Introduction to Logistics

Module 1
 At the end of this module, you should be
able to:
• Explain the concepts of Physical Distribution,
Business Logistics, and Supply Chain
Management (SCM), and clearly articulate the

Module 1
modern scope of logistics
• Analyse and evaluate the strategic importance of
effective logistics management in achieving
Objectives competitive advantage
• Apply the core principles of the Systems Approach
and the Total Cost Approach to logistics
• Identify and illustrate the critical logistical
relationships and interfaces between logistics
and other functional areas within a firm
• Explain why simulation software (is a vital tool for
modern logistics decision-making and optimization.
 Topics
Definitions of Logistics

Logistics vs. Supply Chain Management (SCM)

The 7 R's of Logistics and the Work of Logistics

Physical Distribution

Logistics challenges and opportunities in India

 Physical movement of goods from
place to place
General
conception of Involves different types of
Logistics transportation modes and vehicles

Includes loading, unloading and

material storage activities
Source: Strategic Logistics Management – Stock and Lambert
 What drives logistics?

Concept of supply • Cost pressure

• Speed to market
chain • Customer delight

Movement towards • Time-place utility

globalization • ‘Hollowing out’ of industry

Outsourcing
 Definitions

“The process of strategically managing the movement and

storage of material, parts and finished goods from suppliers,
through the firm to the customers” - Council of Logistics
Management

Logistics involves . . . “managing the flow of items,

information, cash and ideas through the coordination
of supply chain processes and through the strategic
addition of place, period and pattern values.” - MIT
Center for Transportation & Logistics
 Moving the goods

Providing services and information

Key
considerations
Collecting cash

From supplier to company to

customer
Logistics and SCM - Council of Supply Chain
Management Professionals
Logistics management is that part of supply chain management that plans, implements, and controls the
efficient, effective forward and reverse flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet customers’ requirements

Supply chain management encompasses the planning and management of all activities involved in
sourcing and procurement, conversion, and all 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
companies
 Logistics SCM

Logistics vs • Logistics management

is that part of supply
• Supply chain management
encompasses the planning and
management of all activities
SCM - chain management that
plans, implements, and
involved in sourcing and
procurement, conversion, and all
Council of controls the efficient,
effective forward and
logistics management activities
• Importantly, it also includes
Supply Chain reverse flow and storage
of goods, services and
coordination and collaboration with
channel partners, which can be
Management related information
suppliers, intermediaries, third
party service providers, and
between the point of
Professionals origin and the point of
customers
• In essence, supply chain
consumption in order to management integrates supply and
meet customers’ demand management within and
requirements across companies
Some Examples
• 24 Hours ATM
• Dabbawalas of Mumbai
• Indian Postal Service
• Amul
• Supporting India’s troops in the north-east border
• Public distribution system (Food Corporation of
India)
Key Mission of Logistics

Provide
Manage Total
Customer
Cost
Service
 Network Design – where should I locate my facilities

Managing Information – how do I forecast demand and

provide information / analytics required to all stake-
What is holders
Providing Transportation – what modes of transport do I
involved in use and who will I choose for delivery

Logistics Managing Inventory – how much inventory do I keep and

where do I keep it

Warehousing, Material Handling and Packaging – how

do I handle, pack, receive, store and ship material
 Work of Logistics

Managing
Network Design – Providing
Information –
covered in OSC, Transportation –
covered in Module 2
SCD covered in Module 4
&5

Warehousing,
Managing Inventory All areas applied
Material Handling
– covered in Module together – SCM E-
and Packaging –
2 Com
covered in Module 2
The 7R’s Getting the Right product to
the Right customer in the
of Right quantity in the Right
condition at the Right place

Logistics at the Right time for the Right

cost
Physical Distribution

• Definition: Physical distribution refers to the set

of activities involved in the movement and
storage of goods from the point of production
to the point of consumption
• Physical distribution refers to the movement
of finished goods from a company’s
distribution and fulfillment network to the end
user. It involves several ecommerce supply
chain activities including warehousing,
inventory control, order processing, retail
fulfillment, and shipping
• In many cases, physical distribution of goods
consists of multiple fulfillment centers within a
single distribution network to reduce shipping
costs and speed up transit times for customer
orders
Objectives of Physical
Distribution
• Ensure timely delivery to meet customer expectations
• Minimize total distribution costs
• Maintain product quality during transit and storage
• Achieve optimal inventory levels to prevent stockouts or
overstocking
Why is Physical Distribution important in
SCM?
Customer Satisfaction
• Ensures timely and accurate delivery, improving brand loyalty

Cost Efficiency
• Optimized logistics reduce transportation and storage expenses

Market Reach
• Enables penetration into rural and urban markets effectively

Competitive Advantage
• Efficient physical distribution differentiates businesses in crowded markets
 Role of Distribution in a Supply Chain
Distribution in a supply Distribution is a key driver
chain refers to the steps Distribution occurs of the overall profitability
taken to move and store a between every pair of of a company because it
product from the supplier stages in the supply chain affects both customer
to the customer service as well as cost

In the Indian cement

In the apparel retail Two stellar examples of
industry, the outbound
industry, distribution managing distribution are
distribution costs is
impacts about 35% of Wal-Mart and Seven-
about 30% of the cost of
revenue Eleven Japan
production and sales
Distribution Networks
 Participants in Distribution
Distributors: Act as Retailers: Provide the
Manufacturers: Create intermediaries, last point of contact
products and manage handling bulk breaking with customers,
inventory and regional ensuring product
distribution availability

Logistics Providers: Regulatory Bodies:

Handle Influence the system
transportation, through policies,
warehousing, and taxes, and
last-mile delivery infrastructure support
 Roles of Participants
Manufacturers

• Produce goods and manage production schedules

• Optimize inventory levels to meet demand while minimizing costs

Distributors

• Handle bulk purchases from manufacturers

• Store inventory and ensure regional supply
• Navigate India’s diverse geographies and fragmented markets

Retailers

• Ensure product availability for end customers.

