Q:-1.

Explain the concept of Supply Chain Management

and its principle in detail.

Ans. Supply Chain is a network of interconnected organization

or organizational entities developed with the goal of getting the
right product to the right place at the right time.
Supply Chain Management is basically an information based
process that integrates the various activities, from raw material
supply to manufacturing and finally the supply of finished
products and services to the end customers. It is an approach to
controlling the physical flow of products and services from
suppliers to end users by coordinating the activities of suppliers,
manufactures, and end customers.
‘Supply Chain Management is the systemic, strategic
coordination of the traditional business functions and the tactics
across these business functions within a particular company and
across businesses within the supply chain for the purposes of
improving the long-term performance of the individual
companies and the supply chain as a whole.
“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.”

Principles of Supply Chain Management are –

A competitive advantage will exist only if several key attributes
exist in a supply chain. Five guiding principles are necessary for
effective supply chains.
(1) Know the customer: - Without a clear understanding and
definition of customer requirements, a supply chain cannot be
effectively constructed. To gain this understanding requires the
use of classical market research techniques, the construction of
an information infrastructure to capture customer transaction
data, and the storage and analysis of these data from an
operational perspective. The objective is to obtain a clear
statement of the customer’s requirements. A supply chain’s
requirements vary by customer, product, and location. These
requirements must be thoroughly understood and be the
foundation for constructing an efficient and effective supply
chain.

(2) Adopt lean philosophies: - During the past two decades,

operationally excellent companies have focused on creating
lean organizations. As a consequence, these companies have
shortened internal lead times and made them more predictable
and repeatable, reduced work-in-process inventories from
months of supply to days, implemented just-in-time delivery
strategies for their most costly component materials, and have
worked to dramatically reduce setup times. For maximum
supply chain efficiency, all partners must engineer, align, and
execute their processes so that the entire chain has the
aforementioned attributes. Lean supply chains must also be
designed as a system that quickly and profitably responds to
market demand fluctuations. Therefore, lean philosophies must
be extended beyond a company’s internal operations to the
entire supply chain.

(3) Create a supply chain information infrastructure: - An

effective information infrastructure, both intra and inter-
organizationally, is necessary for a supply chain to achieve
competitive advantage. Today, business to business
collaboration via the Internet makes it much easier for supply
chain partners to share timely demand information, inventory
status, daily capacity usage requirements, evolving marketing
plans, product and process design changes, and logistics
requirements—to mention just a few. However, true
collaboration requires more than just data exchange between
successive supply chain partners. Rather, it requires joint
planning of inventory and production strategies, and the reliable
execution of operational plans on a continuing basis.
(4) Integrate business processes: - Business processes must
be established both intra- and inter-organizationally to support
the supply chain’s strategic objectives. These processes,
coupled with the information infrastructure, support the efficient
flow of material through the supply chain. While much attention
has been placed on understanding business processes within
organizations, it is essential to understand what processes must
be built inter-organizationally to leverage and enhance partners’
capabilities. These inter-organizational processes must be
designed to take advantage of the increased information that
drives daily supply chain decisions.

(5) Unite decision support systems: - Academics and

software providers have designed and built Decision Support
System (DSS) environments for individual companies and supply
chains. These environments are based on different philosophical
models. Also, they differ in how they forecast demand, and how
they drive production and allocation decisions. Their goal is to
generate plans that simultaneously consider all elements of the
supply chain.

Q:-2. Define Logistic Management and explain its

objectives in detail.
Ans. Logistics is also referred to as physical distribution. Philip
Kotler defines logistics as “planning, implementing, and
controlling the physical flows of materials and finished goods
from point of origin to point of use to meet the customer’s need
at a profit.”
Logistics Management is basically an integrative process that
optimizes the flow of materials and supplies through the
organization and its operations to the customer.
“Logistics Management is that part of Supply Chain
Management that plans, implements, and controls the efficient,
effective forward and reverse flow and storage of goods,
services and related information between the point of origin and
the point of consumption in order to meet customers'
requirements.” - Council of Logistics Management
“Logistical Management includes the design and administration
of system to control the flow of materials, work-in-progress and
finished inventory to support business unit strategy.” –
Bowersox & Closs
The ultimate objective of the logistics function is to support
corporate goals by delivering products to the customer at a time
and place of his choosing. However, this objective must be
balanced against the cost of providing the service and another
objective of logistics is to facilitate the flow of materials across
the supply chain of an enterprise so as to cost-effectively make
the right product available at the right place, at the right time.

The Objectives of Logistic Management

The primary objective of the logistics system is to effectively

and efficiently move the inventory in the supply chain so as to
extend the desired level of customer service at the least cost.
Following are the objectives –

1. Inventory Reduction: - It is one of the prime factors that

can adversely affect the bottom line of an enterprise. Through
the financial accountancy perspective, inventory is an asset and
does not cause any appreciable disadvantage, even when
stocked in excess. The prime objective of logistic is to maintain
the inventory at the minimum level. However the customer
service goal can be managed through small but frequent
suppliers. This will help in reducing the inventory level. As a
result, the inventory related cost will come down drastically
while transportation cost will go up marginally. The net effect
will result in better margins.
2. Reliable and Consistent delivery performance: -
Timely delivery is crucial to the customer to keep up his
production schedule; he is not interested in the delivery of
material ahead of schedule. This area of operation is subject to
variance. However, proper planning of transportation modes
inventory availability, long with variation factor, will reduce the
variance. The other objective of logistics should be consistency
in delivery performance; this will help in building customer
confidence and contribute in creating long term relationships.

