LOGIST

Logiustic logistics

LECTURE NOTES

LOGISTICS AND SUPPLY CHAIN

MANAGEMENT
LECTURE NOTES
DR.M.B.SRINIVASAN, M.B.A., Ph.D
Professor & HoD
Department of Business Administration
 B.B.A

DSC – 2: Discipline Specific Core Courses - 2

Component : DSC 2 Subject Code :U19BBLSCM

Subject Title: LOGISTICS AND SUPPLY Pattern: Theory
CHAIN MANAGEMENT

No of Credits : 6 No of Hours: 90

Objective : To develop an understanding of basic concepts and role of Logistics

and supply chain management in business.
b)understanhosupplchaindrivers play an important role in redefining
: Understand the fundamentals of elements and functions of supply
chain, role of drivers and demand forecasting. To apply various
Outcome
techniques of inventory management and their practical situations.

UNIT I

Logistics Design – Logistics Management – Definition – Meaning – Types – Transportation – Inventory –

Warehousing – Material Handling and Packaging – Organizational Structures.

UNITII

Logistics Network – Logistics Resources – Principles Logistics Information – Technologies – Barcode –

Scanning Application Information

UNIT III
Logistics Demand – Forecasting – The Nature Demand – Forecast Components – Forecast Techniques –
Forecast Error - Logistics Location Structure.
UNIT IV
Chain Management Models – Definition – Objectives – Applications – Types – Conceptual Models
– Key issues in supply chain management.

UNIT V
Chain Management Strategy – Inventory Management – Push and Pull Systems – Demand and cash
flow in supply chain management – Enterprise Resource Planning (ERP) – Supply chain management
matrix.

TEXT BOOKS

1. Donald J. Bolversox and Daavis J. Closs, “Logistics Management – The integrated supply chain
process” Tata McGraw Hill, 2006.
2. David Simchi – Levi, Philip Kaminsky and Edith Simchi – levi, “Designing and managing the supply chain
concepts, strategies and case”, 2nd Edition, Tata McGraw Hill,2006.
1. David A.Taylor, “Supply chain – A Manager’s Guide”, Pearson Education, 2006
REFERENCE BOOKS

1. Rahul, V. Altekar, “Supply chain Management, Concepts & Cases”, PHI Learning,2006.
2. Ailawadi, Rakesh Singh, “Logistics Management”, PHI Learning2006.
3. Donald Waters, Palgrake, “Logistics An introduction to Supply Chain Management”, Macmillan,
22006.
 UNIT - I

Introduction
Logistics is the one of the most important segment of the phenomenon of Marketing in business.
It is a subset of Supply Chain Management.
Logistics has been carried out since the beginning of civilization – it is hardly new. However,
implementing best practice of logistics has become one of the most exciting and challenging
operational areas of business and public sector management.
In the business functioning, the trader gets order for supply of his goods or services through his
marketing executives or directly from customers and then to execute the order to the satisfaction of
the customer, the trader or his supplier company prepares the Logistics i.e., procures the product or
services, puts labels on them, or gives some identification trademark name to them, makes necessary
packing and packaging so as to save them from damage of any kind during loading, unloading,
handling, transportation etc., till is supplied to the end customer.
More simply, it is a bundle of goods finally ready to be supplied to the customer. In Logistics study,
all factors contributing till the last stage, when the goods or service is finally supplied to the consumer
are systematically studied.
Logistics management includes the design and administration of systems to control the flow of
material, work-in-process, and finished inventory to support business unit strategy.

Logistics Design
Design for logistics is a series of concepts in the field of supply chain management involving
product and design approaches that help to control logistics costs and increase customer service
level
https://simplicable.com/new/design-for-logistics

Logistics Management
The changing business strategies in the 21st century drive the logistics management in enterprises.
Implementation of relationship logistics model in the process of logistics management provide
enterprises speed, flexibility and efficiency in their logistics functions.
In 21st century digital technologies enable the development of new economic models. Gradual
reduction in the production costs effects demand and supply equilibrium. Reduction in costs leads to
increase in supply. In this case, new marketing and distribution methods are required to meet the
demand. As a result of successful logistics management faster flow of goods and services is achieved.
In economies based on digital technologies payment systems are transferred to the electronic
environment. It is possible to reach millions of people at the same time in the digital environment.
Development of digital economy enables faster and more efficient sharing of information and thus the
quality of logistics process improves.
New developments in internet area influence the market structure, consumption choices and
competition in business world. As the organization structures of corporations get more simplified their
logistics systems become elastic and quicker. The organization structures operating at 7 days 24 hours
are becoming widespread. Markets now are more global and personal. Since customers are more
informed about the developments, they desire to buy higher quality at a lower price. In digital
environment everything is carried out “just in time”. “Just in time” advertisement, “just in time”
communication, and “just in time” delivery are becoming everyday concepts used by the marketing
managers. Somewhat digital technologies mean reaching millions of people at the same time. So, as a
result of the increasing importance of customers, corporations concentrate on the customer oriented
marketing concept.

New logistics systems have lower cost and work faster than the traditional systems in the flow of the
larger scale orders to the buyers through the logistics information technologies. In compliance with
this, putting the enterprises’ information as buyer order into the physical distribution actions
compatible with the buyer demand will be a factor providing competitive advantage among
enterprises.
Development of appropriate and optimum transportation system and determining of transportation
tools in this system considering the competitive advantages they offer is the other point that should be
emphasized when the information technologies is used in logistics management.
Definition of Logistics
The word, ‘Logistics’ is derived from French word ‘Loger’, which means art of war pertaining to
movement and supply of armies.
1. A military concept
2. Fighting a war requires:
(i) Setting an objective
(ii) Meticulous planning to achieve the objective
(iii) Proper deployment of troops
(iv) Supply lines consisting of weaponry, food, etc.
3. A logistics plan should be such that there is minimum loss of men and material.
Similar to fighting a war in battlefield, marketing managers also prepare a suitable logistics plan that
is capable of fulfilling the company objective of meeting the demand of targeted customers in a
profitable way.
Logistic – Meaning

The world we know wouldn’t function as smoothly without the logistics industry. Everything you buy
in the store had to get from the supplier to the retailer at some point. Building material had to be
transported to site before a structure was built and food is transported from the supplier to the retailer.

