping with
newly arising logistics challenges. The key elements of e-logistics are multi channel operation,
cross border functionality, warehouse layout and inventory, planning and forecasting and
 performance management.
man agement. Success in e-logistics
e-lo gistics depends
d epends on the focus
focu s selected for the online
shop. Proper collaboration, transparent communication
communic ation with customers for delivery and returns
are the other key factors that determines the success of e-logistic.

Process involved in e-logistics: -

1)Method of payment

2)Check product availability

3)Arrange shipments

4)Insurance

5) Replenishment

6)Contact with customers

7)Returns

Eg- HCL e-Logistics system

75
 

*Logistics Resource Management

Logistics resource Management is a supply chain management component that is used to meet
customer demands through planning, Control and implementation of the effective movement
and storage of related information, goods & services from origin to destination. The entire
operation is now easily handled using the E-Logistics.

5.7 Strategic Logistics planning:

5.8 GLOBAL LOGISTICS

Global logistics operations must accommodate all domestic requirements and also deal with
increased uncertainties associated with distance, demand diversity and documentation. The
global logistics operations increase logistics cost and complexity.

The operating challenges faced by global logistics system vary significantly within operating
regions. The north American logistics vision is one of open geography with extensive demand
for land-based transportation and relatively limited need for cross-border documentation. The
European logistician, on the other hand, views operations from a perspective characterized by
relatively compact geography involving numerous political, cultural, regulatory, and language
 barriers. The Pacific rim logistician has an island perspective
p erspective that
th at requires extensive water or
air shipment to transcend vast distances. These different perspectives require logistics
managers who operate globally to develop a wide variety of capabilities and expertise. In order
to allow manufacturing and marketing scale economies to support market growth, enterprises
are developing global logistics expertise. The extended global capabilities must include

76
 

international transportation, cultural diversity, Multilanguage capability and extended supply

chain operations.

*Forces Motivating Globalisation

1. Economic growth

2. Supply chain perspectives

3.Regionalisation

4. Technology

5. Deregulation- Financial and transport deregulation

*Barriers to Global Logistics

1. Market & Competition- Entry, Information, Pricing and competition  

2. Financial Barriers- forecasting, Institution deficiency 

channels –  Infrastructure and Trade restraints  

3. Distribution channels – 

*The Global Challenge

Firms desiring  to expand globally need to assess the balance of forces that encourage such
activity and the barriers they must overcome. Increasing international trade requires logistics
managers to develop both a global awareness and a global perspective. Managers must be
aware of the aforementioned logistics barriers, consider alternative solutions, and have the
insight to apply them in non-Traditional environments.

While logistics principles are the same domestically and globally, operating environments are

more complex and costly. Cost and complexity are represented by the fur D’s - Distance,
more
Diversity in culture, Documents and Demands for customers. Distances are longer.
Documentation is more expensive and time consuming. Customer demand variation in
 products and services to satisfy the cultural differences, within both countries and regions.
Developing strategies and tactics to respond to the four D’s environment is the global challenge
for logistics management.

*Questions for Exam

PART- A

1.  Define Logistics Information Systems.

2.  List some needs of LIS. 

77
 

3.  Write some characteristics on LIS. 

4.  What is meant by Logistics Resource Management?
5.  Write short note on E-Logistics.
6.  Differentiate between Domestic and Global Logistics.
7.  What are the reasons for Reverse Logistics?
8.  Define Reverse Logistics.
9.  Mention the different advanced technologies used in Logistics.
10. Give some advantages on E-logistics.
11. How would you show your understanding of Green Logistics?
12. Define Global Logistics.
13. What are the drivers of green logistics?
14. What are the benefits of Global Logistics?
15. Can you list the levels of E-Logistics structure and operation? 

PART-B 

1.  Elucidate the need and development of logistics information system in detail. 
2.  Draw and Explain Logistics Resource Management.  
3 .   Bring out the levels of Logistics Information systems in detail.
4.  Discuss the various E-Commerce logistics
lo gistics softwar
softwaree applications.
5.  What is your opinion of E-Logistics structure and operations?  
6.  Brief on global logistics.
7.  Define Role of green logistics in supply chain.
8.  How would strategic marketing planning apply to green logistics initiatives?  
9.  What dimensions of an internal and external environment might be affected by green
supply chain initiatives? 
10. Discuss on the concept of Reverse logistics with an example.
PART-C

1.  ‘E
‘E--LRM has improved the logistics operation in India’-
India’- Justify your answer with proper
example.
2.  Explain how “Green Logistics” strategies can be tuned to a product life cycle approach
adopted by companies.
3.  Elucidate the Strategic issues faced in global logistics.