• Provide customer service and feedback on demand trends
• Adapt to the needs of urban vs. rural customers / regional preferences
 Roles of Participants
Logistics Providers Regulatory Bodies

• Offer transportation, • Government initiatives

warehousing, and like GST and
delivery solutions infrastructure
• Ensure on-time improvements through
delivery to reduce lead the Sagarmala project
times
Collaboration
Joint Planning Shared Responsibilities

• Manufacturers and retailers • Distributors and logistics

use demand forecasting to providers jointly manage
align production and warehouse operations and
inventory last-mile delivery
• Example: Reliance Retail and • Example: Flipkart’s
its suppliers use ERP partnership with Delhivery for
systems for real-time e-commerce distribution
coordination
Value-additions by Distribution

Cost efficiency, customer Last-mile delivery enables Green logistics initiatives

satisfaction, market e-commerce growth in like EV fleets and carbon-
reach, and sustainability smaller areas neutral warehouses
• Reduction in logistics • Amazon India’s • Flipkart introducing
costs through route expansion into Tier 3 and electric vehicles in its
optimization by Indian 4 cities fleet
startups
 Warehousing Country's
and cold chain
network
economic
growth Important
Government
Attributes
Transportation
Infrastructure
policies for
trade
development
of National
Regulatory
Logistics
environment
 Logistics in India
India's logistics costs have come down to below 9% of gross domestic product, helped by rising state
spending on roads, ports and digitisation - NCAER Study

Logistics costs including transportation, warehousing, insurance and administrative charges had come
down thanks to improvements in road network, tax reforms and digitisation of supply chains

The logistics costs were down in the range of 7.8% to 8.9% of GDP in 2021/22, compared to 8.8% to 10%
of GDP in 2012/13

According to the World Bank's Logistics Performance Index, India climbed six places to rank 38th out of
139 countries in 2023, helped by improving road and port networks and digitisation of the supply chains

The average dwell time, the waiting time for a truck cargo at a port, was just 3 days in India when
compared to 7 days in the United States and 10 days in Germany, said the World Bank report
 Infrastructure gaps (e.g.,
transportation, warehousing)

Regulatory hurdles and compliance

costs
Challenges Fragmented markets and regional
disparities

Dependence on manual processes

in small-scale industries
 Trends

Growth of sustainable supply chains (e.g., green logistics)

Increasing reliance on AI and machine learning

Greater focus on customer-centric supply chain models

E-commerce-driven demand for faster, more flexible supply chains

 India Distribution Context
Tier 2 and 3
Tier 1 Cities: Fragmentation
Cities
High demand density, Growing demand for Fragmented logistics
sophisticated logistics, FMCG and e-commerce network and high
reliance on 3PL services products transportation costs (e.g.
Example: Metro cities like Infrastructure challenges Northeast)
Mumbai and Bengaluru like poor road Insufficient infrastructure
with advanced supply connectivity in rural areas
chains Price sensitivity Multiple intermediaries in
FMCG distribution
Opportunities for Growth
Government initiatives like GST, investment in
infrastructure, Gathisakthi, Sagarmala, and
logistics parks

E-commerce-driven demand for improved

distribution
 The mission of the logistics function is to provide
the best Customer Service while managing the
lowest Total Cost

Logistics is a key component of SCM

Summary
Distribution networks have multiple participants,
each with their own roles and value-additions

Indian logistics while having many challenges is

rapidly improving and this will help improve
industry competitiveness
Questions
What are the main factors that have increased the importance of logistics?

Using a definition of logistics, identify its key aspects.

What are the main objectives of physical distribution of a pharmaceutical

company? Why is physical distribution important for the organization?

With the help of a chart, explain the roles of the participants in a distribution
network of a company making mobile phones.
Questions
What are the main objectives of physical distribution of a
pharmaceutical company? Why is physical distribution
important for the organization?
With the help of a chart, explain the roles of the participants in a
distribution network of a company making mobile phones.

Explain in detail supply chain competitiveness using any industry

as an example to support your answer.
Elements of Logistics Management

Module 1
 Evolution of Logistics Concepts

Key Elements of Logistics Management

Lean Logistics
Topics
Agile Logistics

Sustainable/Green Logistics

The impact of the internet and e-commerce

Evolution of Logistics

Military
Growth of
operations – Technology and Global
consumer
especially after cost concerns competition
economy
World War 2
Logistics as a System
Information Flow Warehousing Inventory Control

Material handling & storage

Order registration
Load unitization Material requirement
Verification
Location and layout planning
Order processing
Order picking and filling Inventory level decisions
Co-ordination
Dispatch documentation

Packaging Transportation

For handling and

Route planning
damage prevention
Mode selection
For communication
Vehicle scheduling
For transportation
 Order processing

Inventory control

Storage
Logistics Transportations
Activities Material handling

Logistical packaging

Information analysis, processing and flow

 Logistics Chain

S C
U U
P S
P T
L Buy Make Deliver O
I (Procurement) (Processing) (Distribution) M Downstream
Upstream E E
R R
S S

Inbound Process Outbound

Logistics Logistics Logistics
 Logistics Chain
Inbound logistics

• Operation preceding manufacturing. This includes movement of raw materials and

components from supplier to the plant

Process logistics

• Operations directly related to processing. This includes storage and movement of raw
materials and components within the factory premises as per the manufacturing
schedule

Outbound logistics

• Operations following the manufacturing. This includes warehousing, transportation and

inventory management of finished goods
Inbound and Outbound Logistics
Customer Value Delivery Chain
HR Competencies, Procurement, Finance, Infrastructure

Inbound Outbound Sales & Customer

Operations Service
Logistics Logistics Marketing Value

Technologies and Analytics

Logistics Flows Customers

Flow of Inventory

Manufacturing Physical
Procurement
Support Distribution

Flow of Information

Suppliers

Flow of Money
Activity
• A container ship carrying a critical inbound supply of
raw materials for your main production line is delayed by
72 hours due to port congestion
• Task: In groups, identify one specific, quantifiable
impact this 72-hour delay will have on each of the
following departments:
• Production
• Marketing
• Finance
• Which department do you think will complain the
loudest, and why?
• Who should ultimately pay for the premium freight
required to recover the delay, how would you justify the
decision?
 Lean Logistics

Agile Logistics
Logistics
Advancements
Sustainable / Green Logistics

E-Logistics
The Core Concept: Identifying Waste (Muda)

Unnecessary movement of Excess stock (safety stock,

goods (e.g., poor routing, WIP) that ties up capital
double-handling, sub- and hides other systemic
optimal loads) problems

Unnecessary movement of Idle time for goods,

people or equipment (e.g., people, or equipment (e.g.,
poor warehouse layout, trucks at docks, items
searching for tools) waiting for processing)
The Core Concept: Identifying Waste (Muda)
• Value Stream Mapping (VSM): A visual tool to map
all material and information flows to identify and
eliminate waste
• Just-in-Time (JIT): A pull-based system to move
inventory *only* as needed, drastically reducing
inventory waste
• Continuous Improvement (Kaizen): A culture of
small, incremental changes made by everyone to
improve processes
• 5S Methodology: A workplace organization method
(Sort, Set in Order, Shine, Standardize, Sustain) to
reduce waste from motion/searching
The Strategic Impact
Implementation Challenges
Strategic Benefits
• Reducing overall operating costs • High dependency on supplier
• Drastically shortening lead times reliability
• Lowering inventory holding • A significant cultural shift (not
costs just a tool)
• Improving quality and reducing • Increased risk of supply chain
errors disruption (less buffer)
• Increasing customer satisfaction • High need for information
and value visibility and trust
Agile vs. Lean: A Comparison

Lean Logistics Agile Logistics

Goal: Eliminate waste and maximize efficiency. Goal: Respond quickly and maximize effectiveness.

