Month: August 2020

University of Mumbai BMS Notes

Selection of Logistics Service Provider

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Selecting the right logistics service provider can be a tough experience for companies. Don’t shortcut the process though, because the reputation and success of your company may soon depend on your logistics provider’s reliability.

Avoid a potential logistics nightmare by using these 5 elements in selecting your perfect logistics provider (such as a third-party logistics company, or “3PL”).

1. Capabilities

A prospective logistics provider must be competent in the specific service areas that meet your company’s needs. Just because a provider is a rock star in one area, it’s not a forgone conclusion that they can service your firm properly.

Also, they should have a set of abilities that can satisfy your both your short-term and future requirements. For instance, EDI-capability may not be a requirement for you today, but what if it does become required for you in 12-24 months? Do you really want to unwind all the onboarding and integration work invested in a new relationship? Dig a little deeper and ask:

  • Are truckload lanes repetitive, originating from a limited number of shipping points and terminating to a relatively limited number of consignees?
  • Are shipments time-sensitive and/or do they require drop trailers? A mid-sized, asset-based carrier would meet these needs without getting sidetracked by their exceedingly large list of clients.
  • Are truckload lanes sporadic? Is there live loading/unloading or do shipments come from a high number of origins that terminate to a high number of receivers? If so, a 3PL provider or broker might be a better fit.
  • Do you require access to dedicated trucking assets and 3PL? A logistics provider that possesses both assets and a 3PL division may be able to offer optimal solutions.

If a provider claims to possess all the capabilities “under the sun” but your organization requires only a few core services… be wary of a company that is a “jack of all trades” and master of none.

2. Customer Service

Does the logistics provider prioritize customer service, responsiveness, fluid lines of communication and effective problem solving? These elements can be difficult to ascertain early on but do your homework.

Virtually all companies claim to have excellent customer service, but how do you know? You ask their customers. Ask for references, preferably from companies in similar industries and needs. Good customer service is no accident. If the customer service is consistently excellent, it’s likely a result of a well-documented and repeated process that will continue over the years.

Another yield of good process execution is safety. It is uncommon for a logistics provider to achieve excellent results in customer service and poor results in safety or vice versa. It can be deduced that a safe logistics provider, probably provides good customer service.

3. Safety Record

Due to the ever-changing landscape of safety regulations, it is imperative that you select a carrier with a strong safety record. A review of safety ratings and statistics is available to the public here. Also, see how we value safety.

4. Company Stability

Whether your supply chain is simple or complex, select a logistics provider with overall company stability. Top suppliers are consistent suppliers. Quality can be jeopardized as companies experience rapid change. How long has the company been around?

Furthermore, if one high-liability event occurs and your provider cannot withstand the fallout, the liability often shifts, in effect, to you the shipper. This concern can be eased if the provider’s “word”, name and reputation has remained intact through decades of market turbulence and economic uncertainty.

5. Company Reputation

In a new business arrangement, you can rest assured that at some point the relationship will be tested. Often it as at this juncture, that the character of the service provider’s leadership will be revealed.

Before it is too late, investigate whether the provider is likely to respond with integrity and honor. Time will reveal whether the firm has a good, bad or ugly reputation with customers, suppliers, and employees.

  • How do they treat their suppliers and employees?
  • Are they an active and positive force within their community?
  • What type of reviews do they have online?
  • What are the consistent themes that appear again and again in their marketing material?
  • How long have they been in business?

The answers will go a long way to determining how the provider will be as a supplier and partner.

Bonus: Double-check all elements if a supplier’s price is significantly lower than the market.

  • What good is a cheap price if a provider doesn’t deliver consistently or provide an adequate response in the event of mishap?
  • What good is a cheap price if service failures cause you to lose revenue?
  • What good is a cheap price if your team spends countless hours resolving claims and problems?

Think about the total cost associated with selecting a long-term solution provider. The provider that offers you the overall lowest cost of working together is the partner you want around for years to come.

Management Notes

Third Party Logistics (3PL) Provider, Working, Growth, Benefits, Challenges

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Third Party Logistics (3PL) refers to the outsourcing of logistics and supply chain management functions to external service providers. These providers specialize in handling activities such as transportation, warehousing, inventory management, order fulfillment, and distribution. By leveraging the expertise, infrastructure, and technology of 3PL companies, businesses can focus on their core operations while improving supply chain efficiency and reducing operational costs. 3PL providers offer flexibility, scalability, and access to global networks, making them essential for businesses seeking competitive advantages in dynamic markets. The partnership helps enhance customer service, optimize resource utilization, and streamline logistics operations across various industries.

How Third-Party Logistics Work?

  • Receiving and Warehousing

3PL providers begin by receiving products from manufacturers or suppliers. These goods are inspected, sorted, and stored in strategically located warehouses. The 3PL uses warehouse management systems (WMS) to organize inventory efficiently, ensuring quick access and accurate tracking. This setup allows businesses to avoid investing in their own storage facilities. Real-time data on stock levels, shelf life, and demand patterns help optimize inventory control. Proper warehousing by 3PL ensures safe handling, space utilization, and readiness for quick dispatch, thereby improving order cycle time and minimizing holding costs for businesses.

  • Order Fulfillment

Once an order is placed by a customer, the 3PL picks, packs, and prepares the items for shipment. Automated systems and skilled personnel ensure accuracy and speed in the order fulfillment process. The packaging is often customized to meet brand or product requirements. This step is critical as it directly impacts customer satisfaction and return rates. Advanced 3PLs integrate with e-commerce platforms and ERP systems to receive orders in real-time, process them efficiently, and send shipping confirmations. Fulfillment operations by 3PLs allow businesses to scale during high-demand periods without additional labor or infrastructure.

  • Transportation Management

3PL providers arrange and manage the transportation of goods from warehouses to the end customers or retailers. They work with various carriers to choose the most cost-effective and timely delivery methods, whether by road, air, sea, or rail. With GPS tracking, route optimization tools, and delivery performance data, they ensure prompt and safe delivery. Their bulk contracts with transport companies often result in lower shipping costs for clients. Transportation management also includes handling documentation, customs clearance (for international shipments), and returns. This service ensures efficient logistics movement while reducing the administrative burden on the business.

  • Inventory Management

3PL companies offer real-time inventory tracking using advanced software systems. Businesses can monitor stock levels, replenishment needs, product movement, and storage conditions from remote dashboards. This service helps avoid stockouts or overstocking, ensuring optimal inventory levels. By analyzing sales trends and demand patterns, 3PLs assist in forecasting and planning. They can also perform cycle counts and audits to maintain inventory accuracy. Effective inventory management by a 3PL reduces carrying costs, improves order accuracy, and increases operational visibility, enabling businesses to make data-driven decisions without physically managing the inventory themselves.

  • Returns Management (Reverse Logistics)

3PL providers handle reverse logistics by managing returns from customers. This includes receiving returned items, inspecting them for damages, restocking if suitable, or disposing/recycling as per policy. They streamline the return process to ensure customer satisfaction while minimizing costs and product loss. Returns data is analyzed to identify trends or product defects. Efficient handling of returns builds brand trust, enhances sustainability, and improves product quality. By outsourcing returns management to 3PLs, businesses save time and resources while ensuring professional handling of complex return logistics.