78
 

M.B.A DEGREE EXAMINATIONS, APRIL/MAY 2019

BA 5025-LOGISTICS MANAGEMENT

(Regulation 2017)

Max marks:100

Answer all questions.

PART-A (10*2=20)

1.Define Logistics

2. Write any wo objectives of Logistics.

3. What is the role of Logistics?

Logistics?

4. What do you mean by logistics outsourcing?

5. What is vehicle routing?

6. Define Industrial packaging.

7. What is the need for performance measurement?

8. Define logistics Audit.

9.What is the use of Logistics information system?

10. What do you mean by green logistics?

PART-B (13*5=65)

11.(a) Explain the various customer service attributes in logistics system.

Or
11.(b) Describe the Value added Logistics service in detail.

12.(a) Define the term distribution channel. Discuss the difference between primary and
secondary channel participants.

Or

12.(b) Describe the various criteria used for selecting the service provider.

13.(a). Discuss the importance of containerization in detail

Or

13.(b) Explain the various mode of transportation and state its merits and demerits.

79
 

14.(a) Discuss in detail about the internal and external performance measurement.

Or

14.(b) Explain the major cost elements of Logistics system.

15.(a) Describe the desired characteristics of LIS.

Or

15.(b) Write short note on:

i) E-Logistics

ii) Reverse Logistics

iii) Global Logistics.

PART-C (15*1=15)

16(a) What are the important logistical concerns during the introduction stage of the products

life cycle, during the growth, during saturation- maturity stage and during Obsolescence-
decline stage?

Or

16(b) “Logistics is the function that is responsible for the flow of materials onto, through and
out of an organisation”, Elaborate. 
Elaborate.  

80
 

CASE STUDY ON LOGISTICS MANAGEMENT

MANAGEMENT

Case study-1

1.Mohini Electronics Ltd (MEL)

The Indian consumer durable industry has emerged strongly. Televisions contribute the

maximum share followed by refrigerators, washing machines and air conditioners.

MEL is an Indian subsidiary of a world-renowned consumer electronic company having a
 presence in 65 countries.
countri es. The Indian company was set up iin
n 1994. Over the last few years, the
consumer electronic division had shown a growth of 26%.

MEL is very aggressive on the new product front. It has so far launched 12 new models in
colour TV and six models in home appliances. MEL was the 1 st  company in the consumer
durable industry to introduce the SCM. The underlying philosophy
philosop hy is that it is good to innovate
on the process rather than functions. A shift was made from “Inventory made  made   to stock” to
“Inventory made to order”. They developed their distribution network for better control on the
customer service and the inventory in the pipeline. MEL has the lowest logistics cost as the
 percentage of sales.

In 1998, due to rapid increase in operations, MEL experienced problems in data storage and
analysis capabilities of the system then in operations. The order cycle time took 40days. There
are multiple information re-entry and updating points. To shorten the order cycle time, MEL
invested in the custom built automated order processing software package and made
modifications in the supporting systems. The new system facilitated online order processing,
resulting in a marked improvement on the customer service and demand management fronts.

Question:

1.  Will the existing logistics system be suitable for volumes and complexity of operations
in future?

Case study-2

2.
2.Dell’s
Dell’s Green Initiatives 
Initiatives 

Green logistics management is a key approach for enterprises seeking to become

environmentally suitable. Greening the logistics means integrating healthy environmental
aspects into logistics activities.
activities . Dell’s logistics teams continued to work collaboratively with
manufacturing and Packaging teams to optimise transport mode utilization. Dell ships, trailers
and containers with higher densities (with more product and less air) contribute to less trial
consumption and carbon emission was also reduced. Dell refined their processes to get better
 pallet build processes and better trailer loading utilisation,
uti lisation, which helped optimise trailer loads.
Furthermore,, in a dell programme called “ready to ride”, Dell standardised
Furthermore sta ndardised the processes within

81
 

manufacturing and fulfilment centres. This ensures that pallets are built and trailers are loaded
to help minimise missing and damaged freight.

For alternative to wood pallets, the logistics, packaging and procurement teams continued their
evaluation of pallets made from alternative materials (nonwood). There are numerous reasons

to use a foam or plastic pallet as a means to ship products especially those that are shipped
using aircraft. Heres weight reduction and reduced logistics costs are the most significant
reasons. And most exciting aspect from a green perspective, the pallets are reusable and
recyclable.

