ROLE OF LOGISTICS IN STRATEGY OF FIRM.

PROJECT REPORT ON

ROLE OF LOGISTICS IN STRATEGY OF

FIRM

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WHAT IS LOGISTICS?
"Logistics means having the right thing, at the right place, at the right time." Logistics is process
of planning implemented and controlling the effective and efficient flow and storage of goods,
services and related information from the point of origin to the point of consumption for the
purpose of conforming to customer requirements.

HISTORY OF LOGISTICS:-
The birth of Logistics can be traced back to ancient war times of Greek and Roman empires
when military officers titled as 'Logistikas' were assigned the duties of providing services related
to supply and distribution of resources. This was done to enable the soldiers to move from their
base position to a new forward position efficiently, which could be a crucial factor in
determining the outcome of wars. This also involved inflicting damage to the supply locations of
the enemy and safeguarding one's own supply locations. Thus, this lead to the development of a
system which can be related to the current day system of logistics management.
During the Second World War (1939-1945), logistics evolved greatly. The army logistics of
United States and counterparts proved to be more than the German army could handle. The
supply locations of German armed forces were inflicted with serious damages and Germany was
not able to wreak the same havoc on its enemy. The United States military ensured that the
services and supplies were provided at the right time and at the right place. It also tried to
provide these services when and wherever required, in the most optimal and economical manner.
The best available options to do the task were developed. This also gave birth to several military
logistics techniques which are still in use, albeit in a more advanced form

Logistics has now evolved itself as an art and science. However, it cannot be termed as an exact
science. Logistics does not follow a defined set of tables nor is it based on skills inherited from
birth. A logistics manager performs his duties and responsibilities based on his educational
experiences, skills, past experiences and intuition. These skills are nourished by a constant
application of the same by him for the betterment of his organization. The logistics manager
ensures that the company is benefited by an effective and efficient system of logistical
management. He also needs to ensure that the right kind of products and services are provided at

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the right time and for a right price, whether inside the organization's premises or delivery of
shipments outside the premises of the organization.
Logistics has come to be a kind of relief for many organizations that formerly looked upon it as a
burden. Companies nowadays are hiring people with the requisite knowledge to deliver
sustainable enhancements in the field of supply chain management. As has been the case
throughout most of logistics history, the task of a logistics manager involves a clear vision and a
drive within to deliver results under strict deadlines in addition to his usual responsibilities.

DEFINITIONS OF LOGISTICS:-
 Business Definition:
Logistics is defined as a business planning framework for the management of material, service,
information and capital flows. It includes the increasingly complex information, communication
and control systems required in today's business environment
 Military Definition:
The science of planning and carrying out the movement and maintenance of forces.... those
aspects of military operations that deal with the design and development, acquisition, storage,
movement, distribution, maintenance, evacuation and disposition of material; movement,
evacuation, and hospitalization of personnel; acquisition of construction, maintenance, operation
and disposition of facilities; and acquisition of furnishing of services
(JCS Pub 1-02 excerpt)
The procurement, maintenance, distribution, and replacement of personnel and materiel
 Webster’s Dictionary:
The process of planning, implementing, and controlling the efficient, cost effective flow and
storage of raw materials, in-process inventory, finished goods and related information from point
of origin to point of consumption for the purpose of meeting customer requirements
(Reference: Canadian Association of Logistics Management)
The science of planning, organizing and managing activities that provide goods or services.

 BUSINESS LOGISTICS –

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The science of planning, design, and support of business operations of procurement, purchasing,
inventory, warehousing, distribution, transportation, customer support, financial and human
resources.
Three objectives of logistics strategy:
 Cost reduction (variable costs)
 Capital reduction (investment, fixed costs)
 Service Improvement
The Increased Importance of Logistics is due to following reasons
 A Reduction in Economic Regulation
 Recognition by Prominent Non-Logisticians
 Technological Advances
 The Growing Power of Retailers
 Globalization of Trade

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COMPONENTS OF LOGISTICS MANAGEMENT:

COMPONENTS OF LOGISTICS MANAGEMENT

INPUT INTO LOGISTICS:-

NATURAL RESOURCES

Natural resources are derived from the environment. Many of them are essential for our survival
while others are used for satisfying our wants. Natural resources may be further classified in
different ways.
On the basis of the stage of development, natural resources may be called:

