1. Q.1. What do you understand by Logistics? Explain the type and functions of inventory management.
Ans.: Logistics management: Logistics management is the 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 customer's
requirements. A professional working in the field of logistics management is called a logistician.
1. Materials management
2. Channel management
3. Distribution (or physical distribution)
4. Supply-chain management
According to the Council of Logistics Management, logistics includes the integrated planning, control,
realization, and monitoring of all internal and network-wide material, part, and product flow, including the
necessary information flow, industrial and trading companies along the complete value-added chain (and
product life cycle) for the purpose of conforming to customer requirements.
Logistics is the process of planning, implementing, and controlling the effective and efficient flow of goods
and services from the point of origin to the point of consumption.
Academics and practitioners traditionally refer to the terms operations or production management when
referring to physical transformations taking place in a single business location (factory, restaurant or even
bank clerking) and reserve the term logistics for activities related to distribution, that is, moving products on
the territory. Managing a distribution center is seen, therefore, as pertaining to the realm of logistics since,
while in theory the products made by a factory are ready for consumption they still need to be moved along
the distribution network according to some logic, and the distribution center aggregates and processes orders
coming from different areas of the territory. That being said, from a modeling perspective, there are
similarities between operations management and logistics, and companies sometimes use hybrid
professionals, with for ex. "Director of Operations" or "Logistics Officer" working on similar problems.
Furthermore, the term supply chain management originally refers to, among other issues, having a global
vision in of both production and logistics from point of origin to point of production. All these terms may
suffer from semantic change as a side effect of advertising.
Type of logistics: Inbound logistics is one of the primary processes of logistics, concentrating on purchasing
and arranging the inbound movement of materials, parts, and/or finished inventory from suppliers to
manufacturing or assembly plants, warehouses, or retail stores. Outbound logistics is the process related to the
storage and movement of the final product and the related information flows from the end of the production
line to the end user.
Given the services performed by logisticians, the main fields of logistics can be broken down as follows:
UNIT III- Logistics Management: Concept, Types, and Functions of Inventory; Inventory Management
Tools and Techniques; Nature, Concept, Types, Functions and Strategy of Warehousing; Value of
Information in Logistics and Bullwhip Effect; Logistics Information System and Order Processing, Concept,
Evolution and Objectives of Logistics Management; Components and Functions of Logistics Management;
Distribution related Issues and Challenges for Logistics Management; Gaining competitive advantage
through Logistics Management;
2. Procurement logistics
Asset Control Logistics
POS Material Logistics
Inventory and its type: Inventory is defined as a stock or store of goods. These goods are maintained on
hand at or near a business's location so that the firm may meet demand and fulfill its reason for existence. If
the firm is a retail establishment, a customer may look elsewhere to have his or her needs satisfied if the firm
does not have the required item in stock when the customer arrives. If the firm is a manufacturer, it must
maintain some inventory of raw materials and work-in-process in order to keep the factory running. In
addition, it must maintain some supply of finished goods in order to meet demand.
1. Decoupling inventory: You find this predominantly in „Batch‟ where this decouples one process from
the next. The emphasis is on the material waiting for the process so that the process itself is most
2. Cycle inventory: This function relates to the decision to manufacture a quantity of products (like in a
lot/batch size) The mainspring is to reduce set-up costs and avoid the loss of process capacity
3. Capacity-related inventory: The general idea is to stock-pile inventories in the low sales period for
selling in the high sales period (such as producing skates in summer time for the winter period)
4. Pipeline inventory: We are dealing with „pipe-line inventory‟, when a company decides to
subcontract one process to an outside supplier at some time during the total process lead time.
5. Buffer inventory: The basic problem of average demand, by definition, is that it varies around the
average. To master this problem, the company may hold higher levels of inventory. So the general idea
of „buffer inventory‟ is to (help to) protect against unpredictable variations in demand or supply.
The Main Function of Inventory: Inventory is not just about the items a retailer sells. Inventory
management involves taking stock of a business' assets, such as labor, cash and material items used or sold. In
essence, inventory control enables the business to have what it needs, when it needs it in order to do business.
Inventory Control: The goal for a business is to invest the least amount in inventory while maintaining
specific operating requirements. Ideally, the inventory control in place allows the business to supply needs in
regards to production or to the customer at the precise moment needed, at the minimal price. Successful
inventory control keeps waste and surplus at a minimum and efficiently handles storage, production and
distribution of inventory.
