Director Project Guide
I take this oppurtinity to express my profound
gratitude and deep regards to my guide for his
exemplary guidance,monitoring & constant
dedicated encouragement throughout the course.
The blessing,help & guidance given by him
from time to time shall carry me in a long way
in journey of life on which I am about to
Again I would like to express my deep regards
TABLE OF CONTENT
1 Overwiew of logistics
2 Logistics management
3 Commercial vehicle
5 Cross docking
8 Logistics Automation
9 Logistics for different field
10 Concept of SCM
11 3 PL
Logistics is the art and science of managing and controlling the flow of
goods, energy, information and other resources like products, services, and
people, from the source of production to the marketplace. It is difficult to
accomplish any marketing or manufacturing without logistical support. It
involves the integration of information, transportation, inventory,
warehousing, material handling, and packaging. 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.
1. Overwiew of Logistics
The word of logistics originates from the ancient Greek logos (λόγος), which
means “ratio, word, calculation, reason, speech, oration”.
Logistics as a concept is considered to evolve from the military's need to
supply themselves 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
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".
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.
The Iraq war was a dramatic example of the importance of logistics. It had
become very necessary for the US and its allies to move huge amounts of
men, materials and equipment over great distances. Led by Lieutenant
General William Pagonis, Logistics was successfully used for this
movement. The defeat of the British in the American War of Independence,
and the defeat of Rommel in World War II, have been largely attributed to
logistical failure. The historical leaders Hannibal Barca and Alexander the
Great are considered to have been logistical geniuses.
2. Logistics Management
Logistics Management is that part of the supply chain 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'
Logistics as a business concept evolved only in the 1950s. This was mainly
due to the increasing complexity of supplying one's business with materials
and shipping out products in an increasingly globalized supply chain, calling
for experts in the field who are called Supply Chain Logisticians. This can
be defined as having the right item in the right quantity at the right time for
the right price and is the science of process and incorporates all industry
sectors. The goal of logistic work is to manage the fruition of project life
cycles, supply chains and resultant efficiencies.
In business, logistics may have either internal focus(inbound logistics), or
external focus (outbound logistics) covering the flow and storage of
materials from point of origin to point of consumption (see supply chain
management). The main functions of a logistics manager include Inventory
Management, purchasing, transport, warehousing, and the organizing and
planning of these activities. Logistics managers combine a general
knowledge of each of these functions so that there is a coordination of
resources in an organization. There are two fundamentally different forms of
logistics. One optimizes a steady flow of material through a network of
transport links and storage nodes. The other coordinates a sequence of
resources to carry out some project. Logistics as a concept is considered to
evolve from the military's need to supply themselves 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 term is used for describing logistic processes within an industry. The
purpose of production logistics is to ensure that each machine and
workstation is being fed with the right product in the right quantity and
quality at the right point in time.
The issue is not the transportation itself, but to streamline and control the
flow through the value adding processes and eliminate non-value adding
ones. Production logistics can be applied in existing as well as new plants.
Manufacturing in an existing plant is a constantly changing process.
Machines are exchanged and new ones added, which gives the opportunity
to improve the production logistics system accordingly. Production logistics
provides the means to achieve customer response and capital efficiency
3. Commercial vehicle operation
Commercial Vehicle Operations is an application of Intelligent
Transportation Systems for trucks.
A typical system would be purchased by the managers of a trucking
company. It would have a satellite navigation system, a small computer and
a digital radio in each truck. Every fifteen minutes the computer transmits
where the truck has been. The digital radio service forwards the data to the
central office of the trucking company. A computer system in the central
office manages the fleet in real time under control of a team of dispatchers.
In this way, the central office knows where its trucks are. The company
tracks individual loads by using barcoded containers and pallets to track
loads combined into a larger container. To minimize handling-expense,
damage and waste of vehicle capacity, optimal-sized pallets are often
constructed at distribution points to go to particular destinations.
A good load-tracking system will help deliver more than 95% of its loads via
truck, on planned schedules. If a truck gets off its route, or is delayed, the
truck can be diverted to a better route, or urgent loads that are likely to be
late can be diverted to air freight. This allows a trucking company to deliver
a true premium service at only slightly higher cost. The best proprietary
systems, such as the one operated by FedEx, achieve better than 99.999%
Load-tracking systems use queuing theory, linear programming and
minimum spanning tree logic to predict and improve arrival times. The exact
means of combining these are usually secret recipes deeply hidden in the
software. The basic scheme is that hypothetical routes are constructed by
combining road segments, and then poor ones are eliminated using linear
The controlled routes allow a truck to avoid heavy traffic caused by rush-
hour, accidents or road-work. Increasingly, governments are providing
digital notification when roadways are known to have reduced capacity.
A good system lets the computer, dispatcher and driver collaborate on
finding a good route, or a method to move the load. One special value is that
the computer can automatically eliminate routes over roads that cannot take
the weight of the truck, or that have overhead obstructions.
Usually, the drivers log into the system. The system helps remind a driver to
rest. Rested drivers operate the truck more skillfully and safely.
When these systems were first introduced, some drivers resisted them,
viewing them as a way for management to spy on the driver.
A well-managed intelligent transportation system provides drivers with huge
amounts of help. It gives them a view of their own load and the network of
Components of CVO include:
Commercial Vehicle Administrative Processes
International Border Crossing Clearance
Roadside CVO Safety
On-Board Safety Monitoring
CVO Fleet Maintenance
Hazardous Material Planning and Incident Response
Freight In-Transit Monitoring
Freight Terminal Management
Containerization is a system of intermodal freight transport cargo transport
using standard ISO containers (known as Shipping Containers or
Isotainers) that can be loaded and sealed intact onto container ships,
railroad cars, planes, and trucks.
Containerization is also the term given to the process of determining the
best carton, box or pallet to be used to ship a single item or number of items.
ISO Container dimensions and payloads
There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft
(13.7 m), 48-ft (14.6 m), and 53-ft (16.2 m). United States domestic standard
containers are generally 48-ft and 53-ft (rail and truck). Container capacity is
measured in twenty-foot equivalent units (TEU, or sometimes teu). A
twenty-foot equivalent unit is a measure of containerized cargo capacity
equal to one standard 20 ft (length) × 8 ft (width) × 8 ft 6 in (height)
container. In metric units this is 6.10 m (length) × 2.44 m (width) × 2.59 m
(height), or approximately 38.5 m³. These sell at about US$2,500 in China,
the biggest manufacturer.
Most containers today are of the 40-ft (12.2 m) variety and are known as 40-
foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers are
also designated 2 TEU. Two TEU are equivalent to one forty-foot equivalent
unit (FEU). High cube containers have a height of 9 ft 6 in (2.9 m), while
half-height containers, used for heavy loads, have a height of 4 ft 3 in (1.3
m). When converting containers to TEUs, the height of the containers
typically is not considered.
The use of US measurements to describe container size (TEU, FEU) despite
the fact the rest of the world uses the metric system reflects the fact that US
shipping companies played a major part in the development of containers.
The overwhelming need to have a standard size for containers, in order that
they fit all ships, cranes, and trucks, and the length of time that the current
container sizes have been in use, makes changing to an even metric size
The maximum gross mass for a 20-ft dry cargo container is 24,000 kg, and
for a 40-ft, (inc. the 2.87 m (9 ft 5 in) high cube container), it is 30,480 kg.
Allowing for the tare mass of the container, the maximum payload mass is
there reduced to approx. 21,600 kg for 20-ft, and 26,500 kg for 40-ft
Shipping Container History
A container ship being loaded by a portainer crane in Copenhagen
Twistlocks which capture and constrain containers. Forklifts
designed to handle containers have similar devices.
A container freight train in the UK.
Containers produced a huge reduction in port handling costs, contributing
significantly to lower freight charges and, in turn, boosting trade flows.
Almost every manufactured product humans consume spends some time in a
container. Containerization is an important element of the innovations in
logistics that revolutionized freight handling in the 20th century.
Efforts to ship cargo in containers date to the 19th century. By the 1920s,
railroads on several continents were carrying containers that could be
transferred to trucks or ships, but these containers were invariably small by
today's standards. From 1926 to 1947, the Chicago North Shore and
Milwaukee Railway carried motor carrier vehicles and shippers' vehicles
loaded on flatcars between Milwaukee, Wisconsin and Chicago, Illinois.
Beginning in 1929, Seatrain Lines carried railroad boxcars on its sea vessels
to transport goods between New York and Cuba. In the mid-1930s, the
Chicago Great Western Railway and then the New Haven Railroad began
"piggy-back" service (transporting highway freight trailers on flatcars)
limited to their own railroads. By 1953, the CB&Q, the Chicago and Eastern
Illinois and the Southern Pacific railroads had joined the innovation. Most
cars were surplus flatcars equipped with new decks. By 1955, an additional
25 railroads had begun some form of piggy-back trailer service.
The first vessels purpose-built to carry containers began operation in
Denmark in 1951. Ships began carrying containers between Seattle and
Alaska in 1951. The worlds first truly intermodal container system used
purpose-built container ship the Clifford J. Rodgers built in Montreal in
1955 and owned by the White Pass and Yukon Route. Its first trip carried
600 containers between North Vancouver, British Columbia and Skagway,
Alaska on November 26, 1955; in Skagway, the containers were unloaded to
purpose-built railroad cars for transport north to the Yukon, in the first
intermodal service using trucks, ships and railroad cars. Southbound
containers were loaded by shippers in the Yukon, moved by truck, rail, ship
and truck to their consignees, without opening. This first intermodal system
operated from November 1955 for many years.
The U.S. container shipping industry dates to 1956, when trucking
entrepreneur Malcom McLean put 58 containers aboard a refitted tanker
ship, the "Ideal-X," and sailed them from Newark to Houston. What was
new about McLean's innovation was the idea of using large containers that
were never opened in transit between shipper and consignee and that were
transferable on an intermodal basis, among trucks, ships and railroad cars.
McLean had initially favored the construction of "trailerships" - taking
trailers from large trucks and stowing them in a ship‘s cargo hold. This
method of stowage, referred to as roll-on/roll-off, was not adopted because
of the large waste in potential cargo space onboard the vessel, known as
broken stowage. Instead, he modified his original concept into loading just
the containers, not the chassis, onto the ships, hence the designation
container ship or "box" ship.See also pantechnicon van and trolley and lift
During the first twenty years of growth containerization meant using
completely different, and incompatible, container sizes and corner fittings
from one country to another. There were dozens of incompatible container
systems in the U.S. alone. Among the biggest operators, the Matson
Navigation Company had a fleet of 24-foot containers while Sea-Land
Service, Inc used 35-foot containers. The standard sizes and fitting and
reinforcement norms that exist now evolved out of a series of compromises
between international shipping companies, European railroads, U.S.
railroads, and U.S. trucking companies. The bulk of the discussions occurred
in the late 1960s and the first draft of the resulting ISO standards were
prepared for publication in 1970.
