Logistics

Group A-02Chirantan Banik 11P016Sahil Modi 11P038Susovan Ray 11P055Syed Azharuddin 11P056Vivek Pundlik 11P059Vignesh S 11P060

Operations Strategy, Term VIMDI Gurgaon

Agenda

Overview

Inter-relationship between transportation and logistics

Forms of Logistics Operations

Outsourcing of Logistics Activities

Indian Logistics Industry - Growth drivers

Issues in Current status of logistics infrastructure in India

Overview

Council of Logistics Management (1991) defined that logistics is

‘part of the supply chain process 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’

• Logistics:– the entire process of materials and products moving into, through, and

out of firm

• Supply-chain management – larger than logistics– links logistics more directly with the user’s total communications network

and with the firm’s engineering staff

• Logistics is Customer-oriented operation management

Definitions

• 3 closely linked components: Logistics services, Information Systems and Infrastructure/Resources

• Logistics services comprise physical activities and non-physical activities

• Information systems provide essential data and consultation in each step

• Infrastructure comprises humanresources, financial resources, packaging materials, warehouses, transport and communications

Components of Logistics System

Interrelation Between Transportation and Logistics

• One-third to two-thirds of the expenses of enterprises’ logistics costs are spent on transportation

• National Council of Physical Distribution Management (NCPDM), estimates the cost of transportation, on average, accounted for 6.5% of market revenue and 44% of logistics costs

• Components of logistics costs based on the estimation from Air Transportation Association show that transportation occupies 29.4% of logistics costs

• Transport affects the results of logistics activities and influences production and sale

• Improvement of higher operation costs can get better effects, therefore logistics manager must comprehend transport operation thoroughly

Transport Costs and Goods Characters in Logistics

• It is more complex than carrying goods for the proprietors

• Needs high quality management

• With a well-handled transport system goods can be sent to the right place at the right time in order to satisfy the customer’s demands

• It brings efficacy and bridges the gap between producers and consumers

• A good transport system brings benefits not only to service quality but also to the company competitiveness

Role of Transportation in Service Quality

Forms of Logistics Operations

• It is a concept for handling production procedures in broad sense

• It can be divided into three main activities: purchase, manufacture and transport

• Information flow is an important system which links the whole supply chain from supplier and manufacturer to consumer

• Unimpeded information flow could lead increase operation accuracy and promote competitiveness

• Product flow proceeds through the production process

Supply Chain Management

• It has developed rapidly to provide industry competitiveness, promoting customer service and resources recycling

• Two main reasons for rise of reverse logistics:– Globalization of markets

– Policies for environment protection

• It could help improve the service levels of companies and reduce the costs of producing processes

• More and more companies want to build their reverse logistics systems, but limited by professional knowledge on logistics management

• Thus third-party logistics service provides an option to small to mid-size companies

Reverse Logistics

• It plays an important role in international freight

• It is cheap and has high carrying capacity, vital for transportation of particular goods such as crude oil and grains

• It takes longer time and strongly affected by weather

Maritime Logistics

Operation of maritime industry is of three main types

Liner Shipping: The business is based on the same ships, routes, price and regular voyages

Tramp Shipping: It has irregular transport prices, unsteady transport routes and schedules. Usually delivers goods like dry bulk cargo and crude oil

Industry Shipping: Its main purpose is to ensure supply of raw materials. Hence, it sometimes needs specialized containers, such as high-pressure containers for natural gas

• It extends the delivery services for air and maritime from airports and seas

• Main transport modes are railway transport, road freight transport and pipeline transport

Land Logistics

Railway transportAdvantages - High carrying capacity, lower influence by weather conditions, lower energy consumption

Disadvantages - High cost of essential facilities, difficult and expensive maintenance, lack of elasticity of urgent demands, and time consumption in organizing railway carriages

Road transportAdvantages - cheaper investment funds, high accessibility, mobility and availability

Disadvantages - low capacity, lower safety, and slow speed

Pipeline transportAdvantages - highcapacity, less effect by weather conditions, cheaper operation fee, and continuous conveyance

Disadvantages - expensive infrastructures, harder supervision, goods specialization, and regular maintenance needs

To improve the land transport in efficiency and reliability, a revolution of transport policies and management is

required, e.g. pricing

• It provides the delivery with speed, lower risk of damage, security, flexibility, accessibility and good frequency for regular destinations

• Its disadvantage is high delivery fee

• Research data show that the freight transport market keeps growing

• Future pattern of air freight logistics is cooperative with other transport modes, to provide a service base on Just-In-Time, and door-to-door

