Logistics Industry Essay Example

the military's need to supply themselves with arms, ammunition and rations as they moved from their base to a forward position.

The Oxford English dictionary defines logistics as: “The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities. ” The American Council of Logistics Management defines logistics as“the process of planning, implementing and controlling the efficient and effective 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.

” c.

Objective of Logistics Management: The primary objective of logistics management is to effectively and efficiently move the supply chain so as to extend the desired level of customer service at the least cost. Thus, logistics management starts with ascertaining customers’ needs till their fulfilment through product supplies. However, there are some definite objectives to be achieved through a proper logistics system.

These can be described as follows: 1. Improving customer service: An important objective of all marketing efforts, including the physical distribution activities, is to improve the customer service.

An efficient management of physical distribution can help in improving the level of customer service by developing an effective system of warehousing, quick and economic transportation, andmaintaining optimum level of inventory. 2. Rapid Response: Rapid response is concerned with a firm's ability to satisfy customer service requirements in a timely manner.

Information technology has increased the capability to postpone logistical operations to the latest possible time and then accomplish rapid delivery of required

The cost of physical distribution consists of various elements such as transportation, warehousing and inventory maintenance, and any reduction

in the cost of one element may result in an increase in the cost of the other elements. Thus, the objective of the firm should be to reduce the total cost of distribution and not just the cost incurred on any one element. 4. Generating additional sales: A firm can attract additional customers by offering better services at lowest prices.

For example, by decentralizing its warehousing operations or by using economic and efficient modes of transportation, a firm can achieve larger market share. Also by avoiding the out-ofstock situation, the loss of loyal customers can be arrested.

5. Creating time and place utilities: The products are physically moved from the place of their origin to the place where they are required for consumption; they do not serve any purpose to the users. Similarly, the products have to be made available at the time they are needed for consumption. 6.

Price stabilization: It can be achieved by regulating the flow of the products to the market through a judicious use of available transport facilities and compatible warehouse operations.

By stocking the raw material during the period of excess supply and made available during the periods of short supply, the prices can be stabilized.

Total quality management (TQM) has become a major commitment throughout all facets of industry. If a product becomes defective or if service promises are not kept, little, if any, value is added by the logistics. Logistical costs, once expended, cannot be reversed.

8. Movement consolidation: Consolidation one of the most significant logistical costs is transportation. Transportation cost is directly related to the type of product, size of shipment, and distance. Many Logistical systems

that feature premium service depend on high-speed, small shipment transportation.

Premium transportation is typically high-cost.

To reduce transportation cost. It is desirable to achieve movement consolidation. d. Logistics Management Function Logistics is the process of movement of goods across the supply chain of the company. This process is consist of various functions, which have to be properly managed to bring effectiveness efficiency in the supply chain of organization.

The major logistical function are shown in figure 1. Order processing: The starting point of physical distribution activities is the processing of customers’ orders.

In order to provide quicker customer service, the orders received from customers should be processed within the least possible time. Order processing includes receiving the order, recording the order, filling the order, and assembling all such orders for transportation, etc. the company and the customers benefit when these steps are carried out quickly and accurately.

The error committed at this stage at times can prove to be very costly. Order processing activity consist of the following ? Order checking in any deviations in agreed or negotiation terms

Prices , payment and delivery terms ? Checking the availability in of the material stocks ? Production and material scheduling for storage ? Acknowledge the order, indicating deviation 2. Warehousing: Warehousing refers to the storing and assorting products in order to create time utility. The basic purpose of the warehousing activity is to arrange placement of goods, provide storage facility to store them, consolidate them with other similar products, divide them into smaller quantities and build up assortment of products.

Generally, larger the number of warehouses a firm has the lesser would be the time taken

in serving customers at different locations, but greater would be the cost of warehousing. Thus, the firm has to strike a balance between the cost of warehousing and the level of customer service.

Major decision in warehousing is as follow: ? Location of warehousing facility ? Number of warehousing ? Size of warehouse ? Design of the building ? Ownership of the warehouse 3.

Inventory Management: Linked to warehousing decisions are the inventory decisions which hold the key to success of physical distribution especially where the inventory costs may be as high 15 as 30-40 per cent (e. g. , steel and automobiles). No wonder, therefore, that the new concept of Just-in-TimeInventory decision is increasingly becoming popular with a number of companies. The decision regarding level of inventory involves estimate of demand for the product.

The key reason for this is the relatively higher level of inefficiencies in the system, with lower average trucking speeds, higher turnaround time at ports and high cost of administrative delays being just a few of the examples. These inefficiencies have arisen over the years from a combination of a non-conducive policy environment, extensive industry fragmentation and lack of good basic infrastructure. India's indirect tax regime discouraged large centralized warehouses and led, over time, to fragmentation in the warehousing sector.