The term “logistics” was originally used by the military to describe how it obtained, stored and moved
its equipment and supplies. The term as we know it remains the same but with the rise of
consumerism and subsequent growth of more complex supply chains, it has evolved. It refers to the
process of coordinating and moving resources such as equipment, food, inventory, materials and even
people from one location to another

Types of Logistics

Logistics can be split into five types by field: procurement logistics, production logistics, sales
logistics, recovery logistics, and recycling logistics. Each of these is explained in detail, but first we
should learn about logistics fields and types.
For recovery logistics and recycling logistics, both types are the same up to the recovery of goods
from consumers, but recycling logistics is the type that recycles the goods that are collected.

Procurement Logistics: Procuring Raw Materials and Parts

Procurement logistics is the flow of goods when the raw materials and parts necessary for
manufacturing are procured from suppliers. This field did not attract much attention before, but now
that small-lot production of a variety of models is the main type of production, many firms are
actively pursuing production by procuring the necessary materials in only the necessary amounts at
the necessary times (the shift to just-in-time production) because it is directly connected to reducing
inventory costs.
Production Logistics: Materials Management, Distribution in
Factories, Product Management, Shipping

Production logistics is the flow of goods that includes the management of procured parts and
materials, distribution inside a factory, product management, packaging, and shipping to warehouse.
Delivery management, warehouse dispatch management, and shipping management can be optimized
and the state of delivery vehicles can be managed by smoothly linking procurement logistics and sales
logistics described later.

Sales Logistics: Delivery from Warehouse to Wholesalers,

Retailers, and Consumers

Logistics typically refers to sales logistics. In the past this was mainly delivery from delivery centers
and logistics warehouses to distribution points such as wholesalers and retailers. But now direct
delivery also makes up a large amount of this volume due to online shopping and e-commerce.
Whether delivery through delivery centers and logistics warehouses or direct delivery from
production sites, higher efficiency in transportation and delivery and shrinking inventory are
indispensable for delivering the necessary goods to the necessary people in the necessary quantities at
the necessary time. This also contributes to improving customer satisfaction
 Recovery Logistics: Recovering and Recycling Products,
Containers, and Packaging

If the flow of goods from production to consumption by procurement logistics, production logistics,
and sales logistics is described using the circulatory system of the body, it would be said to be
forward logistics. On the other hand, recovery logistics or reverse logistics is the flow that recovers
and recycles products, containers, and packaging that have fulfilled their role. Similar to recycling
logistics described later, emphasis is being placed on this flow in recycling-oriented societies .

Recycling Logistics: Recovering and Recycling Recyclable

Products and Containers

Typical examples of recycling logistics are recovering and recycling empty cans, plastic bottles, and
old paper. Containers, packaging, old computers, and inkjet cartridges can also be recovered and
recycled in the same manner. The importance of recycling logistics has been increasing in recent
years as measures for the environment and to effectively utilize materials such as minor metals.

The five elements of logistics

 Storage, warehousing and materials handling.
 Packaging and unitisation.
 Inventory.
 Transport.
 Information and control.

Types – Logistics Management

There are four main types of logistics management: supply, distribution, production and reverse
logistics. Each type focuses on a different aspect of the supply process.

Supply

Supply management involves the planning and coordination of materials or products that are needed
at a certain place and time to support the receiving company’s production or activity.

Distribution

Distribution manages how a supplied and stored material is distributed to its required recipient. It
involves the loading, unloading and transportation of material, the tracking of stock and accountability
of use, which is the recording of how the material is used and by whom.
Production

BizFluent says that production logistics manages the stages of combining distributed supplies into a
product. This can involve the coordination required in a manufacturing or assembling process.

Reverse logistics

Lastly, reverse logistics involves the return of material and supplies from a production process. It
plans for the removal of excess material and its re-absorption into a stock supply. For example, if
there are bricks left over on a building site, it will be removed and returned to the supplier and
reclaimed as stock

Why logistics is so important

Logistics is an integral part of any company, especially those that produce and distribute products and
materials. Having said that, the logistics industry is important for the following reasons:

It helps to create value. Providing value extends further than the quality of a product, it also refers to
its availability. Effective logistics management ensures the continued availability of products and
materials to consumers, thereby creating and increasing the value a business offers.

It helps to reduce costs and improves business efficiency. By partnering with other businesses that
offer transportation and storage, companies can reduce their operational costs while maintaining and
increasing business efficiency.

It ensures the timely delivery of products to the correct location. Good logistics management ensures
the quick and safe shipping, storage and delivery of products to customers.

In short, logistics is about providing the right goods to the right recipient in the right quantity at the
right place at the right time. In an article by NHFS, a shortage of skilled workers is cited as one of the
challenges in the South African freight industry along with climate change and regional connectivity.

Transportation

The transportation system is the physical link connecting a company with the customers, raw
material suppliers, plants, ware houses and distribution channel members. It’s interesting to
note that all these elements of logistic system are fixed points, transportation is the
connecting medium. The better is the performance and efficiency of transportation system the
better will be organisational performance in terms of cost and customer’s satisfaction.
Knowledge of logistics and transportation is fundamental to the operations of any business.
Transportation adds value to the goods by providing time and place utility, by ensuring
availability of items when they are needed, and where they are needed.

For most companies there is a geographical spread between the source and market of goods
produced because of economies of scale and mass production, specialization of labour,
infrastructural facilities, etc. Transportation is the connecting link.

In any organisation involved in manufacturing or production of goods and services,

management of logistics assumes significance. Appropriate planning, implementing and
controlling the flow of goods, its storage and the effectiveness with which several activities
follow, from the point of origin, to the point of consumption, occupies a significant place in
modern business. The function of logistics includes sourcing, procurement, production
planning, scheduling, packaging, assembly and customer services. Each one of these
activities is very important. The developments in the field of transportation and
communication are resulting in emergence of global supply chains and logistics processes.
Technology is also having impact on logistics management.