A social cost arises as a result of the high cost of trasporting the empty
containers back to the original shipping point by agents. This cost, often
greater than that of containers themselves, results in large areas in ports and
warehouses to be occupied by empty containers left when at the destination.
In 2004 in the US this has ironically generated a contest addressed to those
that present the best project for alternative use of these abandoned
In the United States, at first, containerization grew despite the unfavorable
regulatory structure of the 1960s. But the United States' present fully
integrated systems became possible only after the Interstate Commerce
Commission's regulatory oversight was cut back (and later abolished in
1995), trucking and rail were deregulated in the 1970s and maritime rates
were deregulated in 1984.
Containerization has revolutionized cargo shipping. Today, approximately
90% of non-bulk cargo worldwide moves by containers stacked on transport
ships; 26% of all containers originate from China. As of 2005, some 18
million total containers make over 200 million trips per year. There are ships
that can carry over 14,500 TEU ("Emma Mærsk", 396 m long, launched
August 2006). It has even been predicted that, at some point, container ships
will be constrained in size only by the Straits of Malacca—one of the
world's busiest shipping lanes—linking the Indian Ocean to the Pacific
Ocean. This so-called Malaccamax size constrains a ship to dimensions of
470 m in length and 60 m wide (1542 feet * 197 feet).
However, few initially foresaw the extent of the influence containerization
would bring to the shipping industry. In the 1950s, Harvard University
economist Benjamin Chinitz predicted that containerization would benefit
New York by allowing it to ship industrial goods produced there more
cheaply to the Southern United States than other areas, but did not anticipate
that containerization might make it cheaper to import such goods from
abroad. Most economic studies of containerization merely assumed that
shipping companies would begin to replace older forms of transportation
with containerization, but did not predict that the process of containerization
itself would have some influence on producers and the extent of trading.
A converted container used as an office at a building site.
The widespread use of ISO standard containers has driven modifications in
other freight-moving standards, gradually forcing removable truck bodies or
swap bodies into the standard sizes and shapes (though without the strength
needed to be stacked), and changing completely the worldwide use of freight
pallets that fit into ISO containers or into commercial vehicles.
Improved cargo security is also an important benefit of containerization. The
cargo is not visible to the casual viewer and thus is less likely to be stolen
and the doors of the containers are generally sealed so that tampering is
more evident. This has reduced the "falling off the truck" syndrome that long
plagued the shipping industry.
Use of the same basic sizes of containers across the globe has lessened the
problems caused by incompatible rail gauge sizes in different countries. The
majority of the rail networks in the world operate on a 1,435 mm (4 ft 8½ in)
gauge track known as standard gauge but many countries like Russia,
Finland and Spain use broader gauges while other many countries in Africa
and South America use narrower gauges on their networks. The use of
container trains in all these countries makes trans-shipment between
different gauge trains easier, with automatic or semi-automatic equipment.
Some of the largest global companies containerizing containers today are
Patrick Global Shipping, Bowen Exports and Theiler & Sons Goods, LLC.
Loss at sea of ISO Containers
Containers occasionally fall from the ships that carry them, something that
occurs an estimated 2,000 to 10,000 times each year. For instance, on
November 30, 2006, a container washed ashore on the Outer Banks of North
Carolina, along with thousands of bags of its cargo of tortilla chips.
Containers lost at sea do not necessarily sink, but seldom float very high out
of the water, making them a shipping hazard that is difficult to detect.
Freight from lost containers has provided oceanographers with unexpected
opportunities to track global ocean currents.
Part of a United States double-stack container train loaded
with 53 ft (16.2 m) containers.
A railroad car with a 20' tank container and a conventional 20' container.
Most flatcars cannot carry more than one standard 40 foot container, but if the rail line
has been built with sufficient vertical clearance, a well car can accept a container and still
leave enough clearance for another container on top. This usually precludes operation of
double-stacked wagons on lines with overhead electric wiring (exception: Betuweroute).
Double stacking has been used in North America since American President Lines
introduced this "double stack" principle under the name of "Stacktrain" rail service in
1984. It saved shippers money and now accounts for almost 70 percent of intermodal
freight transport shipments in the United States, in part due to the generous vertical
clearances used by US railroads.
ISO Container types
Various container types are available for different needs:
general purpose dry van for boxes, cartons, cases, sacks, bales, pallets, drums in standard,
high or half height
High cube palletwide containers for europallet compatibility
Temperature controlled from -25°c to +25°c reefer
Open top bulktainers for bulk minerals, heavy machinery
Open side for loading oversize pallet
Flushfolding flat-rack containers for heavy and bulky semi-finished goods, out of gauge
Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo,
machinery, and processed timber
Ventilated containers for organic products requiring ventilation
Tank containers for bulk liquids and dangerous goods
Rolling floor for difficult to handle cargo
Biggest ISO container companies
Top 10 container shipping companies in order of TEU
capacity, first January 2006
TEU Market Number of
Company capacity Share ships
A.P. Moller-Maersk Group 1,665,272 18.2% 549
865,890 8.6% 299
CMA CGM 507,954 5.6% 256
477,911 5.2% 153
Hapag-Lloyd 412,344 4.5% 140
China Shipping Container
346,493 3.8% 111
American President Lines 331,437 3.6% 99
Hanjin-Senator 328,794 3.6% 145
COSCO 322,326 3.5% 118
NYK Line 302,213 3.3% 105
Other container systems
RACE (container) (Australia)
Determining the best carton, box or pallet
While the creation of the best container for shipping of newly created
product is called "Containerization", the term also applies to determining the
right box and the best placement inside that box in order fulfillment. This
may be planned by software modules in a warehouse management system.
This optimization software calculates the best spatial position of each item
withing such constraints as stackability and crush resistance.
5. CROSS DOCKING
Cross-docking is a practice in logistics of unloading materials from an
incoming semi-trailer truck or rail car and loading these materials in
outbound trailers or rail cars, with little or no storage in between. This may
be done to change type of conveyance, or to sort material intended for
different destinations, or to combine material from different origins.
In purest form this is done directly, with minimal or no warehousing. In
practice many "cross-docking" operations require large staging areas where
inbound materials are sorted, consolidated, and stored until the outbound
shipment is complete and ready to ship. If the staging takes hours or a day
the operation is usually referred to as a "cross-dock" distribution center. If it
takes several days or even weeks the operation is usually considered a
Crossdocking is used to decrease inventory storage by streamlining the flow
between the supplier and the manufacturer.
"Hub and spoke" arrangements, where materials are brought in to one
central location and then sorted for delivery to a variety of destinations
Consolidation arrangements, where a variety of smaller shipments are
combined into one larger shipment for economy of transport
Deconsolidation arrangements, where large shipments (e.g. railcar lots) are
broken down into smaller lots for ease of delivery.
Factors influencing the use of cross-docks
Customer and supplier geography -- particularly when a single corporate
customer has many multiple branches or using points
Freight costs for the commodities being transported
Cost of inventory in transit
Complexity of loads
Logistics software integration between supplier(s), vendor, and shipper
Tracking of inventory in transit
Distribution is one of the four aspects of marketing. A distributor is the
middleman between the manufacturer and retailer. After a product is
manufactured it is typically shipped (and usually sold) to a distributor. The
distributor then sells the product to retailers or customers.
The other three parts of the marketing mix are product management, pricing,
Traditionally, distribution has been seen as dealing with logistics: how to get
the product or service to the customer. It must answer questions such as:
Should the product be sold through a retailer?
Should the product be distributed through wholesale?
Should multi-level marketing channels be used?
How long should the channel be (how many members)?
Where should the product or service be available?
When should the product or service be available?
Should distribution be exclusive, selective or extensive?
Who should control the channel (referred to as the channel captain)?
Should channel relationships be informal or contractual?
Should channel members share advertising (referred to as co-op ads)?
Should electronic methods of distribution be used?
Are there physical distribution and logistical issues to deal with?
What will it cost to keep an inventory of products on store shelves and in
channel warehouses (referred to as filling the pipeline)?
The distribution channel
Frequently there may be a chain of intermediaries, each passing the product
down the chain to the next organization, before it finally reaches the
consumer or end-user. This process is known as the 'distribution chain' or the
'channel.' Each of the elements in these chains will have their own specific
needs, which the producer must take into account, along with those of the
A number of alternate 'channels' of distribution may be available:
Selling direct, such as via mail order, Internet and telephone sales
Agent, who typically sells direct on behalf of the producer
Distributor (also called wholesaler), who sells to retailers
Retailer (also called dealer), who sells to end customers
Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They
may be just as important for moving a service from producer to consumer in
certain sectors, since both direct and indirect channels may be used. Hotels,
for example, may sell their services (typically rooms) directly or through
travel agents, tour operators, airlines, tourist boards, centralized reservation
There have also been some innovations in the distribution of services. For
example, there has been an increase in franchising and in rental services -
the latter offering anything from televisions through tools. There has also
been some evidence of service integration, with services linking together,
particularly in the travel and tourism sectors. For example, links now exist
between airlines, hotels and car rental services. In addition, there has been a
significant increase in retail outlets for the service sector. Outlets such as
estate agencies and building society offices are crowding out traditional
grocers from major shopping areas..
Distribution channels can thus have a number of levels. Kotler defined the
simplest level, that of direct contact with no intermediaries involved, as the
The next level, the 'one-level' channel, features just one intermediary; in
consumer goods a retailer, for industrial goods a distributor, say. In small
markets (such as small countries) it is practical to reach the whole market
using just one- and zero-level channels.
In large markets (such as larger countries) a second level, a wholesaler for
example, is now mainly used to extend distribution to the large number of
small, neighbourhood retailers.
In Japan the chain of distribution is often complex and further levels are
used, even for the simplest of
To the various `levels' of distribution, which they refer to as the `channel
length', Lancaster and Massingham also added another structural element,
the relationship between its members:
'Conventional or free-flow - This is the usual, widely recognized, channel
with a range of `middle-men' passing the goods on to the end-user.
Single transaction - A temporary `channel' may be set up for one transaction;
for example, the sale of property or a specific civil engineering project. This
does not share many characteristics with other channel transactions, each
one being unique.
Vertical marketing system (VMS) - In this form, the elements of distribution
The internal market
Many of the marketing principles and techniques which are applied to the
external customers of an organization can be just as effectively applied to
each subsidiary's, or each department's, 'internal' customers.