In addition, they worked on paper reduction in packaging processor. Dell reduced the volumes
of paper consumed in the process of shipping the products. They continue to search for new
areas, where the paper usage is totally eliminated.

In the USA, Dell works with customers to explore the possibilities of a ‘packing take back’

 programme to retrieve packing

pa cking and shipping at the customer’s location after delivery. 
delivery.  
Dell logistics team has made efforts to optimise the reverse logistics process. Dell has
centralised many of its products return functions into single facility in the USA to improve the
recycling process for systems and packaging materials. In the logistics process, Dell ensures
that its transportation and logistics partners are totally committed to the environment. The
 partners meet and exceed these requirements by engaging in initiatives such as voluntarily
complying with the standards of ISO 4001 and the usage of fleet optimisation and energy
efficiency technologies.

Questions
1.  Has the objective of green logistics to meet beneficiary needs at least cost to the
environment, is met in Dell?
2.  As a logistics manager do you
you advocate Dell’s efforts towards reverse logistics process? 
process?  

Case study-3

3.  Value added Logistics Services by Safe express

A reputed Indian logistics service provider, safe express renders the following value added

services to their clients.

82
 

Draft on Delivery (DOD)

The seller can dispatch goods through safe express to the buyer and be assured that the delivery
would take place only when the draft has been collected. Pre-alerts are sent to the consignee
allowing reasonable time for the draft to be made. Thus, it meets the desired objective of

express transit with the amount ready for collection.

Safebox

This is the readymade packaging solution. It provides added safety and security to the valuable
cargo moved by surface and air modes of transportation.
transpor tation. The safe box comes in two convenient
sizes; 17” *17”*12” that carries upto 20kg of cargo and the 16”*12”*9” meant to carry upto
10kg of air cargo. Besides, the safe box comes with free auto insurance as part of the package.
The robust design is further reinforced with internal insulation for safety of the cargo inside.

All Risk cover

Consignment, while in the custody of safe express is subject to the risk charge having been
 paid by the sender or the recipient as per the common policy. T
The
he amount corresponding to the
loss as declared would be paid by the company
compan y to the sender or the recipient as required without
waiting for any request for the same.

*Questions

1. How does the value added services rendered by safe express vary from traditional methods?

2. Is safe express justified in providing some extra services to clients in addition to usual
logistics services so as told value to their services?

Case study-4

4. India-Automative Logistics Packaging 

Trans India freight services  private limited

limite d is an Indian arm of All cargo global
glob al logistics.
logisti cs. It
has designed on 40 feet equivalent unit high cube containers for transportation of cars. These
containers will be moved on rails. At present, about 90% of car transport operations are carried
 by roadways and the remaining by railways. The road sector for car is fragmented. On road the
speed of the carrier is 20-40km/hr. Night travel is avoided. For example, for Delhi to Mumbai
it takes 6 to 9 days, which results in holding up of inventory. Multiple handling results in 10%
of the cars getting damaged during transportation. The new logistical packaging for car
transportation on rail would reduce transit time as well as damages in transit. Initially, the cost

83
 

of transportation will be comparable to road transportation. But with full-fledged operation, the
cost will come down by 5%. With double stacking cost reduction will be by 20%. In the new
 packaging system, the cars placed on to “Transrak” which is simply
simpl y a fixed frame system. It is
fitted into 20ft, 40ft,45ft,53ft and pallet wide ISO containers ensuring safe transportation of
vehicles in containers. It ensures total security in shipping cars directly from the factory to
arrive in perfect condition at destination. The Trans-rak is free from theft, dirt and weathering.
 No knocks or scratches are caused. The trans-rak adjusts for all car shapes and are lifted or
lowered with a hand help drill. A few passenger’s trains were converted into car carriers.
However, the venture was finally unviable because carriers did not
no t get return load. The success
of this packaged transportation depends on the rail infrastructure with dedicated freight
corridors.

*Questions

1. What is the novel packaging solution offered by Trans-India and Why?

2. How does Trans-rak enhance the performance of auto logistical system?

84
 

*Content Beyond Syllabus

1. Shipment Documentation

A) Domestic Freight Transportation

Transportation

lading  –   It is a legal contract between the shipper and the carrier for the movement
1. Bill of lading – 
of designated freight with a reasonable dispatch to a specified destination, delivering damage
free.

2. Freight Bill- The Freight charges appear on a separate document known as freight bill.  

3. Freight Claims- Claims made against carriers arise from carrier’s

carrier’s legal
 legal responsibilities for
loss, damage and delay and overcharges.  