Inventory

Inventory decisions are high-risk and high-impact from the perspective of logistics
operations. Commitment to a particular inventory assortment and subsequent shipment to a
market or region in anticipation of future sales determine a number of logistics activities.
Without proper inventory assortment, marketing may find that sales are lost and customer
satisfaction will decline.

Likewise, inventory planning is critical to manufacturing. Raw material shortages can shut
down a manufacturing line or modify a production schedule, which, in turn, introduces added
expense and potential for finished goods shortages. Just as shortages can disrupt planned
marketing and manufacturing operations, overstocked inventories also create problems.
Overstocks increase cost and reduce profitability through added warehousing, working
capital requirements, deterioration, insurance, taxes, and obsolescence.

Warehousing

Manufacturers were able to recognize the fact that the customer needs are to be fulfilled as
soon as he is asking for the product in order to retain him. This perspective of storage created
a tendency to consider warehouses “a necessary evil” that added costs to the distribution
process and that resulted in creation of operating expenses with little appreciation of the
broader logistical spectrum in which warehousing played a vital role.

Warehousing capability used to group products into assortments desired by customers was
given little emphasis. Internal control and maximum inventory turnover received little
managerial attention. Literature of the early era correctly described the situation. Firms
seeking to operate effectively between points of procurement, manufacturing, and
consumption gave little attention to internal warehouse operations. The establishment of
warehouses was essential for survival, but little emphasis was placed on improving storage
and handling effectiveness. Engineering efforts were cantered on manufacturing problems.
Operation of early warehouses illustrated the lack of concern with material handling
principles. The typical warehouse received merchandise by rail car or truck. The items were
moved manually to a storage area within the warehouse and hand-piled in stacks on the floor.
When different products were stored in the same warehouse, merchandise was continually
lost. Stock rotation was handled poorly. When customer orders were received, products were
handpicked for placement on wagons. The wagons or carts were then pushed to the shipping
area where the merchandise was reassembled and hand-loaded onto delivery trucks. Because
labour was relatively inexpensive, human resources were used freely. Little consideration
was given to efficiency in space utilization, work methods, or material handling. Despite
their shortcomings, these early warehouses provided the necessary bridge between
production and marketing

Material handling

Material handling is integral to the manufacturing industry. It is a human activity being

performed since time immemorial but now an important specialised function of all industrial
activities. Although every production worker’s job involves this function, a large number of
people work as dedicated “material moving machine operators”. The material handling
equipment transports various items in a variety of industrial settings such as moving
construction materials around building sites or moving goods onto buses, trains, aircrafts,
ships etc.

The basic function of material handling is to choose most appropriate material handling
equipment which is safe and can meet material handling requirements. It aims towards:

 Improving the operational efficiency of the company;

 Ensuring better control of flow of material;
 Providing better response to customers through improved service delivery; and
 Promoting safety in material handling.

A manufacturing establishment receives the raw material, which passes through a series of
handling processes before it reaches the ultimate customer. A modern manufacturing plant
works on assembly line principles in which the material moves along the assembly line where
different workers assemble different parts and the finished product emerges at the end of the
process. For instance, the automobile manufacturing unit such as Maruti Udyog adopts this
method.

Material handling also involves short distance movement within the confines of a building or
between building and transportation vehicle.

Material handling is significant as it:

 Involves handling costs (can be 25% of the entire manufacturing costs).
  Requires frequent handling of subcomponents (can be 50 times in the manufacturing
chain).
 Ensures increased safety.
 Decreases damages to parts and materials.

Material handling involves correct handling, sorting, moving of materials, equipment, and
goods. Proper material handling results in shortening of delivery time, lowering overall costs
of manufacturing, improving customer service, and reducing inventory

Organizational Structures

Logistics Organization Structure - General Type

This template here shows a basic type of logistics organization chart. Each of the managers at
the management level leads some assistants, interns, senior staff, etc.

Logistics Organization Structure - Startups

This org chart template shows the structure of a small logistics firm. The promotion team
works with business clients, while the order service team deals with normal orders from
customers.
Logistics Department Structure

Logistics enterprises can have many organization structures, but the most typical logistics
organizational structure should consist of a logistics manager, a customs supervisor, a
merchandiser supervisor, a materials manager, a purchasing manager, a warehouse manager,
a distribution manager, a shipping specialist, and some warehouse stock staff.
***********************************************************************
 UNIT – II

Logistic network

Definition:

A logistics network is the system a business uses to move goods from their raw state through
production and to customers. To create the most efficient and effective logistics networks,
businesses must use logistics network modeling.

These simulations measure, evaluate, and optimize the logistics network a business uses.

What Is Logistics Network

Logistics is the movement of goods, and a logistics network is the sequence of systems and
operations that work together to design, produce, and bring a product to market. This extends
from the extraction or creation of raw materials all the way to the point when the product is
delivered to stores or directly to consumers.

Companies must create new logistics networks every time they launch new products, create a
new business model, or enter a new market. When a company is designing its new logistics
network, it will take into account all the location elements such as:

 Labor pool
 Distribution and shipping channels
 Government incentives
 Customs requirements
 Security requirements
 Supplier and customer locations

Analyzing these elements allows companies to create models of how the logistics network
will function. This provides insight into the outcome of different choices within the network
and the likely impact these choices will have on the supply chain and business performance.

Logistic resources

Definition

Logistics resources include soft resources (i.e. logistics information and knowledge) and hard
resources (i.e. logistics infrastructure and location) and capabilities include customer service
capability and resource integration capability

Principles of Logistics

Initially logistics was considered a custodial activity with storekeepers being the custodians
of stored supplies. This view has changed with logistics concerned with the efficient
movement of materials to the customers.

The central principles of logistics are given as the Seven Rights of Logistics. It encompasses
movement of

1) The Right Materials/Products so that always the product/service required at the time must
be made available.

2) In Right Quantity so that the correct amount is available, as smaller amounts result in the
halting of production, while larger amounts result in building up stocks.

3) In Right Condition so that the right quality of the product/service be made available that
the client requires.

4) At the Right Time ensuring the product/service be made available at the time required by
the client.

5) To the Right Place so that the product/service be made available at the place where the
client needs it.

6) At the Right Cost ensuring the product/service be made available at the cost accepted by
the client.