Growth of 3PLs in India:

  • Economic Liberalization and Globalization

The liberalization of the Indian economy in the 1990s opened doors for global trade, prompting businesses to optimize their supply chains. As companies focused on core competencies, they increasingly outsourced logistics to 3PL providers. This shift allowed them to access professional logistics services, reduce costs, and improve delivery timelines. Globalization brought higher demand for efficient, scalable, and technology-driven logistics solutions, fostering rapid growth in the Indian 3PL sector. The entry of multinational firms also encouraged Indian businesses to match global logistics standards through 3PL partnerships.

  • E-Commerce Boom

India’s e-commerce explosion has been a major catalyst for 3PL growth. With millions of customers across urban and rural areas, e-commerce firms rely heavily on 3PLs for warehousing, packaging, and last-mile delivery. 3PL companies have expanded rapidly to meet the rising demand for speed, scalability, and reliability in online order fulfillment. The increasing consumer expectations for fast delivery, easy returns, and real-time tracking have pushed e-commerce companies to partner with tech-enabled 3PLs. This has led to the emergence of specialized logistics firms catering exclusively to online retail needs.

  • Infrastructure Development

Significant investment in India’s transport and logistics infrastructure has propelled the 3PL sector. The development of expressways, dedicated freight corridors, modern ports, and logistics parks has enhanced connectivity and reduced transit times. These improvements have enabled 3PL providers to offer faster, more cost-efficient services across regions. Government initiatives like Bharatmala, Sagarmala, and the PM Gati Shakti plan have further boosted logistics capabilities. Better infrastructure allows 3PLs to expand their reach, optimize routes, and serve both urban and remote areas effectively, strengthening their role in India’s growing supply chain network.

  • Digital Transformation and Tech Integration

The adoption of digital tools and advanced technologies like GPS tracking, warehouse management systems, IoT, and AI has transformed the 3PL industry in India. These innovations enable better inventory visibility, route optimization, and real-time tracking, which are now standard expectations among clients. 3PL firms are increasingly offering tech-integrated solutions to improve speed, accuracy, and customer experience. As businesses demand more agile and transparent logistics systems, 3PLs with digital capabilities are growing rapidly. The tech-driven transformation has made Indian 3PLs more competitive and aligned with global supply chain trends.

Benefits of 3PL:

  • Cost Reduction

3PL providers help businesses reduce logistics costs through economies of scale, network optimization, and efficient resource use. Since 3PLs manage multiple clients, they negotiate better freight rates, utilize warehousing space efficiently, and streamline transportation. Businesses save on infrastructure, labor, technology, and maintenance costs by outsourcing. This allows companies to convert fixed costs into variable costs and pay only for the services used. Moreover, 3PLs reduce costs linked to delays, penalties, and inefficiencies, improving overall profitability. These savings can be reinvested in core business areas, enhancing competitiveness and operational focus.

  • Expertise and Specialization

3PL companies bring specialized knowledge, experience, and industry best practices to logistics management. Their expertise in areas such as customs clearance, freight forwarding, inventory control, and last-mile delivery helps businesses overcome operational challenges more effectively. With a focus solely on logistics, 3PL providers stay updated with market trends, regulations, and technologies. They can optimize supply chain performance through data analytics, automation, and performance tracking. Businesses benefit from this specialized skill set without needing to build internal logistics capabilities, enabling smoother operations and better service levels across all supply chain functions.

  • Scalability and Flexibility

Third-party logistics providers offer scalable services that adjust to fluctuating business demands. Whether it’s peak season surges, market expansion, or economic slowdowns, 3PLs can quickly adapt resources such as workforce, warehousing space, and transportation capacity. This flexibility allows businesses to grow without the need to invest in fixed assets. It’s particularly useful for companies expanding into new regions or launching new products. By leveraging 3PL capabilities, businesses can enter new markets faster and handle variable volumes efficiently, ensuring continuity in service and operations without overcommitting capital or infrastructure.

  • Focus on Core Competencies

By outsourcing logistics operations to a 3PL provider, businesses can concentrate on their core competencies such as product development, marketing, and customer service. This shift in focus allows internal teams to improve innovation, quality, and responsiveness without being burdened by supply chain complexities. Logistics planning, execution, and monitoring are handled by experts, freeing up time and resources. As a result, companies become more agile and competitive in their primary market segments. Strategic focus helps improve decision-making and long-term business growth, while 3PLs ensure logistics efficiency in the background.

  • Enhanced Customer Service

Third-party logistics providers contribute significantly to improving customer satisfaction. With their wide distribution networks, real-time tracking systems, and efficient delivery processes, 3PLs ensure faster, more accurate, and reliable deliveries. They also manage returns effectively, enhancing the overall customer experience. The ability to meet service-level expectations, reduce lead times, and resolve delivery issues promptly helps build trust and loyalty among customers. Additionally, 3PLs often offer customer support services, further improving communication and problem-solving. Enhanced service capabilities ultimately lead to stronger brand reputation and repeat business, which are vital for sustained growth.

Challenges of 3PL:

  • Loss of Control

When companies outsource logistics operations to 3PL providers, they often lose direct control over day-to-day functions such as warehousing, transportation, and customer service. This can create challenges in maintaining consistent service levels, brand experience, and responsiveness to issues. Since operations are handled externally, businesses may face communication delays or limited visibility into real-time activities. Any failure on the part of the 3PL can negatively affect customer satisfaction and business reputation. Establishing proper service level agreements (SLAs) and performance monitoring mechanisms is crucial to maintaining expected standards.

  • Integration and Compatibility Issues

Integrating a 3PL provider’s systems with the client’s existing IT infrastructure can be complex and time-consuming. Incompatibility between technologies—such as warehouse management systems (WMS), transportation management systems (TMS), or enterprise resource planning (ERP)—can lead to data errors, delays, or duplication of efforts. Real-time tracking, inventory updates, and order processing may suffer without seamless integration. Companies must invest in compatible systems, APIs, or middleware to ensure smooth data exchange. Poor integration undermines the potential benefits of 3PL collaboration, reducing efficiency and transparency in operations.

  • Hidden or Unpredictable Costs

Although outsourcing to a 3PL is intended to reduce costs, unforeseen expenses can arise due to contract ambiguities, extra services, or penalties. Charges for storage overruns, expedited shipments, fuel surcharges, and specialized handling may not be clearly outlined in the contract. If businesses are not diligent in contract negotiation and monitoring, total logistics costs can exceed initial estimates. Additionally, renegotiating terms or changing providers mid-term can be costly. It’s essential for companies to conduct thorough cost-benefit analysis and regularly audit 3PL invoices to manage their budget effectively.

  • Dependency on 3PL Performance

Relying heavily on a third-party provider means that the business’s supply chain success is tied directly to the 3PL’s efficiency. Any delays, workforce issues, strikes, capacity constraints, or technical failures on the part of the 3PL can impact service delivery and customer satisfaction. This dependency can be risky, especially if the 3PL has multiple clients or if it’s not aligned with the business’s growth plans. To mitigate risk, companies should establish contingency plans, conduct performance reviews, and maintain strong communication channels with the logistics partner.