3. Freight Economy: - Freight is the major cost element in

logistical cost. This can be reduced by adopting measures like
freight consolidation, transport mode selection, route planning,
long distance shipments, etc.

4. Minimum product damages: - Product damage adds to

the logistical cost. The reason for product damages are
improper logistical packaging, frequent consignment handling,
absence of load unitising, etc. The use of mechanised material
handling equipment, and proper logistical packaging will reduce
product damages.

5. Quick response: - This aspect is related to the capability of

the firm to extend service to the customer in the shortest time
frame. The usage of latest technologies in information
processing and communication will enhance the decision
making capability in term of accuracy and time, enabling the
enterprise to be flexible enough to fulfill the customer
requirement in volume and varieties in the shortest time frame.

Q:-3. Explain the three phases of customer service.

Ans. Customer service is a set of activities and programmes

designed and implemented by a business firm to make the
buying experience more rewarding. These activities enhance the
value of the product and services the customer get from the
seller. Customer service is the most important dimension of the
product and service offered to the customer.
“A strategic process of cost efficient, value added benefits
provided to external customers so as to exploit their marketing
acumen in making actual sales.” – Agrawal

Features of Customer Service -

• Strategic process for value added service

• Trade-off between cost & service
• Happy & loyal customer
• Harmonious relationship between Supply Chain
members
 • Starts with an order entry & ends with delivery of goods
• Competitive advantage
• Increase in sales & improved profits
• Reflects corporate vision

The phases of Customer service

Customer service is the major of how logistics create time and

place utility for a product. The meaning of customer service will
vary with the organization, the product it is marketing, and the
transaction phase it is undergoing. Hence, customer service
depends on the phase of the transaction it is passing through.
These are three phases associated with the exchange process.
The degree of importance of each phase varies with
organizations and depends on the product and customer
requirements.

Pre-transaction Phase
This phase is more related to the policy enunciation for defining
the service level and related activities in quantitative and
qualitative terms. This is an important phase of exchange
process, which will help in moulding the organization towards
customer orientation and in turn influence the perception of the
firm in the mind of the customers. Following the elements of
pre-transaction phase-

1. Customer service policies statement in written

form - This will indicate the service standards of the firm. In
this phrase the firm will have to evolve a policy frame work
for performance measures, evaluation methods, reporting
structure, and reward structure.

2. Organization building - For implementing policy

directives on customer service the firm should formalize the
reporting structure, delegate authority, and allocate
responsibility. A proper reward system will motivate
employees involved in customer service to interface
effectively and efficiently with the customer.

3. Customer education - This is required for minimizing

customer complaints on product deliveries, product
operations and maintenance, spare parts, inventory
requirements and maintenance, freight charges, transit
damages, etc. customer education is done through manuals,
training, seminars or workshops.

4. System design - System configuration should take

care to answer all possible queries the customer would ask
 before placing an order. The system may be manual or fully
automatic, like in e-commerce. However, its prerequisites in
a competitive environment are responsiveness to customer
requirements and flexibility to take care of unplanned
events.

5. Structuring the service - The basic structure of

service depends on customer satisfaction, industry standards
and the service standards the firm would like to maintain.
Firm marketing capital goods may evolve a service structure
to extend lifetime product service commitments for the
supply of spares, irrespective of continuous product and
technology up gradation at its end.

Transaction Phase
During transaction phase customer service is associated with
routine task performed in the logistics supply chain. These task
need coordination for the entire system to be efficient and
effective in delivering the service to the customer as per the
desired standards. The following are the various service
elements associated with the transaction phase –

1. Order fulfillment reliability - In the transaction phase

the most important factor is the reliability in fulfilling the
order within the agreed time frame and also with respect to
the quality and quantity of the material ordered. This depend
on the close coordination and management of various
components of the order cycle such as order processing,
material planning, processing, allocation, picking, packing
and transaction. The customer’s production schedule is very
much depending on the reliability factor of order fulfillment
by the supplier.

2. Delivery consistency - The other important in the

transaction phase is the consistency in delivery of report
orders.

3. Order convenience - This is the ease with which

customer can place order. The barriers to convenience are
the paper work required by the supplier, compliance to
various procedures, complex payment terms, poor
communication network at the suppliers end, and poor
coordination in the marketing network of the suppliers.

4. Order postponement - The customer, due to some

reason, may require the entire order or some parts of it to be
postponed or executed in a phased manner. This may be due
to rescheduling of the requirements at his customer’s end. In
another case, due to availability of a certain product
category in the future, the seller may allow the buyer to
 place the order immediately and he would ship the product
when it is available on futures dates.