7) To the Right Customers, Associates, Suppliers and Stockholders.

These seven rights highlight the importance of moving and storing materials in an efficient,
timely, and reliable manner. The seven rights also link logistics to the key strategic objectives
of cost competitiveness, quality, flexibility, and delivery. The seven rights demonstrate that
logistic activities provide the foundation for high levels of customer satisfaction.

Principles of Logistics Information System

Availability Logistics information must be readily and consistently available. Information

may be regarding order status, inventory status, etc Rapid availability is very important to
respond to decisions. Information availability can reduce customer requirements and improve
management uncertainties in operations and planning

 
Accuracy Logistics information must reflect the current status of all the activities like
inventory levels, customer orders etc. E.g.: The actual level of inventories should match with
the LIS reported inventory levels. However if there is a large difference between the actual
inventories and those indicated by the information system inventory levels, buffer stock or
safety stock would be required to cover up the uncertainty.

Timeliness The logistics information must be timely to provide quick management feedback.

Timeliness is measured in terms of delay that takes place between the commencement and
occurrence of an activity and when the activity is actually visible in the logistical information
system. E.g.: a company may receive a certain order which a customer desires to be executed
urgently. However, the database information system of the company is not fed with the
details regarding the urgency of the order for whatever reasons. This will cause delay in the
actual execution of the order. This delay indicates ineffectiveness in the planning process.
Similar delays can occur when the goods are moved from VVIP to finished goods. All this
calls for timely management controls so that corrective actions can be taken to minimize loss.
Hence timely information is very necessary to reduce uncertainty.

Exception based LIS Logistics operations have to deal with a large number of customers,
products, suppliers, etc. E.g.: the status regarding inventory level for each product regarding
the amount of stock available, where the stock is located, etc. must be known. Another
activity whose status requires to be reviewed several times is the outstanding replenishment
orders. Such activities whose status requires a continuous review are considered as
exceptions in the logistical information system. Other examples of exception situations that
LIS should highlight are a) very large orders b) products having little or no inventory c)
delayed shipments d) decrease in operating productivity

Flexibility LIS must contain the capability to be flexible in order to meet the needs of both,
the system users and the customers. E.g.: A particular retailer may want invoices for each of
his retail stores. Another retailer may require only one invoice for all his retail stores. The
LIS must be flexible to accommodate both the retailers.

A huge advance in information technology has already taken place in all the industries including
changes in the logistics and supply chain. A fast data transfer is a result of information
technology in supply chain management resulting in increased cooperation.

Information Technology helps to restructure the entire distribution set up to achieve higher
service levels and lower inventory and lower supply chain costs.

IT developments have presented companies with unprecedented opportunities to gain competitive

advantage. So IT investment is the pre-requisite thing for each firm in order to sustain in the
market.

Supply chain management (SCM) is concerned with the flow of products and information
between supply chain members’ organizations. Recent development in technologies enables the
organization to avail information easily in their premises.
The development of Inter organizational information system for the supply chain has three
distinct advantages like cost reduction, productivity, improvement and product/market strategies.

Application of information technologies in logistics are:

1. Electronic Commerce

Electronic commerce includes electronic data interchange, e-mail, electronic fund transfers,
electronic publishing, image processing, electronic bulletin boards, shared databases and
magnetic/optical data capture.

2. Electronic Data Interchange

EDI describes both the capability and practice of communicating information between two
organizations electronically instead of traditional form of mail, courier, & fax. The benefits of
EDI are:

1. Quick process to information.

2. Better customer service.

3. Optimize paper work.

4. Increased productivity.

5. Improved tracing and expediting.

6. Cost efficiency.

7. Competitive advantage.

8. Improved billing.

3. Bar Coding and Scanner

Bar coding is a sequence of parallel lines of different thickness with spaces in between. These
bars are nothing but the items of information in the codified form, which can be read with the
help of a scanner. The information printed in bar code includes country code, manufacturer name,
product details, date of manufacture, material content etc. These details are required at user end
for inventory management.

Bar Coding and Scanner has reduced paper work and processing time. It has increased logistics
system productivity through speed, accuracy and reliability.

4. SKU DIM:

This SKU (Stock Keeping Unit) DIM capturing is done by weight machine integration. During
previous years this was done manually and it was time consuming. Now with the help of this
DIM, length, width, height, weight of the consignment is measured without any much hassle and
moreover here we can avoid revenue leakage, because in our experience we have seen users
capturing wrong dimensions which lead to wrong calculation during billing.
5. RFID

RFID is an Automatic Identification and Data Capture (AIDC) technology. RFID first appeared
in tracking and access applications during 1980.

RFID-based systems allows for non contact reading and are effective in manufacturing and other
environment where bar codes could not survive.

These are used as an alternative to Barcodes to communicate the inventory data to the reader via
radio waves. RFID wirelessly exchanges information between a tagged object and a reader.

RFID has improved the ability of manufacturers to better manage the inventory levels. It has
improved the tracking, logistics and planning operations.

6. Case ID Capture

This ID is used to capture information on cases, where for each SKU, box case will be defined
with number of SKU units kept inside each unique product cases.

In some cases information will be flown and measured towards UOM which is mentioned as
CASES.

7. Route Optimization

Truck routing, delivery scheduling and fleet management software solutions help hundreds of
private fleet and logistics operators to cut transportation costs every day – giving a fast return on
software investment.

Some of the uses of this route optimization are:

• Reduce total mileage for lower fuel bills

• Fully utilize the fleet for maximum distribution efficiency

• Cut overtime and agency bills with improved driver productivity

• Optimize the distribution networks to reduce overall transportation costs

8. GPS Tracking (Track & Trace)

New and growing logistics companies are quite apprehensive and skeptical about transport
management, claiming that it will only result in increased expenses that could eventually hurt
their business in the long run. This is a common misconception about GPS tracking.