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 Potential Resources - Potential resources are those that exist in a region and may be
used in the future. For example, mineral oil may exist in many parts of India having
sedimentary rocks but till the time it is actually drilled out and put into use, it remains a
potential resource.
 Actual Resources are those that have been surveyed, their quantity and quality
determined, and are being used in present times. The development of an actual resource,
such as wood processing depends upon the technology available and the cost involved.
That part of the actual resource that can be developed profitably with available
technology is called a reserve.
 On the basis of renew ability; natural resources can be categorized into:
 Renewable Resources - Renewable resources are those that can be replenished or
reproduced easily. Some of them, like sunlight, air, wind, etc., are continuously available
and their quantity is not affected by human consumption. Some of these, like agricultural
crops, take a short time for renewal; others, like water, take a comparatively longer time,
while still others, like forests, take even longer.
 Non-renewable Resources - Non-renewable resources are formed over very
long geological periods. Minerals and fossils are included in this category. Since their
rate of formation is extremely slow, they cannot be replenished once they are depleted.
Out of these, the metallic minerals can be re-used by recycling them, but coal and
petroleum cannot be recycled.

HUMAN RESOURCES
Human beings are also considered to be resources because they have the ability to change raw
materials into valuable resources. The term Human resources can also be defined as the skills,
energies, talents, abilities and knowledge that are used for the production of goods or the
rendering of services. While taking into account human beings as resources, the following
things have to be kept in mind:

 The size of the population

 The capabilities of the individuals in that population.

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OUTPUTS OF LOGISTICS:-
MARKETING ORIENTATION (COMPETITIVE ADVANTAGE):
In a heavily competitive environment, a major concern of business management in general, and
logistics management in particular, is the strategic use of firm capabilities and distinctive
competencies for competitive advantage. Firm capabilities are those things that a company does
especially well that allow it to compete successfully and prosper in the marketplace.
1. Logistics examples include customer service, product availability, time advantages, and
low cost distribution.
2. Part of the logistics message to corporate management over the last several years has
been that logistics capabilities can make major contributions to overall corporate strategy
and performance, and even sometimes provide the core competitive competence by
creating differentiated customer value.

TIME & PLACE UTILITY:

Material handling and storage are typically labelled as "non-value adding" activities. While one
can appreciate the motivation behind such labeling as one directed towards waste reduction, it
can lead to is an erroneous assumption that all material handling and storage can be avoided.
While manufacturing processes provide "form utility", logistics related activities provide "time
and place" utility to a product. The challenge is to provide the time and place utility at a
competitive cost. If a company can achieve this goal, it will gain a significant competitive
advantage in the marketplace.

EFFICIENT MOVEMENT TO CUSTOMER:

Logistics forms the system that ensures the delivery of the product in the entire supply pipeline.
This includes transportation, packaging, storage and handling methods, and information flow.
The impact of logistics in the ability of a company to satisfy its customers cannot be overstated.
All other efforts at modernization within a company would not bear fruit until the logistics
system is carefully designed to facilitate the smooth and efficient flow of goods in the system.

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The industrial policies in India have prompted manufacturers to build plants in remote, backward
areas due to inexpensive land and tax benefits. This poses some serious logistical problems.
Apart from a poor road and transportation network, the existing communications system in India
leaves a lot to be desired by any international standard. It is in this context that logistics has to be
considered in India.

LOGISTICS ACTIVITIES CAN BE DIVIDED INTO THREE CATEGORIES:

 Production
 Storage
 Transportation
PRODUCTION:
Fundamental logistics questions are:
1. When should a resource be produced; and
2. Where a resource should be produced?
The “when” question includes the topics of aggregate resource planning, and production
scheduling.
The “where” question includes the topics of facility location and production allocation.
Some of the important production questions are:
(a) What outside source should be used to supply a part?
(b) Where should a new facility be built?
(c) When should a facility produce different items, taking into account:
• Seasonal demand patterns?
• Demand uncertainty?
• Cost of operating single, double, triple shifts?
• Labor costs?
(d) When should a firm use two or more sources for a part?
INVENTORY:
Fundamental logistics questions are (1) when should a resource (material, machine or labor) be
put in inventory and taken out of inventory; and (2) where should a resource be stored.

