CHAPTER 3
The Role of Logistics in Supply Chains
What is Logistics?
Logistics is the part of the supply chain that figures out the best
way to move things from where they start to where they're
needed, making sure it's done well and on time to satisfy
customers.
- The 4 Major Subdivisions
1)Business logistics: Includes making sure products/services get to
where they are needed to keep customers happy.
2)Military Logistics: Figuring out how to best support soldiers and
their gear so that they are ready to go.
3)Event Logistics: Planning how to set up and take down
everything needed for events.
4)Service Logistics: Managing things like staff and supplies to keep
services running smoothly.
Value Added Roles of Logistics
Refers to how logistics contribute to the value of
product/services within a supply chain.
- Five Principal Types of Economic Utility
(different ways product/services can add value to the
customer)
1) Form Utility: Making products into what customers need
or want.
2) Place Utility: Putting products where customers can easily
get them.
3) Time Utility: Having products available when customers
want them.
4) Possession Utility: Making it easy for customers to buy
and own products.
5) Quantity Utility: Involves delivering products on time and
in the right quantity.
***generally manufacturing activities are credited with Form Utility.
***Logistics are credited with place, time and quantity utility.
***Marketing activities are credited with possession utility.
- Key Logistics activities (12)
1) Transportation
2) Storage
3) Industrial Packaging
4) Materials handling
5) Inventory Control
6) Order Fulfilment
7) Demand Forecasting
8) Production planning & scheduling
9) Procurement
10) Customer service
11) Plant & warehouse site location
12) Others*
Macro Perspective on Logistics
(the focus is on Total logistics Costs)
- logistics in the economy: a Macro perspective
*As the economy grows (higher GDP), total logistics costs
also increase.
*Reduction in total logistics cost is because of improvements
in overall logistics operations.
*Major categories of Logistics costs include:
~warehousing and inventory costs (largest costs)
~transportation costs
~administrative and shipper related costs
*Factors contributing to the decline of these costs relative to
GDP can be attributed to:
~transportation deregulation, improved inventory
management, and a focus on cash flow.
Micro Perspective on Logistics
(the focus is on the factors that affect the cost and
importance of logistics)
- Logistics in the firm: a Micro perspective
*Logistics interfaces (4)
~Manufacturing:
Logistics plays a crucial role in manufacturing by managing the transportation of
raw materials to production facilities and the distribution of finished goods to
customers. Shorter order cycles facilitated by efficient logistics can lead to
reduced inventory levels, benefiting manufacturing operations by minimizing
storage costs and improving cash flow.
~Marketing (the 4 P’s)
Logistics intersects with marketing through the "place" component of the
marketing mix. By ensuring products are available in desired locations, logistics
supports marketing efforts to reach target customers effectively. Additionally,
logistics contributes to customer service, which is an important aspect of
competition alongside product, price, and promotion (the other three Ps). Timely
and reliable delivery enhances customer satisfaction and supports marketing
objectives.
~Finance
Logistics affects a company's costs and profits. Effective logistics management
can save money by making transportation and storage more efficient. For
example, reducing order cycle times and inventory levels can lower carrying
costs, positively impacting financial performance.
~Accounting
costs also need to be carefully managed and recorded to understand how they
affect the company's overall financial health.
*Factors Affecting Cost & Importance of Logistics (how
do these factors affect cost)
1) Competitive relationships
2) Order cycle length
3) Substitutability
4) Inventory effect
5) Transportation effect
6) Product related factors
7) Spatial relationships
Logistics and Systems Analysis
- Short Run Analysis
Concentrates on a specific point in time or level of production
output.
- Long Run Analysis
Examines a logistics system over a long period of time.
- Approaches to Analysing Logistics Systems
~Materials Management vs Physical Distribution:
Logistics can be divided into managing raw materials and
distributing finished goods. The requirements for each are
different, but coordination between them is crucial.
~Cost Centers: Logistics activities like transportation,
warehousing, and inventory can be viewed as separate cost
centers. Analyzing trade-offs between these centers helps
find the most cost-effective logistics system.
~Nodes vs Links: (nodes) like warehouses and the
transportation connections (links) between them. The
complexity of a logistics system depends on the number and
connections of these nodes and links.
~Logistics Channels: This approach looks at the network of
organizations involved in moving goods efficiently. Channels
can vary from simple, direct relationships between producers
and customers to complex networks involving multiple
warehouses and retailers.