B) International Transport documentation

1.Importing 2.Exporting
1.Arrival notice 1.Bill of lading
2. Customer entries 2. Dock receipt
3. Carriers certificate and release order 3. Delivery instructions
4. Delivery order 4. export declaration
5. Freight release 5. letter of credit
6.special customs invoices 6. consumer invoice
7. commercial invoice
8.certificate of origin

9. insurance certificate
10.Transmittal  letter  

2. Warehouse Management  

A Warehouse is a place to store inventory. Warehouse facilitate direct customer shipment of

mixed products.

*Types of warehouse
 85

1. Public  –   Public warehouse on turn are divided into general merchandise Warehouse,
Refrigerated Warehouse, special commodity warehouses, bonded warehouses, furniture
warehouse and household goods.

2.Private Warehouse

3. Contract warehouse

* Cold Storage Warehouse:

A cold storage warehouse is a warehouse were perishable goods are stored and refrigerated.
Products stored can be food especially meat, other agricultural products, pharmaceutical drugs,
other chemicals and blood. For logistics purpose the Cold storage trucks and containers were
used from origin to destination for reaching the customer.

3. MATERIAL HANDLING 

Material handling is always concentrated in and around a warehouse facility. Specialised

handling equipment is required for bulk unloading such as solids, fluids and gaseous materials.
The objective of the material handling is to reduce handling cost and maximise space
utilisation.

Material handling considerations

considerations

1.  Loading unitisation- Material handling efficiency can be improved by consolidating a

number of small packages into a single load and then handling the consolidated load.
This is known as load unitisation. Palletization, Containerization
2.  Space layout- layout for order picking
3.  Storage equipment choice
4.  Movement equipment choice- manual equipment, power assisted equipment, forklift
trucks, pallet trucks, conveyors, lift trucks, fully mechanised equipment.
 86

QUESTION BANK- 2Marks

1.  Define Logistics.

Logistics is defined as “planning, implementing, and controlling
control ling the physical flows of materials
and finished goods from point of origin to point of use to meet the customer’s need at the

 profit”.  
 profit”. 
2.  Scope of Logistics
1.  Value adding process
2.  Reverse logistics Channels
3.  Penetrating new markets, increasing market shares and profits.
4.  Globalisation of Industries.
3.Example of Logistics firms in world

1.DHL- germany

2.UPS Supply chain solutions- Giorgia

3.Fedex- America

4.SNCF- France

5.Kuene + Nage- Germany

4. Objectives of logistics
logistics

1. Reduction of Inventory

2. Economy of freight

3.Reliability and consistency in delivery performance

4. Minimum damage to products.

5. Functions of Logistics

1. Transportation

2. Inventory Management

3. warehousing

4. Order processing

6. Define Value chain

“A value chain is a set of activities that an organization carries out to create value for its
customers”.  
customers”.
 87

7. Define Customer service

Customer service is a process for providing significant value added benefits to the supply chain
in a cost effective way.

8. SCM

SCM encompasses all activities associated with the flow and transformation of goods from raw
materials stage (extraction), through to the end user, as well as the associated information flows.
SCM is the integration of these activities, through improved supply chain relationships, to achieve
a sustainable competitive advantage.
9. Competitive strategy

It is defined as the long term plan of a particular company in order to gain competitive advantage
over its competitors in the industry, it is aimed at creating defensive position in an industry and
generating a superior ROI.

10. Different strategies followed in Logistics

1. Cost leadership

2. Differentiation

3.Collaboration

4. Diversification

5. Outsourcing.

11.Write short note on the features of channel structure.

1. Information provider

2. Price stability promotion

3. Financing

4.Matchig demand and supply

5.help in production function.

12. Factors influencing Logistics outsourcing 

1. Centrality of the logistics functions to the firm’s core competency 

competency  

2. Risk liability and control

 88

3. information and communication systems

4. market relationships

13. Transport Economics

Transportation economics is the study of the allocation of transportation resources in order to

meet the needs of a society.

14. Distribution channel members

Zero level Manufacturer - Consumer

First Level Manufacturer- Retailer- Consumer
Second Level Manufacturer- Wholesaler- Retailer-
Consumer
Third Level Manufacturer- Wholesaler-Jobber-
Wholesaler-Job ber- Retailer-

Consumer

15. Role of Logistics

Logistics is the art and science of obtaining, producing and distributing material and product
in the proper place and in proper quantities.

