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Demand forecasting

Meaning Importance Methods

Why demand forecasting?

Planning and scheduling production Acquiring inputs Making provision for finances Formulating pricing strategy Planning advertisement

Specifying the objective Determining the time perspective Making choice of method Collection of data Estimation and interpretation of results


QUALTITATIVE TECHNIQUES 1)EXPERT OPINION Delphi method. 2)SURVEY 3)MARKET EXPERIMENT Test marketing Controlled experiments. QUANTITATIVE TECHNIQUES 1)Time Series Analysis. 2)Barometric Analysis. a) leading indicators b)Coincident indicators c) lagging indicators.

Expert Opinion
The expert opinion method, also known as EXPERT CONSENSUS METHOD, is being widely used for demand forecasting. This method utilizes the findings of market research and the opinions of management executives, consultants, and trade association officials, trade journal editors and sector analysts. When done by An expert, qualitative techniques provide reasonably good forecasts for a short term because of the experts familiarity with the issues and the problems involved. DELPH I METHOD:- The Delphi method is primarily used to forecast the demand for NEW PRODUCTS.

A firm can determine the demand for its products through a market survey. It may launch a new products, if the survey indicates that there is a demand for that particular product in the market. For example, Coke in India expanded its product range beyond carbonated drinks, after the company conducted a nationwide survey. The survey revealed that about 80% of the youth preferred to drink tea or coffee rather than carbonated drinks at regular intervals. The remaining 20% preferred to have milk products while only 2% preferred to drink carbonated drinks like coffee. The company is now trying to bring tea and coffee brands to India by installing vending machines. It is also planning to introduce a coconut flavored drink in kerala and a black currant in Tamilnadu named portello.

Market Experiment Market Experiment can help to overcome the survey problems as they generate data before introducing a product or implementing a policy.

Market Experiments are two types:1) Test marketing:2) Controlled experiments:-

Test marketing
In this case, a test area is selected, which should be a representative of the whole market in which the new product is to be launched. A test area may include several cities and towns, or a particular region of a country or even a sample of consumers. More than one test area can be selected if the firm wants to assess the effects on demand due to various alternative marketing mix.
Advertising or packaging can be done in various market areas. Then the demand for the product can be compared at different levels of price and advertising expenditure. In this way, consumers response to change in price or advertising can be judged.


1) The test experiments are that they are very costly and much time consuming. If in a test market prices are raised, consumer may switch to the competitors products. It may be difficult to regain lost customers even if the price is reduced to the previous level. Moreover, it is often difficult to select an area, which accurately represents the potential market.


Controlled experiments
Controlled experiments are conducted to the test demand for a new product launched or to test the demands for various brands of a product. They are selected some consumers.


1) The consumers may be biased in the process of selection of a sample of consumers on which experiments is to be performed. 2)The selected consumers may not respond accurately If they come to know that they are a part of an experiment being conducted and their behavior is being recorded.

Time Series Analysis

The time series analysis is one of the most common quantitative method used to predict the future demand for a product. Here the past sales and demand are taken into considerations. TIME SERIES ANALYSIS IS DIVIDED INTO FOUR CATEGORIES: 1)TREND 2)SEASONAL VARIATIONS. 3)CYCLICAL VARIATIONS. 4)RANDOM FLUCTUATIONS.


1)TREND:- Past data is used to predict the future sales of firm trend is a long term increase or decrease in the variable. 2)SEASONAL VARIATIONS:- It is taken into account the Variations in demand during different seasons. Eg:- The sale of cotton dresses increases in summer. The sale of Woolen clothes increases in winter. 3)CYCLICAL VARIATIONS:- This variations in demand due to the fluctuations in the business cycle Boom, recession and depression. 4) RANDOM FLUCTUATIONS:- It may happen due to Natural calamities like flood, earthquake, etc. Which cannot be predicted accurately.

DEFINITION:- The prediction of turning points In one economic time series through the use of Observations on another time series called the Barometer of the Indicator. It can be divided into three groups 1)Leading indicators. 2)Coincident indicators. 3)Lagging indicators.

