ASSIGNMENT

Course Code : MS-55

Course Title : Logistics and Supply Chain Management

Assignment No. : MS-55/TMA/Sem-II/2020

Coverage : All Blocks

Note: Attempt all the questions and submit this assignment to the Coordinator of your Study
Centre on or before 31st October, 2020.

1. What is Physical Distribution Management? Describe its components. Also, elucidate

the “total approach” to PDM.

2. How do you link goods flow, information flow and cash flow in supply chain
integration? Explain with appropriate diagram.

3. “Making changes in a manufacturing company is probably the hardest thing that

civilized man has ever set out to achieve” – give your comments on this statement in
context with the organization switching to supply chain management.

4. “Today’s management cannot afford to focus only on company’s performance in a

vacuum, there is an emerging requirement to focus on the performance of the extended
supply chain or network in which company is a partner”. Comment!

5. Write short note on any three of the following:

a) Logistics- Marketing interface.

b) Supply Alliances.
c) Distribution Requirement Planning (DRP).
d) Cost Drivers.
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ASSIGNMENT REFERENCE MATERIAL (July20 to Dec20)

MS-55
LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Q1. What is Physical Distribution Management? Describe its components. Also,

elucidate the “total approach” to PDM.

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Ans:- There are many decisions that must be taken, when a company organizes a channel or
network of intermediaries, who take responsibility for the management of goods as they
move from the producer to the consumer. Each channel member must be carefully selected
and the company must decide what type of relationship it seeks with each of its intermediate

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partners. Having established such a network, the organisation must next consider how these
goods can be efficiently transferred, in the physical sense, from the place of manufacture to
the place of consumption. Physical distribution management (PDM) is concerned with
ensuring the product is in the right place at the right time.
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The reason for the growing importance of PDM is the increasingly demanding nature of the
business environment. In the past it was not uncommon for companies to hold large

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inventories of raw materials and components. Although industries and individual firms differ
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widely in their stockholding policies, nowadays, stock levels are kept to a minimum wherever
possible. Holding stock is wasting working capital for it is not earning money for the
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company. To think of the logistical process merely in terms of transportation is much too
narrow a view. Physical distribution management (PDM) is concerned with the flow of goods
from the receipt of an order until the goods are delivered to the customer. In addition to
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transportation, PDM involves close liaison with production planning, purchasing, order
processing, material control and warehousing. All these areas must be managed so that they
interact efficiently with each other to provide the level of service that the customer demands
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and at a cost that the company can afford.

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Components of PDM
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There are four principal components of PDM namely; Order processing, Stock levels or
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inventory, Warehousing and Transportation.

Order processing:- Order processing is the first of the four stages in the logistical process.
The efficiency of order processing has a direct effect on lead times. Orders are received from
the sales team through the sales department. Many companies establish regular supply routes
that remain relatively stable over a period of time ensuring that the supplier performs
satisfactorily. Very often contracts are drawn up and repeat orders (forming part of the initial
contract) are made at regular intervals during the contract period. Taken to its logical
conclusion this effectively does away with ordering and leads to what is called ‘partnership
sourcing’. This is an agreement between the buyer and seller to supply a particular product or

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commodity as and when required without the necessity of negotiating a new contract every
time an order is placed.

Order-processing systems should function quickly and accurately. Other departments in the
company need to know as quickly as possible that an order has been placed and the customer
must have rapid confirmation of the order’s receipt and the precise delivery time. Even before
products are manufactured and sold the level of office efficiency is a major contributor to a
company’s image. Incorrect ‘paperwork’ and slow reactions by the sales office are often the
unrecognised source of ill will between buyers and sellers. When buyers review their
suppliers, efficiency of order processing is an important factor in their evaluation. A good
computer system for order processing allows stock levels and delivery schedules to be
automatically updated so management can rapidly obtain an accurate view of the sales
position. Accuracy is an important objective of order processing, as are procedures that are

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designed to shorten the order processing cycle.

Inventory:- Inventory, or stock management, is a critical area of PDM because stock levels
have a direct effect on levels of service and customer satisfaction. The optimum stock level is
a function of the type of market in which the company operates. Few companies can say that
they never run out of stock, but if stock-outs happen regularly then market share will be lost

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to more efficient competitors. The key lies in ascertaining the re-order point. Carrying stock
at levels below the re-order point might ultimately mean a stock-out, whereas too high stock
levels are unnecessary and expensive to maintain. Stocks represent opportunity costs that
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occur because of constant competition for the company’s limited resources. If the company’s
marketing strategy requires that high stock levels be maintained, this should be justified by a
profit contribution that will exceed the extra stock carrying costs.