The benefits of GPS Tracking system includes below:

• Real time monitoring of the shipment

• Reduced fuel consumption

• Improved productivity
• Better Customer Service

9. Last mail Delivery Tracking on Mobility

Last mail delivery plays a vital role in SCM. Now days B2C transaction is increased and every
end customer expects the delivery on time. To active this, TAT service providers are very key on
delivery information capture and reflecting it in the online sites

*******************************************************************
 UNIT – III

Logistics Demand

Demand in logistics refers to the process for analyzing, evaluating and forecasting the
demand for goods in the supply chain management. This forecast is conducted in order to
reliably delivered goods to the customer. Demand planning gives businesses the ability to
accurate predict future sales and to plan ahead of time.

The key advantages of demand planning is to increase the accuracy of the future revenue
prediction; to optimise the company’s stock according to demand; gain insights into the
market trends; to manage distribution networks effectively.

Forecasting

Forecasting can be broadly considered as a method or a technique for estimating many future
aspects of a business or other operation. There are numerous techniques that can be used to
accomplish the goal of forecasting. For example, a retailing firm that has been in business for
25 years can forecast its volume of sales in the coming year based on its experience over the
25-year period—such a forecasting technique bases the future forecast on the past data.
While the term "forecasting" may appear to be rather technical, planning for the future is a
critical aspect of managing any organization—business, nonprofit, or other. In fact, the long-
term success of any organization is closely tied to how well the management of the
organization is able to foresee its future and to develop appropriate strategies to deal with
likely future scenarios. Intuition, good judgment, and an awareness of how well the economy
is doing may give the manager of a business firm a rough idea (or "feeling") of what is likely
to happen in the future. Nevertheless, it is not easy to convert a feeling about the future into a
precise and useful number, such as next year's sales volume or the raw material cost per unit
of output. Forecasting methods can help estimate many such future aspects of a business
operation.
Definition

Demand forecasting is a technique that is used for the estimation of what can be the demand
for the upcoming product or services in the future. It is based upon the real-time analysis of
demand which was there in the past for that particular product or service in the market
present today. Demand forecasting must be done by a scientific approach and facts, events
which are related to the forecasting must be considered.

Hence, in simple words, if someone asks what demand forecasting is, we can answer that
after fetching information about different aspects of the market and demand which is
dependent on the past, an attempt might be made to analyze the future demand.

Demand forecasting is an amalgamation of two words; the first one is known as demand, and
another one is forecasting. The meaning of demand is the outside requirements of a
manufactured product or a useful service. In general aspects, forecasting usually means
making an approximation in the present for an event that would be occurring in the future. 
All the companies use these predictions to format their approach to marketing and sales. It
contributes hugely towards increasing their profit margins. Here, we are stepping forward to
elaborate on demand forecasting, its features and its usefulness. Moreover, we will also see
its applications.

The Nature Demand

i. Derived demand and autonomous: Those inputs or commodities which are demanded

to help in further production of commodities are said to have in further production of
commodities are said to have derived demand. For example, raw material, labour
machines etc are demanded not because the y serve only direct consumption need o f the
purchaser but because the y are needed for the production of goods having direct demand
(say , food , scooter . building ,etc)
 
ii. Demand for producer's goods and consumer's goods: The difference in these two types
of demand is that consumer's goods are needed for producing ot her goods (consumer's
goods or further producer's goods)
 
iii. Demand for durable goods non durable goods: Durable goods whether producer's
durable or consumer's durable are the ones which canbe stored and whose replacement
can be postponed. O n the other hand, the non durables are needed as a routine and their
demand is their fore made largely to meet day-to- day needs.
 
iv.Industry demand a nd firm or company demand: The term company demand
denotes demand for a particular product of a particular firm Industry demand refers to
the total demand for the product of a particular industry.

Total demand and market segment demand: Demand for the market segments is to be studied
b y breaking the total demand into different segments like geo graphical areas , sub -
products, product use, distribution channels, size of customer groups, sensitivity to price etc.
The market segments are so demarcated that each segment has its own ho mogenous
demand characteristics. F urther, each o f these market segments must differ significantly
in terms of delivered prices, net profit margins, and number of substitute s, co mpetition,
seasonal, patterns and cyclical sensitivity.
 
vi. Short run de mand and long run de mand: Short run demand refers to demand with
its immediate reactions to price changes, Income fluctuations etc. W hereas long run
demand is that which will ultimately exist as a result demand of the change in pricing
promotion or products improvement , after enough time is allowed to lat the market
adjust itself to the new situation
Forecast Components

The following are the components of forecasting process:

1. Prepare the groundwork.

2. Establishing future business.

3. Comparing actual with estimated results.

4. Refining the forecasts.

1. Prepare the Groundwork:

The group work preparation requires a thorough study, investigation and analysis of the
company, its products, its market share, its organisational structure and the industry. The
investigation will involve the past performance of all these factors, their growth over a period
of time and the extent of their inter-relationships and inter-dependence. The aim is to build a
foundation on which future estimates can be based.

2. Establishing Future Business:

The future expectancy of the business can be reasonably computed from the past data as well
as the input from the key executives of the organisation, sales personnel and other specialists.

This forecast is developed with the participation of the key personnel and is officially
communicated to all. Thus all these people assume responsibility for meeting these forecasts
and accountability for any deviations from this forecast.

3. Comparing Actual with Estimated Results:

The forecast estimates over the future years provide benchmarks against which the actual
growth and results can be measured and compared. If there are significant variations between
the two, one way or another, the reasons for such deviations can be investigated and analysed.

4. Refining the Forecasts:

In the light of any deviations found, the forecast can be refined to be more realistic. If some
conditions have changed during the periodic evaluation, then the new values of the variables
can be incorporated in the estimates.
Techniques of Forecasting:

Forecasting technique can be classified into two major categories:

1. Qualitative forecasting technique.

2. Quantitative forecasting technique.

1. Qualitative Techniques:
i. Jury or executive opinion (Dolphi technique)

ii. Sales force estimates.

iii. Customer expectations.

i. Jury or Executive Opinion:

The jury of expert opinion sometimes referred to as the Dolphi technique; involves soliciting
opinions or estimates from a panel of “experts” who are knowledgeable about the variable
being forecasted.
In addition to being useful in the creation of a sales or demand forecast this approach is used
to predict future technological developments. This method is fast less expensive and does not
depend upon any elaborate statistics and brings in specialized viewpoints.

ii. Sales Force Estimates:

This approach involves the opinion of the sales force and these opinions are primarily taken
into consideration for forecasting future sales. The sales people, being closer to consumers,
can estimate future sales in their own territories more accurately. Based on these and the
opinions of sales managers, a reasonable trend of the future sales can be calculated.

