Logistics Management

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MAIN OBJECTIVES: The main objectives of this course is to enable student understand and analyze the concept of production and operations management of an organization. OTHER OBJECTIVES: § To enable student understand how to organize and plan for production of an organization; § To enable student to manage and control the operations and processes of an organization; § To enable student understand how to assess the outcomes of the organization; § To enable student to analyze risks and find the solution to rescue the organization. COURSE CONTENTS: 1. Theoretical conceptual of logistics 1.1. Concept Logistics 1.2. Stages of development of logistics 1.3. Logistic system in a sphere of production and consumption 1.4. Object and subject researches in a sphere of logistics 2. Economical effects from logistics to marketing sphere 2.1. The connection of logistics to marketing sphere 2.2. Levels of development of logistics 2.3. Principles and purposes of logistics 3. The strategic planning of purchasing in logistic systems 3.1. Purposes of logistics 3.2. Needs: Methods of distribution of needs 3.3. Planning of goods purchases 3.4. Structure of processes and operations in purchasing logistics 4. Logistics approach to management of materials streams in spheres of production and supplying 4.1. Characteristics of functioning zone of logistics 4.2. The relationship between purchasing and distribution logistics 4.3. The existence of purchasing logistics 4.4. Problems of purchasing logistics 4.5. Function of supply in an enterprise 4.6. Problems of selecting supplier 5. Production logistics 5.1. The concept of production logistics 5.2. Quality and quantity dynamic of production systems 5.3. Stimulation systems of management materials streams in production logistics 5.4. The pulling systems of management of materials streams in production logistics 6. Forecasting methods 6.1. The concept of forecasting 6.2. Methods of forecasting 7. Accounts of costs in logistics Chediel Msuya, October, 2009 1

7.1. Problems of accounting expenditures in logistics 7.2. Requirement to systems of costs in logistic 7.3. Classification of costs in logistic 7.4. The costs in creation and keeping materials reserves 7.5. Costs caused by transportation preparation 8. The management of logistics in delivery and distribution know-how 8.1. Technology work of logistical systems 8.2. Transportation dispatch maintenance during distribution of the goods 8.3. Problems of logistics on micro and macro level 8.4. Logistical system <<Just in - Time>> 9. The management of warehouses systems 9.1. Economical warehouses of logistic system 10. Information technologies, techniques and systems in logistics 10.1. Information technologies in logistics 10.2. The role and meaning of information in logistics 10.3. Logistics information systems (LIS) 11. The production, process and operation logistics 11.1. Industrial logistics 11.2. Essence of logistics in productions 11.3. Structure of processes and operations in industrial logistics 12. The concept of risks management in logistics systems 12.1. Risks in logistics 12.2. Kinds of risks 12.3. An estimation of risks 12.4. Management of risks 13. Leadership responsibi lities and methods of decision making 13.1. The duties of manager on logistics 13.2. The basic maintenance of a method <<harmonious manufactures>> 13.3. The concept of logistical leadership services

The references
1. Gordon M.P., Tishkin E.M., Uskov to carry out economic delivery of the goods to the domestic and foreign buyer: the Handbook for the businessman. : Transport, 1993. 2. Gordon M.R., Karnauhov S.B. Logistics of movement of the goods. : the center of economy and marketing, 1998. 3. Bauman A.M. Planning of resources circulation. M.: State political publisher, 1956. 4. Gmurman V.E. Theory of Probabilities and Mathematic statistics. M.: High School, 1977. 5. Ledin M.I. Management of Reserves (Economical Mathematical Methods). M.: Knowledge, 1973. 6. Darbinian M.M. Products Reserves in Trades and their Optimization. M.: Economics, 1978. 7. Fasoliak N.D. Organization and Planning of Material Technique Supplying and Marketing in Public Economy. M.: Metalugia, 1977. 8. Bawersoks D.J., Kloss D. J. Logistic. Integration of Supplies Chain. M.: OlympicBusiness, 2001. 9. Thompson A.A., Strickland A.J. Strategic Management. Book. M.: UNITI, 1998. Chediel Msuya, October, 2009 2

10. Poth L.G. Marketing in Fallstudien, Munchen, BRD, 1973. 11. Reife M.E. Organization of development of logistical activity in the wholesale market, 1996. 12. Johnson J., Wood D., Wordloy D.L., Murphy Jr. P. R., Modern Logistic- 7th edition.-2002.

1.0. Theoretical conceptual of logistic
1.1. Concept "logistics" Chediel Msuya, October, 2009 3

The word of logistics originates from the ancient Greek logos, which means ratio, word, calculation, reason, speech and oration . Logistics is an idea considered to have transformed from the military's need to supply them as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title Logistikas who were responsible for financial and supply distribution matters. The Oxford English dictionary defines logistics as: The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities. Another dictionary definition is: "The time related positioning of resources." As such, logistics is commonly seen as a branch of engineering which creates "people systems" rather than "machine systems". Logistics is the art and science of managing and controlling the organization, production, and flow of goods, energy, information, finance, people, animals and other resources like products, services, and people from the source of production to the marketplace. It is difficult or nearly impossible to accomplish any international trading, global export/import processes, international repositioning of raw materials/products and manufacturing without a professional logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packing. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible. No matter by definition on objects consideration, management of material streams in economics system, of course, is more complicated. Except direct operation with material streams (loading, unloading transportation and so on) it includes in itself the following: Ø Different commercial operations, in a result of which occurs agreement on the side of planning of production and flowing of materials streams and about their parameters; Ø Searching rational form of transport expedition servicing the goods receiver; Ø Identifying optimal ways, in which materials streams will flow, and also a place, where they will be temporarily accumulated, and many other types of works. Clearly analyzing activities, which existing in the objective of flowing materials streams to buyers, considered in the other section of this book. Management of materials streams, as and any other objects, warehousing from two parts: o Decision making; o Realization of decision making. Other concepts of logistics are as follow below: Logistics is science of planning, controlling and management of transportation, warehousing/storages and other materials and materials operations, existing in a process assisting raw materials to production in an enterprise, internal process of raw materials and semimanufactured, and processing final products to consumer in relatively with interests and demands of final consumer, and also distributing, storing and delivering relatively information. Chediel Msuya, October, 2009 4

Logistics is a process movement management and storing of raw materials, components and manufactured products in economical process with a moment of paying money to suppliers of materials to moment stage of collecting money for supplying final products to consumers (principle of money payment money receiving). Logistics like other sciences set and solves the following problems: § § § Forecasting the value or volume of demand and its basic planning of reserves; Identifying necessary production capacity and transport reliability; Developing scientific principles of distribution of manufactured products on bases of optimal management of material streams.

There are some definitions and concepts of logistics. According to English interpretation, logistics logistics. According to the Greek interpretation the logistics includes two concepts: logos - thinking and logistikas - calculation, logic of thinking. According to the French interpretation logistics connect with loger - billeting, and explain to that occurrence and development of practical logistics is obliged to problems of military moving. In 1960s, from conceptual marketing divide course problem, relating with provision of production process of material resources. The reason of separating these problems explaining significant growth of a firm expenditure contents on reserves and transportation of goods or products. Therefore, the firm starts the initiative of research in the area of material stream advancement in the distribution channels, reducing expenditure in keeping reserve materials and transportation of products. In the basic of achieving results for solving these problems, whereby, it happen the formation of new science in economic known as logistic. As the first author of works on logistics consider{count} the expert of the beginning of XIX century of Baron de Gomeni (1779-1869) who has defined logistics as « practical art of movement by armies ». It approved that the logistics contains not only transportations, but also deals with the following functions: § § § strategic planning, management of living and non living things, Supply of valuable materials.

As any new science, does not have uniform definition of concept of logistics. A number of treatments according to which the logistics is understood as a science are known as: 1. Movement of the materials, goods, energy, people, information and finance from one place to another. 1.1. The rational organization of manufacture and distribution which forecast and studies supply, selling and distribution of means of production in a complex.

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1.2. Joint activity of various kinds of manufactures with a view of reception of necessary quantity of production in which there was a need for this production, during established time and in advance established place. 1.3. Full interaction of all elements from manufacture before consumption. 2. Management is that part of the chain supply which 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. 2.1. Management of process of physical distribution of production in space and scheduled time. 3. Interaction of transport and supply. 3.1. Interrelations of supply with selling and coordination of transport. 4. The Supply with information of material streams. 4.1 Planning, management and the control over material streams entering and leaving on the enterprise and information streams corresponding them. 4.2. Planning, management, the control of material, information, financial, human and power streams. 4.3. Physical distribution of material resources, technical, technological, organizational and a supply with information of the given process. However, it existing several dozens of definition of logistic. It has been justified, since any stage of material movement we have a deal with logistic of different type. For example, if we have deal with material provision enterprises, so it will be distribution logistic, with allocation of market place allocation of logistic and so on. There are different variants of logistic system; its classification can be seen in figure 1. Historically there are four basic parameters of logistic: analytical, technical, marketing and integration. Analytical paradigm It is a classical approach to logistic as well as theoretical science, which deals with problems of material stream management in production and circulation of commodities. Technical paradigm Very involved with information of computer technology and technology jobs effectiveness function in logistic zone. The author is presenting the classification logistic in the figure 1 below. Marketing paradigm It aims description and specifying relationship between logistic system and contingency enterprises in competitive market. Integration paradigm streams. Chediel Msuya, October, 2009 developing market and applying different functions, relating to market 6

In business, logistics may have two hierarchy systems (see fig. 1). From figure 1. It seems that logistic systems divided in two groups: Macro logistic system and micro logistic system. Macro logistic systems study the science of macro-logistic economics, and micro-logistic systems microeconomics. The attachment of macro- means wider, shows, that a branch of economic theory studying a wide range of economic phenomena, while micro means small, reflecting to fact, that this division of economic science studying economic phenomena, perpetrate a small economic phenomena. Therefore, first we consider a symptom of globalization, the theoretical administration division, objectively functional symptoms, and secondly in a level of enterprise. In its practical activities of the enterprise, firms and companies use different logistic systems: · · · · · Supplying system on the right time producing and carrying only, that ones which are important or needed in the moment ( sharply reduce the insured stock); Kanban system system, which provides all production participants, including final assembly, especially quality raw materials, which really is important for producing only planned quantity of products; System delivery planning ( SDP ) This is improvement system ( just in exactly time); Distribution requirement planning (DRP) System of distribution management. Main in herself Strictly control of stock reserve condition, formulation of production, supplying, marketing and transportation; Logistic requirement planning (LRP) This is a planning system and control input, input and output of material stream at level of enterprise.

In business the logistics is a control over all kinds of activity connected with purchase of resources for manufacture and delivery of finished goods to the buyer, including a necessary supply with information of these processes. The logistics also coordinates mutual relations of all members of system of supply and distribution. 1.3. Stages of development of logistics In greater scales practical principles of logistics were realized within the Second World War at logistics of the American army deployed in the Europe. Then experts have addressed to logistics as to one of effective forms of integration of supply, manufacture, transport. Originally the logistics was issued as a new kind of the theory about realization of management by movement of commodity-material resources in sphere of the reference, and then and manufacture. The Dr. Shtabenau (German) allocates 4 phases of development of civil logistics: 1-st phase. 60th years, the USA - physics of distribution. Logistics connect with optimization of distribution of production; the committee on "physical" distribution as a result is created. The market of buyers and sales has changed at this time - as a result - the philosophy of marketing was born. Service of deliveries has got crucial importance in strategy of the market. 2-nd phase. It is connected with the Japanese approach in sphere of manufacture and trade, especially in the field of automation. The answer of the Western Europe and the USA to economic "aggression" of Japan was showed in improvement of quality of technology by preparation of orders. Chediel Msuya, October, 2009 7

3-rd phase. Passes now. It from the basic purposes of logistics - delivery of cargoes « precisely in time » with wide use of electronics and optimization of manufacture is realized. 4-th phase. The future logistics - the complex approach covering potentials: ü ü ü ü ü manufactures, supply, preparations of production, transportations, i.e. the electronic integrated logistics.