5. Product substitute - A situation may arise in which the

product ordered cannot be shipped due to certain
manufacturing or quality problems. In such cases the seller
may honour his commitment by offering a substitute product
of similar or better quality in different sizes from the
available brands in the market (at the same terms and
conditions) with the customer’s consent. For obtaining
consent for product substitutes, the seller needs to maintain
close interaction and clear communication with the
customers.

Post-transaction Phase
This phase is related to customer satisfaction and building up of
a long-term relationship with the customer. It involves
commitment of resources to offer the desired level of service.
For service based products this is an important phase, which
depends on the firm’s service quality and may make the image
of the company in the minds of the customers.

1. Orders status information - In e-commerce or B2B

business transactions the customer, after payment of part
value of the product as advance, requires feed back on the
status of the shipment on a continuous basis. His production
schedule or usage plans start only after the ordered product
reaches the site. Many leading firms have a consignment
tracking and tracing system installed on their website for
their clients to have online access to information.

2. Customer complaints, claims, return – The seller’s

responsibility is not over after the product is dispatched to
the client. The customer may get products damaged during
transit, or the product may not perform as per his functional
requirement, or he may get the wrong consignment. For
resolving these issues the manufacturer normally evolves a
product return policy and implements this policy through the
reverse logistics system.

3. Production installation, commissioning and

technical snags – Technically complex products need
installation, commissioning, and stabilization services from
suppliers or the product may develop technical snags during
it warranty period. To handle these issues, firms normally
have a separate set up for after sales service. The after sales
department takes care of all documentation, customers’
technical complaints, product installation, commissioning,
stabilization and handing over.
 4. Customer education and training - This is an
important service element in the post-transaction phase. In
the case of technically complex products, it is necessary for
the seller to train or educate the user regarding its
operation, for getting the desired functional output. This may
be done through product manuals, training workshops,
demonstrations, etc.

Q:-4. What do you understand by the term, ‘Reverse

logistics’? Which areas it is used effectively?

Ans. Earlier in the supply chain of an organization, there is a

unidirectional goods flow, i.e. from the manufacture to the end
user. Almost all the attention logisticians have been focused on
is there forward logistics activities. They think that once the
product is sold and delivered to the user, the responsibility of
the manufacturer ends. Manufactures consider that their
responsibility is limited to the extent of replacement of defective
products covered under the warranty period or products
damaged during transit. They are focusing on using the
‘reverse’ logistics activities as a tool for gaining competitive
advantage.
Reverse Logistics may be defined as a process of moving
good from their place of use, back to their place of
manufacturing for re-processing, refilling, repair, or waste
disposal. It is a planned process of goods movement in reverse
direction, done in an effective and cost efficient manner,
through an organized network. It can be stand-alone or
integrated system in the companies supply chain.

Reverse Logistics stands for all operations related to the reuse

of products and materials. It is "the process of planning,
implementing, and controlling the efficient, cost effective flow of
raw materials, in-process inventory, finished goods and related
information from the point of consumption to the point of origin
for the purpose of recapturing value or proper disposal.

The objective is to minimize the handling cost while maximizing

the value from the goods, or proper disposal. Essentially,
reverse logistics is the opposite of logistics management. Goods
or materials move in the opposite direction of the supply chain,
that is, from the customer back to the supplier. Products are
returned to the manufacturer or retailer for any number of
reasons.
It is used in the following areas -

1. Refilling: -
2. Repairs and Refurbishing: - This is the regular feature in
service based product under a warranty period, has to be in
cooperated by manufacturers in their product offering. Almost
all customer durables such as television sets, audio system,
fans, and other consumer durables, and all industrial products
need repairs on regular bases. Refurbishing is done to goods
returned by customer due to damage, defects or below power
performance during the warranty period. Manufacturers
establish the reverse logistics
Q:-5. Explain the role of material handling in logistics.
What are the guidelines for material handling?

Ans. Material handling cannot be avoided in logistics, but can

certainly be reduced to minimum levels. The productivity
potential of logistics can be exploited by selecting the right type
of handling equipment. The selection of material handling
equipment cannot be done in isolation, without considering the
storage system. Investment in the material handling system will
be sheer waste if it is not compatible to the warehouse layout
plan. The layout will create obstacles for free movement of
equipment and goods, resulting in poor equipment productivity.
Recent trends indicate preference for automated systems with
higher logistical productivity to enhance the effectiveness of
human energy in material movement.

Role of Material Handling In Logistics

In the last several years, material handling has become a new,
complex, and rapidly evolving science. For moving material in
and out of warehouses many types of equipment and systems
are in use, depending on the type of products and volumes to be
handled. The equipment is used, in loading and unloading
operations, for movement of goods over short distances. In
warehouses, material handling operations are performed at the
following stage:
 • Unloading the incoming material from transport vehicles.
• Moving the unloaded material to assigned storage places
in warehouses.
• Lifting the material from its storage place during order
picking.
• Moving the material for inspection and packing.
• Loading packages / boxes / cartons on to transport
vehicles.