  • Security and Confidentiality Concerns

Sharing critical business data—such as pricing, product details, customer information, and shipment schedules—with a 3PL may raise concerns regarding data security and confidentiality. There’s always a risk that sensitive information could be mishandled or leaked, especially if the 3PL lacks robust cybersecurity measures. Additionally, storing goods in offsite warehouses or during transit increases vulnerability to theft, damage, or loss. Businesses must choose 3PLs that follow strict data protection policies, comply with legal regulations, and maintain secure operations to safeguard both digital and physical assets.

  • Limited Customization and Flexibility

3PLs typically offer standardized solutions that may not align perfectly with the unique needs of every client. Businesses with niche products, specialized handling requirements, or irregular demand patterns may find it difficult to obtain tailored services from 3PL providers. Over time, as business models evolve, companies may struggle to adapt logistics strategies if the 3PL lacks flexibility. Customizing solutions often comes at an extra cost or may not be feasible due to the provider’s operational structure. Choosing a partner that can scale and adapt with changing needs is vital.

University of Mumbai BMS Notes

Types of Logistical Information System

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Supply Management and Logistics

Supply management involves the planning and coordination of materials that are needed in a certain location at a specific time to support production or activity (as in the case with military supply). Supply logistics must include transportation of the materials and storage as well as a means for evaluating the level of supply at different stages of the process to make sure the flow of materials matches need. This can involve getting all of the construction materials to a construction site or parts that are needed in a manufacturing plant.

Distribution and Material Movement

Distribution involves managing how a supplied and stored material is then dispersed to the locations it is needed. This involves issues of material movement (loading, unloading and transportation), tracking of stock and accountability of use (recording how the supply is used and by whom). This can involve moving supplies from a central warehouse to the shelves of a retail store.

Production Logistics and Management

Production logistics manages the stages of combining distributed supplies into a product. This can involve the coordination required in a manufacturing or assembling process and in the case of applications such as military production, the logistics of coordinating space and areas for production to occur. In construction as well, production logistics will include the staging of material at the right time to coordinate with the phase of building taking place.

Reverse Logistics and Product Return

Reverse logistics involves the reclamation of material and supplies from a production or assembly process. For instance, in the logistics management of a construction project, reverse logistics plans for the removal of excess material and re-absorption of the material into a stock supply.

In military applications, it is commonly used for exit strategy planning and coordinating the transfer of material and equipment back to a storage base from an area where military exercises were performed.

It can also apply to the return of unwanted but unused products from an end customer seeking a refund. There is a whole industry that has been created in recent years to handle customer returns, including testing, refurbishment and adding items back into inventory. A customer might order something online like a printer or children’s toy that they never used. Before it can be resold, it should go through a process to ensure that it will be suitable to be sold to another customer.

Logistics information systems provide information on goods and follow their delivery path, with their progress and status, and the influence of changes on the purchasing, production, warehousing, financial and accounting systems. Logistic systems depend on external information and international standards to comply with regulations, and to use standardized ways of exchanging logistic information with other systems and with authorities.

An important difference between these systems is whether the emphasis is on the content of the goods or on the transport equipment or transport means used. Manufacturers and traders want to monitor the actual products and articles to know whether they will arrive on time and in proper condition at the delivery places, and to be able to take prompt action when incidents happen. Transporters are focussed on the progress and status of the transport means and the transport equipment in them. If incidents or delays happen, transporters can report these to their clients but the impact on delivering or restocking can only be understood by the traders and manufacturers. For commercial reasons, the transporter may not actually know the details of the goods.

Authorities, especially Customs and authorities responsible for security in transport, have an interest in the content of goods, as well as the transport means and equipment used to transport them.

Information Logistics (IL) deals with the flow of information between human and / or machine actors within or between any number of organizations that in turn form a value creating network (see, e.g.). IL is closely related to information management, information operations and information technology.

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

The expression was formed by the Indian mathematician and librarian S. R. Ranganathan.

The supply of a product is part of the discipline Logistics. The purpose of this discipline is described as follows:

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 focusses 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 interpret it. Interpreting information will provide knowledge.

University of Mumbai BMS Notes

Logistical Network Analysis Meaning, Objectives, Importance

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Strategic analysis of logistical networks is designed to reduce costs, increase client service levels, and maximize profits. To achieve these goals, strategic decision making must be balanced between procurement, production, inventory management, and transportation.

Objectives of Logistical network analysis

Logistical network analysis is fundamentally aimed at determining the number of production sites, warehouses, and depots. It is also used to develop scenarios for assigning not only a capacity to each of these sites, but also an optimal geographic location in view of specific network constraints.

From both a local and global perspective, logistical network analysis is aimed at determining supply sources, production volumes, and inventory levels for each site being studied. As this pertains to transportation, logistical network analysis is used to weigh the merits of various transportation modes.  It is also used to develop a transportation plan with a view to determining the most suitable modes for each segment of the network.

Logistical network analysis: Proposed methodology

Given the need to jointly optimize various logistical aspects, such as production levels, inventory levels, and supply sources, adopting a systemic methodology is essential to the success of such a project.

Collect data

It is very important that data be collected concerning the current network (site location, node typologies), products (nomenclature, weight and volume), constraints (client demand, production capacity, delivery lead times, service levels, etc.), network costs (facilities, storage, production, transportation, etc.), and the transportation modes utilized.

Determine distribution strategy

The distribution strategy is used to determine the service level sought by the organization in response to demand in various markets. This strategy also stands at the forefront of considerations concerning the desired network transportation structure.

Determine scenarios

Determining scenarios forms the central pillar of strategic analysis. By varying site locations, network structures, client demand levels, and service levels, an array of scenarios can be developed to model a large number of situations with a reasonable likelihood of occurring. For example, you can determine the impacts of soaring client demand on network costs, significantly increasing service levels in certain regions or delocalizing your production activities.

Evaluate scenarios and select one

Once various scenarios have been established, they should be evaluated. To this end, you should develop an evaluation scale, including parameters to be considered and appropriate weighting factors. Once the criteria have been established and the scenarios have been evaluated, you can decide which scenario is most suitable this will be the future logistical network.

Implement scenario

Implementing the scenario requires meticulous planning, not only in structural terms, but also in terms of change management and training, two intangibles that remain a key component of project success.

Evaluate performance

After the scenario has been implemented, performance evaluation is used to provide the feedback required for project analysis. Evaluating financial factors (effective cost of the new network) or client service factors (delivery lead times, inventory outs, etc.) facilitates competitive benchmarking and ensures continuous improvements in our logistical network.

The source of a competitive advantage

From a perspective of globalized supply chain management, logistical network analysis thanks to the role it plays in reducing costs and improving client service is likely to be a major source of competitive advantages.