In military logistics, experts manage how and when to move resources to the places they are needed. In military science, maintaining one's supply lines while disrupting those of the enemy is a crucial some would say the most crucial element of military strategy, since an armed force without food, fuel and ammunition is defenseless. Object and subject of research in logistics: Object of researching and management in logistics is the streams of their structures and elements which play an important role on achieving final or partial targets and realization of functions allocation, which known as a necessary objectives for forecasting and organization of market demands, formation of requisition orders, organizing and realizing orientation in single or multisystems of production, transportation and commercial activities. Conceptual, network and problems of Logistics The conceptual of logistics as already defined in previous paragraphs can be termed as a system which is applied to modernize economical production activities of an enterprise by rationalizing the management of materials stream process. It always considered with a position of the following situations: 1. Products moving in series of sequence steps, that gives it a value, in a result that it is necessary to be in a certain place in a particular period of time with respect quantity/volume and form/design; 2. The flow of material resources from the one source, which means the raw materials producers, to final consumer of manufactured product, it is considered as a complete single material stream network, such as transportation, material loading, material arrangement in the vessel, materials unloading, selection of goods in warehouse, loading and unloading of goods in warehouse etc. Logistics always integrates supplying, production and distribution systems with the aim of synchronizing of rhythms and streams. Main objective of logistics Supplying products with respect to quality and quantity with exactly planned time, under relatively minimization of costs on supplying, storages, Chediel Msuya, October, 2009 8

production, packing, allocation, distribution, transportation of products, also receiving, processing and delivering information. Other objective of logistic may be considered as an unexpected idea, to which an enterprise approaches. These objectives solidify the following other objectives: 1. Projection and realization the effective system control, directed to non optimized process stream; 2. Projection and realization effective of selected function and technologies which rationalized organization of enterprise structure; 3. Projection and realization effective system of management of logistic activities of an enterprise. Main problems of logistics system: Always any organization is trying to achieve its planned goal under the minimum expenditure, and maximizing the possible economical gain from the market conjunctions, by maximizing its share of market participation and gaining advantages against competitors such as: § § By creating complex integration system of materials, information under possible and in other valuable material streams; Strategically agreement, planning and control of exploitation of logistic motion sphere in production and demand.

General problems of logistics system: v Existing of effective control of process streams in logistic system; v Processing and developing the management of material streams; v Multi-variants of forecasting the volume of production, supplying, storage and so on. Other problems of logistics system: Ø Optimization of material reserves of any kind and in all stages; Ø Maximizing reduction of storage time of products; Ø Minimizing time on supplying of goods. 1.4. Logistic system in a sphere of production and consumption Distribution Types of activities in the structure of formation, which deals with advertisement,

realization, transportation of products and rendering service buyers. Physical distribution occupies that part of logistic systems, which relates with products delivery from seller to buyer, and physical provision part of logistic systems, which realize movement of raw materials from suppliers or

source of raw materials. Chediel Msuya, October, 2009 9

In logistic interaction solution actively the following faces: · · · · Products ( generate, manufacturing products ), suppliers; Transport agent; Government; Consumers. 1.5. Object and a subject researches in sphere of logistics Objects of research of logistics are streams - a material stream and accompanying it financial, information, power and other streams. As a stream understand set of the objects perceived as a unit and possessing uniform general characteristics. The object of research of logistics is process of the organization, coordination, optimization, the control over movement of the streams of the decision of functional questions basic and accompanying it. Logistic is an important economical component in a daily life in western world (developed countries). For example, in USA expenditure on logistics is valued around 11% of the GDP and it amount about 730 billion dollars, and how calculation shows in several developed countries that logistics expenditure amount more than 20% of the GDP (Japan, France, Italy, Canada, Great Britain, Spain, Holland and Germany). Therefore, logistic finds all more widely applicable in practical daily activities of a firm and other different enterprises. It considered in a higher level of administration in the corporation as an effective motivation approach to administering of material streams with aims of minimizing production costs. Although the rates of solving problems on movement of material streams may be slow, however, final result will be fairly appreciable. In this case, according to developed countries economists, the concept of data collection identified as, that it is not only unifying administration disembodied supply functions, but also increasing effectiveness of enterprise consumption activities, since shipment realizing in the right time, is identification of place, for necessary quantity, that at final calculation increases effectiveness in entire economics. Basic expenditure of finance provision and distribution. According to American opinion it is approximately 20% of GDP. With a consideration of American research problems of logistics could understand the reason: Ø Intensive concentration for increasing effectiveness in separate supplying process, production or realization; Ø Logistic system remains important competitive instrument and ground for control under distribution; Ø Achievement of science. The Important is developing model or system of logistics system. Which is necessary considers the logistic model development. Number of production unity accommodation (enterprise, firm and so Chediel Msuya, October, 2009 10

on), quantities and warehouse accommodation, transportation models, communication and information system. 2.0. Economical effect from logistics applications Materials streams, flowing from first source of raw materials through network of production, transport and intermediate participants to final consumer, permanently increasing of brand value. According to research experience from Great Britain showed, that in the value of product, experienced by final consumer, more than 70% of product value goes to expenditures, relating with warehousing, transportation, packing and other operations, satisfying the flow of materials streams. Higher share of expenditures in logistics the last price of a product shows, which reserves increasing economic indexes subjects of economical content of optimization management of material streams. Considering important factors of economical effects from application of logistics conceptual to management of material streams. In a sphere of production and demand application of logistics advises: § § § Decrease reserves in all directions of flowing of materials streams; Minimize time of goods in a process of logistics set; Minimize transportation costs.

A significantly share of economical effect resulting on an account of minimizing reserves in all direction movement of materials streams. According to European data, industries association monitoring material streams satisfying minimization of material reserves of 30 - 70% (by given industries association of USA minimizing reserves ranges at 30 - 50% ). The high level of optimization of reserves expresses the followings: § In general structure expenditure of logistics costs on keeping reserves stands more than 50%, including costs of management apparatus, and also loses from defected or damaged products; Big part of capital circulation of an enterprise, as a rule, in the reserves (from 10 to 50% of all activation of an enterprise); In production costs of keeping reserves stands at 25 - 30% from total volume of expenditure.

§ §

By integrating quality logistic system presents itself capability of these system realizations of final objective, which received the meaning of Six Laws of Logistics : 1. 2. 3. 4. 5. PRODUCT Needed product; QUALITY Necessary quantity; QUANTITY In necessary quantity; TIME Must be supplied in a needed time; PLACE In needed place; 11

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With minimum costs.

The objective of logistic activities considered as achieved, if these six conditions are fulfilled, e.g. needed product in necessary quality in necessary quantity supplied in needed time in needed place with minimum costs. 2.1. The connection of logistics to marketing sphere Marketing presents itself as a system of management, in enabling production to reach market in an objective of facilitating the advantages of selling products. Marketing was supposed to deal practically with some difficulties on goods realization historically in earlier period, than logistic. In XX century, orientation of producing products which are only needed in the market by applying marketing methods, studying and researching on demand and supply, brand innovation, espionage of tactics, techniques, new technology and know-how from competitors, and existence of it comes with a decision of solving factors of increasing the capacity of market competition. Historically logistic participated in economical arena in late period, but today the same logistic fulfilling and developing marketing, considering consumers, transport and suppliers in mobile, technique-technological, and plan-economical of acceptable system. Marketing analyzes and identifies emerging demand, e.g. answering the following questions: which product is needed? Where? When? Of which quantity and quality? Logistic provides physical movement of the needed massive goods to consumers. Logistic integration allows the absence of supply of demanded products in needed point, in needed time with minimum costs. Marketing sets the tasks of system approach to organization of goods transportation: by effectiveness of organizing goods transportation from every stage of this process and must plan as a constant good part of equal and logistics of constructing general system. Also methods of techniquetechnological integration of all participants of process of products movement are a basic subject of studying not marketing, but logistics. Marketing is directed to researching the market, advertisement, innovation, tactics, techniques, technological know-how, espionage of financial and other factors position of competitors, psychological position of buyers and so on. Logistic in first priority it directed on construction techniques-technological accompanying system of moving materials by products passing sets, and also system control of their existence. More existing relationship between marketing and logistic is illustrated in Table. 1. Table. 1: Comparison of objects and subjects of researching in zones of marketing and of logistic. Comparisons of marketing and logistic characteristics Object of researching Subject of Chediel Msuya, October, 2009 Marketing Logistic

Market and conjunctions of Material streams, circulation in the competitors of products market. and services. Optimization of market Optimization of processes of material 12

researching Methods of researching

character on realization of products or services. Methods of researching of conjunctions, demand and supply by competitors products and services.

streams management.

Final results

System approaches to creation of materials passing sets, and also well known methods, which are applied by planning and management of production and economics systems. Recommendation on Projects system, which is responsible production-marketing for entire logistic systems: Needs of strategies and tactics of products, in particular quantity, in company: what to produce, particular quality, in particular place, in in which volume, for which particular time and with minimum markets and in which costs. period. What are advantages?

2.2. Levels of development of logistics There are some stages of development of logistics The first level of development: § § § Work is constructed in a mode of performance of planned daily planned targets; Management of logistics is at the lowest level; From logistical operations the organization of storage of finished goods and its transportation are carried out only;

The Second level of development: Management of a stream of made production occurs {happens} from last item {point} of an industrial line up to the end user; There is a performance and the control of following functions of logistical system: o processing of orders, o Storage and storekeeping of finished goods, o Service of the customer, The Third level of development: § There is a performance of following logistical operations:

ü Purchase and delivery of raw material to the enterprise, ü Storekeeping of raw material, ü forecasting of selling, Chediel Msuya, October, 2009 13

The Fourth level of development: § There is a performance of following logistical operations:

ü Movement of the goods ü Purchase and delivery of raw material to the enterprise, ü The interconnected management of material, information and financial streams: § Logistical operations are supervised from a procurement cycle of raw material up to a stage of service of the end user of production; § Integration of processes of planning and the control of operations of logistics over operations of marketing, selling, manufacture and the finance § Management of system is carried out on the basis of long-term (more than one year) planning. 2.3. Principles and the purposes of logistics The basic purpose of application of logistics is increase of an overall performance, expansion of a commodity market, increase of competitiveness and maximization of profit. The logistics is used for decrease in costs, improvement of quality of service of buyers and maintenance of volume of stocks in a warehouse at the minimal necessary level. To main principles of logistics concern: § § § The system approach; Orientation to a material stream; The account of all accompanying streams.

3.0. The Strategic planning of purchasing in logistics systems
3.1. Logistics of purchases The basic purpose of purchasing logistics - optimum satisfaction of needs of manufacture in materials with the minimal expenses. Functions of logistical purchases: 1. Definition of need for necessary material resources; 2. Reception and estimation of offers; 3. Choice of suppliers; Problems of purchasing logistics: 1. Observance of terms of purchase of raw material and completing products; 2. Definition of the optimum size of deliveries; 3. Observance of conformity of quantity of deliveries with needs of manufacture; Chediel Msuya, October, 2009 14

3.2. Needs: methods of definition of needs Division of the following kinds of needs: 1. Need gross - need for the scheduled period irrespective of, there are stocks in a warehouse or in the form of industrial stocks; 2. The general gross need - gross need plus the additional need including about conducting of experiments, performance of samples, the increase of need connected with repair and the maintenance of the equipment, a reserve on a case of short shipments; 3. Need net - pure need. It is defined as difference gross needs and had presence. Methods of definition of need Determined (it is based on use of quite certain initial data, serves for definition of secondary and tertiary needs at known primary). The necessary information - the primary need, including data about volumes and terms of manufacturing; the information on structure of a product and the form of the specification or instructions about applied and those or other details; norms of charges on materials and kinds of production; had presence. Calculation of material resources is conducted separately from social needs, the basic and auxiliary manufacture. Economic-mathematical models in this case can be used. Need of material resources for the basic manufacture:

M i = å H ij N j
j =1





- need of materials;

N n

- Norm of the charge of material resources of


name on j a kind of a product;

- The production program at a kind of production; - Assortment. Definition of need in material resources for repair-operational calculated as:




T (t ) Q H T LR
0 n j 0





- annual loading of the equipment; 15

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- A time between failures of the equipment of the given kind; - The setting level of reliability; - Quantity of units of equipment of the given kind; - Norm of the charge of materials of








kind on 1 repair.



- Index order number of interval between labourers a day/month/quarter, by which taken

calculations. Stochastic methods of definition of need (are based on forecasting). Forecasts can be intermediate term (3-5 years), short-and long-term. Forecasting can be executed on the basis of following algorithm: 1. The analysis of time numbers; 2. Definition of model of consumption; 3. Choice of a method; Graphic interpretation need of the forecast. 3.3. Planning of goods purchases Process of planning of purchases consists of following stages: § § § Definition of the nomenclature of demanded materials; Calculation of necessary quantity of materials and completing products; Calculation of the schedule of deliveries of parties of purchases.