The efficiency of material handling equipment adds to the

performance level of the warehouse. The internal movement of
goods has a direct bearing on the order picking and fulfillment
cycle. The warehouse, wherein the material handling equipment
is in use is more sensitive to labor productivity then the
manufacturing center as material handling is more labor
intensive. There is scope for reducing labor and enhancing
productivity by using emerging technology in material handling.
A good material handling system will enhance the speed and
throughput of material movement through the supply chain.

Guidelines for Material Handling

It reflects the efficiency and speed of warehousing operations
and, which ultimately result in elongated or compressed order
completion cycles. Hence, the investment in material handling
system is strategic in nature and is always based on long term
requirements, considering product volume and varieties. For
designing an effective and efficient material handling system,
the guidelines normally followed are –

1. Designing the system for continuous flow of material, i.e.,

idle time should be zero.
2. Going in for standard equipment, which ensures low
investment and flexibility in case of changes in material
handling requirements in the future, if any.
3. Incorporating gravity flow in the material flow system, if
possible.
4. Ensuring that the ratio of the deadweight to the payload of
the material handling equipment is minimum.

Various material handling systems are in use, right from those

that are fully manual to the ones that are fully automatic.
However, the selection of a particular system depends on
factors such as

• Volumes to be handled
• Speed in handling
• Productivity
• Product characteristics ( weight, size, shape)
 • Nature of the product (hazardous, perishable, crushable)

Recent trends indicate preference for system with higher

logistical productivity. However, investment cost goes up in
more productive material handling systems using sophisticated
equipment. Hence, in a majority of cases a combination of both
manual and mechanized systems is quite common.

Q:-6. What are the different modes of transportation

available in India? Explain each mode with its merits and
demerits?

Ans. Transportation is a main artery of logistics and supply

chain management. It refers to the movement of goods from
one location to another. In other words, raw material can be
transported from suppliers to the production facilities and
finished goods from there to the consumers. Transportation
plays a significant role in supply chain processes because
products are rarely produced and consumed in the same
location. The very mission of logistic and supply chain
management is to make available the right quantity of the right
quality goods at the right time and place at least costs. This can
be achieved by proper planning of movement of goods and
appropriate use of transportation resources.
Different modes of Transportation

Modes of Transport

Air Water Surface

Inland Overseas

Road Rail Pipeline

Airways
When goods are transported by air, the mode of transportation
is called airways. This mode of transport is the newest and least
preferred mode, especially for domestic purposes. It needs only
a few hours for a shipment from one place to another, in
contrast to the days required with any other mode. That is why,
it is most preferred mode of transport for perishable goods like
flowers, etc. the growth of this mode is gradually increasing
because of considerable international trade and growing
awareness about logistical services.
Merits -
 • One of the significant merits of the air transportation lies
in Speed.
• Low packaging Cost
• Good Security
• Less risk
Demerits -
• High freight cost
• Limitation on size
• Need airport facility

Seaways
Seaways / Waterways are the oldest mode of transport. When
the goods are transported through the water medium by ship
then it is known as Seaways/Waterways transportation. Due to
globalization of the world market, seaways have a large
potential for a foreign trade.

Merits –
• Cheapest Mode of transportation
• Having a larger capacity and flexibility
• Size and shape no problem
Demerits –
• Slow Speed
• Varying handling conditions
 • Strong packing required
• Weather conditions affect delivery

Roadways
With the growing popularity of logistics and supply chain
management, the roadways have expanded rapidly since the
last three decades. Most of the logistical operations of cooperate
enterprises largely depends on this mode of transport.

Merits –
• Flexibility & Reliable
• Cheapest among the all modes of transport
• Door to door service
• Cost-comparative and negotiable
• Access to remote places
Demerits –
• Environmental pollution
• Varying handling condition
• Strong packaging required
• Slow speed

Railways
These are the principal carriers of man and material, and play a
major role in country’s trade commences activities. It is a main
source of supply of essential commodities, which are
transported across the length and breath of the country. Across
the world, railways have played an important role in
industrialisation and development of nations.

Merits –
• The tariff of railway is low, which encourages large
shipments over a longer distance.
• Any type of commodity can be moved
• Large carrying capacity
Demerits -
• Varying handling conditions
• Strong packing required
• Needs loading/unloading platforms
• Low delivery reliability

Pipelines
This mode of transport is very significant one but with the very
restricted scope. It is used primarily for the shipment of liquid
and gas like crude petroleum, refine and natural gas. The basic
nature of this mode of transport is unique in comparison to all
other modes.
Merits –
• 24 hours operation
• Helps in shipment of liquid & gas
• Environment friendly
Demerits –
• Not flexible
• Limited scope with respect to commodities

Q:-7. Write note on –

1. Inventory Management: - Inventory refers to the stock

of resources that possess economic value, held by an
organization at any point of time. These resource stocks can
be manpower, machines, capital goods or materials at
various stages.