In some parts of certain organizations this may in fact be formalized, as
goods are transferred between separate parts of the organization at a `transfer
price'. To all intents and purposes, with the possible exception of the pricing
mechanism itself, this process can and should be viewed as a normal buyer-
Less obvious, but just as practical, is the use of `marketing' by service and
administrative departments; to optimize their contribution to their
`customers' (the rest of the organization in general, and those parts of it
which deal directly with them in particular). In all of this, the lessons of the
non-profit organizations, in dealing with their clients, offer a very useful
Product (or service)<>Cost<>Consumer location
The channel decision is very important. In theory at least, there is a form of
trade-off: the cost of using intermediaries to achieve wider distribution is
supposedly lower. Indeed, most consumer goods manufacturers could never
justify the cost of selling direct to their consumers, except by mail order. In
practice, if the producer is large enough, the use of intermediaries
(particularly at the agent and wholesaler level) can sometimes cost more
than going direct.
Many of the theoretical arguments about channels therefore revolve around
cost. On the other hand, most of the practical decisions are concerned with
control of the consumer. The small company has no alternative but to use
intermediaries, often several layers of them, but large companies 'do' have
However, many suppliers seem to assume that once their product has been
sold into the channel, into the beginning of the distribution chain, their job is
finished. Yet that distribution chain is merely assuming a part of the
supplier's responsibility; and, if he has any aspirations to be market-oriented,
his job should really be extended to managing, albeit very indirectly, all the
processes involved in that chain, until the product or service arrives with the
end-user. This may involve a number of decisions on the part of the supplier:
Monitoring and managing channels
Intensive distribution - Where the majority of resellers stock the `product'
(with convenience products, for example, and particularly the brand leaders
in consumer goods markets) price competition may be evident.
Selective distribution - This is the normal pattern (in both consumer and
industrial markets) where `suitable' resellers stock the product.
Exclusive distribution - Only specially selected resellers (typically only one
per geographical area) are allowed to sell the `product'.
It is difficult enough to motivate direct employees to provide the necessary
sales and service support. Motivating the owners and employees of the
independent organizations in a distribution chain requires even greater
effort. There are many devices for achieving such motivation. Perhaps the
most usual is `bribery': the supplier offers a better margin, to tempt the
owners in the channel to push the product rather than its competitors; or a
competition is offered to the distributors' sales personnel, so that they are
tempted to push the product. At the other end of the spectrum is the almost
symbiotic relationship that the all too rare supplier in the computer field
develops with its agents; where the agent's personnel, support as well as
sales, are trained to almost the same standard as the supplier's own staff.
Monitoring and managing channels
In much the same way that the organization's own sales and distribution
activities need to be monitored and managed, so will those of the distribution
In practice, of course, many organizations use a mix of different channels; in
particular, they may complement a direct salesforce, calling on the larger
accounts, with agents, covering the smaller customers and prospects.
This relatively recent development integrates the channel with the original
supplier - producer, wholesalers and retailers working in one unified system.
This may arise because one member of the chain owns the other elements
(often called `corporate systems integration'); a supplier owning its own
retail outlets, this being 'forward' integration. It is perhaps more likely that a
retailer will own its own suppliers, this being 'backward' integration. (For
example, MFI, the furniture retailer, owns Hygena which makes its kitchen
and bedroom units.) The integration can also be by franchise (such as that
offered by McDonald's hamburgers and Benetton clothes) or simple co-
operation (in the way that Marks & Spencer co-operates with its suppliers).
Alternative approaches are `contractual systems', often led by a wholesale or
retail co-operative, and `administered marketing systems' where one
(dominant) member of the distribution chain uses its position to co-ordinate
the other members' activities. This has traditionally been the form led by
The intention of vertical marketing is to give all those involved (and
particularly the supplier at one end, and the retailer at the other) 'control'
over the distribution chain. This removes one set of variables from the
Other research indicates that vertical integration is a strategy which is best
pursued at the mature stage of the market (or product). At earlier stages it
can actually reduce profits. It is arguable that it also diverts attention from
the real business of the organization. Suppliers rarely excel in retail
operations and, in theory, retailers should focus on their sales outlets rather
than on manufacturing facilities ( Marks & Spencer, for example, very
deliberately provides considerable amounts of technical assistance to its
suppliers, but does not own them).
A rather less frequent example of new approaches to channels is where two
or more non-competing organizations agree on a joint venture - a joint
marketing operation - because it is beyond the capacity of each individual
organization alone. In general, this is less likely to revolve around marketing
LOGISTICS IN FOOD DISTRIBUTION
Food distribution, a method of distributing (or transporting) food from one
place to another, is a very important factor in public nutrition. Where it
breaks down, famine, malnutrition or illness can occur. During some periods
of Ancient Rome, food distribution occurred with the policy of giving free
bread to its citizens under the provision of a common good.
There are three main components of food distribution:
Transport infrastructure, such as roads, vehicles, rail transport, airports, and
Food handling technology and regulation, such as refrigeration, and storage,
Adequate source and supply logistics, based on demand and need.
In general, it is exactly logistics of information.
The field of information logistics aims at developing concepts, technologies
and applications for need-oriented information supply. Information-on-
demand services are a typical application area for information logistics, as
they have to fulfil user needs with respect to content, location, time and
Information Logistics consists of two words - information and logistics.
Information can mean a lot of things, but usually is text (syntax with a
semantic meaning) and logistics which is the transportation of sth from point
A to point B. In a simplified sense is a newsletter information logistics, also
an e-mail or even the ordinary mail you receive.
Information logistics is concerned with the supply of information to
individuals and aims to optimize it by targeted delivery in accordance with
requirements in such a way that the substantively correct and actually
necessary information is available where and when it is needed. This
information should be transformed in line with users' needs, depending on
the communication media and users' preferences, in order to aid custom
processing of it.
Information is created throughout the entire product creation process. The
goal of information logistics is to optimize the content and format of the
information, reduce throughput times and achieve a high degree of parallel
processing. Our approach is such that information can be created and reused
in a structured manner all along the value creation chain. This requires the
use of an information model, an overall product tree and a graphic design
concept. The deployed system must meet these requirements optimally.
The result is automated configuration of fully scalable information for a
wide variety of target group perspectives (e.g. by sector or area of
application). The customer can simply navigate through the information. The
information and documentation creation process is made easier, safer and
7.JUST IN TIME CONCEPT
Just In Time (JIT) is an inventory strategy implemented to improve the
return on investment of a business by reducing in-process inventory and its
associated costs. The process is driven by a series of signals, or Kanban ,
that tell production processes to make the next part. Kanban are usually
simple visual signals, such as the presence or absence of a part on a shelf.
When implemented correctly, JIT can lead to dramatic improvements in a
manufacturing organization's return on investment, quality, and efficiency.
New stock is ordered when stock reaches the re-order level. This saves
warehouse space and costs. However, one drawback of the JIT system is that
the re-order level is determined by historical demand. If demand rises above
the historical average planning duration demand, the firm could deplete
inventory and cause customer service issues. To meet a 95% service rate a
firm must carry about 2 standard deviations of demand in safety stock.
Forecasted shifts in demand should be planned for around the Kanban until
trends can be established to reset the appropriate Kanban level. In recent
years manufacturers have touted a trailing 13 week average as a better
predictor than most forecastors could provide.
A related term is Kaizen which is an approach to
productivity improvement literally meaning "continuous
History of JIT
The technique was first used by the Ford Motor Company This describes the
concept of "dock to factory floor" in which incoming materials are not even
stored or warehoused before going into production. The concept needed an
effective freight management system (FMS); Ford's Today and Tomorrow
(1926) describes one.
The technique was subsequently adopted and publicised by Toyota Motor
Corporation of Japan as part of its Toyota Production System (TPS).
Japanese corporations cannot afford large amounts of land to warehouse
finished products and parts. Before the 1950s, this was thought to be a
disadvantage because it reduced the economic lot size. (An economic lot
size is the number of identical products that should be produced, given the
cost of changing the production process over to another product.) The
undesirable result was poor return on investment for a factory.
The chief engineer at Toyota in the 1950s, Taiichi Ohno, examined
accounting assumptions and realized that another method was possible. The
factory could be made more flexible, reducing the overhead costs of
retooling and reducing the economic lot size to the available warehouse
Over a period of several years, Toyota engineers redesigned car models for
commonality of tooling for such production processes as paint-spraying and
welding. Toyota was one of the first to apply flexible robotic systems for
these tasks. Some of the changes were as simple as standardizing the hole
sizes used to hang parts on hooks. The number and types of fasteners were
reduced in order to standardize assembly steps and tools. In some cases,
identical subassemblies could be used in several models.
Toyota engineers then determined that the remaining critical bottleneck in
the retooling process was the time required to change the stamping dies used
for body parts. These were adjusted by hand, using crowbars and wrenches.
It sometimes took as long as several days to install a large (multiton) die set
and adjust it for acceptable quality. Further, these were usually installed one
at a time by a team of experts, so that the line was down for several weeks.
Toyota implemented a strategy called Single Minute Exchange of Die
(SMED), developed by Shigeo Shingo. With very simple fixtures,
measurements were substituted for adjustments. Almost immediately, die
change times fell to about half an hour. At the same time, quality of the
stampings became controlled by a written recipe, reducing the skill required
for the change. Analysis showed that the remaining time was used to search
for hand tools and move dies. Procedural changes (such as moving the new
die in place with the line in operation) and dedicated tool-racks reduced the
die-change times to as little as 40 seconds. Dies were changed in a ripple
through the factory as a new product began flowing.
After SMED, economic lot sizes fell to as little as one vehicle in some
Carrying the process into parts-storage made it possible to store as little as
one part in each assembly station. When a part disappeared, that was used as
a signal to produce or order a replacement.
Just-in-time (JIT) inventory systems are not just a simple method that a
company has to buy in to; it has a whole philosophy that the company must
follow. The ideas in this philosophy come from many different disciplines
including; statistics, industrial engineering, production management and
behavioral science. In the JIT inventory philosophy there are views with
respect to how inventory is looked upon, what it says about the management
within the company, and the main principle behind JIT.
Inventory is seen as incurring costs instead of adding value, contrary to
traditional thinking. Under the philosophy, businesses are encouraged to
eliminate inventory that doesn‘t add value to the product. Secondly, it sees
inventory as a sign of sub par management as it is simply there to hide
problems within the production system. These problems include backups at
work centres, lack of flexibility for employees and equipment, and
inadequate capacity among other things.
In short, the just-in-time inventory system is all about having ―the right
material, at the right time, at the right place, and in the exact amount.‖
Some of the results at Toyota were unexpected. A huge amount of cash
appeared, apparently from nowhere, as in-process inventory was built out
and sold. This by itself generated tremendous enthusiasm in upper
Another surprising effect was that the response time of the factory fell to
about a day. This improved customer satisfaction by providing vehicles
usually within a day or two of the minimum economic shipping delay.