The basic methods of purchases are: v Wholesale purchases - delivery of the goods by the big party for once; v Fine sets purchases - the order necessary quantities of the goods delivered by parties during the certain period; v Operative purchases (as required) - calculation of quantity it is delivered the goods occurs directly ahead of the rate. 3.4. Structure of processes and operations in purchasing logistics We shall consider the basic processes and operations of purchasing logistics carried out within the limits of everyone process. Management of purchases: Chediel Msuya, October, 2009 16

§ §


Carrying out of negotiations with suppliers; Estimation of the remained suppliers and final a choice of the supplier (the suppliers who have remained after preliminary selection are estimated from the point of view of the best satisfaction of needs of manufacture in material resources particularly of that kind); Estimation of a level of the price.

Management of orders: § § § Reception and preliminary processing of orders for account materials from manufacture; Configuration (the account of some grocery and service attributes for performance of the order); Definition of sources of performance of orders.

Monitoring and the control of terms, volumes and quality of deliveries with the purpose maintenance of realization of the plan of performance of orders. Storekeeping: § § § Estimation of expenses and costs on stocks of materials; The analysis of parameters of a control system of stocks; Realization of the analysis of stocks.

The Organization of transportation: § § § The organization of transportation of the goods; Definition of basis of delivery; Choice of a type of transport.

The organization of transportation from a consolidating warehouse on a warehouse of materials on manufacture: § § § Transfer of materials on an industrial warehouse Maintenance of document circulation of technological process; The organization of warehouse activity.

Management of warehouse technological process: § § § The organization of unloading and acceptance of cargoes; Unloading of vehicles; The control of documentary and physical conformity of orders of delivery.

The organization of intra warehouse transportation (moving between various zones of a warehouse from an unloading stage in a zone of acceptance, there from in zone of storage, complete set and on loading stage). The organization of warehousing and storage: Chediel Msuya, 17 October, 2009

§ § §

Bookmark of a cargo on storage; Storage of a cargo and maintenance of conditions corresponding for it; The control over a cash of stocks in a warehouse, carried out through information system.

4.0. Logistics approach to management of materials streams in spheres of production and supplying
4.1. Characteristics of functioning zone of logistics Object of logistics, as well known, is a flowing of materials streams, especially in a particular area of management it has known specifications. In relatively with such specifications which divide five functions zones of logistics: purchasing, production, distribution, transportation and information, which detailed studied in the following section of this book (figure 1). In the current section we identify specific of every functional zone. 1. In a process of providing enterprise raw materials solves the problems of purchasing logistics. In a practical boarders of activities, presents the basic content of purchasing logistics, define the conditions of contracts with suppliers and existing function of servicing supply of internal enterprise (figure 1, a)
Supply Production section Market

Purchasing logistic

Production logistic

Distribution logistic

Figure 2. Participation of material streams, in which the advantage of solving problem of purchasing, production and distribution logistics

2. In a process of materials streams of internal enterprise, creating materials resources or refuses materials services basically solves problems of production logistics. 3. By management of materials streams in process of realization of final products, solves problems of distribution logistic. 4. By managing materials streams in transportation area it solves specific problems of transportation logistic. Compound of volume of transportation works, fulfilling in a process of Chediel Msuya, October, 2009 18

escorting materials streams from first source of raw materials to final consumer, may sub-divide in two more groups (somehow are equal): § § Work, making transport, contained special transport organization (transport of general application); Work, making private transport of all remaining (non transport) of enterprise.

Also, as and other function zones of logistics, transport logistic clearly drawing boarders is not capable. Methods transport logistics apply by organization any carriage. Also priority objective of studying, having place in process of carriage transport of general application. 5. Information logistic Information logistic clearly relates with other functions of logistic zones. This section explains organization information streams of internal enterprise, and also change information between different participants of logistic processes, situated in significant distance of each other (for example, with helps of satellite means of communication). 4.2. The relationship between purchasing and distribution logistics The relationship of separate function zone of logistic in general structure characterized in previous paragraph. More detailed analyzed cooperation of distribution and purchasing logistic in a process of escorting product from supplier to consumer. Considering process of management of materials streams in participant of two enterprises, one from which is supplier of products, and other wholesales buyers. With a position first enterprise management of materials streams must contains methods of distribution logistic. Also with a position of second of the same stream must managing methods of purchasing logistic. It seems that controversial easily solved. Methods of purchasing logistic by managing materials streams will apply in given participants then, when by condition of contract with buyer, self-carriage products with warehouses of supplier. Rational cooperation services of purchasing, buyer in this case may existing the increasing its economical indexes. Concrete may agreed about another conditions of supplying. Let say, that supplier from another region supplies products by using railway transport station of her region (and the value of work by supplying include in price of supplied products). More organizes movement of goods of buyer. Here escorting products to railway station a point of sending goods deals with service of distribution of suppliers, further service of purchase, buyer. 4.3. The existence of purchasing logistics Purchasing logistic this is management of materials streams in process of facilitating an enterprise with materials resources. The meaningful element of micro-logistic systems is sub-system of purchasing, organizing the entrance of materials streams in logistic system. Management of materials streams in given stage has well known a specific, which explains necessary division purchasing logistic in separate department of studying disciplines. Any enterprise, as a production as and trade, in which developing of materials streams, had in its service base, existing purchasing, Chediel Msuya, October, 2009 19

supplying and temporary storage subjects of labour (supplying service): raw materials, semimanufactured products and products of peoples consumption. Activity of this supplying service at the same time is: § § § Element, providing communication and realization objectives of macro-logistic systems, in which entering in an enterprise; Element of micro-logistic systems, e.g. one from sub-division enterprise, facilitating realization of objectives of this enterprise; Self- sufficient system, having elements, structures and self-sufficient objectives.

The considering the objectives functioning supplying services in every divided stages. In logistic relations with suppliers must construct in the following principles: Ø Approaching with suppliers as the, like and with clients of firms; Ø Not forgetting to demonstrate to community the interests; Ø Introducing the suppliers to your core problems and be knowing their business operation; The supplying services of an enterprise starting by solving problems of providing enterprise with materials resources, already in the stages of developing new products. In logistic organization system program processing new products may realized with participation of suppliers. 4.4. Problems of purchasing logistics Basic questions, in which the following answering in the process of facilitating enterprise with subjects of labour, traditionally and identifying logistic supplying: § § § § What to buy? How much to buy? To whom to buy? In which condition to buy?

To traditionally enlist logistic adds its questions: ü How system connects purchasing with production and marketing? ü How system connects activity of enterprise with suppliers? It means rounding questions of purchasing logistic defines the content of solving in given functioning zones of problem and character of fulfillment of works. In consideration of problems and works, relates to purchasing logistic. 1. Identification of consumers of materials resources; 1. Investigating market purchase; 2. Selection of suppliers; Chediel Msuya, October, 2009


3. Existing purchase. By this means, we define the following types of costs: § § § Costs for fulfillment requisition by basic types of materials resources; Costs for transportation, expedition and insurance; Costs for goods processing.

In range of conducting economical accounts to problems of purchasing logistic brings costs from defected of materials resources. 4. Coordination and system cooperation of purchasing with production, marketing, warehousing and transportation, and also with suppliers. 4.5. Function of supply in an enterprise In relatively with conceptual of logistic in process of facilitating enterprise of labour subject must have place of activity for realization of system approach to management materials streams in a limitation of supplying service itself. We considering two variants of organization of supplying, principally differs each others possible realization system approach to management of materials streams in a process of facilitating enterprise raw materials. In figure 3 is presenting variants of organization structures of enterprise with distribution of enlisted above problems between different functions sub-divisions. As we see, problems, what to purchase? And how much to purchase? Deciding director for production. Here we fulfilling and works by warehousing purchasing of labour subjects. Problem, of to whom to purchase and in which conditions to buy, is decided by director of purchasing. Here is fulfilling and enlisting works for supplying, e.g. signing contracts, controlling their fulfillment, organizing supplies of purchased labour subjects. In a result of function of management of materials streams in process of supplying enterprise with raw materials, which is divided between different services and its effectiveness realization is difficult. 4.6. Problem of selecting supplier After all, as solved problem of make or buy and enterprise defined, which raw material are necessary to buy, solving problem of selecting supplier. Enlisting and characterize basic stages of solving these problems: 1. Finding potential suppliers: - By this case may be using next methods: a) Advertising tenders; b) Reading advertisement materials: Firms catalogues, advertising in mass media and so on; c) Attending exhibitions and symposiums; Chediel Msuya, 21 October, 2009

d) Lists and personal contacts with possibilities of supplying. In a result of listing activities formulating a list of potential suppliers, which constant are available and fulfilling agreements. 2. Analysis of potential suppliers: - Keeping listed potential suppliers analyzed in basic special criteria cause the present a selection of reliable suppliers. Quantity of such criteria may have several tens of it. Also part limits price and quality supplied products, and also reliable supplies, under which understand observation suppliers obliged by period of supplies, assortment, complete, quality and quantity of supplied products. To other criteria, making attention by selection of supplier, relates to the following: a) Satisfactory of supplier to consumer; b) Period of fulfilling current and past orders; c) Private reserves capacity; d) Organization of management quality of supplier; In a result of analysis potential suppliers formulation list of concrete suppliers, with which is conducting work for signing contract relationships. 3. The degree of work results with suppliers: - In selection of potential supplier existing possible offering results of works by which is already signed contract. For these development special aggregate marks, causes the account rating of suppliers. Prior accounting of ranking is necessary fulfilling differential purchasing of labour subjects. Purchasing products, raw materials and assisting components to production, as rule, not equal-meaning with points of view of objective of production or trades process. The absence of assisting components to production, requires regularly, may bring to position of production process (equal like and deficit of several products in trades to rare decreasing profits of trading enterprise). Major criteria by selection of supplier of given category of labour subjects will be reliable suppliers. If purchasing of labour subject not meaning with points of view production or trade process, so by selection of their supplier, major criteria will be service costs in establishment and supplies. 5.0. Production logistics 5.1. The concept of production logistic Materials streams in its direction from first source of raw materials to final consumer passes through series production participants. Management of materials streams in such stage has its specifications and carries meaning of production logistic. Let us remember the content of terminology Production . As well known, common production subdivided in materials and non-materials (figure 2). The production logistic is considering processes, passing in sphere of materials production. Chediel Msuya, October, 2009 22

General production

Material production

Non-material production

Production of reliable materials

Production of service materials

Production of non-material reliable materials

Production of nonmaterial services.

Figure 2: Structure of social

The objective of production logistic is optimization of materials streams internally enterprise, creating materials resources or appearance of such materials services, as storing, packing, stamping, arranging and so on. The characteristic of object view studying in production logistic their territorial compactness. In literatures they some time known as Isle object logistic . The participants of logistic process in a range of production logistic relate with internal production relation (in differ from participants of logistic process in macro-level, relating with product-money relationship). The logistic system, considering production logistic, carries a meaning of internal production logistic system. To it may relate to: enterprise industries, wholesales enterprise, having warehouse structure, connection of goods station, connection of sea-port and others. Internal production of logistic systems may consider in macro-level and micro-level. In macro-level of internal production logistic systems play a role of macro-logistic systems elements. They give the rhythm of works of these systems, which is source of materials streams. It is possible to adapt macro-logistic system to exchange of environmental in existing level identified capability of passing in their internal production logistic system is faster changes quality and quantity contents of out flowing materials streams, e.g. assortment and quantity of produced products. In micro-level internal production logistic systems contain it of series sub-systems, studying identified complete, unit. This sub-systems purchase, warehouses, reserves, servicing production, transport, information, marketing and cadres who facilitating the flow of materials streams in the system, which passing through internal of it and flowing out from the systems. In relatively with conceptual of logistic construction of internal production logistic agreeing and together correcting plans and cooperation supplying, production and marketing participants of internal enterprise. Traditional and logistic conceptual organization of production Logistic conceptual organization of production includes in itself the following basic situation: § Refusal from extra reserves; 23

Chediel Msuya, October, 2009


Refusal from late time in a reason of accepting the new materials and transport operation.