Inventory management is primarily about specifying the

size and placement of stocked goods. Inventory
management is required at different locations within a
facility or within multiple locations of a supply network to
protect the regular and planned course of production
against the random disturbance of running out of materials
or goods. It involves a retailer seeking to acquire and
maintain a proper merchandise assortment while ordering,
shipping, handling, and related costs are kept in check.

Systems and processes that identify inventory

requirements, set targets, provide replenishment
techniques and report actual and projected inventory
status.

Handles all functions related to the tracking and

management of material. This would include the monitoring
of material moved into and out of stockroom locations and
the reconciling of the inventory balances. Also may
include ABC analysis, lot tracking, cycle counting support
etc.

Management of the inventories, with the primary objective

of determining/controlling stock levels within the physical
distribution function to balance the need for product
availability against the need for minimizing stock holding
and handling costs.

2. Bar coding: - A barcode is an optical machine-

readable representation of data, which shows certain data
on certain products. Originally, barcodes represented data
in the widths (lines) and the spacing of parallel lines, and
may be referred to as linear or 1D (1 dimensional) barcodes
or symbologies. They also come in patterns of squares,
dots, hexagons and other geometric patterns within images
termed 2D (2 dimensional) matrix codes or symbologies.
Although 2D systems use symbols other than bars, they are
generally referred to as barcodes as well. Barcodes can be
read by optical scanners called barcode readers, or scanned
from an image by special software.

The first use of barcodes was to label railroad cars, but they
were not commercially successful until they were used to
automate supermarket checkout systems, a task in which
they have become almost universal. Their use has played
too many other roles as well, tasks that are generically
referred to as Auto ID Data Capture (AIDC). Other systems
are attempting to make inroads in the AIDC market, but the
simplicity, universality and low cost of barcodes has limited
the role of these other systems.

3. Containerization: -
Containerization (or containerization) is a system
of intermodal freight transport using standard intermodal
containers as prescribed by the International Organization
for Standardization (ISO). These can be loaded and sealed
intact onto container ships, railroad cars, cargo planes,
and semi-trailer trucks.
The introduction of containers resulted in vast
improvements in port handling efficiency, thus lowering
costs and helping lower freight charges and, in turn,
boosting trade flows. Most goods can be shipped by
container.

The major features of containerization are:

a. Having permanent character with adequate

strength to be used repeatedly for packaging and
transport.

b. Specially designed to protect goods from breakages

and pilferages during transportation by different modes.

c. Equipped with fittings provision for easy handling

from one mode of transport to another.

Major Advantages:

• Speedier transportation

• Lower inventory cost due to reduction of transit time

• Minimum handling cost due to elimination of a route

handling

• No protective packaging requirement

• Less documentation
 • Very low insurance charges

4. Material Handling System: - Material Handling is the

movement, storage, control and protection of materials,
goods and products throughout the process of
manufacturing, distribution, consumption and disposal. The
focus is on the methods, mechanical equipment, systems
and related controls used to achieve these functions.
The material handling industry manufactures and
distributes the equipment and services required to
implement material handling systems. Material handling
systems range from simple pallet rack and shelving projects,
to complex conveyor belt and Automated Storage and
Retrieval Systems (AS/RS).

The material handling system (MHS) is a fundamental part

of a Flexible Manufacturing system since it interconnects
the different processes supplying and taking out raw
material, work pieces, sub products, parts and final
products. Due to the automated nature of the whole
production process, the MHS must respond in concert with
timeliness for all requirements of the processes and
systems.
 The MHS is composed of warehouses, buffers, conveyors,
transportation vehicles or systems, part sorters, feeders
and manipulators.

5. Warehouse site selection: - The consideration of

warehouse site selection revolves around two major factors,

i.e., service and cost. Product availability can be greatly
enhanced by locating the warehouse near the market.
Smaller and frequent deliveries, which customers prefer
nowadays, can be organized. This will enhance customers
confidence in the suppliers. However, the transportation
cost, which is the major element in logistical cost, depends
on the location of the warehouse. The other factors affecting
the site selection are –

• Infrastructure – The availability of proper

infrastructure such as approach roads, utilities (water,
electricity, communication), and labor has a great effect on
the efficiency and effectiveness of warehouse operations. For
cold storage warehouses, the availability electricity is a
major factor influencing site selection.

• Market – Distribution warehouses are located in

proximity to market or consumption center for offering better
service to customer. Frequent deliveries in small quantities,
as required by the customers, can be easily organized with in
limited geographical area coverage.
• Access – The location of the warehouse has the
greatest effect on primary transportation cost. Difficulty in
access will have influence on transportation cost.

• Primary transportation cost – It is the largest

component in product cost, particularly for low unit price
products. The location of the warehouse will have the
greatest influence on primary transportation cost.

• Availability – The availability of warehousing space in

urban areas, particularly in metros at cheap rates is remote
possibility. In such cases, storage has to be shifted beyond
municipal limits, where space is available at considerably
cheaper rate.

