LOGISTICS AND SUPPLY CHAIN

MANAGEMENT

UNIT 2
 INVENTORY MEANING

Inventory refers to the goods and materials a

company holds for the purpose of resale,
production or maintenance.
It can include raw materials, work in progress
items and finished goods.
Inventory is a key asset on the balance sheet and
is crucial for managing a company’s operation
INVENTORY MEANING

Goods
Finished goods

Resale /Sale
TYPES OF INVENTORY

Basis of Nature of Material

Production Inventories

Work in process Inventories

MRO Inventories

Finished goods Inventories

 TYPES OF INVENTORY
 Basis of Nature of Material
 Production Inventories – These include raw materials and
components that are essential for the manufacturing process. For
example, steel in the automobile industry is a production
inventory.
 Work in Process Inventories – These are partially completed
goods that are still undergoing production processes. For
instance, an unfinished smartphone on an assembly line is part of
work-in-process inventory.
 MRO Inventories – Maintenance, Repair, and Operations (MRO)
inventories consist of items used for keeping machinery and
infrastructure running smoothly, such as lubricants, spare parts,
and tools in a factory.
 Finished Goods Inventories – These are the final products
ready for sale or distribution. For example, packaged
smartphones in a warehouse waiting to be shipped to retailers.
 TYPES OF INVENTORY
 Basis of Uses of Materials
 Transaction Inventory – Stock maintained to meet daily
operational demands and ensure smooth production and
sales. For instance, a grocery store keeping enough milk
in stock for regular customer purchases.
 Speculative Inventories – Additional inventory
purchased in anticipation of future price hikes or
increased demand. For example, a retailer stocking up on
air conditioners before summer to sell at a higher price.
 Precautionary Inventories – Extra stock held as a
safeguard against uncertainties like supplier delays,
strikes, or sudden demand surges. For instance, a
pharmaceutical company storing excess essential
medicines to handle unexpected supply chain disruptions.
 IMPORTANCE OF INVENTORY
1. Ensure a continuous supply of raw materials and supplies
to facilitate uninterrupted production.

2. Maintain sufficient-finished goods for smooth sales

operation and efficient customer service.

3. Inventories permit the procurement of raw materials in

economic lot sizes as well as processing of these raw
materials into finished goods in the most economical
quantity.

4. Helps to schedule its operations effectively.

5. It helps to utilise people and equipment reasonably

 FUNCTIONS OF INVENTORY
1. Inventory gear up production

2. Inventory provide a cushion to prevent stock-outs

3. Inventories help in stabilizing employment in the

enterprise

4. Inventories help in utilizing the existing skilled labour

and help in making a utilization plan for future

5. Inventories provide a protection against the

uncertainties of demand and supply
 OBJECTIVES OF INVENTORY
Objectives of Inventory:
It enables the firm to achieve economies of
scale.
It balances supply and demand.
It enables specialisation in manufacturing.
It provides protection from uncertainties in
demand and order cycle.
It acts as a buffer between critical interfaces
within the channel of distribution.
 INVENTORY CONTROL
Inventory control is concerned with the
acquisition, storage, handling and use of
inventories so as to ensure the availability
of inventory whenever needed, providing
adequate provision for contingencies,
deriving maximum economy and
minimizing wastage and losses.
Inventory control may be defined as the planning,
ordering and scheduling of materials used in the
manufacturing process
INVENTORY CONTROL- DEFINITION

Use
Acqu
Availability of inventory whenever needed of
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Providing adequate provision for contingencies es