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Warehousing:- Many companies function adequately with their own on-site warehouses
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from where goods are dispatched direct to customers. When a firm markets goods that are
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ordered regularly, but in small quantities, it becomes more logical to locate warehouses
strategically around the country. Transportation can be carried out in bulk from the place of
manufacture to respective warehouses where stocks wait ready for further distribution to the
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customers. This system is used by large retail chains, except that the warehouses and
transportation are owned and operated for them by logistics experts. Levels of service will of
course increase when number of warehouse locations increases, but cost will increase
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accordingly. Again, an optimum strategy must be established that reflects the desired level of
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service.
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Q2. How do you link goods flow, information flow and cash flow in supply chain
integration? Explain with appropriate diagram.
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Ans:- We have studied earlier in integration of Supply chain, physical flow, virtual flow and
cash flow could be seen in more detail. David N Burt in his book World Class Supply
management says ‘the supply chain extends from the ultimate consumer to the mother earth’
and has explained the same with an illustration, which we shall see later. “The chain is
viewed as a whole, a single entity rather than fragmented groups, each performing its own
function”. Only when an ultimate customer buys a product does the money enter the supply
chain. Transactions help in allocating the customer’s money among the members of the
chain. “A firm’s supply system includes all the internal functions plus external suppliers
involved in the identification and fulfillment of needs for materials, equipment and services
in an optimized fashion”. Supply system plays a key role in helping the firm satisfy its role in

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supply chain. Professor Charles of MIT writes, “Supply chain design is the meta-core
competency for organizations”.

The Internet today permits the supply chain managers to manage their supply chains
collaboratively and also synchronizes their operations. The net result is:

• Reduced costs.

• Time management.

• Competitiveness.

• Profitability.

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Success of an organization in the near future will be driven by its ability to compete
effectively as a contributing member of a dynamically connected supply chain management
and not in isolation. Connectivity with customers, suppliers and other partners and be able to
interact quickly is critical to survival. Tomorrow, a tightly connected e-chain will be a
necessity.

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Supply chains are relatively easier to describe and visualize, but the terminology is already
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dated. “Traditionally, companies have connected with one another in simple, linear chains,
running from raw material producers to distributors to retailers.”But the day is not far off that
most companies will be an integral part of the supply networks worldwide. Networks
optimize the flow of goods (physical flow) and services, virtual flow (information) and
money (cash flow). It focuses on the ultimate customer, who is once again the generator of
funds.

Q3. “Making changes in a manufacturing company is probably the hardest thing that
civilized man has ever set out to achieve” – give your comments on this statement in
context with the organization switching to supply chain management.

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Ans:- The materials requirement planning system is a major element in a manufacturing

company and is also the heart of MRPII (Manufacturing Resource Planning). MRP is a
computer-based information system designed to order and schedule ‘dependent’ demand
inventories (raw materials, component parts, and subassemblies) in a coordinated manner.
MRP is as much a philosophy as it is a technique, and as much as an approach to scheduling
as it is an approach to inventory control. It views inventory from the vantage point of the
stock-room, trying to insure that there will always be “just enough” on hand to meet projected
demand.

Until the 1970s, the materials planning process in manufacturing environment suffered from
two problems. The first was the enormous task of setting up schedules, keeping track of large
numbers of parts and components, and coping with schedule and order changes. The second
was the perception that a company had to choose between investing in high quantities of

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inventory or having excessive stock-outs. Practitioners used inventory-planning techniques
that were designed for independent demand items, resulting in high inventories and frequent
stock outs. Starting in the late 1960s and early 1970s, manufacturers recognized that planning
dependent items differently from independent items (using MRP) could produce lower
inventories and lower stock-out rates. Additionally, they enlisted the power of the computer
to handle much of the burden of keeping records and determining material requirements.

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The main purposes of an MRP system are to control inventory levels and assign operating
priorities for ordered items. These may be briefly expanded as follows:
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1) Inventory

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- Order the right part
- Order in the right quantity
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- Order at the right time (start data)

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2) Priorities
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- Order with the right due date

- Keep the due date valid
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The motto of MRP is getting the right materials to the right place at the right time. The
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operating philosophy of MRP is that materials should be expedited when their unavailability
would delay the overall production schedule, and de-expedited when a schedule change
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postpones their need. To this end, MRP logic will always plan inventory to the lowest
possible amount, unless instructed otherwise by order modifiers. Order modifiers, including
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safety stock and lot sizes are discussed later in this unit.