• Product - The type of product will have a profound

effect on the number of warehouses required and their
location. For example, perishable products need to be
delivered to the customer with in their expiry period and
hence should be located near consumption centers.
Warehouses with delivery limitations in terms of distances
and geographical reach should be small and numerous.
Common storage rooms of retail stores and small shops fit
into this category.

• Regulations – For certain type of products (explosives,

hazardous chemicals and radio active material), which can
cause damage to human life; a storage site selection is
guided by government regulations. In such cases, firms have
very few options in site selection.

• Local levies – Depending on the sales tax and octroi

charges in the region the location o fthe warehouse is
planned. Due to lack of uniformity in sales tax regulation
across various states, marketers invariably plan warehouses
to make the most to local sales tax disparities.

6. Third Party Logistics: - Third Party Logistics imply that

one company acts as an agent to look after the logistics
aspect of another company or group of companies.

3RD party logistics entails a study of the customer’s

business, supply chain and distribution network, in order to
formulate a comprehensive integrated logistics strategy,
which will help render all supply-related services from a
single window.

India's 3PL sector represents 3 percent of the country's

total logistics spend. The Indian 3PL market is expected to
grow at around 20 percent per annum in the next 3-5
years

The practice in India reveals that warehousing and

outbound transportation, custom clearing and forwarding
 are the most frequent outsourced activities. Activities such
as packaging, fleet management and consolidation have
started gaining attention for outsourcing.

7. Functions of Warehouses: - The contribution of

warehousing in the achievement of logistical objectives can

be assessed by a through discussion on its functionality. The
functions of warehousing are discussed below -

 RESTING PLACE: They Provide Convenient resting

place for surplus stock of goods, not wanted in the
market at the moment.

 SEASONAL SUPPLY: The gap of a certain time

interval between production & consumption can be easily
filled in by warehousing.

 STABLE PRICES: Supply can be regulated

according to changing market demand from one time to
another. Such adjustment is possible through
warehousing as a result a stable market.
  RISK FACTOR: Owners of goods can transfer the
risk of loss to warehousing companies, who must take
reasonable care for the safety of goods.

 EASY LOANS: Warehousing companies issue

warehouse warrants or receipts which can act as a good
security for raising bank loans.

In short farmers, producers, exporters, wholesalers & all

such parties engaged in the production and distribution of
goods are directly interested in obtaining efficient and
economical warehousing facilities.

Question 8:-Inventory, Asset or liablity?

One of the most complex and neglected areas of operations

is the management of inventory. While inventory is listed on
the left side of the balance sheet as an asset when it is not
managed properly it can be a liability.
Consider the following scenario:
A large, established retailer is facing a cash crunch. Sales
have been flat over the past few months, operating costs
have been tightly controlled in the recent past and
further cost reduction is likely to be at the expense of
customer service which could adversely impact revenue.
New debt financing options are not available as the
company is already leveraged above industry standards.
The share market is in a depressed state and it is not a
good time to seek new equity. Delaying supplier
payments is an option but the industry is controlled by
heavyweights who cannot be pushed around.
The CFO has noticed that inventory on the company’s
balance sheet is disproportionately high when compared
to other assets. His analyst has compared the numbers
with some Industry benchmarks that suggest the
inventory figures are higher than what competitors are
holding for comparable sales. Surely there is a way to
release cash by holding less? He has decided to call a
meeting with the marketing and supply-chain managers
to understand things better and find out if there are ways
to reduce inventory. The timing is appropriate as the
supply-chain manager has made a case for expanding the
existing warehouse – if there is a way to reduce inventory
without adversely impacting sales, surely there is no
need for an investment to expand the warehouse as well?
Unless there is sufficient knowledge about all costs
relating to inventory, it is impossible to accurately
calculate what is the appropriate lies in the ability to
balance the opportunity cost of a lost sale with the
carrying costs of holding too much inventory. For retail
companies, the challenge is to decide how much
inventory to hold in anticipation of future sales of
thousands of types of individual products. When
multiplied by the type of variations that each product
could have (commonly called stock taking units or SKUs),
the complexity is magnified several fold. For
manufacturing companies, management of inventory is
no less complex, as inventory can be in the form of
finished goods, work in progress (WIP) or raw material.
Inventory can build up due to poor forecasting of finished
goods, bad production planning or manufacturing
methods causing excessive WIP or inadequate raw
material planning and procurement. To make the
situation even more complex from a practical standpoint,
there is the problem of conflicting priorities within an
organisation. The marketing division prefers high levels of
inventories to ensure that sales are not lost. The finance
division prefers to keep inventory low so it doesn’t tie up
valuable capital. The operations division prefers sufficient
inventory levels to smooth production and keep
employees busy. Hence from a company’s perspective,
the right balance needs to be struck between these
seemingly divergent objectives. Understanding the true
costs associated
with inventory is a key factor in elevating the importance
of proper inventory management.
Demand for each SKU can vary greatly but if it generally
follows a normal distribution and its variability (measured
statistically as standard deviation) is known, it is possible
to calculate the safety stock that must be held (above
average demand) at various service levels. Statistical
tables are available that give you a ‘z factor’ at various
service levels. The safety stock you would carry at that
service level is z times the standard deviation.
Unfortunately, the relationship between inventory held
and service level is not linear, implying that as the
service level is increased incrementally beyond a
threshold value, the costs of carrying inventory rise
almost exponentially. The figure below is a typical curve
for a particular SKU. In this case, a 4% increase of service
level from 94% to 98% increases the inventory level from
205 to 265 units – almost 30%. This suggests that a good
understanding of this curve for each SKU is required to
optimise the level of inventory. From our experience, we
find that this concept and its implications are not very
clearly understood by management. Marketing managers
are prone to set arbitrarily high service levels to ‘be safe’
while determining inventory levels. This would result in
unacceptably high inventory levels for small
improvements in service – clearly, not a good financial
proposition.
As with most operating decisions, the trick is to arrive at
an optimum level – ie: the level representing a trade-off
between the physical costs of holding inventory and the
opportunity cost of lost sales. Let’s look at the different
costs associated with carrying inventory. There are four
elements:
Item costs – this is the unit purchase price and could
include all costs incurred in procuring the item (such as
transportation). This could vary with the number of units
purchased which adds another dimension to the
optimisation problem – striking a balance between a
discounted price for more units ordered with the
additional carrying costs.
Ordering costs – this includes all cost associated with
issuing a purchase order, including expediting and
receiving goods
Carrying costs – this consists of three components: Cost
of capital (cost to fund the investment) Variable cost of
storage (space and insurance) Cost of obsolescence (eg:
electronic goods), deterioration (eg: food) and loss
(pilferage)
Stock out costs – this includes current lost profits due to
the item not being available and goodwill (loss of
customers).
The challenge is to balance the first three costs with
stock out costs so that the total cost is minimized.
Another key but often misunderstood concept is customer
service level. Service level is generally defined as the
percentage of demand that can be filled from inventory.