This involves management of,

1.  Order processing

2.  Warehousing
3.  Transportation
4.  Material handling
5.  Packaging.

16. Outsourcing

Outsourcing means that a firm hires an outside firm to perform an operation rather than
executing the operation within the firm. Outsourcing means that the supply chain function is
 performed by a third party

17. Reasons for Outsourcing

 89

1.A third party aggregates demand across the multiple firms and gain economics of sale in
 production.

2.A third party aggregates inventories across a large number of customers.

3.A third party aggregates the transportation function to a higher level than any shipper on its
own.
4.A third party aggregates procurement for many small players and facilitates economies of
scale in production.

5.A third party provides for lower costs and higher quality.

18. 3PL VS 4PL

S.No 3PL 4PL

1 Specialize in the operational element Manages all the activities of supply

of supply chain management. chain.

2 Targets a single function Manages the whole process,
sometimes even the 3PL.
3 Major activities include Major activities include
Warehousing, Transportation and Consultancy, Storage, Distribution,
Packaging.  processes.
4 Focused on day to day activities. Focused on optimizing supply chain.

19. Selection of Service provider

1.Manufacturer storage with direct shipping

2.Distributor storage with carrier delivery
3.Distribution storage with customer pick up
4.Retail storage with customer pick up

20. What is 4PL.

4PL is defined as a general contractor who manages other 3PLs, truckers, forwarders, custom
 brokers and other
o ther engaged
en gaged in a complete process
p rocess for
f or the
th e customer.
custo mer. A 3PL targets a function
fun ction

while 4PL targets the management of the entire process

 90

21. What is logistics Management?

Management?

It is the part of supply chain management 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 in order to meet customers

requirement.

22. Benefits of Outsourcing

Outsourcing

• Outsource your non-core

non-core activities and spend more time concentrating on your core business
 processes.

• Offshoring gives you access to professional, expert and high-quality

high -quality services.

• Your organization can experience increased efficiency and productivity in non-core

non -core business
 processes.

• You can streamline your business operations. 

operations.  

• Offshore
Offshore outsourcing can help you save on time, effort, manpower, operating costs and
training costs, giving you overall cost advantage.

• Outsourcing can make your organization more flexible to change. 

change.  

23. Inbound Vs Outbound Logistics

Comparison Inbound logistics Outbound logistics
Meaning The influx of raw material and The outward movement of
 parts, from supplier to the final goods, from the
manufacturing plant is known company to the end user,
as inbound logistics is known as outbound
logistics
Related to Material management and Customer service and
 procurement channel distribution
Interaction Between supplier and firm Between firm and
consumer.
24. Value Added service in Logistics
Value added service is an industry term referring to non-core services. Examples in logistics
include packaging services or the pickup of the goods from the customer premises. The value
added service in logistics will improve the customer service while mitigating Inventory and
Transportation costs.
25. Type of Intermediaries
Intermediaries in distribution channel.
 91

1. Wholesalers
2.Commercials
3. Retailer
4. Agents
5. Brokers
26. Define Transportation.
Transportation.
Transportation refers to the movement of products from one location to another. Transportation
starts its journey from the beginning of a supply chain and finally weaves its way through various
stages till reaches the customer. Transportation allows the products to move across the global
network.
27. Different Modes of Transportation  

1. Air 2. Water 3. Truck 4. Rail 5. Pipelines and 6. Inter-modal.

28.Transport service selection 

Cost of service

Average transit time (speed)

Availability of service

Frequency of service

Security

Claims handling

Shipment tracing

Problem-solving assistance.
29. Transportation network

A transportation network or transportation network is a realization of a spatial network, describing

a structure which permits either vehicular movement or flow of some commodity. Examples are
network of roads, railways, pipes and power lines.

30. Types of Transportation networks

1.Point to point network

2. Multiple Delivery points

3. Nodal Network
 92

4. Hub and Spoke Network

31. Freight Management

To handle or direct with a degree of skill, to exercise executive, administrative and supervisory
direction of the loading and transporting of goods that need to be shipped or transported from one
destination to another resulting in compensation.

32. Inter-Modal operators

The Intermodal transportation is the use of more than one mode of transport to move shipment to
its destination. A variety of intermodal combinations is possible; 1) rail-truck, 2) Rail-water, 3)
Rail-pipeline,4) Truck-air, 5) Truck-water. Not all the combinations are practical. Trailer on flatcar
(TOFC) and Container on Flat car (COFC) have gained acceptance.