It compares the existing data available. In this Index includes such as things as average weekly hours worked and claims for Unemployment insurance, manufacturers new orders, stock prices, orders for plant and equipment, index of consumer expectations, and real M2 money supply.

Composite Of Leading Indicators

It is useful in understanding the business cycle. CLL Is primarily intended to identify changes in the direction of the economy. Components of the Index of Coincident Indicators are employees on nonagricultural payrolls, industrial production, Personal income minus transfer payments, manufacturing and trade sales.

The lagging indicator composite includes changes in labour costs per unit, ratio of inventory to sales, and figures on installment credit and loans, among other items, In Practical attempts to forecast the future, these indices are among the most important tools available to most organizations, including the government. These indicators provide signals of changes in economic activities like national income or national product, the level of employment and the rate of inflation.

Accurate demand forecasting requires
Product knowledge Knowledge about the customer Knowledge about the environment

Procurement Management

Current Process Group

Execution Planning Initiation
Integration Key: Past lecture Current lecture Future lecture Integration Scope Time Cost Quality HR Communications Risk Procurement Integration Quality HR Communications Procurement Procurement

Closing Control
Integration Scope Time Cost Quality HR Communications Risk Procurement Procurement Integration Procurement

Procurement Management
Acquisition of goods and services, including: Plan Acquisitions Define what to procure Plan Contracting Prepare a solicitation Request Proposals Solicit responses Select a Vendor Evaluate and choose a vendor, and negotiate a contract Administer the Contract Manage the vendor relationship, document ongoing contract activities and request changes Closing the Contract Accept the final products of the contract

Planning Process Group Continue project integration management by including a procurement management plan in the project management plan
Closing Process Group Acceptance of contract deliverables and project phases and formally completing the project

Plan Acquisitions
Acquisition options: Upgrade Modify the existing system Build Develop system from the ground up internally or through a third party Buy Purchase a Commercial-Off-The-Shelf (COTS) solution hosted internally or by a third party Transfer Obtain public domain or no/low-cost license software from a third party Re-Platform Convert the status quo to a new technology platform using internal or third party resources

Prepare Requirements
Focus on strategic objectives
View IT as a tool enabling successful clinical improvements tied to an organizations objectives, e.g., measure a successful EMR implementation by how it achieves increased patient safety Define user requirements tied to strategic objectives Avoid re-inventing the wheel by using existing examples of requirements instead of starting from scratch

Plan Contracting
Reduce the time to procure a system by limiting initial vendor proposals to scripted demonstration of user requirements
Request vendor costs and support for technical requirements from only those vendors that support user requirements Maintain consensus by working with key users as they prepare requirements, conduct vendor demonstrations and select the best option

Request Proposals
Identify vendors that support user needs, e.g., EMR niche, provide similar products to competitors and/or have existing relationships with your organization Prepare a vendor short-list and solicit proposals

Prepare solicitation document Issue RFP Administer vendor solicitation process

Select Vendor
Evaluate vendors during demonstrations Request finalists costs and support for technical requirements Check references and conduct site visits Select vendor supporting most user requirements at lowest cost

Negotiate Contract
Use an agreement provided by your organization not the vendor

Include a contract scope of services based on the project SOW, which defines the criteria for approval of and payment for deliverables
Assemble your negotiating team, including project manager and an attorney with system procurement experience Identify, prioritize and share negotiation issues with vendor Obtain and evaluate vendor response Prepare fallback response and share with vendor Narrow issues to short-list and conduct face-to-face negotiations

Administer Agreement
Use contract scope of services , project schedule and budget as standards Monitor vendor compliance Identify deviations and define agreed upon corrective actions Prepare change orders/contract amendments where required by corrective actions Monitor and document corrective actions successful completion of

Close Agreement
Compare deliverable results to deliverable acceptance criteria included in contract scope of services Identify corrective actions if the vendor does not adhere to the acceptance criteria Review updated deliverable to confirm compliance Accept and pay vendor for deliverable when it complies with acceptance criteria

Inventory Management

What is inventory?

Inventory is the raw materials, component parts, work-in-process, or finished products that are held at a location in the supply chain.

Why do we care?
At the macro level:

Inventory is one of the biggest corporate assets ($).

