Logistical Operating Arrangements Notes

Logistical operating arrangements
Logistical services basically deals with favourably impacting customers which is directly

related with operating system design. Basically operating structure must offer balance of
performance cost and flexibility. Depending upon the diverse market structure it varies
throughout the world.
These arrangements can be divided into three types:
I. Echelon system
The system utilise warehouses to create inventory assortments and achieve consolidation
economies is associated with large volume transportation shipments. Inventories positioned
in warehouses are available for Rapid deployment to customer requirements.
Echelon system utilizes two types of warehouses:
1. Break bulk warehouse
Receive large volume of the shipment from a variety of suppliers. Here the inventories are
sorted and stored in anticipation of future customer requirements.
E.g. Food distribution centres operated by major grocery chains and wholesalers
Big Bazaar, Maveli stores, Lulu hypermarket
2. Consolidation warehouses
It is the reverse of break bulk warehouses. The manufacturing firms have plants at different
geographical locations. The products manufactured at different plants are sorted in a central
warehouse facility to allow the firm to ship full line assortments to customers.
E.g. consumer product manufacturers
ITC, HUL
II. Direct
With a limited number of centrally located inventories the product are shipped to the
customers. It uses premium Transport Company with information technology to rapidly
process customer orders and achieve better performance. It reduces time delay and
overcomes geographical separation from customers.
E.g. plant to customer truck load shipments,
Direct store delivery, e commerce shopping.
Direct logistics is limited by high transportation cost and potential loss of control.
III. Flexible or Combined

The ideal arrangement with both benefits of echelon and direct structures are combined into a
flexible system. They position fast moving products or materials in forward warehouse while
other, more risky and costly items are stocked at a Central location for direct distribution to
customers.
Basically service commitment and order size economies determine the service strategy for a
specific customer.
E.g. Automobile replacement parts Logistics
Based on the pattern and intensity of demand specific parts are inventory in warehouses
located at various distances from dealers and retail outlets.
 Centralised inventory can be beneficial for slow turn over parts.
 Slowest or least demanded parts may be stocked at one location which services
customers throughout the entire world.
 Fast moving parts with more predictable demand are stocked in forward warehouses
close to Dealers for fast delivery.
Beyond the basic channel structure, flexible capabilities can be designed into a logistical
system using alternative facilities, flexible logistics capabilities can be designed to operate on
an emergency or routine basis.
Flexible structures
I. Emergency flexible structure

 They are pre planned strategies to resolve logistical failures.
A typical emergency occurs when an assigned shipping facility is out of stock or for some
other reasons cannot complete a customer's order. In order to prohibit a back order or product
cancellation we need a contingency operating policy.
II. Routine flexible structure

Flexible logistics rules and decision scenarios specify alternative ways to meet service
requirements such as assignment of different shipping facilities.
1. Customers located at points of indifference offer the supplying firm an opportunity to fully
utilise available logistical capacity. Orders can be serviced from the facility having the best
inventory positioning to satisfy customer’s requirements and the available capacity to achieve
timely delivery.
Benefits: Operating efficiency which is transparent
2. Size plays a role

E.g. To lower the total cost, the method to provide small shipment delivery through a
distributor is the better option. Large shipments may have the lowest total logistical cost
when shipped factory direct to customers.
3. The cost and risk associated with stocking inventory require careful analysis to determine
which item to place in each warehouse. Selective inventory stocking by echelon level is used
to reduce inventory risk ranges from low product profit contribution to high per unit cost of
inventory maintenance.
4. There are two types

1. Flow through cross docks
2. Service supplier agreements.
1. Cross docks
Here multiple suppliers arriving at designated time at the handling facility and is deployed in
situations where storage and material handling can be avoided.
2. Service supplier agreements

This gives a clear understanding of the responsibilities, legal rights, obligations of both
parties to ensure that the specified services provided by the supplier are delivered to the
customer accordingly.

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Logistical Operating Arrangements Notes

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Logistical operating arrangements

Logistical services basically deals with favourably impacting customers which is directly

III. Flexible or Combined

I. Emergency flexible structure

II. Routine flexible structure

2. Size plays a role

4. There are two types

2. Service supplier agreements

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