Deriving maximum economy and minimizing

wastages and losses
OBJECTIVES OF INVENTORY CONTROL
To ensure smooth flow of stocks
To maintain the required quantity and quality of material
To control investments in stock
Protection against fluctuating demand
Protection against fluctuation in output
Reduce the risk of obsolescence
To minimize risk and uncertainty
To provide a suitable and secure location
OBJECTIVES OF INVENTORY CONTROL
 1. To ensure smooth flow of stock: The aim of inventory control is to
ensure smooth production by making available all types of required materials
quantity at the right time. Smooth and regular supply of material is essential
for smooth flow of production which is important for the success of any
concern.
 2. To maintain the required quality and quantity of materials: The
objective of inventory control is to ensure the availability of all types of
materials of the required quality. If the quality of the materials is not proper,
it will affect the quality of the product which is bound to affect the brand and
the sales of the business concern.
 3. To control investment in stock: Inventory control system also aims
at minimizing the capital investment in the stock of materials.
Efficient Inventory control system helps in ensuring optimum investment of
capital in material, implying the best use of available financial investment in
the stock material.
 4. Protection against fluctuating Demand: The demand of any product
could never be exact. There is likely to be some difference in predicted
demand and actual demand of the product. If sufficient items are available
in the inventory, then the fluctuations in demand can be easily adjusted and
the organization can protect itself from unforeseen economic lossers.
OBJECTIVES OF INVENTORY CONTROL
5. Protection against fluctuations in Output: Another important function
of inventory is to reduce the gap between actual and scheduled production.
Production schedule can disturb due to labour strikes and breakdown in
supply of raw materials and machines etc. In such case the difference in
actual production and the planned output can be bridged by inventories.
6. Minimization of Risk and Uncertainty: Inventory control reduces the
risk and loss from fraud and theft risk in every business. The main reasons of
change in demand such as change in fashions, design, technology, like and
dislikes, that are difficult to assess easily and quickly. Information about
various items of stock should be readily available to the management so that
proper planning can be made for future.
7. Reduce the Risk of obsolescence: The strategy of the organization
should be to sell the stock before it becomes obsolete. First in first out
method can be used to reduce the handling and storage cost.
8. To provide a suitable and secure location :It ensures a location is appropriate for
its purpose, with necessary infrastructure and accessibility. Security measures
like surveillance and restricted access protect assets and personnel.
FUNCTIONS OF INVENTORY CONTROL
[Link] maintains sufficient level of stock to enable
the smooth flow of production.
[Link] maintains low investments on inventories to
maximize the profitability.
[Link] holds optimum level of stock
[Link] minimizes the possibility of disruption in the
production schedule of a firm for want of raw
material, stock and spares.
COST ASSOCIATED WITH INVENTORY
 Cost of the product
I ORDERING COSTS
 Shipping and Handling Cost
 Administrative costs
 Receiving costs
 Order Placement Costs
II INVENTORY CARRYING COSTS
 Financing Costs Cost of Spoilage
 Insurance charges
Cost of
Obsolescence
 Storage expense
 Handling expense
III STOCKOUT COSTS
COST ASSOCIATED WITH INVENTORY
Cost of the Product
 This refers to the purchase price of the product before adding any additional costs
such as transportation, storage, or handling. It forms the base cost of inventory
management and influences profit margins.
I. Ordering Costs
Shipping and Handling Cost
 Costs incurred to transport goods from suppliers to the business location, including
freight charges and packaging. These costs vary based on distance, weight, and
shipping method.
Administrative Costs
 Expenses related to processing purchase orders, supplier communication, and