• Environment: Best for predictable, stable demand. • Environment: Best for volatile, unpredictable demand.

• Focus: Cost reduction, process standardization. • Focus: Service level, speed, and flexibility.

• Inventory: Minimal (JIT), seen as waste. • Inventory: Strategically held to buffer uncertainty.

• Example: Automotive industry (e.g., Toyota), • Example: Fast fashion (e.g., Zara), consumer

commodity goods. electronics, emergency aid.

Key Enablers of Agility
Collaborative Information
Postponement
Networks Visibility
• Sharing real-time • Using real-time • Delaying the final
demand and data (IoT, GPS) to customization or
capacity data with "sense" market configuration of a
suppliers and changes and product until the
partners to create respond last possible
a "glass pipeline" immediately, moment (e.g.,
of information rather than waiting assembly,
for forecasts packaging)
Areas of Focus for Sustainability
• Green Transportation
• Route optimization, modal shifts (to rail/sea), electric vehicles (EVs),
alternative fuels, and ensuring full truck loads
• Green Warehousing
• Energy-efficient lighting (LED), solar panels, rainwater harvesting, green
building design, and sustainable packaging materials
• Reverse Logistics
• Efficiently managing product returns, remanufacturing, recycling, and
responsible disposal to minimize landfill waste
The Business Case for Green Logistics

Drivers & Benefits Implementation Challenges

Adopting sustainable practices is driven by more than just
Transitioning to green logistics requires overcoming several
ethics. Key benefits include:
practical and financial hurdles:
• Cost Savings: Reduced fuel, energy, and packaging • High initial investment (EVs, solar panels).
costs.
• Brand Reputation: Strong consumer demand for • Complexity of managing and optimizing reverse

sustainable brands. • logistics.

Accurately measuring the carbon footprint across the
• Regulatory Compliance: Meeting government
supply chain.
mandates (e.g., BS VI norms, EPR). • Lack of infrastructure (e.g., EV charging networks for
• Competitive Advantage: Attracting talent and "green"
trucks).
investors.
Activity

• You are the Transport Planner. Your

company has a Green Logistics
Mandate to reduce CO2 emissions by Order Volume (Pallets) Customer Urgency (Required Delivery)

maximising the Load Factor (how full A 8 Pallets Must arrive Tomorrow
the truck is) on every shipment
• You have three customer orders that B 6 Pallets Can arrive Day After Tomorrow
need to be delivered from your
C 4 Pallets Can arrive Day After Tomorrow
Distribution Centre to the same city,
500 km away
• Your truck capacity is 16 pallets
Activity - continued

• Options available:
• Higher Cost: Ship Order A tomorrow on a half-empty truck (8/16 pallets).
Then ship Orders B and C the day after tomorrow on a three-quarters full
truck (10/16 pallets)
• Lower Cost: Wait 24 hours to consolidate all three orders (A, B, and C) into
one full truck (18/16 pallets - requires a temporary loss of 2 pallets of
space for consolidation). All three orders arrive Day After Tomorrow.
• Which option is Lean? Which option is Green?
• If you choose the Green option (Option 2), which department will immediately
complain the loudest, and what is the cost of that complaint?
• In a systems approach, how do you measure the Trade-Off
Unique Challenges of E-Logistics

High Volume, Small Last-Mile Delivery High Return Rates

Orders
The most expensive and complex part of Managing a high volume of customer

A fundamental shift from shipping pallets the journey. High customer expectations returns ("reverse logistics") efficiently and

to warehouses (B2B) to shipping single for speed and free shipping. cost-effectively is a major operational

items to homes (B2C). challenge.

Key Strategies & Technologies in E-Logistics

Meeting the E-Commerce

Challenge

Micro-Fulfillment Centers (MFCs): Small, automated fulfillment

centers in urban areas to speed up delivery.
Automation & Robotics: Using robots in warehouses (e.g., in
MFCs) for picking and packing small orders.
Route Optimization Software: Using AI to plan the most efficient
last-mile delivery routes.
Click & Collect / Lockers: Offering alternative delivery options to
reduce cost and package theft.
 Important logistical performance cycles include the
performance cycle, the manufacturing support cycle and the
physical distribution cycle

Lean Logistics focuses on delivering efficient logistics activities

and minimizing waste

Summary Agile Logistics provides responsiveness in the Supply Chain to

maximize customer satisfaction

Sustainable Logistics can offer significantly benefits to

organizations

E-logistics is developing to meet the challenges of e-commerce

 Questions

Specify the important logistical activities of a firm.

With the help of a chart, explain inbound, outbound and process

logistics.

Explain each of the following developments in logistics: a. Lean

Logistics, b. Agile Logistics, c. Green Logistics and d. E-Logistics
Logistics Management Case Study [Link]

Case Study: [Link] -The PowerMotors Pitch

Section 1: The Pre-Presentation Huddle

It was a tense morning at [Link] (SiS). The executive team, including CEO
Vishnu Rajan, Head of Sales Kavita Reddy, and the brilliant but rarely seen Senior IT
Specialist Kishore Anand, were finalizing the presentation for PowerMotors. This was a
pivotal meeting; PowerMotors was one of India's established Automotive Original Equipment
Manufacturers (OEMs) and still managed its logistics largely in-house, viewing its asset base
(including its fleet of older, company-owned vehicles) as a symbol of self-sufficiency. Vishnu
Rajan reminded the room that the client team would include the CEO, the CFO, the Head of
Marketing, and, crucially, the Head of Supply Chain. "Remember," Vishnu stressed, "we
aren't selling a truck, we're selling a strategic transformation."

Kavita displayed a slide showing an internal analysis. PowerMotors currently holds an

estimated one month of inventory for its critical components in its local warehouses. This
conservative buffer is a direct response to past issues, as many of their domestic
competitors maintain less than a one-week component inventory. The data suggests this
high inventory level alone has INR 500 Crores of working capital tied up in static assets.
Kishore added that the technology solution SiS had recently invested in—a Geo-fencing
and Telematics System costing SiS INR 25 Crores—was exactly the tool PowerMotors
needed to justify safely cutting that inventory.