  1. Network design is prime responsibility of logistical management since a firm’s facilities and structure is used to provide products and materials to the customers.
  2. Logistics facilities typically include manufacturing plants, warehouses, cross-dock operations, and retail stores.
  3. Determining how many of each type of facility are needed, their geographic locations, and the work to be performed at each is an important part of network design.
  4. In certain situations, some of the facility operations may be outsourced to service specialists. Regardless of who does the actual work, all facilities must be managed as an integral part of a firm’s logistical network.
  5. Network design, not only determines the number and location of all types of facilities required to perform logistics work but also determines what inventory and how much to stock at each facility and where to assign customer orders for shipment.
  6. The network of facilities including information and transportation forms a structure from which logistical operations such as processing of customer orders, maintaining inventory and material handling performed.

The design of network must consider geographical variations. In context of global logistics, issues relating to network design become increasingly more complex.

The factors influencing modification of network design are:

  • Change in demand and supply
  • Product assortment
  • Changes in Supplier’s supplies
  • Manufacturing requirements.
University of Mumbai BMS Notes

Characteristics of Ideal Measurement System in Supply Chain

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Performance management is a continuous comprehensive process of communication and evaluation between a manager and an employee. A performance management system aims to fulfill the strategic objectives of the organization. Performance management focuses on employee engagement, development and performance evaluation. Every performance management system helps to improve the effectiveness of talent management in an organization by monitoring and improving the performance of the employees, by engaging them with continuous feedback, appreciation and rewards program. The performance management includes ensuring organizational buy-in of the employees, creating an open feedback culture and providing development opportunities to the employees.

Goal-setting and management:

Goals management is an integral part of an effective performance management system. Goals are important because they challenge the employees and motivate them to perform better. Setting goals would mean providing direction, priority and time frame for an employee to achieve the objectives. Based on the business models, goals are set by the employees and approved by the managers or set by the managers. However, the key factor is goals must be aligned with the organization’s objectives. In general, organization set goals that are challenging yet attainable. Clearly defined goals make employees understand what is expected of them and proceed with clarity.

Performance Appraisals:

Performance appraisals are the heart of the employee performance management system. Feedback questionnaires are created for employees based on their goals and competencies. Self-feedback, manager feedback and ratings are sought during the appraisal cycle. Performance manager software automates the appraisal cycle. The automated reminders and notifications in the software help reduce the manual follow-up efforts of HR to make the employees and managers to complete the feedback process. It also helps to drastically reduce the appraisal duration.

One-on-one appraisal meeting summary is captured in the system and final ratings and recommendations are published for the employees. These ratings are then used to decide compensation revisions. From creating appraisal feedback forms and workflows to appraisal letter distribution the software helps to automate the entire performance appraisal process.

360 Degree Reviews:

An ideal performance management system does not only stimulate feedback from the manager but considers an overarching perspective of everyone who is involved in the business. This could be the employee, or his colleagues and external stakeholders. So how do we bring in a system where everyone is involved in the feedback process?

One way of doing this is by creating a survey or a rating mechanism where the employee can do a self-evaluation, the colleagues can rate him, then the managers, customers, vendors, and HR can give their feedback. This gives an overall perspective on the employee’s performance. You can even make this creative by adding emoticons in the rating section.

With a 360-degree review mechanism, there is an upward feature through which employees can give anonymous feedback to their managers. The managers will then be able to know how capable they are in terms of their leadership skills and team management. Through this, employees can identify the perception gaps between the managers and the employees.

Employee engagement Employee engagement is the hallmark of a successful performance management system. Employee engagement is the process of creating the best work conditions for an employee to keep him motivated. When employees are engaged, they give their best performance every day.

In a performance management system, engaging an employee would mean, having a system where employees are reviewed on an overall basis, they are recognized for good performance, rewarded for their achievements and are appreciated for their talent. Something as simple as, “You did well today” can go a long way.

One way of doing this is to have a software that creates employee engagement surveys. The survey can have various questions that measure employee engagement either qualitatively or quantitatively. An example of a qualitative survey question could be, “How well are you being able to contribute to the goals of the organization?” a quantitative question, on the other hand, would either use a rating scale or yes or no questions.

Continuous Feedback Mechanism:

From the beginning, we have been emphasizing one thing that is very significant for a successful performance management system. It is a feedback mechanism that is continuous. When you have a continuous feedback mechanism in your performance management system, all the other processes will become easier. In one way, you could say that the continuous feedback mechanism is a backbone to any performance management system.

When you have a continuous feedback mechanism in your performance management system, you could have something like a wall or a portal that could serve as a platform for employees and managers to post their comments and feedback for employee performance. In a way, this digital wall could become an employee performance evaluation tool.

In a performance management system, continuous feedback promotes healthy collaboration between all the employees and the managers. The feedback that is provided is accurate and timely. This process is a lot more convenient than those excel sheets that you send every year. You can even have a facility in which you can send confidential comments to the employees by having a mobile app.

Performance Analytics:

In order to do effective performance management, it is important that your performance management system has a thorough record of all the performance reports of the employees. It is important that your PMS has proper records of all the employees’ profile reports and career history so that the managers can come up with strategies for employee’s talent management.

Management Notes

Dimensions of Performance Measurement in Supply Chain

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This system suggests that any supply chain can be measured on three key dimensions.

A) Service

B) Assets

C) Speed

Service relates to the ability to anticipate, capture and fulfill customer demand with personalized products and on-time delivery; Assets involve anything with commercial value, primarily inventory and cash; and Speed includes metrics which are time related, they track responsiveness and velocity of execution.

Every supply chain should have at least one performance measure on each of these three critical dimensions.

A) Service Metrics

The basic premise for service metrics is to measure how well the company is serving (or not serving) its customers. Generally it is difficult to quantify the cost of stock outs or late deliveries, so the targets are set on customer service metrics. Also, the build-to stock situation differs from the build-to-order situation, so related but different metrics are used in these environments. Table 13.3 contains some common service metrics used in these two environments. These are time-tested measures, which continue to be valuable customer service metrics for supply chains.

The Line Item Fill Rate is the percentage of individual “lines” on all customer orders, which are filled immediately, while the Order Fill Rate counts as a success only those customer orders in which all “lines” have been filled.

“Aging” refers to maintaining data on how long it takes to fill a backorder, or how long it takes to complete an order, which is late. Tracking this data and maintaining it in an accessible database enables its periodic recall.

Build to Stock (BTS) Build to Order (BTO)
Line item fill Rate Quoted customer Response Time
Complete order fill Rate On-time Completion
Delivery process on Time Delivery process on Time
Backordered/Lost Sales Late orders
No of Order No. of Late Orders

In the IT and especially Internet era, extensions of the customer order response time include the on-line service response time of a website as well as the response time required to complete delivery of the product or service.

B) Assets Metrics

The major asset involved in supply chains is inventory throughout the chain. Two metrics generally used for inventory are:

1) Monetary Value ($, Yen, Euro, et cetera)

2) Time Supply or Inventory Turns

Inventory can be measured as a time supply, for example a 3-week supply of inventory, or as inventory turns, defined as

Turns = (Cost of goods sold)/(Inventory Value)

The Time Supply or Turns measures relate to inventory flows; the Value of inventory relates to inventory as an asset on the firm’s Balance Sheet. Inventory Turns are calculated in isolation, by accountants with access to financial and inventory data but without corresponding access to customer service data.