These forecasts are good for short range planning since sales people are not sufficiently
sophisticated to predict long-term trends. This method known as the “grass roots” approach
ends itself to easy breakdowns of product, territory, customer etc., which makes forecasting
more elaborate and comprehensive.

iii. Customer Expectations:

This type of forecasting technique is to go outside the company and seek subjective opinions
from customers about their future purchasing plans. Sales representatives may poll their
customers or potential customers about the future needs for the goods and services the
company supplies.
Direct mail questionnaires or telephone surveys may be used to obtain the opinions of
existing or potential customers. This is also known as the “survey method” or the “marketing
research method” where information is obtained concerning.

Customer buying preferences, advertising effectiveness and is especially useful where the
target market is small such as buyers of industrial products, and where the customers are co-
operative.

2. Quantitative Techniques:
Quantitative techniques are based on the analysis of past data and its trends. These techniques
use statistical analysis and other mathematical models to predict future events.

Some of these techniques are:

i. Time series analysis.

ii. Economic models.

iii. Regression analysis.

i. Time Series Analysis:

Time series analysis involves decomposition of historical series into its various components,
viz., trend, seasonal variations, cyclical variations and random variations. Time series
analysis uses index numbers but it is different from barometric technique. In barometric
technique, the future is predicted from the indicating series, which serve barometers of
economic change.

In time series analysis, the future is taken as some sort of an extension of the past. When the
various components of a time series are separated, the variations of a particular phenomenon,
the subject under study stay say price, can be known over the period of time and projection
can be made about future.

A trend can be known over the period of time, which may be true for future also. However,
time series analysis should be used as a basis for forecasting when data are available for a
long period of time and tendencies disclosed by the trend and seasonal factors are fairly clear
and stable.

ii. Economic Models:

Utilize a system of interdependent regression equations that relate certain economic
indicators of the firm’s sales, profits etc. Data center or external economic factors and
internal business factors interpreted with statistical methods. Often companies use the results
of national or regional econometric models as a major portion of a corporate econometric
model.

While such models are useful in forecasting, their major use tends to be in answering “what
if”? Questions. These models allow management to investigate and in major segments of the
company’s business on the performance and sales of the company.

iii. Regression Analysis:

Regression Analysis are statistical equations designed to estimate some variables such as
sales volume, on the basis of one or more ‘independent’ variables believed to have some
association with it.

Forecast errors

One way to check the quality of your demand forecast is to calculate its forecast error.

Forecast error is the deviation of the actual demand from the forecasted demand. If you can
calculate the level of error in your previous demand forecasts, you can factor this into future
ones and make the relevant adjustments to your planning

Forecast error is the difference between the actual and the forecast for a given period.
Forecast error is a measure forecast accuracy. There are many different ways to summarize
forecast errors in order to provide meaningful information to the manager.

Two of the most common forecast accuracy / error calculations are MAD – the Mean
Absolute Deviation and MAPE – the Mean Absolute Percent Error

UNIT - IV

Chain Management Models – Definition – Objectives – Applications – Types – Conceptual Models –

Key Issues in supply chain management

Supply Chain Management

Introduction
Every logistic expert started their career by learning the fundamentals of supply chain
models. It is a good place to start because it gives you the basic information that you need
to build on. Supply chain management is critical to every business. Understanding the models
and their purposes are critical to the success of any business. Supply chain management
models are broken down into 6 separate categories (though some argue there is 4) although
they all have the same goals and typically rely on similar components of the supply chain.
We will look at these 6 models and discuss important factors of each model.

What is a Supply Chain?

There are several definitions that define what a supply chain is but none simpler than it is a
sequence of events that helps a commodity move from manufacturing to market. The supply
chain contains, people, equipment, transportation modes and technology.
Every industry has a supply chain. Supply chains historically were straight line models that
looked something like this:

Raw materials>>>>supplier>>>manufacturer>>>>warehouse>>>shipping>>>end user

Today thanks to the global economy the supply chain looks more like a web with the
manufacturer in the middle of the web. Supply and logistics are the backbone of every
business. It can affect the success of a business and unfortunately also be the downfall of a
business. Without a strong supply chain management model in place a business will not
thrive.

Supply chains exist in both service and manufacturing organizations.

Supply Chain Orientation

While there are 6 models of supply chains all of them fit into either one of two categories.
Either the model is focused on efficiency or it is focused on responsiveness. The reality is
all supply chains have elements of both efficiency and responsiveness, but each supply
chain model can have a primary focus of either.

The overall business need is ultimately the driving force behind which model is going to
be best for the business. There are several things that are determinants when reviewing the
types of supply chain models and which one will deliver the support a business can depend
on:
 The framework of the specific industry
 The value proposition that the business has to offer
  Focus of management

Each model has unique qualities that can support the overall organizations goals.

The 6 Supply Chain Models

Let’s get right too it. The 6 supply chain models are:

 The continuous flow models

 The fast chain models
 The efficient chain models
 The custom configured model
 The agile model
 The flexible model

Here is a synopsis of each model:

The continuous flow model for supply offers stability in high demand situations that vary
very little. Manufacturers that produce the same goods repeatedly with very little fluctuation
can benefit from the continuous flow model. It is ideal for commodity manufacturing and
is one of the most traditional supply chain models.

The fast chain model is ideal for manufacturers that manufacture products that are
trendy with short life cycles. It works well with a business that must change their products
frequently and that needs to get them out fast before the trend ends. It is a flexible model.

The efficient chain model is a model that is best for businesses that are in very competitive
markets and where end to end efficiency is the premium goal.
The custom configured models focus on providing custom configurations especially during
assembly and production. It is a combination of the agile model and the continuous flow
model, a hybrid of sorts.

The agile model is primarily a method of supply chain management that is ideal for
businesses that deal in specialty order items.  It is a model that focuses on the ability of the
supply chain to amp up in some cases but also be solid when there is not much movement
happening.