Investment in inventory is currently over $1.25 Trillion (U.S. Department of Commerce). This figure accounts for almost 25% of GNP.

Enormous potential for efficiency increase by controlling inventories

Why do we care?
At the firm level:

Sales growth: right inventory at the right place at the right time Cost reduction: less money tied up in inventory, inventory management, obsolescence

Higher profit

Why do we care?
Each of Solectrons big customers, which include Cisco, Ericsson, and Lucent was expecting explosive growth for wireless phones and networking gear.when the bottom finally fell out, it was too late for Solectron to halt orders from all of its 4,000 suppliers. Now, Solectron has $4.7 billion in inventory. (BW, March 19, 2001) When Palm formally reported its quarterly numbers in June, the damage was gruesome. Its loss totaled $392 million, a big chunk of which was attributable to writing down excess inventory - piles of unsold devices. (The Industry Standard, June 16, 2001) Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventories. (WSJ, August 1993)

How do you manage your inventory? How much do you buy? When?
Soda Milk Toilet paper Gas Cereal Cash

What Do you Consider?

Cost of not having it. Cost of going to the grocery or gas station (time, money), cost of drawing money. Cost of holding and storing, lost interest. Price discounts. How much you consume. Some safety against uncertainty.

Costs of Inventory
Physical holding costs:
out of pocket expenses for storing inventory (insurance, security, warehouse rental, cooling) All costs that may be entailed before you sell it (obsolescence, spoilage, rework...)

Opportunity cost of inventory: foregone return on the funds invested. Operational costs:
Delay in detection of quality problems. Delay the introduction of new products. Increase throughput times.

Benefits of Inventory
Hedge against uncertain demand Hedge against uncertain supply

Economize on ordering costs

Smoothing To summarize, we build and keep inventory in order to match supply and demand in the most cost effective way.

Modeling Inventory in a Supply Chain

Supplier Retail Warehouse

Home Depot
Our inventory consists of up to 35,000 different kinds of building materials, home improvement supplies, and lawn and garden products. We currently offer thousands of products in our online store. We offer approximately 250,000 more products through our special order services.

Different types of inventory models

1. Multi-period model

Repeat business, multiple orders

2. Single period models Single selling season, single order

Multiperiod model
orders On-hand inventory


Key questions:

Ordering costs Holding costs

How often to review? When to place an order? How much to order? How much stock to keep?

Multiperiod model The Economic Order Quantity




Demand is known and deterministic: D units/year We have a known ordering cost, S, and immediate replenishment Annual holding cost of average inventory is H per unit Purchasing cost C per unit

What is the optimal quantity to order?

Total Cost = Purchasing Cost + Ordering Cost + Inventory Cost

Purchasing Cost = (total units) x (cost per unit) Ordering Cost = (number of orders) x (cost per order) Inventory Cost = (average inventory) x (holding cost)

Finding the optimal quantity to order

Lets say we decide to order in batches of Q Inventory position

Number of periods will be


Q The average inventory for each period is Q 2

Total Time

Period over which demand for Q has occurred


Finding the optimal quantity to order

Purchasing cost = D x C

Ordering cost =

D Q Q 2

x S

Inventory cost =

x H

So what is the total cost?

TC = D C + D Q S + Q H

In order now to find the optimal quantity we need to optimize the total cost with respect to the decision variable (the variable we control)

Which one is the decision variable?

What is the main insight from EOQ?

There is a tradeoff between holding costs and ordering costs

Total cost

Holding costs

Ordering costs Order Quantity (Q*)

Economic Order Quantity - EOQ

Q* = 2SD H

Example: Assume a car dealer that faces demand for 5,000 cars per year, and that it costs $15,000 to have the cars shipped to the dealership. Holding cost is estimated at $500 per car per year. How many times should the dealer order, and what should be the order size?