However, much of this is changing with the government now demonstrating a strong commitment towards providing an enabling infrastructure and creating conducive regulations.

There is significant current and planned investment in infrastructure to the tune of (INR 15 trillion) over the next few years and an increased emphasis on public-private partnership. At the same time, regulations around rationalization of tax

structures and prevention of overloading for example are creating an environment of positive change.

Players now have the opportunity to leverage economies of scale, complemented with better infrastructure, to provide integrated logistics solutions which are cost effective. In addition, the evolving business landscape and increasing competition across industries, is creating the need for more efficient and reliable logistics services than what exist today For example, rapid growth of organized retail and the need to reach out to the large untapped rural markets in India are necessitating development of strong back end and front end supply networks.

Fundamentally, a fragmented industry with low average scale - and consequent limited investment and market development capability - is worst placed to serve these needs.

It is not surprising therefore that there is a frantic pace of consolidation and organic growth that the industry is witnessing (refer box and figure 4). While logistics service providers are struggling to keep pace with the growth, logistics service users with limited or no outsourcing are finding it increasingly difficult and / or undesirable to manage this non-core activity inhouse.

The result is a wide need gap that is seemingly widening much faster than it is being filled. It is in this context that capability development of logistics service providers assumes critical importance. While rapid development across all dimensions of organizational capability will be required to achieve and sustain demand growth, logistics being a service industry, manpower capabilities assume utmost 5 importances.

The sector currently employs about 40 million people, a number that will rise rapidly with exponential growth expectations in the sector.

6 A look at the financials of a set of

80 logistics companies in India across sectors reveals that manpower spends comprise 8-10 percent of overall sales of the sector. This roughly translates to about an INR 500 billion spend on logistics manpower in the country annually. Only about 13 -14 percent of the overall manpower costs are spent on nonsalary, manpower development items (welfare, training etc. ).

This share for the unorganized companies would expectedly be much less.

As against this leading global logistics companies spend around 20 percent of their employee expenditure on non-salary items. This lack of focus on developing manpower and skills for the logistics sector has resulted in a significant gap in the numbers and quality of manpower in the sector. This gap, unless addressed urgently, is likely to be a key impediment in the growth of the logistics sector in India, and in consequence, could impact growth in industry and manufacturing sectors as well.

At present, Outsourced Logistics accounts for only one-third of the total Logistics market in India, which is a significantly lower proportion vis-a-vis the developed markets. Growth in this industry is currently being driven in India by over USD 300 billion worth of infrastructure investments, the phased introduction of VAT, the development of organized Retail and Agro-processing industries, along with a strong manufacturing growth. In addition, we expect strong Foreign Direct Investment inflows in the Indian markets, which would lead to increased market opportunities for providers of Third-Party Logistics in India.

Therefore, India possesses substantial opportunities for growth in the Supply Chain ; Logistics industry in the coming years, notwithstanding the temporary jolt due to the economic slowdown. The Indian logistics sector grew by 8 to

10 per cent annually between 2002 and 2007. Several factors have favourably impacted the growth of the logistics industry, like the country's changing tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organised retail.

Increase in foreign trade: In 2007, the Indian economy witnessed a growth of 13 per cent in exports and 17 per cent in imports.

India's current share in global trade is around 0. 8 per cent and is expected to increase to 1. 6 per cent by 2012. Robust growth in foreign trade will increase the demand for good quality and timely logistics and warehouse services. India becoming a manufacturing hub: The world over, India is being recognised as a destination for outsourcing of custom-based, high-technology manufacturing activities.

According to Confederation of Indian Industries (CII), India will emerge as one of the global 'manufactured product' outsourcing hubs and reach revenues of approximately US$ 50 billion by 2015. In order to remain costcompetitive, contract manufacturers will be required to provide integrated logistics solutions that will bolster the cost savings potential of the outsourcing initiative. The increasing trend of outsourcing will, in turn, drive strong demand for logistics solutions in the country.

Under the existing tax structure, 2 per cent Central Sales Tax (CST) is levied on inter-state sales. As a result, companies have had to maintain small warehouses and depots in every state in order to avoid paying CST on Inter-state sales. These multiple warehouses have resulted in high inventory costs, increased working capital and other overheads.

A simplified tax regime will help logistics players service multiple markets and offer end-to-end

solutions far more efficiently and at much lower costs. As per the World Bank's report on the Logistics Performance Index, a 0. per cent decrease in logistics cost leads to 2 per cent growth in trade and a 40 per cent increase in the range of products that get exported out of the country.