Also, many vehicles began to be built to order, completely eliminating the
risk they would not be sold. This dramatically improved the company's
return on equity by eliminating a major source of risk.
Since assemblers no longer had a choice of which part to use, every part had
to fit perfectly. The result was a severe quality assurance crisis, and a
dramatic improvement in product quality. Eventually, Toyota redesigned
every part of its vehicles to eliminate or widen tolerances, while
simultaneously implementing careful statistical controls. (See Total Quality
Management). Toyota had to test and train suppliers of parts in order to
assure quality and delivery. In some cases, the company eliminated multiple
When a process problem or bad parts surfaced on the production line, the
entire production line had to be slowed or even stopped. No inventory meant
that a line could not operate from in-process inventory while a production
problem was fixed. Many people in Toyota confidently predicted that the
initiative would be abandoned for this reason. In the first week, line stops
occurred almost hourly. But by the end of the first month, the rate had fallen
to a few line stops per day. After six months, line stops had so little
economic effect that Toyota installed an overhead pull-line, similar to a bus
bell-pull, that permitted any worker on the production line to order a line
stop for a process or quality problem. Even with this, line stops fell to a few
The result was a factory that became the envy of the industrialized world,
and has since been widely emulated.
The Just in Time philosophy was also applied to other segments of the
supply chain in several types of industries. In the commercial sector, it
meant eliminating one or all of the warehouses in the link between a factory
and a retail establishment.
As most companies use an inventory system best suited for their company,
the Just-In-Time Inventory System (JIT) can have many benefits resulting
from it. The main benefits of JIT are listed below.
Set up times are significantly reduced in the warehouse. Cutting down the
set up time to be more productive will allow the company to improve their
bottom line to look more efficient and focus time spent on other areas that
may need improvement.
The flows of goods from warehouse to shelves are improved. Having
employees focused on specific areas of the system will allow them to
process goods faster instead of having them vulnerable to fatigue from doing
too many jobs at once and simplifies the tasks at hand.
Employees who possess multiple skills are utilized more efficiently. Having
employees trained to work on different parts of the inventory cycle system
will allow companies to use workers in situations where they are needed
when there is a shortage of workers and a high demand for a particular
Better consistency of scheduling and consistency of employee work hours. If
there is no demand for a product at the time, workers don‘t have to be
working. This can save the company money by not having to pay workers
for a job not completed or could have them focus on other jobs around the
warehouse that would not necessarily be done on a normal day.
Increased emphasis on supplier relationships. No company wants a break in
their inventory system that would create a shortage of supplies while not
having inventory sit on shelves. Having a trusting supplier relationship
means that you can rely on goods being there when you need them in order
to satisfy the company and keep the company name in good standing with
Supplies continue around the clock keeping workers productive and
businesses focused on turnover. Having management focused on meeting
deadlines will make employees work hard to meet the company goals to see
benefits in terms of job satisfaction, promotion or even higher pay.
Within a JIT System
The major problem with Just In Time operation is that it leaves the supplier
and downstream consumers open to supply shocks. In part, this was seen as
a feature rather than a bug by Ohno, who used the analogy of lowering the
level of water in a river in order to expose the rocks to explain how
removing inventory showed where flow of production was interrupted. Once
the barriers were exposed, they could be removed; since one of the main
barriers was rework, lowering inventory forced each shop to improve its
own quality or cause a holdup in the next downstream area. Just In Time is a
means to improving performance of the system, not an end.
With shipments coming in sometimes several times per day, Toyota is
especially susceptible to an interruption in the flow. For that reason, Toyota
is careful to use two suppliers for most assemblies. As noted in Liker (2003),
there was an exception to this rule that put the entire company at risk by the
1997 Aisin fire. However, since Toyota also makes a point of maintaining
high quality relations with its entire supplier network, several suppliers
immediately took up production of the Aisin-built parts by using existing
capability and documentation. Thus, a strong, long-term relationship with a
few suppliers is preferred to short-term, price-based relationships with
Within a raw material stream
As noted by Liker (2003) and Womack and Jones (2003), it would
ultimately be desirable to introduce flow and JIT all the way back through
the supply stream. However, none of them followed this logically all the
way back through the processes to the raw materials. With present
technology, for example, an ear of corn cannot be grown and delivered to
order . The same is true of most raw materials, which must be discovered
and/or grown through natural processes that require time and must account
for natural variability in weather and discovery.
It has been frequently charged that the oil industry has been influenced by
JIT (see here (2004), here (1996), and here (1996)). The argument is
presented as follows:
The number of refineries in the United States has fallen from 279 in 1975 to
205 in 1990 and further to 149 in 2004. As a result, the industry is
susceptible to supply shocks, which cause spikes in prices and subsequently
reduction in domestic manufacturing output. The effects of hurricanes
Katrina and Rita are given as an example: in 2005, Katrina caused the
shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large
number of oil production and transfer facilities, resulting in the loss of 20%
of the US domestic refinery output. Rita subsequently shut down refineries
in Texas, further reducing output. The GDP figures for the third and fourth
quarters showed a slowdown from 3.5% to 1.2% growth. Similar arguments
were made in earlier crises.
Beside the obvious point that prices went up because of the reduction in
supply and not for anything to do with the practice of JIT, JIT students and
even oil & gas industry analysts question whether JIT as it has been
developed by Ohno, Goldratt, and others is used by the petroleum industry.
Companies routinely shut down facilities for reasons other than the
application of JIT. One of those reasons may be economic rationalization:
when the benefits of operating no longer outweigh the costs, including
opportunity costs, the plant may be economically inefficient. JIT has never
subscribed to such considerations directly; following Waddel and Bodek
(2005), this ROI-based thinking conforms more to Brown-style accounting
and Sloan management. Further, and more significantly, JIT calls for a
reduction in inventory capacity, not production capacity. From 1975 to 1990
to 2005, the annual average stocks of gasoline have fallen by only 8.5%
from 228,331 to 222,903 bbls to 208,986 (Energy Information
Administration data). Stocks fluctuate seasonally by as much as 20,000 bbls.
During the 2005 hurricane season, stocks never fell below 194,000 thousand
bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls
in 1997. This shows that while industry storage capacity has decreased in the
last 30 years, it hasn't been drastically reduced as JIT practitioners would
Finally, as shown in a pair of articles in the Oil & Gas Journal, JIT does not
seem to have been a goal of the industry. In Waguespack and Cantor (1996),
the authors point out that JIT would require a significant change in the
supplier/refiner relationship, but the changes in inventories in the oil
industry exhibit none of those tendencies. Specifically, the relationships
remain cost-driven among many competing suppliers rather than quality-
based among a select few long-term relationships. They find that a large part
of the shift came about because of the availability of short-haul crudes from
Latin America. In the follow-up editorial, the Oil & Gas Journal claimed that
"casually adopting popular business terminology that doesn't apply" had
provided a "rhetorical bogey" to industry critics. Confessing that they had
been as guilty as other media sources, they confirmed that "It also happens
not to be accurate."
Consider a (highly) simplified mathematical model of the ordering process.
K = the incremental cost of placing an order
kc = the annual cost of carrying one unit of inventory
D = annual demand in units
Q = optimal order size in units
TC = total cost over the year
We want to know Q.
We assume that demand is constant and that the company runs down the
stock to zero and then places an order, which arrives instantly. Hence the
average stock held (the average of zero and Q, assuming constant usage) is
Q / 2. Also, the annual number of orders placed is D / Q.
TC consists of two components. The first is the cost of carrying inventory,
which is given by Q * kc / 2, i.e. the average inventory times the carrying
cost per unit. The second cost is the cost of placing orders, given by D * K /
Q, the annual number of orders, D / Q. times the cost per order, K.
Thus total annual cost is
We differentiate TC with respect to Q and set it equal to 0 to find the Q for
minimum total cost, giving
which is known as the Economic Order Quantity or EOQ formula.
The key Japanese breakthrough was to reduce K to a very low level and to
resupply frequently instead of holding excess stocks.
In practice JIT works well for many businesses, but it is not appropriate if K
is not small.
The theory above can be fairly easily adapted to take into account realistic
features such as delays in delivery times and fluctuations in demand.
Both of these are usually modelled by normal distributions.
The delay in delivery, in particular, means that additional 'safety stocks' need
to be held if a stockout is to be rendered very unlikely.
Logistics automation is the application of computer software and / or
automated machinery to improve the efficiency of logistics operations.
Typically this refers to operations within a warehouse or distribution center,
with broader tasks undertaken by supply chain management systems and
enterprise resource planning systems.
Logistics automation systems can powerfully complement the facilities
provided by these higher level computer systems. The focus on an individual
node within a wider logistics network allows systems to be highly tailored to
the requirements of that node.
Logistics automation systems comprise a variety of hardware and software
Automated cranes (also called automated storage and retrieval systems):
provide the ability to input and store a container of goods for later retrieval.
Typically cranes serve a rack of locations, allowing many levels of stock to
be stacked vertically, and allowing far high storage densities and better
space utilisation than alternatives.
Conveyors: automated conveyors allow the input of containers in one area
of the warehouse, and either through hard coded rules or data input allow
destination selection. The container will later appear at the selected
Sortation systems: similar to conveyors but typically have higher
capacity and can divert containers more quickly. Typically used to distribute
high volumes of small cartons to a large set of locations.
Industrial Robots: four to six axis industrial robots, e.g. palletizing robots,
are used for palletizing, depalletizing, packaging, comissioning and order
Typically all of these will automatically identify and track containers based
upon barcodes, or increasingly, RFID tags
Radio data terminals: these are hand held or truck mounted terminals
which connect wirelessly to logistics automation software and provide
instructions to operators moving throughout the warehouse. Many also have
in-built barcode scanners to allow identification of containers.
Integration software: this provides overall control of the automation
machinery and for instance allows cranes to be connected up to conveyors
for seamless stock movements.
Operational control software: provides low-level decision making, such as
where to store incoming containers, and where to retrieve them when
Business Control software: provides higher level functionality, such as
identification of incoming deliveries / stock and scheduling order fulfilment,
assignment of stock to outgoing trailers.
Benefits of logistics automation
A typical warehouse or distribution center will receive stock of a variety of
products from suppliers and store these until the receipt of orders from
customers, whether individual buyers (e.g. mail order), retail branches (e.g.
chain stores), or other companies (e.g. wholesalers). A logistics automation
system may provide the following:
Automated goods in processes: Incoming goods can be marked with
barcodes and the automation system notified of the expected stock. On
arrival, the goods can be scanned and thereby identified, and taken via
conveyors, sortation systems, and automated cranes into an automatically
assigned storage location.