2(15,000 )(5,000 ) 548 500

If delivery is not instantaneous, but there is a lead time L: When to order? How much to order?
Order Quantity Q Inventory

Lead Time Place order Receive order


If demand is known exactly, place an order when inventory equals demand during lead time.
Order Quantity Q Inventory

Q: When shall we order? A: When inventory = ROP Q: How much shall we order? A: Q = EOQ

Reorder Point (ROP) ROP = LxD Lead Time D: demand per period L: Lead time in periods Place order Receive order


Example (continued)
What if the lead time to receive cars is 10 days? (when should you place your order?) Since D is given in years, first convert: 10 days = 10/365yrs

R =

10 D = 365

10 5000 = 137 365

So, when the number of cars on the lot reaches 137, order 548 more cars.

But demand is rarely predictable!

Inventory Level Order Quantity

ROP = ???
Place order Receive order

Lead Time

Actual Demand < Expected Demand

Inventory Level Order Quantity

Lead Time Demand


Inventory at time of receipt Lead Time Place order Receive order Time

If Actual Demand > Expected, we Stock Out

Order Quantity

Stockout Point Inventory

Time Lead Time Place order Receive order

Unfilled demand

If ROP = expected demand, service level is 50%. Inventory left 50% of the time, stock outs 50% of the time.
Inventory Level Order Quantity

ROP = Expected Demand

Uncertain Demand


To reduce stockouts we add safety stock

Inventory Level

ROP = Safety Stock + Expected Expected LT Demand LT Demand Safety Stock

Lead Time Place order Receive order

Order Quantity Q = EOQ


Decide what Service Level you want to provide (Service level = probability of NOT stocking out)

Service level

Probability of stock-out

Safety Stock

Safety stock = (safety factor z)(std deviation in LT demand)

Service level

Probability of stock-out

Safety Stock Read z from Normal table for a given service level

Caution: Std deviation in LT demand Variance over multiple periods = the sum of the variances of each period (assuming independence) Standard deviation over multiple periods is the square root of the sum of the variances,

Average Inventory = (Order Qty)/2 + Safety Stock

Inventory Level

Order Quantity EOQ/2 Average Inventory

Safety Stock (SS)

Lead Time Place order Receive order Time

How to find ROP & Q

EOQ 1. Order quantity Q = 2. To find ROP, determine the service level (i.e., the probability of NOT stocking out.)

2 SD H

Find the safety factor from a z-table or from the graph. Find std deviation in LT demand: square root law.
std dev in LT demand ( std dev in daily demand ) LT D LT days in LT

Safety stock is given by:

SS = (safety factor)(std dev in LT demand)

Reorder point is: ROP = Expected LT demand + SS

3. Average Inventory is: SS + EOQ/2

Example (continued)
Back to the car lot recall that the lead time is 10 days and the expected yearly demand is 5000. You estimate the standard deviation of daily demand demand to be d = 6. When should you re-order if you want to be 95% sure you dont run out of cars?

Since the expected yearly demand is 5000, the expected demand over the lead time is 5000(10/365) = 137. The zvalue corresponding to a service level of 0.95 is 1.65. So

ROP 137 1.65 10(36) 168

Order 548 cars when the inventory level drops to 168.

Gaurav Narkhede | Josue Servalis | Praneetha Boda Mike Macas |

Part of firms logistics system that stores products at and between point of origin and point of consumption. Term Warehousing is referred as transportation at zero miles per hour Warehousing provides time and place utility for raw materials, industrial goods, and finished products, allowing firms to use customer service as a dynamic value-adding competitive tool.


The warehouse is where the supply chain holds or stores goods. Functions of warehousing include Transportation consolidation Product mixing Docking Service Protection against contingencies

Public Warehousing Private Warehousing Contract Warehousing Multi-client Warehousing


Ideal Facility for Pure Supplier Consolidation (Full Pallet Movement)

Warehouse Space Requirements


Use one-story facilities Move goods in a straight line Use efficient materialshandling equipment Use an effective storage plan

Minimize aisle space



Schedule Carrier Unload Vehicle Inspect for damage

Identify Product Identify Product Location Move Products Update Records


Equipment Stock Location Popularity Unit Size Cube

Shipping Preparation
Packing Labeling Stacking

Order Picking
Information Walk & Pick Batch Picking

Shipping Schedule Carrier Load Vehicle Bill of Loading Record Update


Provide timely customer service.