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The “when” question includes the general topics of economic-order-quantity models, safety
stock models and seasonal models, and specialized topics of fleet management, and personnel
planning.
The “where” questions includes the topic of inventory echelons.
Some of the important inventory questions are:
a) How much does it cost to store resources in inventory?
b) How much “safety stock” should be carried in inventory to prevent against
running out of a resource?
c) How much inventory should be carried in order to smooth out seasonal variations
in demand?
d) Where should replacement parts be stored in multi-echelon inventory system?
TRANSPORTATION:
Fundamental logistics are:
a) Where resources should be moved to, and by what mode and route;
b) When resources should be moved?
The “where” question includes the topics of terminal location, vehicle routing, and shortest path
methods and network flow allocation.
The “when” question includes the topic of distribution rules.
Some of the important questions are:
(a) When should shipment be sent through terminals, and when should shipment be sent
direct?
(b) Which, and how many, terminals should shipments be sent through?
(c) What are the best vehicle routes?
(d) When should a vehicle be dispatched over a route?

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Since logistics systems are always tightly connected in any firm or organization its plays
significant role in organization. As all these 5 business system are interdependent.

The Logistics (Strategic) Planning Triangle:-

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Inventory Strategy:-
Comprised of base inventory level and target inventory level. Base inventory level is made up of
aggregate lot-size inventory plus the aggregate safety stock inventory. It does not take into
account the anticipation inventory that will result from the production plan. The base inventory
level should be known before the production plan is made. The target inventory is equal to the
order point plus a variable order quantity. It is often called an order-up-to inventory level and is
used in a periodic review system.
Techniques of inventory control:
(a) Economic purchase order quantity (How much to order)
(b) Reorder level (when to order)
(c) Minimum inventory or safety stock.
Economic Purchase Order Quantities: In order to control inventory a decision model has been
developed to determine the optimum quantity of materials to be purchased on each purchase
order. The model determines the optimum working stock level to be maintained. Each time a
purchase order is placed, the company incurs certain costs. In order to minimize the costs of

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placing purchase orders, the company could increase the order quantity to meet the company’s
entire needs for the year at one time, incurring only the cost of one purchase order.
Reorder Level: Lead time is the time interval between placing an order and receiving delivery. If
the lead time and the quantity of demand during lead time are known with certainty the recorder
point may be determined.
Minimum Inventory or Safety Stock: There are several methods determining safety stock levels.
A rough and ready method followed by many companies is to provide a constant safety stock of
say, one or two month’s usage requirements regardless of the item. Another method mainly
based on intuition is to have large safety stock when quantity usage is high, lead time is long or
the ordering schedule is frequent. Small safety stocks can be maintained when there is low usage,
short lead time or infrequent ordering.
Location Strategy:-
Size: A company must determine what size property or facility it needs.
Labor: Companies must establish their labor criteria and determine what kind of labor pool they
will need, including the desired education and skilled levels.
Suppliers: Companies must consider the kinds of suppliers they will need near their locations. In
addition, having suppliers nearby can help companies reduce their production costs.
Community and site: Community and site evaluation involves examining whether a company
and a prospective community and site will be compatible in the long-term.
Trade zones: Companies may want to consider the benefits offered by free-trade zones, which
are closed facilities monitored by customs services where goods can be brought without the usual
customs requirements. The United States has about 170 free-trade zones and other countries have
them as well.
Transport strategy:-
Most important component of logistics is transport cost. Usually 1/3 - 2/3 of total cost.
Transport involves:
 Equipment (trucks, planes, trains, boats, pipeline),
 People (drivers, loaders & un-loaders), and
 Decisions (routing, timing, quantities, equipment size, transport mode).
When deciding the transport mode for a given product there are several things to consider:

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• Mode price
• Transit time and variability (reliability)
• Potential for loss or damage.
In developing countries it is necessary to locate production close to both markets and
resources, while in countries with developed distribution systems people can live in places far
from production and resources.
MODE OF TRASPORTATION IN LOGISTICS:-
Air
• Rapidly growing segment of transportation industry
• Lightweight, small items [Products: Perishable and time sensitive goods: Flowers,
produce, electronics, mail, emergency shipments, documents, etc.]
• Quick, reliable, expensive
• Often combined with trucking operations
Rail
• Low cost, high-volume [Products: Heavy industry, minerals, chemicals, agricultural
products, autos, etc.]
• Improving flexibility
• Inter-modal service
Truck
• Most used mode
• Flexible, small loads [Products: Medium and light manufacturing, food, clothing, all
retail goods]
Trucks can go door-to-door as opposed to planes and trains
Water
• One of oldest means of transport
• Low-cost, high-volume, slow
• Bulky, heavy and/or large items (Products: Nonperishable bulk cargo - Liquids,
minerals, grain, petroleum, lumber, etc )]
• Standardized shipping containers improve service
• Combined with trucking & rail for complete systems