paperwork. These include employee salaries, software expenses, and documentation
fees.
Receiving Costs
 Costs associated with inspecting, unloading, and checking the quantity and quality of
received goods. It includes labor charges, quality control checks, and equipment usage.
Order Placement Costs
 Expenses incurred in generating and placing purchase orders, including software usage
and employee salaries.
Cost of Spoilage – The loss incurred when goods become unusable due to damage,
defects, or contamination.
Cost of Obsolescence – The expense of inventory becoming outdated or unsellable
due to market or technological changes.
COST ASSOCIATED WITH INVENTORY
II. Inventory Carrying Costs
Financing Costs
 Interest or borrowing costs when businesses take loans to purchase inventory.
The longer inventory is held, the higher the financing burden.
Insurance Charges
 Cost of insuring inventory against risks like theft, fire, and damage. This
expense depends on the type of goods stored and the level of coverage chosen.
Storage Expense
 Costs related to renting or maintaining a storage space, including rent, utilities,
and security. Larger inventories require bigger storage spaces, increasing costs.
Handling Expense
 Costs incurred in moving goods within the warehouse, including labor and
equipment expenses. Frequent handling increases the risk of damage and
additional labor costs.
III. Stockout Costs
 The financial and reputational loss a company faces due to running out of
stock, leading to missed sales and dissatisfied customers. Stockouts can
also result in lost future business and higher costs to expedite
replenishment.
 INVENTORY CONTROL TECHNIQUES
Just In Time Inventory
Cross Docking
Drop Shipping
Economic Order Quantity
ABC Analysis
Two Bin System
Vendor Managed Inventory
LIFO , FIFO AND LEFO
VED Analysis(Vital, Essential, Desirable)
FSN Analysis(Fast, Slow , Non Moving )
 INVENTORY CONTROL TECHNIQUES
XYZ Analysis (stable,
moderate/fluctuating ,erratic demand)
HML (High cost, medium cost and low cost )
1. Just-In-Time (JIT) Inventory
 JIT is a lean inventory strategy where materials and products are received only when
needed in the production or sales process, minimizing stock levels. This reduces
storage costs, waste, and inventory holding risks.
 However, it requires precise demand forecasting, a reliable supplier network, and
efficient logistics to avoid disruptions. It is commonly used in industries like
automotive manufacturing (e.g., Toyota).
2. Cross Docking
 Cross-docking involves unloading materials from an incoming truck and immediately
loading them onto outbound trucks with little to no storage time.
 This helps businesses reduce warehousing costs, improve delivery speed, and
streamline supply chain operations. It is often used by large retailers like Walmart to
distribute goods efficiently from suppliers to stores.
3. Drop Shipping
 Drop shipping is a retail fulfillment method where sellers do not keep inventory;
instead, they transfer customer orders to suppliers who ship products directly to
buyers. This eliminates inventory holding costs and warehouse expenses.
 However, businesses depend on suppliers for product availability, quality, and timely
delivery. It is popular in e-commerce platforms like Shopify and Amazon.
4. Economic Order Quantity (EOQ)
EOQ is a formula that determines the ideal
order quantity that minimizes total inventory
costs, balancing ordering and holding costs. It
helps businesses maintain sufficient stock
levels without excessive overstocking or
frequent ordering. The formula considers
factors such as demand rate, ordering costs,
and carrying costs to optimize inventory
management.
Holding Costs: Increases with order quantity,
as storing more inventory leads to higher costs.
Ordering Costs: Decreases as order quantity
increases, since fewer orders reduce
administrative and shipping costs.
Total Cost: The sum of holding costs and
ordering costs, forming a U-shaped curve.
EOQ Point: The point where total cost is
minimized, balancing both holding and ordering
costs.
This model helps businesses optimize inventory
levels, reducing unnecessary costs while
ensuring a smooth supply chain.
ECONOMIC ORDER QUANTITY