C) Speed Metrics

There are a series of metrics related to timeliness, speed, responsiveness and flexibility

  • Cycle (flow) Time at a Node
  • Supply Chain Cycle Time
  • Cash Conversion Cycle
  • “Upside” Flexibility

Cycle Time Reduction- i.e. lowering lead-time and WIP inventory levels.

The Supply Chain Cycle Time – measures the total time it would take to fulfill a new order if all upstream and in-house inventory levels were zero. It is measured by adding up the longest (bottleneck) lead times at each stage in the supply chain.

The Cash Conversion Cycle (or Cash to Cash cycle time) attempts to measure the time elapsed between paying the suppliers for material and getting paid by the customers. It is estimated as follows, with all quantities measured in days of supply:

Cash Conversion Cycle = Inventory + Accounts Receivable – Accounts Payable

Upside flexibility refers to requirements in high-tech industry that a vendor be prepared to provide say 25% additional material above and beyond the committed order, in order for the buyer to be protected when the buyer’s demand is higher than forecasted.

Dimension based measurement system tries to cover the different dimension of the supply chain and also provide the detailed measure for each dimension. The system has limitation to provide the strategic alignment of different dimension and to measure the effect of different tradeoff between the dimensions.

Interface Based Measurement System

This framework aligns performance at each link (supplier customer pair) within the supply chain. The framework begins with the linkages at the focal company and moves outward a link at a time. The link-by-link approach provides a means for aligning performance from point-of-origin to point-of-consumption with the overall objective of maximizing shareholder value for the total supply chain as well as for each company.

The framework consists of seven steps:

  • Map the supply chain from point-of-origin to point-of-consumption to identify where key linkages exist.
  • Use the customer relationship management and supplier relationship management processes to analyze each link (customer supplier pair) and determine where additional value can be created for the supply chain.
  • Develop customer and supplier profit and loss (P&L) statements to assess the effect of the relationship on profitability and shareholder value of the two firms.
  • Realign supply chain processes and activities to achieve performance objectives.
  • Establish non-financial performance measures that align individual behavior with supply chain process objectives and financial goals.
  • Compare shareholder value and market capitalization across firms with supply chain objectives and revise process and performance measures as necessary.
  • Replicate steps at each link in the supply chain.

Interface based measurement system looks at the supply chain as a series of different links and to optimize the total supply chain a win-win approach is required at all linkages. Conceptually it looks good but in actual business setting it requires openness and total sharing of information at every link of the chain, which seem to be difficult to implement.

Comparison of measurement systems

Different measurement systems described above have different views for integrating the supply chain performance measures. These systems can be compared using five dimensions:

(1) Hierarchy (Strategic, Tactical and Operational)

(2) Results (Financial and Non-financial)

(3) Linkages (Integrated and Isolated)

(4) Determinants (Quality, Flexibility and Time)

(5) Stability (Static and Dynamic).

It is evident from the above explanations that supply chain balanced scorecard covers all the parameters.

The system is easy to implement if the company strategy is well defined. Hierarchical based measurement system encompasses all parameters but at one time it tries to cover only one perspective, so a hybrid model of balance score card and hierarchical can be an another alternative i.e. at each hierarchical level we define the measure for each perspective.

Perspective based system also sees the measures in isolated manner but it covers some unique perspectives which are not covered in balance scorecard like system dynamics and operation research which provides a great help in measuring dynamic capability of supply chain. SCOR covers all relevant parameters required in the system and tries to cover the whole supply chain in standard set of processes.

It also covers the different dimensions at each level of the supply chain. The model applicability is easier where ERP and BPR practices are in progress and large set of data collection software’s are already in place. In SMEs and especially in Indian context applicability is questionable due to extra cost of maintaining such an exhaustive system. Interface based measurement system doesn’t cover the non-financial measures and strategic links to different linkages is not possible. The system gives more emphasis on strengthening the internal and external linkage to improve the overall supply chain.

Selecting measures

While the approaches described above provide guidance for supply chain measurement, they provide less help in assessing specific metrics to be used. In this regard, a key driving principle is that measures should be aligned to strategic objectives. Supply chain strategy depends upon its current competencies and strategic direction, which differs for every company. Companies, for example, can generally fall into the following developmental stages that will dictate the types of measures and the degrees to which they will need to focus:

  • Functional Excellence: A stage in which a company needs to develop excellence within each of its operating units such as the manufacturing, customer service, or logistics departments. Metrics for a company in this stage will need to focus on individual functional departments.
  • Enterprise-Wide Integration: A stage in which a company needs to develop excellence in its cross-functional processes rather than within its individual functional departments. Metrics for a company in this stage will need to focus on cross-functional processes.
  • Extended Enterprise Integration: A stage in which a company needs to develop excellence in inter-enterprise processes. Metrics for a company in this stage will focus on external and cross-enterprise metrics.

Most companies have focused their performance measurement on achieving functional excellence. With the advent of Supply Chain Management (SCM) principles aimed at integrating their supply chains, many have objectives to increase their degree of enterprise-wide integration and extended enterprise integration. In order to achieve these types of objectives, their performance measurement systems will need to align to them.

Management Notes

Types of Performance Measurement in Supply Chain

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Dimension-based Measurement Systems (DBMS)

DBMS concept is based on the premise that any supply chain can be measured on dimensions (Ramaa et al., 2009). Initially in 1999, Beamon (1999) identified three types of measures as necessary components in supply chain performance measurement systems, namely: Resources (R), Output (O) and Flexibility (F). She believed that each of these types is vital to reflect the overall performance success of a supply chain and that the result of each type affects the others.

Examples of resource performance measures are manufacturing cost, inventory cost and return on investment (ROI). Output measures include total sales, on-time deliveries and fill rate, whereas flexibility measurements measure volume changes and new product introduction.

Another example of DBMS is that identified by Hausman (2003) who suggests that a supply chain needs to perform well on three key dimensions: Service, Assets and Speed.

Service related to the ability to anticipate, capture and fulfil customer demands. Assets involve anything with financial value such as inventory and cash, while speed includes metrics that are time-related to track responsiveness and velocity of execution.

DBMS are generally simple, flexible and easy to implement; however, they don’t reflect the performance of internal functions and operations within the chain since they only focus on top level measures.

Interface-based Measurement Systems (IBMS)

IBMS was primarily put forward in 2001 by Lambert and Pohlen (2001). They proposed a framework in which performance of each stage is linked within the supply chain. The framework begins with the linkages at the focal company and moves outward one link at a time. This link by link approach provides a means for aligning performance from point of origin to point of consumption with the overall objective of maximizing the shareholder value for the entire supply chain as well as for each individual company. The IBMS approach theoretically looks good but in actual business setting, it requires openness and total sharing of information at every stage which is eventually difficult to implement.