Primary Function: The primary function of inventory is to use marketing and production to increase
profitability, to get the maximum amount for the business' investment. There are other functions of
inventory, such as balancing supply and demand, improving efficiency, establishing a safety stock
and geographical specialization. All of those help to increase a business' profitability.
3. Balancing Supply and Demand: Balancing supply and demand involves replacing consumed items,
and liquidating seasonal items. For example, when the supermarket stocks up Halloween items for the
October holiday, it ideally wants to liquidate those items by November. Successfully handling
inventory involves supplying demand at the precise time, for the least amount of money, without a
Safety Stock: When controlling inventory, one function is maintaining safety stock. This involves
having a buffer stock in case of an unexpected delay in replenishing inventory or excess sales. For
example, if a breakfast restaurant only orders enough eggs to get it through an average weekend, yet
experiences an unexpected spike in business, it risks losing sales, angering customers and damaging
its reputation by being unable to serve enough eggs.
Geographical Specialization: Geographical specialization in regards to inventory involves
maximizing the assets of each of the business' locations. Factors to consider include energy costs,
location, labor and transportation. For example, a manufacturing company will want to locate in an
area where it can distribute its product for the least amount of money. If it uses the railroad,
distribution of the inventory near a railroad is wiser than a remote distribution center 100 miles away.
Q.2. Explain in detail the warehousing. Also explain the various challenging issues of logistic
management in distribution.
Ans.: warehousing: Warehouse is a storage structure constructed for the protection of the quality and
quantity of the stored produce. The need for a warehouse arises due to the time gap between production and
consumption of products. Warehousing or storage refers to the holding and preservation of goods until they
are dispatched to the consumers. By bridging this gap, storage creates time utility. There is a need for storing
the goods so as to make them available to buyers as and when required. Storage enables a firm to carry on
production in anticipation of demand in future. A warehouse enables the businessmen to carry on production
throughout the year and sell their products, whenever there is adequate demand. Need for warehouses arise
also because some goods are produced only in a particular season but are demanded throughout the year.
Similarly, certain products are produced throughout the year but demanded only during a particular season.
Types of Warehousing:
1. Private Warehouses: These warehouses are owned and operated by big manufacturers and
merchants to fulfill their own storage needs. Big business firms which need large storage capacity on
a regular basis and who can afford money, construction and maintain their private warehouses. A big
manufacturer or wholesaler may have a network of his own warehouses in different parts of the
country. The private warehouses are licensed to private persons and only the goods imported by or on
behalf of the licensee are stored in such warehouse.
2. Public Warehouses: These warehouses are a specialised business establishment that provides storage
facilities to the general public for a certain charge. It may be owned and operated by an individual or
a cooperative society. It works under a license from the government. They are generally located near
the junctions of railways, highways and waterways. They therefore provide excellent facilities for the
easy receipt, dispatch, loading and unloading of goods. They are very important in the marketing of
agricultural products. A public warehouse is also known as 'duty paid warehouse'. Public warehouses
are very useful to the business community as they can meet their storage needs easily and
economically by making use of the public warehouse, without heavy investment. Such warehouses
4. provide storage facilities to small manufacturers and traders at low costs. They provide facilities for
the inspection of goods by prospective buyers. They also permit packaging and grading of goods. The
public warehouses receipts are good collateral securities for borrowings.
3. Bonded Warehouses: These warehouses are licensed by the Government to accept imported goods
for storage until the payment of customs duty. They are located near the ports. They are either
operated by the Government or work under the control of customs authorities. The warehouse is
required to give an undertaking or 'Bond' that it will not allow the goods to be removed without the
consent of the custom authorities. The goods are held in bond and cannot be withdrawn without
paying the customs duty. Such warehouses are very helpful to importers and exporters. If an importer
is unable to pay customs duty immediately after the arrival of goods he can store the goods in a
bonded warehouse. He can withdraw the goods in installments by paying the customs duty
proportionately. Goods lying in a bonded warehouse can be packaged, graded and branded for the
purpose of sale. Central Warehousing Corporation operates 75 Custom Bonded Warehouses with a
total operated capacity of nearly 0.5 million Mts.
Benefits of Warehousing:
Warehouses enable storage of goods when their supply exceeds demand and by releasing them
when the demand is more than immediate productions. This on one hand ensures a regular supply
of goods in the market and on the other hand it helps to stabilize prices by matching supply with
Warehouses provide for safe custody of goods. Businessmen can thus minimize the risks to goods
from loss, damage, fire, theft etc. Perishable products can be preserved in cold storage. Also, the
goods kept in a warehouse are generally insured.
