Logistics Management
Dr. Akshay Joshi
Introduction
Logistics is one of the most important segment of Supply
Chain Operations & Marketing in business.
In business a trader gets order for supply of goods or services
through marketing activities & to execute the orders the
supplier company prepares logistics.
Procures the product or services, puts labels on them or give
some identification trademark name, makes necessary
packing & packaging to prevent any damage during loading,
unloading, handling, transportation etc. till it is supplied to
the end customer.
Definition
Logistics derived from ‘Loger’: means art of war
pertaining to movement & supplies of armies.
Logistics = Inbound logistics + Materials
Management + Physical Distribution/Outbound
Logistics
1. Inbound logistics means movement of materials
received from suppliers.
2. Materials Management means the movement of
materials & components inside a firm.
3. Physical distribution refers to movement of goods
outwards from the end of assembly line to customer.
Definition
“ Logistics is the process of planning, implementing and
controlling the efficient, effective flow & storage of goods,
services & related information from the point of origin to
the point of consumption for the purpose of conforming
the customer requirement”.
- Council of Logistics
Management
Logistics management includes the design & administration
of systems to control the flow of material, work in process, &
finished inventory to support business unit strategy.
Concepts
Logistics is that part of supply chain process that plans, implements &
controls the effective forward and reverse flow and storage of goods,
services, & related information between the point of origin and the point
of consumption, in order to meet the customer’s requirements.
Logistics Activities:
1.Customer Service.
2. Demand forecasting.
3. Distribution communication.
4. Inventory Control.
5. Material Handling.
6. Order processing.
7. Part & Service support.
8. Plant & warehouse site selection.
9. Procurement.
10. Packaging
11. Return goods handling.
12. Salvage & scrap disposal.
13. Traffic & Transportation.
14. Warehousing & storage.
Logistics is concerned with getting products & services whenever they are
needed whenever they are required.
Operational Objectives
1. Rapid Response:
Concerned with a firm’s ability to satisfy customer service
requirements in a timely manner.
Information technology has increased the capability to postpone
logistical operations to the latest possible time & then
accomplish rapid delivery of required inventory.
The result is elimination of excessive inventories traditionally
stocked in anticipation of customer requirements.
Rapid response capabilities shifts operational emphasis from an
anticipatory posture based on forecasting & inventory stocking
to responding to customer requirements on a shipment to
shipment basis.
2. Minimum Variance:
Variance is an unexpected event that disrupts performance of
the system.
Delays in expected time of customer order receipt, an
unexpected disruption in manufacturing, goods arriving
damaged at a customer’s location, or delivery to an incorrect
location.
Potential reduction in variance relates to both internal &
external operations.
Operating areas of a logistical system are subject to potential
variance.
The traditional solution to accommodate variance was to
establish safety stock inventory or use high cost premium
transportation.
As variance are minimized, logistical productivity improves
as a result of economical operations.
3. Minimum Inventory:
The aim of minimum variance involves assets, commitment
& relative turn velocity.
Total commitment is the financial value of inventory usage
over a period of time.
Turn velocity involves the rate of inventory usage over a
period of time.
High turn rates, coupled with inventory availability, means
that assets devoted to inventory are being utilized effectively.
The aim is to reduce inventory deployment to the least level
consistent with customer service goals to achieve the least
overall total logistics cost.
Inventories can provided improved return on investment
when they result in economies of scale in manufacturing or
procurement.
4. Consolidated Movement:
The most important logistical costs is transportation.
Transportation cost is directly proportional to the type of
product, size of shipment, & distance.
Logistical systems that feature premium service depend on
high speed, small shipment transportation.
Premium transportation is high cost.
To decrease transportation cost it is desirable to achieve
movement consolidation.
The larger the overall shipment & the longer the distance it is
transported, the lower is the transportation cost per unit.
To achieve this, it requires innovative programmes to group
small shipments for consolidate movement.
5.Improvement in Quality:
Continuous improvement in quality is a logistical aim. TQM
has become a major commitment in all departments of the
industry.
In case a product becomes defective or if services promises are
not kept, value is added by the logistics.
Logistical costs, once increased, cannot be reversed.
When quality fails, the logistical performance typically needs
to be reverse & then repeated.
Logistics itself must perform to the required quality standards.
Zero defect logistical performance is achieved by logistical
operations performed across a wide geographical area at all
times of the day & night
Reworking a customer’s order due to incorrect shipment or
due to in- transit damage is more costly than performing it
right the 1st time.