Keep track of items so they can be found readily & correctly. Minimize the total physical effort & thus the cost of moving goods into & out of storage. Provide communication links with customers

Benefits of Warehouse Management Provide a place to store & protect inventory Reduce transportation costs Improve customer service levels Complexity of warehouse operation depends on the number of SKUs handled & the number of orders received & filled. Most activity in a warehouse is material handling.


Capital costs
Costs of space & materials handling equipment Operating costs Cost of labor Measure of labor productivity is the number of units that an operator can move in a day

Receive goods Identify the goods Dispatch goods to storage Hold goods Pick goods Marshal shipment Dispatch shipment

Receive goods
Accepts goods from Outside transportation or attached factory &

accepts responsibility
Check the goods against an order & the bill of loading Check the quantities Check for damage & fill out damage reports if necessary Inspect goods if required

Identify the goods

items are identified with the appropriate stockkeeping unit (SKU) number (part number) & the quantity received recorded

Dispatch goods to storage

goods are sorted & put away

Hold goods
goods are kept in storage & under proper protection until needed

Pick goods
items required from stock must be selected from storage & brought to a marshalling area

Marshal the shipment

goods making up a single order are brought together & checked for omissions or errors; order

records are updated

Dispatch the shipment

orders are packaged, shipping documents are prepared, & goods loaded on the vehicle

Operate an information system

a record must be maintained for each item in stock showing the quantity on hand, quantity

received, quantity issued, & location in the


Maximize productivity & minimize cost, warehouse management must work with the following
Maximize use of space

space is the largest capital cost

Effective use of labor & equipment labor is the largest operating cost material handling equipment is the second largest capital cost


Cube utilization and accessibility Stock location Order picking and assembly Physical Control & Security - Elements

Cube utilization and accessibility

Goods stored not just on the floor, but in the cubic space of the warehouse; warehouse capacity depends on how high goods can be

Accessibility means being able to get at the goods wanted with a minimum amount of work

Cube utilization and accessibility


Stock Location
Objectives To provide the required customer service

To keep track of where items are stored

To minimize effort to receive, put away, and retrieve items Basic Stock Locating Systems Group functionally related items together

Stock Location
Fixed Location SKU assigned a permanent location, & no other items are stored there Fixed-location systems usually have poor cube utilization Usually used in small warehouses; throughput is small, & there are few SKUs

Floating (Random) Location

Goods stored wherever there is appropriate space Advantage is improved cube utilization

Stock Location

Two other systems sometimes used are Point-of-use storage

Inventory stored close to where it will be

needed Used in repetitive manufacturing & JIT systems Central storage Contains all inventory in one central location

Stock Location

Advantages of Point-of-use Storage Materials are readily accessible to users

Material handling is reduced or eliminated

Central storage costs are reduced Material is accessible all the time

Stock Location

Advantages of Central Storage Ease of control Inventory record accuracy is easier to maintain Specialized storage can be used Reduced safety stock, since users do not need to carry their own safety stock

Order Picking and Assembly

When an order is received, items must be obtained from the warehouse, grouped, & prepared for shipment, systems used Area system Zone system Multi-order system

Order Picking and Assembly continued

Area system Order picker circulates throughout warehouse selecting items on an order --

order is ready to ship when order picker is


Zone system
Warehouse is divided into zones, & each

picker works only in an assigned zone --

Order Picking and Assembly continued

Multi-order system Same as the zone system, except that each picker collects items for a number of orders at the same time

Good part numbering system


Simple, well-documented transaction system Identify the item Verify the quantity Record the transaction Physically execute the transaction

Limited access Inventory must be kept in a safe, secure (locked) place with limited general access Well-trained workforce

Logistic Management

LOGISTICS Defined Planning implementing and controlling the physical flow of material and finished goods from point of origin to point of use to meet customer`s need at a profit By Philip Kotler It is essentially a planning process and an information activity So A integrative process that optimizes the flow of material and supplies through the organization and its operations to the customer

The word logistic has originated from Greek word Logistikos and the Latin word Logisticus which means science of computing & calculating In ancient times it was used more in connection with moving armies, the supplies of food & armaments to the war front. During World War II logistics gained importance in army operations covering the movement of supplies , men & equipment across the border Today It has acquired the wider meaning and is used in the business for the movement of material from suppliers to the manufacturer and finally the finished goods to the consumers