A warehouse provides facilities for processing, packing, blending, grading etc, of the goods for
the purpose of sale. The prospective buyers can inspect the goods kept in a warehouse.
Warehouses provide a receipt to the owner of goods for the goods kept in the warehouse. The
owner can borrow money against the security of goods by making an endorsement on the
warehouse receipt. By keeping the imported goods in a bonded warehouse, a businessman can
pay customs duty in installments.
Q.3. What do you mean by logistic information system? How companies gain competitive advantage
through logistics management.
Ans.: Logistic Information System: The goal of Information Logistics is to deliver the right product,
consisting of the right information element, in the right format, at the right place at the right time for the right
people at the right price and all of this is customer demand driven. If this goal is to be achieved, knowledge
workers are best equipped with information for the task at hand for improved interaction with its customers
and machines are enabled to respond automatically to meaningful information.
Methods for achieving the goal are:
The analysis of information demand
Intelligent information storage
The optimization of the flow of information
Securing technical and organizational flexibility
Integrated information and billing solutions
5. The supply of a product is part of the discipline Logistics. The purpose of this discipline is described as
Logistics is the teachings of the plans and the effective and efficient run of supply. The contemporary
logistics focuses on the organization, planning, control and implementation of the flow of
goods, money, information and flow of people.
Information Logistics focuses on information. Information (from Latin informare: "shape, shapes, instruct")
means in a general sense everything that adds knowledge and thus reduce ignorance or lack of precision. In
stricter sense information becomes information only to those who can interpreted it. Interpreting information
will provide knowledge.
Converting data to information, portraying it in a manner useful for decision making, and interfacing the
information with decision-assisting methods are considered to be at the heart of an information system.
Logistics information systems are a subset of the firm‟s total information system, and it is directed to the
particular problems of logistics decision making.
There are three distinct elements that make up this system:
1. The input
2. The database and its associated manipulations
3. The output
1. Logistics: The Inputs: The inputs are data items needed for planning and operating
logistics system obtained from sources like customers, company records, and published data
and company personnel.
2. Logistics: The Database and Its Associated Manipulations: Management of the database
involves selection of the data to be stored and retrieved, choice of the methods of analysis and
choice of the basic data-processing procedures.
3. Logistics: The Outputs: The outputs of a logistics information system include:
1. Summary reports of cost or performance statistics,
2. Status reports of inventories or order progress,
3. Exception reports that compare desired performance with actual performance, and
4. Reports that initiate action.
Short type question-
Q.1. Briefly describe Bullwhip effect?
Ans.: The bullwhip effect is an observed phenomenon in forecast-driven distribution channels. It refers to a
trend of larger and larger swings in inventory in response to changes in customer demand, as one looks at
firm‟s further back in the supply chain for a product. The concept first appeared in Jay Forrester's Industrial
Dynamics (1961) and thus it is also known as the Forrester effect. Since the oscillating demand magnification
upstream of a supply chain is reminiscent of a cracking whip, it became known as the bullwhip effect.
Supply chain management is a complex process. There are several issues that can lead to the bullwhip effect
and those issues can be exacerbated by delays in transmitting information, and a lack of coordination up and
down the supply chain. Some causes of the bullwhip effect include:
Consumer demand swings
Natural disasters that disrupt the flow of goods and services
Overcompensation when addressing inventory issues
6. Ordering processes, such as order batching, can also contribute to the bullwhip effect. Organizations may
accumulate larger orders before processing them in an effort to reduce costs and create transportation
economics. They may also wait to place larger orders to benefit from lower prices offered during a promotion.
Demand forecasting manipulation is another cause. By padding the forecast to compensate for possible errors,
the organization loses sight of true customer demand.
Customers can also contribute to the bullwhip effect by engaging in shortage gaming during periods of short
supply by purchasing more than they need. Additionally, customers taking advantage of liberal return policies
can create problems with developing accurate demand forecasts.
Q.2. Write short notes on Order Processing.
Ans.: Order processing: Order processing is the term used to identify the collective tasks associated with
fulfilling an order for goods or services placed by a customer. The processing procedure begins with the
acceptance of the order from the customer, and is not considered complete until the customer has received the
products and determined that order has been delivered accurately and completely. Companies often invest a
great deal of time and effort in designing an efficient strategy for processing orders, thus increasing the
possibility of establishing a long-term working relationship with its customers.