Where:

𝑆 : The setup cost per order

D : The annual demand in units

𝐻 : The holding cost per unit

per year
5. ABC Analysis
ABC analysis is an inventory categorization method
based on value and consumption frequency:
A items (High-value, Low-volume): Require
tight control and careful inventory management.
Example: Expensive electronic components.
B items (Moderate-value, Moderate-volume):
Need balanced inventory control. Example: Mid-
range office supplies.
C items (Low-value, High-volume): Require
minimal control as they have low financial impact.
Example: Stationery items like pens and paper.
This method helps businesses focus efforts on
managing the most critical inventory items
efficiently.
6. Two Bin System
The two-bin system divides inventory into two separate
bins:
First Bin: Used for regular consumption.
Second Bin: Reserved stock, used only when the first bin
is empty, triggering reordering.
This system prevents stockouts and is commonly used for
essential items like medical supplies and spare parts.
7. Vendor Managed Inventory (VMI)
In VMI, the supplier is responsible for monitoring and
replenishing inventory at the buyer’s location. This
reduces stockouts, optimizes inventory levels, and
improves collaboration between suppliers and businesses.
It is widely used in retail and manufacturing industries
where suppliers manage stock based on real-time
demand data. Example: Walmart’s VMI system with
Procter & Gamble.
8. LIFO, FIFO, and LEFO
 LIFO (Last-In-First-Out): The most recently acquired inventory is used
or sold first. This method is beneficial in inflationary conditions as it
reduces taxable income.
 FIFO (First-In-First-Out): The oldest inventory is used or sold first,
ensuring that products do not become obsolete or expired. It is
commonly used in food and pharmaceutical industries.
 LEFO (Last-Expired-First-Out): Items with the nearest expiration
date are used or sold first, minimizing wastage in industries like
healthcare and perishable goods.
9. VED Analysis (Vital, Essential, Desirable)
VED analysis is used for inventory prioritization based on criticality:
 Vital items: Essential for operations, stockouts must be avoided.
Example: Life-saving medicines in hospitals.
 Essential items: Important but not critical, requiring moderate stock
control. Example: Office IT accessories.
 Desirable items: Non-critical, ordered as needed. Example: Decorative
office items.
This classification helps businesses optimize stock availability and
budgeting.
10. FSN Analysis (Fast, Slow, Non-Moving)
FSN analysis categorizes inventory based on
movement speed:
Fast-moving items: Frequently used or sold,
requiring continuous replenishment. Example:
Groceries in supermarkets.
Slow-moving items: Used occasionally,
needing careful stock management. Example:
Spare parts for machinery.
Non-moving items: Rarely used or obsolete
stock that may require liquidation or disposal.
Example: Outdated electronic devices.
11. XYZ Analysis:
 XYZ analysis categorizes inventory based on demand
variability to ensure efficient inventory control.
 X (Stable Demand): Items with predictable and
consistent demand (e.g., basic groceries like rice).
 Y (Moderate/Fluctuating Demand): Items with seasonal
or trend-based variations (e.g., winter clothing).
 Z (Erratic Demand): Items with highly unpredictable
demand (e.g., emergency medical supplies).
[Link] Analysis:
HML analysis classifies inventory based on cost per unit to
manage procurement and budgeting effectively.
 H (High Cost): Expensive items that require careful control
(e.g., machinery parts).
 M (Medium Cost): Moderately priced items with regular
usage (e.g., office equipment).
 L (Low Cost): Low-cost items that are frequently used (e.g.,
stationery).
[Link] INVENTORY SYSTEMS:
A perpetual inventory system is a method of
tracking inventory where changes to inventory
are recorded continuously in real-time.
This means that every time a product is
bought, sold, or moved, the inventory records
are immediately updated.
Example:
A supermarket using barcode scanners at
checkout instantly updates stock levels in its
system, ensuring real-time inventory tracking
without needing frequent manual stock counts.
 ESSENTIALS OF A GOOD INVENTORY
CONTROL SYSTEM
Prioritize the inventory
Track all the product information
Inventory Auditing
Analyze supplier performance
Practice 80/20 rule – Pareto Principle
Ensure consistency in receiving the stock
Track sales
Invest in inventory management technology
Use technology that integrates well
1. Prioritize the Inventory
Classify inventory based on importance using methods like ABC
Analysis or VED Analysis to allocate resources efficiently and
ensure critical items are always available.
2. Track All Product Information
Maintain accurate records of SKU codes, descriptions, prices,
suppliers, and lead times for better decision-making and inventory
forecasting.
3. Inventory Auditing
Conduct regular cycle counts or periodic physical verification to
identify discrepancies between actual and recorded stock, reducing
errors and theft.
4. Analyze Supplier Performance
Monitor vendor reliability, delivery times, and quality of goods
received to select the best suppliers and minimize stock disruptions.
5. Practice the 80/20 Rule – Pareto Principle
Recognize that 20% of inventory contributes to 80% of sales,
focusing on managing high-value and fast-moving products
efficiently.
6. Ensure Consistency in Receiving the Stock
Implement standardized processes for checking shipments
upon arrival to avoid mismatches, damages, or errors in
inventory records.
7. Track Sales
Monitor sales trends to adjust stock levels, avoid
overstocking or stockouts, and ensure a smooth supply
chain.
8. Invest in Inventory Management Technology
Use ERP systems, barcoding, RFID, or cloud-based
inventory software to streamline operations, reduce
errors, and enhance tracking.
9. Use Technology That Integrates Well
Ensure that inventory systems integrate seamlessly with
POS systems, accounting software, and supplier
portals for real-time updates and better coordination.
 VALUE ANALYSIS
Value Analysis is an organised approach aimed to
identify and reduce unnecessary costs from the system
without affecting the utility guarantee and safety
performance of the product .It also aims at increasing
the product function.
Value Analysis exercises use a plan which step-by-step,
methodically evaluates the product in a range of areas.
These include costs, function, alternative components and
design aspects such as ease of manufacture and assembly.
 VALUE ANALYSIS
Phase 1 Information Phase