Automated Goods Retrieval for Orders: On receipt of orders, the automation
system is able to immediately locate goods and retrieve them to a pickface
Automated despatch processing: Combining knowledge of all orders placed
at the warehouse the automation system can assign picked goods into
despatch units and then into outbound loads. Sortation systems and
conveyors can then move these onto the outgoing trailers.
A complete warehouse automation system can drastically reduce the
workforce required to run a facility, with human input required only for a
few tasks, such as picking units of product from a bulk packed case. Even
here, assistance can be provided with equipment such as pick-to-light units.
Smaller systems may only be required to handle part of the process.
Examples include automated storage and retrieval systems, which simply
use cranes to store and retrieve identified cases or pallets, typically into a
highbay storage system which would be unfeasible to access using fork-lift
trucks or any other means.
9.LOGISTICS FOR DIFFERENT
Liquid Logistics is a special category of logistics that relates to liquid
products, and is utilized extensively in the "Supply Chain for Liquids"
Standard logistics techniques are generally used for discrete or unit products.
Liquid products have logistics characteristics that distinguish them from
discrete products. Some of the major characteristics of liquid products that
impact their logistics handling are:
Liquids flowing from a higher level to a lower level provide the ability to
move the liquids without mechanical propulsion or manual intervention
Liquids‘ adaptation to the shape of the container they are in provides a great
deal of flexibility in the design of storage systems and the use of ―dead‖
space for storage
The level of a liquid as it has settled in a tank may be used to automatically
and continuously know the quantity of liquid in the tank
Liquids provide indications through changes in their characteristics that may
be sensed and translated into measures of the quality of the liquid
Many security and safety risks are significantly reduced or eliminated
utilizing liquid logistics techniques
Liquids may in some cases be ―processed‖ well downstream from the
original production facility and thus offer the opportunity for improved
efficiencies throughout the supply stream together with more flexibility as to
the nature of the product at the point of final usage.
Each of these points represents a differentiation of liquid logistics from
logistics techniques used for discrete items. When properly planned for and
handled these points of differentiation may lead to business advantages for
companies that produce, process, move, or use liquid products.
Medical logistics is the logistics of pharmaceuticals, medical and surgical
supplies, medical devices and equipment, and other products needed to
support doctors, nurses, and other health and dental care providers.
Because its final customers are responsible for the lives and health of their
patients, medical logistics is unique in that it seeks to optimize effectiveness
rather than efficiency.
Medical logistics functions comprise an important part of the health care
system: after staff costs, medical supplies are the single most expensive
component of health care. To drive costs out of the health-care sector,
medical logistics providers are adopting supply chain management theories.
Reverse logistics is the logistics process of removing new or used products
from their initial point in a supply chain, such as returns from consumers,
over stocked inventory, or outdated merchandise and redistributing them
using disposition management rules that will result in maximized value at
the end of the items original useful life. A reverse logistics operation is
considerably different from forward logistics. It must establish convenient
collection points to receive the used goods from the final customer or
remove assets from the supply chain so that more efficient use of inventory /
material overall can be achieved. It requires packaging and storage systems
that will ensure that most of the value still remaining in the used good is not
lost due to careless handling. It often requires the development of a
transportation mode that is compatible with existing forward logistic system.
Disposition can include returning assets into inventory pools or warehouses
for storage, returning goods to the original manufacturer for reimbursement,
selling goods on a secondary market, recycling assets, or a combination that
will yield maximum value for the assets in question.
Simply, "reverse logistics" is all activity associated with a product/service
after the point of sale, the ultimate goal to optimize or make more efficient
aftermarket activity, thus saving money. Types of activity common with
reverse logistics includes: logistics, warehousing, repair, refurbishment,
recycling, e-waste, after market call center support, reverse fulfillment, field
service and many others.
An example of Reverse Logistics: T-Shirts, which are often sold at second
sales where those with minor flaws like improper logo print of the
manufacturer or unnoticeable stitching flaws are exhibited to be sold at
discounted prices. The collection of the flawed clothes from the various
stores and reselling them at the Second Sales shop is an example of reverse
10.CONCEPT OF SUPPLY CHAIN
Supply chain management (SCM) is the process of planning,
implementing, and controlling the operations of the supply chain with the
purpose to satisfy customer requirements as efficiently as possible. Supply
chain management spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point-of-origin to point-of-
consumption. The term supply chain management was coined by consultant
Keith Oliver, of strategy consulting firm Booz Allen Hamilton in 1982.
The definition one America professional association put forward is that
Supply Chain Management encompasses the planning and management of
all activities involved in sourcing, procurement, conversion, and logistics
management activities. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across
Supply chain event management (abbreviated as SCEM) is a consideration
of all possible occurring events and factors that can cause a disruption in a
supply chain. With SCEM possible scenarios can be created and solutions
can be planned.
Some experts distinguish supply chain management and logistics, while
others consider the terms to be interchangeable.
Supply chain management is also a category of software products.
Supply chain management problems
Supply chain management must address the following problems:
Distribution Network Configuration: Number and location of suppliers,
production facilities, distribution centers, warehouses and customers.
Distribution Strategy: Centralized versus decentralized, direct shipment,
Cross docking, pull or push strategies, third party logistics.
Information: Integrate systems and processes through the supply chain to
share valuable information, including demand signals, forecasts, inventory
and transportation etc.
Inventory Management: Quantity and location of inventory including raw
materials, work-in-process and finished goods.
Supply chain execution is managing and coordinating the movement of
materials information and funds across the supply chain. The flow is bi-
Supply chain management is a cross-functional approach to managing the
movement of raw materials into an organization and the movement of
finished goods out of the organization toward the end-consumer. As
corporations strive to focus on core competencies and become more flexible,
they have reduced their ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other
corporations that can perform the activities better or more cost effectively.
The effect has been to increase the number of companies involved in
satisfying consumer demand, while reducing management control of daily
logistics operations. Less control and more supply chain partners led to the
creation of supply chain management concepts. The purpose of supply chain
management is to improve trust and collaboration among supply chain
partners, thus improving inventory visibility and improving inventory
Several models have been proposed for understanding the activities required
to manage material movements across organizational and functional
boundaries. SCOR is a supply chain management model promoted by the
Supply-Chain Management Council. Another model is the SCM Model
proposed by the Global Supply Chain Forum (GSCF). Supply chain
activities can be grouped into strategic, tactical, and operational levels of
Strategic network optimization, including the number, location, and size of
warehouses, distribution centers and facilities.
Strategic partnership with suppliers, distributors, and customers, creating
communication channels for critical information and operational
improvements such as cross docking, direct shipping, and third-party
Product design coordination, so that new and existing products can be
optimally integrated into the supply chain, load management
Information Technology infrastructure, to support supply chain operations.
There to make and what to make or buy decisions
Align overall organizational strategy with supply strategy
Sourcing contracts and other purchasing decisions.
Production decisions, including contracting, locations, scheduling, and
planning process definition.
Inventory decisions, including quantity, location, and quality of inventory.
Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of
best practices throughout the enterprise.
Daily production and distribution planning, including all nodes in the supply
Production scheduling for each manufacturing facility in the supply chain
(minute by minute).
Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers.
Inbound operations, including transportation from suppliers and receiving
Production operations, including the consumption of materials and flow of
Outbound operations, including all fulfillment activities and transportation to
Order promising, accounting for all constraints in the supply chain,
including all suppliers, manufacturing facilities. distribution centers, and
Performance tracking of all activities.
Supply Chain Management
Organizations increasingly find that they must rely on effective supply
chains, or networks, to successfully compete in the global market and
networked economy.In Peter Drucker's (1998) management's new
paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes
throughout a value chain of multiple companies.
During the past decades, globalization, outsourcing and information
technology have enabled many organizations such as Dell and Hewlett
Packard, to successfully operate solid collaborative supply networks in
which each specialized business partner focuses on only a few key strategic
activities (Scott, 1993). This inter-organizational supply network can be
acknowledged as a new form of organization. However, with the
complicated interactions among the players, the network structure fits
neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear
what kind of performance impacts different supply network structures could
have on firms, and little is known about the coordination conditions and
trade-offs that may exist among the players. From a system's point of view, a
complex network structure can be decomposed into individual component
firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network
concentrate on the inputs and outputs of the processes, with little concern for
the internal management working of other individual players. Therefore, the
choice of internal management control structure is known to impact local
firm performance (Mintzberg, 1979).
In the 21st century, there have been few changes in business environment
that have contributed to the development of supply chain networks. First, as
an outcome of globalization and proliferation of multi-national companies,
joint ventures, strategic alliances and business partnerships were found to be
significant success factors, following the earlier "Just-In-Time", "Lean
Management" and "Agile Manufacturing" practices. Second, technological
changes, particularly the dramatic fall in information communication costs, a
paramount component of transaction costs, has led to changes in
coordination among the members of the supply chain network (Coase,
Many researchers have recognized these kinds of supply network structure
as a new organization form, using terms such as "Keiretsu", "Extended
Enterprise", "Virtual Corporation", Global Production Network", and "Next
Generation Manufacturing System". In general, such a structure can be
defined as "a group of semi-independent organizations, each with their
capabilities, which collaborate in ever-changing constellations to serve one
or more markets in order to achieve some business goal specific to that
collaboration" (Akkermans, 2001).
Supply Chain Business Process Integration
Successful SCM requires a change from managing individual functions to
integrating activities into key supply chain processes. An example scenario:
the purchasing department places orders as requirements become
appropriate. Marketing, responding to customer demand, communicates with
several distributors and retailers, and attempts to satisfy this demand. Shared
information between supply chain partners can only be fully leveraged
through process integration.
Supply chain business process integration involves collaborative work
between buyers and suppliers, joint product development, common systems
and shared information. According to Lambert and Cooper (2000) operating
an integrated supply chain requires continuous information flows, which in
turn assist to achieve the best product flows. However, in many companies,
management has reached the conclusion that optimizing the product flows
cannot be accomplished without implementing a process approach to the
business. The key supply chain processes stated by Lambert (2004) are:
Customer relationship management
Customer service management
Manufacturing flow management
Supplier relationship management
Product development and commercialization
One could suggest other key critical supply business processes combining
these processes stated by Lambert such as:
Customer service Management
Product development and Commercialization
Manufacturing flow management/support
a) Customer service management process
Customer service provides the source of customer information. It also
provides the customer with real-time information on promising dates and
product availability through interfaces with the company's production and
b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing
flow management process and development of new products. In firms where
operations extend globally, sourcing should be managed on a global basis.