Perspective-based Measurement Systems (PBMS)

PBMS look at the supply chain in all possible perspectives and provides measures to evaluate each of them. They were developed in 2003 by Otto and Kotzab (2003) who identified six main perspectives as follows: System Dynamics, Operations Research, Logistics, Marketing, Organization and Strategy. The authors presented six unique sets of metrics, one for each perspective, to measure performance of supply chains.

An example of a PBMS is the Logistics Scoreboard in which recommended performance measures focus only on logistical aspects of the supply chain. They fall into the following general categories: logistics financial performance measures (ex: expenses and return on assets), logistics productivity measures (ex: orders shipped per hour), logistics quality measures (ex: shipment damage) and logistics cycle time measures (ex: order entry time).

PBMS provides different vision to evaluate the supply chain performance. However, there might be a trade-off between measures of one perspective with measures of other perspectives.

Hierarchical-based Measurement Systems (HBMS)

In 2004, Gunasekaran et al. (2004) developed HBMS in which measures are classified as strategic, tactical or operational. The main idea was to assign measures where they can be best dealt with by the appropriate management level, thus facilitating quick and appropriate decisions. The metrics are further distinguished as financial or non-financial. Such systems tie together the hierarchical view of supply chain performance measurement and maps the performance measures specific to organization goals. However in such systems, a clear guide cannot be made to put the measures into different levels that can lead to reduced levels of conflict among the different supply chain partners.

Function-based Measurement Systems (FBMS)

FBMS is one in which measures are combined to cover the different processes in a supply chain. It was originally developed in 2005 by Christopher (2005) to cover the detailed performance measures applicable at different linkages of the supply chain. Though easy to implement and targets can be dedicated to individual departments, it does not provide top level measures to cover the entire supply chain. FBMS are generally criticized for viewing the separate supply chain functions in isolation with the overall strategy and hence results in localized benefits that may harm the whole supply chain.

Efficiency-based Measurement Systems (EBMS)

EBMS are systems that measure the supply chain performance in terms of efficiency. Several approaches were developed in this context provided a framework to study supply chain performance by developing a Data Envelopment Analysis (DEA) model for the internal supply chain performance efficiency using case study applications.

Chen et al. (2006) investigated the efficiency existing between two supply chain members. They proposed several DEA-based supply chain efficiency functions aimed at identifying the inefficiency among the chain members by developing two efficiency functions. They established the existence of several Nash1 equilibriums in the supplier manufacturer game.

Liang et al. (2006) developed a new DEA based approach to measure the supply chain efficiency when intermediate measures are built into the evaluation scheme. It aimed at correcting the inadequacies of the conventional DEA model when evaluating multi-member supply chain operations directly. Berrah and Cliville (2007) developed a framework which linked elementary performance expression to the overall performance of a supply chain. Aggregation was done using the Choquet integral Operator. Their approach allowed for the comparison of situations conventionally considered incomparable.

Most of the EBMS are DEA-based. Despite being very useful, they suffer the main limitations of the conventional DEA approaches in any other context. The efficiency measured is only a relative one. It determines the efficiency of different units within the supply chain relative to each other and not versus a previously set target value or a best practice. This might sometimes be misleading to managers and stakeholders.

Generic Performance Measurement Systems (GPMS)

Since the early 1980s, a number of generic performance measurement models and frameworks, i.e. not necessarily specific to supply chains, have been developed. Each of which has its respective benefits and limitations. However, the literature review indicates that only very few of them (Tangen,, 2004; Kurien and Qureshi , 2011) are widely cited and referred to as discussed below.

  1. Performance Prism

The performance prism is a performance measurement framework that suggests performance should be measured across five distinct, but linked, perspectives of performance as indicated by: stakeholder satisfaction, strategies, processes, capabilities and stakeholder contributions.

The performance prism has a much more comprehensive view of different stakeholders than other frameworks. The major strength of this conceptual framework is that it first questions the company’s existing strategy before the process of selecting measures is started. Hence, it ensures that the performance measures have a strong foundation.

The performance prism also considers new stakeholders (such as employees, suppliers, alliance partners or intermediaries) who are usually neglected when forming performance measures. Although the performance prism extends beyond traditional performance measurement, a main drawback is that it offers little about how the performance measures are going to be identified and selected.

ii. Performance Pyramid

The purpose of the performance pyramid is to link an organization’s strategy with its operations by translating objectives from the top down (based on customer priorities) and measures from the bottom up (Kurien and Qureshi, 2011; Lynch and Cross, 1991). This framework includes four levels of objectives that address an organization’s external effectiveness (left side of the pyramid) and its internal efficiency (right side of the pyramid) as demonstrated in Tangen (2004). The development of a company’s performance pyramid starts with defining an overall corporate vision at the first level, which is then translated into individual business unit objectives. The second-level business units are short-term targets of cash flow and profitability and long-term goals of growth and market position. The business operating system bridges the gap between top-level and day-to-day operational measures such as customer satisfaction, flexibility and productivity. Finally, four key performance measures: quality, delivery, cycle time and waste, are used at departments and work centers on a daily basis.

iii. Medori and Steeple’s Framework In 2000, Medori and Steeple (2000) developed and presented an integrated framework for auditing and enhancing performance measurement systems. The graphical framework of their approach is presented in Medori and Steeple (2000). It consists of six detailed stages. Similar to most frameworks, the starting point begins with defining the company’s manufacturing strategy and success factors. In the next stage, the primary task is to match the company’s strategic requirements from the previous stage with competitive priorities. Then, the selection of the most suitable measures takes place in the following stage. After the selection of measures, the existing performance measurement system is audited to identify which existing measures will be kept. An essential activity is the actual implementation of the measures. The last stage is based around the periodic review of the company’s performance measures. An important advantage is that it can be used both to design a new system and to enhance an existing one. It also contains a unique description of how performance measures should be selected. Its limitations are mainly located in the second stage, where a performance measurement grid is created in order to give the system its basic design. Little guidance is given in this stage and the grid is only constructed from six competitive priorities whereas performance measures can be divided into many other categories.

In an earlier literature survey on SCPM, Ramaa et al. (2009) have previously classified SCPM systems into seven distinct types. However in this review, other two novel groups are added to their classification, namely: EBMS and GPMS. The first refers to the performance measurement systems that aimed at measuring the efficiency of supply chains and groups them into one category, while the latter is composed of the common performance measurement frameworks available in literature that can be used for SCPM.

Management Notes

Meaning, Objectives of Performance Measurement in Supply Chain

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The Council of Logistics Management defines Supply Chain Management as “the process of planning, implementing and controlling efficient and cost effective flow of materials, in-process inventory, finished goods and related information from point-of-orderto point-of-consumption, for the purpose of conforming to customer requirements”. The fundamental objective of a high performance of supply chain is to produce products to match customers’ demand cycle, while producing the greatest value possible to the customers. A number of technologies and managerial attention has gone into improving supply chain performance. The increasingly competitive environment calls for speedy, cost efficient, accurate and reliable supply chains. Supply chain management is no longer a matter of operational and functional areas of the firm. Today, it is a strategic issue demanding top-level management attention. The supply chain can have huge leverage on the creation of customer value. Supply chains will fight the new battle for market dominance; as such measurements around the supply chain are critical. If we look at competition today, it is supply chain versus supply chain. This brings out a situation that competitors might focus on developing superior supply chain Performance. Accordingly, companies will have to find or develop metrics to measure performance of supply chain.