Q4. “Today’s management cannot afford to focus only on company’s performance in a

vacuum, there is an emerging requirement to focus on the performance of the extended
supply chain or network in which company is a partner”. Comment!

Ans:- In today’s world, Supply Chain Management (SCM) plays a key strategic role in
increasing organizational effectiveness and accomplishment of organizational goals such as
enhanced competitiveness, better customer service and increased profitability. Today’s
management can’t afford to focus only on company’s performance in a vacuum; there is an
emerging requirement to focus on the performance of the extended supply chain or network

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in which company is a partner. An extended supply chain is one that involves not only tier
one buyers and suppliers, but also the end supplier (suppliers’ suppliers) to end buyers
(buyers’ buyers). The competition is at a chain or network level, i.e. supply chain vs. supply
chain, with emphasis on continuous improvement across the extended supply chain.

There is a shift in focus from an intra organizational performance to inter organizational

integrated supply chain performance. Firms have now realized the potential of SCM, but
many of them still lack in selecting the proper performance measures for a fully integrated
supply chain.

In a supply chain the problem lies at the interfaces that is at the boundary of two
organizations. The reason for this is the high level of interdependence intermingled with
independence and autonomy of the firms in an integrated SC.

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Every member is fully autonomous but highly dependent on the performance of other
members. Supply chain performance measures differ from traditional performance measures
as it crosses company boundaries i.e. it includes suppliers and distributors. Supply chain
performance also crosses all functional links like procurement, manufacturing, sales and
distribution etc. This makes the choice of supply chain performance measure(s) difficult.

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Single performance measure for entire supply chain is not adequate for effective supply chain
because it will not cover all pertinent aspects of the supply chain. In many companies, the
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metrics that management refers to, as supply chain metrics are primarily internally focused
functional measures like lead-time, inventory levels etc. In many instances, these measures
are purely financial (for example return on assets, overall profits etc.), but they do not

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indicate how well key processes have been performed or how effective the supply chain is in
meeting the primary objective like customer satisfaction.
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Q5. Write short note on any three of the following:

a) Logistics- Marketing interface.

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Ans:- Traditionally logistics group assumed primary responsibility for warehousing,

inventory and transportation within many organizations while marketing group is responsible
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for negotiation, promotion and selling. As neither group had responsibility for over all
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channel management, conflicts arose at the expense of overall organization goal. The
organizations had realized that functional interdependence, not internecine conflicts, is the
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key to satisfy customer needs. Despite the realization by logistics and marketing manager that
cooperation is essential marketers often criticize logistics department for being cost
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minimizers having no concern for customer needs while logistics department accuses
marketers of chasing sale at any cost. Therefore it is essential that organizations identify area
of agreement and potential conflict. Senior management must be keen to actively support
cooperation between the two groups.

This can be assisted by performance measurement that rewards cooperation and a spirit of
interdependence that actively discourages parochial behaviour.

1 Logistics and Product Life Cycle

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Product life cycle (PLC) is a key marketing concept that affects the relationship between
logistics and marketing. For different stages of PLC i.e., introduction, growth, maturity and
decline, different level of logistics support is required by marketing. In the introduction and
growth stage timely cost effective fulfillment of order is a major requirement in ensuring
initial acceptance of the product. Later as sales slow down and the product moves into the
maturity and decline stages, the company changes to trimming cost as the product faces stiff
price competition and consequent pressure on margins. Hence there is need for a logistics
manager to understand what marketing is trying to achieve with each product and what
appropriate level of logistics support is required accordingly.

2 Areas of Logistics and Marketing Interaction

In today’s competitive environment organizations are utilizing the benefits of their

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established logistics/marketing interface to be competitive not in terms of product and price
but also logistics services tailored to meet individual customer needs.

These organizations are able to differentiate themselves from their competitors by offering a
total service with logistics forming an essential part of the total value chain.

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The major area of interaction between logistics and marketing includes (Gattorna 1995):

• Product Design: This can have a major effect on warehouse and transportation utilization
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(and therefore costs).