Scope of Logistic It is of critical importance to the organization how it delivers products & services to the customer , whether the product is tangible or intangible. Effective & efficient Physical movement of the tangible product will speak of intangible services associated with the product and the organization which is delivering it. In Case of intangible product , the delivery of tangibles at the right place & right time will speak about its quality. On the macro level infrastructure such as Various modes of transport , transportation equip., storage facilities, connectivity & information processing are contributing to a larg3e extent in the physical movement of goods produced in manufacturing , mining & agriculture Sectors.

Scope of logistics
This speed & reliability in distribution of products & services contribute to a great extent in the growth of a country`s domestic & international trade . Logistic cost as a percentage of GDP across the world is shown in the following table Country Logistic cost as a percentage of GDP
Korea China Japan India France UK USA 16 15 14 13 12 11 10

Scope of logistics
India spent nearly $ 50 billion to move material from one use to another.
So the Public distribution system in the country needs logistical support for delivering goods at right place on time and the lowest cost. At Micro Level logistic plays a critical role in the value delivery system of business organization to provide superior customer service i.e. to achieve a desired level of delivered services and quality at the lowest possible cost. In a nutshell any productivity improvement that could be achieved in any part of logistic system,at the micro or macro level would help in cost reduction and proper deployment of scare national resources to the productive purposes.

In a manufacturing org. the business process starts with the flow of material from the suppliers, progress to the plant, then to the customer through the distribution channel the department may excel in their respective function but org. as a whole their performance may be dismal. Reason Lack of Co ordination in their activities They have different goal to cherish There is no single agency that coordinates their functions and homogenizes them. How to overcome ? Use of Logistic as a system

Logistic A system approach

Logistic recognizes that all the activities of material movement across the business process are interdependent and needs close coordination and these are to be maintained as a system and not the functional Silos. System is shown as logistic Mix including following functional Areas Order Processing Information Flow Warehousing Inventory control Packaging Transportation

Order Processing Involve following activities Order checking for any deviation in agreed on negotiated term Technical details;price;delivery period;payment terms;taxes etc Checking the availability of material in stock (material requisition) Production & material scheduling for shortage Acknowledging the order, indicating deviation if any It is routine operation but require great deal of planning training of people involved and investment to bring about efficiency & accuracy In a large organization a system capable of handling thousands of voluminous orders with minimum human involvement or without human involvement is a must involving shortened order fulfillment cycle to have edge over rivals

Information Flow It is basically information based activity of inventory movement across the supply chain. Hence role of information system plays a vital role in delivering superior customer service This function is required to facilitate the following information needs Order Registration Order checking & editing Order processing Coordination means to integrate the total supply chain of the company with informational needs as to time ,quantity, value e.g Lead time, rate of consumption , delivery schedule & price of the material , Transportation time & cost etc.

A storage place wherein finished goods are stored till they are sold.Effectiveness of an organization`s marketing strategy depends on making the right decision regarding warehouse.

Nowadays Warehouse are treated as switching facilities rather than storage place.It is a major cost center, many customer problem are the direct result of improper warehousing management. Major decision of ware house are as follows: Location ,Size & Number of warehousing facilities Warehouse layout Design of building Ownership of the warehouse

Inventory management
Point order problem That is How much to order When to order For this we require Dependable IMS Independent IMS Purchase Control Stores control
ABC Analysis VED Analysis
EOQ & EBQ Analysis

Issue management
Level Management MRP System

Perpetual inventory system

JIT System

Packaging It is also a critical element in physical distribution of the product , which influences the efficiency of the logistic system this is done with the view of following : Foe handling and damage prevention For communications For inter modal transportation Storage space economy Thus to reduce packaging cost

Foe the movement of goods from supplier to buyer , transportation is the most fundamental and important component of logistic. E.g. for low unit value products the transportation cost component is 20% of the product cost. In logistic cost its share varies up to 65-70% in case of mass consumed very low unit price products. Mode of transportation ( Cost & time factor) Own fleet or Outsourcing Route Planning Vehicle scheduling Are the few decision which are involved in transportation