Section 2: The Inbound and Inventory Interdependency

The core of PowerMotors’ supply chain relies heavily on its inbound logistics, which involves
sourcing materials from many nearby suppliers using a mixture of small, individual fleet
owners and their own transport pool. While this gives the Purchasing team flexibility, it has
created a severe reliability issue. Ms. Reddy summarized the problem: "The lack of reliable
communication and control often means that lead time estimates for inbound components
have a massive variability, often at +/- 48 hours, despite the short distances."
This lack of control has a direct, crippling effect on production. The assembly line
experiences unscheduled stoppages due to late supplies, and the Operations team
estimates that these disruptions cost the company approximately INR 3 Crores annually in
fixed production penalties and wasted labor. The irony is that the high inventory buffer, which
ties up so much capital, exists primarily to offset the unreliability caused by the company’s
transport execution.

The CFO, Mr. Rajan knew, would be scrutinizing costs. SiS’s challenge was to show that the
cost of not outsourcing was far higher than the cost of a comprehensive 3PL solution.
Furthermore, the SiS analysis noted that while diesel prices in the three key operational
states had spiked by 15% recently, PowerMotors’ current transportation model hadn't
adapted, consistently running sub-optimally loaded trucks on high-cost routes.
Section 3: The Outbound and Customer Service Breakdown
PowerMotors’ problems don't end at the assembly line; they continue all the way to the
customer. Their outbound delivery to dealer networks, handled by their limited fleet, is
plagued by delays. The Marketing team reports significant negative feedback, including
customer order cancellations—estimated to be nearly 5% of potential sales—because
promised delivery times are routinely missed. The current delivery structure focuses
narrowly on reducing freight rates rather than responsiveness or reliability.

Exacerbating the sales issue is a quality control problem: dealers frequently complain about
cosmetic damage to finished vehicles, particularly paint scratches, that require costly touch-

Power Motors Page 1 of 2

Logistics Management Case Study [Link]

ups before the car can be handed over to the final customer. The annual cost of rework and
associated insurance claims due to this in-transit damage is estimated at INR 5 Crores.

The Purchasing and Sales teams, separated by function, share a common frustration: a total
lack of visibility. The Purchasing team can’t see inbound component status, and the Sales
team can’t confidently tell a dealer where a finished vehicle is or when it will arrive. The SiS
plan is to leverage their new telematics system, which can provide location and ETA data on
every single asset with +/- 2 hours of accuracy, to create a "single version of the truth" for
both sides of the supply chain. This focus on information flow is what differentiates SiS.

The SiS CEO looked at the team: "We need to show them that their transportation,
warehousing, and inventory are not separate functions. They are a single, malfunctioning
system. Our solution offers them competitive differentiation through unprecedented service
and cost leadership by freeing up their balance sheet."

Discussion Questions
1. The Interdependent Problem:
PowerMotors' problems are connected. Trace the cause-and-effect relationship starting with
the unreliability of Inbound Logistics. How does this single failure lead directly to the high
Inventory Costs and, indirectly, affect Customer Service?

2. The Value Proposition:

Using the numerical data presented, explain how the SiS solution helps PowerMotors
achieve both:
• Cost Leadership: What specific costs are eliminated or reduced?
• Differentiation: What service attributes can they now offer to their customers/dealers?

3. The CFO's Perspective:

The Power Motors CFO is skeptical of outsourcing. What will be the CFO's primary
argument against adopting the SiS proposal, even with the promising data. Which piece of
information might the CFO use to justify keeping transport in-house?

4. SiS's Competitive Advantage:

Send-it-Safely is offering more than just transport. Identify the specific technology and
operational process they must implement to effectively address the INR 5 Crore paint
damage problem and the +/- 48 hour visibility issue.

Power Motors Page 2 of 2

Cost of Logistics
Module 1
 Cost Elements

Topics Total Cost Approach

Discussed

Numerical Examples
 The Total Cost Approach (TCA) - all logistics activities
must be costed simultaneously

The goal is not to minimize the cost of any single activity

but to minimize the Total Logistics Cost (TLC) for the
entire system
Total Cost
Approach Traditional view - focuses only on the most visible cost:
Transportation

This is dangerous because decisions made to minimize

freight rates often cause "hidden" costs, primarily
Inventory Carrying Costs, to increase drastically,
resulting in a higher overall total cost
The “Iceberg” of Logistics Costs
The Central Trade-Off: Transportation vs.
Inventory
Mode Selection Impact Fast, Expensive Transport Slow, Cheap Transport (e.g.,
(e.g., Air) Ocean)

Transportation Cost Increases significantly. Decreases significantly.

Inventory Carrying Cost Decreases. Less "in-transit" Increases. More "in-transit"

inventory and less safety stock inventory and more safety
needed due to reliability. stock needed for long,
unreliable lead times.

Stockout Cost Decreases. Faster Increases. Higher risk of

replenishment prevents stockouts during the long
stockouts. replenishment cycle.

Objective: find the optimal point where the decrease in one cost is greater
than the increase in the other, resulting in the lowest overall TLC
Logistics Cost Components

Material
Transportation Warehousing Administration
Handling

Logistics
Documentation Insurance Technology
Equipment

Maintenance of
Packaging Equipment and
Software
Transportation Costs
Explanation: The expenditures related to the physical movement of goods
from one point to another, covering all freight charges paid to carriers

Key Impact Factors:

• Mode Selection (Trade-off): Air, ocean/rail, or road. The choice directly influences speed
and thus, inventory costs
• Load Factor: Utilizing maximum vehicle capacity (FTL vs. LTL) is a primary cost leverage
point. Also, the type of transport vehicle affects the cost
• Urgency: Expedited shipping (high-cost) required for unexpected demands or short lead
times
Warehousing Costs

Explanation: Key Impact Factors:

Costs associated • Fixed Costs: Rent/mortgage,
property taxes, and depreciation
with storing of the building structure
inventory and • Variable Costs: Labor (receiving,
maintaining the picking, shipping), maintenance,
physical facility and utilities
• Throughput Volume: The total
where goods are amount of goods moving
held (space and through the warehouse
equipment)
Inventory Carrying Costs (ICC)
• Explanation: The total expense of holding inventory over a period
of time, usually expressed as a percentage of the product's value.
This is the largest "hidden" cost
• Key Impact Factors:
• Cost of Capital (Opportunity Cost): The interest or return lost by tying up
money in inventory instead of investing it elsewhere (often the largest ICC
component)
• Obsolescence and Deterioration: Risk of product damage, spoilage, or
becoming outdated
• Inventory Level: Directly proportional to the amount of inventory held
(safety stock, cycle stock)
Material Handling Costs
• Explanation: The expenses involved in moving, storing, protecting, and controlling
materials and products within the warehouse or distribution centre
• Key Impact Factors:
• Warehouse Layout: Efficient layouts minimize unnecessary travel and labour
time.
• Equipment Type: Cost of forklifts, conveyors, automated guided vehicles (AGVs),
and AS/RS systems.
• Process Efficiency: Maximizing the speed and minimizing damage during
receiving, putaway, and picking processes
Administration Costs
• Explanation: General overhead expenses required to manage and
supervise the logistics function
• Key Impact Factors:
• Salaries and Benefits: Wages for logistics managers, planners, analysts,
and office support staff
• Training and Development: Investment in improving the skills and
knowledge of the logistics workforce
• Regulatory Compliance: Costs related to meeting customs,
environmental, and safety regulations
Logistics Equipment Costs
Explanation: The capital
expenditure, depreciation, and Purchase vs. Lease: Financial
operating costs associated with strategy impacts upfront capital
long-term assets used in outlay versus recurring operating
logistics operations, excluding expenses
fixed infrastructure

