Logistics and Supply Chain Management: Introduction
Logistics and Supply Chain Management may sound rather complicated when you hear it for the first time. However, it primarily deals with the process of sourcing your supplies or raw materials according to the business needs, watching over the production process and ensuring that customers get the finished products on schedule.
Let’s illustrate it with an example. Let’s say you are looking after Logistics and Supply Chain Management at a garment factory. You receive an order for supplying 2000 T-shirts from a retail store within two months.
Now, you should find someone who could supply you the cloth in the required quantity and quality, designers to draw in the latest fashion trends, tailors to stitch the T-shirts according to specifications as also transporters to get the consignment to the customer on time.
Needless to say, all the above-mentioned tasks must be performed within the budgeted amount, on schedule, and to the full satisfaction of the customer.
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Logistics Management Vs. Supply Chain Management
You will often find that Logistics and Supply Chain Management are being used interchangeably. However, there are some differences. Logistics largely deals with moving something somewhere – so say procurement and transportation of raw materials to the factory and delivering the finished products to the customer.
Supply Chain Management on the other hand is a larger discipline and may involve procurement, logistics, transportation, warehousing, the fulfillment of orders and customer service.
As companies grow and the number of participants in the supply chain goes up, it becomes more difficult to optimize the operations through reduced costs and increased efficiency alone. This is where network design, transportation and inventory management aspects of Supply Chain Management play a vital role.
Network Design in Logistics & SCM
Network design deals with certain key links in the supply chain such as manufacturing plants, warehouses and stores etc. Keeping the transportation costs economical while ensuring reliability is important as is inventory management so that there are no excess stocks or sudden shortages between these links in the supply chain.
This calls for inventory planning and accurate forecasting of demand on the part of the manager. Stocks cannot be allowed to pile up and at the same time, there should be enough buffer stocks to meet any sudden increase in demand.
The Logistics & SCM Manager would have to take a call on these planning tasks on available data rather than mere gut feeling.
He would take the help of recent market trends and demands as well as historical data to come up with a plan of action.
For instance, the demand of masks and personal protection equipment during the COVID-19 pandemic has spiked and the supply chain required for this would be one that is optimized for speed rather than cost as masks are required immediately and the end consumer would be willing to pay more as long as she gets the product now.
On the other hand seasonal demand for products, such as the demand for air-conditioners during hot summer months is predictable and the supply chain planned for this product would favoor cost reductions over speed.
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Inventory Planning in Logistics & SCM
Inventory Planning is an area where Logistics & SCM plays a significant role. Ideally, companies would like to maintain inventory levels at the minimum to save storage space and associated costs. When the demand forecast is correct, the stock movement from godowns to customers would be smooth and trouble free.
However, you cannot depend on the demand forecast all the time. Companies have to keep inventory at such a level as to meet sudden spurt in demand as they cannot afford to displease customers. However, more stocks lying in the warehouses translate into a need for higher working capital and higher insurance charges.
In the past demand forecast was a matter of a hunch or a feeling in the gut. In modern business this has changed to increased use of data as a more accurate predictor of demand. Demand could be seasonal, as seen in the demand for air conditioners going up in summer, or determined by business cycles, or driven by promotional drives to artificially increase the demand for a particular product.
Transportation in Logistics & SCM
Coming to transportation, costs may vary significantly depending on the amount being dispatched, the mode of transportation and the distance and packaging while transporting.
Forms of transportation can vary from container ships to trucks to mini pick-ups or air cargo.
Here again, several factors have to be balanced. A consignment on the way to the customer saves warehousing costs. However, any delay on the road or shipments may end up increase costs.
When transporting, a full truckload (TL) shipment would be more economical than less than truckload (LTL) shipments.
Transportation would also involve due consideration of the packaging of products being transported. Goods destined for final customers will lay stress on form factor as against function for logistical operations – for instance vegetables being sent to warehouses can be piled on one another, while fruits being sent to markets may need to be stacked in pallets. The SCM manager will have a say in optimizing the packaging for minimizing costs during different stages of transportation.
Warehousing in Logistics & SCM
Warehousing could be in-house or outsourced depending on the company’s needs and available infrastructure. Apart from being a space for storage, warehouses could also be used for intermediate packaging or preparing consignment shipping to various destinations.
On the distribution front, cross-docking using technologies like barcoding could be used for faster processing of incoming and outgoing goods. This works best for fast-moving items with predictable patterns of demand. The idea is to overcome delays by reducing the processes at the warehouse-level and a structured communication system between manufacturers and retailers.
The Milk Run
You could also have delivery persons assigned to take consignments from one supplier to several retailers or vice versa.
In direct shipping, the consignment is directed sent to the retailer without involvement of middlemen to save time and costs.
The Hub & Spoke
In the hub and spoke approach, a metro city serves as the hub for smaller cities and towns in the region that are spokes in the system.
It could also happen that pooled distribution for a particular region is adopted as a strategy to reduce costs and increase efficiency. It would solve the problems that come up in handling peak time loads and LTL shipments.
Record Keeping in Logistics & SCM
The earlier cumbersome processes of maintaining several ledgers, books and other documents in the physical form are increasingly making way for electronic storage of data. Companies across the world are increasing their operational efficiency by investing in electronic data interchange (EDI), wireless communications and artificial intelligence (AI).
The data storage and movement could be for future planning in production, storage or movement of goods taking into consideration the constraints in manufacturing and estimates of sales.
Meanwhile, the IT personnel have hit upon Enterprise Resource Planning (ERP) as a centralized hub where data is captured and used for optimizing decisions, in understanding current business scene and future planning.
Green & Lean Supply Chain Management for Environment Protection
Mounting concern over the climate change and threat to environment caused by unbridled human activity has led to increasing adoption of green and lean supply chain management practices.
In essence, it means getting rid of inefficiencies, waste reduction and ensuring minimum disruption of the environment. Thus, efficient supply chains have been formed to ensure integration between producers and consumers, ensuring uninterrupted product flows and standardization of practices.
Sharing of information between organisations leads to building up of trust and viability of business for a longer term besides gaining a competitive advantage over firms that do not follow such practices.
SCM Courses & Jobs
Several international B-schools including Purdue, Rotterdam and MIT have MBA programs with SCM specialisation. Those hard pressed for time or money could enrol for any of the certification courses like ISM, APICS and IOSM to name a few.
In India, IIM Udaipur offers a one-year MBA in Logistics and Supply Chain Management in association with Purdue University in the United States. IIM Bangalore has a Supply Chain Management Centre for research, teaching and consulting. Among other institutes offering SCM courses are XLRI, IIM Calcutta, Indian Institute of Materials Management and NITIE.
In terms of salary, a Supply Chain Manager in India gets around Rs 8.3 lakh per annum as per statistics provided by PayScale. MBA graduates with SCM specialisation are able to get employment across a wide spectrum including automotive, manufacturing, construction, retail and IT/Consulting.
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