It differs from logistic traditional conceptual organization production suggests: ü Never using basic equipments and supporting in that could be higher coefficient on its application; ü Preparation of products as may be more bigger consignments. The containing conceptual situation witnessing about it, that traditional conceptual organization production more acceptable for condition of Market seller , in that time as logistic conceptual for condition of Market buyer . When demand is more than supply, may definitely sure suggest, than production with accounts of market conjunctions the consignment of product will be realized. Therefore priority is to achieve maximum objective of loading full the production machinery. By so doing the big consignment will be produced, the lesser the value of unit product will be. The problem of realization plan in this case does not exist. 5.2. Quality and Quantity dynamic production systems The production in a condition of market competition may survive at least in the case, if it is capable to faster change assortment and quantity of produced products. Before 1970s the whole world solved this problem for account of particular in warehouse of reserves of final products. Today logistic suggests adaptation to changes of demand on accounts of reserve production capacity. The reserves of production capacity happen under particular quality and quantity of dynamic production systems. The quality dynamic facilitating for accounts of particular universal services of personnel and dynamic production, and the quantity dynamic may facilitate different possibilities. For example, in several enterprises of Japan basic personnel stands not more than 20% from maximum number of workers. The remaining 80% are part-time workers. In such situation, by number of personnel in 20 people of enterprise in any moment may be assigned to fulfill the order to 100 people. The reserves of labour forces must fulfill relatively reserve means of work (figure 3).
Quality flexibility Quantity flexibility

Production capacity

University personnel services

Flexibility automatic systematic of machines with CPY

Reserves of equipments

Reserve of labour force

Figure 3: Flexibility production capacity

5.3. Stimulation systems of management materials streams in production logistic Chediel Msuya, October, 2009 24

The management of material streams in a range of internal production logistic system may contain different possibilities, from which divides two bases: stimulating and pulling, principally relate each other. First variant carries meaning stimulating systems and presents itself a system of organization production, in which a subject of labour, entering in production areas, directly of these participants of first technological participant not ordered. Materials streams pushing received by command, entering in handled out participant from central systems of management production. The stimulation models of management streams characters for traditional methods of production organization. It is possible their application for logistic organization production occurred in connection with massive widespread calculating techniques. These systems, first developed which relates to 1960s in twentieth century, made agreement and operational correcting plans and cooperation of all sub-divisions of an enterprise, supplies, productions and marketing, with accounts of constant changes in a real range of period. The results of application of data system have different characterized in one phrase: Then we can develop a plan of production, of which we require for weeks and for several hours . Stimulating systems is possible with help of micro-electronics connecting complicated production of mechanism in a single unit, at the same time having environment limitation of its possibilities. The parameters of Pushing is participants of materials streams optimum for the, managing system in a condition of accounting and assessing of all factors, relating with production situation in this area. Also the bigger the factors by each from many participants of enterprise must considers managing system, in a modern way and its program may be very expensive, information and techniques facilitations. In a practical realization of different variants of stimulation system, well known under the name of system MPII (MPII-I and MPII-2), and it is possible for them to create a possibilities of beginning massive application of computing techniques. The systems MPII characterized higher degree of automatic management, makes realization of the following basic functions:

Management system

Warehouse of raw materials

Section #1

Section #n

Gatherin g section

Material streams Information streams
Figure 4: Principle scheme push on stems of management of materials streams in range internal production of logistic system

1. Facilitating current regulation and controlling production reserves; 2. In a real range of time agreement and operational correctional plans and cooperating with different services of an enterprise supplies, productions and marketing. Chediel Msuya, 25 October, 2009

In a modern, development of different variants of system - MPII in which is solving different problems concerning of forecasting. In the consideration methods of solving problem wide applicable of simulation modeling and other methods of researching operations. 5.4. The pulling systems of management of materials streams in production logistic The second variant of organization of logistic processes in production is based in principle this possible management of materials streams. It carries the name of Pulling system and it presents it with a system organization of production, in which parts and semi-produced products is given in the following technological operation with first by necessary steps. Here central system of management not mixing in exchange of materials streams between different participants of enterprise, not established for them a current production task. Production program particular technological participants identified the size of order of the next participant. Central system of management sets assignment/task at least before final participant production technological sets. For the purposes of understanding mechanism functioning pulling system, we look at example (figure 5). For example, enterprise received order for producing 10 units of product. This order of system management is sent to section of selection. Section of selection for fulfillment of order asking 10 parts from section # 1, and is given from its reserves 10 parts, section # 1 with objective of fulfilling reserves ordered in section # 2 ten production. In its time, section # 2, gives 10 produced orders from the warehouse raw materials for production the said quantity also with the objective of establishing reserves, and in such case, materials streams pushing each of the next participants. Also personnel of particular section in a condition accounts more specific factors, identifies the sizes of optimal orders, in which could make central system of management. In practical to pushing internal production logistic system carries a system Kanban (in translation to Japanese language means - Card), processed and realized firms Toyota (Japanese).

Orders of ten units of products Management systems
Group of labourer to product ten units of products Storage of raw materials Materials For 10 preparation Sectio n No. 2 Ten Preparation Sectio n No. 1 Ten Parts Gathering section

M a r k e t i n g

Order of materials

Order of ten parts

Order of ten parts

Material streams Information streams

Chediel Msuya, October, 2009


Figure 5. The pulling system of management of materials streams in a range internal production of logistic systems The system Kanban not requiring total computerization production, also it suggests higher discipline on supplies, and also higher responsibility personnel, as if centralization regulation internal production logistic process is limited. The system Kanban causes the existence of minimizing production reserves. For example, reserves of parts in calculation for one produced automobile in firms Toyota stands at 77 US $, in the same time as in automobile firms USA this index is equal to 500 US $. The system Kanban causes also to increase the speed of processing circulation means, improving quality of the produced products. 6.0. Forecasting Methods 6.1. The concept of forecast Frequently there is time lag between awareness of an impending event or need and occurrence of that event. This lead time is the main reason for planning and forecasting. If the lead time is zero or very small, there is no need for planning. If the lead time is long, and the outcome of the final event is conditional on identifiable factors, planning can perform an important role. In such situations, forecasting is needed to determine when an event will occur or a need arise, so that appropriate actions can be taken. In management and administrative situation the need for planning is great because the lead time for decision making ranges from several years (for the case of capital investments) to a few days or hours (for transportation or production schedules) to a few seconds (for telecommunication routing or electrical utility loading). Forecasting is an important aid in effective and efficient planning. Opinions on forecasting are probably as diverse as views on any set of scientific methods used by decision makes. The layperson may question the validity and efficacy of a discipline aimed at predicting an uncertain future. However, it should be recognized that substantial progress has been made in forecasting over the past several centuries. There are a large number of phenomena whose outcomes can now be predicted easily. The sunrise can be predicted, as can the speed of a falling object, the trajectory of satellite, rainy weather, and a myriad of other events. However, that was not always the case. The evolution of science has increased the understanding of various aspects of the environment and consequently the predictability of many events. For example when the Ptolemaic system of astronomy was developed almost 1900 years ago, it could predict the movement of any star with accuracy unheard of before that time. Even then, however, systematic errors were common. Then came the emergence of Copernican astronomy, which was much more accurate than its to within hundredths of a second. Today, modern astronomy is far more accurate than Copernican astronomy. The same increase in accuracy is shown in the theory of motion, which Aristotle, Galileo, Newton, and Einstein each improved. The trend to be able to more accurately predict a wider variety event, particularly those in the economic/ business environment, will continue to provide a better base from which to plan. Formal forecasting methods are the means by which this improvement is occurring. Regardless of these improvements, two important comments must be kept in view. The first is that successful forecasting is not always directly to mangers and others. A wide variety of forecasting methods are available to management. These range from the most naïve methods such as use of the most recent observation as a forecast, to highly complex approaches such as neural nets and econometric systems of simultaneous equations. In addition, the Chediel Msuya, 27 October, 2009

widespread introduction of computers has led to readily available software for applying forecasting techniques. Complementing such software and hardware has been the availability of data describing the state of economic activities (GNP, demand, supply, consumption, etc) and natural phenomena (temperature, rainfall, etc.). These data in conjunction with organizational statistic (sales, prices, advertising, etc.) and innovations, technological know-how provide the base of past information needed for the various forecasting methods. Objectives of forecast As suggested above, forecasting is an integral part of the decision making activities of management. An organization factors, then selects actions that it hopes will result in attainment of these goals and objectives. The need for forecasting is increasing as management attempts to decrease its dependence on chance and becomes more scientific in dealing with its environment. Since each area of an organization is related to all others, a good or bad forecasting can effect the entire organization. Some of the areas in which forecasting currently plays an important role are: 1. Scheduling: Efficient use of resources require the scheduling of production transportation, cash, personnel, and so on. Forecasts of the level of demand for product, material, labor, financing, or service are an essential input to such scheduling. 2. Acquiring resource: The lead time for acquiring raw materials, hiring personnel, or buying machinery and equipment can vary from a few days to several years. Forecasting is required to determine future resource requirements. 3. Determine resource requirements: all organizations must determine what resources they want to have in the long-term. Such decisions depend on market opportunities, environmental factors, and the internal development of financial, human, product, and technological resources. These determinations all require good forecasts and managers who can interpret the predictions and make appropriate decisions. Although there are many different areas requiring forecasts, the preceding three categories are typical of the short, medium-, and range of needs requires that a company develop multiple approaches to predicting u uncertain events and build up a system for forecasting. This, in turn requires that an organization possess knowledge and skills covering at least four areas: identification and definition of forecasting problems; application of a range of forecasting method; procedures for selecting the appropriate methods for a specific situation; and organizational support for applying and using formalized forecasting methods. A major aim of this book is not only to examine the techniques available for meeting an organization s forecasting requirements, but also to consider the interdependence of needs in areas such as purchasing, production, marketing finance, and general management. Two major forecasting methods: 1. Quantitative Sufficiency quantitative information is available: § Time series: Predicting the continuation of historical patterns such as the growth in sales or gross national product; § Explanatory: Understanding how explanatory variables such as prices and advertising effect sales. 2. Qualitative: Little or no quantitative information is available, but sufficient qualitative knowledge exists: § Predicting the speed of information technology around the year 2050; Chediel Msuya, October, 2009 28


Forecasting how a large increase in oil prices will affect the consumption of oil.

Unpredictable: § Little or no information is available: ü Predicting the discovery of interplanetary travel; ü Predicting the discovery of a new, very check form of energy that produces no pollution. The Basic Steps in a Forecasting Task There are five basic step in any forecasting task for which quantitative data are available: 1. Problem definition: ü Time definition of the problem is some times the most difficult aspect of the forecaster s task; 2. Gathering information: ü There are always at least two kinds of information available: i. Statistical (usually numerical) data, and; ii. The accumulated judgments and expertise of key personnel. 3. Preliminary (exploratory) analysis: ü What do the data for tell us? We start by graphing the data for visual inspection. Then we compute some simple descriptive statistic (e.g., mean, standard deviations, minimum, maximum, and percentiles) associated with each set of data; 4. Choosing and fitting models: ü This step involves choosing and fitting several quantitative forecasting models. 5. Using and evaluating a forecasting model: ü Once a model has been selected judiciously and its parameters estimated appropriately, the model is to be used to make forecasts, and the users of the forecasts will be evaluating the pros and Cons of the model as time progresses. Basic Forecasting Tools Numerical summaries: § In addition to graphics, it is also helpful to provide numerical summaries. A summary number for a data set is called a statistic. 6.2. Methods of Forecasting Forecasting Time Series Analysis As we have been informed above already, forecasting can be also defined as an attempting to predict the future by using Qualitative or Quantitative means. In an informal way, forecasting is an integral part of all human activities, but from the business point of view increasing attention is being given to formal forecasting systems which are continually being refined. Some forecasting system involves very advanced statistical techniques. All forecasting methodologies can be divided into three broad heading i.e.: a) What people have done? Examples: ü Time series Analysis; Chediel Msuya, October, 2009 29