The desired outcome is a win-win relationship, where both parties benefit,
and reduction times in the design cycle and product development is
achieved. Also, the purchasing function develops rapid communication
systems, such as electronic data interchange (EDI) and Internet linkages to
transfer possible requirements more rapidly. Activities related to obtaining
products and materials from outside suppliers. This requires performing
resource planning, supply sourcing, negotiation, order placement, inbound
transportation, storage and handling and quality assurance. Also, includes
the responsibility to coordinate with suppliers in scheduling, supply
continuity, hedging, and research to new sources or programmes.
c) Product development and commercialization
Here, customers and suppliers must be united into the product development
process, thus to reduce time to market. As product life cycles shorten, the
appropriate products must be developed and successfully launched in ever
shorter time-schedules to remain competitive. According to Lambert and
Cooper (2000), managers of the product development and commercialization
coordinate with customer relationship management to identify customer-
select materials and suppliers in conjunction with procurement, and
develop production technology in manufacturing flow to manufacture and
integrate into the best supply chain flow for the product/market combination.
d) Manufacturing flow management process
The manufacturing process is produced and supplies products to the
distribution channels based on past forecasts. Manufacturing processes must
be flexible to respond to market changes, and must accommodate mass
customization. Orders are processes operating on a just-in-time (JIT) basis in
minimum lot sizes. Also, changes in the manufacturing flow process lead to
shorter cycle times, meaning improved responsiveness and efficiency of
demand to customers. Activities related to planning, scheduling and
supporting manufacturing operations, such as work-in-process storage,
handling, transportation, and time phasing of components, inventory at
manufacturing sites and maximum flexibility in the coordination of
geographic and final assemblies postponement of physical distribution
e) Physical Distribution
This concerns movement of a finished product/service to customers. In
physical distribution, the customer is the final destination of a marketing
channel, and the availability of the product/service is a vital part of each
channel participant's marketing effort. It is also through the physical
distribution process that the time and space of customer service become an
integral part of marketing, thus it links a marketing channel with its
customers (e.g. links manufacturers, wholesalers, retailers).
This is not just outsourcing the procurement of materials and components,
but also outsourcing of services that traditionally have been provided in-
house. The logic of this trend is that the company will increasingly focus on
those activities in the value chain where it has a distinctive advantage and
everything else it will outsource. This movement has been particularly
evident in logistics where the provision of transport, warehousing and
inventory control is increasingly subcontracted to specialists or logistics
partners. Also, to manage and control this network of partners and suppliers
requires a blend of both central and local involvement. Hence, strategic
decisions need to be taken centrally with the monitoring and control of
supplier performance and day-to-day liaison with logistics partners being
best managed at a local level.
g) Performance Measurement
Experts found a strong relationship from the largest arcs of supplier and
customer integration to market share and profitability. By taking advantage
of supplier capabilities and emphasizing a long-term supply chain
perspective in customer relationships can be both correlated with firm
performance. As logistics competency becomes a more critical factor in
creating and maintaining competitive advantage, logistics measurement
becomes increasingly important because the difference between profitable
and unprofitable operations becomes more narrow. A.T. Kearney
Consultants (1985) noted that firms engaging in comprehensive performance
measurement realized improvements in overall productivity. According to
experts internal measures are generally collected and analyzed by the firm
Asset measurement, and
External performance measurement is examined through customer
perception measures and "best practice" benchmarking, and includes 1)
Customer perception measurement, and 2) Best practice benchmarking.
Components of Supply Chain Management are 1. Standardisation 2.
Postponement 3. Customisation
Supply Chain Management Components
The management components of SCM
The SCM management components are the third element of the four-square
circulation framework. The level of integration and management of a
business process link is a function of the number and level, ranging from
low to high, of components added to the link (Ellram and Cooper, 1990;
Houlihan, 1985). Consequently, adding more management components or
increasing the level of each component can increase the level of integration
of the business process link. The literature on business process
reengineering, buyer-supplier relationships, and SCM suggests various
possible components that must receive managerial attention when managing
supply relationships. Lambert and Cooper (2000) identified the following
components which are:
Planning and control
Product flow facility structure
Information flow facility structure
Power and leadership structure
Risk and reward structure
Culture and attitude
However, a more careful examination of the existing literature will lead us to
a more comprehensive structure of what should be the key critical supply
chain components, the "branches" of the previous identified supply chain
business processes, that is what kind of relationship the components may
have that are related with suppliers and customers accordingly. Bowersox
and Closs states that the emphasis on cooperation represents the synergism
leading to the highest level of joint achievement (Bowersox and Closs,
1996). A primary level channel participant is a business that is willing to
participate in the inventory ownership responsibility or assume other aspects
financial risk, thus including primary level components (Bowersox and
Closs, 1996). A secondary level participant (specialized), is a business that
participates in channel relationships by performing essential services for
primary participants, thus including secondary level components, which are
supporting the primary ones. Also, third level channel participants and
components may be included, that will support the primary level channel
participants, and which are the fundamental branches of the secondary level
Consequently, Lambert and Cooper's framework of supply chain
components, does not lead us to the conclusion about what are the primary
or secondary (specialized) level supply chain components ( see Bowersox
and Closs, 1996, p.g. 93), that is what supply chain components should be
viewed as primary or secondary, and how should these components be
structured in order to have a more comprehensive supply chain structure and
to examine the supply chain as an integrative one .
For Customer Service Management: Includes the primary level component
of customer relationship management, and secondary level components such
as benchmarking and order fulfillment.
For Product Development and Commercialization: Includes the primary
level component of Product Data Management (PDM), and secondary level
components such as market share, customer satisfaction, profit margins, and
returns to stakeholders.
For Physical Distribution, Manufacturing support and Procurement:
Includes the primary level component of Enterprise Resource Planning
(ERP), with secondary level components such as warehouse management,
material management, manufacturing planning, personnel management, and
postponement (order management).
For Performance Measurement: This includes the primary level
component of logistics performance measurement, which is correlated with
the information flow facility structure within the organization. Secondary
level components may include four types of measurement such as: variation,
direction, decision and policy measurements. More specifically, in
accordance with these secondary level components total cost analysis
(TCA), customer profitability analysis (CPA), and Asset management could
be concerned as well. In general, information flow facility structure is
regarded by two important requirements, which are a) planning and
Coordination flows, and b)operational requirements.
11.CONCEPT OF 3PL
For Outsourcing: This includes the primary level component of
management methods and the company's cutting-edge strategy and its vital
strategic objectives that the company will identify and adopt for particular
strategic initiatives in key the areas of technology information, operations,
manufacturing capabilities, and logistics (secondary level components). A
third-party logistics provider (abbreviated 3PL) is a firm that provides
outsourced or "third party" logistics services to companies for part or
sometimes all of their supply chain management function. Third party
logistics providers typically specialize in integrated warehousing and
transportation services that can be scaled and customized to customer‘s
needs based on market conditions and the demands and delivery service
requirements for their products and materials.
Types of 3PL providers
Hertz, and Alfredsson (2003) describe four categories of 3PL providers:
Standard 3PL provider: this is the most basic form of a 3PL provider. They
would perform activities such as, pick and pack, warehousing, and
distribution (business) – the most basic functions of logistics. For a majority
of these firms, the 3PL function is not their main activity.
Service developer: this type of 3PL provider will offer their customers
advanced value-added services such as: tracking and tracing, cross-docking,
specific packaging, or providing a unique security system. A solid IT
foundation and a focus on economies of scale and scope will enable this type
of 3PL provider to perform these types of tasks.
The customer adapter: this type of 3PL provider comes in at the request of
the customer and essentially takes over complete control of the company‘s
logistics activities. The 3PL provider improves the logistics dramatically, but
do not develop a new service. The customer base for this type of 3PL
provider is typically quite small.
The customer developer: this is the highest level that a 3PL provider can
attain with respect to its processes and activities. This occurs when the 3PL
provider integrates itself with the customer and takes over their entire
logistics function. These providers will have few customers, but will
perform extensive and detailed tasks for them.
Non Asset-based Logistics Providers
This 3PL performs duties such as quoting, booking, routing, and auditing,
but doesn't need to own warehousing facilities, vehicles, or aircraft. These
are often leased on terms equalling those of the 3PL contract minimising
liability to capital expenditure.
To be useful, this type of provider must show its customers a benefit in
financial and operational terms by leveraging exceptional expertise and
ability in the areas of operations, negotiations, and customer service in a way
that complements its customers' preexisting physical assets.
India Logistics Industry: $125 Billion Goldmine
India's third-party logistics (3PL) market is all set to experience a period of
explosive organic growth, judging by independent market analyst Data
monitor‘s latest research. The Data monitor report, "India Logistics Outlook
2007," predicts high double-digit growth rates for both outsourced and
contract logistics in India.
With India's gross domestic profit (GDP) growing at over 9% per year and
the manufacturing sector enjoying double digit growth rates, the Indian
logistics industry is at an inflection point, and is expected to reach a market
size of over $125 billion in year 2010.
"Strong growth enablers exist in India today in the form of over $300 billion
worth of infrastructure investments, phased introduction of value-added-tax
(VAT), and development of organized retail and agri-processing industries",
say Praveen Ojha, Logistics analyst, Data monitor and author of the study.
"In addition, strong foreign direct investment inflows (FDI) in automotive,
capital goods, electronics, retail, and telecom will lead to increased market
opportunities for providers of 3PL in India."
However, as a result of the under-developed trade and logistics
infrastructure, the logistics cost of the Indian economy is over 13% of GDP,
compared to less than 10% of GDP in almost the entire Western Europe and
"As leading manufacturers realign their global portfolios of manufacturing
locations, India will have to work on such systemic inefficiencies, in order to
attract and retain long-term real investments," added Praveen Ojha.
Consumer markets to lead growth in outsourced logistics
3PL/outsourced logistics is the outsourcing of a company's logistics
operations to a specialized firm, which provides multiple tactical logistics
services for use by customers as opposed to the respective company having a
business unit in-house to oversee its supply chain and transportation of
With increased geographical distribution of incomes in India, the consumer
markets are extending beyond the five metros of Mumbai, Delhi, Bangalore,
Chennai and Hyderabad. However, rather than being pre-emptive, the
companies are only following with new distribution outlets. As such, the
increased competition across industry verticals is forcing firms to focus on
product distribution, and logistics outsourcing is gaining further momentum
According to Data monitor, outsourced logistics, at just above one-quarter of
the entire $90 billion Indian logistics market, is slated to grow at a
compound annual growth rate (CAGR) of over 16% from 2007-10.
