1.

1 Total Logistics Cost

The total logistics concept (TLC) aims to treat the many different elements that come
under the broad category of distribution and logistics as one single integrated system.

It is a recognition that the interrelationships between different elements, for example

delivery transport and storage, need to be considered within the context of the broader
supply chain. Thus, the total system should be considered and not just an individual
element or subsystem in isolation.

An understanding of the concept is especially important when planning for any aspect
of distribution and logistics.

An example
A company produces plastic toys that are packaged in cardboard boxes. These boxes are packed
on to wooden pallets that are used as the basic unit load in the warehouse and in the transport
vehicles for delivery to customers. A study indicates that the cardboard box is an unnecessary
cost because it does not provide any significant additional protection to the quite robust plastic
toys and it does not appear to offer any significant marketing advantage. Thus, the box is
discarded, lowering the unit cost of the toy and so providing a potential advantage in the
marketplace. One unforeseen result, however, is that the toys, without their boxes, can -not be
stacked on to wooden pallets, because they are unstable, but must be stored and moved instead in
special trays. These trays are totally different to the unit load that is currently used in the
warehouse and on the vehicles ( ie the wooden pallet). The additional cost penalty in providing
special trays and catering for another type of unit load for storage and delivery is a high one –
much higher than the savings made on the product packaging.

This example illustrates a classic case of sub-optimization in a distribution system. It

shows how the concept of total logistics can be ignored at some significant cost. As the
product packaging costs have been reduced, those concerned with this company
function will feel that they have done their job well. The overall effect on the total
logistics cost is, in fact, a negative one. The company is better served by disregarding
this potential saving on packaging, because the additional warehouse and transport
costs mean that total costs increase.

Four different levels of trade-off have been identified:

1. Within distribution components: those trade-offs that occur within single
functions. One example would be the decision to use random storage locations
compared to fixed storage locations in a depot. The first of these provides better
storage utilization but is more difficult for picking; the second is easier for
picking but does not provide such good storage utilization.

2. Between distribution components: those trade-offs between the different elements in

distribution. To reverse the previous packaging example, a company might increase the
strength and thus the cost of packaging but find greater savings through improvements
in the warehousing and storage of the product (ie block stacking rather than a
requirement for racking).

3. Between company functions: there are a number of areas of interface between

company functions where trade-offs can be made. This is illustrated in Figure 2. 1,
which lists some potential trade-offs and indicates how the different company functions
might be affected. An example is the trade-off between optimizing production run
lengths and the associated warehousing costs of storing the finished product. Long
production runs produce lower unit costs ( and thus more cost-effective production) but
mean that more product must be stored for a longer period (which is less cost-effective
for warehousing).

4. Between the company and external organizations: where a trade-off may be

beneficial for two companies that are associated with each other. For example, a change
from a manufacturer's products being delivered direct to a retailer's stores to delivery
via the retailer's distribution depot network might lead to mutual savings for the two
companies. These types of trade-offs are thus at the heart of the total logistics concept.

Planning for Distribution and Logistics

We need to take into consideration;
1. The time span of planning: Strategic, tactical and Operational (book page 48 -49)
2. Can also be done in terms of the broader planning cycle (page 50)

Financial Impact of Logistics (page 50-51)

Globalization and Integration (52-53)

Why, Key attributes and results
Cost and complexity as drivers of integrated systems (53)
Competitive advantage through logistics (56)

Customer Service and Logistics

7 rights of customer service -Page 64
Components/elements of customer service
-pre-transaction, transaction and post transanction-64/65
- multifunctional dimensions; time. Dependability, communications and flexibility -65

Total order fulfilment time

Reminder: Logistics functions
Logistics is a process of movement of goods across the supply chain of a company.
However, this process consists of various functions that have to be properly managed to
bring effectiveness and efficiency to the supply chain of the organization. The major
logistical functions are shown in Figure 1.2 Fig 1.2 Logistics functions

Logistics
Functions
 Order Inventory Material Logistical
Processing Warehousing Transportation Handling and Packaging Information
Control
Storage

LIS perspective of Order fulfillment

Order Processing
It is an important task in logistics operations. The purchase order placed by a buyer to a
supplier is an important legal document of the transactions between the two parties.
This document incorporates the description or technical details of the product to
supply, price, delivery period, payment terms, taxes and other commercial terms as
agreed. The processing of this docukment is important as it has a direct relationship
with the order or the performance cycle time, which indicates the time when the order
is received and when the material is received by the customer. The order processing
activity consists of the following steps:
 Order checking for any deviations in agreed-upon or negotiated terms
 Prices, payment and delivery terms
 Checking the availability of materials in stocks
 Production and material scheduling for shortages
 Acknowledging the order indicating deviations, if any.
The above process consumes more time if paperwork is involved. If the processing of
the order is slow and complicated, it will have a direct effect on the delivery period
commited. It may increase the transporation cost in order to deliver the material faster
to compensate for the delays in the order processing operation.

