TRANSPORTATION, WAREHOUSING AND INVENTORY DECISIONS Submitted By:

Vivek Kumar (98)Yogesh (99)

Zeba Khan (100)Rasmi (704)

Shivani (705)

TRANSPORTATION

“The process of moving an item from point A to point B”.

“Safe, efficient, reliable and sustainable movement of persons and goods over time and space”

Transportation in Logistics The operation of transportation

determines the efficiency of moving products.

The progress in techniques and management principles improves the moving load, delivery speed, service quality, operation costs, the usages of facilities and energy saving.

Transportation takes a crucial part in the Logistics Operations.

Importance of Transportation

Without well-developed transportation systems, logistics could not bring its advantages into full play.

A well operated logistics systems could increase both the competitiveness of the government and enterprises.

Transportation system is the most important economic activity among the components of business logistics systems.

Transportation Functionality Product Movement Product Storage

Product Movement Temporal: Product is locked up during transit, hence inaccessible. Financial:Administration costs, salaries, Maintenance costs expended. Environmental:Fuel costs are high (creates air pollution, congestion, Noise pollution)

Product Storage

When unloading and loading is more expensive then storage

When storage space is limited (situation when inventory levels are high)

Types of Transportation Rail Transportation Road Transportation Water Transportation Air transportation+

Types of Transportation Rail Transport :Advantages It is convenient mode of transport for travelling

long distances. It’s operation is less affected by adverse weather

condition like rains, fog etc.Disadvantages It is not available in remote part of the country. It involves heavy losses of life as well as goods in

case of accident.

Road Transport:Advantages It is relatively cheaper mode of transportation as

compared to other modes. It is flexible mode of transportation as loading

and uploading is possible at any destinationDisadvantages Due to limited carrying capacity, road transport

is not economical for long distance transportation of goods.

Water Transport:Advantages It promotes international trades. The cost of maintaining and constructing routes

is very low most of them are naturally made Disadvantages It is a slow moving mode of transport so it is not

suitable for perishable goods. It is adversely affected by weather conditions.

Air Transport:Advantages It is fastest mode of transport. It is the most convenient mode of transport

during natural calamitiesDisadvantages It is relatively more expensive mode of transport. It isn't suitable for short distance travel.

Current Transportation Problems

Financing Congestion Infrastructure Safety Population Increased truck weights

Conclusion Transportation contributes the highest

cost among the related elements in logistics systems, the improvement of transport efficiency could change the overall performance of a logistics systems.

Transportation plays an important role in logistics system and its activities appear in various sections of logistics processes.

WAREHOUSING

DEFINITION Warehousing refers to the activities

involving storage of goods on a large-scale in a systematic and orderly manner and making them available conveniently when needed.

Means holding or preserving goods in huge quantities from the time of their purchase or production till their actual use or sale.

Creates time utility by bridging the time gap between production and consumption of goods

CONCEPT 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 ROLE OF THE WAREHOUSE IN THE LOGISTICS SYSTEM

The warehouse is where the supply chain holds or stores goods.

Functions of warehousing include› Transportation consolidation› Product mixing› Docking› Service› Protection against contingencies

OBJECTIVES OF EFFICIENT WAREHOUSE OPERATIONS

• 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.

WAREHOUSE ACTIVITIES Receive goods Identify the goods Dispatch goods to storage Hold goods• Pick goods• Marshal shipment• Dispatch shipment• Operate an information

system

• 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

Receive goods

‒ items are identified with the appropriate stock-keeping unit (SKU) number (part number) & the quantity received recorded

Identify the goods

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 warehouse

TYPES OF WAREHOUSESPRIVATE

WAREHOUSESPUBLIC

WAREHOUSES

GOVERNMENT WAREHUOSES

CO-OPERATIVE WAREHOUSES

BONDED WAREHOUSES

DISRIBUTION CENTERS OR

WAREHOUSES

EXPORT AND IMPORT

CLIMATE – CONTROLLED

1. PRIVATE HOUSES OPERATED by a company for shipping and

storing its own products OWNED AND MANAGED- manufacturers or

traders CONSTRUCTION- Farmers near their fields,

Wholesalers and Retailers near their business centre's and Manufacturers near their factories