Depreciation Schedule: The rate

Key Impact Factors: at which the equipment loses
value over its useful life

Utilization Rate: Ensuring that

high-value assets (e.g.,
automated systems, specialized
trucks) are used efficiently
Documentation Costs

Explanation: The cost of creating, processing, storing, and transmitting

necessary physical and electronic paperwork related to orders,
shipments, and inventory

Key Impact Factors:

• Trade Complexity (Customs): International shipments require complex customs forms

(e.g., commercial invoices, bills of lading), significantly increasing costs
• Automation Level: Moving from manual paperwork to Electronic Data Interchange (EDI) or
digital systems reduces cost and error rates
Insurance Costs
Explanation: Premiums paid to cover potential losses arising from
damage, theft, accident, or delay of goods, facilities, and vehicles

Key Impact Factors:

• Product Value and Risk: High-value, fragile, or hazardous goods incur significantly
higher premiums
• Claim History: A company with a poor track record of losses or damages will face
higher premiums
• Coverage Extent: Costs vary based on the level of coverage chosen
Technology Costs
Explanation: The expenses
System Type: Cost of the
related to the acquisition,
Warehouse Management System
implementation, and
(WMS), Transportation
maintenance of software
Management System (TMS), and
systems essential for modern
ERP modules
logistics management

Licensing and Subscription Fees:

Key Impact Factors: Recurring charges for software
use and cloud services

Data Security: Investment in

protecting sensitive supply chain
data from cyber threats
Packaging Costs

Explanation: The cost of all primary, secondary, and tertiary packaging materials
used to protect, contain, and identify products during storage and transportation

Key Impact Factors:

• Protection Level: Highly fragile items require more specialized and expensive protective packaging
• Packaging Design: Optimized packaging that reduces product dimensions and weight can lead to
significant savings in transportation costs
• Sustainability Mandates: Using recycled or reusable packaging materials may carry higher initial
costs
Strategic Sourcing and Total Landed Cost
Total Landed Cost (TLC) calculates the true total cost of a product from
the point of sourcing to the final destination, making it crucial for global
decisions.

Total Landed Cost = Product Price + Total Logistics Cost + Tariffs/Duties +

Risk Costs + Finance Costs

High tariffs, high risk of damage (high Risk Costs), or long, unstable lead
times (high Total Logistics Cost) can quickly make the cheaper product the
more expensive option overal
 Consider the Consumer Electronics
Total Landed Cost - Example product line of a company with an annual
volume of 100,000 units

Cost Element Basis of Calculation Annual Cost (₹) Cost per Unit (₹)

1. Transportation Road Freight @ ₹30/unit 30,00,000 30.00

2. Warehousing Space & Utilities 5,00,000 5.00

3. Inventory Carrying Costs (ICC) 2% of Product Value (₹400/unit) 8,00,000 8.00

4. Material Handling Picking/Packing Labor (5 min/unit) 2,50,000 2.50

5. Administration Salaries for Analysts/Planners 1,50,000 1.50

6. Logistics Equipment Depreciation (Forklifts/Pallet Jacks) 1,00,000 1.00

7. Documentation Processing Fees/Invoices 50,000 0.50

8. Insurance General Cargo Insurance (0.05% of value) 1,00,000 1.00

9. Technology WMS/TMS Licensing Fees 50,000 0.50

10. Packaging Custom Foam & Corrugated Boxes 3,00,000 3.00

TOTAL LOGISTICS COST (TLC) Sum of above ₹53,00,000 ₹53.00

Comparison of Alternative • Consider a High-Value Product (Product Value =
Logistics Options – Impact ₹5,00,000 per unit, Annual Holding Cost = 25% of value)
of Inventory holding costs over an annual volume of 3,65,000 units.

Cost Component Option A: Air Freight Option B: Ocean Freight

Annual Transport Cost 3,65,000 units * ₹1,000/unit = ₹36.5 Cr 3,65,000 units * ₹200/unit = ₹7.3 Cr

Annual Inventory Cost (ICC) Avg. Inventory: 5,000 units Avg. Inventory: 30,000 units

Cost: 5,000 * ₹5L * 0.25 = ₹62.5 Cr Cost: 30,000 * ₹5L * 0.25 = ₹375 Cr

Total Logistics Cost (TLC) ₹99.0 Cr ₹382.3 Cr

Conclusion Air Freight is cheaper by ₹283.3 Cr. The Ocean is not the cheapest option. The
high cost of tying up capital (ICC) with low transport savings (₹29.2 Cr) are
slow ocean transport is the deciding outweighed by the massive increase in
factor. ICC (₹312.5 Cr).
Comparison of Total • For the same High-Value Product scenario, we now
add external costs to determine the best global
Landed Costs sourcing decision

Cost Component Option A: Air Freight (TLC) Option B: Ocean Freight (TLC)

1. Total Logistics Cost ₹99.0 Cr ₹382.3 Cr

2. Tariffs & Duties (10% of Product Value) 0.10 * ₹18,250 Cr = ₹1,825 Cr 0.10 * ₹18,250 Cr = ₹1,825 Cr

3. Risk Cost (Damage/Loss) Air: 0.2% of value = ₹36.5 Cr Ocean: 1.5% of value = ₹273.75 Cr

TOTAL LANDED COST ₹1,960.5 Cr ₹2,481.05 Cr

Conclusion The Total Landed Cost view confirms that the The cheaper transport option is over ₹520 Cr more
strategic choice is Air Freight, as lower risk expensive when all costs are considered.
(Insurance and Damage/Loss costs) increases
the initial advantage derived from low ICC.
 The Total Cost Approach (TCA) ensures that all
logistics activities are be costed simultaneously
and can often change the logistics selection
option as compared to only the total freight costs

There are several cost elements that make up the

logistics costs, and each is impacted by different
Summary considerations

In addition to the cost elements, risk and tariffs

must also be considered for global logistic
decisions
Questions

Explain the different

What is TLC ? Why is
cost elements in
it important –
logistics and the key
substantiate with a
factors that impact
numerical example.
each cost element
 An e-commerce company, 'QuickShip,'
distributes a high-demand electronic
accessory priced at ₹2,000 per unit. The
company is evaluating the Total Logistics
Numerical Cost (TLC) for this product line, which has
an annual demand of 150,000 units.
Problem 1 -
TLC
Calculate the cost for each of the following
elements, based on the data provided, to
determine the final TLC per unit
Details of Cost Elements
Cost Element Specifics Calculation Basis
1. Transportation Shipments are made via Less-than-Truckload (LTL). The average cost is ₹32 per kilogram of Calculated
product shipped. Each unit weighs 0.5 kg.