The flexible model gives businesses the freedom to meet high demand peaks and manage
long periods of low volume movement. It can be switched on and off easily.
Supply chain management is the integrated process-oriented planning and control of the flow
of goods, information and money across the entire value and supply chain from the customer
to the raw material supplier.

The Council of Supply Chain Management Professionals (CSCMP) defines SMC

as follows:

“Supply chain management encompasses the planning and management of all

activities involved in sourcing and procurement, conversion, and all logistics
management activities. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries, third
party service providers, and customers. In essence, supply chain management
integrates supply and demand management within and across companies.”

Tasks and Objectives of Supply Chain Management

SCM ensures cross-company, process-oriented planning and control of the entire
value chain. Consumers force logistics to rethink, which is why high customer
expectations and short product life cycles are taken into account. Furthermore,
relationships with suppliers are considered in order to optimally design and control
goods deliveries, cash flows and information flows (Supplier Relationship
Management).
 Functions Within Supply Chain Management:

 Customer Relationship Management: Consistent focus on end customer

demand to meet the increasing customer requirements and ensures a high
degree of flexibility.

 Flexibility and demand-oriented production: Continuous cost reduction and

resource optimization across all stages of the value chain.

 Synchronization of supply and demand: Increasing the adaptability and

development capability of the supply chain.
Several sub-objectives can be derived from these long-term objectives:

 Inventory reduction along the value chain,

 Reduction of warehousing costs,

 Safeguarding the just-in-time supply,

 Acceleration of cash-to-cash cycles,

 Improvement of delivery reliability,

 Reduction of throughput times.

Supply Chain Management with Zara as an Example

How successful supply chain management works is demonstrated by Inditex, one
of the largest textile companies in the world based in Arteixo (Spain), with its
fashion brand Zara. There are many case studies about the success story of the
Inditex model and they are worth reading. Zara's supply chain management
expertise is confirmed by the benchmark of US market research firm Gartner,
which provides an overview of the best supply chains in Europe.

In brief, the case is as follows:

Fashion brands are relocating their production to China. This saves costs, but
complicates the management of the supply chain. Fashion trends, in particular, are
 short-lived. The journey of cargo in container ships halfway around the world
complicates the principle of fast fashion.

Inditex, on the other hand, purchases more than half of its products from Spain,
Portugal and Morocco. The costs are higher, but shorter supply chains allow
them to react more quickly to trends. Zara no longer speculates on the latest
fashion. Production is suspended until it is certain what the customer is actually
going to buy. The goods are sold at full price and stocks remain minimal

Supply chain management (SCM) is the management of operations that are

involved in the procurement of raw materials, its processing into finished goods,
and distribution to the end consumer. SCM also involves the active streamlining of
the supply-side activities of a business to maximize customer value and gain an
overall competitive advantage in the marketplace

Three Types / Levels of Supply Chain Management

 Strategic Level. The top-level of supply chain management is responsible for the
long-term decisions of the company. ...
 Tactical Level. ...
 Operational Level.

1. Strategic Level

The top-level of supply chain management is responsible for the long-term

decisions of the company. The decisions made at this level lay the groundwork for
the entire supply chain process. Examples of decisions made at this level include
things such as deciding which products or services will be offered by the company.
This task involves keeping track of current market trends and customer feedback to
improve existing products or introduce new items to the product mix.
Along with product development comes decisions surrounding which suppliers to
purchase materials from and where the manufacturing operations should take
place. Choosing the right suppliers should involve decisions that consider the
company’s overall objectives and values. For example, choosing a supplier for
their sustainable practices may incur higher costs for certain materials but will
better reflect the values and goals of the company that is looking to reduce their
environmental impact and build a sustainable supply chain. 
This level of supply chain management is crucial to develop an advantageous
process that will tie in all levels of the company to ensure that every decision being
made accurately reflects the overall goals of the company. This will ensure that all
parts of the supply chain are working together to deliver your goods to your
customers and allow you to make profits. 

2. Tactical Level

The second level of supply chain management is involved with all of the short- and
medium-term decisions of the supply chain. While the strategic level takes care of
the general and ‘big-picture’ decisions, this level is usually where the more specific
processes are defined. This is where manufacturing processes will be defined to
ensure that a high-quality product can be made for the lowest cost possible.
Tactical-level decisions play a substantial role in controlling costs and minimizing
risks. The focus here is on customer demand and achieving the overall best end
value.
Other decisions made at this level can include transportation, warehousing, and
inventory logistics, notably whether these should be handled internally or
outsourced. These decisions can be different based on factors such as location,
costs of transportation, costs or land ownership, etc. 

3. Operational Level

This level of supply chain management is the most commonly encountered. It is

where the day-to-day processes, decision-making, and planning occurs to keep the
supply chain running. Often times, companies and manufacturing facilities forget
to take into account the tactical and strategic level when making operational-level
decisions. 
It is critical for the operational level to carefully consider the options they are faced
with and make decisions that are aligned with the overall strategic and tactical
decisions that have been made. Even though the higher-level decisions are made
with the intention of creating advantageous processes throughout the supply
chain, operations managers must make hundreds of decisions every day to handle
every unexpected thing that comes their way. The best decisions are made within
the strategic and tactical frameworks. 
Some of the aspects of operational-level management include daily and weekly
forecasting for resource and capacity planning, monitoring logistics to ensure that
enough inventory is available and that materials are available on-time for
production. Other decisions include settling damages or losses with suppliers in the
event that the manufacturing facility receives material deemed to be of poor
quality, which would affect the overall quality of products being made. 
 

The conceptual model for 3Supply Chain Management.

They are:
(1) Strategic planning;
(2) Inventory management;
(3) Transportation;
(4) Capacity planning; and
(5) Information technology.

This model has the objective of developing management control systems, resource
management systems and integrating logistics activities. The details of the model
are given in Figure given below

Managing a small company requires strategic planning, which involves the making
of long-term decisions concerning operations. These decisions should include
those on corporate strategy such as the nature of the logistics business (e.g.
transportation, warehousing, etc.), the location of distribution centers, outsourcing,
the size of the business, and the budget for running the logistics business.
Inventory management includes planning, coordinating and controlling of
materials flow along the logistics supply chain. The major decisions should involve
the volume and timing of orders and deliveries, and the packing of items in batches
(consolidation).
There are several constraints influencing the level of stock and the speed of the
material flow along the logistics supply chain. The level of stock and the speeds
the material flow also depend upon the nature of the supply and demand.