ü Regression Analysis. b) What people say? Example: ü Surveys; ü Questionnaires. c) What people do? Examples: ü Testing marketing; ü Reaction tests. During forecasting, data are very important and these data are categorized in different forms as follows: § Data from past activities are cheapest to collect but may be outdated and past behavior is not necessary indicative of future behaviour; § Data derived from surveys are more expensive to obtain and needs critical appraisal intentions are not always translated into action; § Finally, the data derived from recording what people actually do are the most reliable but also the most expensive and occasionally it are not feasible for the data to be obtained. FORECAST ING APPLICATION: § Virtually every form of decision making and planning activity in business involves forecasting. Typical applications include: i. Production planning Demand forecasting; ii. Inventory control Advertising planning; iii. Investment cash flow Corporate planning; iv. Cost projections Budgeting. QUALITATIVE AND QUANTITA TIVE TECHNIQUES A convenient classification of forecasting techniques in between that is broadly qualitative and those that are broadly quantitative. These classifications are by no means mutually exclusive but serve as a means of identification. a) Quantitative Techniques: These are techniques varying levels of statistical complexity which are based on analyzing past data of the item to be forecast, e.g. sale data, stores issues, cost incurred. However sophisticated the technique used, there is the underlying assumption that past patterns will provide some guidance to the future. Quantitative forecasting can be applied when three conditions exist: 1. Information about the past is available; 2. This information can be quantified in the form of numerical data; 3. It can be assumed that some aspects of the past pattern will continue into the future. Explanatory versus time series forecasting. There are two major types of forecasting models: · Time series Models · Explanatory models

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Explanatory models assume that the variable to be forecasted exhibits an explanatory relationship with one or more independent variable. For example: GNP = f (Monetary and fiscal policies, inflation, capital spending, imports, exports, error) If the only purpose is to forecast future value of GNP without concern as to why a certain level of GDP will be realized, a time series approach would be appropriate. It is known that the magnitude of GNP does not change drastically from one month to another or even from one year to another. Thus the GNP of next month will depend upon the GNP of the previous month and possibly that of the months before. Base on this observation, GNP might be expressed as follows: GNP t +1 = (GNPt , GNPt -1, GNPt - 2 GNPt -3- -- - -- - - -- - -- - error ) Where t is the present month t +1 is the next month t-1 is the last month, t-2 is two months ago, and so no b) Qualitative Techniques: These are techniques which are used when data are scarce, e.g. the first introduction of a new product. The techniques of a new product. The techniques use human judgment and experience to turn qualitative information into quantitative estimates. Qualitative forecasting methods, on the other hand, do not require data in the same manner as quantitative forecasting methods. The inputs required on the specific method and are mainly the product of judgment and accumulated knowledge. Qualitative approaches often require inputs from a number of specially trained people. As with their quantitative counter parts, qualitative techniques vary widely in cost, complexity, and value. They can be used separately but are more often used in combination with each other or in conjunction with quantitative methods. The forecaster has a wide range of methods available that vary in accuracy, scope, time horizon, and cost A qualitative technique is used in long term and short term forecasting. Qualitative methods applied in three categories; a) Delphi Method b) Market Research c) Historical Analogy. Delphi Method: This is a technique mainly used for long term forecasting, designing to obtain expert consensus for a particular forecasting, without the problem of submitting to pressure to conform to a majority view. The procedure is that a panel of experts independently answer a sequence of questionnaire are used to produce the next questionnaire. Market Research: Market research uses opinion surveys, analyses of market data, questionnaires and other investigations to gauge the reaction of the market to a particular product, design ,price ,etc .Market research is often very accurate for the relatively short term ,but long term forecasts based purely on surveys are likely to be suspect because people s attitudes and intentions change. Historical Analogy: Chediel Msuya, October, 2009 31

Where past data on a particular item are not available, e.g. for a new product, data on similar products are analyzed to establish the life cycle and expected sale of the new products. Quantitative Forecasting: A prerequisite to the use of the technique to be described in the data on past usage or demand. The longer a period covered by the data, the more likely that the patterns in the data will be representative of the future. This is the main assumption behind the use of statistical forecasting techniques. Time Series Analysis: Time series analysis use some form of mathematical or statistical analysis on the past data arranged in a time series, e.g. sales by month for the past ten years. Time series analyses have the advantage relatively simplicity, but certain factors need to be considered: a) Are the past data representative? For example, do they contain the results of a recession/boom, a major shift of taste, etc.; a) On the whole, time series methods are more appropriate where short term forecasts are required. Over the long term external pressure, internal policy changes make historical data less appropriate; b) Time series methods are the best suited to relatively stable situations. Where substantial fluctuations are common and or conditions are expected to change, then time series methods may give relatively poor results. The Time Series Analysis Moving Average: If the forecasting for the next month s sales says December was the actual sale for November, then the forecasts obtained would fluctuate up and down with every random fluctuation. If the forecasting for the next month s sales was an average of several proceeding months then hopefully, random fluctuations would cancel each other out, i.e. .would is smoothed away. This is the simple principle of the moving average method which is one of the smoothing techniques. The method is illustrated below: Past Sales of Maize Month Actual sale (Units) Jan 450 Feb 440 Mar 460 April 410 May 380 June 400 July 370 August 360 September 410 October 450 November 470 December 490 Jan 460 Forecast Produced by 3monthly 6month moving moving average average

12 month moving average

450 437 417 397 383 377 380 407 443 470

423 410 397 388 395 410 425


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Any month is forecast is average of the proceeding n month s actual sales. For example, the 3 month moving forecasts were prepared as follows: a) April s forecast = Jan. Sales + Feb. Sales +Marc. Sales = 3 = 450+440+460 = 450 3 b) May s Forecast = Feb. Sales +March. Sales+ Apr. Sales 3

= 440+ 460+410 = 437 3 Similar logic applies for the 6 and 12 monthly moving averages. Characteristics of Moving Averages: a) The different moving averages produce different forecasts; b) The greater the number of periods in the moving average, the greater the smoothing effect; c) If the underlying trend of the past data in the through to be fairly constant with substantial randomness, then a greater number of periods should be chosen; d) Alternately, if there is thought to be some change in the underlying state of data, more responsiveness is needed, therefore fewer periods should be included in the moving average.

7.0. Accounts of costs in logistics
7.1. Problems of accounting expenditures in logistics One from problems of logistics is to divide separate requesting (orders) and makes, some quantity different resources required in its fulfillment. Logistic of materials streams study the complex operation, facilitating movement substance subjects and products works from the beginning source of raw materials to final consumer. Making decision by this operation with position of interests flowing systems make talking about them as about logistic operation. In negative cases suggested logistics will be not logical. Application of terminology of logistic operation suggests final objective of logistic management rationalized especially in flowing sets. Logistic costs is the costs in fulfillment of logistics operation. Logistic operation with subjects and products of works fulfilled as in sphere of supply, as and in sphere of production. Relatively with costs in fulfillment of logistic operation including in itself as part of supplying costs, as and part of production costs. Basic contents of logistic costs are: § § Transportation preparation costs; Costs in keeping reserves. 33

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In general national level, logistic costs considered in percentages from GDP. For example, in USA in 1987 logistic costs stood at US $ 462 billions or 10.27% of GDP. From them US $ 285 billions Transportation preparation costs, US $ 158 billions Costs in formulation and warehousing reserves, US $ 19 billions Administration Management costs. In a limitation of enterprise logistic costs considered as: § § § In percentages from sums of sales; In percentages from the value of pure product; In financial outcomes in account of unit mass of raw materials, final products.

Problems, relating with defined summation of cooperation systems of moving materials streams in general system of enterprise, uncertainty of different kinds. Logistic by its nature Quick Internal Movement enterprise, it seems existing cooperation in additional of its sub system. Traditional systems of accounts not make definition of this cooperation, aggregates logistic costs in others group s cooperatives costs. For example, in order, to fulfill an order of a client is necessary existing of the following operations: accepting of an order, processing an order, formulation of documents, complexion of an order, supplying, presentation of accounts. Expenditures, relating with general process of order fulfillment, warehousing from additional costs, happening in different spheres, and integrated them in single status of costs in range of function organization accounts very complicated. By making conclusion, formulating basic problems, relating with accounts expenditures in logistics: § Higher share of costs in operations, relating with movement of products and materials resources in spheres of production and supplying, in general volume of expenditures. Constantly, observing general degree of inflation, increasing the value of work in majority from these operations; Absence, in general case, by traditional organized accounts criteria of making decision by rational organization of logistic process. 7.2. Requirement to systems of costs accounts in logistic Problems of accounts of costs in logistic is facilitating managers information, which assisting on making decision in the zones of management of costs by movement of materials streams in a limitation of logistic system. Also managing costs is possible at least in this case, if they are possible exactly measured. Therefore systems of accounts of costs of production and supplying participants of logistic processes must: § § Divide costs, happening in process of realization of logistic function; Formulation information about more meaning costs.


By observation of data required occur some possibilities of using important criteria construction optimal variant of logistic systems minimum compound of costs in a connection with all logistic networks.

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In logistic key incidences (objects analysis) is an order of consumer (client, product or service) and existence of by fulfillment of this order. Calculation of costs must assist to define, does it brings concrete order (client, product or service) profit. For effective calculation of costs we need: a) Exactly definition of concrete costs, which are included in scheme of analysis; b) Establishing time expenditure. 7.3. Classification of costs in logistic Costs in logistic classified by different forms (figure 6). In relationship from behaviour of costs by changes volume of work with materials streams they sub-divided in permanent and temporary. The permanent costs is not changing together with normal range of volume activities. Temporary costs is changing proportionally by changing of volume activities.
Changes in process Relationship to process Management coordinator Type of logistic function

Figure 6: Classification of logistic expenditures

In dependence from bringing to one or another process differs direct and indirect costs. The direct (or operational) costs expenditures, which are direct relating with object s costs (that occurs a reason to fulfill concrete logistic work), and such costs are not difficult to identify. Direct costs in transport, warehousing, goods processing and several others works for fulfillment of orders and management reserves may be divided from traditional expenditure accounts. Indirect costs it does not relate indirect with object s costs. For example, the object s costs is goods automobile. Direct costs is a driver s salary, amortization of the automobile and so on. Indirect content of reserves of equipment, reserves of labour forces, expenditures on managers transportation section, and also administrative expenditures of whole company. In dependence from applicable to management costs is sub-divided in regulating and non-regulated. Regulated costs is the cost, which may be managed in degree of center of responsibility. Non regulated costs is the cost, in which from center of responsibility is not compared. Suggested, that these costs regulated at a degree of a company as whole.

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Other functions









In dependence from type of logistic function, its costs are sub-divided in transport, costs of storing and so on. By these basic types of costs, this may be easy to manage in a degree of responsibility services of logistics, concerning costs, relating with storing and transportation products. These types of costs considered in the following two paragraphs. 7.4. The costs in creation and keeping materials reserves The total costs in creation and keeping reserves warehoused from enlisted below basic groups: 1) Costs in current servicing reserves, which in basic included in itself taxes for reserves. 2) Costs in investment in reserves of capital, here there is possible of two variants: a) Reserves created with application financial credit means. Costs of investment capital defined in such case of percentage of taken bank credit; b) Costs created with application of self owning means. In such case applied of establishment in an enterprise a normal effectiveness of financial deposited in circulation means. 3) Costs of storing of reserves. Here relates with expenditures of hiring a warehouse premises, amortization expenditure, expenditure on electrical energy, salaries and wages of warehousing workers and specialists. The risks, relating with keeping and holding of reserves, in the values of risks happening during keeping and holding reserves, it happens another kind of losses: § § The losses, relating with physical and moral of expiring goods during warehousing (this one relates to expiring date of agricultural products); The risks situated wherever normal climate loss. Risks may be minimized by minimizing cycle period.

The risks content reserves happen in such properties of products, as: § § Overcoming possibilities of damages (for selling products); Securing the process of transportation.

Risks require extra costs for facilitating goods by transportation, goods processing, storing, (for example, fast melting products must be carried in the special freezer means). By increased products risks costs in storing and transportation also increased too. The degree value of risks in financial form produces: § § Through expenditures on insurances; Through tariffs and normal taxes of insured prize.

Exactly identify costs by keeping and holding reserves, as a rule, is quite complicated. In practical may applying average meaning costs in creating and keeping reserves in type of percentages from values of reserves. According to Rynjkov Y. I. works explains, that in practical of possible value Chediel Msuya, October, 2009 36

from 15 to 35% from price of product. In stabilized condition price of storing may be as total of many products percentage from prices and in average stands at 25 cents of US dollar. 7.5. Costs caused by transportation preparation In transportation preparation costs relate with: · · Costs, relating with organization order and its realization; Expenditures on purchasing and supplying valuable product


Including expenditure in formulation sets of suppliers, selection and assessing the suppliers, transportation costs, postal-telegraphic costs, staffs and work tour/trip, and other costs, the missing and losses in the ways of normal limited climate losses. The part of transportation preparation costs do not depends on part of supplies, but depends on quantity of orders per year. Another part (transportation costs, acceptance processes and other costs) depends on size of part supplied. In its queue, all costs on carriages may be sub-divided in variables, depending on distance of carriages (or period of movement) and constantly, not depending on distance. To variable expenditures relates: § § Costs on energy, liquid materials, electrical energy on moving operation; Costs on technical services and current repair of moving parts (including part of reserves and materials).