Order processing systems, in one form or another, have been a part of doing business for ages, and have
developed alongside technology to provide powerful means of capturing, tracking and shipping customers'
orders. Advanced order processing systems can span multiple continents to track and facilitate international
orders, shipments and returns for a wide range of product lines and consumer segments.
Significance of order processing: Customer satisfaction is key to long-term success in business, and
fulfilling customer orders reliably and accurately is key to customer satisfaction. Order processing systems
help ensure that all of your customers' orders are filled on time, since automated systems can reduce errors in
order processing. This can enhance the customer experience and maximize your company's profitability.
Advantages: Having a solid order processing system in place creates a win-win situation for businesses and
their customers. Customers experience more reliable deliveries and accurate order fulfillment. Businesses can
maximize their profitability by not misplacing or misreading orders, not to mention the long-term revenue
boost that comes from consistently satisfying customers.
Order processing is a sequential process involving:
Picking: consists in taking and collecting articles in a specified quantity before shipment to satisfy
Sorting: process that separates items according to destination.
Pre-consolidation or package formation: includes weighting, labeling and packing.
Consolidation: gathering packages into loading units for transportation, control and bill of lading.
Q.3. Define Inventory Management Techniques.
Ans.: Inventory Control Techniques: There are several techniques a person can use to increase profitability
and streamline workflow via proper inventory control. Through research, competitive analysis and
experience, an effective business leader can balance costs versus benefits to storing and ordering the
necessary supplies to ensure business vitality. The supply chain is made of all materials that help you to
produce market and supply your product. Inventory control means that you have identified every facet of your
supply chain and its logistics:
Inventory management is the act of directing the affairs of a business, with a complete listing of
merchandise or stock on hand, raw materials, finished goods, etc., made each year by a business
Keeping the inventory also means keeping a tab on the realizable value, market value, and the book
value of all the stocks, stock in production, and finished stock.
7. Often inventory control methods are mistaken with inventory management methods, due to the almost
synonymous meaning of the terms. Nevertheless, the two terms are different.
Inventory control methods are practical models that help the organization to curb overconsumption of
a particular item of the inventory. It also involves the measurement of time element that is required to
consume a given volume of raw materials.
Inventory management methods are nothing but supervising and controlling the order, keeping a track
of existing inventory, and forecasting the quantity of products to purchase. It costs money to store
high amount of inventory that could get expired, spoiled, or obsolete.
The inventory management formulas are basically used for the following purposes:
Allotment of resources at the right time
Minimization of reorder time and cost
Maintaining a constant and equivalent inflow and outflow of raw materials
The end result is that the combination of inventory management models and inventory control
techniques help in a smooth inflow of raw materials at a relatively cheap cost and at a perfect timing.
Modern techniques to manage inventory are basically formulas and models that are established by
firms on the basis of the need of the raw material and availability of the raw material.
4. FIFO: If you deal in perishable items, FIFO (first in, first out) is an important concept to
understand and maintain throughout the supply chain. If a grocery store did not rotate their
stock, new stock coming in would get taken immediately and older stock would expire,
causing great loss. Stock must be arranged by date received.
5. Cutting Edge Control: For a great deal of stock that needs constant management, consider
bar codes or RFID (radio frequency identification) where hand-held readers can immediately
tell you where valuable merchandise is. Many IT inventory programs on the market provide a
wealth of features including tie-ins to USPS, Fed-Ex and/or UPS to track merchandise and
provide real-time logistics.
6. Costs versus Convenience: A business owner must balance space available for extra stock
versus speed of product turnover, fees for storage, cost in bulk versus regular ordering, and
whether clients/end users would be willing to wait.
7. Stock Levels: Defining your minimum stock level will allow you to set up regular
inspections and re-ordering of supplies. Take into account emergencies and vendors taking
longer than average to replenish stock. This will aid you in arriving at JIT (just in time)
ordering, where stock is held for a minimum amount of time before moving on to the next
stage in the supply chain.
8. Your Security: Stock security is a necessary cost. Many experts recommend separating staff
that is responsible for stock management from staff that has financial responsibility. Many
times, shoplifting and thievery is committed by employees rather than a stranger. Security
guards, cameras, bar codes and security devices are used by most businesses since the cost of
security is minimal compared to the millions of dollars that U.S. businesses lose each year to
stolen goods. Training staff in identifying potential security issues and having a clear method
of reporting violations is important in reducing crime. Often, shoplifters and thieves use
standard techniques to distract employees and take stock.