• Pricing: This is the means by which logistics services customer demand affects the overall

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cost of the product and in turn the organization’s pricing policies.
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• Market and Sales Forecasts: Marketing forecasts will largely dictate the level of logistics
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resources needed to move products to customers.

b) Supply Alliances.
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Ans:- As seen above supplier alliances plays a key role in strategic supply chain management
activities across the board. Therefore in order to develop and manage these relationship and
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alliances a firm has to continuously endeavor to identify methods to facilitate these relations.
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Supplier is as important as the customer and that has to be realised in the true sense.
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Riggs & Robbins spelt out these relations in their book ‘The Executive Guide to Supply
Management Strategies’, they are:
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• Annual Supplier Meetings: Annual supplier meeting is a common phenomenon in

maintaining direct relationship with the suppliers by the buyer firm. It is used both as a
teaching and learning platform as well as the opportunity to distinguish one’s organisation as
a supply management leader.

It dwells on the buyer’s management performance, learning and future goals.

The main objective being learning of key strategies to support the buyer’s business. It
requires extensive planning and is expensive, but it lays the foundation of a buyer supplier
relationship in the long run.

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• Supplier Discussions: It’s an informal forum for gaining and sharing learning, between the
representatives, like the chief executive, chief operating officer, and representatives from
marketing, supply management and research divisions. It reviews the buyer’s progress and
goals in the backdrop of shift in strategies and policies. It’s a forum that builds trust and
respect, towards a successful supplier relationship.

• Workshops and Seminars: These are aimed at creating opportunities for supply-stream
innovations, which will benefit all the participants. It composes of members of supplier
participants who provide material and services that are critical to the products made available
at the marketplace. Such discussions open the door for newer set of goals and collaborations.
It provides the base for continual improvement, concepts and innovations required to guide
and organize discussion and work sessions.

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Developing and Managing the Relationship

Supply managers at all levels should ensure and tailor appropriate actions during the planning
and management of such alliances mentioned above. Like:

• Instituting a Cross-Functional Team: A team so designated should be in place to handle

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such alliances, which is responsible for development, integration, and develop and manage
appropriate measures for the alliance to be successful.
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• Training: Teams from both sides as designated should undergo appropriate training in
being constructive team players, and also in cross-functional team skills.

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• Communication System: The teams should develop and integrate an effective
communication system responsive to the needs and requirements of both the firms.
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c) Distribution Requirement Planning (DRP).

Ans:- Distribution Requirement Planning (DRP) is a management process that determines the
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need of inventory stocking locations (store, distribution center, regional distribution center,
central DC, manufacturing DC, or warehouse that carries product for sale) and ensures that
supply sources (third party supplier, a regional distribution point, or a factory) will be able to
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meet the demand. This is accomplished in three distinct phases.

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First, DRP receives input from the following: IT Packages in SCM a) Sales forecasts by stock
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keeping unit by stocking location.

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b) Customer orders for current and future delivery.

c) Available inventory for sale by stock keeping unit (SKU) by stocking locations.

d) Outstanding purchase orders and/or manufacturing orders by product purchased and/or

manufactured.

Second, once all inputs are received, DRP generates a time-phased model of resource
requirements to support the logistics strategy. These include:

a) Which product is needed, how much, and where and when it is needed.

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b) Transportation capacity needed by mode of transport by stocking locations.

c) Needed space, manpower, and equipment capacity by stocking locations.

d) Cost Drivers.

Ans:- As businesses have become more complex, the elements of cost also have become
complex. Overhead costs are replacing the direct costs of labor and purchased materials.
These overhead costs are incurred on technology and the managers who maintain
productivity and production. As managers attempt to understand and manage cross-functional
business processes, organizations are finding that traditional approaches for managing these
costs are ineffective.

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The most useful way to analyze costs is to do it in terms of the various stages of the overall
value chain of which the firm is a part. Gattorna (1998) defined cost driver as factor that
creates of influences cost. Cost-driver analysis identifies the cause of cost, e.g. the number of
customer orders received in a specific period. A positive cost driver results in a revenue,
production or support related activities that generate profit. A negative cost driver causes
unnecessary work and reduces profitability. A cost pool is a grouping of costs caused by

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related cost drivers and activities. Gattorna illustrated the concept of cost drivers with an
example (Figure ), which comprised of identifying activities and the cost drivers & cost pool
associated with them. The need of identifying the cost drivers arose due to the dissatisfaction
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with the conventional cost accounting. These problems were summarized by Christopher
(1998) as follows:

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• There is general ignorance of the true costs of servicing different customer
types/channels/market segments.
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• Costs are captured at too high a level of aggregation.
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