Three Forces
Which have change the perspective of logistics


Focus on Supply chain Management Outsourcing of Non Core Competency Functional Area

The entire world has become a global village for marketers because of the liberalization of economics of most countries and the emergence of WTO which is forcing business organizations to supply products beyond the national boundaries wherever there is a market opportunity. In such conditions the role of

Will be to provide time and place time and place utility of the product to the customer

Focus on Supply Chain Management

Business the world over are striving for competitiveness. In their struggle for survival their focus has shifted to the supply chain I.e. Integrating the process of Procurement , processing & distributing to deliver value for money to the customer Two key roles logistics planning & support are Value delivery process success of supply chain management

Outsourcing of Non Core Competency functional Area

Outsourcing is a acceptable trend in business. Corporation have realized that doing everything by themselves does not result in effective & efficient use of scare resources available to them. It is better to outsource functional area to experts who can do job at the lowest cost and that to efficiently & Effectively. LOGISTICS Is one such area where most of business org. do not have enough expertise thus needs to be outsourced Thus Logistics have shaped into different service industry offering complete & customized logistics solutions

Value Chain
It is understood now that an organization`s competitive Success could only come through either cost leadership or offering differentiated product and services

Can provide both the benefits simultaneously Through its value chain activities Which can be categorized into different types Inbound logistics operations Out bound logistics Support activates e.g HR, Accounts & finace, IT & MIS


O A&F p e r operations a S&M t i Out bond In bound o Logistics logistics n s



Customer Value



Supply Chain








Inbound Logistics

Out Bound Logistics

Supply Chain
Material flow
Material flow

Stores RM



P r o c u r e m e n t


Information flow

D Stores is FG tr i b u Warehousing ti o n Customer Out bound logistics

Inbound Logistics

Logistics for Business Excellence

For Business Excellence logistics operation need to be integrated on the following two fronts integration of logistic into business Integration of components of logistics To achieve the objective of making available right product at the right place and at a right time at low cost , every business is required to integrate logistics into the business process. For logistic operation to run smoothly, proper integration amongst the component of logistic process is a must.

A/Cs FinanceUtilities Marketing PPC


Mat. Mng.



Organizational Functions
In process Log.


In Bound Log.


Out Bound Logistic


Logistic System Component

Transportation Material Handling & Storage Logistical Packaging


Inventory Mang.

Order Processing

Objectives of Logistic management

Inventory Reduction Reliable and consistent delivery performance Freight economy Minimum product damage quick Response

Amongst most of the Indian companies logistics outsourcing Has now become an accepted trend for the following reasons: Cost Saving Focus on core Business Paucity of funds Reduction in liabilities Wider Geographical coverage Cross pollination of better available practice

Warehousing Nowadays warehousing is used as a switching facility rather than as a long term storage house. Attention is paid to

Higher lower shorter inventory turnover operating cost cycle time And in light of these warehouse`s performance is judged by its productivity and cost performance while trying to achieve 2 polemic goals.
1 2

Customer`s satisfaction

lower cost of operation

We have to decide on 2 factors Whether to have Centralized decentralized warehouse warehouse

It ensures tight control On inventories and can Operate on EOS

multiple distribution centers location of sites

Objective Main better customer service low operating cost Ancillary objective
Maximum utilization of storage space Higher labour productivity Maximum Asset utilization Reduction in material handling Increase in inventory turnover Reduce order filing time

Warehousing Function 3 Functions Material Storage Function

Material Handling Function Information Handling Function

Material Storage function Due to non synchronization of Manufacturing cycle with that of the consumption cycle of the material , storage of the material remains a big hurdle So material storage is required to accommodate the following functions: Holding Consolidation Postponement Break Bulk packing Cross Docking Mixing

Material Handling function

This involves three function

1. Loading & unloading 2. Material Movement

3. Order filing

Information handling function For this following information is required Goods inward Inspection & auditing Goods outward Excess Stock Invoicing Warehouse expenses Transit damage & Breakage Consignment tracking This all information facilitate quick decision