COMPANIES – Stable inventory levels and long run expectations

SUITABILITY- Firms that require special handling and storage features and want to control design and operation of the warehouse

2. PUBLIC WAREHOUSES Provide storage and physical distribution services on

rental basis Used by SMALL FIRMS and LARGE FIRMS Organizes to provide storage facilities to traders,

manufacturers, agriculturists in return for a storage charge

Licensed by Govt. In India OWNED and OPERATED – Central Warehousing

Corporation and State Warehousing Corporation SUITABILTY – seasonal production or low volume

storage needs, companies with inventories maintained in many locations, firms entering new markets

OWNER –stands as an agent of goods

3. GOVERNMENT WAREHOUSES OWNED, MANAGED AND CONTROLLED -Central or

State Governments or public corporations or local authorities

EXAMPLES- Central Warehousing Corporation of India, State Warehousing Corporation and Food Corporation of India

If customer cannot pay rent within specified time authority can recover rent disposing of goods4. CO-OPERATIVE WAREHOUSES

• Owned, Managed and Controlled – Co-operative societies

• Facilities at most economical rates to members• Located-Punjab, Karnataka, Maharashtra and

Andhra

5. BONDED WAREHOUSES Licensed to accept imported goods for storage before payment of

customs duty Imported merchandise is stored and released only after payment

of appropriate taxes Cigarettes, Liquor, Other products are stored Owned and Operated – PORT TRUSTS Acts in two capacities viz LANDLORD and BAILEE OF GOODS As landlord provides storage facilities on rent As bailee of goods take reasonable care to handle and store goods

as it has lien on goods under care for charges of its services Owner can sell goods wholly or in part by endorsing a warrant Facilitate enterpot trade- importer need not pay the import duty

6. DISTRIBUTION CENTERS / WAREHOUSES

Designed to move goods Large and highly automated Receive goods from various plants and

suppliers, take orders, fill them efficiently deliver to customers quickly

Located near the market owned or leased by manufacturers

Access to transport networks

7. EXPORT AND IMPORT WAREHOUSES LOCATION –near ports where international

trade is undertaken Storage facilities for goods awaiting

onward movements Facilities- packaging , inspection, marking

etc8. CLIMATE-CONTROLLED WAREHOUSE Handle storage of many products

including need special handling conditions

Freezers for frozen products, humidity controlled environment for delicate products, produce or flowers, etc

INVENTORY MANAGEMENT

What is inventory management

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

The objective of inventory management is to strike a balance between inventory investment and customer service.

Inventory Terms Lead time: time interval between ordering and

receiving the order Holding (carrying) costs: cost to carry an item in

inventory for a length of time, usually a year (heat, light, rent, security, deterioration, spoilage, breakage, depreciation, opportunity cost,…, etc.,)

Ordering costs: costs of ordering and receiving inventory (shipping cost, cost of preparing how much is needed, preparing invoices, cost of inspecting goods upon arrival for quality and quantity, moving the goods to temporary storage)

Shortage costs: costs when demand exceeds supply (the opportunity cost of not making a sale, loss of customer goodwill, late charges, the cost of lost of production or downtime)

Objectives of Inventory Management

Provide acceptable level of customer service (on-time delivery)

Allow cost-efficient operations Minimize inventory investment

Functions of Inventory To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts

Effective Inventory Management

To be effective, management must have the following:

A system to keep track of inventory on hand and on order

A reliable forecast of demand Knowledge of lead times and its variability Reasonable estimates of:

› Inventory Holding (carrying) costs› Ordering costs› Shortage costs

A classification system for inventory items

Types of Inventory:How Inventory is Used

Anticipation or seasonal inventory Safety stock: buffer demand fluctuations Lot-size or cycle stock: take advantage of

quantity discounts or purchasing efficiencies

Pipeline or transportation inventory Speculative or hedge inventory protects

against some future event, e.g. labor strike Maintenance, repair, and operating (MRO)

inventories

Inventory Counting Systems Periodic System

Physical count of items made at periodic intervals

Perpetual (continual) Inventory System System that keeps track of removals from inventory continuously, thus monitoringcurrent levels of each item.