The fragmented industry structure: Opportunity for 3PL integrators
The Indian logistics industry is characterized by dominance of a
disorganized market. Transporters with fleets smaller than five trucks
account for over two-thirds of the total trucks owned and operated in India
and make up 80% of revenues. The freight forwarding segment is also
represented by thousands of small customs brokers and clearing &
forwarding agents, who cater to local cargo requirements.
In order to reduce logistics costs and focus on core competencies, Indian
companies across verticals are now increasingly seeking and using the
services of third-party logistics service providers (3PLs).
Realizing the potential in the contract logistics market, 3PL service
providers are expanding their basket of services as companies are now
looking for more than just transportation of their products and raw materials.
Trucking and courier companies are now leveraging their network to provide
express distribution and warehousing. Similarly, freight forwarders are
moving towards owning assets in the form of Container Freight Stations
(CFS), Inland Container Depots (ICD) and container trains.
Furthermore, 3PLs are also increasing investments to become end-to-end
integrated players. As per the investment plans of the leading 3PLs in India,
the logistics industry's capital expenditure is progressively increasing to
almost match its revenue growth, a strong indicator of both 3PLs desiring to
become integrated service providers and the industry enjoying investment-
Infrastructure congestion: the key challenge According to Data monitor, the
logistics industry in India is currently hampered due to poor infrastructure
such as roads (over 70 % of freight transportation in India is via roads),
communication, ports and complex regulatory structures.
The National Highways (NH) form only 2% of the entire road network in
India, but handle over 40% of the national road freight traffic, putting
enormous pressure on the highway infrastructure. Also, on an average a
commercial vehicle in India runs at a speed of 20 miles per hour (mph)
compared to over 60 mph in the mature logistics markets of Western Europe
and the USA.
In addition, the twelve major ports of India handle volumes higher than their
full capacity, resulting in pre-berthing delays and longer ship turn-around
time compared to even the East Asian counterparts like China and South
Phased introduction of VAT - A supply chain boon
The amount of time spent in complying with inter state tax requirements and
at transport check points affects the cost and competitiveness of both 3PL
providers as well as their customers. VAT, which is expected to replace a
plethora of state and central government taxes, is likely to enhance the
efficiency of the logistics industry in India. Given the current thrust on
infrastructure investments in India, the implementation of VAT is likely to
boost the efficiency for these stakeholders by lowering transit times and the
associated paper work.
Praveen Ojha concluded: "With the collective economic interaction of growing per capita
disposable incomes, fast growing manufacturing and organized retailing sectors,
increasing external merchandise trade, infrastructure investments by the government and
3PL capex plans, both India's logistics industry and the 3PL sector of this market are set
to witness explosive growth in the next five years."
DEFENCE LOGISTICS AGENCY
The Defense Logistics Agency (DLA) is the largest agency in the United
States Department of Defense, with about 22,000 civilian and military
personnel throughout the world. The agency provides supplies to the military
services and supports their acquisition of weapons and other materiel.
Since its founding in 1961, DLA has been an integral part of the nation's
military defense. It has been a full partner with the military services in
helping to fuel the Cold War. It has also provided crucial relief to victims of
natural disasters and humanitarian aid to those in need.
Origins of DLA
The origins of the Defense Logistics Agency (DLA) date back to World War
II when America‘s huge military buildup required the rapid procurement of
vast amounts of munitions and supplies. During the war, the military
services began to coordinate more extensively when it came to procurement,
particularly procurement of petroleum products, medical supplies, clothing,
and other commodities. The main offices of the Army and Navy for each
commodity were collocated. After the war, the call grew louder for more
complete coordination throughout the whole field of supply - including
storage, distribution, transportation, and other aspects of supply. In 1947,
there were seven supply systems in the Army, plus an Air Technical Service
Command, and 18 systems in the Navy, including the quartermaster of the
Marine Corps. Passage of the National Security Act of 1947 prompted new
efforts to eliminate duplication and overlap among the services in the supply
area and laid the foundation for the eventual creation of a single integrated
supply agency. The act created the Munitions Board, which began to
reorganize these major supply categories into joint procurement agencies.
Meanwhile, in 1949, the Commission on the Organization of the Executive
Branch of the Government (Hoover Commission), a presidential commission
headed by former President Herbert Hoover, recommended that the National
Security Act be specifically amended so as to strengthen the authority of the
Secretary of Defense so that he could integrate the organization and
procedures of the various phases of supply in the military services.
The Munitions Board was not as successful as hoped in eliminating
duplication among the services in the supply area. Congress became
disenchanted with the board, and in the Defense Cataloging and
Standardization Act of 1952, transferred the board‘s functions to a new
Defense Supply Management Agency. The Eisenhower Reorganization Plan
Number 6 (1953) abolished both this agency and the Munitions Board,
replacing them with a single executive, an Assistant Secretary of Defense for
Supply and Logistics. Meanwhile, the Korean War led to several
investigations by Congress of military supply management, which
threatened to impose a common supply service on the military services from
Integrated management of supplies and services began in 1952 with the
establishment of a joint Army-Navy-Air Force Support Center to control
identification of supply items. For the first time, all the military services
bought, stored, and issued items using a common nomenclature. The
Defense Department and the services defined the materiel that would be
managed on an integrated basis as "consumables," meaning supplies that are
not repairable or are consumed in normal use. Consumable items, also called
commodities were assigned to one military service to manage for all the
Early History, 1941-1961
The pressure for consolidation continued. In July 1955, the second Hoover
Commission recommended centralizing management of common military
logistics support and introducing uniform financial management practices. It
also recommended that a separate and completely civilian-managed agency
be created with the Defense Department to administer all military common
supply and service activities. The military services feared that such an
agency would be less responsive to military requirements and jeopardize the
success of military operations. Congress, however, remained concerned
about the Hoover Commission‘s indictment of waste and inefficiencies in
the military services. To avoid having Congress take the matter away from
the military entirely, DoD reversed its position. The solution proposed and
approved by the Secretary of Defense was to appoint "single managers" for a
selected group of common supply and service activities.
Under a Defense directive approved by the Assistant Secretary of Defense
for Supply and Logistics, the Secretary of Defense would formally appoint
one of the three service secretaries as single manager for selected group of
commodities or common service activities. The Army managed food and
clothing; the Navy managed medical supplies, petroleum, and industrial
parts; and the Air Force managed electronic items. In each category, the
single manager was able to reduce his investment by centralizing wholesale
stocks, and to simplify the supply process by persuading the services to
adopt the same standard items. Over a six-year period, the single manager
agencies reduced their item assignments by about 9,000, or 20 percent, and
their inventories by about $800 million, or 30 percent. Proposals were soon
made to extend this concept to other commodities. The single manager
concept was the most significant advance toward integrated supply
management within DoD or the military services since World War II.
The Defense Cataloging and Standardization Act led to the creation of the
first Federal Catalog, completed in 1956. The federal catalog system
provided an organized and systematic approach for describing an item of
supply, assigning and recording a unique identifying number, and providing
information on the item to the system‘s users. The initial catalog, containing
about 3.5 million items, was a rough draft, full of duplications and errors,
but it effectively highlighted the areas where standardization was feasible
Defense Supply Agency, 1961-1977
When Secretary of Defense Robert S. McNamara assumed office in the
spring of 1961, the first-generation of single managers were handling
roughly 39,000 items by procedures with which the Services had become
familiar. Yet, it was clear that the single manager concept, though
successful, did not provide the uniform procedures that the Hoover
Commission had recommended. Each single manager operated under the
procedures of its parent service, and customers had to use as many sets of
procedures as there were commodity managers. Secretary McNamara was
convinced that the problem required some kind of an organizational
arrangement to "manage the managers." On March 23, 1961, he convened a
panel of high ranking Defense officials, and directed them to study
alternative plans for improving DOD-wide organization for integrated
supply management, a task designated as "Project 100." The committee‘s
report highlighted the principle weaknesses of the multiple single manager
After much debate among the service chiefs and secretaries, on August 31,
1961, Secretary McNamara announced the establishment of a separate
common supply and service agency known as the Defense Supply Agency
(DSA). The new agency was formally established on October 1, 1961, under
the command of Lieutenant General Andrew T. McNamara. McNamara, an
energetic and experienced Army logistician who had served as
Quartermaster General, rapidly pulled together a small staff and set up
operations in the worn Munitions Building in Washington, D.C. A short time
later, he moved his staff into more suitable facilities at Cameron Station in
When the agency formally began operations on January 1, 1962, it
controlled six commodity-type and two service-type single managers:
Defense Clothing & Textile Supply Center, (fomerly the Philadelphia
Quartermster Depot); Defense Construction Supply Center, Columbus,
Ohio; Defense General Supply Center, Richmond, Virginia; Defense
Medical Supply Center, Brooklyn, New York; Defense Petroleum Supply
Center, Washington, D.C.; Defense Subsistence Supply Center, Chicago,
Illinois; Defense Traffic Management Service, Washington, D.C.; and
Defense Logistics Services Center, Washington, D.C. Officials estimated
that the consolidation of these functions under DSA and subsequent unified
operations would allow them to reduce the workforce by 3,300 people and
save more than $30 million each year. The results far exceeded these
expectations. The agency, made up primarily of civilians but with military
from all the services, would administer the Federal Catalog Program, the
Defense Standardization Program, the Defense Utilization Program, and the
Surplus Personal Property Disposal Program.
During the first six months, two additional single managers - the Defense
Industrial Supply Center in Philadelphia and the Defense Automotive
Supply Center in Detroit, Michigan - came under DSA control, as did the
Defense Electronic Supply Center, Dayton, Ohio. By July 1, 1962, the
agency included 11 field organizations, employed 16,500 people, and
managed 45 facilities. The Defense Industrial Plant Equipment Center, a
new activity, was established under the agency in March 1963 to handle
storage, repair, and redistribution of idle equipment. By late June 1963 the
agency was managing over one million different items in nine supply centers
with an estimated inventory of $2.5 billion. On July 1, 1965, the Defense
Subsistence Supply Center, Defense Clothing Supply Center, and Defense
Medical Supply Center were merged to form the Defense Personnel Support
The Defense Supply Agency was tested almost immediately with the Cuban
missile crisis and the military buildup in Vietnam. Supporting U.S. forces in
Vietnam was the most severe, extensive test of the supply system in the
young agency‘s history. The agency launched an accelerated procurement
program to meet the extra demand created by the military buildup in
Southeast Asia. The agency‘s supply centers responded in record time to
orders for everything from boots and lightweight tropical uniforms to food,
sandbags, construction materials, and petroleum products. Between 1965
and 1969 over 22 million short tons of dry cargo and over 14 million short
tons of bulk petroleum were transported to Vietnam. As a result of support
to the operations in Vietnam, DSA‘s total procurement soared to $4 billion
in fiscal year 1966 and $6.2 billion in fiscal year 1967. Until the mid-1960s,
the demand for food was largely for non-perishables, both canned and
dehydrated. But in 1966, thousands of portable walk-in, refrigerated storage
boxes filled with perishable beef, eggs, fresh fruits and vegetables began
arriving in Vietnam, a logistics miracle.