2. Warehousing The facility has an annual fixed cost of ₹7,50,000. Given (Fixed Cost)

3. Inventory Carrying Cost (ICC) The annual ICC rate is 18% of the product's value. The average inventory level maintained is Calculated
12,500 units.

4. Material Handling Labor rate for picking/packing is ₹300 per hour. It takes 1.5 minutes to handle one unit. Calculated

5. Administration Total administration salaries amount to ₹2,50,000 annually. Given

6. Packaging Custom biodegradable packaging costs ₹15 per unit. Given (Variable Cost)

7. Technology Annual WMS/TMS licensing fees are ₹1,00,000. Given (Fixed Cost)

8. Documentation Average documentation/invoicing cost is ₹0.50 per shipment. Each shipment averages 4 Calculated
units.

9. Insurance Cargo insurance costs ₹0.75 per unit. Given (Variable Cost)

10. Equipment Annual depreciation and maintenance on equipment (forklifts, etc.) is ₹2,00,000. Given (Fixed Cost)
 Hint: Steps required
Calculate the Annual
Calculate the Annual Fixed
Variable Cost for each
Cost for the system Calculate the Annual
element (Transportation,
(Warehousing, Inventory Carrying Cost
Material Handling,
Administration, Technology, (ICC) in ₹
Packaging, Insurance,
Equipment)
Documentation)

Determine the Total Annual Determine the final Total

Logistics Cost (TLC) Logistics Cost per Unit
Numerical Problem 2 –
Strategic Sourcing
• A firm is deciding between two global suppliers, Supplier X
(South Asia) and Supplier Y (East Asia), for a high-value
component. Annual demand is 20,000 units. The firm's annual
inventory holding rate is 20% of the component value.
• Based solely on the Total Landed Cost, which supplier is the
most cost-effective choice? Explain your reasoning, highlighting
the impact of the ICC and Risk trade-offs on the final decision.
 Supplier Data

Metric Supplier X (South Asia) Supplier Y (East Asia)

1. Component Price (Ex-Works) ₹1,000 per unit ₹900 per unit

2. Transit Time (Lead Time) 10 days (Very reliable) 30 days (Moderate reliability)

3. Safety Stock Factor Requires 5 days of safety stock Requires 15 days of safety stock

4. Inbound Transport Cost ₹50 per unit ₹150 per unit (Higher ocean freight)

5. Tariffs/Duties 5% of the component price 15% of the component price

6. In-Transit Damage/Loss Risk 0.5% of the shipment value 3.0% of the shipment value (Due to
transshipment points and handling)

Assume 365 days per year for inventory calculations.

Hint: Steps Required

Total Inventory Carrying Cost Total Landed Cost (TLC) Explain your answer as to which
(ICC) Calculation: Calculation: Supplier is to be selected.
• Calculate the Total Inventory • Calculate the Total Annual
Days required for each Tariffs/Duties (as a
supplier (Transit Days + Safety percentage of the total annual
Stock Days). product value) for each
• Calculate the Average supplier.
Inventory Value held for each • Calculate the Total Annual
supplier. Risk Cost (Damage/Loss) in
• Calculate the Annual ICC for ₹.
each supplier (Average • Calculate the Total Landed
Inventory Value × 20% Holding Cost (TLC) per Unit for each
Rate). supplier, considering:
TLC/Unit = Price + Transport +
Tariff + Risk + (ICC/Unit)
Case Study Review

Module 1
Logistics – Marketing Interface
Interface Point Description Logistics Impact

Logistics must choose high-cost transport modes (air, dedicated

Marketing determines the desired level of delivery speed (e.g.,
Customer Service Level fleet) and position inventory closer to the customer, driving up
next-day delivery) and reliability (e.g., 98% on-time).
Transportation and Warehousing costs.

Network design (how many DCs, where to locate them) is a

Logistics defines the 'Place' aspect of the Marketing Mix—
The 4 P's (Place) logistics decision that either enables or constrains Marketing's
where products are available and how quickly.
geographic reach and speed-to-market.

Logistics must optimize the secondary packaging for protection

Marketing often demands premium packaging for branding and
Product Protection and cube utilization, often clashing with Marketing's aesthetic
customer unboxing experience (e.g., delicate electronics).
goals, impacting Packaging Costs.

Logistics must maintain high levels of safety stock and flexible

Marketing runs sales and promotions, causing massive,
Promotional Support capacity, increasing Inventory Carrying Costs (ICC) and the risk
unpredictable spikes in demand.
of inefficient Material Handling.

Service reliability and the delivery promise to the customer

Logistics – Supply Chain (other components)
Interface
Interface Point Description Supply Chain Impact

Logistics' execution data (e.g., actual lead times, carrier reliability)

Supply Chain Management (SCM) provides the demand
Forecasting & Planning provides crucial feedback that improves the SCM's accuracy,
forecast that dictates what is moved and when.
reducing the need for costly Safety Stock (ICC).

Logistics costs (especially Transportation and Warehousing) heavily

SCM determines the overall inventory policy (e.g.,
Inventory Positioning influence the optimal positioning of finished goods. A centralized
centralized vs. decentralized stock).
model saves warehousing but increases transport costs.

Logistics must provide the Inbound Transport Cost and Risk Costs
Sourcing Decisions SCM selects global suppliers (e.g., China vs. Mexico). (e.g., damage rates, lead time volatility) to ensure the SCM team
selects the supplier that yields the lowest Total Landed Cost (TLC).

Logistics designs the dedicated, high-complexity systems for

SCM must plan for the return flow of products (recycling, managing returns, which are often inefficient and require
Reverse Logistics
repair, recall). specialized Logistics Equipment and Technology to track and
process.

Execution and information flow

 Logistics – Finance Interface

Interface Point Description Finance Impact

Logistics' effectiveness in reducing transit time and

Inventory is an asset on the balance sheet. Finance minimizing safety stock directly reduces the funds tied up in
Working Capital & ICC
monitors the Cash Conversion Cycle (CCC). Inventory Carrying Costs (ICC), thereby improving the
company's cash flow.