Logistics is a main part of developing & maintaining
continuous TQM improvement.
6. Life – cycle support:
Life cycle support is the final logistical aim. Very few items are
sold without some guarantee that the product will perform as
advertised.
The normal value added inventory flow toward customers must
be reversed.
Product recall is an important competency results from
increasing rigid quality standards, product expiration dating &
responsibility for hazardous consequences.
Return logistics requirement also result from increasing number
of laws prohibiting disposal & encouraging recycling of beverage
containers & packaging materials.
The most important aspect of reverse logistical operations is
the need for maximum control when a potential health
liability exists.
A recall programme is similar to a strategy of maximum
customer service that must be executed regardless of cost.
A sound logistical strategy cannot be formulated without
careful review of reverse logistical requirements.
Work of Logistics
Work of Logistics involves five areas:
1. Order Processing.
2. Inventory.
3. Transportation.
4. Warehousing, Material Handling, Packaging.
5. Facility Network.
Logistical Operations:
Logistical operations include two interrelated flows:
Inventory & Information
Inventory Flow:
The logistical operations management is concerned with
movement & storage of inventory in the form of materials;
work-in-process, & finished products.
These operations start with initial shipment of a material or
component part from a supplier & are finalized when a
manufactured or processed product is delivered to a customer.
From the initial purchase of material or component, the
logistical process adds value by moving inventory when & where
needed.
To support manufacturing, work-in –process inventory must be
properly positioned. The cost of each component & its
movement becomes part of the value-added processes.
Logistical operations can be divided into three areas:
Customer Accommodation: Activities related to providing
customer service.
Requires performing order receipt & processing, deploying
inventories, storage & handling, & outbound transportation
within a supply chain.
Includes the responsibility to coordinate with marketing
planning in areas such as pricing, promotion, customer service
levels, credit delivery standards, handling return merchandise &
life cycle support, primary market distribution objective is to
assist in revenue generation by providing strategically desired
customer service delivery levels at the lowest total cost.
Manufacturing Support: Activates related to planning,
scheduling, & supporting manufacturing operations.
Requires master schedule planning & performing work-in-
process storage, handling, transportation & sortation, kilting,
sequencing & time phasing of components.
Includes the responsibility for storage of inventory at
manufacturing sites & maximum flexibility in the coordination
of geographic & assembly postponement between
manufacturing & customer accommodation operations.
• Procurement: Activities related to obtaining products &
materials from outside suppliers.
• Requires performing resource planning, supply sourcing,
negotiation, order placement, inbound transportation, receiving
& inspection, storage & handling & quality assurance.
• Includes the responsibility to coordinate with suppliers in such
areas as scheduling, supply continuity, hedging & speculation, as
well as research leading to new sources or programs.
• The primary procurement objectives is to support
manufacturing or resale organizations by providing timely
purchasing at the lowest total cost.
RELATIONSHIPSHIP OF LOGISTICS TO
MARKETING & PRODUCTION
KEY OPERATIONS ACTIVITES:
• Quality Control.
• Detailed production scheduling.
• Equipment maintenance.
• Capacity planning.
• Work measurement & standards.
KEY LOGISTICS ACTIVITIES:
Transport
Inventory
Order Processing.
Materials handling.
PRODUCTION-LOGISTICS INTERFACE:
Product scheduling.
Plant location.
Purchasing .
MARKETING ACTIVITIES:
• Promotion
• Market research
• Product mix
• Sales force management.
MARKETING – LOGISTICS INTERFACE:
Customer Service standards.
Pricing
Packaging
Retail location
The production logistics interface & marketing logistics
interface constitute the Internal Supply Chain.
Logistics is a link between the manufacturing & selling
process that leads to the creation of place & time
utility.
Four Logistics concepts
The systems concept:
Based on all functions of organization working together to
maximize benefits.
This concept sometimes requires certain components of the
organization to operate sub-optimally in order to achieve
maximum goals of the system.
The total cost concept:
The total cost concept is based on the system concept;
goal achievement is measured in terms of cost.
The after tax concept:
A variation of the total cost concept is the after tax
concept.
The goal of this concept is after tax profit.
The trade off concept:
The trade off concept links the system together in a way
that is very efficient, but can have trade offs that might be
inefficient.
The advantage of such efficiency of such high efficiency
must be weighed against risk involved.