Phase 2 Functional Analysis

Phase 3 Creative Phase

Phase 4 Evaluation of Alternatives

Phase 5 Development Phase

Phase 6 Implementation Phase

1. Information Phase
In this phase, relevant data about the product, process, or system is
gathered. It includes understanding customer needs, costs, performance
expectations, and identifying areas of improvement.
2. Functional Analysis
This phase involves identifying and classifying the essential and non-
essential functions of the product or process. It helps in differentiating
between value-adding and non-value-adding components.
3. Creative Phase
A brainstorming phase where multiple alternatives and innovative ideas are
generated to improve the product or process while maintaining its core
functionality.
4. Evaluation of Alternatives
The generated ideas are analyzed based on feasibility, cost-effectiveness,
and impact on performance. The best possible alternatives are shortlisted
for further development.
5. Development Phase
The selected alternatives are further refined into practical solutions,
including detailed designs, cost estimates, and implementation strategies
to ensure they meet the functional requirements.
6. Implementation Phase
The final phase involves executing the proposed changes, monitoring their
effectiveness, and making necessary adjustments to optimize value.
 VALUE ENGINEERING
Value Engineering is concerned with new
products. It is applied during product
development.
The focus is on reducing costs, improving
function or both, by way of teamwork based
product evaluation and analysis.
This takes place before any capital is invested
in tooling, plant or equipment.
 ERGONOMICS
Ergonomics is the science of designing and
arranging workplaces, products and systems
to fit the people who use them . The goal is to
enhance comfort, safety and efficiency by
considering human physical and cognitive
capabilities and limitations
This involves adapting the work environment-
such as furniture, tools, equipment and tasks –
to reduce strain, prevent injuries and improve
overall well being
 BENEFITS OF ERGONOMICS
Reduced risk of Injury
Reduced fatigue
Improved productivity
Increased comfort
High morale
Enhanced employee satisfaction
Reduced healthcare costs
Improved quality of work
Enhanced employee retention
 CONCEPT OF WAREHOUSE AND
WAREHOUSING
WAREHOUSE:
Warehouses are the godowns for keeping and
storing goods and providing other related
services in order to keep traders or
manufacturers to preserve goods in a scientific
and systematic manner so as to maintain their
original value, quality and usefulness.
The goods stored may be raw materials,
components, in processes, finished goods,
maintenance, repairing and operating supplies
or any other items used or sold of a firm
 WAREHOUSING
Warehousing refers to the process of storing
goods, materials or products in a designated
facility called a warehouse. It is an essential
component of the supply chain that involves
the management if inventory, ensuring
products are safely stored, properly organized
and easily accessible for distribution when
needed.
TYPES OF WAREHOUSES