Logistics ensures the maximized utilization of these high-

value assets (e.g., high warehouse throughput, high truck load
Finance manages the depreciation and acquisition of
Asset Utilization factors) to generate the maximum return on the capital
large assets (warehouses, fleet vehicles).
investment, impacting Logistics Equipment and Warehousing
Costs.

Logistics uses the TCA framework to justify higher-cost

Finance requires cost transparency and justification for
activities (like premium transport) by demonstrating the
Total Cost Approach (TCA) investment in logistics improvements (e.g., a new
offsetting savings in ICC and Stockout Costs, proving a lower
WMS).
Total Logistics Cost overall.

Accurate tracking of Documentation, Administration, and

Logistics provides detailed cost data across all 10 Technology Costs allows Finance to create precise budgets
Budgeting and Reporting
elements for financial planning and variance analysis. and identify areas where process automation is needed to
control overhead.

Cash management, asset utilization, and cost control

Power Motors Case - Areas of Potential Benefit

Qualitative Quantitative
(soft (hard
benefits) benefits)
 Service Reliability and Risk Mitigation – Sales Focus

Value Proposition Factor KPIs Required to Show Benefit

1. On-Time In-Full (OTIF) Score: The guaranteed

improvement in the percentage of orders delivered
correctly and on time.
Enhanced Customer Service (Dependability)
2. Order Cycle Time Consistency: The reduction in the
standard deviation of the order cycle time (showing
that delivery promises are met reliably).

3. Stockout/Backorder Rate Reduction: The percentage

decrease in the number of times PowerMotors fails to
Systemic Risk Mitigation
meet customer demand from existing inventory,
protecting future sales and market share.
Operational Efficiency – SCM Focus

Value Proposition Factor KPIs Required to Show Benefit

4. Total Transportation Cost (TTC) Reduction: The

absolute percentage decrease in annual freight spend
due to better routing, mode selection, and load
optimisation.
Total Logistics Cost (TLC) Reduction 5. Warehousing Cost per Unit Throughput: The
reduction in the cost associated with handling, storage,
and labour at the distribution centre (DC).

6. Premium Freight Spend Reduction: The percentage

decrease in spending on costly emergency transport
Reduced Expedited/Premium Freight
(e.g., Air freight, dedicated vans) because the system is
now inherently reliable.
 Inventory – CFO Focus

Value Proposition Factor KPIs Required to Show Benefit

7. Days Inventory Outstanding (DIO) Reduction: (e.g.,

moving from 90 days to 75 days of stock). Directly
measures freed-up cash.
Capital Liberation through Inventory Reduction 8. Inventory Carrying Cost (ICC) Reduction: The
percentage decrease in ICC (cost of storage,
obsolescence, insurance) achieved through lower
average stock levels

9. Lead Time Variability Reduction (Std. Dev.): The key

metric showing SiS improved the consistency of
Safety Stock Optimisation inbound delivery (e.g., lead time variability reduced
from 5 days to 1 day). This allows the Safety Stock
levels to be lowered.
 Every logistics decision is a trade-off:

• High transport cost and Lower inventory cost

• Lower transport cost and Higher inventory cost

Financial Goal: Lowest total logistics cost

Trade-offs
in Logistics
Cost of Unreliability:

• Inbound logistics – lack of visibility and ability to

respond to customers
• Higher safety stock – inventory costs
• Assembly stoppage – downtime costs
 Reduction of working capital through
Value inventory reduction (Rs.500 Cr)

Proposition Elimination of Rs. 3 Cr in stoppages

offered by (inventory visibility)

SiS Reduction of 5% in cancellation

costs (customer service)
 Options offered by SiS for Inbound Logistics

Safety Stock
Transport Lead Time
Option Days
Cost per Year (Reliable) PowerMotors' current lead
Required
time variability is 48 hours
₹5 Crores (+/-). SiS proposes two
Option A: 3 Days (high solutions for the inbound
Fixed / Low- 7 Days
Regional Milk Run buffer) component flow (annual
cost
component value: ₹100
Option B: Express ₹15 Crores 1 Day (min.
Crores; ICC rate: 20%):
2 Days
VMI High cost buffer)
Class Activity

• Revisit the case of PowerMotors

• Review the two options offered
• Calculate the total cost profile for each option
• Recommend the lower cost solution
 CFO’s Objections: If Option B is the winner, how is the
Rs. 10 Crore increase in Annual Transport Cost
justified? Why is this a net positive for the balance
sheet?

Hidden Service Value: Besides the calculated TLC,

Further what is the value of **freeing up 8 days of Safety
Thoughts Stock**? How does this impact the Head of Marketing's
ability to promise faster delivery to dealers?

Impact of Risk: If we introduced a new risk (e.g., 1%

chance of a plant shutdown costing ₹5 Crores due to
stockouts), which option (A or B) would be safer? Why
does the **TLC** naturally promote risk reduction?
Module 1 Summary
Third Party Logistics (3PL)
Industry Overview
Firms have directed considerable attention to developing supply chain
relationships.

Many companies have been in the process of extending their logistics

organizations into those of other supply chain participants and facilitators.

One way of accomplishing this extension is through the use of a supplier

of third-party or contract logistics services

Terms contract logistics and outsourcing are sometimes used in place of

3PL
Transporter Shipper

Third Party
Logistics
Firm
Third Party Logistics Defined

• THIRD PARTY LOGISTICS is an industry to which a shipper (owner of transported

goods) outsources various elements of the supply chain to perform some / all
logistics management functions including inbound freight, customs, warehousing,
order fulfillment, distribution and outbound freight.
• Initiated in 1980s when companies began looking for opportunities to improver
logistics performance.
• FedEx drew attention to 3PL service by offering JIT delivery
• FedEx success in 3PL marketplace opened it up to competition
• Initially primarily domestic coverage, 3PL industry is now global in character
with revenues more than $1,000 billion
3PL Industry
Characteristics
 • For the shipper …
• To acquire skills / resources not available
3PL internally
Outsourcing • To achieve competitive advantage through
outside expertise
Opportunity • To allow company to focus on its core
competencies
• To improve operational productivity and
customer service
• To improve business process efficiency
• To avoid making capital expenditures
 • There are three types of third party logistics providers:

• Asset Based – 3PL companies that use their own trucks,

warehouses and personnel to operate the client’s
business

• Management Based – 3PL companies that provide the

technological and managerial functions to operate the
Types of 3PLs logistics functions of their clients, but do so using the
assets of other companies and do not necessarily own any
assets

• Integrated Providers – 3PL companies that can either be

asset based or management based that supplement their
services with whatever services are needed by their
clients
3PL Application to
Industry
• Computers
• Retail
• Chemicals
• Medical
• Automotive
Top 10 Services Outsourced to 3PL