Order processing is a routine operation but requires a great deal of planning, training
of people involved, and investment in the system to bring efficiency and accuracy to it.
In a large organization where thousands of orders are received each day, it becomes
impossible to manually register the order and process the order quickly and correctly.
In such a situation, a system capable of handling such voluminous work with minimum
or no human involvement is a necessity. In addition, due to competitive pressure, the
order fulfillment cycle has to be shortened to have an edge over the rival firms for
retaining the customers. The only solution is to devise an order processing system
ensuring efficiency and accuracy , but with minimal investment costs.

Operating level
This starts with the receipt of an order from the customer. The operating –level
components that need to be coordinated are order registration, order processing,
procurement, order filling, packaging and transportation. The information system is
needed for logistic systems efficiency in handling the voluminous multiple activities.

Order Registration. This s the entry point for customer order. A purchase order may be
received through the e-mail, fax, e-mail, or EDI( Electronic Data Interchange) format.
The order is then edited in the system to check for the prices, quantities, taxes, levies,
delivery period and payment terms as agreed during the sales negotiation or as per the
enterprise’s acceptable norms. Any deviations are to be brought to the notice of the
customer for issuing amendments. The order is acknowledged and confirmed to the
customer for acceptance after ensuring that inventory availability and delivery dates
conform to the customer’s expectations. The main job at order registration is scruinity,
finding deviations if any, communicating with the customer for issuing amendments
and acknowledgement of order.

Order Processing. Once the order is registered and confirmed for execution, the system
looks for the inventory in the network. The available warehouse stock is first checked
and inventory allocaton is done. In case an item is not available, at the warehouse, the
system looks for the availability of the item across the work-in-progress inventory and
assigns the inventory from the next batch. if an item is not even scheduled for
production n the future, actions for its procurement from other distribution centers is
initiated or arrival of the next lot is awaited. The various functions covered under order
processing are:
  Inventory allocations
 Creating orders and follow-up of order backlogs
 Filled order document generation
 Linkage with other distribution centers
 Inventory replenishment
Inventory planning. Planning for procurement is based on the forecast for new orders
and the accumulated backlog. It covers forecast analysis and modeling; historical
analysis of inventory movement; forecast selection; inventory simulation and inventory
requirement planning based onn new oders expected and pending backlogs; and
inventory replenishment scheduling and inventory build-up scheduling. LIS here does
all the coordination activities for inventory and material movement across the supply
chain. After raw materials are received, it tracks them to the manufacturing schedules
for obtaing the finished goods to compete the order backlog and fill new orders.

Warehousign and distribution . LIS, for warehousing, typically covers the following:
 Allocation and assigning of storage space
 Distribution of inventory to various field distribution centers
 Material handling
 Inventory replenishment
 Inventory control
The LIS is more concerned with maximizing warehouse productivity

Procurement. The LIS is not apart of the procurement system; however, the role of LIS
in procurement is to coordinate inventory procurement by way of preparing inventory
forecast, coordinating the transportation, organisng, receiving, managing raw materials
stores, and issuing of material for manufacturing schedules. It looks into lot size
optimization for reducing transportation and handling charges.
Transportation and Delivery. Transportationa and Delivery involves three parties,
namely, the consigner, carrier and consignee. The information system effectively
coordinates these three parties. It helps to plan, execute and manage activities related to
the movement of goods across the supply chain. The decisions on the mode selection
for freight optimization, carrier selection for lowest freight rates and reliable services.,
and shipping schedules are possible through the information integration through LIS.
For efficient and effective movement of goods, integration and sharing of information
across consigner, carrier and consgneeis done by LIS, which also focuses on generation
of documents such as orders, invoice, delivery notes, packing list, and so on. LIS helps
in reducing transportation cost and helps increasing the planning capability of the
logistic department.

Service quality (67)

Service quality is a measure of the extent to which the customer is experiencing the level of service that
he or she is expecting.

There must be a match or else a service quality gap exists

Developing a service quality policy

-Its based on customer requirements, and an appropriate logistics operations developed

Steps (page 71/72-)

1. Identify the main elements of service and identify suitable market segments.

2.