Process measurements

Key Performance Indicator (KPI) is a performance measure, a yardstick for tracking progress and a tool to achieve a goal. KPI encompasses all areas of Business: Demand Management, Supply, Conversion and Delivery.

The best practices of business are:

Key Performance Indicator (KPI) is a performance measure, a yardstick for tracking progress and a tool to achieve a goal. KPI encompasses all areas of Business Demand Management, Supply, Conversion and Delivery.

The best practices of business are:

  • Quantitative and qualitative metrics
  • Areas include cost, quality, and customer satisfaction
  • Best-in-class standards for the defined processes
  • Used to measure against current business process

Supply chain performance measure can be defined as an approach to judge the performance of supply chain system. Supply chain performance measures can broadly be classified into two categories:

  • Qualitative measures: For example, customer satisfaction and product quality.
  • Quantitative measures: For example, order-to-delivery lead time, supply chain response time, flexibility, resource utilization, delivery performance.

Here, we will be considering the quantitative performance measures only. The performance of a supply chain can be improvised by using a multi-dimensional strategy, which addresses how the company needs to provide services to diverse customer demands.

Quantitative Measures

Mostly the measures taken for measuring the performance may be somewhat similar to each other, but the objective behind each segment is very different from the other.

Quantitative measures is the assessments used to measure the performance, and compare or track the performance or products. We can further divide the quantitative measures of supply chain performance into two types. They are:

  • Non-financial measures
  • Financial measures

Non – Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level, inventory levels, resource utilization ability to perform, flexibility, and quality. In this section, we will discuss the first four dimensions of the metrics:

Cycle Time

Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business process. For supply chains, cycle time can be defined as the business processes of interest, supply chain process and the order-to-delivery process. In the cycle time, we should learn about two types of lead times. They are as follows:

  • Supply chain lead time
  • Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the middle of the placement of order by a customer and the delivery of products to the customer. In case the item is in stock, it would be similar to the distribution lead time and order management time. If the ordered item needs to be produced, it would be the summation of supplier lead time, manufacturing lead time, distribution lead time and order management time.

The supply chain process lead time can be defined as the time taken by the supply chain to transform the raw materials into final products along with the time required to reach the products to the customer’s destination address.

Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the logistics lead time for transport of raw materials from suppliers to plants and for shipment of semi-finished/finished products in and out of intermediate storage points.

Lead time in supply chains is governed by the halts in the interface because of the interfaces between suppliers and manufacturing plants, between plants and warehouses, between distributors and retailers and many more.

Lead time compression is a crucial topic to discuss due to the time based competition and the collaboration of lead time with inventory levels, costs, and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique performance indices. Here we have three measures to gauge performance. They are as follows:

  • Order fill rate: The order fill rate is the portion of customer demands that can be easily satisfied from the stock available. For this portion of customer demands, there is no need to consider the supplier lead time and the manufacturing lead time. The order fill rate could be with respect to a central warehouse or a field warehouse or stock at any level in the system.
  • Stockout rate: It is the reverse of order fill rate and marks the portion of orders lost because of a stockout.
  • Backorder level: This is yet another measure, which is the gauge of total number of orders waiting to be filled.
  • Probability of on-time delivery: It is the portion of customer orders that are completed on-time, i.e., within the agreed-upon due date.

In order to maximize the customer service level, it is important to maximize order fill rate, minimize stockout rate, and minimize backorder levels.

Inventory Levels

As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient inventory to meet the customer demands. In a supply chain system, inventories can be further divided into four categories.

  • Raw materials
  • Work-in-process, i.e., unfinished and semi-finished sections
  • Finished goods inventory
  • Spare parts

Every inventory is held for a different reason. It’s a must to maintain optimal levels of each type of inventory. Hence gauging the actual inventory levels will supply a better scenario of system efficiency.

Resource Utilization

In a supply chain network, huge variety of resources is used. These different types of resources available for different applications are mentioned below.

  • Manufacturing resources: Include the machines, material handlers, tools, etc.
  • Storage resources: Comprise warehouses, automated storage and retrieval systems.
  • Logistics resources: Engage trucks, rail transport, air-cargo carriers, etc.
  • Human resources: Consist of labor, scientific and technical personnel.
  • Financial resources: Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the assets or resources efficiently in order to maximize customer service levels, reduce lead times and optimize inventory levels.

Finanacial Measures

The measures taken for gauging different fixed and operational costs related to a supply chain are considered the financial measures. Finally, the key objective to be achieved is to maximize the revenue by maintaining low supply chain costs.

There is a hike in prices because of the inventories, transportation, facilities, operations, technology, materials, and labor. Generally, the financial performance of a supply chain is assessed by considering the following items:

  • Cost of raw materials.
  • Revenue from goods sold.
  • Activity-based costs like the material handling, manufacturing, assembling rates etc.
  • Inventory holding costs.
  • Transportation costs.
  • Cost of expired perishable goods.
  • Penalties for incorrectly filled or late orders delivered to customers.
  • Credits for incorrectly filled or late deliveries from suppliers.
  • Cost of goods returned by customers.
  • Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be merged as one by using key modules such as activity based costing, inventory costing, transportation costing, and inter-company financial transactions.

University of Mumbai BMS Notes

RORO/LASH

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Roll-on/roll-off (RORO or ro-ro) ships are cargo ships designed to carry wheeled cargo, such as cars, trucks, semi-trailer trucks, trailers, and railroad cars that are driven on and off the ship on their own wheels or using a platform vehicle, such as a self-propelled modular transporter. This is in contrast to lift-on/lift-off (LoLo) vessels, which use a crane to load and unload cargo.

RORO vessels have either built-in or shore-based ramps or ferry slips that allow the cargo to be efficiently rolled on and off the vessel when in port. While smaller ferries that operate across rivers and other short distances often have built-in ramps, the term RORO is generally reserved for large oceangoing vessels. The ramps and doors may be located in the stern, bow, or sides, or any combination thereof.

Description

Types of RORO vessels include ferries, cruiseferries, cargo ships, barges, and RoRo service for air deliveries. New automobiles that are transported by ship are often moved on a large type of RORO called a pure car carrier (PCC) or pure car/truck carrier (PCTC).

Elsewhere in the shipping industry, cargo is normally measured by the metric tonne, but RORO cargo is typically measured in lanes in metres (LIMs). This is calculated by multiplying the cargo length in metres by the number of decks and by its width in lanes (lane width differs from vessel to vessel, and there are several industry standards).

Advantages of a ro-ro ship

A ro-ro ship offers a number of advantages over traditional ships. Some of the advantages are as follows:

  • For the shipper, the advantage is speed. Since cars and lorries can drive straight on to the ship at one port and then drive off at the other port within a few minutes of the ship docking, it saves a lot of time of the shipper.
  • It can also integrate well with other transport development, such as containers. The use of Customs-sealed units has enabled frontiers to be crossed with the minimum of delay. Therefore, it increases the speed and efficiency of the shipper.
  • The ship has also proved extremely popular with holidaymakers and private car owners. It has significantly contributed to the growth of tourism. A person can take his car from one country to another by the sea with the help of a ro-ro vessel.