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• International trade
Pipeline
• Primarily for oil & refined oil products
• Slurry lines carry coal or kaolin
• High capital investment
• Low operating costs
• Can cross difficult terrain
Transport Cost Characteristics:-
Fixed costs:
Terminal facilities
Transport equipment
Carrier administration
Roadway acquisition and maintenance [Infrastructure (road, rail, pipeline, navigation, etc.)]
Variable costs:
Fuel
Labor
Equipment maintenance
Handling, pickup & delivery, taxes
Transport Cost Characteristics:-
Rail
High fixed costs, low variable costs
High volumes result in lower per unit (variable) costs
Highway
Lower fixed costs (don’t need to own or maintain roads)
Higher unit costs than rail due to lower capacity per truck
Terminal expenses and line-haul expenses
Water
High terminal (port) costs and high equipment costs (both fixed)
Very low unit costs
Air

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Substantial fixed costs

Variable costs depend highly on distance traveled
Pipeline
Highest proportion of fixed cost of any mode due to pipeline ownership and maintenance and
extremely low variable costs
SOME ESTIMATES FOR LOGISTICS IN INDIA:-
LOGISTICS SPEND: US $ 50 B
SHARE OF GDP: 12 - 13 %
MAJOR ELEMENTS ARE (% AGE OF TOTAL):
TRANSPORTATION 35
INVENTORIES 25
PACKAGING 11
WAREHOUSING 9
OTHERS 6
LOSSES 14
Logistics cost can be 6-7% of gross sales for an industrial organization and can go up to 14-15%
for sectors like cement and bulk materials
CONCLUSION: -
In Today’s Business Organization, Logistics Is One of The Few Crucial Differentiators
Significantly Enhance Value to the Customers.
The New Models Of Business Mean Globalization Through Connectivity, Deregulation Of
Economies And Markets And Digitalization Of Technology And Therefore, Integrated Logistics
Becomes A Strategic Weapon For Business Organization. Hence Logistics Play an Important
Role in the Strategy of Today’s Business.

CASE STUDY OF LOGISTICS IN RELIANCE INDUSTRIES:

The Logistics services includes following stages:

• Warehousing Services
• Secondary Transportation
• Invoicing
• In Plant Logistics
• Distribution Solutions
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• Value Added Services

A. WAREHOUSING SERVICES:

• Site Selection / Commissioning of Warehouses

• Storage & Dispatch
• Management of Container Freight Station (CFS) / ICD / Consolidation Center
• Project Warehousing
• SITE SELECTION / COMMISSIONING OF WAREHOUSES

 SITE SELECTION:

Assistance is offered to the customer in selecting a location for his warehouse. Based on the
expertise and panel brokers available, company give the customers a choice from wide variety of
warehouses available in the area preferred by the customer. They also have their own
warehouses in key locations across the country.

 COMMISSIONING OF WAREHOUSES:

Commissioning warehouse for a customer is taken as a Project. All activities are planned. A cut-
over plan is prepared with time frame given for each and every activity. This plan is strictly
adhered to and any problem / deviation is proactively avoided. Company also advises clients on
all statutory compliances for a warehouse before commissioning.

• STORAGE & DISPATCH

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The goods received in the warehouse are properly stacked as per the stacking norms, on shelves
or on floor, palletized or non-palletized, as per the nature of goods. Utmost care is taken that
goods are not damaged while handling. Stock accuracy is maintained at 100%.
The goods are dispatched through customers' vehicles or through our own fleet of vehicles. The
goods are also dispatched through the vehicles which are attached to our organization. Loading /
unloading of goods is done by skilled labors who have expertise in such operations.

• MANAGEMENT OF CONTAINER FREIGHT STATION (CFS) / ICD /

CONSOLIDATION CENTER

Goods are received and stored shipping bill-wise. Containers are requisitioned, stuffed and
handed over to Ports. Import containers are de-stuffed, segregated and freight forwarded to
locations.