On the basis of ownership

Private Warehouse

Public warehouse
1. Based on Ownership
a) Private Warehouse
A private warehouse is owned and operated by individuals,
manufacturers, or businesses for their exclusive storage
needs. These warehouses are primarily used to store raw
materials, finished goods, or inventory required for
production or sales. For example, Amazon and Walmart have
their own private warehouses to efficiently manage their
inventory and ensure timely deliveries.
b) Public Warehouse
A public warehouse is open to multiple businesses and
individuals on a rental basis. These warehouses are usually
managed by government or private entities to provide
storage facilities to companies that do not have their own
warehousing infrastructure. A well-known example of a
public warehouse is the Central Warehousing Corporation
(CWC) in India, which offers storage facilities to businesses
across various industries.
2. Based on Services Provided
a) Bonded Warehouse
A bonded warehouse is a storage facility where imported goods are kept
before customs duties are paid. These warehouses operate under the
supervision of customs authorities, ensuring that goods remain in storage
until all import-related taxes and documentation are completed. For
instance, bonded warehouses at seaports hold international shipments until
customs clearance is granted.
b) Field Warehouse
A field warehouse is strategically located near production sites or consumption
centers to facilitate quicker distribution and minimize transportation costs.
These warehouses help manufacturers ensure that their products are readily
available for immediate use or sale. For example, warehouses near
automobile manufacturing plants store spare parts to enable smooth
assembly operations.
c) Cold Storage Warehouse
A cold storage warehouse is designed to store perishable goods such as food,
pharmaceuticals, and chemicals at controlled temperatures to prevent
spoilage and extend their shelf life. This type of warehouse is crucial for
industries dealing with dairy products, frozen foods, and vaccines. For
instance, a cold storage warehouse used by a dairy company ensures that
milk and cheese remain fresh before reaching retailers.
d) Distribution Warehouse
A distribution warehouse serves as a hub for receiving, sorting, and
dispatching goods to retailers or directly to customers. These
warehouses help businesses manage inventory efficiently and ensure
fast order fulfillment. An example of a distribution warehouse is
Flipkart’s fulfillment centers, which process and ship online orders to
customers across different regions.
e) Buffer Storage Warehouse
A buffer storage warehouse is used to hold stock in order to manage
fluctuations in supply and demand. These warehouses are particularly
useful for storing seasonal goods or commodities that experience
varying demand patterns. For example, government agencies
maintain buffer stock of food grains in such warehouses to stabilize
market prices and prevent shortages during times of crisis.
f) Export and Import Warehouses
An export and import warehouse is used to store goods that are meant
for international trade. These warehouses play a crucial role in
handling bulk shipments and ensuring compliance with trade
regulations. For example, warehouses located at international airports
store electronic goods awaiting export and import processing before
being transported to their final destinations.
 FUNCTIONS OF WAREHOUSE
ECONOMIC FUNCTIONS:
1. Consolidation
Consolidation involves combining small shipments from
multiple suppliers into a single large shipment, reducing
transportation costs and improving efficiency.
2. Break Bulk
Break bulk is the process of splitting large shipments into
smaller quantities for regional distribution.
3. Stock Piling
Stock piling ensures the storage of goods to meet future
demand, especially for seasonal or high-demand products.
4. Value-Added Services
Warehouses provide additional services like packaging,
labeling, and assembly to improve efficiency and product
presentation.
 FUNCTIONS OF WAREHOUSE
OPERATIONAL FUNCTIONS
Receiving of goods
Proper handling of goods
Storing of goods at an appropriate place and in the
minimum area
Protecting and preserving the physical attributes of the
products
Up to date recording of goods
Order receiving, processing and filing
Marshalling of goods
Dispatching the goods
 OBJECTIVES OF WAREHOUSE
Primary Objective:
Deployment of marketable goods
To meet consumption requirement
Secondary Objective:
Speculative purpose
Production against anticipated supply
Other Objectives:
Reduce the transportation activities and
production costs
Assist the production department in providing
goods
Assist the marketing department in providing
 Deployment of Marketable Goods
Warehousing ensures that goods are stored in a systematic manner and made
available for sale at the right time. This helps businesses maintain a steady inventory
to meet market demands efficiently.
 To Meet Consumption Requirements
Warehouses store products in bulk to ensure uninterrupted availability for consumers.
This prevents shortages and ensures that essential goods reach customers when
needed.
 Speculative Purpose
Businesses use warehouses to store goods when prices are low and sell them later at
higher prices. This helps in maximizing profits by taking advantage of price
fluctuations in the market.
 Production Against Anticipated Supply
Manufacturers produce goods in advance based on expected demand and store them
in warehouses. This ensures a smooth supply chain, especially for seasonal or high-
demand products.
 Reduce Transportation Activities and Production Costs
Warehousing minimizes the need for frequent transportation by storing goods closer
to demand centers. This leads to cost savings in logistics and helps streamline
production by maintaining an adequate stock of materials.
 Assist the Production Department in Providing Goods
Warehouses ensure the availability of raw materials required for manufacturing. This
helps in avoiding production delays and maintaining operational efficiency.
 Assist the Marketing Department in Providing Goods
By keeping finished goods readily available, warehouses help marketing teams fulfill
customer orders promptly. This improves customer satisfaction and enhances brand
reputation by ensuring timely delivery.
WAREHOUSE FACILITY LOCATION
Number of geographical locations of the
market targeted by the firm