Question:-9 Role of demand management in SCM?

The function of recognizing all demands for goods and

services to support the market place. It involves
prioritizing demand when supply is lacking. Proper
demand management facilitates the planning and use of
resources for profitable business results. The last few
decades have seen an increasing demand for enterprise
software applications that can streamline supply chain
processes and provide lean manufacturing capabilities. At
the other end of the supply chain, companies have been
moving towards outsourcing their product distribution in
order to keep sales overhead in check without sacrificing
revenue.

These recent trends have resulted in a unique dilemma.

While companies can produce products more efficiently,
they have little knowledge regarding what to produce, for
whom and when. They now have better visibility into their
supply chains but they lack the same kind of visibility into
their often-fragmented demand chain.

The current economic slowdown and huge inventory

write-offs resulting from this lack of visibility have
highlighted the need for a systematic way to predict and
manage demand. New technologies provide the
capability to extend supply chain visibility that can
support a truly dynamic collaborative internal
environment; but companies are looking beyond sources
within the enterprise, such as sales and promotions
groups, to include customers in the demand management
cycle (1).

Accurate forecasting remains central to the success of a

demand management initiative, but demand
management is much more than just forecasting.
Traditionally, forecasting involves looking at past demand
data to predict future demand. Demand management
goes beyond the static forecasting of yesterday, replacing
it with a more fluid, ongoing view of determining demand
that involves all demand-chain constituents. Currently
there is a thrust towards real-time synchronization of the
supply chain to the demand signals. This collaborative
method enhances the accuracy of forecasting since all
factors affecting that forecast can be viewed by all
stakeholders, including customers (2). Companies can
begin to bridge the gap between their supply and
demand chains by doing the following:

1. Reshaping relationships with channel partners

to ensure accurate demand forecasts. Manufacturers
should implement a closed-loop process for gathering,
analyzing and filtering demand forecasts from channel
partners. The demand management system should be
tightly integrated with management systems for
entitlement and other benefit programs for channel
partners. This would help to ensure that just-in-time
manufacturing is performed for the right products, in the
right quantity, at the right time

2. Basing inventory allocations on real-time

demand forecasts that incorporate information
from all channels—both direct and indirect.
This increases revenues by targeting allocations to those
channels and locations that are the most effective
sellers.
3. Ensuring that your own house is in order.
According to Andy De, director of solutions marketing for
i2, demand management solutions are most effective
when paired with other supply chain applications. Says
De, "Having an accurate picture of demand is irrelevant if
you don't have a supply chain that can meet it." In
addition to cooperation from other supply chain partners,
in order to achieve the benefits of a truly dynamic
collaborative environment, companies need to get their
internal demand management processes in order (3). For
example, the promotions group in a company responsible
for creating and driving demand is often disconnected
from the operational group that produces the product and
as a result ends up spending money promoting a product
that operations cannot deliver. Ensuring that the different
groups that have a stake in the demand process are
connected is important.

