PSM-602:

Storage and distribution

Engr. Md. Enamul Huque, MCIPS

MBA (Marketing), Dhaka University;
MPSM, BRAC University;
B. Sc. Eng. (Civil), BUET.
 Chapter 2

Distribution Planning
 What is Logistics?
• Logistics is the process of planning and executing the efficient
transportation and storage of goods from the point of origin to the
point of consumption.
• The term ‘Logistics’ is more commonly used in the context of moving
commercial goods within the supply chain.
• FedEx, UPS and DHL are well-known logistics providers.

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 Logistics vs SCM
• Logistics management is a subset of the larger supply chain
management.
• Logistics focuses on the movement and storage of items in the supply
chain.
• Supply chain management (SCM) is more comprehensive, covering all of
the coordination between partners that have a role in this network,
including sourcing, manufacturing, transporting, storing and selling.

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Key components of logistics

Raw material

Components
Production
process
Packaging Finished Depots
items
Packaging
Sub- goods
assembly inventory Distribution
Product Unitisation Warehouse centres
sourcing Work-in-
progress
Imported
materials distribution

Bought-in
parts
procurement
materials management
logistics
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 Types of Logistics
Logistics can be divided into four categories:
• Procurement logistics - Procuring raw materials and parts
• Production logistics - Materials management, distribution in factories,
product management, shipping
• Sales logistics - Delivery from warehouse to wholesalers, retailers, and
consumers
• Reverse logistics - Recovering and recycling products, containers, and
packaging; product returns, recall, warranty claim etc.

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 Factors affecting the choice of
distribution networks – 1/2
▪ The nature of the distribution business (B2B, B2C, corporate, consumer)
▪ The products being handled (perishable, hazardous)
▪ The markets to be served
▪ Local - for example countrywide
▪ Regional - for example the south east
▪ National - for example whole of the country
▪ International - European or global
▪ Nature of demand:
- The distribution network needs to be highly structured with regular services to
major customers on a frequent basis
- Orders are random and infrequent so that every weeks delivery plan is different

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 Factors affecting the choice of distribution
networks – 2/2

▪ Customer demands as to when and how deliveries should be made

▪ Compliance with the law
▪ Financial issues
▪ Health and safety issues
▪ Environmental issues
▪ Reputational issues
▪ Tracking requirements

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3PL and 4PL

• Third-party logistics (or 3PL) refers to the outsourcing of any logistics

processes to a third party business, including inventory management,
warehousing, order fulfilment or transport of goods.
• A 4PL (fourth-party logistics) provider does all the tasks of a 3PL and
manages other aspects of the supply chain. Sometimes, a 4PL
provider manages a 3PL on behalf of the customer.

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Reasons for using third party logistics (3PL)

▪ Cost and time savings

▪ Enable business growth and market expansion
▪ Easy scalability and more flexibility
▪ Get access to expertise and experience of the 3PL
▪ Improve global capabilities
▪ Low capital commitment
▪ Focus on core business
▪ Risk transfer
▪ Reputational issues (e.g. labour rights)
▪ Legal issues (e.g. licensing requirements)
▪ Achieve environmental objectives

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Transport modes

▪ Road
▪ Rail
▪ Inland waterways
▪ Coastal, short sea and deep sea
▪ Air
▪ Pipelines
▪ Inter-modal / multi-modal

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Comparison of Transport modes
Source:
Adapted from
Gourdin K, Global
Logistics
Management 2006

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Relative use of Transport modes

Modal Shares of World Trade by Volume and Value, 2008

Source: IHS Global Insight, Inc., World Trade Service. Does not include intra-EU trade. 25
Factors for choice of Transport modes
▪ Domestic, regional, global ▪ Reliability
▪ Cost ▪ Urgency
▪ Suitability ▪ Legislation
▪ Availability ▪ Packaging and documentation
▪ Flexibility ▪ Risk factors
▪ Speed ▪ Environmental issues

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 Road freight – vehicle choice

▪ Fixed cost of vehicle

▪ Variable costs – fuel, lubricant, tyres, maintenance, and so on
▪ Residual value
▪ Whole life costs
▪ Utilisation costs – miles per gallon, cost per mile
▪ Ways of acquiring – buy, hire, and so on.

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 Load Planning
▪ Load planning (also called load optimization) is the process of
consolidating multiple shipments and/or arranging freight to use the
capacity of trucks, railcars, pallets, and any other types of containers in
the most efficient way.
▪ The major objectives of load planning are –
▪ Maximize the capacity of each truck and driver
▪ Comply with regulations
▪ Lower the shipping and delivery costs

▪ Unit load: a grouping of different items into a convenient stack which

make them easy to handle, transport or store.
▪ Unitization is the act of consolidating multiple smaller units into a larger
unit for improved warehouse efficiency, quicker packaging and arranging,
and more efficient handling and transportation.
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 Vehicle routing
• Routing represents the entire process of planning delivery routes for the vehicles in a
fleet.
• The goal is to create the most cost-effective route by minimizing the distance travelled
and travel time to reach a set of planned stops.
• Key considerations include –
▪ Demand data
▪ Distance factors
▪ Customer and service constraints
▪ Vehicle restrictions
▪ Driver constraints
▪ Route factors
▪ Product/unit load constraints

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 Route Scheduling, and Route Optimization

▪ Route Scheduling - Route scheduling is the process of assigning an arrival and

service time for each stop, with drivers being assigned shifts that adhere to
working hours.
▪ Route Optimization - Route optimization is the process of planning one or
multiple routes, with the purpose of minimizing overall costs, while achieving the
highest possible performance under a set of given constraints.

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 Computerised systems for routing
▪ Computer systems for planning and scheduling – most systems allow both
▪ The essence of such systems lies in achieving the maximum number of
deliveries within the minimum possible route mileage and constrained by driver
working hours, receiving times and vehicle capacity
▪ All based on algorithms and iterations
▪ Often allows for the modelling of different scenarios
▪ Can be far quicker than an manual system although some companies use a
hybrid system

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