To constantly cost normally relates with: Ø Expenditures in keeping production-technical bases and infrastructures of different types of transport (hiring costs); Ø Expenditures in works payments of administration management personnel. 8.0. The management of logistic in delivery and distribution know - how 8.1. Technology work of logistical systems It is possible to allocate following main principles of construction and functioning of logistical systems: 1. The system approach. Functions of logistics - transportation, storekeeping, processing of orders, etc. - are considered as the interconnected and cooperating elements of system. The system approach assumes optimization of all system, instead of its separate elements. Chediel Msuya, October, 2009 37

2. The account of all set of costs logistical fine. Criterion of an overall performance of logistical system - minimization of the sum of costs of a circuit as a whole and its separate elements in particular. 3. Maintenance of adaptability, flexibility, reliability, high speed and quality of functioning of all system and its elements. Realization in practice of principles of logistics demands application of the modern technologies providing effective functioning of all system. Technologies are considered at 2 levels: § § Macro level - Interconnected work of elements of logistical system; Micro level - effective work of separate parts of logistical system (warehousing, transportation, etc.).

The Link between manufacture and consumption - transport. In the majority of firms transport make from 1 up to 30 % of a sale price of the goods. With creation of logistical systems manufacturers transfer a part of functions to forwarding firms. They are released by that from following functions unusual for them: ü Packing; ü Marks; ü Sorting of cargoes. In some cases forwarding firms, carrying out the repayment of a cargo at suppliers, become supplying marketing distribution centers. Thus, the forwarding firm becomes responsible for all parts on delivery of cargoes. It cooperates with Tanzania Railway Company, Tanzania Harbours Authority and Tanzania Airports Company (Tanzania Infrastructure Companies - TIC), as railway stations, ports, the navigable companies, etc. the Example of new technology in conditions of logistics the organization of the mixed transportations can serve in Tanzania. 8.2. Transport dispatch maintenance during distribution of the goods One of ways of increase of competitiveness of the goods - reduction of expenses for forwarding maintenance of distribution of the goods. In Tanzania these expenses exceed in 2-3 times a level of the developed countries. It speaks lacks: § § Transport; Control systems of stocks.

Development of transport under the state control has led: 1) to absence of flexibility in activity of the enterprises; 2) to presence in TIC a plenty of the rolling stock maintained inefficiently; 3) to delays in items of interaction different kind of transport. Chediel Msuya, 38 October, 2009

Having allocated transport dispatch maintenance of distribution of the goods in a separate part, the manufacturer is liberated from the following not functions peculiar to it: v The conclusions of contracts and registrations of transportation documents; v Bank operations by calculations for transportation; v The organizations of loading unloading. Delivery of the goods is a process of performance, besides transportation, a lot of works, operations, services which complex provides effective distribution of the goods. The basic condition of effective work of forwarding firms - maintenance of needs of firms participants of logistical process in effective distribution of raw material and the goods. 8.3. Problems of logistics on micro and a macro level Within the limits of macro logistical system there is an integration of function of supply of manufacture, selling, distribution, transport, consumption and the market. Functions of macro logistical system: § § § Planning of production targets; Planning of industrial technologies; Planning of the nomenclature of let out production.

Micro logistical, intra industrial system solves local problems within the limits of separate functional elements of logistical system. For each subsystem allocate the functions, for example, for logistics of purchases with the basic functions are: § § § The analysis of capacities; Definition of need for necessary material resources; Reception of offers. 8.4. Logistical system «just-in-time» Occurrence of this concept carry to the middle of XX century when the Japanese company « Toyota Motors », and then and other firms of Japan have started to introduce micro logistical system " Kanban " actively. At firm Toyota" cunningly on it 10 years. The key moments: 1. 2. 3. 4. The rational organization and equation of manufacture; Total quality assurance at all stages of production and quality of initial data at suppliers; Partnership only with reliable suppliers and carriers; The raised professional responsibility and high labour morals of all personnel.

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Attempts of Americans and Europeans to adopt the given system without taking into account these factors of a logistical environment have failed. System JIT (« Just in Time » - « it is exact in time ») - system of manufacture and delivery of raw material and completing products to a place of industrial consumption or trade enterprise in demanded quantity and during necessary time. The system provides the adaptation of manufacture to following changes: § § Failure of technological lines; Fluctuation of demand for production.

As a result of introduction of the present system: 1. Rhythm of output is provided; 2. Quality rises; 3. Industrial stocks are reduced. Its features: v stable output; v frequent deliveries by small parties; v Deliveries on the basis of long-term orders. Application JIT allows realizing the concept «manufacture without a warehouse ». There is an opportunity of storage of the minimal size of stocks on a case of force-majeur circumstances. 1984 - Realization of system JIT. 1. Charges on transportation decrease for 15 %; 2. Terms of transportation decrease in 2 times; 3. Warehouse stocks of raw material have decreased. 1988 - 80 % of volume was carried out on JIT. It was daily carried out more than 1000 goers from 320 suppliers. Advantages JIT: § § § Charges of stocks-are reduced; Reduction of inter-relationships; Reduction of volume of the specification.

Advantages for the supplier: § Full loading of capacities; § The qualified labour is kept; Chediel Msuya, October, 2009



Own stocks due to introduction of system are kept;

Lacks: 1. Increase in number of flights - « a warehouse on wheels »; 2. Increase in speeds at highways; 3. Requirements to quality and terms of delivery, increase charges of suppliers and the transport companies.

9.0. The management of warehouses systems 9.1. Economical warehouse of logistic system
Warehousing, its definition (identification) of types and functions: § Warehousing activity This is a planned and systematically realization activity of an enterprise relating to reserve and identification and sorting of material reserves under the condition of providing supervision to make sure that they reach the final point with their expected quality and quantity. § Basic (Main) objectives (tasks) of warehouse activities: ü Services; ü Keeping material reserves; ü Preparation of keeping production on. Basic elements of warehousing activity is reserving of all raw materials, by production substances, components, semi-manufactured products and final products (manufactured product ready for consumption or use). Warehouse is building, arranging, structure and different types of construction, which is planned for receiving and keeping inflowing valuable goods, and preparing to supply them to consumers. Tasks of Warehouse is to maintain reliability condition for services, processing, keeping and ferrying material reserves under the condition of observation of identified demand of their quantity and quality. The organization and functioning of warehouse s activities which are dedicated to the logistic strategic of an enterprise are elaborated in this section, and it solves other more following problems: § Where is necessary for warehouse arrangement? § How many warehouses are needed to be constructed and how long will they exist? § What type of materials will be stored, in which quantity and conditions? V.V. Volgin defines such supplying process organization of economical warehousing as follows: ü Selection of place for construction of private warehouse, level of advantages of arranging warehouses for lease (rent/let); ü Arranging of building technical facilities for construction or account construction of special order, and technical exploitation possible warehouse building under the process of scheme application warehousing production, plans of arranging of reserving means, technologies of reserving operation, tariff documents and so on; ü Optimization of premises application: o Identifying more advantages of using the area and capacity of premises under the arrangement of goods stands and equipments to control the inflowing and out going materials; Chediel Msuya, October, 2009 41

Basic Technology of Warehousing Operation in an enterprise Principle scheme technological process in the warehouse such as wholesales trade. 1. Unloading of products Railway wagons (train wagons): a) Counterchecking the condition, correcting seal; b) Opening of wagons and checking the complete package of products; c) Unloading of goods/products; d) Supplying of products: ü In a place of appointed warehouse; ü To zones of storing; e) Arrangement from expedition to warehousing: ü In a place of acceptance; ü To zones of storing. f) Railway (train) containers: ü Unloading container from the train and keeping it on the platform; ü Counter checking the whole external appearance of containers and seals; g) Automobile transport: ü Counterchecking of complete package; ü Counting products by quantity packages; ü Unloading of products; ü Supplying of products: o In a place of acceptance; o To zones of storing. 2. Receiving of products: a) By quantity: ü Opening a container; ü Sub-account of quantity and accompanying documents; b) By quality: ü Arranging products in working place of products broker; ü Selection of rejected products; 3. Selecting products : a) Complexion of rejection: ü Whole packet. b) Individual selection of rejected: ü Whole packet; ü Part of packet with removed stand; 4. complex of packages: a) arrangement of products in a place of complex: ü In stands; ü In folk lift; b) Packing products for buyers; c) Counterchecking whether the selected products that are complete in arranged quantity; d) Moving products to a place whereby the zone of supplying (selling off): ü From expedition; ü With a place of packing. e) Carriages: Chediel Msuya, October, 2009 42

ü By automobile transport; ü By railway wagons. Documentation arrangement for warehouse In warehouse there is division of several groups of documents including those ones demonstrated in (Table 2) and the general scheme of their circulation. Table 2. Documents, used for formulating of products acceptance # Documents Meaning of documents 1 2 3 1 Journal of accounts of Used for registration of accompanying documents inflowing goods suppliers and transports organization of inflowing goods and control their acceptance in warehouse of an enterprise 2 Registration book handling out of account freight 3 Act about establishing Used for formulating acceptance of products costing in quality by valuable materials, having quantity costing with data acceptance of products of accompanying documents of supplies 4 Act about acceptance of Used by formulating acceptance of product valuable products by quality materials, having costing by quality with data of accompanying documents of supplies 5 Form of account of Taking products of enterprise for controlling inflowing fulfilling contracts products from supplies by contracts and once made 6 Account about movement Presented by director of warehouse in two examples: of products and packing a). with appendix of first document presented in boxes in the warehouse accounting; b). with listing of accounting about taking accounts and appendix to its documents remaining to director of warehouse 7 Book of accounts of Taking products to broker on bases of accounts defected products freight and acts acceptance by quality with objective of control results of defected products 8 Accounts of receiving Presenting daily and serves for controlling of receiving goods expedition goods at rail-way station and supplies these goods to warehouse 9 Journal of accounts of Taking to director of expedition for account of goods, goods arriving daily arriving from suppliers and transports organization through expedition warehouse 10 Goods arriving to Presenting materials accountability person of arriving warehouse valuables in enterprise in cases, considered instruction by account of separate operation 11 Act accompanying Used for formulation of acceptance of products, products, arriving arriving to receive account freights of supplies without account of suppliers Chediel Msuya, 43 October, 2009

10.0. Information technologies, techniques and systems in logistic 10.1. Information terminologies in logistics
Main objective: Studying theoretical and methodologies aspects of information facilitation of logistic processes, introducing with practical and methods of organization and management of information streams in logistic systems, based on functioning of logistic information system, modern information communication technologies in logistics. Glossary Data First knowledge, received in results of direct observation of incidence in whichever object, in type of numbers, symbols, signs and words. Knowledge Information, processed and accepting separate individuals.

Information logistic Is a science about realization of methods collection, processing, storing and distribution information in production economical systems and their surroundings in a base of logistic principals (maximizing relevant information in needed volume, in needed time, in needed place and with optimal expenditures). Information standards Is characterized by structure and type of documents, which must be dispatched by information networks. Information process Is a process, in which information considering in a quality of basic object with defined consequences changes. Information Is knowledge, received after relatively processing data, which exposing content numbers, symbols or word, written to or another incidence. Communicat ion standards velocity of data dispatching. Is defining characteristics acceptance, re-establishment signals and

Logistic information system (LIS) Is the entire complex program techniques means and regulations of their functioning for creating integration of information spread and facilitating effective activities of logistic chains. Logistic information streams Is complicated or organized in a limits of LIS movement of information in defined direction by condition, that in these data there is common source and common acceptance (fore example, compound of knowledge, dispatched from one participant of logistic systems (purchasing section) source in other (production section) - address).

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Electronic business Is existing organization of a big part of business function of electronic means (in party, with helps of electronic trades (computer), existing through on-line network services).