Location of the production centres
Transportation infrastructure facilities
Nature, quality and quantity of goods
Availability of financial resources
Flexibility of expansion
Labour availability
Possibility of change in the use of warehouse
facility
Climate and environmental factors
 Number of Geographical Locations of the Market Targeted by
the Firm
The warehouse should be located based on the number and spread of
market regions served by the company. A centralized location can
optimize distribution, while multiple warehouses may be required for
widespread markets.
 Location of the Production Centers
Proximity to production centers reduces transportation costs and
ensures a steady supply of goods. A warehouse near manufacturing
units helps in quicker storage and dispatch of finished products.
 Transportation Infrastructure Facilities
Availability of roads, railways, ports, and airports influences warehouse
location. Efficient transportation networks help in reducing delivery
time and logistical costs.
 Nature, Quality, and Quantity of Goods
The type of goods stored determines warehouse requirements, such as
temperature control, security, and storage capacity. Perishable or
fragile goods require specialized facilities, impacting location choice.
 Availability of Financial Resources
Setting up and maintaining a warehouse depends on the financial
resources available. The location should be cost-effective, considering
land prices, construction costs, and operational expenses.
 Flexibility of Expansion
A warehouse should be located in an area with scope for
expansion based on future business growth. This ensures
scalability without the need for frequent relocation.
 Labour Availability
Warehouses require skilled and unskilled labor for operations
like loading, unloading, and inventory management.
Availability of workforce at reasonable wages is a key factor in
site selection.
 Possibility of Change in the Use of Warehouse Facility
The warehouse location should allow for modifications based
on changing business needs. It should be adaptable to
different types of storage or distribution functions over time.
 Climate and Environmental Factors
Warehouses should be located in areas with favorable climatic
conditions to prevent damage to goods. Environmental
regulations, natural disaster risks, and sustainability concerns
also influence site selection.
 STANDARDIZATION
Standardization means producing maximum variety of
products from the minimum variety of materials, parts,
tools and processes.
It is the process of defining standards or measurement
units that allow for the comparison and evaluation of
aspects such as extent, quality, quantity, value, and
performance.
Mass production techniques of industrial production are
based on the principle of uniformity and interchangeability
of many parts, components and material used in the
production process.
 Standard products can be manufactured on a mass scale
and their production cost can be kept minimum.
Standardization leads to cheaper and easier procurement
and cost of replacement can also be reduced.
 CODIFICATION
Codification in logistics refers to the process of
creating and assigning standardized codes or
identifiers to items, products, materials, shipments,
or any other elements within the supply chain. This
system helps to organize, track, and manage
inventory, shipments, and operations more
efficiently.
TYPES OF CODIFICATION
 Alphabetic method- A,B,C,D
 Mnemonic method- BE, AP,
 Numerical method- 1,2,3,4
 Decimal method- 1.2,1.3,1.4
 Alpha- Numeric method- D1,C4,S7
 SIMPLIFICATION
The concept of simplification is closely related
to standardization.
Simplification is the process of reducing the
variety of products manufactured (known as
variety reduction).
 Simplification is concerned with the reduction
of product range, assemblies, parts materials
and design
 Simplification makes a product, assembly or
design, simpler, less complex or less difficult
 PACKAGING
Packaging refers to the process of designing,
creating, and using materials to encase,
protect, and contain products for storage,
handling, distribution, and sale. It involves
selecting the appropriate materials and
methods to ensure that goods are safely and
efficiently transported, stored, and presented
to consumers. Packaging plays a crucial role in
logistics, marketing, and overall product
management.
 PACKAGING
Functions of Packaging
Protection
Containment
Preservation
Convenience
Branding and Marketing
Tamper Evidence
Sustainability
Facilitation of Distribution
FACTORS AFFECTING
TRANSPORTATION
Nature of goods
Access to carriers
Price
Transit time
Security of goods
Government regulations
Demand from the customer
Safety
Factors Affecting Transportation
 Nature of Goods
The type of goods being transported influences the choice of transportation mode. Perishable,
fragile, or hazardous goods require specialized handling, storage, and faster transit options.
 Access to Carriers
The availability of transport carriers such as trucks, trains, ships, or airplanes affects the
efficiency of goods movement. Limited access can lead to higher costs and delays in delivery.
 Price
The cost of transportation depends on factors like distance, fuel prices, mode of transport, and
service providers. Businesses aim to choose cost-effective transportation methods to optimize
supply chain expenses.
 Transit Time
The time required to transport goods from the source to the destination impacts supply chain
efficiency. Faster transit is crucial for time-sensitive goods, whereas bulk shipments may
tolerate longer transit times.
 Security of Goods
Ensuring goods remain undamaged and secure during transit is a key factor. Theft, damage,
or spoilage can lead to financial losses, requiring proper packaging, tracking systems, and
insurance.
 Government Regulations
Transportation is subject to regulations related to safety standards, emissions, tariffs, and
trade policies. Compliance with legal requirements is necessary to avoid fines and disruptions.
 Demand from the Customer
Customer expectations for faster and reliable deliveries influence transportation choices. E-
commerce and retail industries, in particular, require efficient logistics to meet consumer
demand.
 Safety
Safety measures, such as proper vehicle maintenance, driver training, and adherence to road
and transport laws, ensure smooth and risk-free transportation. Accidents or hazards can
result in delays and financial losses.