9. Stock on Hand: Having a great deal of stock on hand has both positive and negative
consequences. Having an immediate supply means that end users get their product that much
sooner. Speed and immediate gratification for a client can make the difference not only in a
sale, but recommendations, repeat business and client loyalty. In the modern business
8. environment where every business is a global business, an emergency or unforeseen
circumstance anywhere in the world can render competition without resources you have on
hand. Of course, one must take into account using capital in bulk buys, management and
insurance costs as well as goods perishing or becoming obsolete.
Q.4. What functions of warehousing?
Ans.: Function of warehousing: A distribution center for a set of products is a warehouse or other
specialized building, often with refrigeration or air conditioning, which is stocked with products (goods) to be
re-distributed to retailers, to wholesalers or directly to consumers. A distribution center is a principal part, the
“order processing” element, of the entire “order fulfillment” process.
Distribution centers are the foundation of a “supply network” as they allow a single location to stock a vast
number of products. Some organizations operate both retail distribution and direct-to-consumer out of a single
facility, sharing space, equipment, labor resources and inventory as applicable. The way a typical retail
distribution network operates is to have centers set up throughout a commercial market. Each center will then
serve a number of stores. Large distribution centers for companies such as Wal-Mart serve 50-125 stores.
Suppliers will ship truckloads of products to the distribution center. The distribution center will then store the
product until needed by the retail location and ship the proper quantity.
Basic functions of a warehouse are movement of goods storage of goods, and information management.
1. Storage of Goods: One of the traditional requirements of a warehouse has been for storing goods.
The warehouse provides the space required for such storage and it is one of the important functions of
Planned Storage: Storage required as planned to meet the regular customer demand is called
panned storage, Every inventory in received in the warehouse requires storage for a certain
period of time. The duration of storage many vary.
Extended Storage: Extended storage is an inventory in excess of normal warehouse
operation. Some of the reasons for extended storage requirements are seasonality in demand,
erratic demand, product conditioning, speculative purchases, discounts, etc.
A. To meet the erratic or seasonality in demand an additional storage of goods in terms of safety stocks
could be required.
B. Some products such as food items may be stored for conditioning purposes. E.g. ripening of fruits.
C. Sometimes a firm may buy bulk quantities to avail of the discounts that are available or to purchase
when the price is low. This is speculative purchases as the goods are bought at a higher quantity due
to lower price or due to expectation of higher price in the future.
D. Sometimes due to promotional campaigns such as sales promotion, additional stock may be required
to be kept to meet the expected higher demand for the product.
2. Movement of Goods: Movement of goods consist of inbound activity (unloading of goods brought
to warehouse), transfer to storage (transferring the goods from the inbound area to the storage area),
order selecting (selecting the good in the storage as per order to be shipped and transferring it to
shipment area) and outbound activity (checking and loading the gods for shipment).
3. Information Management: Keeping a track of information regarding goods that have come into the
warehouse, stored and that are shipped out of the warehouse. Also any other information pertaining to
the warehouse is stored. The data captured by the information system in the warehouse is then passed
on to the higher management in order to take better decisions.
9. 4. Protection of goods- A warehouse provides protection to goods from loss or damage due to heat,
dust, wind and moisture, etc. It makes special arrangements for different products according to their
nature. It cuts down losses due to spoilage and wastage during storage.
5. Risk bearing – Warehouses take over the risks incidental to storage of goods. Once goods are handed
over to the warehouse-keeper for storage, the responsibility of, these goods passes on to the
warehouse-keeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse
keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible
for any loss, theft or damage etc., thus, it takes all precautions to prevent any mishap.
6. Financing- When goods are deposited in any Warehouse, the depositor gets a receipt, which acts as a
proof about the deposit of goods. The Warehouses can also issue a document in favour of the owner
of the goods, which is called warehouse-keeper‟s warrant. This warrant is a document of title and can
be transferred by simple endorsement and delivery. So while the goods are in custody of the
warehouse-keeper, the businessmen can obtain loans from banks and other financial institutions
keeping this warrant as security. In some cases, warehouses also give advances of money to the
depositors for a short period keeping their goods as security.
7. Processing – Certain Commodities are not consumed in the form they are produced. Processing is
required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are
ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners.
8. Grading and branding- On request warehouses also perform the functions of grading and branding
of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities
for mixing, blending and packaging of goods for the convenience of handling and sale.