10.2. The role and meaning of information in logistic
Several years ago basic problem, which stood before ideology of logistic system, laid in the zone of physical (materials) streams products and raw materials. Information dispatched as a second role. Under information facilitation of physical process movement of products from suppliers to consumer under capacity of understanding at least accompanying information. The basic tendency in improving modern processes of management is to understand priority of its information existence. The place of information resources in system by points of system organization It is well known, that any production economical organization has five basic types of resources, which it must managed as relatively streams: § § Human being; Materials.

According to foreign specialists are calling first four realities, or physical, resources, last conceptual resource. Especially conceptual resource is object of researching of information logistic. Moreover, many analysts today processes management practical as process of management of information resources. Especially actual of such practical for logistic system, considered their special, relation with necessary integration and coordination especially information streams (figure 7). Physical resources: § Human being; § Materials; § Technical (equipments + Energy + Finances) Conceptual Resources: § Information; § (Data + Information + Knowledge)

Process of management = Process of information resources management
Figure 7: Types of streams resources of organization

Types of information resources and typical function of information processes As it can be seen in figure 14, information resources stands from data (or knowledge ), information and knowledge . Chediel Msuya, October, 2009 45

Data Is beginning of knowledge, received in result of direct observation for incidence in whichever object, in form of numbers, symbols, signs and words. As rule, this is any quantity, quality, written characteristics considered object, producing surrounding cooperation. Information This is knowledge, received after relatively processing data, which showed the content numbers, symbols, or words, written in one or another incidence. In other words, information is interpretation of data not depending on form of their presentation, circulating in channels of communication. Knowledge information developed and accepted separately individuals.

The compound cooperation, produced with information resources, composition of logistic system, and types of information. Information process Is a process, in which information considered in a quality of basic object with defining consequence changes. In a step of realization of information process by transformation data in information and knowledge has the following typical function of management information: § § Collection of information in places of its sources; Processing and analyzing information.

In figure 8 meaning also relatively advantageous, characteristic for every level of LIS. As it mentioned above, growth of production operation by servicing agreement means of fasten works and decreasing number of personnel.

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Characteristics levels of LIS

Expected maximum effectiveness of LIS

Competition advantageous


Appearance and degree of competition alternatives High risk, wide range of selection variants A


Degree of competition capability and appearance of resources for development C

Analyze and degree of higher requirement to preparation and experience using effectiveness of direction B

Standards of competition capabilities D

System control for results of reverse relation for degree of results orientation of application C

Big costs in apparatuses and program facilitation preparation of big number of application of directed to production D

Key: A - Strategic planning, B - Analysis of solution, C - Management control, D - Servicing agreement. Figure 8: Characteristics levels of LIS and expected maximum effectiveness

But for all local areas spreads high velocity means communication and processing information brought nowadays such characteristics from source of competition advantageous faster in normal standards of competition capability. Advantage effective management control system and analysis of solution in this, which makes deep processing in existing competition possibility of firm by long reliable alternatives of development strategy. The management rise prices either that it proposes, possibilities of conducting higher selected program which could serves the entire consumers, and of course, profits and competition capability of company may strongly win from capability system of strategic planning, which values correcting profit from consumers/products, potential separate market segments or perspective advantageous from cooperation activities with partners. In past big part of capital invested in LIS was directed in maximizing production operation activity, and some of these investors bring maximum effective in a form of fastening logistic operation and several decreasing of current costs, achieved expected advantageous, and especially mentioned minimization of total costs, not existing for long time. In final time of developing LIS directed in Chediel Msuya, October, 2009 47

management control, analysis of solution and strategic planning. The new models of LIS developed in connection with processes re-engineering and organization reconstruction. From simple automation firm comes to complete re-organization of logistic procedures, minimizing number of functions cycles and volume of moving together activity. Principles of formulation of logistic information In order to make logistic information constantly solved requirement of logistic system and effectively supported process of management and operative control, it must operate in relatively principles, laying in basic of its firm organization: § § Flowing; Exactly.

Flowing it is important easy flowing to logistic information. In a part, of any organization is constantly needed information about flowing of orders and existing reserves. By witnessing such role normally exists in full package, but they either reserved in documents carriers, or either their difficult bring from computer memory for not agreeing with existing data base. Flexible logistic information must be exactly produced and current meaning and dynamic function indexes, such as flowing of orders and levels of reserves. For non- competition work system of logistic is important in order of reserve level, dispatching information system, collide with facts of level not less than 99% . If such level is exactly achievement not realized, it causes the holding insurance of reserves, which fulfilling the role sides connections for defending from uncertainty. As and in case with inflowing, of higher exactly information minimized uncertainty and consumers of reserves. Punctuality Punctuality is measuring a range of time between moments, when it happens whatever events, and moment, when it happens in information system. Another example that, as important of punctuality, relating with receiving new information about supplies of reserves, when products passing from a series <<not complete>> in series <<final products>>. Even though product materials streams not stopped, information may new with different intervals often, at the end of shift or in the end of working day. Best of all, definitely, refreshing information in a regime of real time, but this is not the simplest solution: it requires struggling of introducing data base. The punctuality is receiving new information enabling coding, scanning and electronic exchange of data. The punctuality information important not only for operative management of reserves, but and for management control, existing in basic daily or weekly accounts. The punctuality control bringing correction in works, when there is a time of correcting situation or minimizing the losses. In general, the punctuality information minimized indefinite and helps on time solving problem, that minimize the demand in reserves and capable taking more reliable decision.

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Flexible - The capability of satisfying information requirement as applied, like and final consumer. Information system must present data in relatively with special orders of consumer. Observation The outgoing documents and accounts must be example formulated, e.g. content needs information and in needed form. 10.3. Logistic information systems (LIS) The basic difference of LIS from other types of information system is the level of integration of information atmosphere (figure 9).
Consumer 1

Products Organizing Suppliers Production And Services

Consumer 2

Consumer 3

Consumer 4

Figure 9. Information of production logistics

Systemization concept in given zone of observation making us dividing in three complicated approach to defining LIS: 1. LIS is a part cooperative information system; 2. LIS is higher level of integration programs solution and included in itself cooperative information system; 3. LIS is self sufficient structure, separate from other information system. As it can be seen in figure 15, information streams by organization of business must formulate from necessary production economical activity of all chains, by which products from raw materials is changing to final product and also through system of sales falls to final consumer. From here it can be seen that LIS is substance higher organized, than cooperative information system (CIS), as including distribution products, purchasing of raw material and their transportation, that comes from range of automation function CIS. Therefore, there is LIS which is higher level integration, than CIS (second approach).

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Therefore, LIS entire complex program technique resources and regalement their function for creation integration of information atmosphere and facilitating effective activity of logistic chain, existing complicated methods of conceptual (standards information system), which changes in dependence from level of integration of management resources (figure 10).







T 1960 1970 1990 2000 2005

Figure 10: The evolution development methodological conceptual information system by stages of integration management resources

With point of view defining methodological form of LIS especially important consisting the questions of comparison analyzing data of conceptual (table 3). Table 3. Comparison analysis of conceptual information system with a position of normal level of integration of information atmospheric logistic Type of conceptual System MRP/DRP (Material Requirements Planning/Distribution Requirements Planning) System MRP II / DRP II (manufacturing Resources Planning / Distribution Resources Planning) Content of given type of conceptual System automation process of planning consumption / distribution of material resources Integration of planning methodologies/distribution of materials and production resources; MRP II =MRP +CRP (Capacity Requirements Planning) Integration of methodological 50 Degree of normal indicating important LIS Do not indicating requirements rationalize management of all type of resources Do not contain analysis and planning financial resources organization, in the power of whatever interfering complexion occupation of all system participants Do not indicate systems of suppliers and distribution of

System ERP (enterprise Resources Planning) Chediel Msuya, October, 2009

management of all resources organization; ERP=MRP II + FRP (Finance Resources Planning) System CSRP (Customer Integration of Synchronized Resources methodological Planning) management resources of organization, synchronization with requirement markets (buyers); CSRP=ERP + Marketing System CRM (Customer Integration methodological Relationship Planning) management relationship with requestors (consumers) System SCM (Supply Chain Integration methodological Management) management of chains suppliers, by which products from raw materials becoming in manufactured products and then through system of sales fall to final consumer. SCM = CSRP + supplies System IPR (Intelligent Perspective conceptual, Resources Planning) occupying all problems automation management resources organization in base system of management knowledge and sense sets

final products in the range of organization

Do not including system of inter organization supplies

Do not relating with others modules information system More acceptable and indicative LIS

In current time do not have program-technological realization

After analyzing data from the given table 4, we may organize scheme of methodological form of LIS (figure 18). FUNCTIONAL LIS Secondly is not important question of constructing LIS is its functional (function structure). In order to talk about LIS, following we define by types of information streams. The specific LIS defines that managing streams existing as in a range business-organization, as and between different participants of logistic chains. In a relation with this it divides two types of information streams (figure 11): § Strategic coordination; 51

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Coordination Stream

Strategic plan

Plan of reaching capacity

Logistics plan

Production plan

Supplying plan


Arrangement of orders and reserve Management

Operational Stream

Management Orders

Processing Orders


Transportation and goods rearrangements


Figure: 18: Type and structure of information streams LIS

Separate function (function of sub-system) comes from and in other streams data (for example, management of reserves). As it can be seen from figure 11, strategic coordination stream includes the following key function LIS: 1) Strategic plan (Strategic objective); 2) Plan loading capacity (limitation by capacity). We are considering every from these function in details. Strategic Objective: Normally strategic objective remain in long term perspective 1 to 5 years with a concrete follow up on years and quarters. In basic of any strategic lays on marketing policy and expected financial results. Objects of strategic planning LIS is: § § Client base and entire marketing company; Nomenclature of products and services (especially new ones);

Plan of loading capacity (limitation by capacity): Limitation by capacity is a result of insufficient as internal, as and external production, warehouses and transport resources. Logistic Plan (Logistic Requirements): Logistic requirements connected among themselves are necessary production capacity, reserves, transports and labour resources.

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Plans logistic requirements must making single entire as with establishment of limitation by capacity (past stage of planning/coordination), as and with planning of production requirement (next stage). In this case, such integration facilitating optimal results activities entirely. The disadvantages of agreement logistic and production plans, normally ends unexpected products productions. Production Plan (Production Requirements): Production requirement defines graphic of application production resources and system of management of material streams. <<Narrow area>> happens due to insufficient raw material or limitation of production capacity. Production requirements allocated in a basic calendar plan of production and in plan production requirements. Basic calendar plan shows the volume production in the day or weekly tariff of loading machines. In the basic calendar plan of production, production plan requires the establishment of loading tariff and shipment of raw materials, necessary for fulfillment of production tariffs. It is important, that at least we and considering requirement of logistic and production by different, in real practical, they must be agreed and mutual cooperation. Supplying Plan (Requirement Supply): The requirement of supply accumulated under the existing limitation of capacity, requires logistic and production and presents itself with long range planning of fulfilling reserves, supplying and goods receiving. In a basic of these plans brings the discussion and including contracts on tariff of supplying raw materials. Operational Streams: Suggests information support of the following functions: § § Orders management; Processing of orders.

We are considering in deep each of the above factors: Orders Managements: Including in it the incoming orders from consumers and presenting the last information about current condition of orders. The basic procedure of given function of sub-systems: § § Receiving orders in electronic way (internet) and in paper form; Confirming the financial capability of client.

Processing of Orders: Processing orders including in distribution existing reserves between open orders in supplies and fulfilling reserves, the division of reserves may exists in the range of real periods, e.g. by the condition of incoming orders, or in packet form. Packet form means, that the order accumulated during working shift or for a day and periodical developments. The works in a regime of real period makes quick reaction of incoming orders, but when level of reserves not higher, packet regime opens more possibilities for control under condition. Distribution: The given function presented topics of procedures of logistics, which gives works on distributive centers, includes acceptance of products in storing, rearrangement, warehousing and complexion of goods for shipments. Operation of distribution in the range of distributive centers Chediel Msuya, 53 October, 2009

may exist in regime of real period or in packet regime. In detail technology gives operation more flexible and minimizes the continuation cycle of fulfilling orders. Typical procedures of distribution function: § § Arrangement of reserves by warehouses capacity and control for their movement; Presentation of work tariff.