Air Freight Logistics

Express Delivery

• It involves more frequent delivery of materials, at the right time and at the right place in the production process

• The characteristics of express delivery are: – door-to-door service– Efficiency– Traceability– Just-In-Time (JIT)– Growing various delivery demands

• It is the future trend of business

• It brings many benefits for both companies and consumers: – It expands the market area from regional to global

– It uses electronic techniques instead of traditional paper works, which promotes the industries’ efficiency and competitiveness

– It will impact on transport system due to the increased trips

– It might reduce the number of warehouses and the stock cost. Therefore the prices could be lowered

• New concerns such as internet security, transport impacts and door-to-door services should be addressed

• A healthy and successful e-commerce environment is determined by the optimal logistics operation

E-Commerce

Outsourcing of Logistics Activities

• Efficiency in logistics activities indispensable to effective business operations

• Globalization driving higher level of complexity in logistics network

• Importance of distribution and transportation in maintaining sustainable competitive advantage

• Companies seeking to concentrate on core activities

Need for Outsourcing

• Advantages of 3PL operators– Greater expertise– Flexibility for wide geography– Lower operating costs– Better quality of service

• Outsourcing to 3PL has followed two trends– Increasing range of services outsourced– Increasing volume of traffic outsourced

• Key challenge for 3PL operators – Overcoming client’s concerns about relinquishing control

• Outsourcing of logistics is expected to increase

3PL – Third Party Logistics

• Assembles and manages resources, capabilities and technologies of own organization with those of complementary service providers

• “Best of breed” approach

• Creates unique and comprehensive logistics solutions that cannot be achieved by any single provider

• Complete solution; Centralized point of contact

4PL – Third Party Logistics

Logistics in India

Growth Drivers

• Acceleration in industrial production and consumption

• Population growth; Expanding upper-middle and middle classes

• Expected growth: 15-20% per annum

• Heavy outsourcing by automobile/telecom etc. – Demand for focused Supply Chain services

• Change in tax system (VAT to GST) – Should create national market for many goods and services

• Entry of MNCs in various sectors

Logistics infrastructure lags behind global peers

• Planned investment cannot support 2.5 fold expected increase in traffic by 2020• Current freight infrastructure – Networks built before independence

Railways- Over 80% of current network built before

independence- 1951-2007: 10 fold growth in traffic; 1.4 fold

growth in track length

Roadways- 200 fold traffic growth; 8 fold

increase in track length- Highways – Only 15%; Two/Four

lanes – 0.5%- Paved road density –

940km/1000sq.km; Japan – 21000 km, UK – 7050 km

- Highways are structurally inadequate

Waterways- Limited investments after independence- Loss of key routes following partition

Challenges in Indian Logistics

Logistics flows are highly concentrated

• 7 corridors connect 15 high growth clusters• These 7 corridors account for 50% of freight traffic• These clusters are expected to account for 60% of GDP growth in next 10 years

Challenges in Indian Logistics

India’s freight traffic relies excessively on roads

• This is despite the fact that 2/3rds of freight travel being more suitable for rail and waterways• 65% is bulk; 75% transported over distances more than 400km• Roads are cheapest only for non-bulk and <400 km• Over reliance on roads leads to increased costs, high energy consumption and adversely impacts environmentReasonsRailways: Oversaturation of important networks, high tariffs, poor terminal quality, less flexibility of wagons, uncertain transit timesWaterways: High turnaround times at ports, inadequate depths at ports, inadequate infrastructure for Coastal Shipping

- Rail/Waterways potentially cheaper than roads

Challenges in Indian Logistics

Inefficiencies leading to $45 billion each year

• India’s spend as percentage of GDP is 13%, higher than that of US

• This is despite the fact that cost of labor is significantly lesser in India

• Road transport is 30 per cent more expensive in India• Rail and Waterways are 70 per cent more expensive in

India• Transit times are higher owing to lower average speeds- Causes: Waiting times at toll stations, freeze in truck traffic

during day, port turnaround times, low priority accorded to freight trains, poor track infrastructure

• Poor transportation equipment is also a major problem• 65% of inefficiencies are hidden

Challenges in Indian Logistics

• Change in modal mix– Increase investment in railways by reallocating from roads

• Building the right networks to support modal mix change

• Building Rail DFCs, Expressways, Coastal corridors, last mile links

• Creating enablers to maximize efficiency – Logistics parks, standardized containers, IT assets, human resource etc.

• Improve rail and road maintenance and existing equipment

• Formulating and implementing a national logistics policy

Way forward