4. Ensuring the presence of accurate intelligence

along with collaboration and automation.
New technological developments have enabled real time
flow of information within and across enterprises leading
to better forecasts and an enhanced ability to respond
rapidly to customer requirements. The downside to these
automated processes is that they could be transferring
bad information. Despite sophisticated statistical
methods, it is impossible to eliminate market uncertainty
from the forecasting process. Customers’ purchasing
departments have every incentive to inflate estimates. It
is important to have people in place who can analyze the
forecast to see how it fits in the total market so that the
company builds to actual end-unit demand rather than
estimates that have been distorted as they travel through
intervening layers (4). Providing greater supply chain
visibility to downstream supply chain partners will
eliminate their need to overstate forecasts.

5. Choosing demand management applications that

address the unique challenges faced by the
specific business. Many existing applications fail to
fulfill the specific demand management needs of
companies. Some enterprise applications support fixed
pricing strategies but their solutions cannot easily
maintain dynamic forms or consumer manage prices
across channels. Other applications are limited in terms
of other demand management challenges. Certain
customer relationship management systems, such as
those from Siebel Systems or KANA, assist sales
personnel but lack insight into price sensitivity and supply
chain capacity and are therefore of little value in terms of
deciding which orders to take and which offers to
recommend.

In the near future, companies are likely to embrace three

continuous demand management strategies that
incorporate feedback loops from downstream processes
and market conditions: I) linking forecasts based on
causal variables, like economic indicators, to current
sales activity and field-level orders to create market
sensitive demand forecasts that set corresponding
capacity and inventory recommendations; II) linking
capacity to changes in demand so that companies can
optimize service levels, safety stocks, and inventory
levels, even in conditions of sudden demand variability;
III) adjusting price and contract terms to changing market
conditions (5).

Question:-10 What is logistic packaging? How it is

different from the consumer packaging.
Packaging logistics covers the design of a product, its
package and packing, as well as the adaptation and
control of the distribution system and the administrative
and information systems associated with the processes
throughout the whole chain from raw product, via various
processing stages, to the distribution to the end user, and
on to recycling and recovery. As both packaging and
logistics form important parts of packaging logistics
thinking, safe delivery can be offered to customers and
users at a low cost.

Our vision is to contribute to a sustainable society by

integrating product/packaging development,
innovation and supply chain management in economic,
technical and environmental life cycle perspectives.
Packaging is a coordinated system of preparing goods for
safe, secure, efficient and effective handling, transport,
distribution, storage, retailing, consumption and recovery,
reuse or disposal combined with maximizing consumer
value, sales and hence profit (Saghir, 2002). Above it’s
fundamental function of protecting, containing and
preserving the product, the functions of packaging are
manifold and complex and the definition here can be
related to three main logistics, marketing and
environment.
Logistics plan, implement and control, while Packaging
contains, protects, secure, promotes, sells, informs and is
a source of profit. Packaging logistics focuses on the
packaging system, addresses the interfaces between the
two systems of packaging and logistics and aims at
increased efficiency and effectiveness in the combined
system, optimally from point of origin to point of
consumption and further to reuse/recovery or disposal.
Saghir (2002) suggests the following definition of
Packaging Logistics: “The process of planning,
implementing and controlling the coordinated Packaging
system of preparing goods for safe, secure, efficient and
effective handling, transport, distribution, storage,
retailing, consumption and recovery, reuse or disposal
and related information combined with maximizing
consumer value, sales and hence profit.” Packaging
Logistics should be considered as an integrated
approach, where both systems of packaging and logistics
interact, complement and adapt to each other. The total
potential of improvement should be larger if an
integrated approach was adopted. Three distinguished
strategies to improvement when adopting the concept of
packaging logistics has been identified, to help
distinguishing possible potentials and show eligible
opportunities.

Consumer packaging:- Consumer packaging plays a

vital role in our daily lives. Packaging not only has to
protect its contents, its success rests on its ability to
distinguish – the visual and physical properties that make
it stand out from the crowd, and connect with consumers,
as part of the brand experience. Packaging must also add
value throughout the supply chain, making distribution to
and handling by the consumer as efficient as possible
while minimising its environmental impact. As the world
evolves, so must packaging, to meet the demands
of changing consumption habits, locations and occasions.
Packaging evolves to meet changing demands:-
What is driving the growing demand for consumer
packaging? Changes in lifestyle, demographics and
consumer habits are constantly influencing packaging
and its consumption. Some clear trends can be identified.
• Environmental concerns have led to growing consumer
interest in packaging materials and their recyclability.
The industry is innovating, producing plastic blends that
are more environmentally friendly. Aluminium cans
can benefit from this trend towards environmental
compatibility, being an infinitely recyclable package.

• Growing interest in general health and well being is

driving demand for new products and packaging, that
guarantees the quality of the product. This has led to
increased use of tamper evident closures and high tech
RFID tagging in the pharmaceutical industry, where
counterfeiting is a serious problem.
• Premiumisation is a trend connected to packaging
distinction. It is becoming increasingly important for
brands to make their products stand out on crowded
retailers shelves. This can for instance be achieved
through shape, size or even various finishes.

• ’Homing’ is a trend evident in some parts of the world

where people are preferring to stay at home rather
than go out to restaurants and bars. This has a knock on
effect in increased retail sales, and therefore growth
in demand for packaged consumer goods.