• Freight payment & auditing

• Warehouse operations
• Carrier selection & rate negotiation
• Logistics information systems
• Shipment planning
• Fleet management
• Packaging
• Customer relations
• Customer order processing & fulfillment
• Total supply chain (logistics) management
Top 10 Global 3PL Companies

# 3PL Company HQ Location Revenue Employees Warehouses Tractors Trailers

1 UPS Solutions Atlanta, GA $ 8.90 35,000 100 2,000 4,600

2 C. H. Robinson Eden Prairie, MN $ 8.60 8,000 100 n/a n/a

3 Expeditors International Seattle, WA $ 5.60 12,600 110 n/a n/a

4 DHL Logistics Bonn, Germany $ 4.80 185,000 2,500 45 10,500

5 Uti Worldwide Long Beach, CA $ 4.50 20,500 260 1,250 1,825

Schindellegi,
6 Kuehne & Nagel Switzerland $ 3.90 53,000 500 n/a n/a

7 Catapillar Logistics Morton, IL $ 3.50 12,000 130 n/a n/a

8 DB Schenker Essen, Germany $ 3.20 62,000 500 n/a n/a

9 Penske Logistics Reading, PA $ 3.00 9,600 150 2,300 4,100

10 Panalpina World Transport Basel, Switzerland $ 3.00 14,800 240 n/a n/a
 • Focus on shipper business performance and
value
• Employ performance measures that track
specific business objectives of shippers
3PL Provider • Emphasize flexibility and responsiveness to
Differentiation changing supply chain conditions
• Open flow / exchange of information
(transparency)
• Target strategic (long-term) solutions
Benefits that • Logistics Cost Reduction

3PLs can • Inventory Turn Improvement

• Logistics Fixed-Asset Reduction
deliver • Order Fill Improvement Rate
• Order Accuracy Improvement
 In financial year 2020, the size of India's third-
party logistics market was around 580 billion
Indian rupees. It was estimated that this market
would grow to 1.2 trillion rupees in 2025, with a
compound annual growth rate of around 16 to
18 percent
3PL Industry
in India The 3PL market is likely to be driven by growth
in sectors like fast-moving consumer goods
(FMCG), manufacturing, retail, and e-
commerce, which demand specialized logistics
support and complex solutions for better
management of their supply chain processes.
 Railways
Transport
modes
supported by
Roadways
3PLs
Sea
Airways
 Dedicated contract carriage (DCC)
Domestic transportation management
International transportation management
Warehousing and distribution
Service Types Cold chain
Coastal transportation
Container freight stations
Inland container depots
 Technological
Automotive
Retailing
Elements
Industry
Food and groceries
Healthcare
Others
 DHL International GmbH

Mahindra Logistics

All Cargo Logistics Limited

3PL Providers
Kuehne + Nagel

TVS Logistics Services Limited

 What are the main advantages that a
shipper can get through a 3PL?

List common services that are

Questions outsourced to 3PLs.

What are the logistics metrics that a 3

PL can deliver to a company making
consumer durables and electronics?
Introduction to Logistic
Simulation
Module 1
Why Simulation Component Static TCA
Calculation
Dynamic Simulation

Lead Time Assumes a fixed Models lead time as a probability

lead time (e.g., distribution (e.g., 8 days, 9 days,
• So far, we assumed that the data exactly 10 days). or 12 days occurs 5% of the
points are static (e.g. lead times). time).

In actual practice, they are not

• The real world is characterized by Demand Assumes Models demand as random
uncertainty and variability known, constant events occurring over time (e.g.,
demand (e.g., sometimes 80, sometimes 150).
• The Goal of Simulation: To create 100 units/day).
a virtual, digital twin of a logistics
system to test changes (like Trade-Offs Compares 2-3 Runs thousands of scenarios to
moving a warehouse or switching fixed options. find the truly optimal point
carriers) without risking capital or across multiple variables.

disrupting live operations

Simulation Concepts in Logistics

• Discrete Event Simulation (DES)

• Definition: Focuses on systems where the state of the system
changes only at specific, separated points in time (events).
• Key Application: Modelling processes, queues, and flows.
• Logistics Example: Simulating a warehouse operation: An "arrival"
event (truck docks), a "processing" event (picking), and a "departure"
event (loading). DES helps optimize the number of forklifts needed,
the length of the queue at the dock, and the labor required
Simulation Concepts in Logistics -

• Monte Carlo Simulation

• Definition: A computational technique that relies on repeated random
sampling to obtain numerical results. It models probabilities.
• Key Application: Modeling risk and uncertainty.
• Logistics Example: Inventory Risk Analysis. If a lead time can be 8, 10,
or 12 days, a Monte Carlo simulation runs the ordering process
thousands of times, generating a probability distribution of stockout
events. This helps determine the precise level of Safety Stock needed
to hit a 99% service level
Applications in Logistics Planning
• Network Design & Optimization (Warehouse Location)
• Problem: Where should we locate the next Distribution Center (DC)?
• Simulation's Role: It calculates the TLC for every potential site by simulating inbound freight,
outbound freight, warehousing costs, and inventory costs simultaneously. It finds the
location that minimizes the sum of all these costs
• Capacity Planning and Constraint Analysis
• Problem: Is our current DC layout and equipment sufficient to handle the projected demand
spike next quarter?
• Simulation's Role: Models the physical limitations (constraints) of the system (e.g., conveyor
belt speed, dock door availability). It identifies bottlenecks and predicts when the system will
fail or cause excessive delays
• Transportation Scenario Analysis
• Problem: What is the cost and service impact of moving from a dedicated fleet to a third-
party logistics (3PL) carrier?
• Simulation's Role: It allows you to model both scenarios over a year of fluctuating demand,
comparing the resulting Transportation Costs and Inventory Carrying Costs (ICC) to
determine the optimal TCA choice
 Simulation for PowerMotors Case

• De-Risking the Investment: SiS uses simulation to show PowerMotors,

with data, that the proposed changes will succeed and deliver the
promised ₹500 Cr capital reduction. It turns a promise into a validated
probability
• Quantifying Uncertainty: Simulation provides a scientific way to price the
Risk Cost (Problem 2). A system with lower lead-time variance has lower
risk, and simulation quantifies this reduction
• Visualizing the System: Complex logistics changes are hard to explain.
Simulation allows SiS to present a visual, animated model of the new
system, building trust and demonstrating their expertise to the
PowerMotors management team
 We will be using AnyLogic simulation software

Introduction to AnyLogic

Simulation A simple, pre-built logistics model

Software
Concepts like agents, process flow, and
simulation

Expectations for later hands-on sessions