Transportation or shipping involves such matters as the modes of transportation,

utilization of available capacity, scheduling of transportation equipment and
maintenance of transportation facilities. Next comes capacity planning.
The management of both long-term and short-term demand drives the level of
capacity required. For example, long-term decisions should revolve around issues
such as the number of warehouses or distribution centers and their capacity; the
number of transportation vehicles and the capacity of the material handling
equipment, including the number of workers.

These are, of course, driven by the demand for products along the logistics supply
chain. Finally, information technology or systems help to integrate the activities in
all of these areas by collecting the data on the performance and utilization of
resources and, based on this, making the required changes to the logistics
operations. Various types of IT can be used, including intranet, Internet and
extranet, together with EDI, WWW and enterprise resource planning (ERP). The
use of IT also involves data mining and data warehousing.

Key Issues in Supply Chain Management

Supply chain management provides enterprises, especially manufacturers, with

tremendous competitive and business advantages. However, supply chain
management is fraught with challenges especially in today’s business landscape.

Key Issue #1: Globalization

Globalization presents several critical supply chain management challenges to
enterprises and organizations:
First, to reduce costs across the supply chain, enterprises are moving
manufacturing operations to countries which offer lower labor costs, lower taxes,
and/or lower costs of transport for raw materials. For some companies, outsourcing
production involves not only a single country, but several countries for different
parts of their products.
However, outsourcing not only extends the production process globally, but also
the company’s procurement network. Having suppliers in different geographic
locations complicates the supply chain. Companies will have to deal with,
coordinate, and collaborate with parties across borders regarding manufacturing,
storage, and logistics. Furthermore, they have to extend or maintain fast delivery
lead times to customers who want to receive their products on schedule despite the
increased complexity in the manufacturer’s supply chains. Finally, they also have
to maintain real-time visibility into their production cycle — from raw materials to
finished goods — to ensure the efficiency of their manufacturing processes.

Second, as companies expand sales into global markets, localization of existing

products requires a significant change in the supply chain as companies adapt their
products to different cultures and preferences.  There is an inherent risk of losing
control, visibility, and proper management over inventory , especially if enterprise
applications are not integrated.  This requires managing diverse structures of data
across geographies effectively.

For example: many manufacturers in Asia still handle trading partner

communications via fax and email while suppliers in North America and Europe
have utilized EDI for decades.  As technology matures, suppliers in emerging
markets may skip EDI altogether and move to a more modern API driven approach
to communication just as developing countries have skipped land lines in favor cell
phones.

Supply chain practitioners need to ask if their enterprise technology is prepared to

handle these diverse forms of communication that arise from Globalization, and
build a business case to stay prepared.

Key Issue #2: Fast-changing Markets

According to EduCBA, consumer behavior is affected by cultural, social, personal,
and psychological factors that are quickly being changed by technology and
globalization. Social media is creating new pressures for consumers to conform
while putting pressure on enterprises to utilize these sources of information to
respond to changing preferences in order to stay interesting and relevant.
Like globalization, the fast-changing consumer market also brings with it supply
chain management challenges:
First, products have shorter life cycles due to rapidly changing market demands.
Enterprises are under pressure to keep up with the latest trends and innovate by
introducing new products, while keeping their total manufacturing costs low
because they understand that trends will not last for a long time. This also demands
a flexible supply chain that can be utilized for manufacturing other products and
for future projects.
Second, aside from new products, companies also need to constantly update
product features. Enhancing product features requires enterprises to redesign their
supply chain to accommodate product changes.
Finally, innovation presents a challenge in forecasting demand for new products.
The constant innovation necessitated by fast-changing markets also means
enterprises will constantly have to anticipate demand for new products. Enterprises
need to create and maintain an agile supply chain that can respond well to spikes
and dips in demand and production needs.
Companies should be asking if they have all the data needed to make planning
decisions to address challenges created by fast-changing markets.  For example, if
stated lead times from suppliers are longer than actual times, this will lead to
higher inventory levels than are actually required and affect costly decisions
around network planning and optimization.  Omnichannel retail has created silos of
sales data that have to be blended and harmonized to detect demand signals earlier
in the planning process as well.

Key Issue #3: Quality and Compliance

Aside from influencing consumer behavior, social media highlights the importance
of having high-quality products. According to research conducted by eMarketer,
reading reviews, comments, and feedback is the top social media activity that
influences online shopping behavior. Furthermore, social media has not only raised
consumers’ expectations of product quality, but has also amplified the
damages caused by product recalls. Thus, enterprises are under increasing pressure
to create high-quality products and to create them consistently. They can do so by
addressing quality at every level of the supply chain, such as raw materials
procurement, manufacturing, packaging, logistics, and product handling.
Product quality often goes hand-in-hand with compliance. Enterprises need to
ensure that they meet local and international regulatory standards in
manufacturing, packaging, handling, and shipping of their products. Aside from
passing quality control and safety tests, enterprises are also required to prepare
compliance documents such as permits, licenses, and certification which can
overwhelm them and their supply chain management systems.

Emerging capabilities like IoT, Smart Packaging, and Blockchain are changing

how compliance is enforced and measured.  However, these innovations will
produce streams of data that can’t be handled with the enterprise technology of the
past 20 years.  Managers should carefully consider where these investments make
sense and asking IT if the business is utilizing platforms based on micro-services
and big data to support these heavy data lifting requirements

Unit – V

Chain Management Strategy – Inventory Management – Push and Pull Systems – Demand and cash
flow in supply chain management – Enterprise Resource Planning (ERP) – Supply chain
managementmatrix.

Reference

https://www.referenceforbusiness.com/encyclopedia/FaFor/
Forecasting.html#ixzz7aRGTgxRS
Forecasting Methods - Top 4 Types, Overview, Examples (corporatefinanceinstitute.com)

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