• PROJECT WAREHOUSING

Customer’s material is received in bulk, stored at vantage points and issued to multiple vendors
at site as per project schedule as well as vendor reconciliation.

B. SECONDARY TRANSPORTATION

Secondary Transportation includes delivery logistics of products from the warehouse to the
customer. In last mile deliveries, vehicles are sent directly to customer's premises, without any
transshipment, within the promised delivery period. Acknowledgement of delivery from the
unloading site is obtained and presented to confirm deliveries.
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Insurance for goods in transit is optional. If the customer desires, company offers to insure goods
in transit at best premium in consultation with the insurance companies.

Other Features of Secondary Transportation are:

•Transportation Planning & Execution

•Carrier Selection & LCV Fleet Management
•Reverse Logistics in city including B2B delivery
•Supervised deliveries / COD
•Suggestion on vehicle dimensioning
• TRANSPORTATION PLANNING & EXECUTION

Using company’s own or attached vehicles, goods are transported to customer's premises. Expert
loaders and latest Material Handling Equipments viz. Forklifts, Forklifts with Clamps, Hydra
trucks are used to ensure safe and faster loading of material. Their top most priority is to deliver
the material on time and in a secured way. Tracking services for the material can be provided on
request.
• CARRIER SELECTION & LCV FLEET MANAGEMENT

Transporters with proven track record and meeting key norms are empanelled as their authorized
carriers to handle consignments.
A dedicated team of professionals from transport industry is managing current fleet operations,
maintenance and statutory compliances of their own vehicles.

• REVERSE LOGISTICS IN CITY INCLUDING B2B DELIVERY

Rejected goods, Sales Returns, Empty Pallets or items within warranty meant for repairs etc are
picked up from customer. Movement of such goods back to warehouse is also undertaken by
company. The goods brought back are even returned to respective vendors from their
warehouses.
• SUPERVISED DELIVERIES / CASH ON DELIVERY

Company’s Large Network & Volumes facilitate smaller loads to be clubbed with other
consignments, thus facilitating transportation in most optimized cost. The vehicles are dispatched
with full approved capacity of the vehicle.
They even offer services of collecting cheque payments from the vendors to whom the material
is delivered. The cheques thus collected are handed over to the customers immediately.
• COMPANY’S OWN LIGHT COMMERCIAL VEHICLE (LCV) MANAGEMENT

They carry out (Local, primary) pick up from sourcing location and delivering to customer's
location in our own LCVs. Management of these LCVs is done by them.

C. IN PLANT LOGISTICS

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• In plant Warehouse & Stores management

• Order & Dispatch management
• In transit stock transparency
• Production schedule feeding
D. DISTRIBUTION SOLUTIONS
• Logistics re-engineering
• 3PL Consulting
• Lean Six Sigma for Logistics & Partner Solution
E. VALUE ADDED SERVICES
• Packaging
• Sorting / grading
• Kitting/Assembly
• Order Processing
• Claims Management
• Quality Assurance
• Bagging/ Pallatisation
• PACKAGING

At the warehouse we offer many value added services. Boxes received are opened and re-
packed as per the requirement of client. Combo packs of 2 or more products are also packed by
us as required.

• SORTING / GRADING

For Retail business, grading and sorting services are offered for goods like vegetables, fruits etc.
Graded and non-graded qualities are sorted out as per the requirement of the customer.

• KITTING/ASSEMBLY

Services such as Picking, Kitting, Spare Parts Kitting, especially for automotive industry, and
Domestic / Export Cargo packing are also offered by us.
• ORDER PROCESSING

The orders received are fulfilled with total accuracy. Stock discrepancies in dispatch are almost
nil. Regular MIS is sent to management on total orders processed in a day, orders not processed,
reasons for not processing an order, etc.

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• CLAIMS MANAGEMENT

Co-ordination services are offered to enable settlement of customers' claims from Insurance
Agencies
• QUALITY ASSURANCE

Based on the specifications approved by customer, quality of incoming / outgoing goods is

checked and it is ensured that only approved quality goods are dispatched.

• BAGGING/ PALLATISATION

Bag/Bulk break products into smaller parts as well as unitization of packages is undertaken by
us.

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