Transportation and Goods Rearrangements: This is planning and facilitating transportation of goods and existing operation, including: planning and setting tariffs of shipments, consolidation of goods in large part for joint venture transport, notification and marking of goods, formulation of transport documents and management of goods shipments, and all this activities directed in production applying transport resources and effective management to them. In current period coordinating effect directed to facilitating single form of transport and other commercial documentation, including orders, warehousing, account-factor, account about shipment and so on. Typical procedures of given function LIS: § § Formulating documents and establishing tariff of supplies; Degree of capability of organization responsible form of supplying goods operation control.

Supplying: The given function LIS offers the preparation is accepting and arranging orders in purchasing, and also controlling quality works of suppliers. In integration logistic and coordination accepting and shipment reserves, in order of optimization of tariff applied in production, transport and people resources. For example, since loading-unloading works often is <<narrow place>>, information supports supplying must facilitate application one and others transport means for supplies and shipment of goods. For solving this problem we need to unify information streams, relating to inflowing and out flowing of goods and the level of integration logistic existing increase by applying electronic connection with suppliers. Types of procedures of given function LIS: § § Defining requirement in material resources; Specification of requirements.

In including given division considering complete function, proposed in a principles of strategic and operational streams LIS, - arranging of reserves and management of reserves. The role of given function included in planning requirements and management reserves of final products from the stage of production to stage of supplies requirements. By taking decision here we write formulae (where, when and how much). The problem of; where to store final products? When should we fulfill reserves of raw materials? How many next orders? In order to fulfill this activity we have to forecast that, which demand will be required for each of distributive centers. The result of forecasting serves the basic for planning production.

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The arrangement systems of reserves require facilitation degree of effective management of reserves, for having control on their level, circulation and production. Basic procedures of given complex function enlisted below, we note that several function relate with forecasting, for management of reserves it needs in visible or invisible form valued future demand. Invisible, or <<passive>>, forecast simply is taken to suggestion, that in next month sales volume will be the same, as in past. Direct forecast is more scientific meant, they relate to information about active enterprise, it require and existing competition. The general source including that forecast, integration in itself more different information, simplify process arrangement of reserves and management them and in final accounts causes minimization requirement of reserves. The typical procedures function <<arrangement of reserves and management of reserves>>: § § Analysis forecasts and modeling; Accumulate and establishment of data about forecasts.

11.0. The production, process and operation logistics
11.1. Industrial logistics All the modern organizations of manufacture share on two types: "Pushing" (pushing out) and "Pulling" (extending). The characteristic of the traditional (pushing) approach: manufacturing of details according to the schedule (details act in process of readiness from the previous operation on the subsequent). The pulling system consists that the subsequent site orders and withdraws details, assembly units, etc. from the previous site on the subsequent. The pulling system is conceived with the purpose of reduction of stocks. The basic characteristics of pulling system: v orientation to a small number of suppliers, deliveries frequent, small parties, it is strict under the schedule; v Orientation of manufacture to change of demand, orders. The basic characteristics of pushing system: 1. Orientation to significant number of suppliers; 2. Deliveries basically irregular, large parties. Stocks can be more because of: 1. Inopportuneness of manufacturing of production; 2. Inopportuneness of sending of finished goods. Advantages of pulling system: Chediel Msuya, October, 2009 55

1. Refusal of superfluous stocks, the information on an opportunity of fast purchase of materials or presence of reserve capacities for fast reaction to change of demand; 2. Replacement of policy of sale of the made goods with a policy of manufacture of the sold goods. 11.2. Essence of logistics in productions The basic purpose of logistics of productions is optimization of movement of a material stream at a stage of manufacture. The material stream on the way from a primary source of raw material up to the end user passes a number of industrial parts. Production is a set of the labour and technological processes directed on manufacturing of production with set characteristics, a necessary degree of quality in target dates. Productions share on the basic and auxiliary. The processes directed directly on manufacturing of production concern to the basic productions, to auxiliary processes accompanying them (packing, storage, packing, etc.) concern Problems of industrial logistics concern managements of material streams inside of the enterprise creating material benefits or rendering such material services, as storage, packing, stacking and others. The logistical organization of manufacture includes itself following substantive provisions: 1. Refusal of superfluous stocks; 2. Refusal of overestimated time for performance of auxiliary and transport-warehouse operations. 11.3. Structure of processes and operations in industrial logistics We shall consider the basic processes and operations of industrial logistics carried out within the limits of everyone process. Management of technological processes 1. Calculation of normative parameters (part time, manual time, machine time, preparatory, final time); 2. Calculation of advancing between operations of manufacture. Storekeeping on manufacture The estimation of expenses and costs on stocks of the goods. 1. The analysis of parameters of a control system of stocks; 2. Realization ABC of the analysis of stocks. The organization of storekeeping Chediel Msuya, October, 2009


a) The control and the account of stocks; b) The organization of inventory of stocks. Management of orders a) Reception and preliminary processing of orders for production from distribution b) Configuration (the account of some grocery and service attributes for performance of the order). The organization of intra industrial warehouse facilities 1) Planning of warehouse activity; 2) Planning of accommodation of warehouse capacities in territory of the industrial enterprise. Management of technological process in a warehouse of a work in progress 1. The control over receipt of semi finished items on a warehouse; 2. The organization of reception and unloading. Management of technological process in a warehouse of finished goods (FG) Ø The control over receipt FG on a warehouse; Ø The organization of reception and unloading.

12.0. The concept of risks management in logistics systems 12.1. Risks in logistics
In the field of insurance as risk understand probable event or set of events on which case of approach insurance is spent. Except for that risk mean also distribution of adverse economic consequences at approach of an insurance case. On the essence the risk is a hypothetical opportunity of approach of damage. In this connection there is a point of view according to which it is possible to speak about risk only when there is a deviation between scheduled and actual results the given deviation can be either positive, or negative. Any risk possesses following characteristics: Ø Presence of a plenty of units subject to risk; Ø Casual character of losses. For prevention of risk the greater role is played operative and the forecast with the information. For various logistical subsystems allocate following risks:

Chediel Msuya, October, 2009


1. Purchases: a) Discrepancy of the price to quality of the goods; b) Increase in expenses in manufacture. 2. Transportation: a) Increase in transport costs; b) Infringement of the schedule of deliveries. 3. Storage: a) excess of volume of storage; b) Loss (plunder) of property. 1. An intra industrial subsystem: a) infringement of an industrial rhythm; b) Occurrence of force-majeur circumstances. 12.2. Kinds of risks Allocate following kinds of risks in logistics. 1. The risks meaning compensation losses connected with loss or damage insurance of property owing to capture, arrest, any military actions, undermining of a bomb, national excitements, in weapon actions of malefactors. 2. The risks connected with illegal actions from the point of view of norms of international law. 3. Risks the technical insurances connected by realization, have universal character, i.e. protect object from set of the reasons of damage. Technical risks can damage to property, a life to health of people and financial interests of the enterprise owing to a break in manufacture and above permitted standard expenses. Are subdivided on specific structure of the cores and circulating capitals in which they are shown: a) Industrial risks; b) Building (construction) risks. 7. Catastrophic - risks which can bring at their approach significant damage to the insurant and in especially large sizes. German scientist Mayer had been developed following division of catastrophic risks: Administrative risks - they occur under influence of meteorological factors and conditions; § Risks which are connected with transformation activity of the person during assignment of material benefits. Last group of risks can be divided into risks: Chediel Msuya, 58 October, 2009 §

ü Wars, civil excitements, revolutions; ü Explosions. 12.3. An estimation of risks As a result of the changes occurring in an infrastructure of a national economy, in the market of insurance services, in the political world, etc. there is a constant change of risk. As a result the insurer should conduct necessarily the control over changes of risk, collect the information on possible development of risk, and make its estimation. By the received results it is deduced among it brave type of group which represents average size of brave circumstances which in the further is necessary for the insurer for comparison. For an estimation of risk use various methods: a method of individual estimations, a method of average sizes and percent. Brave circumstances can look thus: 1. The brave circumstances connected with changes in logistical system; 2. The brave circumstances connected with development of new kinds of technological raw material. In a general view it is necessary to understand as an estimation of risk: o Estimation of risk in sense of dangers to which can be subject; o Degree and probability of causing of damage as a result of influence of such dangers. 12.4. Management of risks There are four methods of management of risk: Ø abolition of any possible factor or idea which could lead the company to fall on risking zone; Ø Prevention of any possible losses and the controlling the circumstances. Abolition consists in attempt of abolition of risk. The main lack of this method consists that abolition of risk, as a rule, abolishes also a part of meaning of the life of the person, and for firm the possible income of profit. Prevention of losses and the control means to save logistical system from accidents. Insurance from positions of risk of management means process when clients put the certain means (insurance payments) in the insurance companies, and in case of unforeseen losses receive certain by the contract of insurance indemnification in the form of insurance payments. Absorption consists in recognition of damage without its compensation by means of insurance. Frequently it is risk which probability is small enough. Managerial process by risk can be broken into six stages: 1. Definition of the purpose; Chediel Msuya, October, 2009


2. Finding-out of risk. Process of planning as an element of management includes following stages: 1. Choice of the purpose; 2. Estimation of incomes and the expenses connected from realization of this or that way of achievement of the purpose.

13.0. Leadership responsibilities and methods of decision making
13.1. The basic duties of the manager on logistics Versatile enough duties enter into functions of the manager on logistics. It should know and understand charter rates, process of warehousing, purchase, the analysis of stocks, manufacture, rules of transportation. Besides the manager on logistics should understand attitudes between all functions of logistics, it should also be able to connect logistics with other kinds of activity of firm. It is possible to allocate two types of managers on logistics. The first are borrowed by management of one of kinds of functional actions, such, as moving, warehousing, purchase, management of materials and the control over stocks. The second type of managers is engaged in coordination and management of several various functions. The personnel on logistics should be in constant contact to representatives of other functional areas of firm, such as marketing, manufacture, the finance, book keeping, research and development. The list of functional duties of the manager on logistics of one of the companies includes: v negotiating for distribution of consumer goods; v Check of a condition of demand for transport. In addition to technical skills on a specialty economy and marketing are very important knowledge of the system analysis, the finance. 13.2. The basic maintenance of a method « harmonious manufacture » The basic purpose of logistics is optimization of material, information and financial streams. In realization of the purposes of logistics the essential place is borrowed with new methods of the organization of manufacture which are known as « learn production » (harmonious manufacture). Harmonious manufacture represents a control system, allowing to reveal "bottlenecks" and to find methods for their full liquidation. Liquidation of bottlenecks is carried out not traditional by (increases in expenses (resources) at their elimination), and by simultaneous liquidation of bottlenecks and reduction of expenses (resources). Harmonious manufactures have two distinctive attributes: Chediel Msuya, October, 2009 60

1. The maximum of problems and the responsibility is transferred on employees; 2. All employees search for bottlenecks with the purpose of their immediate elimination. According to statistics, at such enterprises employees represent in 80 times more efficiency proposals, than on usual. The principle of continuous improvement at all levels, on workplaces and operations refers to «Kainzen». A principle of liquidation of bottlenecks by expenses (resources) «Modal». If harmonious manufacture it is possible to put a problem of automation of technology is adjusted, the Japanese experience testifies to it, first of all. The basis of harmonious manufacture is the principle Partnership of the enterprise with the employees, suppliers and buyers, and also rather foreseeable in time process of manufacture. 13.3. Concept of logistical leadership services Logistical service represents a complex of the services connected with distribution and rendered during delivery of the goods. Object of logistical service are various consumers of a material stream. Logistical service can be carried out both the supplier, and the forwarding firm specializing in the field of logistical service. All in the field of logistical service can be divided works into 3 basic groups: 1) Pre selling, i.e. works on formation of system of logistical service; 2) Works on rendering the logistical services, carried out during sale of the goods; 3) After selling logistical service. To pre selling service concern: a) Consultation; b) Corresponding preparation of products. During realization of the goods render following logistical services: § § Execution of the order; Selection of assortment.

After selling services is a warranty service, obligations on consideration of claims of buyers, the exchange, etc. After selling service shares on guarantee and after guarantee to cleanly formal attribute: "free of charge" (in the first case) or for a payment (in the second) are made stipulated by service or the list of work (service). Allocate following basic variants of the organization of system of service: Chediel Msuya, 61 October, 2009

1. Service is conducted exclusively by the personnel of the manufacturer; 2. Service is carried out by the personnel of branches of manufacturer.

Chediel Msuya, October, 2009


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