Classification system An important aspect of inventory management is

that items held in inventory are not of equal importance in terms of dollar invested, profit potential, sales or usage volume, or stockout penalties. For instance, a producer of electrical equipment might have electric generators, coils of wire, and miscellaneous nuts and bolts among items carried in inventory. It would be unrealistic to devote equal attention to each of these items. Instead, a more reasonable approach would allocate control efforts according to the relative importance of various items in inventory. This approach is called A-B-C classification approach

ABC Classification SystemClassifying inventory according to some measure of importance and allocating control efforts accordingly.A - very importantB – moderate importantC - least important

Annual $ value of items

AB

C

High

LowFew

ManyNumber of Items

Models of inventory

Economic Order Quantity ModelsThe question of how much to order is

frequently determined by using an Economic Order Quantity (EOQ) model. EOQ models identify the optimal order quantity by minimizing the sum of certain annual costs that vary with order size. Three order size models are described:

The basic economic order quantity model The economic production quantity model The quantity discount model

Economic Order Quantity (EOQ) modelAssumptions of EOQ Model1. Only one product is involved2. Annual demand requirements are

known3. Demand is even throughout the year4. Lead time does not vary5. Each order is received in a single

delivery6. There are no quantity discounts

EOQ Model inventory cycle The inventory cycle begins with receipt of an

order of Q units, which are withdrawn at a constant rate over time. When the quantity on hand is just sufficient to satisfy demand during lead time, an order for Q units is submitted to the supplier. Because it is assumed that both the usage rate and lead time don’t vary, the order will be received at the precise instant that the inventory on hand falls to zero. Thus, orders are timed to avoid both excess and stockouts (i.e., running out of stock). The following figure illustrate this idea.

The Inventory CycleFigure 11.2

Profile of Inventory Level Over Time

Quantityon hand

Q

Receive order

Placeorder

Receive order

Placeorder

Receive order

Lead time

Reorderpoint

Usage rate

Time

Economic Production Quantity (EPQ)

Production done in batches or lots Capacity to produce a part exceeds

the part’s usage or demand rate Assumptions of EPQ are similar to

EOQ except orders are received incrementally during production

Economic Production Quantity Assumptions

Only one item is involved Annual demand is known Usage rate is constant Usage occurs continually, but production

occurs periodically Production rate is constant Lead time does not vary No quantity discounts

Quantity discount model Quantity discounts are price reductions for large

orders offered to customers to induce them to buy in large quantities. In this case the price per unit decreases as order quantity increases.

If the quantity discounts are offered, the buyer must weigh the potential benefits of reduced purchase price and fewer orders that will result from buying in large quantities against the increase in carrying cost caused by higher average inventories.

The buyer’s goal with quantity discounts is to select the order quantity that will minimize the total cost, where the total cost is the sum of carrying cost, ordering cost, and purchasing (i.e., product) cost.

Total Costs with Purchasing CostAnnualcarryingcost

PurchasingcostTC = +

Q2H D

QSTC = +

+Annualorderingcost

PD +Where P is the unit price.Recall that in the basic EOQ model, determination of order size doesn’t involve the purchasing cost. The rationale for not including unit price is that under the assumption of no quantity discounts, price per unit is the same for all order size. The inclusion of the unit price in the total cost computation in that case would merely increase the total cost by the amount P times the demand (D). See the following graph.

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