33. What is Piggyback

Piggyback transportation refers to the transportation of goods where one transportation unit is
carried on the back of something else (rail, water). It is specialised form of intermodal transportation
transportati on
and combined transport.

34. Packaging

Packaging is a tool related to the performance of marketing function. The basic objective behind
 packaging is preventing damage to the product during storage, transportation and handling, when it
is in movement for distribution in the market.

35. Types of Packaging materials

materials
1. Shrink Wrapping, 2. Stretch Wrapping, 3. Aluminium, 4. plastic strapping 5. film based
 packaging and plastic
plast ic pallets,

36. Unitisation

It is the process of consolidating of several units into single unit. It is made of a number of items or
 bulky material and is constrained to lifted and shifted because it is too bulky to be moved manually.
Material handling cost decreases as the size of the unit increases.

37. Containerization
Containerization
 93

It is a system of Intermodal freight transport using Intermodal containers (also called as shipping
containers). Containerization
Containerizatio n also reduces congestion in ports, significantly shortened shipping time
and reduced losses from damage and theft.

38. Define Performance Management

The Logistics performance should be Monitored continuously to ensure efficient use of resources
and financial control. Control can take place at technical, tactical and strategic levels.
39. Need of Performance Management

1.Evaluate and compare the performance with other companies effectively.

2. To develop standard metrics for measuring performance.

3. Enables to Identify and pursue specific competitive advantage.

4. Encourage continuous improvement.

40. Dimensions of performance

performance Management

1. Price/ cost dimensions

2. Product/ quality dimensions
3. Logistics dimensions
4. Organisational dimensions.
41. Logistics Audit
In a logistic audit (potential analysis / logistic due-diligence) the current logistic system and its
services are compared with the requirements. In particular, the performance of the processes and
structures are checked. The purpose is to identify possible routes of failure and spheres of action

for improving the quality and performance of the logistics system in general, and the logistic
 processes in particular. The procedure is done in five steps: requirements analysis; performance
analysis; process analysis; structural analysis and benchmarking.
42. Internal and External Performance
Performance Measurement
Internal performance Measurement  :1) Cost, 2) Customer service, 3) Productivity, 4) Asset
management, and 5) Quality 
External performance Measurement: Customer perception measurement and Best Practices
Benchmarking.
43. Total Logistics Cost
 94

Total logistics costs consider the whole range of costs associated with logistics, which includes
transport and warehousing costs, but also inventory carrying, administration and order processing
costs.
44. Define LIS.
LIS is defined as the application of technology and information to enable logistics managers to
manage information electronically. The Information flow is the key element in logistics operation.
Thus the electronic movement of information offers better and speedy  information to customers on
time.
45.E-Logistics
E-logistics is the logistical process that governs everything related to the online marketplace. It is
a relatively novel concept. It is a dynamic set of communication computing and collaborative
technologies that transform key logistical processes to be customer-centric by sharing data,
knowledge and information with supply chain partners.
46. Characteristics of LIS 

1. Availability

2. Accuracy

3.Timeliness

4. Flexibility

47. e-LRM
Logistics resource Management is a supply chain management component that is used to meet
customer demands through planning, Control and implementation of the effective movement and
storage of related information, goods & services from origin to destination. The entire operation is
now easily handled using the E-Logistics.
48. Reverse logistics
It is the process of moving goods from their typical final destination for the purpose of capturing
value, or achieving proper disposal to the satisfaction of the customer or consumer.
49. Green Logistics
Green Logistics describes all attempts to measure and minimize the ecological impact of logistics
activities. This includes all activities of the forward and reverse flows of products, information and
services between the point of origin and the point of consumption. They focus on economy, society
and environment.
 95

50. Global Logistics.

Global logistics operations must accommodate all domestic requirements and also deal with
increased uncertainties associated with distance, demand diversity and documentation. The global
logistics operations increase logistics cost and complexity.

51. Benefits of LIS

1.The information provided will be accurate.

2.Information is accessible in timely manner.

3.Information can be shared and used for decision making.

4.Track the performance and movement of goods.

52. Advanced Technology used in logistics

1.Electronic Data Interchange (EDI)

2.Communication technology
3.Automatic Identification systems
4.Supply chain software systems.
5.Artificial Intelligence or expert system.
53. Vehicle Routing problem
The Vehicle routing problem is a combinatorial optimization and integer programming problem
which asks “what is the optimal set of routes for a fleet of vehicles to traverse in order to deliver to
a given set of customers. Often the context is that of delivering goods located at a central depot to
customers who have placed orders for such goods.