As the buildup continued in Southeast Asia, on 1 January 1963, the agency
acquired Army general depots at Columbus, Ohio, and Tracy, California,
and the Navy depot at Mechanicsburg, Pennsylvania. Acquisition of Army
depots at Memphis, Tennessee, and Ogden, Utah, on January 1, 1964,
completed the DSA depot network.
In addition to the depot mission, the agency became responsible for
administering most Defense contracts - both those awarded by DSA and by
the military services. In 1965, the Defense Department consolidated most of
the contract administration activities of the military services to avoid
duplication of effort and provide uniform procedures in administering
contracts. Officials established the Defense Contract Administration
Services (DCAS) within DSA to manage the consolidated functions. The
agency‘s new contract administration mission gave it responsibility for the
performance of most defense contractors, including some new weapon
systems and their components. Yet, the services retained contract
administration of state-of-the-art weapon systems.
The expanded contract administration mission significantly altered the shape
of DSA. The agency that had begun operations three years earlier with more
than 90 percent of its resources devoted to supply operations had evolved to
one almost evenly divided between supply support and logistics services. As
part of a streamlining effort, in 1975, the eleven DCAS regions were
reduced to nine. The following year, officials reorganized the DCAS field
structure to eliminate the intermediate command supervisory levels known
as DCAS districts.
As the move to consolidate Defense contracting progressed, a congressional
report in 1972 recommended centralizing the disposal of DOD property for
better accountability. In response, on September 12, 1972, DSA established
the Defense Property Disposal Service (later renamed the Defense
Reutilization and Marketing Service) in Battle Creek, Michigan, as a
primary-level field activity.
During 1972 and 1973, the agency‘s responsibilities extended overseas when
it assumed responsibility for defense overseas property disposal operations
and worldwide procurement, management, and distribution of coal and bulk
petroleum products (1972), and worldwide management of food items for
troop feeding and in support of commissaries (1973). One dramatic example
of the agency‘s overseas support role was during the Middle East crisis in
October 1973 when it was called upon to deliver, on an urgent basis, a wide
range of vitally needed military equipment. Responsibilities for subsistence
management were expanded in 1976 and 1977 with improvements required
in the current wholesale management system and the assumption of major
responsibilities in the DOD Food Service Program. By 1977, the agency had
expanded from an agency that administered a handful of single manager
supply agencies to one that had a dominant role in logistics functions
throughout the Defense Department.
Defense Logistics Agency, 1977-1990
In recognition of 16 years of growth and greatly expanded responsibilities,
on January 1, 1977, officials changed the name of the Defense Supply
Agency to the Defense Logistics Agency (DLA). The next decade was a
period of continued change and expanded missions. Officials published a
revised agency charter in June 1978. Major revisions included a change in
reporting channels directed by the Secretary of Defense which placed the
agency under the management, direction, and control of the Assistant
Secretary of Defense for Manpower, Reserve Affairs, and Logistics.
As part of various organizational changes during this period, officials
eliminated depot operations at the Defense Electronics Supply Center in
1979 and began stocking electronic material at depots closer to the using
military activities. The Defense Industrial Plant Equipment Center was
phased out in the late 1980s when responsibility for managing the Defense
Department‘s reserve of industrial plant equipment was transferred to the
Defense General Supply Center in Richmond, Virginia.
Another major mission came in July 1988 when, by presidential order, the
agency assumed management of the nation‘s stockpile of strategic materials
from the General Services Administration. Soon after, DLA established the
Defense National Stockpile Center as a primary-level field activity. In 1989,
the military services were directed to transfer one million consumable items
to DLA for management.
The 1980s brought other changes as well. On October 1, 1986, the
Goldwater-Nichols Reorganization Act identified DLA as a combat support
agency and required that the selection the DLA Director be approved by the
Chairman of the Joint Chiefs of Staff. The act also directed the Office of the
Secretary of Defense to study the functions and organizational structure of
DLA to determine the most effective and economical means of providing
required services to its customers. It helped the agency‘s mission evolve
from functional concerns (e.g. inventory management, contract
administration) to operational concerns (e.g. enhancement of materiel
readiness and sustainability of the military services and the unified and
Further implementation of reorganization recommendations, especially from
the Goldwater-Nichols Act, resulted from Secretary of Defense Richard
Cheney‘s Defense Management Review report to the President in July 1989.
The report emphasized improving management efficiencies in the Defense
Department by "cutting excess infrastructure, eliminating redundant
functions and initiating common business practices." After the
implementation of the Defense Management Review decisions, DLA
assumed some of the military services‘ responsibilities, such as inventory
management and distribution functions.
A Defense Management Review-directed study recommended the
consolidation of DoD contract management. Although DLA had received
responsibility for administering most defense contracts in 1965, the military
services had retained responsibility for administering most major weapons
systems and overseas contracts. On February 6, 1990, DOD directed that
virtually all contract administration functions be consolidated within DLA.
In response, the agency established the Defense Contract Management
Command (DCMC), absorbing its Defense Contract Administration Services
into the new command. The military services retained responsibility for
contracts covering shipbuilding and ammunition plants. In June, however,
the services‘ responsibility (5,400 personnel and 100,000 contracts valued at
$400 million) for managing the majority of weapons systems contracts was
transferred to the Defense Contract Management Command.
Reorganizing for the 1990s
During the 1990s, the agency‘s role in supporting military contingencies and
humanitarian assistance operations grew dramatically. Operation Desert
Shield began in August 1990 in response to an Iraqi invasion of Kuwait.
Soon after President George Bush announced the involvement of the U.S.
military, the agency was at the center of the effort to support the deployment
to the Middle East and later the war. In those first critical months, most of
the supplies transported to Saudi Arabia - from bread to boots, from nerve
gas antidote to jet fuel - came from DLA stock. During this operation and
the subsequent Operation Desert Storm, the agency provided the military
services with over $3 billion of food, clothing, textiles, medical supplies, and
weapons system repair parts in response to over 2 million requisitions. The
mission execution included providing supply support, contract management,
and technical and logistics services to all military services, unified
commands, and several allied nations. The quality of supply support that
DLA provided American combat forces during these operations earned it the
Joint Meritorious Service Award in 1991.
DLA support continued in the Middle East long after most U.S. forces had
redeployed. As part of Operation Provide Comfort, in April 1991 the agency
provided over $68 million of food, clothing, textiles, and medical supplies to
support a major land and air relief operation designed to aid refugees-mostly
Kurds in Iraq.
DLA supported other contingency operations as well. In October 1994 DLA
deployed an initial element to support operations in Haiti and established its
first Contingency Support Team. In December 1995, the first element of a
DLA Contingency Support Team deployed to Hungary to coordinate the
delivery of needed agency supplies and services to U.S. military units
deployed in Bosnia and other NATO forces. Closer to home, the agency
supported relief efforts after Hurricane Andrew in Florida (1991) and
Hurricane Marilyn in the U.S. Virgin Islands (1995).
An even more dominant theme for the 1990s was the agency‘s efforts to
reorganize so that it could support the war fighter more effectively and
efficiently. In August 1990, Defense Contract Management Regions Atlanta,
Boston, Chicago, Los Angeles, and Philadelphia were re-designated as
Defense Contract Management Districts South, Northeast, North Central,
West, and Mid Atlantic respectively. Defense Contract Management
Regions Cleveland, Dallas, New York, and St. Louis were disestablished.
Defense Contract Management Districts Mid Atlantic and North Central
were disestablished in May 1994.
Throughout the 1990s the agency continued its effort to eliminate
managerial and stockage duplication, reducing overhead costs. In April 1990
Secretary Cheney directed that all the distribution depots of the military
services and DLA be consolidated into a single, unified materiel distribution
system to reduce overhead and costs and designated DLA to manage it. The
consolidation began in October 1990 and was completed March 16, 1992.
The system consisted of 30 depots at 32 sites with 62 storage locations,
which stored over 8.7 million spare parts, subsistence, and other consumable
items worth $127 billion in 788 million square feet (73 km²) of storage.
Until September 1997, two regional offices - Defense Distribution Region
East in New Cumberland, Pennsylvania, and Defense Distribution Region
West in Stockton, California, managed a vast network of distribution depots
within their respective geographic boundaries. They later merged into the
Defense Distribution Center, New Cumberland.
The Base Realignment and Closure (BRAC) process, instituted in 1993,
significantly affected the way the agency organized for its contract
administration and supply distribution missions. As a result of BRAC 1993,
officials merged, realigned, or closed several DLA primary-level field
activities. Specifically, they closed two of the five contract management
districts and the Defense Electronics Supply Center. The Defense
Distribution Depot Charleston, Defense Distribution Depot Oakland, and the
Tooele Facility, Defense Distribution Depot Ogden, Utah were
disestablished. The Defense General Supply Center became the Defense
Supply Center, Richmond. In response to BRAC 1993, in 1996 officials
merged the former Defense Construction Supply Center Columbus and the
former Defense Electronic Supply Center Dayton to form the Defense
Supply Center Columbus.
Meanwhile, DLA headquarters underwent a major reorganization. In March
1993, the agency re-engineered its headquarters to form integrated business
units for Supply Management, Distribution, and Contract Management. As a
result, only 6 organizations, rather than 42, would report directly to the
Director. In 1995 the DLA headquarters and the Defense Fuel Supply Center
(renamed Defense Energy Support Center in January 1998) moved from
Cameron Station to Fort Belvoir, Virginia. In October 1996, Defense
Printing Services, renamed the Defense Automated Printing Service,
transferred to DLA. In late December 1997 and early January 1998, the
headquarters was again realigned, and the agency‘s Defense Material
Management Directorate became the Defense Logistics Support Command
under Rear Admiral David P. Keller.
In November 1995, DLA launched a $1 billion project to replace the
Defense Department‘s cache of aging procurement programs with a DOD-
wide standard automated procurement system that supported electronic
commerce. In 1996 the agency received a Joint Meritorious Service Award
for saving DOD and the taxpayer $6.3 billion. Since its establishment in
1961, the agency has successfully standardized, procured, managed, and
distributed DOD consumable items throughout the military services, thus
eliminating much wasteful duplication. The agency assumed a major
logistics role previously performed by the military services. The
reorganization, move to electronic commerce, and other changes in the
1990s better positioned the agency to support the war fighter in the next