Roll-on/Roll-off Ships Stowage and Securing of Vehicles

Principal Sources of Danger

Though Ro-Ro vessel’s make a very small proportion of the Merchant marine tonnage, there have been many accidents involving these, giving rise to far worse consequences. It is very important to understand the “Sources of Danger “which leads to such petrifying situations. These sources of danger don’t only affect the safety of roll-on/roll-off vessels but also the passenger/crew in it.

  • The unacceptable condition of the consignment constraining it to be properly lashed for Sea. Example: insufficient number and incorrect positioning of securing points, Weak securing points etc.
  • The free surface effect in tank vehicles and tank containers which are slack;
  • Poorly maintained ramps, lifts and bow and stern doors;
  • Poorly maintained, inadequately illuminated or badly planned decks;
  • Wet Decks;
  • Vehicles being moved negligently on vehicle decks and ramps;
  • The reversing of road vehicles on vehicle decks and ramps;
  • Insufficient or incorrectly applied lashings or wrong use of Lashing equipment or of inadequate strength having regard to the mass and centre of gravity of the vehicle and the weather conditions likely to be encountered during the voyage;
  • Free play in the suspension of vehicles;

Lighter Aboard Ship is the name of a type of vessel that carries standardised pushed barges. The pushed barges, that can weigh up to 600 tons when loaded, are loaded and unloaded by means of a heavy-duty gantry crane onboard the ship. Once the pushed barges are loaded in the water, they are interlinked to form major pushed convoys.

LASH vessels are used only in areas with large deltas (the Maas Delta, The Mississippi estuary) as the large pushed convoys can travel deep into the hinterland of these regions.

University of Mumbai BMS Notes

Activity Based Costing in Logistics

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Activity-based costing seeks to relate all relevant expenses to the value adding activities performed. For example, costs are assigned to a customer or product to reflect all relevant activity cost independent of when and where they occur. The fundamental concept of activity-based costing is that expenses need to be assigned to the activity that consumes a resource rather than to an organizational or budget unit. For example, two products produced in the same manufacturing facility, may require different assembling and handling procedures. One product may need an assembly or packaging operations that requires additional equipment or labor. If total equipment and labor costs are allocated to the products on the basis of sales or units produced than both items will be charged for the additional assembly and packaging operations required by only one of them.

In case of logistics, the key event is a customer order and related activities and relevant costs that reflect the work required to fulfill the order. In other words, activity based costing in logistics must provide managers the insights needed to determine if a specific customer, product, order, or service is profitable. This requires matching specific revenue with specific costs. The guiding criteria for effective logistical activity-based costing are relevancy and consistency. Relevancy is important in the sense that the costs assignment helps managers to better understand the major factors affecting logistics expenses. Consistency is important in terms of comparing related activities over time. In the final analysis, activity based costing in logistics  has to make sense only to the managers who are using it as a guide to decision making.

(I) Cost Identification:

All costs associated with the performance of logistics function should be in the activity- based classification. The total cost associated with fore casting and order management, transportation, inventory, warehousing, packaging must be isolated. Typical logistics costs can be categorized under two headings direct and indirect costs, cost of capital and overheads.

  1. Direct Costs:  These costs are those expenses specifically caused by the performance of logistics work. Such costs are difficult to identify. For example, the transportation costs for an individual truckload order can be directly attributed to a specific order. Likewise only minor difficulty is experienced in isolating the direct administration cost of logistical operations.
  2. Indirect Costs: These are more difficult to isolate. For example, the cost of capital invested in real estate, transportation equipment, and inventory- just a few of the areas within the capital structure of logistics- must be identified to arrive at a comprehensive total cost. The manner by which total costs are attributed to logistics activities are determined by managerial judgments. One approach is to allocate the overhead cost on the basis of the average cost per unit.  All expense paid to support capital investment in logistical operations are relevant to activity-based costs. The judgment applied in arriving at cost of capital will greatly influence logistical system design. Thus procedures and standards used to calculate indirect logistical costs are critical. They are also essential for potential outsourcing.
  3. Cost of Capital:  Capital investment Expenses for logistical activities are relevant to logistical activity- based costs. Cost of such capital also needs to be included in your logistical cost.
  4. Overhead: An enterprise incurs considerable expenses on behalf of all organizational units, such as for light and heat in various facilities. Judgement is required to determine how and to what extent various types of overhead should be allocated to specific activities. One method is to directly assign total corporate overhead on a uniform basis to all operational units. At the other extreme, some firms withhold all overhead allocations to avoid distorting the ability to measure direct and indirect logistical activity- based costs.

(II) Cost Time Frame  

A basic concern in activity based costing in logistics is to identify the period of time over which costs are accumulated for measurement. Accounting principles call for accrual methods to relate revenues and expenditure to the actual time period during which services are performed. Expenses associated to raw material procurement through finished product distribution and almost all other logistical operating costs are incurred in anticipation of future transactions, making accrual methods difficult to administer.

To overcome the time problem, accountants attempt to break costs into 2 groups- costs assigned to a specific product and costs associated with the passage of time. Using this classification an attempt is made to match the appropriate product and time period costs to specific periods of revenue generation. From a logistical perspective, a great many of the expenses associated with procurement and manufacturing support can be assigned and absorbed into direct product cost.

In situations where a considerable period of time elapses between production and sales, such as in highly seasonal businesses, significant costs of maintaining inventory and performing logistical operations may not be associated with revenue generation.

(III) Cost Formatting  

The typical way to format activity-based costs is to assign expenses to the event being managed. For example, the object of analysis is a customer order, than all costs that result from the associated performance cycle contribute to the total activity cost. Typical units of analysis in activity based costing in logistics are customer orders, channels, products and value added services. The cost analysis will vary depending on which analysis unit is selected for observation Logistical expenses can be presented in a number of ways for managerial use. Three common ways are;

  1. Functional Grouping: To format costs by functional grouping requires that all expenditures for direct and indirect logistical services performed for a specified operating time be formatted and reported by master and sub account classifications. Thus, a total cost statement can be constructed for comparison of one or more operating periods .It is important to identify as many cost accounting categories as practical and to develop a coding system that will facilitate assignments to these cost accounts.
  2. Allocated Costs Grouping: This consists of assigning overall logistical expenditures to a measure of physical performance. For example, total logistical cost can be generated on a per ton, per product, per order, or on some other physical measure that is useful for comparative analysis of operating results.
  3. Fixed Variance Grouping: This is the most useful for identifying the logistics cost implications of current or alternative operating practices. This method of formatting consists of assigning costs as either fixed or variable to approximate the magnitude of change in operating expenditure that will result from different volumes of logistical throughput. Costs that do not directly vary with volume are classified as fixed. In the short run, these expenses would remain if volume were reduced to zero. Costs influenced by volume are classified as variable. For example, the cost of a delivery truck is fixed, however gasoline to operate the truck is variable.
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